FTAI Aviation Ltd. Q1 FY2024 earnings call

• Announced the 36th dividend as a public company, 51st consecutive dividend. • Adjusted EBITDA in Q1 2024 was $164.1 million, up 1% from Q4 2023 and 29% from Q1 2023. • Leasing segment had ~$105 million EBITDA, expects meaningful growth in Q2, confident in $425 million EBITDA for the year excluding gains on asset sales. • Aerospace Products had $70.3 million EBITDA, 37% margin, sold 72 CFM56 modules and 6 V2500 engines in Q1, sees potential for ~$250 million EBITDA in 2024. • MRE model for engines provides cost savings and flexibility for airlines. • Executed perpetual power agreement with LATAM covering V2500 and CFM56 engines. • Progress on PMA parts, with good progress on next set of parts.

In Q1 2024, adjusted EBITDA was $164.1 million. The Leasing segment contributed $104.8 million (63.5% of total), with ~$105 million EBITDA for the quarter, where the pure leasing component was $98 million in Q1 vs $99 million in Q4 2023. The Aerospace Products segment had $70.3 million EBITDA (42.8% of total) with a 37% overall EBITDA margin. It sold 72 CFM56 modules and 6 V2500 engines in Q1. Corporate & Other was negative 11%.

• Leasing EBITDA expected to be $425 million for 2024 excluding gains on asset sales. • Aerospace Products expected to generate ~$250 million EBITDA in 2024, high end of previous range. • Annual aviation EBITDA expected ~$725 million excluding Corporate & Other.

• Uncertainties in forward-looking statements, which may differ materially from actual results.

Q: Yesterday, you announced the successful execution of a perpetual power agreement with LATAM Airlines. Can you provide more color on what this agreement entails? How meaningful is this contract?

A: David Moreno explained it's predominantly a V2500 maintenance, repair and exchange contract with a small sale leaseback component, expects ramp-up over 2-3 years.

Q: On the last or maybe October earnings call, you said you thought maybe 200 module swaps, not a precise number but ballpark for '24, but doing 72 in the first quarter. Any thoughts on that now?

A: Joseph Adams said they indicated between 250-300 module swaps for 2024, on track with first quarter, have strong backlog, ample capacity at maintenance facilities.

Q: With the addition of the V2500 here, can you just help us understand some of the relative savings maybe versus the GE56 for an airline?

A: Joseph Adams said shop visit cost for V2500 is higher than CFM56, but similar dollar savings can be achieved through various methods.

Q: Congrats on the continued outflows on the Products segment. What I was curious about asking was that -- we would obviously love to have an update about PMA. But with that being said, we've heard a lot of discussion recently about the industry pushing into PMA and increased demand for PMA from airlines. I'm curious if you agree with that. And why do you think that's happening?

A: Joseph Adams said they continue to make good progress on PMA parts, acceptance increasing due to focus on supply chain reliability and need for second source of parts.

Q: For David, I guess my understanding is with the V2500, you have a little bit less flexibility in how you execute the maintenance and operations of that type of engine. And just with high demand overall, can you just talk about some of the challenges you have in balancing the V2500 versus CFM56 and how you're managing that?

A: David Moreno said they're working on innovative ways to maintain V2500 engines, similar to CFM56 progress.

Q: A couple of my questions have already been answered. But I'm curious as well, when we think about the engine module side, you've got very good exposure. In U.S., you acquired that 50% stake in quick turn, I believe, a facility in Montreal. When you think about this high level, are there sort of any other geographic spots where you maybe think you can add your footprint?

A: Joseph Adams said Southeast Asia is a significant growth opportunity, planning to look at maintenance facilities there.

Q: Congrats on the great quarter. I wanted to ask about the Aerospace segment. Can you help us understand what the breakdown in the segment was between module swaps, USM sales and full engine sales or exchanges given the varying levels of differentiation and margins between those businesses?

A: Joseph Adams said they don't break out module swaps, USM sales, and full engine sales in that detail, as it's not relevant to business operation.

Q: Congrats on the quarter. Thanks for all the detail about cash flow and potential use of funds, et cetera, pay down debt. You did mention the dividend. I'm going to ask about the dividend. I mean, you're barely yielding more than the S&P 500 given the stock performance. Is there -- I mean, you mentioned maybe increasing the dividend later this year with the cash flow you're going to generate. Is there a rule of thumb you're thinking?

A: Joseph Adams said they focus on investments, strong BB rating, then may consider increased dividends or stock buyback.

Q: On the capacity question, you're really opportunistic when you added the Lockheed capacity, for example during COVID and the facility was being underutilized, and we were very opportunistic kind of locking that up long term. Are those kind of -- facilities aren't being underutilized now, right? There's backlogs everywhere. Are those kind of opportunities going to be available? Or is it going to be any -- is an expansion in capacity going to be more -- is it going to necessitate an acquisition or be capital intensive? Or are you going to be able to find capacity on an as-needed basis, do you think?

A: Joseph Adams said there's capacity available, still opportunities in maintenance side, though not as during COVID.