Q3 2021 Fortress Transportation and Infrastructure Investors LLC Earnings Call

October 29, 2021

Good day, and thank you for standing by one for the third quarter 2021 fortress transportation and infrastructure investors as he earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. So I think question Press star one on your touch.

Cool.

If at any time during the conference you need to reach an operator, Please press star zero and now I would like to turn the conference over to Mr. Andrey you may begin sir.

Thank you operator.

I'd like to welcome each of the fortress transportation and infrastructure third quarter 2021 earnings call. Joining me here today are Joe Adams, Our Chief Executive Officer, and Scott, Christopher Our Chief Financial Officer.

We have posted an investor presentation in our press release on our website, which we encourage you to download if you have not already done. So also please note that this call is open to the public the listen only mode and is being webcast. In addition, we will be discussing some non-GAAP financial measures during the call today, including Fad.

The reconciliations of those measures to the most directly comparable GAAP measures can be found in the earnings supplement.

Before I turn the call over to 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 are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and 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 SEC.

Now I would like to turn the call over to Joe.

Thank you Alan.

To start today I am pleased to announce our 26th dividend as a public company and our 40 <unk> consecutive dividend since inception.

Dividend of <unk> 33 per share will be paid on November 29, based on a shareholder record date of November 15th.

Now, let's turn to the numbers the key metrics for us are adjusted EBITDA, and fad or funds available for distribution adjust.

Adjusted EBITDA for Q3, 2021 was $96 4 million compared to Q2 of 2021 of $68 million in Q3, 2020, $58 6 million.

Fad was $39 4 million in Q3, 2021 versus $68 3 million in Q2, 2021, and $39 9 million in Q3 2020.

During the third quarter, the $39 4 million Fad number was comprised of $90 5 million from our aviation leasing business.

Negative <unk> 2 million from our infrastructure business and negative $50 9 million from corporate and other.

Turning now to aviation the aviation recovery continues as our EBITDA for Q3 was approximately $100 million up from $80 million in Q2 and $60 million in Q1.

We see broad improvement in demand across narrow body markets with some delays, resulting from the Delta Varian.

As an example, we signed leases for approximately 30 engines in the quarter, but airlines took the actual delivery of approximately 15 at several regions had continuing travel restrictions, but for the most part now have been reopened in Q4.

We have a strong backlog of engine demand.

To start new leases on over 40 engines in Q4 of which 30 are signed today and 10 have already been delivered.

We're also closing new sale leaseback transactions on 16 aircraft with Alitalia and Ito and 19 aircraft with Avianca and funding those in November for an aggregate new investment of $340 million the.

The term of the lease backs range from six months to 10 years with an average of 15 months and three fourths of these $3 19, and $3 20 aircraft or CFM 56 powered aircraft.

As an excellent addition, and brings our total CFM 56 engine count to approximately 300 engines.

Our three CFM 56 aerospace activities all made great strides forward.

On PMA. The next part has completed production and documentation is being assembled to make the final FAA application complete in the next few weeks.

As such we expect to be able to use both parts for our own engines. In Q1 2022 and are seeing strong third party interests for multiple airlines and MRO is there maintenance repair organizations for shop visits beginning in 2022.

On the module factory, we have completed a number of module sales and swaps and are progressing with a few airlines in negotiating long term programmatic supply agreements.

That's where our used serviceable material business or U S. M business with a R. We are targeting approximately $10 million in sales in Q4 with momentum growing into 2022.

All combined 2022 is shaping up really well with leasing EBITDA expected to be $500 million for the year and the three CFM 56 aerospace activities expected to contribute between 50 and $100 million of total EBITDA for the year total EBITDA for aviation for 2020.

Two is expected to be $550 million to $600 million.

Let's now turn to infrastructure.

Starting with Jefferson on the heels of the previously announced 10 year deal with Exxon in mid July the Jefferson terminal continues to reshape and transform the logistics options in the U S Gulf Coast and in the Beaumont Port Arthur Texas Refinery region. This region remains one of the largest refinery footprints in North America.

And the Jefferson terminal has become an essential and extension of the two largest refineries in North America.

Looking specifically at Q3 near term headwinds continued to impact the economics of crude by rail from Western Canada to the U S Gulf Coast. However.

However, due to the improved logistics associated with the Exxonmobil Cross channel pipeline system Jefferson has seen an increase of 44% in 2021 compared to 2020 and the refined products by rail to Mexico business, resulting in Jefferson posting another positive quarter with EBITDA of $1 9 million.

Enhanced terminal infrastructure and the in service pipeline projects connecting Jefferson to Exxon and Motiva had been completed and baseline business continues to steadily increase as these business partners ramp up refinery activity.

As we look towards 2022 high oil prices and demand for refined products is good for Jefferson local refiners are lining up new sources of discounted crude from markets in Western Canada, and you enter basin and looking for terminals like Jefferson to optimize blends and lower logistics costs.

Additionally, international oil flows are increasing in Jefferson will be receiving its first ever inbound aframax marine cargo from the North Sea.

This month.

High expectations for additional inbound marine volumes from overseas and have line of sight on several other significant opportunities in the near future.

Specifically, we're making progress on our D. R U W recovery into discussions as well as discussions relating to the movement of heavy waxed barrels which cannot move by pipeline.

These two projects are important because they would lead to a ratable flow of trains which are not dependent upon a crude spreads.

Finally, we are moving forward with several interesting opportunities regarding the movement of natural gas liquids and other products, which would involve the integration of ponto, longbridge and Jefferson into a seamless flexible and unique supply chain.

Turning to record over upon our continued its strong pace in the third quarter loading of 2014 marine vessels with over 900000 barrels of butane down for international markets.

This activity was complemented by increased truck movements to local premium markets to signal the beginning of the fall gasoline blending season.

Rounding out the first export season, the highly flexible multi modal port and rail terminal firmly established itself as a premier distribution hub on the east coast of the United States.

And we're excited to enter the local propane distribution market. This winter.

By increasing the suite of products handled simultaneously at the terminal and providing security of supply for local markets in the northeast we're meeting the customers' needs not only in new Jersey, but also in the entire North East region.

Pushing towards further development outlined enough ties long term vision the newest port on the Delaware River plans to seek see expanded capacity with three plus million barrels of highly efficient underground storage cable capable of handling a wide variety of LPG and refined products to be ready for export.

Or is the all size ships.

<unk> V L D CS.

Auto was also looking at important opportunities as they arise rise in various markets.

Various market conditions.

Product movements will be available by rail inbound and outbound by water across multiple new high capacity deepwater docks and eventually buy pipe from all major north American producing regions.

And with 250 plus acres available for development. We also continue to move forward with several renewable opportunities.

Auto is prime for staging and manufacturing of wind farm components.

And for waste plastic recycling projects.

These discussions are in advanced stages, and we hope to have one or more concluded by year end.

Together with the Jefferson facility in Beaumont, Texas F tie is well positioned with multimodal distribution and export terminals on both the Gulf Coast and the mid Atlantic Seaboard, providing unparalleled levels of service flexibility and Optionality for our customers.

Yeah.

Turning now to long Ridge long Ridge has successfully transitioned from a development project into a cash flowing operating business.

Evidenced by the $15 5 million in EBITDA on 100% basis generated in Q3.

Most of the Q3 EBITDA was attributable to our natural gas production, which was sold into the market.

Now that the power plant is operating on natural gas is being utilized to generate electricity.

While natural gas prices have rallied recently and we benefited from that in Q3, the economics of generating electricity or even better.

<unk> long ridge to generate EBITDA of approximately $50 million in Q4 and $37 million in Q1 2022.

Which taken together is more than $40 million higher than we expected when we initially underwrote the project.

This incremental cash flow as a result of completing construction nearly a month ahead of schedule and higher power and natural gas prices in the market today.

Our fixed price power sales agreement commenced in February locking in an attractive margin for the next seven to 10 years and generating approximately $120 million per year of EBITDA.

We've also just recently seen lots of interest from tower intensive industries that want to locate and build new facilities at properties like long Ridge Importantly, we remain on track to do the first large frame power plant in the U S to blend hydrogen into our natural gas stream.

So we will start with a 5% hydrogen blend in December and hope to increase this percentage over time.

Turning now to Transtar. Our newest addition, transtar is off to a great start John Collins and his team are already meeting or exceeding expectations.

But I'll start with an important metric in the short line rail business, which is safety and the Transtar continues to lead the short line railroad industry in safety and is well positioned to win another President's Award for safety from the American short line and Regional Railroad Association.

All of the Transtar railroads are F. R E. An osha recordable injury free in 2021.

Since July 28, the date the transfer acquisition close the company is tracking to the $80 million annual EBIT EBITDA number that we had projected.

Transition expenses are tapering off and expect it to be dynamic in 2022.

As to the core business strong steel markets continue to support shipments of both finished steel and raw material and we believe that improving ship availability will drive robust steel shipments for auto which is a high profit margin business for us and we could see increased shipments to that sector in Q4 of this year in Q1.

Next year other steel segments are holding steady and strong.

Mon Valley is running full wild Gary Indiana has a planned maintenance outage at the number six furnace, which is expected to be completed in November.

As we look to 2022 we expect multiple new third party opportunities to grow the $80 million EBITDA number we are in discussions with third parties regarding car storage opportunities and railcar repair opportunities just to name two.

In short everything we had hoped to see happen post the acquisition is happening.

Turning now to corporate items on the spin out of infrastructure. We have made considerable progress on the spin off of infrastructure and conversion to C. Corp's.

In Q3, we completed the refinancing of the Transtar acquisition financing and are now focused on completing the documentation and agreements, which we hope to be finalized in December of.

This year for an S. T SEC filing before year end, which would set us up for having two separate trading entities in Q1 of 2022.

The existing F tie entity will retain the aviation business and assets and all existing corporate debt totaling approximately $2 3 billion pre acquisition of the Alitalia and Avianca fleets.

Infrastructure to be spun out as a new C Corp entity comprised of Jefferson Dupont Longbridge in Transtar will retain all related project level debt of those entities and intends to remit approximately $800 million in cash or obligations as part of the separation.

While we intend to monetize this obligation to the maximum of them out there.

Spend will not be subject to raising additional financing at completion.

So in conclusion, the ramp back up in aviation to 2019 levels is progressing.

Revenue passenger kilometers continue to rise and as a result, we're seeing engine lease rates and demand for sale leasebacks wise as well and with the industry still straining from the shock of COVID-19, we're seeing demand for our chromo Lockheed Martin a our suite of project products growing as well.

That's the infrastructure projects that we started three years to five years ago are now in full ramp up mode. These projects along with Transtar now give us the ability to spin infrastructure into a robust standalone company that vision, which we've been planning for years is about to become reality.

So we're at an exciting time in <unk> history, where at that point because of the hard work of a lot of outstanding employees and directors and the cooperation and partnership with some great customers and I want to thank everyone for helping bring us to this exciting inflection point.

With that I will turn the call back to Helen.

Operator, you May now open the call to Q&A.

Thank you Alan as a reminder to ask a question really depressed star one on your telephone to enjoy your question press. The pound again, that's star then the number one or telephone keypad thoracic rationale based on bonds of compile the Q&A roster.

Our first question comes from the line of testing along with Stephens. Your line is open.

Thanks, and good morning.

Joe I wanted to start with the question around the pricing on the bridge financing for the two aviation deals that you announced in the plans for repayment there and maybe you could just talk about that expectation for the balance sheet and library tomorrow broadly going forward as well.

Yes so.

So that financing we wanted to keep it.

Sure, it's cheap and flexible so we are.

<unk> structured a one year facility, which I believe the rate would be less LIBOR less than 300, LIBOR, plus 300, or a little less than that like LIBOR, plus 275, and and pre payable at any time and our goal with that is to prepay that from the 800 million of infrastructure.

Infrastructure funding, that's going to come back to aviation, so, we'll essentially be reducing debt.

On a net basis when the spin happens at aviation and so that's where we wanted to have that are immediately are pre payable immediately.

In terms of the leverage for the companies I mean, we stated as part of the spin and we wanted to maintain a double b rating for the aviation.

Aerospace business in and we've been getting very good feedback on that I think we're in good shape given that the outline of what I just said.

And both companies would then have access to capital going forward. So so I think it all sort of fits together with.

The parameters of the requirements that we that we set out to do as part of the spin.

Great and on aviation could you also talk about the level of utilization that you're assuming into the fourth corner and into 2022 as well as you think about that guidance you provided and would also love to get a little bit more color on the quarterly cadence of the non <unk>.

Beefing Aviation EBITDA I know you said that.

Still expected to be 50 to 100 million next year, but just wanted to understand how that's going to ramp over the next couple of quarters or so.

Yeah certainly.

Utilization you know what I think our engine utilization is a little over 60% in Q3, which was less than what we had hoped it would be and I think it was it's really primarily or almost exclusively driven by the <unk>.

The Delta variant in the Covid in and we saw a lot of airlines, who are gearing up to take additional equipment and and we as I mentioned, we had a lot of engine lease deals signed but then when the restrictions started to be reimposed in airlines started they started to slow down the ramp up in activity in and that's sort of impacted the third.

We're seeing a lot of activity, though are now in the marketing of October November and as I said, we've got we expect to put 40 engines on lease I think that would bring our engine the utilization up to about 70% or a little bit higher than we expect next year to operate.

And the 75% to 80% utilization range throughout the year and in really every airline we're talking to today as he is looking for additional equipment and a lot of engines and but I think importantly, you know the deals with Avianca Alitalia American Airlines, we did it all come with.

Our ability to expand those relationships and provide engines in engine management services. So it's an integrated package and are we see the.

We see the market for 2022 developing.

Very nicely and then.

All signs are that people are right now.

I was going to be adding and growing their businesses again next year.

In terms of the three products.

We also expect a very strong year, we've had good momentum in.

All of US are businesses with the exception of PMA. Because this is the second part is not yet approved but but U S. M has developed nicely we have.

20 year engines, and tear down and we are one of the largest providers of USA and I think the.

The ramp up in shop visit activity has not.

Picked up yet, but that's not surprising when we expect to see that in 2022 and when that does we expect strong levels of sales for U S. M.

So I think that there'll be growth throughout the quarter, but I think throughout the year each quarter, but I think it's gonna start.

22 fairly strong so its not its not a its not a steep ramp.

But in terms of the PMA.

Our indications from airlines is that they're very interested in those products once they're available and we ourselves or we'll be putting those PMA into our own engine. So we have a number of shoppers as scheduled.

But we also expect a number of airlines.

To step up and start using the PMA.

<unk> beginning in Q2 of next year.

And that should ramp.

Significantly in Krummel has said, they're going to begin production of parts as soon as the application is filed so they will have inventory available.

And then the big upside of as I've said before I think is really on the module factory because that's our storefront. That's our cash register that's where we all three products can be combined.

Combined and provide real value and real savings to the airlines by either selling them individual modules are engines that we've overhauled them and we see a number of airlines today as airlines are coming out of.

Distress or restructuring that have postponed shop visits.

<unk> and are now looking at returning engines to lessors and others run out condition.

They're they're preferring to buy engines or exchange them with us as opposed to putting it through the shop. So we see a lot of upside on on the module factory as we bring all those products together integrated and I think that will be the biggest.

Revenue contributor of the three next year.

By a good margin.

Very helpful. Thanks, Joe appreciate the time.

Yep.

Our next question is from Josh Sullivan with Benchmark Company. Your line is open.

Hey, good morning.

Good morning.

Just on the on the current PMA submission how is that tracking relative to the first part and what the FDA has requested.

Kind of a guide path and then just curious about the following three parts are.

Our are moving forward as well.

Yes.

It's tracking very similarly in that.

Hum.

The FAA is being provided information along the way so there's there's a lot of back and forth and read.

View of test data and engineering information. So it's it's been very similar to the way the first part of that and that's that's the way chrome ore has been approaching these.

Our products and it's worked well because then there's no there should be no surprises at the end.

The second part is technically more complex and the first part so there's there's probably a little bit more.

Engineering and manufacturing.

I actually have data that's needed, but but it's all you know it's all been reviewed and signed off as we go so I think that the final submission should and the approval.

Should track similarly to what what happened with the first part and Chrome was very confident you know they've never had never had a part that didn't get approved.

So it's it's I would say very similar in terms of a process to the first part.

And then there's that.

The third fourth and fifth are in.

Design and engineering and are on track to be submitted in.

Late 2022 or early 2023, so those those are less complex parts.

Obviously, we started with the <unk>.

The more expensive ones in the higher difficulty ones first.

Got it.

And then maybe one on the infrastructure side.

The $80 million of EBITDA, you're looking at those.

There's multiple opportunities that you mentioned in the remarks, I think auto and elsewhere.

The timing on those projects are and then does the global supply Crunch here, you know a lot of those opportunities maybe to speed up.

Yeah.

Some of them are sort of Oh, you know grind it out by adding storage and repair services and right away income that occurred just.

Gradually and over every quarter and then some of them can be really project driven if you get a new customer or you have a new.

So the service that you can provide it could be a step function up and you know the rail market, obviously is as strong.

Core industries that we all serves are all doing pretty well.

We see development opportunities, many and many different spots in location, we had a good dialogue with U S steel about additional opportunities we can provide them. So that you know that.

The playbook is really to try to come up with 10 ideas that you can pursue and hopefully three or four of them hit and that's that's exactly what happened in rural America, and when we do that and and those tend to be sizable and they tend to be sticky. So it feels like it feels like deja vu.

And but we're in a very good macro environment with.

U S industry being strong in an infrastructure bill coming which.

So who knows what that's going to provide but it's going to be good and some are in different areas.

And we also see it in long ridge, we see.

A lot of companies have announced theyre going to expand and build them.

Our factories and in the Midwest and that's good for railroads because that means a lot of stuff that's going to be moving around so.

I think the environment is good and we're you know we've got the playbook and we're I think we're going to hit on a few of them.

Thank you for the time.

Thanks.

Next from Julianna Mama.

At this point your line is open.

Good morning.

I guess jumping on.

A quick question on the PMA side then.

I kind of a follow up question different topic, but one of things I was curious about was the first part approved second partners are coming in the.

The relatively near term.

One of the discussing why that's come up in the past.

A lot of airlines or.

The first and second part that you're going after and so I'm not.

Yeah.

Uh huh.

A little bit of a slow rollout at first I'm curious if you have a lot of orders for south where you have a lot more circumstantial.

At both parks being approved to sell to third parties and then.

From there just to get a general kind of the contribution of those two parts from a savings perspective.

You can do a quick close everything in the near term.

Yes. So there are orders for sets and I think you correctly pointed out it's an engine isn't if an airline is going to put an engine through the shop. They wanted to put enough PMA in it to make it worthwhile and so having two parts there.

Particularly you know the high value parts.

Second part that we're making is it's pretty important to the <unk>.

Program. So so I think that they are sort of joined together for many airlines that particularly because they know what's coming in and sort of if they had a decision to make and put it in the first part.

Without knowing the second part is coming it's it's easy to say well I'm not doing a lot of shop visits today. So why don't I just wait for the second one and then I'll decide so I think that's the dynamic but every airline knows it's coming it's a big it's a big deal in the industry and and they're very eager to.

Get it so I think with that backdrop is is quite positive and we expect.

As do most of the industry is third party shop visits or are starting to grow and we think will increase significantly in 2022, So that will also drive.

Yeah.

If you can't get parts or your shop visits has delayed that will also facilitate looking at PMA as an alternative.

The other thing we have is we have some significant potential inflation in metals.

Out there so you could see a.

Bigger price increases from Oems and people have experienced previously so that's another dynamic that I think could help.

Helped help the effort.

So I think it's that's all.

That's all shaping up.

Pretty nicely in <unk> and then in terms of the percentage I think that the.

First two parts.

Our 60% of the savings that we can provide so.

If the.

If the five parts in total or 80% of this on the air for a shop visit then this is 60% of that 80% or half of it.

So 50% of the total airfoil cost is represented in these first two parts.

That's great that's great.

Two of them have a different topic.

I mean, if that's what they wanted.

Curious about when thinking about the split of the company into two activities.

Is.

Whereas if the preferred shares.

If you intend to move to Perjure was one way or the other I'm, assuming they stay at aviation, but you could get to.

Confirm that.

Yeah, that's correct that's the issue.

And then the only other question was I think you referred to there.

Infrastructure business being spun off in the C Corp, I'm assuming.

I'm sort of offer a limited structure that would not have a great one for aviation.

Did you I didn't quite understand the question.

On the irrigation side.

You mentioned, what the legal structure, you're fine on using I'm, assuming anybody with Berkshire buying is going to remove became one.

Yes, it'll be a it'll be a corporation a corporate structure that it would be a non U S Corporation.

That's great.

Thank you very much and I'll jump back in the queue.

Does it eliminates K ones.

Just to.

Draw a line under that.

Perfect.

I'll jump back in with you. Thank you so much.

Yep. Thanks.

Next question is from Chris Wetherbee with Citi. Your line is open.

Hey, Thanks, good morning, guys.

Maybe wanted to touch on Jefferson for a moment. So Joe you mentioned that you're you opportunity I also wanted to kind of get a sense of how we think about that pipeline and when we might see opportunities ramp up there I'm sure there's probably some.

Yes.

Spread dynamics.

Hitter here, but as you think about for Q&A in the first half of next year kind of give us some sense of what the outlook.

In terms of EBITDAR fad for that business.

Yes, we so that I mean, the pipelines are operating which is great and you know that was.

Big part of getting them into service getting operating function and now obviously, where we're all over everybody just tried to use them. So that's that's the game and we have multiple pathways to sort of getting to our.

Numbers and increasing the utilization.

Just need one or two of them to hit and obviously with the markets improving.

From an oil price point of view refined product demand point of view.

From a refinery is looking to bring in crudes from discounted crudes from all over the world that helps because where we're positioned to try to provide all of those.

Options and Optionality and the services that they need whether it's buy water from the North Sea as we mentioned are it's blended with currently.

Permian and where it comes from Utah and the heavy lacks trained we blend. So we have all of that in front of everybody and it's just a question of getting a couple or two of those to hit and that's that's really what all all of our focus and attention is on that and.

We have multiple pathways to get there so I'm confident we'll get there in the environment as it was gonna help we just need to do it we just need to execute on it.

Okay, Alright, that's helpful.

Then maybe a bigger picture question when we think about aviation post split can you give us a sense of maybe what you think they sort of.

I guess a question on the capital that has the potential to be deployed on an annual basis given the size that you guys won't be at this point I just wanted to get a rough sense of kind of what you think the opportunity set is ahead of aviation Standalone.

What kind of capital can be deployed on an annual basis.

Yeah. So we've historically if you look back we've we've tended to invest between 300 and $500 million a year.

Pretty consistently although I always say, we don't budget Capex, we don't tell anybody there that's where we want to do the beginning of the year, because that's not the right way to.

Do you think about investing.

But it's been $3 million to $500 million in and now what we're doing is really I think focused on we're focused on the CFM 56, obviously and we're focused on some of these transactions that we think.

We can add them.

Engine business as part of that is part of the transaction. So as I mentioned Avianca Alitalia American.

We believe you know we're gonna have follow on opportunities above and beyond the sale leaseback that will be.

Enhance the value of the relationship and enhance our profitability and not requiring additional capital. So the goal is to try to.

Leverage the capital to the maximum degree possible not to invest the most capital.

So we'd rather keep the number.

And be strategic into this three or $400 million a year and get.

Additional service and fee business to bring that to grow that business because it doesn't require capital I'd, rather do that than invest $1 billion of capital and not get any other business. So so that's that's the way we're thinking about it so I think that the.

The goal is to grow the.

The the non asset based service businesses as well as to the maximum degree possible and to use the capital in the most efficient way to do that.

Okay. That's helpful. Thanks for the color appreciate it guys.

Yep.

Next question is from Devin Ryan with JMP Securities. Your line is open.

Hey, good morning, gentlemen, thanks for taking the question.

I guess the first one just coming back to some of the earlier comments on long Ridge.

You hear about kind of the increased contribution there.

Near term here.

I missed it the $40 million where.

That could vary.

You reinvest that back in the business that could dividend too.

The parent how should we think about kind of increased profitability, there and then with electricity costs or prices, where they are now because there's no way to kind of lock that in for longer just obviously, there's been volatility but.

Kind of a higher level.

And for Mexico.

Ah yes.

$40 million is incremental.

Cash they will come into long ridge above and beyond what we projected and.

Initially the view would be to pay down debt I think we're going to look at our refinancing we always expected that once the plant went live and was operational we would look to refinance the debt at that level and we'll get a better rate and we may get more debt. So there might be a recap opportunity that is that has helped and facilitated.

By having additional income and profitability. So it's a it's good and it's played out.

We always expected that right around the time, we went live we would we would look seriously at refinancing.

Again at long Ridge and.

And rates are lower in profitability is higher so it's those are good things.

In terms of locking in we are looking at everything we could do to first of all we only we contracted I think 94% of capacity of the plants that we have six percentage. That's available. We also could potentially increase the capacity from 485 megawatts up to 505, we believe it will run at that lead.

So there's another 20 megawatts.

Then.

We're looking at how to increase gas production as well from from what we have so that we could also monetize some of that so we're looking at everything to try to take advantage of what's an amazing incredible market opportunity that we kind of we got lucky with the timing.

Because we didn't our hedges don't start until February and we completed the project a little bit early so so we got lucky with with.

With the market environment and clearly its the power at forward markets was strong through the winter.

There are a lot of people that are you know.

Pretty positive beyond that because.

Switch over to renewables is not as easy as maybe people were thinking initially so.

So it's it's a good dynamic I think we will look to refinance and take advantage of that opportunity and then and then look to add.

EBITDA from power and gas.

Any way, we can to squeeze out more.

Okay terrific.

Obviously, good to see and then just.

Other follow up here on.

The split of the businesses and you just procedurally I know you guys are.

Working closely with the with your audience auditors I know twice, though kind of complicated.

So you know from the outside it seems like you gave a lot more detail and things seem to be moving smooth.

Smoothly you are there any potential sticking point is we're kind of following from the outside that that could kind of push the timeline out or that you know the auditors or or others are having issues with or is it more just kind of rolling up your sleeves, and just getting it done I guess, that's the first one and then connected to that.

Sure.

Is it going to be the same management team.

You're going to.

Both businesses are have you has that been decided yet just kind of to think about some of the infrastructure.

Related to both of the businesses.

Yes, so the in terms of the first question we are more confident.

Probably the biggest issue that we had to address first was refinance the transtar acquisition debt, which we did in Q3 so.

So that removes any transactional impediment to getting the spin done and so now as you mentioned, it's just it's process and I'm looking at Scott because he's doing the audits.

And the lawyers are doing the documents, but we've done a fortune.

This is done the number of spins and <unk>.

Nobody has raised an issue yet or otherwise I wouldn't be giving a lot more detail on it.

So I think it's it feels like it's on.

A pretty good path to getting to getting.

Execution, and there's no there's no third party or any outside.

Process that we'd get in the way of it so that's good.

In terms of the management I mean the.

What I've indicated is that I will be chairman chairman and CEO F tie.

And chairman of infrastructure and likely will deciding around the spin have a CEO that was not me.

<unk> is somebody that we know, but we haven't disclosed and discussed in much more detail, yet, but that would be the management otherwise.

There's a few spots that will look for some outside hires but it's it's primarily just dividing up the team.

Yep.

Okay terrific, thank much pretty upbeat.

Yeah.

We have a question from Brandon Mcclaskey with Barclays.

Okay.

Brendan.

Right.

This is David.

You talked a little bit about the acceleration you're expecting to see a non service call material.

I was just wondering if you could provide some more color on too.

Yeah.

Early orders, you're seeing or what you think of that acceleration could look like beyond the early 2022 and do you think that you would ultimately be on tethered to the capital required to put into that business.

Yes.

Our ability to generate new services materials purely a function of how many engines. We wanted a tear down and I think our initial goal was 20 and I think we have 20 that are positioned.

That are either in tear down or in the process. So that side of it we totally control on the sales side.

We have a I would say two to three large airlines that had been buying U S. M and they have done so for for quite a while and then we have probably.

Three or four.

Programs that we are working on bidding so where airlines go out and they work with and our maintenance shop and they say well you provide my shop visits for the next five to 10 years and give me a price and then we team up with the MRO and say, we will provide you with used serviceable material and will provide you with modulus.

So we have three that's what I was referring to in sort of the programmatic nature of what we're shooting for.

Those are progressing nicely I would say that the.

The ramp up in shop visits as is.

It's starting but you're probably not going to see too much activity until Q1 of 2022, and then we expect Q2 and Q3 of next year to be.

The threep pretty busy which I think is consistent with what the big independent MRO is and even the Oems have been saying about shop visit activity. So it's it's starting and.

The flywheel as you know is moving and it will pick up momentum next Q2 and Q3 of next year.

Awesome.

Thanks for that one.

Then on the funding.

You talked about it but could you talk specifically about where you think the 800 million in funding.

It's coming from and how the puts and takes are going there.

Yes, so that would all be financing from infrastructure the infrastructure company.

The majority of that will be speed corporate debt, we have transtar, which we acquired which is unleveraged. So that's 80 million of EBITDA and and then the rest of the infrastructure businesses as well. So most of it will be that I'll walk through and look at potentially asset sales to pay.

Some of that which is there's obviously a very good market for infrastructure.

And infrastructure funds that are looking to invest capital in this space. There's a lot of capital raised so so we'll run a process and look at preferreds and other things.

Two to coincide in sometime in Q1 of next year, but it's we don't have to do all of it at the spin either so we can we can stage it but we'll run it full process and.

Be very deliberate and look to sort of optimize that over the next six months.

Great. Thanks, I appreciate it.

Yep.

Next question is from Greg Lewis.

Your line is open.

Yes, Thank you and good morning, I'm, Joe I was hoping you could you could touch a little bit more on infrastructure.

As we think about what what's going on at Jefferson Clearly you guys.

I have invested a lot of money there built out the infrastructure there it.

It seems like the market's finally, you're now starting to go the right way with a little bit of inflection and when oil demand is is there any way to kind of think about you know and I don't know if the right word it's utilization or efficiency.

As we think about the facility right now like is there any way to kind of quantify how much spare capacity is there in terms of driving incremental volumes and revenues out of Jefferson without actually spending any more money.

Yes, I think that is.

Storage utilization is about 75% right.

Have you seen availability there.

Dale.

Also I would say probably rail utilization is probably right.

Right now it is.

An additional 75% availability.

And pipeline.

And it's probably 10% of what it is so there's 90% availability and that's that's.

Exactly what we're focused on is getting near term volumes.

To feel that the infrastructure.

Infrastructure, that's already that exists that's been built.

And so that is the goal is to is to fill that up without any additional capital.

And really I mean, just based on what you know you kind of kicked around throughout the call is that's really just going to be a driver of what various crude spreads are you know whether it's in the North Sea you mentioned the aframax incoming Packer and WCS is that kind of the right way to just feel that.

Growth is at or you mentioned not yeah. Thanks.

So that's part of it and the other part as we mentioned would be.

For instance, a D are you doing.

Recover unit volumes coming from Canada on a steady basis. So if you can if you could bring one train a day from the argument of the terminal that's 50000 barrels of rail in and you blend that with additional pipeline, there's probably two or three to one so that's potentially like 200000 barrels a day from.

At one.

One move and that's the leverage in that those those are the deals that we're trying to you know to hammer out, particularly to get a ratable flow.

To cover a lot of existing capacity and then you can be opportunistic with the aframax volumes in the spread business.

Okay, great. Thank you very much.

Thanks.

And my last question is from Robert Dodd with Raymond James Your line is open.

Hi, guys.

And congratulations on getting this aviation tail on all I'm going to ask about the dividend.

When we looked at our funds about distribution when we put on transtar put on these new the new aviation sales etcetera, you are going to be by my math, you know about the two to one coverage of the dividend at the same time, we're obviously heading into two spin off and then changing corporate structure next year. So could you give.

As a outline if you you've got in that part of the plan.

Would it be for the dividends.

From one or both different pieces and what given with that as you would expect that the relative scale of those dividends to be maybe compared to what it is for the pure play.

The singular tight right now.

Yes, so the so the best.

Her guidance, we can give right now is that.

We believe that roughly of the existing dividend into the dollar 30 to roughly 75% of that will come from <unk>.

Aviation and then the balance 25% will be from infrastructure, that's kind of a you know it's not precise but I think order of magnitude. That's that's our thinking and then each entity is going to look at you know the extent to which fad and funds available for distributions or.

Exceed the two to one in Asia as you point out our goal has always been to maintain that so we would increase the dividend at each entity to the extent, we have more than two to one coverage. So if it's a continuation of the existing policy split the dividend roughly 70 525.

Between aviation and infrastructure.

And then each entity will obviously then grow differently, it's instead of being.

Catch they'll have different trajectories at that point.

Got it I really appreciate that thanks a lot.

Thanks.

And.

The credit card.

Yeah.

Thank you all for participating in today's conference call. We look forward to updating you after Q4.

Today's conference call.

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Good day and thank you for standing by why don't the third quarter 2021 fortress transportation and infrastructure investors LLC earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Quick question Louise Press Star one on your telephone.

At any time during the conference you need to reach an operator, Please press star zero and now I would like to turn the conference over to Mr. Andrey you may begin sir.

Thank you operator, I would like to welcome you to the fortress transportation and infrastructure third quarter 2021 earnings call. Joining me here today are Joe I'm, sorry, Chief Executive Officer, and Scott, Christopher Our Chief Financial Officer.

In addition, we will be discussing some non-GAAP financial measures during the call today, including Fad reconciliation.

<unk> of those measures to the most directly comparable GAAP measures can be found in the earning supplement.

Generally from actual results. We encourage you to review the disclaimers in our press release and 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 SEC now I would like to turn the call over to Joe.

Thank you Alan.

To start today I am pleased to announce our 26th dividend as a public company and our 40 <unk> consecutive dividend since inception.

The dividend of <unk> 33 per share will be paid on November 29 based on a shareholder record date of November 15th.

Now, let's turn to the numbers the key metrics for us are adjusted EBITDA and fad or funds available for distribution.

And EBITDA for Q3, 2021 was $96 4 million compared to Q2 of 2021 of $68 million in Q3, 2020, $58 6 million.

Fad was $39 4 million in Q3, 2021 versus $68 3 million in Q2, 2021, and $39 9 million in Q3 2020.

During the third quarter, the $39 4 million Fad number was comprised of $95 million from our aviation leasing business.

Point $2 million from our infrastructure business and negative $50 9 million from corporate and other.

Turning now to aviation.

So recovery continues as our EBITDA for Q3 was approximately $100 million up from $80 million in Q2 and $60 million in Q1, we.

We see broad improvement in demand across narrow body markets with some delays, resulting from the Delta Varian.

As an example, we signed leases for approximately 30 engines in the quarter, but airlines took actual delivery of approximately 15 as several regions had continuing travel restrictions lift for the most part now have been reopened in Q4.

We have a strong backlog of engine demand.

To start new leases on over 40 engines in Q4 of which 30 are signed today and 10 have already been delivered.

We're also closing new sale leaseback transactions on 16 aircraft with Alitalia and Ito and 19 aircraft with Avianca and funding those in November for an aggregate new investment of $340 million.

The term of the lease backs range from six months to 10 years with an average of 15 months and three fourths of these $3 19, and $3 20 aircrafts are CFM 56 powered aircraft, which is an excellent addition, and brings our total CFM 56 engine count to approximately three.

<unk> hundred engines.

Our three CFM 56 aerospace activities all made great strides forward.

On PMA. The next part has completed production and documentation is being assembled to make the final FAA application complete in the next few weeks.

As such we expect to be able to use both parts for our own engines. In Q1 2022 and are seeing strong third party interest for multiple airlines and MRO is there maintenance repair organizations for shop visits beginning in 2022.

On the module factory, we have completed a number of module sales and swaps and are progressing with a few airlines in negotiating long term programmatic supply agreements.

That's where our used serviceable material business or U S. M business with AAR, we're targeting approximately $10 million in sales in Q4 with momentum growing into 2022.

All combined 2022 is shaping up really well with leasing EBITDA expected to be $500 million for the year and the three CFM 56 aerospace activity is expected to contribute between 50 and $100 million of total EBITDA for the year total EBITDA for aviation for 2020.

<unk> is expected to be $550 million to $600 million.

Let's now turn to infrastructure.

And the Jefferson terminal has become an essential and extension of the two largest refineries in North America.

Looking specifically at Q3 near term headwinds continue to impact the economics of crude by rail from Western Canada to the U S Gulf Coast.

Enhanced terminal infrastructure and the in service pipeline projects connecting Jefferson to Exxon.

Angie Motiva had been completed and baseline business continues to steadily increase as these business partners ramp up refinery activity.

As we look towards 2022 high oil prices and demand for refined products is good for Jefferson logo refiners are lining up new sources of discounted crude for markets in Western Canada, and Uinta basin, and looking for terminals like Jefferson to optimize blends and lower logistics costs.

Additionally, international oil flows are increasing in Jefferson will be receiving its first ever inbound aframax marine cargo from the North Sea.

This month.

High expectations for additional inbound marine volumes from overseas and have line of sight on several other significant opportunities in the near future.

Specifically, there were making progress on D. R U W recovery into discussions as well as discussions relating to the movement of heavy waxed barrels which cannot move by pipeline.

These two projects are important because they would lead to a ratable flow of trains which are not dependent upon crude spreads.

Finally, we are moving forward with several interesting opportunities regarding the movement of natural gas liquids and other products, which would involve the integration of ponto long ridge and Jefferson into a seamless flexible and unique supply chain.

Turning to reported <unk> continued its strong pace in the third quarter loading of 2014 marine vessels with over 900000 barrels of butane down for international markets.

This activity was complemented by increased truck movements to local premium markets to signal the beginning of the fall gasoline blending season.

Rounding out the first export season, the highly flexible multi modal port and rail terminal firmly established itself as a premier distribution hub on the east coast of the United States.

We're excited to enter the local propane distribution market. This winter.

By increasing the suite of products handled simultaneously at the terminal and providing security of supply for local markets in the northeast.

Meeting our customers' needs not only in new Jersey, but also in the entire northeast region.

Pushing towards further development outlined in F. <unk> long term vision the newest port on the Delaware River plans to see expanded capacity with three plus million barrels of highly efficient underground storage cable capable of handling a wide variety of LPG and refined products to be ready for export.

Via all sized ships <unk>.

Including Vlccs.

<unk> is also looking at import opportunities as they arise rise in various markets and under various market conditions prana.

Product movements will be available by rail inbound and outbound by water across multiple new high capacity deepwater docks and eventually buy pipe from all major north American producing regions.

And with 250 plus acres available for development. We also continue to move forward with several renewable opportunities.

<unk> is prime for staging and manufacturing of wind farm components.

And for waste plastic recycling projects.

These discussions are in advanced stages, and we hope to have one or more concluded by year end.

Turning now to long Ridge long Ridge has successfully transitioned from a development project into a cash flowing operating business as evidenced by the $15 5 million of EBITDA on 100% basis generated in Q3.

Most of the Q3 EBITDA was attributable to our natural gas production, which was sold into the market and now that the power plant is operating our natural gas is being utilized to generate electricity, while natural gas prices have rallied recently and we benefited from that in Q3, the economics of generating electricity or even.

Better.

We anticipate long ridge to generate EBITDA of approximately $50 million in Q4 and $37 million in Q1 2022.

Which taken together is more than $40 million higher than we expected when we initially underwrote the project.

This incremental cash flow as a result of completing construction nearly a month ahead of schedule and higher power and natural gas prices in the market today.

Our fixed price power sales agreement commenced in February locking in an attractive margin for the next seven to 10 years and generating approximately $120 million per year of EBITDA.

We've also just recently seen lots of interest in power intensive industries that want to locate and build new facilities at properties like long Ridge Importantly, we remain on track to do the first large frame power plant in the U S to blend hydrogen into our natural gas stream.

We will start with a 5% hydrogen blend in December and hope to increase this percentage over time.

Turning now to Transtar. Our newest addition, transtar is off to a great start John Collins and his team are already meeting or exceeding expectations.

I will start with an important metric in the short line rail business, which is safety and the Transtar continues to lead the short line railroad industry in safety and is well positioned to win another President's Award for safety from the American short line and Regional Railroad Association all of the Transtar railroads, our SRA and Osha recordable.

Three in 2021.

Since July 28, the date the transfer acquisition close the company is tracking to the $80 million annual EBIT.

EBITDA number that we had projected.

Transition expenses are tapering off and expect it to be de Minimis in 2022.

One of next year other steel segments are holding steady and strong.

<unk> Valley is running full while Gary Indiana has a planned maintenance outage at the number six furnace, which is expected to be completed in November.

As we look to 2022, we expect multiple new third party opportunities to grow the $80 million EBITDA number we are in discussions with third parties regarding car storage opportunities and railcar repair opportunities just to name two.

In short everything we had hoped to see happen post the acquisition is happening.

Turning now to corporate items on the spin out of infrastructure. We have made considerable progress on the spin off of infrastructure and conversion to C. Corp's in Q3, we completed the refinancing of the Transtar acquisition financing and are now focused on completing.

The documentation and agreements, which we hope to be finalized in December of this year for an SEC filing before year end, which would set us up for having two separate trading entities in Q1 of 2022.

The existing F tie entity will retain the aviation business and assets and all existing corporate debt totaling approximately $2 3 billion pre acquisition of the Alitalia and Avianca fleets.

Infrastructure to be spun out as a new C Corp entity comprised of Jefferson upon our Longbridge in Transtar will retain all related project level debt of those entities and intends to remit approximately $800 million in cash or obligations as part of the separation.

While we intend to monetize this obligation to the maximum amount.

Spin will not be subject to raising additional financing at completion.

So in conclusion, the ramp backup in aviation to 2019 levels is progressing.

Our revenue passenger kilometers continue to rise and as a result, we're seeing engine lease rates and demand for sale leasebacks rise as well.

The industry is still straining from the shock of COVID-19, we're seeing demand for our Chromalloy Lockheed Martin a suite of project products growing as well.

As the infrastructure projects that we started three years to five years ago are now in full ramp up mode. These projects along with Transtar now give us the ability to spin infrastructure into a robust standalone company that vision, which we've been planning for years is about to become reality.

With that I will turn the call back to Helen.

Operator, you May now open the call to Q&A.

Thank you Alan as a reminder to ask a question you need to press star one on your telephone to draw your question press the pound key.

Again Thats Star then the number one their telephone keypad thoracic rationale based on Basel compile the Q&A roster.

Our first question Goss rundown of detecting lung and Steven Your line is open.

Thanks, and good morning.

Yes so.

So that financing we wanted to keep it.

Sure, it's cheap and flexible so we.

Our structured a one year facility, which I believe there will be less LIBOR less than 300, LIBOR, plus 300, and a little less than that like LIBOR, plus 275, and pre payable at any time and our goal with that is to prepay that from the $800 million of.

Infrastructure funding, that's going to come back to aviation, so, we'll essentially be reducing debt.

Net on a net basis when the spin happens at aviation and so that's where we wanted to have that immediately or pre payable immediately.

Turns of the leverage for the companies I mean, we stated as part of the spin and we wanted to maintain double b rating for the aviation.

Aerospace business and we've been getting very good feedback on that I think we're in good shape given the the outline of what I, just said and and both companies will then have access to capital going forward. So so I think it all sort of fits together with.

The parameters of the requirements that we that we set out to do as part of the spin.

Great and on aviation could you also talk about the level of utilization that you are assuming into the fourth corner and enter 2022 as well as you'd think about that guidance you provided and would also love to get a little bit more color on the quarterly cadence of that.

Leasing aviation EBITDA I know you said that it's still expected to be 50 to 100 million next year, but just wanted to understand how that's going to ramp over the next couple of quarters or so.

Yes, certainly.

Utilization.

Think our engine utilization is a little over 60% in Q3, which was less than what we had hoped it would be.

And I think there's it's really primarily or almost exclusively driven by the <unk>.

The Delta variant in the Covid and we saw a lot of airlines, who are gearing up to take additional equipment and.

And we as I mentioned, we had a lot of engine lease deals signed but then when the restrictions started to be reimposed in airlines started they started to slow down the ramp up in activity in and that sort of impacted the third quarter.

We're seeing a lot of activity though.

Now in the market in October and November and as I said, we've got we expect to put 40 engines on lease I think that would bring our engine the utilization up to about 70% or a little bit higher than we expect next year to operate.

And the 75% to 80% utilization range throughout the year and really every airline we're talking to today is is looking for additional equipment and a lot of engines and then I think importantly, the deals with Avianca Alitalia American Airlines, we did it all come with.

Our ability to expand those relationships and provide engines in engine management services. So it's an integrated package in we see the.

We see the market for 2022 developing.

Very nicely and then.

All signs are that people are right now.

I was going to be adding and growing their businesses.

Again next year.

In terms of the crude products.

We also expect a very strong year, we've had good momentum in.

All of those businesses with the exception of PMA. Because this is the second part is not yet approved but but U S. M has developed nicely we have 12.

<unk>, 20th engines and tear down and we are one of the largest providers of USA I am I think the.

The ramp up in the shop visit activity has not.

Picked up yet, but that's not surprising when we expect to see that in 2022 and when that does we expect strong levels of sales for U S. M.

So I think that there'll be growth throughout the quarter, but I think throughout the year each quarter, but I think it's going to start 2022 fairly strong so its not its not a.

It's not a steep ramp.

In terms of the.

Hmm.

PMA or indications from airlines is that they're very interested in those products once they're available and we ourselves or we'll be putting those PMA into our own engine. So we have a number of shoppers as scheduled.

But we also expect a number of airlines.

To step up and start using the PMA.

Beginning in Q2 of next year.

And that should ramp significantly.

Significantly and <unk> has said, they're going to begin production of parts as soon as the application is filed so they will have inventory available.

And then the big upside as I've said before I think is really on the module factory because that's our storefront. That's our cash register that is where we all three products can be.

Combined and provide real value and real savings to the airlines by either selling individual modules are engines that we've overhauled them and we see a number of airlines today as airlines are coming out of.

Distress or restructuring that had postponed shop visits or were and are now looking at returning engines to lessors and others in a run out condition.

They are preferring to buy engines or exchange them with us as opposed to putting it through the shop. So we see a lot of upside on on the module factory as we bring all those products together integrated and I think that will be the biggest.

Revenue contributor of the three next year.

By a good margin.

Very helpful. Thanks, Dan I appreciate the time.

Yes.

Our next question is from Josh Sullivan with Benchmark Company. Your line is open.

Hey, good morning.

Good morning.

Just on the on the current PMA submission how is that tracking relative to the first part and what the FDA has requested.

Have a guide path and then just curious about the following three parts are.

Moving forward as well.

Yes.

It's tracking very similarly in that.

Hum.

The FAA is being provided information along the way so there's there's a lot of back and forth and.

Review of test data and engineering information. So it's been very similar to the first part of that and that's that's the way <unk> has been approaching these.

Products and it's worked well because when there is snow there should be no surprises at the end.

The second part is technically more complex and the first part so there's there's probably a little bit more.

Engineering and.

Manufacturing data that's needed, but but it's all it's all been reviewed and signed off as we go so I think that the final submission should.

And the approval should track similarly to what happened with the first part and Chrome was very confident you know they've never had never had a part that didn't get approved so.

So it's it's.

I would say very similar in terms of.

Process to the first part.

And then this.

The third fourth and fifth are in.

Design and engineering and are on track to be submitted in.

Late 2022 or early 2023, so those those are less complex parts.

Obviously, we started with the <unk>.

The more expensive ones in the higher.

Difficulty ones first.

Got it.

And then maybe one on the infrastructure side.

The $80 million of EBITDA, you're looking at those.

There's multiple opportunities that you mentioned in the remarks, I think auto and elsewhere.

The timing on those projects are and then does the global supply Crunch here, you know a lot of those opportunities maybe to speed up.

Some of them are just sort of.

Grind it out by adding storage and repair services and right away income.

That occurred just grab.

Gradually and over every quarter and then some of them can be really project driven if you get a new customer or you have a new.

So the service that you can provide it could be a step function up and the rail market obviously is as strong.

The core industries that rail serves are all doing pretty well.

We see development opportunities, many and many different spots in location, we had a good dialogue with U S steel about additional opportunities we can provide them so that.

The playbook is really to try to come up with 10 ideas that you can pursue and hopefully three or four of them hit and that's that's exactly what happened in rural America, and when we did that in.

And those tend to be sizable and they tend to be sticky. So it feels like it feels like deja blue and but we're in a very good macro environment with.

U S industry being strong in an infrastructure bill coming which.

Who knows what that's going to provide but it's going to be good and some in.

In different areas.

But we also see it in longer and as we see.

A lot of companies have announced theyre going to expand and build.

Our factories in.

In the Midwest and that's good for railroads because that means a lot of stuff that's going to be moving around so.

So I think the environment is good and where we've got the playbook and we're I think we're going to hit on a few of them.

Thank you for the time.

Thanks.

Next from Julianna Mama.

At this point your line is open.

Good morning.

I guess jumping on.

A quick question on the PMA side.

I kind of thought behind her topic, but one of things I was curious about was the first part approved second part with regard coming in the.

The relatively near term.

I think one of the discussing likely to come up in the past.

A lot of airlines order.

The first and second part that you're going after and stuff.

Yeah.

Sure.

A little bit of a slow rollout at first I'm curious if you have a lot of orders for Saturday to have a lot of ours are contingent on both parts being approved to sell to third parties and then.

From there just to get a general sense of contribution of those two parts from a savings perspective.

You can do with.

What those savings are in the near term.

Yes, so there are orders for sets.

You correctly pointed out it's an engine and if an airline is going to put an engine through the shop. They wanted to put enough PMA in it to make it worthwhile and so having two parts.

Particularly the high value parts.

The second part of that we're making.

It's pretty important too.

The program. So so I think that they are sort of joined together for many airlines.

Particularly because they know it's coming and sort of if they had a decision to make and putting the first part.

Without knowing the second part is coming is it's easy to say well I'm not doing a lot of shop visits today. So why don't I just wait for the second one and then I'll decide so I think that's the dynamic but.

Every airline knows it's coming it's a big it's a big deal in the industry and and they're very eager to.

To get it so I think that that backdrop is quite positive and we expect it.

Do most of the industry is third party shop visits are starting to grow in and we think will increase significantly in 2022, So that will also drive.

Because if.

If you can't get parts or your shop visits has delayed that will also facilitate looking at PMA as an alternative.

And the other thing we have is you have some <unk>.

Significant potential inflation in metals.

There so you could see.

Bigger price increases from Oems and people have experienced previously so that's another dynamic that I think could help.

Hum.

Help the effort.

So I think it's that's all.

That's all shaping up pretty.

Pretty nicely in <unk> and then in terms of the percentage I think the first two parts.

Our 60% of the savings that we can provide so.

If the.

If the five parks in total or 80% of this on the air for a shop visit then this is 60% of the 80% or half of it.

So 50% of the total airfoil cost is represented in these first two parts.

Got it that's great.

Move to a bit of a different topic.

I'm just.

Curious about when thinking about the split of the company to drive disease.

Is.

We are the preferred shares.

If you intend to move to Perjure as one way or the other I'm, assuming they stay at aviation, but you could get to confirm that.

Yes, that's correct.

The issue.

And then.

Other question was I think you referred to there.

Infrastructure business things are often C Corp, I'm assuming.

I'm sort of offer a limited structure that would not have any clue on graveyard.

Did you I didn't quite understand the question.

On the aviation side.

You mentioned, what the legal structure you are planning on using I'm, assuming any legal structure buying is going to remove became one.

Yes, it'll be a it'll be a corporation, our corporate structure, but it would be a non U S Corporation.

That's great perfect. Thank you very much and I'll jump back in the queue.

So it does it eliminates K ones.

Just to.

Draw a line under that.

Perfect.

I'll jump back in with you. Thank you very much.

Yep. Thanks.

Next question is from Chris Wetherbee with Citi. Your line is open.

Hey, Thanks, good morning, guys.

Maybe wanted to touch on Jefferson for a moment. So Joe you mentioned that you're you opportunity I also wanted to kind of get a sense of how we think about the pipeline and when we might see opportunities ramp up there I'm sure there's probably some yes.

I think the spread dynamics that we need to consider here, but as you think about for Q&A, maybe the first half of next year kind of give us some sense of what your outlook in terms of.

EBITDAR fad from that business.

Yes, we so the I mean, the pipelines are operating which is great.

That was a big part of getting them into service getting operating in function and now obviously, where we're all over.

Just trying to use them. So that's that's the game and we have multiple pathways to sort of getting to our <unk>.

Number is an increasingly utilization, we just need one or two of them to head and obviously with the markets.

Improving from an oil price point of view refined product demand point of view.

Refineries looking to bring in crudes from discounted crudes from all over the world that helps because we are positioned to try to provide all of those.

Options and Optionality and the services that they need whether it's buy water from the north sea as we mention or it's blended with.

Permian and where it comes from Utah.

Lacks train we blend so we have all of that in front of everybody and it's just a question of getting a couple or two of those to hit and that's that's really what all of our focus and attention is on that.

Is that a degree of multiple pathways to get there. So I'm confident we'll get there in the environment is is going to help.

Just need to do or you just need to execute on it.

Okay, Alright, that's helpful. And then maybe a bigger picture question. When we think about aviation post split can you give us a sense of maybe what you think they sort of.

I guess the question I think the capital that has the potential to be deployed on an annual basis given the size that you guys won't be at the split I just wanted to get a rough sense of kind of what you think the opportunity set is ahead of aviation Standalone and maybe what kind of capital you'd be deploying on an annual basis.

Yes. So we've historically if you look back we've we've tended to invest between 300 $500 million a year.

Pretty consistently although I always say, we don't budget Capex, we don't tell anybody that that's where we wanted to do at the beginning of the year, because that's not the right way to.

Do you think about investing.

But it's been $3 million to $500 million in and now what we're doing is really I think focused on we're focused on the CFM 56, obviously and we're focused on some of these transactions that we think.

We can add.

Engine business as part of that is part of the transaction. So as I mentioned Avianca Alitalia American we believe we're going to have follow on opportunities above and beyond the sale leaseback that will be it.

Hence the value of the relationship and enhance our profitability and not requiring additional capital. So the goal is to try to.

Leverage the capital to the maximum degree possible not to invest the most capital so we'd rather keep the number.

And these strategic into this three or $400 million a year and get.

The goal is to grow the.

The the non asset based service businesses is as to the maximum degree possible and to use the capital in the most efficient way to do that.

Okay. That's helpful. Thanks for the color appreciate it guys.

Yep.

Next question is from Devin Ryan with JMP Securities. Your line is open.

Hey, good morning, Joe Thanks for taking the question.

I guess the first one just coming back to some of the earlier comments on long Ridge.

You hear about kind of the increased contribution there.

Near term here.

I missed it the $40 million where.

That can vary.

You reinvest that back in the business that could dividend too.

The parent how should we think about kind of the increase profitability there and then.

And what do you see costs or prices, where they are now is there way to kind of lock that in for longer just obviously, there's been volatility but.

Being kind of a higher level of contribution from that segment.

Yes.

The $40 million is incremental.

Cash they will come in to long ridge above and beyond what we projected and.

By having additional income and profitability. So it's it's good and it's played out.

We always expected it right around the time, we went live we would we would look seriously at refinancing.

At long Ridge and.

And rates are lower in profitability is higher so it's those are good things.

In terms of locking it in we are looking at everything we could do to first of all we only we contracted I think 94% of the capacity of the plants that we have a six percentage. That's available. We also could potentially increase the capacity from 485 megawatts up to 505, we believe that'll run at that lead.

So there's another 20 megawatts.

Then.

We're looking at how to increase gas production as well from what we have so that we can also monetize some of that so we're looking at everything to try to take advantage of whats.

Amazing incredible market opportunity that we kind of we got lucky with the timing.

Because we didn't our hedges don't start until February and we completed the project a little bit early so so we got lucky with.

With the market environment.

Clearly, it's the power at forward markets was strong through the winter.

And there are a lot of people that are.

Pretty positive beyond that because.

The switchover to renewables is not as easy as maybe people were thinking initially so so it's it's a good dynamic I think we will look to refinance and take advantage of that opportunity and then look to add.

EBITDA from power and gas.

In any way, we can to squeeze out more.

Okay terrific.

Obviously, good to see and then.

Another follow up here on this.

Split of the businesses.

You just procedurally I know you guys are working closely with the with your audience auditors I know, it's also kind of a complicated.

Profit here. So you know from the outside it seems like you gave a lot more detail and things seem to be moving.

Are there any potential sticking point is we're kind of following from the outside that that could push the timeline out or that you know the auditors or or others are having issues with or is it more just kind of rolling up your sleeves, and just getting it done I guess the first one and then connected to that.

Sure.

Is it going to be the same management team.

You're going to.

Both businesses are have you has that been decided yet just kind of to think about some of the infrastructure.

Related to both of the businesses.

Yes, so the in terms of the first question we are more confident.

Probably the biggest issue that we had to address first was refinance the transtar acquisition debt, which we did in Q3 so.

So that removes any transactional impediment to getting the spin done and so now as you mentioned, it's just it's process and I'm looking at Scott because he's doing the audits.

And.

And the lawyers are doing the documents, but we've done.

This is done the number of spins and nobody has raised an issue yet or otherwise I wouldn't be giving a lot more detail on it.

So I think it's it feels like it's on.

A pretty good path to getting.

To getting execution and there's no there's no third party or any outside.

On.

Process it would get in the way of it so that's good.

In terms of the management I mean the.

What I've indicated is that I would be chairman chairman.

Hi.

And chairman of infrastructure and likely will but at the time around the spin have.

Our CEO that is not me, which is somebody that we know, but we haven't disclosed and discussed in much more detail, yet, but that would be the management otherwise.

There's a few spots that will look.

For some outside hires but it's primarily just dividing up the team.

Yes.

Okay terrific. Thanks for the update.

Yes.

We have a question from Brandon, Nebraska with Barclays. Your line is open.

Right.

Sure.

This is David on for Brandon.

A little bit about the acceleration you're expecting to see a non service call material.

I was just wondering if you could provide some more color on too.

Yeah.

Early orders, you're seeing or what you think of that acceleration could look like beyond the early 2022.

Do you think that you would ultimately be on tethered to the the capital required to put into that business.

Yes.

Our ability to generate new services materials purely a function of how many engines, we want a tear down and I think our initial goal was 20 and I think we have 20 better positioned.

That are either in tear down or.

In the process, so that side of it we totally control on the sales side.

We have I would say two to three large airlines that had been buying U S. M and they have done so for for quite a while and then we have probably.

Three or four programs that we are working on bidding so where airlines go out and they work with and our maintenance shop and they say well you provide my shop visits for the next five to 10 years and give me a price and then we team up with the MRO and say we will provide you with you serve.

Raw material and we will provide you with modules. So we have three that's what I was referring to sort of the programmatic nature of what we're shooting for.

Those are progressing nicely I would say that the.

The ramp up in shop visits as is.

It's starting but you're probably not going to see too much activity until Q1 of 2022, and then we expect Q2 and Q3 of next year to be.

To be pretty busy, which I think is consistent with what the big independent MRO and even the Oems have been saying about shop visit activity. So it's it's starting in <unk>.

We think the flywheel as you know is moving and it will pick up momentum next.

Q2, and Q3 of next year.

Awesome.

Thanks for that one and then.

On the funding on the split I know you talked about it but could you talk specifically about where you think the 800 million in funding.

It's coming from and how the puts and takes are going there.

Yes, so that would all be financing from infrastructure the infrastructure company.

Vast majority of that will be just be corporate debt, we have transtar, which we acquired which is unleveraged. So that's 80 million of EBITDA and <unk>.

And then the rest of the infrastructure businesses as well so.

Most of it will be that walk through and look at potentially asset sales.

To provide some of that which is there's obviously a very good market for infrastructure and infrastructure funds that are looking to invest capital in this space. There's a lot of capital raised so so we'll run a process and look at preferreds and other things.

To coincide in sometime in Q1 of next year, but it's we don't have to do all of that at the spin either so we can we can stage it but we'll run it full process and.

Be very deliberate and look to sort of optimize that over the next six months.

Great. Thanks, I appreciate the color.

Yes.

Next question.

It's from Gregg.

Your line is open.

Thank you and good morning.

Joe I was hoping you could you could touch a little bit more on <unk>.

Infrastructure, you know as we think about what's going on at Jefferson Clearly you guys.

I have invested a lot of money there built out the infrastructure there.

It seems like the market's finally, starting to go the right way with a little bit of inflection in oil and oil demand is is there any way to kind of think about you know and I don't know if the right word it's utilization or efficiency.

We think about the facility right now like is there any way to kind of quantify how much spare capacity is there in terms of driving incremental volumes and revenues out of Jefferson without actually spending any more money.

Yes, I think that.

Storage utilization is about 75% right.

Type of center availability there.

Rail.

Yeah.

So I would say probably rail utilization is probably 5% right now.

There's an additional 75% availability.

Pipeline.

It's probably 10% of what it is so there's 90% availability and that's that's.

Exactly what we're focused on is getting near term volumes.

To fill that infrastructure.

Infrastructure, that's already that exists that's been built.

And so that is the goal is to is to fill that up without any additional capital.

And really I mean, just based on what you're kind of kicked around throughout the call is that's really just going to be a driver of what various crude spreads or whether it's in the north Sea you mentioned, the aframax and coming back or in WCS is that kind of the right way to just feel that that's <unk>.

<unk> growth is at or you mentioned yeah. Thanks.

So that's part of it and the other part as we mentioned would be.

For instance, a D are you there.

Recovery unit volumes coming from Canada on a steady basis. So if you can if you could bring one train a day for the argument is a terminal that's 50000 barrels of.

Rail in and blood.

Blend that with additional pipe volumes, probably two or three to one so thats potentially like 200000 barrels a day from just that one.

One move and that's the leverage in those those are the deals that we're trying to hammer out, particularly to get a ratable flow.

To cover a lot of the existing capacity and then you can be opportunistic with the aframax volumes in the spread business.

Okay, great. Thank you very much.

Thanks.

And our last question is from Robert Dodd with Raymond James Your line is open.

Hi, guys.

And congratulations on getting this aviation deal.

All I'm going to ask about the dividend when we looked at fundamentals.

Distribution when we put on Transtar put on these new the new aviation deals et cetera, you're going to be by my math, you know about the two to one coverage of the dividend at the same time, we're obviously heading into two spin off and then change in corporate structure.

Next year, so could you give us a.

Outline if you you've got in that part of the plan.

<unk>.

Would it be for the dividends.

From one or both.

Some pieces of work given with bad as you would expect that the relative scale of those dividends to be may be compared to what it is for the pure play the singular tight right now.

Yes, so the so the best.

For guidance, we can give right now.

We believe that roughly of the existing dividend of $1 30 to roughly 75% of that will come from <unk>.

Aviation and then the balance 25% will be from infrastructure, that's kind of a.

It's not precise but I think order of magnitude. That's that's our thinking and then each entity is going to look at the extent to which fad funds available for distributions or.

And exceed the two to one in Asia as you pointed out our goal has always been to maintain that so we would increase the dividend at each entity to the extent, we have more than two to one coverage. So if it's a continuation of the existing policy split the dividend roughly 70 525.

Between aviation and infrastructure.

And then each entity will obviously then grow differently instead of being.

Perhaps they'll have different trajectories at that point.

Got it I really appreciate that thanks a lot.

Thanks.

And that was.

Turning to claw back.

Yeah.

Thank you all for participating in today's conference call. We look forward to updating you after Q4.

Today's conference call. Thank you for participating.

Q3 2021 Fortress Transportation and Infrastructure Investors LLC Earnings Call

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