Q4 2020 Fortress Transportation and Infrastructure Investors LLC Earnings Call
Now let's look at all of 2020 versus all of 2019 adjusted ebitda in 2020 was 243.3 Million vs. 530.4 million and 2019 normalize fat and twenty 2147.9 million vs. 192.4 million and 20 nineteen am by far the dramatic reductions in passenger air travel due to COVID-19 drove the negative Financial impact to 20 20.
Turning out Aviation this extremely challenging operating environment for pastor operations continued into q420 and will extend into q121 a new travel restrictions in most geographies pushed down flying activity to very low levels, but the outlook for a strong snap back in 2021 is more evident today than ever before in Q4 results were negatively affected by one passenger aircraft maintenance Reserve collections, which is driven off hours and Cycles flown by our customers wage increased approximately six million in Q4 from 2 to 3 to 2 million of income was lost from a lease end of two hundred seven passenger aircraft that are now off under a letter of intent to be sold to a cargo operator and three the failure of three Airlines increased bad debt expense by approximately 2 million.
Cargo business remain strong representing approximately 30% of our revenues and twenty Twenty-One levels are robust due to surging global trade and vaccine distributions dead.
While we expect 221 to be very similar to Q 420 or modestly better. We expect Aviation either. For 20 21 to Total approximately four hundred fifty million compared to $290 and twenty $20 a month.
We also went through the entire portfolio of equipment and took a $20 impairment over thirty one individual aircraft and engines while the aggregate appraised portfolio bag completed by third-party appraisers as of twelve-thirty 120 exceeds Book value by greater than 20% specific individual values have declined due to the liquid market for sale and purchase. And so we elected the right down these specific assets two levels, which we expect to be the lowest value in the cycle and position our Fleet for a strong rebound.
The assumptions underpinning the 450 million in ebitda on 20-21. Our number one three hundred twenty million dollar contribution from the existing portfolio with strong recovery in Q3 and Q4 to eighty million in ebitda from new Investments of approximately three hundred million starting in Q2 and growing three months engine leasing utilization of sixty to seventy percent in the first half of 2021 increasing to seventy to eighty percent in the second half and four fifty million and even get contributions from our parts and maintenance joint ventures and Partnerships with chromalloy Lockheed Martin, and they are starting in Q2 and growing in Q3 and Q4.
We see substantial evidence of passengers increasingly booking travel and Airline starting to add capacity while still avoiding spending capital on expensive engine Chef visits in numerous markets globally.
Importantly for us the demand for narrow-body engines is materially better than any time in the last 12 months and is forecast to exceed Supply this year and into twenty twenty-two months.
With our ability to deliver the lowest cost per flight cycle for cfm56 engines and do offer Capital efficient leasing to Airlines. We are extremely well positioned to grow even wage earnings from the largest engine Market in the world through our proprietary products and exclusive Partnerships with some of the leading Aviation companies in the world for the next decade.
Let's turn it infrastructure now starting with r apato are state-of-the-art Natural Gas Liquids rail translating system is now complete and in operation the system allows flexibility to load products directly to marine Vessel or into our underground Cavern for storage creating unique opportunities for our customers. We loaded our first marine Vessel directly from rail in early January and during the fourth quarter. We saw continued utilization of our truck rack meeting local Demand with direct access to the premium, New York or blending Market.
You got to change that. Well with producers and off takers and we are finalizing firm commitments for Natural Gas Liquids through through put beginning in the second quarter of 2021, We expect to commit a large portion of the facility's capacity to radical term business this year while maintaining the flexibility to capitalize on unique spot opportunities.
Now that the facility is open for business discussions with off takers for multi-year commitments for phase two storage caverns and vlgc shipments are underway. We happen to have identified counterparties and commence construction this year for delivery of that system in 2024.
long
The long-range power plant construction is more than 80% complete and is tracking significantly ahead of schedule relative to the November 20-21 completion date guaranteed by our construction firm at this point. We expect that the plant will be generating cash flow from test operations by early summer and will be fully operational in August you continue to see a high level of it's just from Power intensive Industries looking to cite new facilities in Longridge. We had been advancing our discussions with data centers and cryptocurrency miners lose interest is driven in part by the recently-announced initiative to blend hydrogen into our power plant by the end of this year.
2020 was a good year for a fraction business despite the industry-wide Slowdown and natural-gas drilling activity. We translated over nine hundred thousand tons of tracks and that's higher than budget and not more than 15% year-over-year. So all-in-all a good quarter for Long Ridge.
Jefferson the Jefferson terminal continues to make good progress in providing increase logistics optionality for its customers and consistent and profitable business revenues Jefferson off his fourth consecutive positive corner with even a 4.2 million the macro picture of Jefferson for Q4 was very similar to Q3 with positive even accomplish the continued rationalization costs during the pandemic driven downturn and high occupancy in the terminal. This was accomplished with only 3 trains of heavy Utah crude and phone number and no heavy Canadian crude trains during the quarter. There's no heavy Canadian heavy train moves due to the compression in the w c s w t i spread and the reluctance of bed liner. He's to increase Refinery run run rates due to uncertain consumer demand.
With a higher and more stable WTI price environment crude price environment higher end market demand and higher pipeline apportionment from pipelines out of Western. Can we expect to see crude-by-rail economics improve for both Canada and Utah as such we in our customers are planning for increased crude-by-rail volume starting in Q2 of this year 2021, the all-important pipeline construction projects are nearing completion and the first pipeline project connecting the jetpack terminal with the Exxon Beaumont Refinery has been completed and put into service nearly a million barrels were moved through the pipeline and the first month of service in January and we expect to find product volumes to steadily increase as the result of a more economic and ratable logistical solution.
Additionally with product moving via pipeline instead of barge The Bard stock has new opportunities for future Marine movements, the two additional pipeline projects connecting the Jefferson National with motiva on by Saudi aramco and the Jefferson terminal with the Cushing Oklahoma market via the pay line pipeline remain on track to be operational in the second quarter long as you look down the road. We continue to develop several other large scale projects with our major customers.
Turning now to the topic of sustainability.
We have been and will continue to look across existing businesses and that new investment opportunities to promote a more environmentally friendly approach while at the same time driving long-term growth profitability and value-creation. We believe sustainability to be both good business and the right thing to do for everyone everyone in our company's is involved and responsible for advancing F tied to become a leader in sustainable investing at operations that such we will on a regular basis update investors on our progress and we'll deliver our first annual sustainability report to our board and shareholders by the end of q1 2022.
Baptized ownership of three North American port and rail terminals with Jefferson energy in Beaumont, Texas Long Ridge Energy in eastern, Ohio and we're paano in the Philadelphia area affords. That's a somewhat unique ability to incubate an Explorer new technologies and approaches utilizing these properties all have great Logistics connectivity rail Water Road, ample industrial land and low cost energy resources.
The first example of this and an exciting one for the industry is the introduction of hydrogen is a fuel for the Long Ridge Energy power plant. We have recently signed an agreement with GE to install blending equipment for the power plant to be operational by the end of 2021 this year in addition. We signed a five-year hydrogen purchase agreement with a company that will deliver hydrogen from the nearby industrial facility that makes hydrogen as a byproduct of their industrial process and by year-end Longridge will be the first Hydrogen burning large frame turbine in the United States and the first worldwide to blend hydrogen in a G E H class turbine.
In addition to this project. We are also actively engaged with several additional investment opportunities, including one partnering to build a biorefinery and going to bruise renewable Diesel and lubricants and green hydrogen to building a plan to convert agricultural waste to produce biogas green hydrogen three building Appliance. You convert animal waste to produce organic fertilizer and biogas for building a facility to convert non recyclable plastics to produce sustainable jet fuel and five invest in a company with patented are sterilization filtration technology to commercial products that create a safer environment and save fuel costs with ready at the applicability for Aviation and marine industries.
lots of progress and
terrific opportunities with a lot more to come
so in conclusion 20/20 will be a year remembered and discussed for a long time to come a year when we all learned that we have a lot less control over our environment. Then we had come to believe a year of stress is beyond any worst case scenario we had ever contemplated but on the bright side, we're all better managers today more empathetic more flexible more resilient more appreciative. Our businesses are much better shape today and our team of employees is a tremendous amount of strength and for that we are proud and grateful.
So with that, I'll turn the call back to Ellen.
Thank you to Cindy. You may now open the call to Q&A.
Thank you. As a reminder to ask a question. You will need to press star one on your telephone to withdraw your question. Press the pound or hash key. And your first question comes from Josh Sullivan with Benchmark company.
Good morning, and thank you for taking the questions here. Wondering if we could start off just with some color on how Airline customers are responding to the FAA certification of update. The PMA engine parts, you know, has it been as you expected, you know, what is the inbound inquiries like since the approval? I guess you seen any customers you didn't think maybe you might see.
Yes, I think the response has been even better than we expected and you've known, you know p.m. A has been in use for a long time by many airlines, but I think the combination box, um this thing one of the largest in engine markets be largest engine Market in the world and also the emphasis that all the airlines have now on cost-savings off a maintenance expenses and third-largest p&l category for an airline after Fuel and labor. So there's there's tremendous focus and and the oems continue to raise our prices every year including this year when you had a tremendous downturn so you all eyes are very very focused on that and PMA is a solution that we have. I don't think we've found anybody that wasn't interested in hearing about it. So and there has been a lot of inbound inquiry.
I think getting the approval is a big step just because it's now real products shipped this week 1/2 an hour line and 121 set sets to us so long, so they're out there now and they'll be more to come. So I think that it's been a great reception and and couldn't ask for you know, sort of a better backdrop.
And then just as you mentioned kind of more to come, you know, what do you think the timeline looks like for any additional parts to make it through the FAA? You know, do you think getting this first one over the over the line improves the timeline to make sure those approved or just what do you thinking about on those other parts?
I think it's
Well, it should pave the way and I think it should get easier the second part. We expect to have approval in the second quarter. So right behind it and then and then there there's additional parts that you know, we didn't start work on until 2019. So we're expecting twenty $22 but there's potential for that to move up a little bit given the you know, there will be a sort of a pattern sort of paved path to getting there.
And then just one last one on the air sterilization product. You just mention for the aviation Market. Can you just expand on that opportunity is that an original part? Is that a p.m. A part just in color on that would be great. It's an original part and it's been it's actually been installed in some business Jets and some commercial Jets, but not very widely off and it has been proven to be extremely effective and save as much as 2% on fuel. So something that that could you know have wide berth application.
But it hasn't, you know, I think what has been missing is the commercial development around that and so that's I think where we can add value and that's what we're hoping to do.
Thank you for the time when something about HEPA filters are effective but have to filter is effectively trap germs and viruses and then they have to be removed and that's that that sort of dangerous hazardous waste when it comes off the airplane. This product actually destroys them. So they no longer, you know viable and there's a tremendous they're saving there as well in terms of the handling.
Well, thank you for the time.
Thanks. Your next question comes from Juliano. Baladna with compass point good morning. And thanks for taking my questions. I guess starting out on the infrastructure side to Pivot a little bit. You obviously have no going live and you also have Jefferson with the new pipelines are going in service under the river to axon. Do you also have the power plant coming online? Is there a sensitive kind of what what he would have the infrastructure segment as a whole to generate in 2021 and how that could wrap throughout the year.
Yes, I would say fifty sixty million of ebitda this year from the three you mentioned and the largest being Jefferson founded by repauno and then Long Ridge just because longer will not have a lot of history. It's not a lot of time once it comes on and we we own 50% of that. So in that off and it obviously it's it's more back-end loaded so but I think that's a reasonable goal and obviously then next year. They'll all be in fact, you know full year which would be better and then we've got expansion projects numerous ones, you know, that that could add substantially to that.
That makes sense and thinking about the Jefferson have more specifically. I think the the prior discussion was was that you might be able to get that into into a range of about seventy or eighty million dollars of annualized even though I'm going from there what kind of other projects like could you could you explore for Jefferson and kind of they don't have to put the magnitude could be
Yeah, there's there's a long list of projects that I think you know, the goal was always once you get the pipeline connectivity, then you have many opportunities to add business and God. Yeah that's evident with Exon six pipelines only one of which today is being used. And so those five other ones that could could include crude could include refined products export could include intermediates vacuum gas oils. We soared jet fuel for them at one point before the you know, before the uh code crisis. So, uh, there's a range a long list of um, you know opportunities that we're in discussions on and pursuing just with just with them and then uh, uh, there's I mentioned the Canadian Market is picking up in the in the Utah markets for crude-by-rail. There's a d r u that's going to come online this summer, which is a Recovery Unit, which means that that crude will always
Is moved by Rail and so we've seen more Dr. Use, uh on on the horizon and that that's very good for the motiva, you know movement opportunities and then we have some Canadian producers that are also in the terminal and have looked at expansion. So those are probably the big three, um, uh customer grouped groupings and and there's an active job with with all of them and it keeps usually every time you need it ends up you you end up adding to the list instead of subtracting.
That's great and just make sure from like in even a range perspective. The power plant is supposed to generate roughly 120 million a year before any data centers off and and you know half of that so that's 60. Then you have Jefferson at 7280 and then Rippon do is kind of in the end to Fifteen range if I remember correctly. Yeah fifteen.
That sounds good. I really appreciate your time and I'll jump back in the queue. Thank you.
Your next question comes from Chris Weatherby with City. Good morning James on for Chris wanted to ask about the dialogue. He went through Thursday is 50 eighty million dollars. You called out from the TV acknowledging that like looking for their out. What is that growth look like in a 2022 and Beyond frankly like it's actually how what kind of grow to like, how do you think about market share and that ability ability to sort of pick it up over time? Essentially you're on your own you might not have the most Clarity too, but just kind of wanted to understand how you think about the growth of that business sure. So I think the if you take if you look at page twenty-two and you're starting point is say roughly a billion of invested in equipment. That's that should generate 450 million of ebitda.
and
And then on top of that I think the last time you know, we we discuss the so the opportunity from both the parts business as well as dead managing 3rd party fleets adding an incremental hundred million to that number and so I would say 550 to 600 million for 2022 is dead. It may sound a little aspirational but I do think it's it's reasonable. It's a reasonable goal.
Got it. Can you we do not in the walk we can at 5280 what sort of puts you at? The higher end of that range or is the lower end. Is it just a faster recovery, or is it some uncertainty about how much growth you can get initially just kind of wanted to understand what like we should be watching for across the year to understand the number around that.
I'm sorry, I wasn't sure what's the 50-day here too in the I believe in your walkie head at the bottom. There was essentially the last item was essentially a arranged in the ebitda phone not mistaken. I think it'd just be in boy was the I might be that might not have been the case but it just want to know what would be putting you at the low end of the high end of it. Yes. It wasn't actually arrange them. Okay. It was A build-up. I'm starting with the existing portfolio producing $329 this year and then adding eighty-two that from new Investments wage. Approximately three hundred million dollars of new Investments generating eighty million this year and that obviously that's that's only three quarters of the year because most of those have yet closed or we should be closing soon and then on top of that fifty million from the joint ventures and um Partnerships that we have of so, that's the 320 plus 80 plus 50 is dead.
Got it. And then one other question you've been a great job of that sort of like addressing or making a basically a better wage over time moving similarly. Like everyone else do it building out of services business cuz you like look forward to there any specific major structural issues too tight as a unit do you think might make sense to address the night that could unlock any value or is it like, how are you thinking of that sort of the company structure of longer-term if at all?
Yes, we have talked about it. And we do realize that being a publicly traded partnership and having K ones is is a negative and some investors just won't look up look at take you out of the universe and in particular some of the index funds do that. So the solution to that is for us to separate have Chrome to companies, um, potentially spin-off infrastructure and uh in addition to getting rid of K1 to create, you know, more of a pure-play, uh for two stocks as opposed to combining them. So we think that that's you know, that's an objective that we have that is sort of moving up the priority list. We don't have a specific time on on that. But it's it's something we believe will suck add value create value and make the story simpler.
I just jumped on I apologize for a hospital in here, but I was able to
Going on here looking at as a follow-up to that. Do you think that the the businesses are at size or size or scale and the infrastructure that you would need to get you to be able to do that? We took it very close. We always sort of set arbitrarily we like each company to have at least two billion dollar market cap. We don't want to be too small. And um today we can achieve that and we think there's some interesting things on the horizon that will add on the infrastructure side glad to that. So so yeah, I think I think we're very close if not there.
Okay, that's super helpful. I appreciate it. Thank you.
Your next question comes from Justin long with Stevens.
Thanks and good morning. I wanted to start with the question on the power plant and Longridge. Just wanted to clarify in August when it's up and running. Will it be generating a hundred and twenty million dollars of Eva. Kind of day one when we start and then secondly, I know you've talked about potentially divesting you're 50% ownership in in that in the power plant. Where are you in terms of that process? And what are the big swing factors that you have in mind as you contemplate what to do.
Yes, so so part of the income from the power plant is is a payment for capacity which pjm has a capacity. I believe it's about 20 or 25 million a year and I don't think that we would be booking that right away very likely that comes in the auction the first auction which I think on this 2022. So we will be a little bit of lag on the gauge 120 million right away in terms of selling it off. You know, I would say not much has transpired since the last time we spoke. I think we were still thinking about it. We do it does feel like we have more upside with that them and we would have said, you know previously in that this hydrogen initiative and the you know, the data center opportunities are both very real and and we provide I think substantial upside down.
So we wouldn't do anything until we felt like we've you know, at least you know, um, uh gotten those to the point where we can you know, we can the value is obvious.
Okay, that that's helpful. And secondly the the breakdown on your expectations for Aviation even was was helpful going back to one of your answers to the twenty-two question a moment ago. I think you said you expect around a hundred million from the the the parts and service and partnership pieces. Anyway, you could kind of break that down a little bit more for us and and provide some more color around the components of that hundred million as we get into 2022.
Yes, I would say it's probably equally divided between the part out business with a are the chromosomes Venture and the Lockheed Martin, you know, if you took a third a third a third of that you would be pretty close.
Okay, perfect. That's helpful. I appreciate the time. Yes. Thanks.
Your next question comes from Devin Ryan with JMP securities.
A great morning, Joe most questions have been asked. I want to follow up just on kind of the last conversation on Aviation and the Outlook and let them maybe just dig in a little bit around an expectation for maybe some additional large scale as it progresses and kind of what the market conditions are right now. Obviously you had a big benefit package in in 2020 given the backdrop, um to the extent, you know, the the backdrop is improving in the coming quarters. How is that shaping kind of the the Airlines mobile kind of appetite to do the old and and what are you guys seeing the market or expecting over the next few quarters in terms of just larger kind of maybe idiosyncratic opportunities?
Yes a great question. And you know, I think the deals are there. I think there are some larger transactions that we working on and that we seek that I take our you know, right down the sweet spot for us really focused laser focused on buying cfm56 engines in doing that. I'm buying either a 3:20 or 7 to 7. And and then having the ability of either, you know, keep the airframe or scrap the airframe. And so I think that's our that's our sweet spot. And and I I think the difficulty you can always we've talked about this before and the deals are taking longer for two reasons. I think one is a lot of airlines have been getting money from governments.
And so you get financial assistance and gone, but that comes with a cost which is now you have a government partner. So this the velocity of transacting, you know slows down radically when you get a government in the next so that's been a bit of a delay and then the second thing we've heard from people is no one really wants to sell right now. If you can avoid it, it's dead one knows. This is probably the worst, you know market-timing so people are kind of a little bit Dragon the food saying well it's going to get better. So I should I should slow down a little and I won't look like, you know, the biggest fool. So I think that there's some of um, there's some of both of those things there but I do think the macro is the airlines need money and they're going to need money off of cash flow this year. I'm twenty Twenty-One and they're tapping every source of capital and so one of the sources of capital is selling some of your Fleet so I I do think the deals are there but dead
the reason I mentioned it just
It's a little frustrating real slow. But but I think we're you know, we're getting there.
Appreciate that Joe and I guess follow up within that I mean is the event engine repair ramps, you know can can you you know kind of change your bid in the mom if you will, I mean, obviously, um, your your return profile goes up quite a bit with kind of the new capabilities and the the vertical integration. So, you know, does that is that something that you're looking to do or is it more that you know, you just will now be for higher returns with you know, the the additional capabilities.
Movie competitors for deals if you want to win, so we're not we're not fixed on a specific price. Is it the market moves as you say the market moves and barking dog? We have a lot of savings and other people can't generate so so we'll be competitive and I haven't we haven't felt like we've lost anything because we would you know rigid on our price. So I think it's really just more of the other factors that have that have caused deals to just you know, languish a little yeah, okay terrific if I can just click follow up here, and graduations on the the completion of the cross-channel pipeline with Exxon, you know, just just a lot of activity right now except pursuant. So, um, you know grade to get the Outlook there and hear about some of the additional 12 or how are you guys thinking about financing, um, you know, the asset level I guess, uh, you know, there's a lot of additional projects coming on and to just love to think about wage.
Capacity for those and also just how you're structuring those with Partners in terms of just as we're thinking about modeling and cost outlay et cetera. So it's a great question. I mean we dinner tax exempt financing Jefferson. I guess it was two years ago now time flies, but those bonds are trading in the mid 200s in terms of interest in a yield. So we're looking at doing another tax exempt Bond offering at Jefferson. And for two things one would be to expand the storage capacity for about if we do a 250 million dollar deal roughly half would be for expansion and then the other half would be uh, come back up to F Thai. So we take something out of Jefferson and and have it as liquidity for EFT. I so very low-cost financing available availability and to good use of proceeds in my mind.
Got it. Very interesting. Okay. Well, thank you. I appreciate it. Yes.
Your next question comes from RE Rosa with Bank of America. Great. Hey, good morning. Joanne. Good morning, Alan. So, you know who to ask you stepping back and looking at the aviation Market, you know, maybe you could talk about kind of where the supply-demand picture looks like in terms of the amount of idle equipment that still sitting on the south, you know for the market as a whole and thinking about and I know you kind of touched on this in one of the earlier questions, but just thinking about how they how do you release the business maybe change is kind of a post COVID-19.
Yes.
I'm great question. I think too interesting statistics. I heard what is that? There's there's now more airlines that are that are start up a new airlines in the last 12 months. Then the newer ones that have gone out of business. So it's kind of an interesting um to think about that even in this market. There's there's no shortage of people willing to invest in Airlines which is somewhat amazing given the you know, what's happened and you could argue that that's a you know, that's horrible use of money. But but I've never seen a period in my career choice there weren't people that wanted to invest in your life. So it's it's incredible and maybe this is a great time to start an airline because you can get everything cheaper.
So I think there's there's that and then quite a few airlines that they recently I've been hearing you saying that they expect third-quarter flying activity to be equal to a higher than 2019. So is another sort of as a matter of a rebound that's a pretty stunning fact too. But there is tremendous pent-up demand, I think in Europe when Boris Johnson announced the you know, reopening plan and UK the bookings went up, you know, three or three to five hundred percent and people were you know, grabbing their, you know flights to Rome Spain and Greece for the summer. So so I think there's I think you'll see the airline's come back pretty quickly and and there will be uh, I don't I don't know how long people have short memories but this one feels like that could happen again in terms of structural, you know, the on-line businesses incredibly risky. So capital is expensive and I think oh
Everybody is expecting leasing to you know, be more of a capital provider. So I think some of the big leagues in countries have said it's clearly north of 50% now and going up because if you're trying to you know, I'm sorry to hear on why buy equipment just to lease it. So and you have a lower cost of capital by the leasing company. So I think that benefits and then in our pitch really is, you know, let us mayonnaise engines. We don't you don't need to manage an engine shop is it when we can do it more efficiently cheaper and we could save an airline Capital, you know, so you don't have to put $5,000 into a shop. Is it or even worse you send that you sent your engine in for a shop and you get a shock Bill where you thought it was going to cost 4 million and ends up costing 8 million month.
So so we have a good you know pitch that I think will resonate as well in terms of capital efficiency and cost savings.
That that's a great answer Joanne. Thank you for the thank you for the caller on that. So I wanted to turn a Jefferson quickly. Obviously, they're a lot of balls in here at Jefferson. And as we think about a different Revenue sources, obviously, it looks like the narrative around crude-by-rail is maybe picking up some steam obviously now pipeline connectivity and you know has a lot of potential obviously storage has been always an interesting piece of the story. Maybe if you think about you know, the total revenue in Jefferson as a percent of Revenue how you think each of those buckets end up materializing and then uh, you know, definitely if you could give maybe a little bit of color to the extent possible around what the economics look like for that pipeline arrangement with Exxon, you know, how exactly is it that guy is getting page and what are the economics around that look like in terms of, you know, even on margins or something of that sort.
So on the first question, I would I mean I would Envision that we would have probably.
About two-thirds of the Revenue Jefferson from crude and about one-third from refined products. And then another another goal we have is also add a sustainable fuel to the mix at some point. So we have a number of projects looking at that. But but figure that, you know, two thirds crude and 1/3 refined products in terms of the pipeline economics, you know, it's it's it's good because short pipelines don't cost a lot of money and if you move a lot of volume through it incredibly incredibly wage return so that's why we put you know, when we were deciding how many pipes build and the cost of building 6 is not much more than the cost of building one. I mean realistically it's off if you don't a house you would be definitely want to put more um, uh conduit in the wall because you don't want to reopen it. So so we built 6, and we're only using one right now and it's dead.
It's enough we're getting a good return off one. So you can imagine what the return would be if we have product flowing on all of them.
Got it. Okay, that's that's terrific color. And thanks for the time you get paid for the month. That's all it's a very simple.
Got it. And can you give any color around what what the the bit of margin looks like for that for that move to have time?
Well, you've got I mean on a pipe you have almost no cost. I mean, it's it's once you've built it the operating costs are de minimis. Yeah, okay, ma'am.
Your next question comes from Brandon Oakland ski with Barclays.
Good morning, and thanks for taking my question. So just want to clarify the $450 million of expectation Aviation infrastructure. That's full year, 2021 or off exit run-rate expectation. No, that's 2021 full year.
Okay, I appreciate that and you know all the way back at the beginning to call you did talk about utilization assumptions cuz we come back to that the the engine and the fleet portfolio.
Yes for the first half of this 20 21 for engine utilization. I I said 60 to 70% would probably beginning Years Around sixty and I expect that to Trend up in the second quarter. And then for the second half of the year, we believe it will be seventy to eighty percent utilization. We sort of I think the highest elevation ever had was about 85% and it's usually in the third quarter. That's when you know, everyone's flat-out. So so that's that's what's under underneath the the return section and and for the aircraft we it should be in the low 90s utilization or even you know, maybe higher if it Market picks up, but it's just easier to lease an engine than an airframe today.
Okay, I appreciate that. And then when you provided the 50 million, you know from the PMA and the Lockheed Martin and Partnerships, does that include savings that you're expecting on the current lease book org incremental ebitda from third-party sales and activities, you know within these Ventures incrementally, but that's not does not include any savings for our own flaws. And as I mentioned we've already started buying TNA this week.
Okay, appreciate that. And then last one for me. It does look like based on this potential aircraft deal for three hundred million that you'll need incremental funding this year of about 200 to 300 million bucks. I think you talked a little bit about some potential Bond offerings at Jefferson. But is that what you're looking at this year? Yes, and I think we did we we got Jefferson was a source of capital of 125 million. We have an undrawn revolver of 250 million. So we have adequate funds to today off cover all of that and we could also access the preferred markets are open again the preferred to come back to twenty-five. So that's where they were issued. So so that's another possibility as we look at the balance sheet. So
So lots of and that's without, you know doing anything else. That would be cash generative or selling anything.
Okay. Thank you Jeff.
Yep, your next question comes from Rob Salman.
Hey, good morning, Joe and thanks for taking the question. I guess the piggyback on the last line of questions, you know clearly the module Factory is is going to be very transformative 4 ft off you remind us just as I think about your engine portfolio what percentage of engines the cfm56 represents today?
Yes, I think I have that please.
I guess as you're taking that number when we think about kind of the Lockheed Martin module Factory. Is this something you're just going to use with the cfm56 engine? Can you use it with the entire F-Type portfolio? Yeah, so it's really the Lockheed Martin is is really focused on the CFM engine cfm56 is the number of maintenance shops. Um, they tend to specialize by engine type and so for the CF 680 and the 4000 block we probably will use other shops. That's not a strength of Lockheed Martin. So I think it's really going to be focused on the CFM, uh, 56 Market
in terms of narrow-body engines
It's about half the fleet. There's a hundred and sixty engines right now CFM.
And it's roughly half of our, you know, a portfolio value as I mentioned that the three hundred million of new Investments almost all of that Black Satchel now that is is going to be CFM engines adding to that. So I expect to be over two hundred engines by the end of this year for cfm56 and and Thursday and then 200 engines is 1% of the total World Fleet of 22000. So it's really still quite small so we could see, you know, life beyond that for many years in terms of, you know adding to that if we if we decide to
Absolutely, and if even if I'm using the 160 that would imply assuming engine's going in for a shop. Is it every five years about about thirty two visits as you get to 200 that would be forty. It's still well below the facilities throughput potential which I believe is around 70 aircraft. So or or engines, can you give us a sense of how you expect? It's actually a law and that's about 300 engines a year and we're we're assuming you know, our needs are going to be probably in the 50 to 60 range in the near-term.
And how quickly do you think you'll you can build up to getting to that 300 engines and and as you get to that Max throughput how should we think about the the sensitivity off or for F-Type front from an earnings perspective?
Well, the I think that we could be a 300 engines next year. So.
That feels doable and that's 60 shop is it's a year and if we save two million per shop visit that's a hundred twenty million in savings for our own Fleet purchase on shop visits and that should show up. You know, if you soon that that hundred twenty million is amortized over three or four years, you know, that's Thirty or forty million a year there.
Yeah, you wouldn't have to get much of it back to the customer which just means you're also going to be able to buy additional engine and improve the the returns right? I mean that's that was one of the revelations I'm talking about. You know, when you talking about TNA the view the manufacturer's always say, well, it's it's not going to be why we use it's not a big factor because the residual values, you know, but if you're leasing engines, which is what we do know, nobody at Lisa's an engine tears that there's PMA in the engine they care if it's you know reliable and he's got ours in Cycles on it. So there's no discount given on the lease rate. So we have the ability to effectively, you know, keep that savings for ourselves.
Got it. Um, I guess before I turn it over to someone else. Can you give us you know, who there's a lot of opportunities at at Jefferson. Um, you've announced uh home six type lines one you've already using to move. There's another that that that's going to be that you would kind of put kind of some some throughput around on a better wage. Should I think about the remaining four and and how quickly are you expecting those to be to be consumed to Exxon as we're thinking about the the Jefferson ebitda videoed quoted for the year off? Well, I think that the the opportunities are multiple as I mentioned. We have a discussion on going that way in a couple of those types for crude so inbound crude into the Exxon Refinery is an opportunity to we're talking about and then we find products as well. So for the balance
I would hope that we would be utilizing probably two or three of those this year.
Appreciate the color. Thanks.
Your next question comes from Greg Lewis with btig. Yes. I thank you and good morning everybody. Yeah, I guess I just had a couple of quick ones one as we think about the the the pipeline in aviation is you talked about as I think about those yellow eyes and I guess I can kind of back into it as I think about earnings guide Ram. But like is there any way to kind of think about how long is it kind of like parceling out? It may be in first-half verse a second half vs longer like how I should we think about the, you know, some of that turning into investment.
Yeah, I expect very little in q1. So it's really it's going to be a balance of the year and I would say Q3 and Q4 will be higher than Q perfect. Thank you. And then just real quick on the you know, you touched a lot about potential opportunities on the infrastructure side. It seems like it seems like you know, you're looking a lot at renewable gas and you know, and you should buy the vehicle as as as we think about that or are these projects something that are you know, realizing that they're in development stage or these more like smaller scale pilot projects will reproving Out Concepts month.
Ballast Concepts that you know, hey, there's you know, once we decide to have Friday, we can move forward with these things, you know, maybe later this year or even next year. Yes, I would I mean there's one that's potentially larger than the rest, but I think most of them are relatively small-scale initially, uh to develop the products and the economics of attracting so it's not really, you know, doing something that's you know below Market on terms of returns, but but I think initially the scale of most of these is pretty small with with the goal that if we prove it out then you can you can expand it.
okay, and and
I'm assuming that there's going to be partners and all of these. Yes, I think yeah. Okay. Thanks. Thank you very much for the time guys. Have a great day. Thanks off. Your next question comes from Frank galante Wednesday.
Yeah, thanks for taking my question. So I I want to ask about the managing other Airline engines first is that 50,000 in ebit a contribution from chromalloy AR Lockheed include managing other people's engines. Uh, and then I guess you'd mentioned when somebody leases a ninja or they don't care if he made parts are in there, but Airlines will have to own those parts. So I guess the question is around 5. How does a transaction like that actually work do they will they care if they have p.m. A part in it if they own it and then what are the economics around that from home?
So so no, I mean Airlines will be putting p.m. A and have been for years PMA into their own engines. It's sort of a misnomer that you know, there's some residual value fact is is there isn't but the but Airlines 5 p.m. A directly today, they've got a lot of people made from Hico they back from Chrome OS so there's there's p.m. A all the major airlines particularly ones that operate them shop used PMA. So there's already an airline. That's that's purchased the first product so
So there's no concern there with most Airlines if you if you're stick with a program, then you won't be using PMA but that's a sort of a decision that each month, but you don't need a lot of market share and PMA to make the math work and so it can be peaceful coexistence and that if your choice is to have 10% market share the the OEM by definition still has 90% And it's not Material.
There is some assumption on in the fifty million that we have an airline that we can manage their flaw. We have several proposals out right now. Uh, it's I would say for this year. It should be a small contributor to that number. But the goal is to is to make that a big change and you know, when we have any particular, you know win on that will will serve communicate that but I think that the, you know, we have a framework and we have some initiatives and we have a good dialogue going on that front. So I'm I'm hopeful.
Okay, that's super helpful. And then I guess the second question I have and this might be a little bit of an inside baseball walk around the engine utilization assumptions. You said you start the year, hopefully at 60% and then ramp gradually sixty seventy in the first half 70-80 in the second half but I guess the you mentioned in the prepared remarks that maintenance Revenue was going to remain relatively flat maybe a little up as dead Airlines aren't flying as much as they had been. How does that utilization turn into maintenance revenue. Is that is that seventy 30% assuming that people actually use the engines when they lease them?
Yes, yes, so it's it's not an assumption that it's on lease but sitting in a warehouse, it's it's actually flying.
Okay, that that makes a lot of sense and then it's a small question. Do you ever seen pipeline? You have the same capacities of those types as I think in the press release it said $168,000 for one for diesel $150 for another for gasoline and there should be four additional pipes going to Exxon 11012 Cushing. What are those capacities?
Yes, so the so the one to keala is the largest that will be almost 300,000 total capacity. So it's a big pipe off the inbound from pay line initially is 40,000 barrels a day, but it can be expanded up to 60.
And then the the six type sex on their varying capacities, but but if you assume the 150,000 barrels a day for each one of them that was it's pretty close. So some are a little bit less wage a little bit more but 150,000 is a good number for for each one of those.
Okay, great. Super helpful. Thanks so much, which is a lot of capacity.
I'm showing no further questions at this time. I would now like to turn the call back to mister Allen and rainy.
Thank you, and thank you all for participating in today's conference call. We look forward to updating you after q1.
Ladies and gentlemen, this does conclude today's conference call. Thank you so much for participating. You may now disconnect.
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