FTAI Aviation Ltd. Q2 FY2024 earnings call

• Announced the 37th dividend as a public company and 52nd consecutive dividend. Dividend of $0.30 per share to be paid on August 20.
• Adjusted EBITDA in Q2 2024 was $213.9 million, up 30% QoQ and 40% YoY.
• Leasing Segment: EBITDA of $125 million, sold $59 million book value of assets for a $13.5 million gain. Expected to generate $500 million in EBITDA in 2024, including $50 million in gains on asset sales.
• Aerospace Products Segment: EBITDA of $91.2 million, 37% margin. Raised 2024 EBITDA estimate from $250 million to $325 million to $350 million. Expect margins to trend towards 40% with growth in revenue and controlled expenses.
• 2024 aviation EBITDA expected to be between $825 million to $850 million. Reset 2026 EBITDA goal to $1.25 billion with $550 million from Leasing and $700 million from Aerospace Products.

In Q2 2024, adjusted EBITDA was $213.9 million. The Leasing Segment contributed $125 million, the Aerospace Products segment contributed $91.2 million, and Corporate and Other was negative $2.3 million. The Leasing Segment's pure leasing component was $112 million in Q2 2024 compared to $98 million in Q1 2024. The Aerospace Products segment had an EBITDA margin of 37%.

• 2024 adjusted EBITDA expected to be $825 million to $850 million.
• Aerospace Products segment 2024 EBITDA raised to $325 million to $350 million from $250 million.
• 2026 EBITDA goal reset to $1.25 billion, with $550 million from Leasing and $700 million from Aerospace Products.
• 2024 Leasing segment expected to generate $500 million EBITDA, including $50 million in asset sale gains, up from prior estimate of $475 million.

• Uncertainty associated with forward-looking statements, which may differ materially from actual results.
• Potential supply chain and material availability issues, though FTAI is positioned with inventory and planning processes to mitigate some impacts.

Q: Within Aerospace Products, you've historically mentioned that you target EBITDA margin of around 35%. The last couple of quarters, we've seen you surpass that target. It would be great if you could talk about where you see margins going from here, as you continue to grow and develop the business. Also, it would be great, if you could speak to how that margin path may differ between both the CFM56 and the V2500 engines?

A: Great. Thanks for the question. Yes. We are -- as I mentioned in the remarks, we are seeing margins trending up, and it's fairly basic. It's -- our revenues are going up and our expenses are either flat or down. And so, the revenue side is really demand based where, as you can realize, the equipment is in short supply. Turn times at maintenance shops are getting longer. So that means it puts a premium on having a pre-built engine or module available. So we can actually get higher -- slightly higher prices and still generate significant savings for the customers. At the same time, by controlling costs through our own facilities, we do that with controlling the labor cost and that we have more specialization in the facilities. We're basically running on engine and we're teaching people to do it in a high volume manner. So it's a learning curve process where you get better and better at it is you do it more and more frequently, so that's part of it. And we're also getting smarter about used serviceable material, forecasting the demand. Where is it going to be needed, when are we going to need it, getting our repairs done in advance. So we're using -- we're smarter and more efficient about using used materials. So it's really on both sides of the equation, revenue is up, expenses down that we see growing margins. We will also see increased savings when we close on Lockheed Martin. And so we do see the margins trending towards 40%, and we think that, that will continue to grow as we get better and more experience with that facility as well, and we generate more volume. So a pretty positive outlook for today and also for the near future for the coming years. I would say on your other question on Pratt versus CFM, we have said that the Pratt & Whitney V2500 deal will not be dilutive to margins, and I would continue to say that. We're seeing very good demand for those engines, extremely high. And we're also seeing good turnaround times on getting engines through the shop. So we continue to expect that, that will be the same or as good as or better than the CFM side.

Q: Within Aerospace Products, you've historically mentioned that you target EBITDA margin of around 35%. The last couple of quarters, we've seen you surpass that target. It would be great if you could talk about where you see margins going from here, as you continue to grow and develop the business. Also, it would be great, if you could speak to how that margin path may differ between both the CFM56 and the V2500 engines?

A: Great. Thanks for the question. Yes. We are -- as I mentioned in the remarks, we are seeing margins trending up, and it's fairly basic. It's -- our revenues are going up and our expenses are either flat or down. And so, the revenue side is really demand based where, as you can realize, the equipment is in short supply. Turn times at maintenance shops are getting longer. So that means it puts a premium on having a pre-built engine or module available. So we can actually get higher -- slightly higher prices and still generate significant savings for the customers. At the same time, by controlling costs through our own facilities, we do that with controlling the labor cost and that we have more specialization in the facilities. We're basically running on engine and we're teaching people to do it in a high volume manner. So it's a learning curve process where you get better and better at it is you do it more and more frequently, so that's part of it. And we're also getting smarter about used serviceable material, forecasting the demand. Where is it going to be needed, when are we going to need it, getting our repairs done in advance. So we're using -- we're smarter and more efficient about using used materials. So it's really on both sides of the equation, revenue is up, expenses down that we see growing margins. We will also see increased savings when we close on Lockheed Martin. And so we do see the margins trending towards 40%, and we think that, that will continue to grow as we get better and more experience with that facility as well, and we generate more volume. So a pretty positive outlook for today and also for the near future for the coming years. I would say on your other question on Pratt versus CFM, we have said that the Pratt & Whitney V2500 deal will not be dilutive to margins, and I would continue to say that. We're seeing very good demand for those engines, extremely high. And we're also seeing good turnaround times on getting engines through the shop. So we continue to expect that, that will be the same or as good as or better than the CFM side.