Q3 2019 Earnings Call
Thank you for standing by welcome to the fortress Transportation infrastructure third quarter earnings Conference call.
At this time, all participants are in listen only mode.
After the speakers presentation, there will be a question answer session.
Actually question done, especially when he to press star one or telephone.
Please be advised to today's conference is being recorded.
If you acquire any further assistance please press star zero.
I would now like turn the call over to your conference Speaker today Alan Andreini. Please go ahead Sir.
Thank you.
Thank you welcome all of you hear the fortress transportation infrastructure third quarter 2019 earnings call. Joining me here today or Joe Adams, Our Chief Executive Officer, It's got Christopher our Chief Financial Officer.
We have posted an investor presentation, and our press release on our website, which we encourage you to download if he had not already done. So also please note that this call is open to the public in listen only mode and is being webcast. In addition, we will be discussing some non-GAAP financial measures during the call today, including that.
Reconciliations of those measures did the most directly comparable GAAP measures can be found in the earnings supplement.
Before I turn the call Liberty, Joe I would like to point out that certain statements made today will be forward looking statements, including regarding future earnings. These statements by their nature or uncertain and may differ materially from actual results. We carried you to review the disclaimers in our press release.
Investor presentation regarding non-GAAP financial measures and forward looking statements and to review the risk factors contained in our quarterly report filed with the FTC now I would like to turn the call over to Joe.
Thank you Alan.
To start to call I'm pleased to announce or a change dividend as a public company and our 30 threerd consecutive dividend since inception.
The dividend of 33 cents per share will be paid on November 26 based on shareholder record date of November 15th.
The key metrics stress, our adjusted EBITDA, and fad or funds available for distribution.
Adjusted EBITDA for Q3, 29 chain was 114.1 million compared to Q2 of 29 chain of 94.1 million and Q3 of 28 chain of 58.8 million.
Fad was 120.7 million in Q3 versus 86.9 million in Q2 of 2019 and 44.7 million in Q3 of 2018.
During the third quarter, the 120.7 million Fad number.
Comprised of 185.7 million from our aviation leasing portfolio.
Minus 32.1 million from infrastructure, which includes a onetime revolver pay down of 23 million, which happened in this quarter.
And negative 32.9 million from corporate and other.
Now lets turn aviation in Q3 aviation hit on all cylinders.
Strong asset utilization drove record EBITDA, excluding gains of 89.7 million or 358.8 million annualized up from 324 million in Q2 [noise].
Second the sale of 21 engines and five aircraft with a book value was 57.7 million produce gains you have 37 million.
And thirdly are attractive new at investment pipeline will allow us to generate continued growth in Q4. This year, adding 2020 ahead.
Run rate EBITDA increased nearly 11% over Q2 2019 due to new investments that were made in Q2.
New leases in Q3 that came on and generally high utilization of engines.
Importantly, the assets that we sold this quarter were mostly either off lease or scheduled for overhaul. So the EBITDA contribution of those assets sold was less than $400000 per quarter.
In Q3, we closed 76 million of investments and expect over 200 million investments in Q4, bringing total new investments for all of 29 chain to over 500 million gross and 400 million net of disposals.
Profitability metrics exceeded our targets with EBITDA to invested capital of 28.7% and an ROI, we a 15.4%.
Next year 2020 promises to be a very exciting here for aviation.
We expected commercial launch of the first products from our advanced engine repair joint venture.
We have to got active discussions with many of the largest airlines in the world and believe our timing with the introduction of these proprietary cost saving engine repair products is perfect.
Now, let's turn to offshore the offshore marine industry, well still oversupplied generally continues just to show signs of recovery.
Offshore spending is expected to grow modestly over 2019, and 2020 and is anticipated to be an outsize contributor to upstream spending over the next several years.
As we've previously stated the pride is being converted from an inspection maintenance repair only vessel into a vessel that can perform well intervention and well enhancements services and the well intervention market is experiencing very high utilization and as such charter rates in 2020 are going up which is.
Good news for us.
Finally, our vessel fleet now is reduced to two from three as the third vessel experienced a total loss casualty event, which was fully covered by insurance, we receive $10 million in cash and booked a $1 billion gain.
The highlights of Jefferson's third quarter include one a 40% gross in third party crude volume compared to second quarter 2019, including barrels committed by a large Canadian producer.
Barrels will supply refineries in the U.S. Gulf Coast regional markets and also be loaded onto ships for export.
His first export shipment expands jefferson's crude reach globally, and we'll open the door for additional opportunities and customers.
Secondly material progress was made on our three pipeline connection projects all of which will be operating in the second half of 2020 and they are firstly in down crude pipeline connection to the pay line, which gives jefferson access to barrels from Cushing and the Permian.
For refinery supply and blending with Canadian and Uinta basin barrels.
Brought in by rail.
Second our outbound crude pipeline to port Arthur and direct connection to Motiva.
Who is our largest customer and the largest refinery in North America owned by Saudi Aramco.
And thirdly.
Multiple pipelines under the Nexus river connecting with us with Exxon's Valmont refinery, which is undergoing expansion to become the largest refinery in North America in 2021.
[noise] refined products to Mexico at Jefferson was essentially flat.
Versus Q2 due to delays in obtaining permits for new receiving tanks in Mexico.
These issues have largely been resolved and we expect volumes to begin increasing shortly.
Somewhat offsetting these gains are Canadian crude marketing program did not contribute contribute positively due to the WCS w. CCI spread remaining at low levels due to continuing Alberta crude production limits.
Going forward, we expect to only participate in these moves on a purely opportunistic basis.
But given the growth in our third party committed volumes that is just fine.
With the increased velocity of product through the terminal enabled by the coming pipeline connectivity the rapid ramp in EBITDA at Jefferson is about to start.
Turning now to the Central Maine conduct railroad.
The railroads had EBITDA of 1.9 million as compared to 1.0 million in Q2 of 2019 and 700000 in Q3 of 2018.
Car cleaning operation is ramping up and we're seeing multiple repeat customers.
Turning now to Repauno.
We continue to make good progress with the rail to ship natural gas liquids export projects, what we call phase one construction of the project has begun and we expect to the operational at the end of Q2 2020.
We're in active negotiations with multiple counterparties for three year take or pay contracts and we expect to sign those agreements shortly.
Additionally, the butane cavern operations are going well and we anticipate Jenny generating a margin of between two and a half to 3 million annually with most of this being realized in Q4 of this year.
Turning to long rich after a slow Q2 due in large part to flooding on the Ohio River Frac sand operations are back on track to deliver between five to 6 million in EBITDA. This year. In fact, we just signed a new contract with one of the largest sand companies which requires them.
To use long rich exclusively with <unk> with it and agreed upon radius.
The power plant construction is well underway, we're completing the underground piping and have begun pouring concrete foundations project remains on schedule and on budget with completion set for no later than November 2021.
And the low gas price environment is presenting us with opportunities to obtain even lower cost cash to the power plant relative to our original plan, which projected annual EBITDA of 120 million.
The bottom line is long rich is ahead of plan.
To conclude.
Today, we have approximately $1.4 billion invested in equipment, which is primarily commercial jet engines and approximately 800 million invested in infrastructure equity.
Engine leasing and management is a terrific business with high sustainable returns and lots of investment opportunities.
On infrastructure private market values today are meaningfully higher than public market values. So we're monetizing these investments to return capital and generate gains to reinvest in the high return jet engine business.
We have to asset sales well underway, the CMQR railroad and a 50% interest in the long range energy power plant.
Those processes are in advance stages, and we expect to have agreements signed soon.
Assuming these market conditions continue we will look to more infrastructure monetizations in 2020.
So with that I will turn call back to Alan.
Thanks, Joe Operator, you May now open the call documenting.
And as a reminder to ask a question you will need to press Star then one key wonder telephone.
All your question. Please press the pound key.
Please stand by will be compiled the Q and a roster.
And our first question comes in on line of Justin Long with Stephens. Your line is now open.
Thanks, and good morning.
To start Joe I was wondering if you could expand on that last point around potentially monetizing some of the company's infrastructure assets going forward.
You mentioned that Youve invested around $800 million and these assets could you maybe provide a little bit more color on what you feel like you could get for those assets in today's market and how you would think about redeploying that capital it sounds like aviation would would be a primary.
Focus there, but would love to get your thoughts.
Sure.
Good question.
You know I'm not going to project.
Asset values.
Individually are really in total except to say that I think every asset that we divested in infrastructure is worth more than what weve, our cost basis. So I expect to have gains from everything we sell.
And so if you take.
Some math around that when I was thinking about 800 million invested in infrastructure. If you pick a number and say we monetize that for a billion dollars just as an example.
And we reinvest.
All of that and aviation.
Our our target EBITDA return from aviation is 25%, which we've been consistently achieving so that would be an incremental $250 million in EBITDA and if you add that to the 350 million on our current portfolio that would be 600 million EBITDA and if you think well aviation should probably trade at least at an.
Eight times EBITDA multiple and then I could probably argue a higher number but pick eight.
It's 4.8 billion and you have 1.2 billion a dead. So the equity value would be 3.6 billion, which is a $40 stock price. So that's that's kind of when you sort of think about an endpoint and where we can try to what we can try to achieve.
I think thats not a bad roadmap.
Great. That's really helpful and secondly, I think last quarter, you mentioned, the Jefferson was capable of $100 million and EBITDA on a run rate basis sometime around the middle of next year is that still your expectation and could you share how much of.
That 100 million is related to crude by rail versus other areas of cash generation.
Yes, I do believe Thats achievable by the latter half of next year 2020.
If you think about when I think that Jefferson, we we've indicated that for every million barrels a storage you generate typically 10 to 15 million an annual EBITDA in the terminal starts the year with 20 million of fixed costs. So the first 2 million barrels, which is where we were at the end of 2019 2018.
You know, we're covering our costs and breaking even EBITDA and incrementally than what you do as you add storage and you increase the amount of turns that you can get off of that storage and so the ended this year. We end one with 4 million barrels storage, we're targeting potentially up to $6 million next year and it could could go.
Higher than that and then in addition, with the pipeline connectivity, we should significantly increase the velocity of product that flows through the terminal. So that's how you those are the building blocks to get to the 100 million.
That I think is very achievable the mix between crude by rail and other products I think.
It's probably going to be.
Two thirds crude through the terminal and one third refine products.
But there are there a couple of big projects out in the market now.
That could swing back towards refined products. So it's that's a good thing, it's just that I can't accurately predict the mix.
And it's really not substantively different to us I think we do make the highest contribution we will make is by moving barrels in from Canada by rail.
Storing them, then blending and then shifting them out and so we get that's kind of the.
The full Chinese menu of of fees and.
But the other businesses you could have refine products and you might have a fine products tank that you could turn the tank four or five times a month so.
It's all you know it's all good.
Great I appreciate the time.
Thanks.
Thank you and our next question comes from the line of Brandon Oglenski with Barclays. Your line is open.
Hey, good morning, Joan Alan.
Sure I guess I wanted to come back to the discussion on aviation that when you guys are clearly doing a pretty decent job with that portfolio.
But obviously benefiting from the Maxine granted but I think you also mentioned something about your joint venture on the engine repair side I know this is something that's come up.
Couple of times now can you just talk a little bit more about the scope and scale of that project.
Yes.
So as I mentioned 2020 will be a big year for that we expect to have the first products available.
And improved so that we can be.
Selling products out of the joint venture to the broad airline market.
In in 2020 units is really is focused on the Cfmfifty six engine, so which is.
For those who will never as the engine I always talk about so the biggest engine market in the world.
Just to put some and in that joint venture we can we can make money.
And have a big contribution a lot of upside at least two different ways and I'd say at least because there's other things that.
Our end development, which we can we could add too, but but the first ways that we felt we own 25% of the joint venture the equity of that.
And so as an owner.
There will be about 15000.
Engines that will be in the aftermarket in other words not.
Not covered by tower by power by the hour contracts in the near future. So that represents approximately about 3000 shop visits a year.
And when we went into the joint venture based on historical.
Precedent.
It's not unreasonable to assume that we can capture 5% to 10% of that market. So that represents between 150 in 300 shop visits that we could supply in service out of the joint venture.
Which means that our 25% interest in that based on the margins.
Would produce between 50 and $100 million per annum of profits to us with no additional capital.
So that's that's number one which is pretty good.
And our total investments you remind people in the joint venture is $30 million.
So.
That's number one the second way we make money is that we have that's part of the joint venture agreement, we have the right to buy those products from the joint venture and cost in other words with no profit no market for the for the manufacture the producer those.
And that represents.
For every shop visit we do we're estimating that we can save $2 million off of the.
List price from the original equipment manufacturer per shop visits so.
Our fleet of engines is 300 pick a number 300 engines and were shopping 16 60, a year. That's another 120 million of savings for us per annum, so $50 million to $100 million from owning the JV and over $100 million from being able to buy from the JV it cost.
I appreciate that John what's the timing.
For the proposed timing on when this is going really ramp up.
It will be in stages I think we expect to have the first product available in the first half of the year in the second product in the second half of the year and then we've got additional products coming behind that said so that we would have we expect all of the products to be available by 2022.
Okay appreciate that sounds pretty exciting and then I.
I guess you know to your comments at the end of prepared remarks here.
When you went to IPO I guess the idea was we can invest across infrastructure and equipment leasing cycles.
And.
Really take advantage of one asset values come up in come down should we be thinking long term. Now. This is just becoming more of an aviation leasing company or do you still see infrastructure, playing a pretty significant role going forward.
I don't know.
To be straight I think the the conditions that exist today and you see it from not just us from any other people is the private market.
Use of infrastructure are much higher than the public market values. So.
And we'll make good money off of our infrastructure investments, whether we whether we do that again or repeat.
In this company I don't know.
Alright, thank you.
Yes.
Thank you and our next question comes from the line of Devin Ryan with JMP Securities. Your line is now open.
Great Good morning, Joe.
Good morning.
First question just on.
Canada made some statements around production in crude by rail and then you saw WCS CBTI blow out a little bit on the announcement along with the week the Keystone pipeline in so I'm just curious.
What you think the implications are on crude by rail.
At Jefferson and.
How you're thinking about the implications of that along with all the other comments you made about Jefferson.
It's it's positive for crude by rail and for Us it.
The Alberta government.
It is encouraging producers effectively to use rail which is.
Which is great and I think what I've said over the over the next three to four years, most industry participants see the crude by rail market as being a very strong and very active.
From the Canadian market, and so we're well positioned to catch that we'd have a Canadian producers I mentioned that just took storage in our terminal which is the first time that that has happened in addition to.
Local refiners, having a physician we'd have a producer.
So.
So I see more that coming over the next three to four years as do as do most people.
Beyond that.
I mentioned, we have been investing time and not money, yet but timing in helping.
Encourage and hopefully developing a diluent recover unit at the are you.
And that's made progress and I think that.
Do you are you.
Project is very likely going to be.
Firmed up by the end of the year.
Which means you have a permanent supply of crude moving by rail and I mean permanent being 10 to 15 years, because we invest in the in the hardware to make that happen you you're going to we're going to have producers and consumers who will sign up for 10 to 15 year take or pay so and that.
When you take the day in and out of the crude.
Also has the added benefit is that crude and becomes classified as non hazardous from the railroad point of view, which means you get lower rail rates and you get you can use you can use different railcars.
The 117, Jay so so it's it's positive I think in the short term what what they're doing the spreads now back out to 20 out here. This morning. So.
But.
But really we're focused a lot on the long term and trying to turn this into a 10 to 15 year.
Effective pipeline.
Great appreciate the detail and then just a quick follow up on CMT. You are just if you could give us.
Maybe a little more detail around where.
That asset stands and the potential for sale and timing there and anything else you can provide would be helpful. Thank you.
I think I'm, just going to stick to close.
Okay.
Okay fair enough. Thanks, Joe.
Yes.
Thank you and our next question comes on line of Chris Wetherbee with Citi. Your line is now open.
Hey, Thanks, good morning, guys.
So I wanted to come back to the comments about sort of the split of infrastructure relative to aviation what the potential for monetization on some of these infrastructure assets I guess.
How do we think about sort of the duration of the the lease terms in a scenario like that do you anticipate that evolving significantly from sort of maybe the initial view of having aviation and generate a lot of cash having the infrastructure to generate a lot of term that's always been a sort of good inappropriate balance our minds I just want to make sure I understand it that.
You, just that's changing or or maybe I'm not thinking about the right way.
No I think where we were saying is it clearly the private market values of infrastructure are higher than public market values and if we can and it doesn't feel like we're getting a lot of credit.
From our stock price for the for what we think is the value of infrastructure given that we don't have lot of EBITDA contribution from that yet. So we're just playing around with the numbers. If we were to turn.
You have those into cash flow at aviation it should be highly highly accretive to.
To value.
So we haven't made a final determination that sort of just trying to.
Take take a view of what current market is and what we think the market environment will be for the next few years.
And then.
Not be not the.
Stuck on you know on doing it one particular way.
Okay, Okay, no that's fair.
And then in terms of Jefferson as we think about pipeline connections and can you talk a little bit about potentially timing and then maybe how we should be thinking about contracting related to the pipeline.
Yes, the said all three of those pipeline projects should be completed.
Sort of around the middle of the year, there I would say they.
Some and maybe one and one in the end of Q2 and one in Q3 and one in Q4 as kind of where the way.
See it and we've we have.
We have contractual arrangements in place on each one of those already.
I would say it's not fully.
Contracted but but each pipeline.
Opportunity, we have a test we have a anchor tenant an anchor customer.
And then.
That.
Optionality so to speak of having those.
Eligible for customers I think will allow us to pick up a lot of additional business at a lot of additional volume.
Okay.
As was the one piece of the puzzle that we didnt have and.
It's important because people want.
Every option you know and now we have every option we have excellent rail we have we have a truck we have.
40 foot water depth. So we can load aframaxes, we can bring in barges and we can ship out barges.
And now we'll have type in and out.
Okay. Okay. That's helpful and once your wired in by pipe to someone it's very hard for anybody to undercut you.
Yeah, I would imagine the very sticky relationship at that point that certainly makes sense.
And then just coming back to your comments lastly on refined products, making sure. We understand obviously, there's been some delay in terminal off take in Mexico, I believe that's expected to ramp back up in the first part of 2020 that sort of how you view, we would you expect to see those volumes begin to accelerate as you move into the first half of next year.
Yes, that's what we're being told.
Obviously, it's not you know it's not our decision that's that's the customers, but but that every expectation is that those issues.
They had facilities in Mexico that were finished it took four months to get a final letter on I mean, it's that kind of stuff that happened. So we're told that the volumes should ramp next year.
Building one of the main reasons for building the pipeline across under the river to Exxon is for that refine product flow, which they want.
Today, we're running about 20000 barrels a day in and the plan is to have that ramp to 60.
Yes.
Okay. Okay that makes sense. Thank you very much for the time this morning I appreciate it.
Thanks.
Thank you and our next question comes from the line of Ari Rosa with Bank of America. Your line is now open.
Hey, good morning, Joe Congrats on a really strong quarter here.
First question, obviously, you guys stepped up the the asset sales here on the aviation side, maybe you could talk a little bit about how you think about which assets to sell as you look at the portfolio and maybe give us a little bit better sense of if there's anything we can expect from modeling standpoint in terms of the stability of cash flows to be generated.
From the asset sales.
On a on a fairly consistent basis.
It's it'll be a regular program for us so.
As I mentioned I think previous calls we had appraised value. The fleet at the end of year was 1.5 billion in book value is 1.1 billion and so we see that as you know opportunity to continue to show games and.
Prove that out and.
And then you don't terms evaluating assets this quarter we sold.
A number of engines and as I mentioned the last call.
There's a there's a lot of a shortage of parts in the market right. Now. So so people are scrambling for parts and so what we did as we took some engines that that we could have put through the shop and instead of putting them through the shop, we just sold them for parts.
Like an engine that was run out engine six months ago that was worth $2 million, we sold for 4 million so that that's it.
Thats $4 million represents probably the total profit we would ever make from that engine over the next you know 10 years today. So it's hard to turn those down.
And so.
I see the.
We'll go through the portfolio and focus on what are the.
Lower cash yielding investments and and then look at monetizing knows but but it will be a regular program I can.
Can't predict the quantum but.
But but it's part of our it's part of our ammo.
Fair enough I guess, what we'll just expected to be lumpy.
Second question, just maybe a little bit more color on kind of how things are progressing at Repauno and.
Seems like sometimes that gets deemphasize just because there's so much activity at the other.
At the other locations, but maybe you could just give us an update on kind of what you're seeing their market conditions and how you guys are progressing in terms of.
Capex spending and development there.
Yes, good question the.
It's going quite well as I mentioned, the macro the macro for natural gas liquids being exported from the United States is excellent. So you've got production volumes that continue rising.
And.
And we're really focused on the Marcellus.
Production volumes, so there's lots of increased volume and.
Theres no increased really effective increase in us consumption or very little so all of that has to find its way to the water and.
So we have very good dialogue with customers about phase one volumes.
We're looking as I mentioned to sign three year contracts, we expect that to happen shortly and we have.
Started some of the preliminary construction and they're not the major part of it where we want to have a contract before we do that but we should be operational in the middle of 2020.
With.
Probably between.
25, and 30000 barrels a day flowing through the terminal.
And then after we do that we will engage with customers about phase two which will allow us to load vlgcs, which is.
That is the most efficient way to export and and we can gain additional profits in volumes from phase two but we have to have caverns built to do that so we're actively continuing to do the.
Engineering design and work on that on the caverns very confident that that works.
So we expect to.
Just all continue marching forward and it's a great macro.
That's that's terrific update and then just last one from me Joe.
Maybe.
As a little esoteric, but maybe you could just speculate on kind of that that gap between private market valuations in public market valuations.
What do you think that or what do you attribute that to essentially in.
I guess, along with that obviously as I look at some of these projects whether its long rates are repauno and even Jefferson, which is kind of the farthest along it seems.
Well, obviously, they're not yet at this stage of kind of generating stable EBIT on it sounds like that's more in the pipeline for 2020.
Do you think maybe that shift that balance between private market and public market valuations.
Okay, others in several parts, so let's start with US I read an article in the FTC at about a month ago that sort of captured what I thought was what was happening and that is.
Your article was it investors would rather own any an office building in L.A. than than the stock of read that owns an office building in L.A. and I think the reason is that.
People don't want to have to explain the anybody what happened on the last day of the quarter.
Somebody sold 25000 shares in the stock went down 50 cents you know so there isn't.
The investment.
And lots of people all over the world one own real assets and infrastructure, So there's new funds and new.
Investors that show up almost every week looking for infrastructure assets in yields in Japan are 2%, so 4% sounds great.
So I think the private market values.
You might see infrastructure assets trade.
Between in the private market between 15, and 20 times EBITDA in some cases today, whereas as a public stock you might trade at 10 to 12.
There are other parts of the.
So glad I'm sorry, there were other parts of your question I can't remember exactly.
It was just a that's that that itself is great color. The other part was essentially just asking if as.
More stable EBITDA materializes, it Jefferson right that long range, maybe if you start to see that gap close, but it sounds like you're talking maybe more about kind of the dynamics of public markets versus private markets and Thats really what what you're attributing the difference to and so that's it sounds like it's compelling opportunity regardless action.
You know monetizing that way.
Yes, and Thats a good point also is that when you go out and sell assets today, everybody shows what they call adjusted EBITDA and adjusted EBITDA can be seen spectacular adjustments that people make off of actual markets in the public markets tend to trade off actual but private market.
Right now are buying adjusted.
So.
You could without looking at you know trailing EBITDA, if you have contracts at Jefferson and you have.
Adjustments you could sell potentially off of that.
So if there's there's several differences significant differences between the private to public markets right now that that sort of and I don't I mean based on the flow of capital in the amount of money that seems to be being raised.
From infrastructure funds I don't see that slowing down.
Okay. That's it that's great color thanks for the time too.
Yes.
Thank you and our next question comes on line of Rob Salmon with Wolfe Research. Your line is now open.
Hey, good morning, guys and thanks to the question I guess, Joe to continue on with the.
Process that we could see AFE ties.
Service offering kind of shift towards more infrastructure away from infrastructure more to the equipment leasing in particularly the aviation side of the business. How should we think about the dividend. If you guys kind of play out there because as Chris is alluding to there are a little bit different.
Revenue streams between the two.
And required investment thereof, So I'm curious to get if you guys do play this out how you think about dividend and dividend growth longer term.
So I don't think that would change the.
The approach we took me begins to payout.
50% of Fad.
And that gives a good yield to the equity as well as allows capital blue capital to be reinvested in growth and that sort of as a model. It works both in our minds for infrastructure as well as equipment leasing and.
I think we've maintained the same policy and obviously, we're going to right now 100% of or more and more than that 100% of our EBITDA as aviation so.
If we were to.
Monetize assets and invest in monetize assets today that have no EBITDA and turn those into.
EBITDA assets than it is going to be more growth.
Yeah, clearly in the short term would definitely be it tailwind there front from that perspective.
Uh huh.
I guess, it shifting gears a little bit here.
A follow up with regard to.
The the outlook for.
Yes for the growth that we should be thinking about we then.
The.
Infrastructure business.
At Jefferson can you give us an update in terms of the projected capex or have any and as a timing or anything changed at all there looking out to 2020.
No we were very close to launching a bond deal for Jefferson as I mentioned last call.
Which would raise an incremental 250 million of capital which would fund.
The pipeline projects additional storage additional rail capacity.
So that all of the Capex for 2020 would be funded with this.
With this offering that we expect to conclude here fairly soon.
All right that's helpful. So kind of internally generated.
Investment funding there.
In your prepared remarks, you had noted that it we're kind of close it felt like a little bit closer on the cm QR relative to the 50% interest sale can you give us a sense of the infrastructure sales should we still be expecting that as kind of a 2019 event or could that pushing into early 2020.
Yes, no I said, they're both close so.
All right guys I appreciate the time.
Thanks.
Thank you and hasn't run reminder, to ask a question you will need to press star one on your telephone and to remove your question. Please press the pound.
And our next question comes from the line of Robert Dodd with Raymond James Your line is now.
Hi, guys a couple about Jeff incident, and then a couple of ideation, if I can only the Jefferson side, you know when you're talking about 100 million dollar run rate EBITDA kind of kicking in mid or maybe second half of next year, how much of that its going to come from third party contract services.
The Canadian crude marketing.
Tying in with with the yeah. The a your comment about adjusted EBITDA I mean, the high multiples, presumably go with third party long term contract to revenue about than.
The what are you getting some some temporary W. W Ts spread.
Right. So our assumption now is 100% will come from third party business.
Mentioned, we're always do the Canadian the Canadian marketing programs we.
On an opportunistic basis, and so we don't know what the spreads will be and whether it will be able to be opportunistic. So we're not modeling not taking any of that and.
Got it got it then on on aviation some really good color. When you talk about obviously the covered portfolio generated 50, if you want to sell the infrastructure a billion you know that goes to kind of 600, well actually I think that does not include the JV, which which yeah.
Like starting starting next year would would could could add more to that and then the value you can get one of the questions is the matter you can get them some.
The pad it didn't the engines company itself I mean, the average cost you've gotten an engine right now is about 2 million Bucks light and if you can you get a an AFE Mitch if you put it to bite at the segment and put it they shop visit and sell it yet with 2 million in cost savings you've got to a unit whatever the sale price.
Since you've got 100% gain on kind of get yet yeah original purchase price on the engine.
I guess that that contingency on that is what's the capacity you think you have to bring those end to two months shop visit to sell the versus just.
Run them kind of through the JV I mean, how many how many engines can you actually manage through a shop visits.
Yeah.
Well our current plan is to the JV by the way the JV is not going to do shop visits it's just a product.
Yes in the shop visit, but but our assumption today is that you know.
We'll we'll have probably between 50 and 70 shop visits a year on our own portfolio in the near term.
That's based on reasonable growth and in the number of CFM engines and we own.
I think our capacity ultimately they were young probably 200 Cfmfifty six engines in our capacity is could be a thousand.
And our ambition is a thousand.
And if we have a if we have a lower cost than anyone else in the world, which I think we will.
Thats a heck of an advantage you know so.
And you know so I'm not being I every time I look at this I think I'm I'm just amazed at what what an opportunity this is and how big it is.
So we started this four or five years ago. So I don't I don't think anybody else was doing it then.
And.
It's all going to happen really in the next couple of years a lot of these engines that are covered under power by the hour program are coming off those programs and will be up for grabs in the aftermarket and its 22000 of these engines.
It's like it's a stunning market size.
Got it gone on on that that if you. If you would get 2010 years apart from the capital required to do that what you could reinvestment some be infrastructures hasn't cedrik.
How much.
Yeah, you don't have the capacity.
Like many intends to take the shop visits that buyback with five as well and you've talked I would think light you talked in the past.
So we've been taking longer and longer yeah.
That's it that's a good point, we've actually over the last year, we've spent a lot of time.
Thinking about and working on.
Partnerships and arrangements on the shop itself and so we have conversations going with multiple parties right now major airlines, all the way down to small shops.
To try to figure that out and align ourselves such that we will be able to control.
Our shop visits and manage them.
More effectively ourselves we also have some ideas as to how to change the shop visit.
Practice that I've mentioned modules before about how Cfmfifty six engine is really for different modules and so if you only need to work on one module you don't need to send the whole engines, you don't need to have the engine sitting to shop for six months, you could actually swap of module out and shorten that to three weeks instead of six months.
So we have a whole list of and incentives that were working on there to make sure that we both can manage that number of shop visits ourselves and control. It importantly, we don't want to be beholden to.
Third parties that that we we don't control. So that's actually very good question is.
Something we're working on you know.
It's on our.
It's on our priority to do list.
Okay got it I appreciate it thank you for the comp.
Thank you and this concludes today's question and answer session I would now like to turn the call back to Alan and Dream for any further remarks.
Thank you all for participating in today's conference call. We look forward to updating you after Q4.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.