Q2 2022 Fortress Transportation and Infrastructure Investors LLC Earnings Call

July 28, 2022

Good day and welcome to the second quarter 2022 fortress transportation and infrastructure investors earnings call. Today's call is being recorded and I would now like to turn today's conference over to Allen Andrey <unk>. Please go ahead, sir thank.

Thank you Lisa I would like to welcome all of you to the fortress transportation and infrastructure.

Quarter 2022 earnings call joining me here today are Joe Adams CEO Tim.

Tim Nicholson to CEO , Scott infrastructure, Scott, Christopher the CFO of <unk> infrastructure and Angela does.

It does seem to be CFO .

Aviation, 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 he'll bring to the public in listen only mode and is being webcast.

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

The reconciliation 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 and Kevin 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.

Thanks, Alan and welcome to the <unk> second quarter earnings call. Today, we have presented and we will be discussing the financials as of June 30 on a consolidated basis, but we're very excited that everything is in place for the spinoff of <unk> infrastructure to be completed next Monday.

So we will also provide some pro forma information about the two separate companies, which will be trading next Tuesday under the symbols FTA AI and <unk>.

To start I am pleased to announce our 29th dividend as a public company and our 44th consecutive dividend since inception, the dividend of <unk> 33 per share will be paid on August 29th based on a shareholder record date of August 15th.

Let's now turn to the consolidated numbers the key metrics for us are adjusted EBITDA and fad or funds available for distribution and adjusted EBITDA was $165 3 million up 220% compared to $51 6 million in Q1, 2022 and up 143% compare.

To $68.

There are $1 million in Q2 2021.

Fad was $109 4 million up 53% compared to $71 4 million in Q1, 2022, and up 60% compared to $68 3 million in Q2 2021.

During the second quarter, the $109 4 million Fad number was comprised of $161 6 million from our aviation leasing portfolio $9 9 million from our infrastructure business and negative $62 1 million from corporate and other.

Starting out with aviation aviation had a really good quarter, posting approximately $160 million of EBITDA and $105 million and net income were.

We're benefiting from strong demand globally, driven by the recovery in travel demand, which in turn is fueling growth in engine aftermarket services.

Lease rates have returned to at or above pre COVID-19 levels and improving asset utilization is pushing maintenance reserve collection up while inflation is driving higher per hour and cycle rates.

Asset prices are also up and we took advantage by selling about $100 million book value of assets for a gain of $55 million.

And we have more asset sales coming in Q3 and Q4, both to recycle capital invested in some of our 2021 larger acquisitions and continue capitalizing on the robust freighter market.

Aerospace products had an excellent quarter was $17 million in EBITDA and a significant increase in order backlog.

We're in the process of completing two separate asset sales, where <unk> will retain engine maintenance service contracts for the next eight years covering 22 engines.

We believe this marks a unique way to scale the number of engines, we manage while recycling capital for new investments.

In addition, we've been awarded a major engine exchange program covering between 10 and 20 engines for a large southeast Asian airline.

All told today, we now have five airlines three leasing companies and five maintenance repair organizations. Our MRO has signed up to use the module factory factory for a significant portion of their CFM 56 fleet and every user we've had so far has been a repeat.

Customer.

You service serviceable material U S sales.

Sales experienced more activity in Q2 shop visits increased.

The demand for used CFM 56 material is high and growing and sufficient to easily support 20 to 30 engine teardowns per year, which continue to generate approximately $1 million in profit per engine for us.

Our Pn TMA initiative made significant progress in Q2 on the next four parts development.

Although the process is slower than expected, we're very happy with the parts being produced and are properly supplying all data requested.

At this point, we expect all four new products to be submitted for final approval by this time next year.

We currently expect to complete an additional $200 million in asset sales in Q3 and have concurrently signed up $300 million in an attractive new acquisitions to replace these.

The new deals are expected to be accretive by adding more EBITDA than the assets removed.

Although from a timing perspective, Q3 likely will experience a slight decrease in leasing EBITDA until those new investments have fully closed.

Turning to the insurance claims were making good progress by supplying all information requested.

The insurers regarding our $290 million in claims for assets lost in Russia, Ukraine.

With three different buckets of claims we think it is possible to realize a partial recovery by year end 2022. This year with the balance collected in 2023 and 2024.

As a reminder, any recoveries will be 100% income since all related assets were written off fully in Q1.

To pull it all together, we expect aviation.

Without any insurance recoveries will produce per quarter.

$90 million to $100 million in EBITDA from leasing.

1% to $30 million in asset sale gains, which we think will be recurring each quarter.

20% to 30 million in EBITDA from aerospace products totaling $550 to $600 million in per annum EBITDA from aviation.

With this level of EBITDA, we expect F tie aviation to pay a dividend going forward of $1 20 per annum while fit.

<unk> infrastructure expects to pay 12 per annum for the total of $1 32 for the two stocks post spin.

Let me now turn the call over to Ken to discuss infrastructure.

Thank you Joe and good morning, everyone as Joe mentioned, our infrastructure business will be a standalone company commencing next Tuesday.

Certainly excited about the prospects of our infrastructure platform and believe we're well positioned to drive substantial growth in each of our four existing businesses. It's a dynamic time in the industrial and energy markets with inflation and focus on energy security as prominent as ever and our assets are extremely well positioned to capitalize on several opportunities.

Quickly to the second quarter results in total our infrastructure business posted $26 7 million of EBITDA in the second quarter up 34, 8% sequentially from $19 8 million in the first quarter of 2022 importantly, each of our four core companies reported sequential growth in revenue and EBITDA as we head into.

The second half of the year, we're seeing good momentum across the portfolio and expect to continue to generate meaningful sequential growth as our businesses continue to ramp up operations. Following recently completed developments and as new contracts kick in.

In the aggregate, we're targeting achieving annual adjusted EBITDA in excess of $200 million in the next 12 months to 24 months with no additional investment required to meet that target.

I'll briefly review each of our infrastructure companies, starting with Transtar transfer had an excellent quarter posting growth across all aspects of the business, including volumes pricing revenue and EBITDA.

EBITDA increased from $14 8 million in Q1 to $18 8 million for Q2, a 29% quarter over quarter gain.

More importantly, cash flow was $20 million for the quarter, our sales from non core assets continued to exceed capital expenditures.

Volumes at Transtar increased from 54000 to 57000 carloads from Q1 to Q2, while pricing or average rate per car grew from $562 to $599 per carload or insulated from inflation and higher fuel costs at transtar with the ability to pass through higher operating costs under our contract with U S steel.

And ancillary services also grew at Transtar with car repair efforts, bringing in new revenue for the quarter, while the third quarter is typically seasonally a little soft.

Softer than other quarters during the year, we expect results to remain steady as we look ahead driven by continued progress on a number of initiatives to gain new customers and grow revenue from other sources, including car repair and real estate income.

Next on to Jefferson.

Q2, EBITDA Jefferson was $4 2 million up 11% compared to $3 8 million in Q1 of 2022, we saw increases in volumes of both refined products and crude oil as utilization of our terminal capacity continued to steadily ramp up during the quarter.

We're very bullish about the second half of the year at Jefferson and expect revenue and EBITDA to grow materially in the third and fourth quarters, we're seeing a substantial pickup in volumes of refined products shipped to Mexico and yellow waxy crude trains are now running at 9% to 10 trains per month.

More importantly at Exxon Mobil's request, we now expect to complete construction of new storage tanks and commence terminal operations under a 10 year contract during the fourth quarter of this year ahead of our original schedule of January 2023.

This contract to generate approximately $20 million of incremental EBITDA.

Annually, bringing substantial committed throughput volume for the terminal and provide a springboard for increased volumes and growth in volumes.

We're also in active discussions with Exxon about activating an additional connecting pipeline, which will bring incremental crude volume from Jefferson It expanded exxon's Beaumont refinery.

Additionally, we will look to complement this expansion by providing bidirectional service on the southern star crude oil pipeline between Jefferson and Motiva, allowing for increased blending capabilities and higher crude oil throughput at the terminal and short.

The much anticipated ramp at Jefferson is now upon us.

Moving onto Longbridge Longbridge generated $7 5 million in EBITDA in Q2 versus six one in Q1.

As we have communicated in the past, we target quarterly EBITDA for our 50% share of long ridge to be in the range of $12 million to $15 million per quarter are results for <unk> included the impact of gas purchases during the quarter that were required from external suppliers as we transitioned our internal gas production to new wells later than planned.

This combination of constrained labor availability and limited supply of drilling equipment and it took approximately three weeks longer than expected to bring new gas production online necessitating the purchase.

The purchase for our power plant from third parties at historically high prices. Fortunately it was an isolated event and not something we expect to repeat.

By the month of June we were running on our own gas and generated EBITDA for the month within our targets and going forward. We expect to continue steady EBITDA from the power plant in line with our targets.

Development at long Ridge continues to be robust in July we entered into agreements with new life technologies for the construction of a new $300 million facility to be built on long ridge property, which will produce carbon negative and biodegradable plastic products from natural gas long ridge will sell power and natural gas to new light as well as provide land under a long term.

Lease in.

In addition, we expect to be an investor in the project if certain conditions are met we expect the facility to be operational in 2024.

Finally to close out with <unk> <unk>.

Part of our key focuses on commencing development of our phase two LPG Trans loading system. This system is expected to triple our throughput capacity and quadruple our operating margins. When it comes online in a couple of years, we have demand from multiple international off takers and our goal is to enter into a long term agreement with one or more parties during the.

Third quarter.

We have completed engineering for the new storage tank and associating piping and systems and have negotiated construction contracts, we plan to finance all construction costs with tax exempt debt.

In the meantime in the second quarter, we expanded our existing capabilities by loading fully refrigerated LPG to large gas carrier marine vessels with this important step we move closer to our goal of loading vlccs are very large gas carriers across our dock facility. In addition, the newly expanded LPG truck racks continues to see high utilization.

Providing both propane and butane to local heating and blending markets meeting additional customer needs in the area.

Finally, we continue to see increased interest in the renewable energy space with 250 acres Prime for development, we have announced a coordinated effort to develop a unique marine cable manufacturing facility with rise light, which will provide a critical American made infrastructure linked to bring renewable electricity from offshore wind generation to.

Our local consumers also are clean planet joint venture continues to progress through the permitting process for the first plastics recycling plant at <unk>, we're expecting to complete construction of the clean planet facility in 2024.

That I will turn it back to Joe.

Thanks, Ken.

Next week is a big week for <unk> shareholders with the consummation of the spin.

Fifth we'll eliminate K ones for shareholders upon the spin and <unk> will begin a six to eight week re domicile in which when complete will eliminate K ones for all shareholders as well.

Index funds, Etfs, and a broader investor universe will be able to own both stocks and importantly, both companies will focus refine and articulate their uniqueness and value add in the respective markets served.

For aviation F tie is capitalizing on global travel recovery and growth in aftermarket engine services to be the leading low cost commercial engine power provider for narrow body aircraft globally.

The unique combination of engine leasing and maintenance management provides airlines cost savings and capital preservation through proprietary products and practices, while focusing on the largest and most liquid engine market in the world.

And I would just say for infrastructure, we very much look forward to updating investors on a standalone basis, starting next quarter, we do expect to post meaningful growth in the near term across each of our four key business units. It's a very attractive time to own long term assets, well insulated from inflation and with highest scarcity value in the country's largest industrial and energy markets.

We view the growth of Transtar. This quarter is a good indication of things to come in following years of development, we're accelerating the pace of ramp up at Jefferson or upon a terminals while at long ridge with Powerpoint complete we're now beginning to drive incremental cash flow and value and I'll turn it back to Alan.

Thank you Ken.

Lisa you May now open the call to Q&A.

Thank you if you would like to ask a question on the phone lines. Today. Please press star one on your telephone keypad. Once again, everyone that is star one to ask a question.

Yeah.

We'll take our first question from Giuliano Bologna from contact point.

Thank you Ed.

Starting off with you on the on the aviation side.

I'd be curious in a couple of different things and how they kind of interact together.

You have the map out a handful of asset sales from somebody.

For the nine assets, we got back from Russian carriers.

Last quarter that you expect it to generate call it $30 million gain on sale.

And part of it or a 7% lenses have you gone back that we're potentially going to go out and I'm curious when we look at the asset sale of members who came in higher than.

What I had exactly I'm curious what the composition of those asset sales it looks like or if we saw you sold more of the Russian assets and you mentioned some cargo as well during the call and then talking to them looking on the other side, what kind of assets you're looking at on the LOI side, because you have to have a pretty strong LOI pipeline.

You mentioned 300 million of central acquisitions, So I'm curious to know.

What types of assets, you're selling what types of assets youre acquiring and how should we think about the EBITDA contribution.

How long a salesman than back then on the acquisition.

Yes so.

The composition is.

A little as I mentioned, there is two different groupings, one as cargo and the others recycling capital from.

Mainly the Avianca deal, but also some others with long term leases that we did last year.

The cargo assets. We also sold in addition to selling some of the assets for 750 Sevens and 760 Sevens, we took back from.

Russia and Ukraine, We've also sold some 740 sevens.

In this quarter. So that's that's that's why the gain is higher than we had originally projected.

That market is <unk>.

We don't.

We don't know when the cargo market will you know will.

Will slow down, but we don't want to Miss it. So we decided that it was sort of a good time to we'd rather be early than late.

That market.

We had bought those assets at a very.

Attractive time several years ago, when no one was paying attention or thinking about cargo. So they were quite quiet.

Good returns for us.

But we decided it was time to sort of lighten up on the cargo side.

And then in the third quarter I think.

Alluded to the deals that we're selling.

With long term leases attached so.

There's still a lot of capital that's been raised by new leasing companies, who likes it wants to buy deals.

We structured those so that we can retain the engine maintenance service contract in and do that for the lessor, which is great for us because we could use lessors.

Other lessors capital and retain the best part of the deal so.

So those are the deals we're targeting to close in.

Mostly in Q3 and.

We will add a lot of we had backlog to our aerospace products business that way and we think we can continue to grow and we're very pleased that the lessor acceptance of that as it has been.

Not not by one lessor, but by two lessors. So we see that as something that's very very significant for us to continue to grow the service business and highlight our.

Our ability to create value out of our portfolio deals, which is why I referenced that I think this gain on sale is something that we think is.

Should be recurring for us each quarter I think we can do that we can buy packages of assets and then find the parts that are most attractive other people and take advantage of that and in this case, we're able to even keep the engine maintenance service as part of that.

On the buy side.

We're focused on all CFM 56 engines are mostly that's been the folks along we acquired 25 engines in Q2 there were.

All off lease so that.

That's where you get the best prices when you have an asset.

Some do you have to put revenue you have to attach revenue to it says that's a market that very few people compete with us on that so so that was a great.

On the buy side and then.

Additionally, we've got some deals with.

Big.

Airlines that have existing relationships with that we've established a good relationship with also CFM 56 engines and.

They would add two very similar to the transactions, we did last year with Avianca Anita. So we think it's a it's a great combination we pick up EBITDA by doing that so it's.

Both recognizing a gain an increasing EBITDA seems like a.

Good very good win.

That's great I appreciate it.

Switching topics over to infrastructure.

Uh huh.

Alright.

Jefferson.

I'm curious.

Yeah, there's a lot of commentary on the call about terrorism and.

And there's an outlook or not.

Our roadmap is getting smaller.

Roughly around $80 million EBITDA I'm curious what gives you.

A lot more like what gives you a lot more confidence.

We got there and then thinking about the different components, obviously, there's the Exxon deal coming on.

And I'll say the wax.

Yeah.

<unk> volumes are expected to increase that started to increase during two years I'm curious what the different components are and how to think of our contribution from some of the different initiatives that are going on at Jefferson.

Yes, yes, yes look we're where we're pretty bullish on the second half of the year at Jefferson.

Look all of the assets are in place.

We are finishing up the new assets for the Exxonmobil contract and we're really happy that we're gonna be able to start operations under that contract now in the fourth quarter.

Obviously, a big piece of the bridge to $80 million.

But a bigger piece is just continued increases in utilization all of our assets in place today are being utilized at less than 50% and it's been a process for.

Frankly, a few years of building out those assets and cultivating the relationships with the Exxon Mobil's mosquitoes and others in the Beaumont refinery complex that's been a been a lengthy process, but were now finally there.

As I mentioned, we're opening up another crude pipe.

Between Jefferson and.

Exxon where were.

We're kind of making a small change to the southern star pipeline between Exxon and Motiva to allow it to be bidirectional all of those things play into more demand and more requests for throughput from our two largest customers.

Yes, we're thrilled that yellow wax trains continue to accelerate.

Second quarter was a good quarter I think the third quarter will be an even better quarter.

Find products into Mexico are strong.

And getting stronger new terminals are being opened in Mexico and so.

We're seeing indications and seeing business in this month of July that make us very comfortable with our outlook for $80 million of EBITDA you know in the next 12 to 24 months.

That's great I appreciate it.

Sorry, my questions I'll jump back into queue.

We will take our next question from Josh Josh Sullivan from the benchmark company.

Hey, good morning.

Good morning, just.

Question on the overall leasing market, we've had both Airbus and Boeing come out here lowering delivery assumptions due to supply chain issues, mainly within the engine availability of market or vertical.

So first off is that lack of OEM engine supply supporting the module business in the U S. And then secondly on the aircraft leasing market how are airlines responding to that lack of OEM aircraft supplies. A conversation you guys are having with airlines about capacity at this point.

Yes, it's good for us I like I like the fact that it is hard.

To make new airplanes, because it makes owning the ones we own better more demand. So there's a lot of demand for it.

Existing <unk> 17 to <unk> and <unk> hundred 20.

C O <unk>.

Asset so we've got.

As travel demand has been very very robust realm.

Relatively price inelastic airlines need lift and need capacity so to the extent this new deliveries get stretched out it just extends the longevity of the fleet that we own.

Which is good and then the other thing I mentioned, which is also good news for us is inflation because as inflation.

Increases.

The price of a shop visit our advantage gets bigger and also our revenue collected from maintenance reserves goes up so we like both of those trends and.

And you know it seems like as people have indicated it's not going to be.

I think somebody said, they're not going to be.

Talking about stopped talking about this probably until 2024 is the expectation so we've got pretty good.

A period, where it's going to be positive I think for us.

And then one for Ken just on phase II for <unk>.

Have customers in place or what are you seeing there to drive the next phase.

Hey, Josh.

We are very close.

I can't tell you we have a contract signed with a with an off taker I will tell you. The team at <unk> spent the better part of two weeks in Europe .

Recently and.

I think we're in a in a very good position to sign something up in the third quarter.

Plenty of demand from very large investment.

Investment grade Counterparties, we want to make sure we sign the best deal.

And.

But we're close to having things ready to go but we're not at the point, yet where we have a contract executed but we're close.

Got it thank.

Thank you for the time.

Thanks.

We'll take our next question from Chris Wetherbee with Citi.

Hey, Thanks. Good morning, guys. This is Eli wenski on for Chris.

Thinking about some of the sensitivity around the infrastructure side and going over to Jefferson.

And you were talking about you'll obviously get the Exxon contract and then you're going to focus on better asset utilization, but what are the what does some of the puts and takes to getting better asset utilization specifically on maybe the rail congestion side, how does that impact.

Some of that business.

Really no issues with congestion and we can handle double the train activity. We're handling today I mean, that's one of the things we can.

Working on as we've developed the terminal.

Ensuring that whether it's inbound crude trains are outbound refined products' trains we've.

We've got plenty of capacity to handle the additional business when we when we go through the calculation of exactly what our throughput capacity is there's about 400000 barrels per day that's.

That's the capacity.

We take all that stuff into consideration I mean, I don't we're not too concerned about congestion issues, we've got plenty of track at the terminal.

And so we haven't certainly haven't experienced any congestion to date and I don't I don't think congestion is going to be an issue for us.

Okay that makes sense and then on the axon side.

You said you have a lot of the assets in place, but what is left and then separately on the $20 million of incremental EBITDA, what does that ramp up there look like so you said that $20 million annually, but when does that really start to pick up when should we expect a lot of that to be coming in what's what's left out there that that really there should be a very short ramp up to that did that contract I mean.

The operations commenced when everything is built what is being built specifically is.

Just under 2 million barrels of total storage. So we have storage tanks that are under construction. We built 4 million barrels to date. This is an additional $2 million were bringing online.

And then just piping and manifolds.

The way that system will work as we will receive refined products by pipe.

Accumulate in store the refined products and then we will load large ships for export of those products. So it's really just down to storage tanks piping and manifolds all stuff. We've built before so far on track for completion during the fourth quarter feel pretty good.

With our ability to get it done.

I'd say mid part of the fourth quarter, although the team down there is very focused on completing as quickly as possible. There's not I wouldn't say, we're at a stage of construction now where most of the risks that you would typically see geotechnical and what have you are behind us and now where we are.

We're welding and painting, we're not taking any holes or driving piles or anything like that that can typically be a cause for delay.

Yeah. It sounds like the conversations are over on to Mexico.

Byproduct.

The government right now doing in restricting moves. So you said that youre going to see a substantial pick up there.

But what is the government play yeah, I'll tell you where I mean, it's always a ongoing dialogue right now we're not seeing any reduction in movements.

You know like Exxon.

Exxon is as.

As active as ever and loading trains for movements in new Mexico, We watch it closely and.

There are no.

On occasion percolation of Sta.

Story here a story there, but at the end of the day the country needs gasoline and diesel and Exxon has got a base of about 1000, exxonmobil gas stations that they need to serve and so we have not seen.

Any issues or any slowdowns.

Coming across from some of the some of the some of what you might read in the papers about government interaction.

Alright that makes sense. Thank you all.

Okay.

Well take our next question from Justin long with Stephens.

Yeah.

Thanks, and good morning, I know in the slides you called out $200 million plus EBITDA run rate for the infrastructure businesses over the next one to two years you referenced $80 million from Jefferson earlier, I think you gave the number of 100 million per train star in the slide so.

When I add up the pieces it sounds like we could be a decent bit above $200 million. So I was wondering if you could just kind of refresh us on your latest thoughts on the EBITDA contribution from each of the different assets that you look out. The next couple of years and maybe what level of corporate costs are getting factored into.

That forecast as well, yes, absolutely.

You are spot on on the companies that you mentioned transtar.

As you know $100 million.

Of the total of 200 Jefferson 80.

Long Ridge, we're targeting 50 could easily be more.

Extent, we produce excess gas, particularly at at current market pricing.

But hold 50, plus for long ridge and her ponto right now, where we're including it 10, which is really only including phase one and a little bit of incremental activity that does not include phase two so that's not in the $200 million estimate you add all that up and yes, you get you get in excess of 200 closer to 200 and.

$40 million.

And then we deduct.

$30 million to $40 million of corporate expense.

And that gets you to just north of $200 million.

Perfect.

And secondly, I wanted to ask about the pro forma that part of the two businesses post spin next week I know you gave the numbers in the slides, but how are you thinking about targeted leverage for each of these businesses a year from now and based on that target what's that capacity that you feel like you have for each.

The entity to invest in growth.

Yeah.

So for aviation.

We're targeting maintaining double the ratio in somewhere probably in the neighborhood of four to five times debt to EBITDA.

So there is capacity I think to go up as we grow EBITDA.

But but.

But I think we're comfortable where it is you know at this point.

And I would say for infrastructure. It's generally the same in terms of the ratios obviously the infrastructure business slightly smaller.

<unk> right now.

But in terms of our ratio it's in that sort of four to five times EBITDA target, but the beauty of <unk>.

The infrastructure businesses in terms of investment capital for growth a lot of what we do is eligible for tax exempt financing and that's something we've used historically at Jefferson.

And and we can use <unk> and potentially even at long ridge and so.

That capacity.

It would be it will be we'll be smart and disciplined about incurring debt but.

We've been successful in the past.

Growing through investment by.

By accessing the tax exempt markets.

The percent of our average rate of borrowing as you know in the high twos as an example, and I'm not sure in this current market environment, where ponto for phase two will be at a similar rate, but it will still be a significantly lower rate than where the more traditional taxable markets would be so I.

I feel like we can maintain a four to five times leverage ratio, but at the same time continue to incur debt for specific projects at attractive levels.

Got it thanks for the time.

Thanks.

We will take our next question from Frank Galanti with Stifel.

Yes, hi.

Thanks for taking my questions and congratulations on getting that financing done to be able to spend the infrastructure business.

I wanted to follow up on that engine maintenance program.

So you had mentioned when you sold a couple of the engines Youre able to.

Keep the maintenance portion can you sort of talk about what that physically entails and then sort of the economics.

That simply using the modular factory or is that full overhaul services up in Montreal.

And then how.

How should we think about that from an economics unit economics perspective.

Sure. It's a good question so.

How it works is that we sell the.

The aircraft to the new owner and agree to provide.

Replacement engines for the life of those leases when when needed. So when an engine is due for a shop visit.

We would take the engine.

That needs a shop visit and exchange and return a engine that is meets minimum requirements of cycles and hours available.

In our swap and so that engine then.

Becomes our engine and we can either put it in the module factory or doing overhaul or sell it.

And the economics in the meantime, what we're doing is we're collecting the full maintenance reserves from the airline for that engine along the way. So so the way we price it out.

Given our advantaged cost with.

On the maintenance side is we could we could generate an additional $1 million per aircraft per year.

Through that transaction so it's a.

That's a very attractive for us and it's also.

<unk> for the new owner, obviously, they're doing it voluntarily because managing those engine events is not something everybody's capable or experienced or.

<unk> has had good outcomes on so so we think it's a.

Examples of our ability to provide a competitive service.

Something that we can then.

Generated significant profit because of our <unk>.

Proprietary products and advantage so.

So very exciting.

I think because it opens up a very very large market.

60% of the world's fleet is owned by leasing companies. So.

As we looked out that was that's an important area for us.

Spend time and to try to grow into and to profit from it. So this is a this is a way to do that on a pretty significant scale.

Great that's super helpful.

And sort of continuing to get on the aviation path.

Wanted to ask about the module factory.

And you sort of talk about customer interest since the inception of that.

And then I guess Mike.

My assumption is that that it's picking up.

In that.

In that way.

Are there needs to put more engines into that business.

I remember correctly, there's about 10 that was originally put in.

And then is.

Is there any.

Interest or need to move past the three modules that you guys have developed in.

And expand that.

Those services.

In terms of the scale I mean, yes, we were probably as volume grows and obviously what we're doing is we're turning module. So we would increase the number of modules in the module factory is as the business grows we are seeing very broad based.

Growth in <unk>.

Users as I mentioned, we've got.

It takes a while to market this but we've spent time with many many airlines.

Each week we.

Our educating airlines are spending time with them and finding that they have needs and demands.

We are building backlog for 2023 right now so.

So we're seeing a very broad based acceptance on the airline level of the maintenance shops had been very.

I would say much easier to sell because they are in the business of doing this regularly and there has never been for many of these shops. They never had a place to go to buy a fan or to buy an L. T. T. So this is this is something now that they're they're recognizing they can use.

Generate additional income for their own maintenance shop, and then and then as I mentioned the leasing companies. We are seeing the leasing companies use. This now for return compensation. So at the end of the lease an engine.

You often have return comp issues with the airline the airline has to provide a certain.

I'm, a member of hours and cycles back and if they don't they have to pay cash and so we can oftentimes if it's an LPT that doesn't meet the requirements, we could sell an LPT to the.

Airliner, the leasing company, so that the return conditions.

Conditions are met and they save money and they don't have to do a shop visit so it's becoming a useful tool for.

For people to save money on the on the end of lease.

Issue so.

Developing a very broad market for this and it is an education process. It takes time, but given that we can.

Sells it almost everybody in the ecosystem, it's it's a huge.

Huge growth opportunity for us in the backlog as I mentioned is continuing to build and as we were.

With the sale of these assets and retaining the engine maintenance agreements.

That gives us committed volume, which we like as with the West jet deal. We have an eight year due to a seven year deal. We now have two eight year deals that will add to that so we see it with a nice.

A nice ramp in terms of.

If we did double the volume if we had 10 engines we might have.

<unk> 15 engines or as much as 20, but if each engine and sort of $2 million to $3 million, it's not a huge investment to get that kind of a turnover ramp.

Ramp, which we would expect to turn.

Our module within.

Three to six months and certainly.

Do it multiple times a year. So so I don't see that as a big capital year.

User and it should scale quite quite easily.

In terms of going beyond these three modules. So I don't we don't see.

Anything quite as attractive as this right now so our focus is really on on that and.

We could develop something later in the future, but right now it's.

Everybody's.

All eyes on on those on this opportunity.

Great.

At squeeze in one more question if I could.

On the PMA business.

Can you sort of talk about the approval process and why it's taken longer than anticipated.

And then I guess.

Are there customers that are interested in just one part that's approved or are they sort of waiting until there is a.

A number of parts before engaging.

Yeah.

Well I think it's I.

I mean people know that additional parts are in development. So having a critical mass is very helpful. So I think that's that's that's part of what we are.

Attempting to achieve from the very beginning and so once once we have that critical mass and I think people will know that that's coming so they tend to key off of that.

The process is just I think.

Theres been an element of cautiousness theres, a lot of data requests and a slower turnaround time than the normal. So it's it's all of those factors, but we've got a great partner they know how to do this I've done hundreds of times in.

The parts are very very very happy with what we've got in the pipeline.

Great. Thank you very much.

Thanks.

And that concludes today's question and answer session I would like to turn the call back over to Alan Andreini for any additional or closing remarks.

Thank you all for participating in today's conference call. We look forward to updating you for both companies after Q3.

And that concludes today's presentation. Thank you for your participation you may now disconnect.

Yeah.

Okay.

Yeah.

Thank you.

Okay.

Sure.

Okay.

Yeah.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

[music].

Okay.

Sure.

Okay.

Yes.

Okay.

Yes.

Okay.

Sure.

Okay.

Sure.

Thanks.

Sure.

Okay.

Yes.

No.

Okay.

Sure.

Yes.

Sure.

Thanks.

Okay.

Sure.

Okay.

Yes.

Okay.

Yes.

Okay.

[music].

Okay.

Yes.

Okay.

Sure.

Okay.

Yes.

Okay.

[music].

Okay.

Yes.

[music].

Okay.

Yes.

Okay.

Sure.

Yes.

Okay.

Yes.

Okay.

[music].

Yes.

Sure.

Okay.

Sure.

Okay.

Yes.

[music].

Okay.

Yes.

[music].

Yes.

[music].

Yes.

[music].

Okay.

Yes.

No.

Sure.

Okay.

Yes.

Okay.

Yes.

Sure.

Yes.

Okay.

Yes.

Okay.

Yes.

[music].

Okay.

Yes.

Okay.

Yes.

Okay.

Sure.

Okay.

Alright.

Thanks.

Yes.

Thanks.

Sure.

Okay.

Yes.

Okay.

Thanks.

Sure.

Yes.

Okay.

Sure.

Okay.

Yes.

Okay.

Sure.

Yes.

Okay.

<unk>.

Yes.

[music].

Yes.

Okay.

Yes.

Got it.

Yes.

Thanks.

<unk>.

Yes.

Right.

Sure.

Yes.

Okay.

Thanks.

Sure.

Okay.

Sure.

Yes.

Okay.

Sure.

Okay.

Right.

Yes.

Sure.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Thanks.

Yes.

Okay.

Yes.

Okay.

Sure.

Okay.

Sure.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Sure.

Okay.

Yes.

Sure.

Yes.

Sure.

Okay.

Yes.

Okay.

Yes.

Okay.

Sure.

Yes.

Okay.

Yes.

Okay.

But.

Sure.

Yes.

Okay.

Hum.

Yes.

Sure.

Okay.

Sure.

Yes.

Sure.

Yes.

Sure.

Okay.

Yes.

Okay.

Sure.

Okay.

Sure.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Good day and welcome to the second quarter 2020 to fortress transportation and infrastructure investors earnings call. Today's call is being recorded and I would now like to turn today's conference over to Alan Andreini. Please go ahead, sir thank.

Thank you Lisa I would like to welcome all of you to the fortress transportation and infrastructure.

First quarter 2022 earnings call. Joining me here today are Joe Adams, the CEO of <unk>, Ken Nicholson, the CEO at Epcot infrastructure, Scott Christopher the CFO of <unk> infrastructure, and Angela and the soon to be CFO of <unk>.

Aviation, we have posted an investor presentation in our press release under 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 in listen only mode and is being webcast. In addition, we will be discussing some non-GAAP financial measures during the call today, including that.

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

Measured 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.

Thanks, Alan and welcome to the <unk> second quarter earnings call. Today, we have presented and we will be discussing the financials as of June 30 on a consolidated basis, but we're very excited that everything is in place for the spin off of <unk> infrastructure to be completed next Monday.

So we will also provide some pro forma information about the two separate companies, which will be trading next Tuesday under the symbols FTE AI and IP.

To $68.

There are $1 million in Q2 2021.

Fad was $109 4 million up 53% compared to $71 4 million in Q1, 2022, and up 60% compared to $68 3 million in Q2 2021.

Starting now with aviation aviation had a really good quarter, posting approximately $160 million of EBITDA and $105 million of net income.

We are benefiting from strong demand globally, driven by the recovery in travel demand.

In turn is fueling growth in engine aftermarket services.

Lease rates have returned to at or above pre COVID-19 levels and improving asset utilization is pushing maintenance reserve collection up while inflation is driving higher per hour and cycle rates.

Asset prices are also up and we took advantage by selling about $100 million book value of assets for a gain of $55 million.

And we have more asset sales coming in Q3 and Q4, both to recycle capital invested in some of our 2021 larger acquisitions and continue capitalizing on the robust freighter market.

Aerospace products had an excellent quarter was $17 million in EBITDA and a significant increase in order backlog.

We're in the process of completing two separate asset sales, where <unk> will retain engine maintenance service contracts for the next eight years covering 22 engines.

We believe this marks a unique way to scale the number of engines, we manage while recycling capital for new investments.

In addition, we have been awarded a major engine exchange program covering between 10 and 20 engines for a large southeast Asian airline.

Customer.

Your service serviceable material USA sales experienced more activity in Q2 shop visits increased.

Demand for used CFM 56 material is high and growing and sufficient to easily support 20 to 30 engine tear downs per year, which continue to generate approximately $1 million in profit per engine for us.

Our <unk> TMA initiative made significant progress in Q2 on the next four parts development.

Although the process is slower than expected, we're very happy with the parts being produced and are properly supplying all data requested at.

At this point, we expect all four new products to be submitted for final approval by this time next year.

We currently expect to complete an additional $200 million in asset sales in Q3 and have concurrently signed up $300 million in it.

Tractive, new acquisitions to replace these.

The new deals are expected to be accretive by adding more EBITDA than the assets removed.

Although from a timing perspective, Q3 likely will experience a slight decrease in leasing EBITDA until those new investments have fully closed.

Turning to the insurance claims were making good progress by supplying all information requested by the insurers regarding our $290 million in claims for assets lost in Russia, Ukraine.

With three different buckets of claims we think it is possible to realize a partial recovery by year end 2022. This year with the balance collected in 2023 and 2024.

As a reminder, any recoveries will be 100% income since all related assets were written off fully in Q1.

To pull it altogether, we expect aviation.

Without any insurance recoveries will produce per quarter.

90% to $100 million in EBITDA from leasing.

1% to $30 million in asset sale gains, which we think will be recurring each quarter.

And $20 million to $30 million in EBITDA from aerospace products totaling $550 to $600 million in per annum EBITDA from aviation.

With this level of EBITDA, we expect FY aviation to pay a dividend going forward of $1 20 per annum while fit.

<unk> infrastructure expects to pay 12 per annum for the total of $1 32 for the two stocks post spin.

Let me now turn the call over to Ken to discuss infrastructure.

Thank you Joe and good morning, everyone as Joe mentioned, our infrastructure business will be a standalone company commencing next Tuesday.

Streamline excited about the prospects of our infrastructure platform and believe we're well positioned to drive substantial growth at each of our four existing businesses is a dynamic time in the industrial and energy markets with inflation and focus on energy security as prominent as ever and our assets are extremely well positioned to capitalize on several opportunities.

Second half of the year, we're seeing good momentum across the portfolio and expect to continue to generate meaningful sequential growth as our businesses continue to ramp up operations. Following recently completed developments and as new contracts kick in.

In the aggregate, we are targeting achieving annual adjusted EBITDA in excess of $200 million.

In the next 12 months to 24 months with no additional investment required to meet that target.

EBITDA increased from $14 8 million in Q1 to $18 8 million for Q2, a 29% quarter over quarter gain.

More importantly, cash flow was $20 million for the quarter, our sales from non core assets continued to exceed capital expenditures.

Volumes at Transtar increased from 54 to 57000 carloads from Q1 to Q2, while pricing or average rate per car grew from $562 to $599 per carload.

Insulated from inflation and higher fuel costs at transtar with the ability to pass through higher operating costs under our contract with U S steel.

And ancillary services also grew at Transtar with car repair efforts, bringing in new revenue for the quarter, while the third quarter is typically seasonally a little soft.

Next on to Jefferson.

More importantly at Exxonmobil request, we now expect to complete construction of new storage tanks incremental terminal operations under our 10 year contract during the fourth quarter of this year ahead of our original schedule of January 2023, we expect this contract to generate approximately $20 million of incremental EBITDA.

Annually, bringing substantial committed throughput volume for the terminal and provide a springboard for increased volumes in <unk>.

And volumes.

We're also in active discussions with Exxon about activating an additional connecting pipeline, which will bring incremental crude volume from Jefferson did expanded exxon's Beaumont refinery.

The much anticipated ramp at Jefferson is now upon us.

Moving onto long ridge long reach generated $7 $5 million in EBITDA in Q2 versus six one in Q1.

As we have communicated in the past, we target quarterly EBITDA for our 50% share of long ridge to be in the range of 12% to $15 million per quarter are results for <unk> included the impact of gas purchases during the quarter that were required from external suppliers as we transitioned our internal gas production to new wells later than planned.

This combination of constrained labor availability and limited supply of drilling equipment magnetek, approximately three weeks longer than expected to bring new gas production online necessitating the purchase.

The purchase for our power plant from third parties at historically high prices. Fortunately it was an isolated event and not something we expect to repeat.

But the month of June we were running on our own gas and generated EBITDA for the month within our targets and going forward. We expect to continue steady EBITDA from the power plant in line with our targets.

Development at long Ridge continues to be robust in July we entered into agreements with new light technologies for the construction of a new $300 million facility to be built on long ridge property, which will produce carbon negative and biodegradable plastic products from natural gas long ridge will sell power and natural gas to new light as well as provide land under a long term.

<unk> lease.

In addition, we expect to be an investor in the project if certain conditions are met we expect the facility to be operational in 2024.

Finally to close out with <unk>.

Upon our key focuses on commencing development of our phase two LPGA trans loading system. This system is expected to triple our throughput capacity and quadruple our operating margins. When it comes online in a couple of years, we have demand from multiple international off takers and our goal is to enter into a long term agreement with one or more parties during <unk>.

Third quarter.

We have completed engineering for the new storage tank and associating piping and systems and a negotiated construction contracts, we plan to finance all construction costs with tax exempt debt.

Providing both propane and butane to local heating and lending markets meeting additional customer needs in the area.

Finally, we continue to see increased interest in the renewable energy space with 250 acres Prime for development, we have announced a coordinated effort to develop a unique marine cable manufacturing facility with <unk>, which will provide a critical American made infrastructure linked to bring renewable electricity from offshore wind generation.

Our local consumers also are clean planet joint venture continues to progress through the permitting process for the first plastics recycling plant in <unk>, we're expecting to complete construction of the clean planet facility in 2024.

I will turn it back to Joe.

Thanks, Ken.

Next week is a big week for <unk> shareholders with the consummation of the spin.

Fifth we will eliminate K ones for shareholders upon the spin and <unk> will begin a six to eight week re domicile in which when complete will eliminate K ones for all shareholders as well.

For aviation F tie is capitalizing on global travel recovery and growth in aftermarket engine services to be the leading low cost commercial engine power provider for narrow body aircraft globally.

And I would just say for infrastructure, we very much look forward to updating investors on a standalone basis, starting next quarter, we do expect to post meaningful growth in the near term across each of our four key business units to very attractive time to own long term assets, well insulated from inflation and with high scarcity value in the country's largest industrial and energy markets.

We view the growth of Transtar. This quarter is a good indication of things to come in following years of development, we're accelerating the pace of ramp up at Jefferson or upon a terminals while at long ridge with Powerpoint complete we are now beginning to drive incremental cash flow and value and I'll turn it back to Alan.

Thank you Ken.

Lisa you May now open the call to Q&A.

Okay.

If you would like to ask a question on the phone lines today. Please press star one on your telephone keypad. Once again, everyone that is star one to ask a question.

Okay.

We'll take our first question from Giuliano Bologna from content.

Thank you Ed.

Joe.

Starting off with you on the aviation side.

And I'd be curious on a couple of different things and how they kind of interact together.

Yes.

Our.

Asset sales when somebody called before the nine conference you got back from our from carriers.

Last quarter you.

Okay.

Gain on sale.

A handful of other 7% lenses that you've gone back that were potentially.

We're going to go on I'm curious when we look at the asset sale numbers.

Higher than.

What I had exactly I'm curious what the composition of those asset sales looks like or if we saw you sold more of the Russian assets and you mentioned some cargo as well during the call and then talking then looking on the other side, what kind of assets Youre looking at on the LOI side, because you have to have a pretty strong LOI pipeline.

You mentioned 300 million of Central acquisition, So I'm curious.

What types of assets are you selling what types of assets youre acquiring and how should we think about the EBITDA.

We have seen coming out on the salesman back in on the acquisition.

Yes so.

The composition is.

A little as I mentioned has two different groupings, one as cargo and the others recycling capital from.

Mainly the Avianca deal, but also some others with long term leases that we did last year.

The cargo assets. We also sold in addition to selling some of the assets for 757% and 760 Sevens, we took back from.

Russia and Ukraine. We've also sold some 740 sevens in this quarter. So that's that's that's why the gain is higher than we had originally projected.

That market is <unk>.

We don't.

We don't know when the cargo market will win.

We will slow down, but we don't want to Miss it. So we decided that it was sort of a good time to we'd rather be early than late.

That market.

We brought those assets at a very.

Attractive time several years ago, when no one was paying attention or if you're thinking about cargo. So they were quite quiet.

Good returns for us.

But we decided it was time to sort of lighten up on the cargo side.

And then in this.

In the third quarter I think.

Alluded to the deals that we're selling.

With long term leases attached so.

There's still a lot of capital that's been raised by new leasing companies, who likes that wants to buy deals.

And we structured those so that we can retain the engine maintenance service contract and do that for the lessor, which is great for us because we could use lessors.

Other lessors capital and retain the best part of the deal so.

So those are the deals we're targeting to closing.

Mostly in Q3 and.

We will add a lot of backlog to our aerospace products business that way and we think we can continue to grow it and we're very pleased that the lessor acceptance of that as it has been.

Not by one lessor, but by two lessors. So we see that as something that's very very significant for us to continue to grow the service business and highlight our.

Our ability to create value out of portfolio deals, which is why I referenced that I think this gain on sale is something that we think is.

Should be recurring for us each quarter I think we can do that and we can buy packages of assets and then find the parts that are most attractive other people and take advantage of that and in this case, we're able to even keep the engine maintenance service as part of that.

On the buy side.

We're focused on all CFM 56 engines or mostly.

Thats been the folks along we acquired 25 engines in Q2 there were.

All off lease so.

That's where you get the best prices when you have an asset.

Some of you have to put revenue you have to attach revenue to it says that's a market that very few people compete with us on that so so that was a great.

On the buy side and then.

Additionally, we've got some deals with.

Big.

Airlines that have existing relationships with that we've established.

Good relationships with Theyre also also CFM 56 engines and.

They would add two very similar to the transactions, we did last year with Avianca at ETA. So we think it's a it's a great combination we pick up EBITDA by doing that so.

Both recognizing a gain an increasing EBITDA seems like.

Very good very good win.

That's great I appreciate it.

Switching topics over to infrastructure.

<unk>.

Alright.

Jefferson.

I'm curious.

Yes, there was a lot of commentary on that.

Paul about Jefferson and then.

And there is an outlook or not.

A roadmap to get installed roughly.

Roughly around $80 million EBITDA I'm curious what gives you.

A lot more like what gives you a lot more comprehensive.

We got there and then thinking about the different components, obviously, the Jacksonville coming on.

And I'll say the wax.

Yes.

<unk> volumes are expected to increase that started to increase during two I'm curious what the different components are and how to think about contribution from some of the different initiatives that are going on at Jefferson.

Yes, yes, yes look we're we're pretty bullish on the second half of the year at Jefferson.

The look all the assets are in place.

We are finishing up the new assets for the Exxonmobil contract and we're really happy that we're going to be able to start operations under that contract now in the fourth quarter.

That's obviously, a big piece of the bridge to $80 million.

But a bigger piece is just continued increases in utilization all of our assets in place today are being utilized at less than 50% and it's been a process for.

Frankly, a few years of building out those assets and cultivating the relationships with the Exxon Mobil's <unk> and others in the Beaumont refinery complex that's been a been a lengthy process, but were now finally there.

As I mentioned, we're opening up another crude pipe.

Between Jefferson and.

Exxon where.

We're kind of making a small change to the southern star pipeline between Exxon and motiva to allow them to be bidirectional all of those things play into more demand and more requests for throughput from our two largest customers.

Yes, we're thrilled that yellow wax trains continue to accelerate the second quarter was a good quarter I think third quarter will be an even better quarter.

Ryan products into Mexico are strong.

And getting stronger new terminals are being opened in Mexico and so.

We're seeing indications and seeing business in this month of July that make us very comfortable with our outlook for $80 million of EBITDA.

In the next 12 to 24 months.

That's great I appreciate it.

Thanks, taking my questions and I'll jump back in the queue.

We'll take our next question from Josh Josh Sullivan from the benchmark company.

Hey, good morning.

Good morning.

A question on the overall leasing market, we've had both Airbus and Boeing came out here lowering delivery assumptions due to supply chain issues, mainly within the engine availability market or vertical.

So first off is that lack of OEM engine supply supporting the module business in U S.

And then secondly on the aircraft leasing market how are airlines responding to that lack of OEM aircraft supply is that a conversation you guys are having with airlines about capacity at this point.

Yes, it's good for us I like I like the fact that it's harder to make new airplanes, because it makes owning the ones we own better more demand. So there's a lot of demand for.

The existing <unk> and <unk> hundred 20.

So asset so we've got.

As travel demand has been very very robust.

Relatively price inelastic airlines need lift and need capacity so to the extent this new deliveries get stretched out it just extends the longevity of the fleet that we own.

Which is good and then the other thing I mentioned, which is also good news for us is inflation because as inflation.

The increases.

The price of a shop visit our advantage gets bigger and also our revenue collected from maintenance reserves goes up so we like both of those trends.

And it.

It seems like as people have indicated it's not going to be.

I think somebody said, they're not going to be.

Talking about stop talking about this probably until 2024 is the expectation so we've got pretty good.

Period, where it's going to be positive I think for us.

Alright.

And then one for Ken just on phase II for <unk> do.

You have customers in place or what are you seeing there to drive the next phase.

Hey, Josh.

<unk>.

We are very close.

I can't tell you we have a contract signed with a with an off taker I will tell you. The team at <unk> spent the better part of two weeks in Europe .

Recently and.

I think we're in a very good position to sign something up in the third quarter.

With plenty of demand from very large.

Investment grade Counterparties, we want to make sure we sign the best deal.

And.

But we're close to having things ready to go but we're not at the point, yet where we have a contract executed but we're close.

Got it.

At this time.

Thanks.

We'll take our next question from Chris Wetherbee with Citi.

Hey, Thanks. Good morning, guys. This is Ely wenski on for Chris.

You've got some of the sensitivity around the infrastructure side and going over to Jefferson.

And you were talking about you'll obviously get the X on contract and then Youre going to focus on better asset utilization, but what are the what are some of the puts and takes to getting better asset utilization specifically on maybe the rail congestion side, how does that impact our.

Growing some of that business.

Really no issues with congestion and we can handle double the train activity. We're handling today I mean, that's one of the things we can.

Working on as we've developed the terminal.

Ensuring that whether it's inbound crude trains are outbound refined product trains.

We've got plenty of capacity to handle the additional business when we when we go through the calculation of exactly what our throughput capacity is there's about 400000 barrels per day that's.

That's the capacity.

We take all of that stuff into consideration I mean.

We're not too concerned about congestion issues, we've got plenty of track at the terminal.

And so we haven't certainly haven't experienced any conjecture to date and I don't I don't think congestion is going to be an issue for us.

Okay that makes sense and then on the axon side.

You said you have a lot of the assets in place, but what is left and then separately on the $20 million of incremental EBITDA, what does that ramp up there look like so you said that $20 million annually, but when does that really start to pick up when should we expect a lot of that to be coming in what's left out there that that really there should be a very short ramp up to that did that contract I mean.

The operations commenced when everything is built what is being built specifically as a.

Just under 2 million barrels of total storage. So we have storage tanks that are under construction.

We built 4 million barrels to date. This is an additional $2 million were bringing online.

And then just piping and manifolds.

The way that system will work as we will receive or find products by pipe.

With our ability to get it done.

Welding and painting, we're not taking any holes or driving piles or anything like that that can typically be a cost for delay.

Yes, it sounds like the conversations are over on to Mexico for refined products, how involved with the government right now.

Restricting moves so you said that youre going to see a substantial pick up there.

But what did the government play, yes, I'll tell you where I mean, it's always a ongoing dialogue right now we're not seeing any reduction in movements.

<unk>.

I mean Exxon as as.

As active as ever and loading trains for movement, Santa Mexico, We watch it closely and.

There are.

On occasion percolation of.

A story here of story, there, but at the end of the day the country needs gasoline and diesel and Exxon has got a base of about 1000, exxonmobil gas stations that they need to serve and so we have not seen.

Any issues or any slowdowns.

Coming across from some of the some of the sort.

Some of what you might read in the papers about government interaction.

Alright that makes sense. Thank you all.

Yeah.

Okay.

We'll take our next question from Justin long with Stephens.

Slide so when I add up the pieces it sounds like we could be a decent bit.

<unk> $200 million. So I was wondering if you could just kind of refresh us on your latest thoughts on the EBITDA contribution from each of the different assets that you bought.

The next couple of years, and maybe what level of corporate costs, theyre getting factored into that forecast as well.

Yes, absolutely.

You are spot on on the companies that you mentioned transtar is $100 million.

The of the total 200 Jefferson 80.

Long Ridge, we're targeting 50 could easily be more.

To the extent, we produce excess gas, particularly at current market pricing.

But hold 50, plus for long Ridge and <unk> right now, we're including a 10, which is really only including phase one and a little bit of incremental activity that does not include phase two so that's not in the.

$200 million estimate you add all that up and yes, you get you get in excess of 200 closer to 200.

$40 million.

And then we deduct.

$30 million to $40 million of corporate expense and that gets you to just north of $200 million.

Perfect.

And secondly, I wanted to ask about the pro forma debt in front of the two businesses post spin next week I know you gave the numbers in the slides, but how are you thinking about targeted leverage for each of these businesses a year from now and based on that target. What's the capacity that you feel like you have for each.

The entity to invest in growth.

Yeah.

So for aviation.

We're targeting maintaining double the ratio in somewhere probably in the neighborhood of four to five times debt to EBITDA.

So there is capacity I think to go up as we grow EBITDA.

But.

But I think we're comfortable where it is at this point.

And I would say for infrastructure. It's generally the same in terms of the ratios obviously the infrastructure business slightly smaller business right now.

But in terms of our ratio it's in that sort of four to five times EBITDA target the beauty of.

The infrastructure businesses in terms of investment capital for growth a lot of what we do is eligible for tax exempt financing and that's something we've used historically at Jefferson.

And.

And we can use ever ponto and potentially even at long ridge and so.

Debt capacity, obviously, we'd be we'll be we'll be smart and disciplined about incurring debt but.

We've been successful in the past.

Growing through investment.

By accessing the tax exempt markets.

What percent of our average rate of borrowing is in the high twos as an example, and I'm not sure. This current market environment <unk> for phase III will be at a similar rate, but it will still be a significantly lower rate than where the more traditional taxable markets would be so.

I feel like we can maintain a four to five times leverage ratio, but at the same time.

To incurred debt for specific projects at attractive levels.

Got it thanks for the time.

Thanks.

We'll take our next question from Frank Galanti with Stifel.

Yeah, Hi, Thanks for taking my questions and congratulations on getting that financing done to be able to spend the infrastructure business.

I wanted to follow up on that engine maintenance program.

So you had mentioned when you sold a couple of the engines.

Well too.

Keep the maintenance portion can you sort of talk about what that physically entails and then sort of the economics is that simply using the module factory or is that full overhaul services up in Montreal.

And then.

How should we think about that from an economics unit economics perspective.

Sure. It's a good question so.

How it works is that we sell the.

Aircraft to the new owner.

And agree to provide.

Replacement engines for the life of those leases when when needed. So when an engine is due for a shop visit we would take the engine.

That needs the shop visit and exchange and return a engine that is meets minimum requirements of cycles and hours available.

And in our swap and so that engine then.

Becomes our engine, we can either put it in the module factory or doing overhaul or sell it.

The economics in the meantime, what we're doing is we're collecting the full maintenance reserves from the airline for that engine along the way. So so the way we price it out.

Given our advantaged cost with.

On the maintenance side is that we could we could generate an additional $1 million per aircraft per year.

Through that transaction so it's a.

That's a very attractive.

For us and it's also.

<unk> for the new owner, obviously theyre doing it voluntarily because managing those engine events is not something everybody's capable or experienced or.

<unk> has had good outcomes on so so we think it is.

Examples of our ability to provide a competitive service.

Something that we can then.

Generated significant profit because of our <unk>.

Proprietary products and advantage so.

So very exciting.

I think because it opens up a very very large market.

60% of the world's fleet is owned by leasing companies. So.

As we looked out that was that's an important area for us.

Spend time and to try to grow into and to profit from it. So this is a this is a way to do that on a pretty significant scale.

Great that's super helpful.

And so if I could.

Continuing to get on the aviation path.

I wanted to ask about the module factory.

And you sort of talk about the customer interest since the inception of that.

And I guess my.

My assumption is that that it's picking up.

In that.

In that way.

Are there needs to put more engines into that business.

If I remember correctly, there's about 10 that was originally put in.

And then is.

Is there any.

Interest or need to move past the three modules that you guys have developed <unk>.

They expand.

Those services.

So in terms of the scale I mean, yes, we were probably as volume grows and obviously what we're doing is we're turning module. So we would increase the number of modules in the module factory is as the business grows we are seeing very broad based.

Growth in <unk>.

Users as I mentioned, we've got.

It takes a while to market this but we've spent time with many many airlines and each week we.

Our educating airlines are spending time with them and finding that they have needs and demands.

We are building backlog for 2023 right now so so we're seeing a very broad based acceptance on the airline level of the maintenance shops have been very.

I would say much easier to sell because they are in the business of doing this regularly and there has never been for many of the shops. They never had a place to go to buy a fan or to buy an LPT. So this is this is something now that they are they're recognizing they can use.

You often have return comp issues with the airline the airline has to provide a certain minimum number of hours and cycles back and if they don't they have to pay cash and so we can oftentimes if it's an LPT that doesn't meet the requirements, we could sell an LPT television.

Airliner, the leasing company, so that the return conditions.

Conditions are met and they save money and they don't have to do a shop visit so it's becoming a useful tool so that.

For people to save money on the end of lease.

Issue so.

Developing a very broad market for this and it is an education process. It takes time, but given that we can.

Sell to almost everybody in the ecosystem, it's it's a huge.

Huge growth opportunity for us in the backlog as I mentioned is continuing to build and as we were.

With the sale of these assets and retaining engine maintenance agreements.

That gives us committed volume, which we like as with West jet deal. We have an eight year due to a seven year deal. We now have two eight year deal. So it will add to that so we see it.

With a nice.

A nice ramp in terms of.

If we did double the volume if we had 10 engines, we might have <unk>.

<unk> engines or as much as 20, but if each engine and sort of $2 million to $3 million, it's not a huge investment to get that kind of a turnover.

Ramp, which we would expect to turn.

Our module within.

Three to six months and certainly.

Do it multiple times a year. So so I don't see that as a big capital Yeah.

User and it should scale quite quite easily.

In terms of going beyond these three modules. So I don't we don't see.

Anything quite as attractive as this right now so our focus is really on that end.

We could develop something later in the future, but right now it's.

Everybody's.

All eyes on on those on this opportunity.

Great.

At squeeze in one more question if I could.

On the PMA business.

Can you sort of talk about the approval process and why it has taken longer than anticipated.

And then I guess.

Are there customers that are interested in just one part that's approved or are they sort of waiting until there is a.

A number of parts before engaging.

Yeah.

Well I think it's I.

I mean people know that additional parts are in development. So having a critical mass is very helpful. So I think that's that's.

That's part of what we are.

Attempting to achieve from the very beginning and so once once we have that critical mass and I think people will know that that's coming so they tend to key off of that.

The process is just I think.

Theres been an element of cautiousness theres, a lot of data requests and a slower turnaround time than than normal. So it's all of those factors, but we've got a great partner. They know how to do this I've done hundreds of times in.

The parts are very very we're very happy with what we've got in the pipeline.

Great. Thank you very much.

Thanks.

And that concludes today's question and answer session I would like to turn the call back over to Alan Andreini for any additional or closing remarks.

Thank you. Thank you all for participating in today's conference call. We look forward to updating you for both companies after Q3.

And that concludes today's presentation. Thank you for your participation you may now disconnect.

Q2 2022 Fortress Transportation and Infrastructure Investors LLC Earnings Call

Request a DemoDemo

FTAI

FTAI Aviation

Earnings