Notes from Dr. Borkosky

Again, organization sizing: Commercial aftermarket declines of approximately 70% to 80%; commercial OE declines of 25% to 40%; and defense growth in the mid-single digits, which is in line with our prior guidance for the defense end market. We believe we are about as well positioned as we can be for right now.

We provided enough detail so that you guys can hopefully read through it and then do the computation however you want. As Nick said, once we have a better picture, we'll reinstitute guidance.

Mike was most recently Vice President of the TransDigm Mergers and Acquisitions team. Most of our EBITDA comes from aftermarket revenues, which typically have significantly higher margins and, over any extended period of time, provide relative stability in the downturn. I don't think you mean proprietary and sole source. It sounds like you have a process to stay there but just with a high degree of uncertainty relative to everything going. We're looking for proprietary stuff with a fair amount of aftermarket. Either Nick or Kevin, maybe just back on the OE, the down 25 to 40. I don't want to speculate on that. We are under the assumption that the demand for our commercial OEM products will be significantly reduced during the second half of fiscal 2020 due to reductions in OEM production rates and airlines deferring or canceling new aircraft orders. You could put Esterline completely in. Thank you. I don't think you can separate them. Okay. But that's the way we're looking at it right now. If you are interested in www.streetinsider.com content, APIs are available. How do you think working capital moves, just thinking receivables, payables and inventory levels? And then, Nick, obviously, every quarter you come out, you talk about the beauty of the model, sole source proprietary, the two biggest moats, and realize the beauty is how to complement each other. That's defined in our credit agreements. And so is that more just the Esterline mix or sales dynamic maybe a little bit lower than the legacy TransDigm activity? We'll just have to see. There was a rapid and dramatic decline in demand for air travel during our Q2 as global restrictions on business and shelter-in-place orders went into effect in response to COVID-19. In Q2, we saw a modest unfavorable impact to our commercial aftermarket and OEM sales for the COVID-19 pandemic as approximately the last three weeks of the quarter were negatively impacted. That's what my assumption is, but we'll have to see. Robert Stallard -- Vertical Research -- Analyst. And then just a real quick follow-up. Or just how should we think about that? Maybe up a little, maybe down a little.

Our AmSafe Restraints business is producing respirators and surgical gowns, while Mason is producing face shields. How do we think about that mix impact given commercial is generating 70% of your EBITDA?

As far as Esterline performance goes, much like first quarter, Esterline performed very well in across the board, really. That makes sense. The after-tax rates look better due to the interest deduction limit expansion included in the CARES Act. It's not 75%. Kevin and Mike will then expand on most of these. Now one month does not six months make, so we'll have to keep a close eye on it.

Right now, we're trying to size the business for the next six-month period so that we can attack it and be ready. Are you assuming that this 70% to 80% is in excess of the underlying global capacity decline?

But in terms of the kind of exposure that you have to use serviceable material. To remind everyone, these costs are in addition to the cost cuts we made earlier in the second quarter. So that's why you're not getting 35% margins because of the mix headwind. Your next question comes from Michael Ciarmoli of SunTrust. Total commercial aftermarket revenues grew by approximately 1% over the prior year quarter. But I don't know. Nick, on the effort to hold the EBITDA As Defined Margin somewhere in the zone of where you had it in the first half, understanding that it's a difficult task with how quickly things are moving but you have tried to match the cost to the revenue, in hearing you talk about that proving harder than prior downturns, do you foresee a scenario where your EBITDA margin gets a 3-handle on it in any of the next four quarters? I don't know if it will morph into that today. We monitor these costs closely, and as such, let me highlight some specific cost savings actions we have taken in response to the reduced demand and uncertainty resulting from the COVID-19 pandemic. Is the cost structure there any different? In other words, a little will be incremental fall through the profit or something. We've looked at buying parts out of the used and serviceable market, and we've not seen that there's much available out there or much we can do to impact that market.

The cost out there and thinking about the aftermarket, and presumably a year from now, we'll have more flying, do you envision that the cost actions you've taken I mean, do you view these as permanent reductions as the after and I would think it's going to be a couple of years for aftermarket revenues to get back to 2019 levels? Pro forma for the new debt, our cash balance is $4.2 billion as of 3/28/20. Our long-standing goal is to give our shareholders private equity-like returns with the liquidity of a public market. This has happened during other severe shocks. I think you guys probably saw, the SEC requires some quarterly test for companies like us. TransDigm Group Incorporated, through its wholly-owned subsidiaries, is a leading global designer, producer and supplier of highly engineered aircraft components for use on nearly all commercial and military aircraft in service today. Hey, good morning guys. On taxes, our fiscal 2020 GAAP cash and adjusted tax rates will be three to eight percentage points lower than the previous guidance due to benefits included in the Cares Act, primarily the expansion in the interest deduction limitation from 30% of EBITDA to 50% of EBITDA.Moving over to the balance sheet and liquidity. Okay.

[Operator Instructions] Your first question comes the line of Carter Copefield Copeland of Melius Research. Revenues and EBITDA As Defined were up substantially, and we continue to generate real intrinsic value for our investors. So let me conclude by stating I am pleased with the speed at which TransDigm has responded to the COVID-19 pandemic, taking immediate actions to protect employees from the spread of the virus while also dealing with the harsh reality confronting the broader commercial aerospace industry in the near term. That's what we've always said about our aftermarket. That is assuming we own the same mix of businesses in both periods. We quickly reduced our cost structure in line with these assumptions. But yes, 75%, 70% to 80% downturn in the aftermarket side is what we want. Now moving to second half 2020. So we analyzed this a couple years ago, and we found it hard to see any areas where USM was a real concern, a drag on revenue or growth.

I mean the only thing I'd add to that is I think it was clear, but in Kevin's sizing of 70% to 80% down in the commercial aftermarket, we're assuming that stays that way for six months, which we hope is a very conservative assumption. Your next question comes from the line of Ken Herbert of Canaccord. Q2 GAAP revenues were up approximately 24% versus prior year Q2, and EBITDA As Defined was up 19% versus the prior year, with margins approaching 47% of revenue. All right. Thanks guys. Kevin Stein, President and Chief Executive Officer of TransDigm Group Incorporated, stated, "Mike has a significant private equity background that fits well with our distinctive business strategy. As the COVID-19 situation is ongoing, the duration and severity of the pandemic are still unclear and long-term impacts for commercial aftermarket are hard to predict.

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