Grieve was retelling a story from a book he used to research the episode, in which the book's authors meet the family that runs the aerospace parts maker HEICO. He uses it to show the pricing power in certified aircraft parts: every component, down to a screw, has to pass years of regulatory approval, so there are very few competitors.
Well, you know, I don't think we should beat ourselves up too badly after all. There's only so much time in the day. And I guess, you know, if I'm being completely honest here, if I had to attempt to tell you what parts, you know, there are inside of an aircraft engine or how it works, my answer would approximately be, I haven't got a clue. So, you know, I just want to be upfront about that. If there's one thing that I've learned about investing over the years, it's that you don't necessarily have to be, you know, a PhD in the inner workings of a business just to understand if the business would make an actually good investment. So what you really need to know is whether that business can sell more and more products and services in the future. And I think that when it comes to aerospace components business, we can build a knowledge base to kind of understand whether these businesses will make more or less money in the future.
I certainly agree with you there. And all of that really comes down to one. thing. And if you want to sell parts that go on an aircraft, it's not easy to do. Every single part, including the screws or seatbelts, that has to go through very strict regulations and reviews. And the bodies that govern that, such as the FAA in the US, of course, they take that job very seriously because it's literally a life or death decision to allow a certain part or not onto an aircraft or to be put into an aircraft. And so I couldn't just order a bunch of screws from overseas and then start selling them to plane manufacturers as replacements because they're cheaper. I'd have to go through years of certification to ensure the safety and specifications of something as innocuous as literally just a screw.
That's right. But perhaps the best part about businesses like Transdyme and Heiko is kind of the pricing power that they have for these parts. So since this isn't really a commodities industry due to the heightened regulations, like you just pointed out, Sean, and since every single part is very, very specifically engineered to very specific specifications, these parts can be sold for prices that, to be honest, might sound completely mind-boggling. So while researching this episode, I used the book The Compounders, which I'd highly recommend, by the way, to learn more about Heiko. So in that book, they told a really, really good story about meeting the Mendelssohn brothers who run Heiko. Now, during this meeting, they were asked to guess the price of a small bag of screws used in the airline industry. So they knew the price would be high. So they guessed $10,000. Why not? The Mendelsons went on to tell them they were way off and the actual price was at $90,000. So I think this is just a really, really good story to show that a company clearly cannot sell a bag of screws for that kind of price if it has, you know, thousands and thousands of different competitors out there.
Getting to that point, I do think we should discuss the business models for both of these businesses. Daniel pitched Transdyme to me about a year ago. So I can maybe start us off there as we do the comparison. So Transdyme is a designer, producer, and supplier of highly engineered components that are essentially critical parts of commercial and also military aircraft. But what I think is probably most interesting about Transdym is actually their founder, a gentleman whose name is Nicholas Howley. And he no longer leads the business, but he still is the chairman of the board. And the gist of why he founded the business was that a large percentage of an aircraft's components were made by a single certified manufacturer like GE Aerospace. And that manufacturer would remain the sole legal source of those parts throughout the aircraft's entire lifecycle. So that sounds like a pretty good business model to be in, right? And that life cycle can last 30 years plus. So Howie recognized that if he could be a supplier of these parts, he would have a very long-lived asset and entrenchment into this industry since the parts would need to be continuously purchased throughout the aircraft's life cycle. And so instead of approaching this by trying to engineer the parts himself and going through these lengthy regulatory hurdles, he built a conglomerate around acquiring the suppliers that already had their toe dipped into this space.
Yeah. I mean, getting an annuity-like revenue stream from these businesses is just a great idea, right? So we really love businesses that we can forecast well into the future. And I think a business like Transdyme really gives you that. But it's worth noting that Transdyme specifically has three value drivers in which the company was built on. So in Howey's view, the only three things that can increase the intrinsic value of a company are to either decrease costs, increase prices, and win new business. That's pretty much the DNA that TransDigm: Whose built on. And I think Transdyme has done a great job on all three of those value drivers, which is why they've compounded revenue at 17% and EBITDA at 18% for over two decades.
I know Transdyme is very diligent about the acquisitions they make because they want to ensure that they are truly proprietary and the sole source before acquiring. And so Howie mentioned that many of the businesses that they're trying to acquire claim to be proprietary, but actually a lot of the time they weren't.