FTAI Aviation Ltd. Q1 2023 Earnings Call
Speaker 1: I.
Speaker 2: earnings conference call. All participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advice and your hand is raised.
Speaker 2: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to introduce your host for today's call, Alan Andreny, head of investor relations. Please go ahead.
Speaker 3: to the Epson Aviation First Quarter 2023 earnings call. Joining me here today are Joe Adams, our Chief Executive Officer, and Angela Nam, our Chief Financial Officer. We have posted an investor presentation and our press release on our website, which we encourage you to download if you have not already done so. Also, if you have not already done so, please
Speaker 3: 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 EBITDA. The reconciliation of those measures to the most directly comparable GAAP measures can be found in the earnings supplement.
Speaker 3: 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.
Speaker 3: 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.
Speaker 4: Thank you, Alan. To start today, I'm pleased to announce our 32nd dividend as a public company and our 47th consecutive dividend since inception.
Speaker 4: The dividend of 30 cents per share will be paid on May 23, based on a shareholder record date of May 12.
Speaker 4: Now, let's turn to the numbers.
Speaker 4: We began the year well with adjusted EBITDA of 127.7 million in Q1 2023, which is up 3% compared to 123.5 million in Q4 2022, and up 184% compared to 45 million in Q1 2022, which had been adversely affected by Russia's invasion of Ukraine.
Speaker 4: During the first quarter, the $127.7 million EBITDA number was comprised of $107.6 million from our leasing segment.
Speaker 4: $27.4 million from our aerospace product segment, and $-7.3 million from corporate and other.
Speaker 4: Turning out to leasing, leasing had a good quarter posting approximately 108 million of EBITDA. The pure leasing component of the 108 million came in at 91 million for Q4, up from 85 million in Q3.
Speaker 4: Sorry, came in 91 million for Q1 up from 85 million Q4.
Speaker 4: With strong demand for assets and the commencement of the Northern Hemisphere summer season, we expect Q2 will continue to grow.
Speaker 4: We remain very confident in leasing EBITDA of 350 million to 400 million for the year.
Speaker 4: very confident in leasing EBITDA of 350 million to 400 million for the year, excluding gains on asset sales.
Speaker 4: gains on asset sales. We sold 92.2 million book value of assets for a gain of 16.5 million slightly below our expectations. But we have more asset sales coming in Q2 in the rest of the year and are comfortable assuming gains on asset sales.
Speaker 4: of approximately 25 million per quarter or 100 million for all of 2023. Aerospace products had another excellent quarter with 27 million of EBITDA. We started these activities at the end of 2020 and in the last six quarters had booked approximately 120 million of EBITDA without any contribution from PMA.
Speaker 4: We see tremendous potential and continue to feel good about generating 20 to 30 million in quarterly EBITDA and think 100 million plus in 2023 EBITDA remains very doable.
Speaker 4: We feel confident about this number because we're seeing a rapidly expanding backlog.
Speaker 4: of Airspace Products business with other leasing companies, maintenance and repair organizations, and airlines.
Speaker 4: With that, let me turn the call back over to Alec.
Speaker 3: Thank you, Joe. Justin, you may now open the call to Q&A.
Speaker 2: And thank you and one moment for our first question.
Speaker 2: And as a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
Speaker 5: ok
Speaker 2: And our first question comes from Josh Sullivan from Benzmark Company. Your line is now open. Hey, good morning. Good morning. Congratulations on the results and progress here.
Speaker 6: So you're now annualizing EVA.gov at some good rates and you walk through some of the components there. Just curious if the 550 to 600 EVA.gov guidance is still the right framework at this point as well.
Speaker 1: Yes.
Speaker 4: That was the usdari program there. Yes, that was it, yes. Sorry, it was a one word answer. But yes, we did. If you add up each one of the segments, it's very much on target. And we think as we're heading into the strong season Q2, Q3, that there's probably some upside in these numbers as well. And just within the gain on sales here, I know they can be lumpy quarter to quarter as you mentioned, but was there any particular program that moved around or?
Speaker 4: so you tend to see it growing towards the end of the year.
Speaker 3: Thank you for the time.
Thank you for the time. Thanks.
And thank you. And one moment for our next question. One moment for our next question. And our next question comes from Juliana Bologna from Compass Point. Your line is now open.
Good morning and congratulations on the great high quality beat quarter this quarter. The first question I was curious about asking was.
I'm curious if there's if you have any updated thoughts around PMA or if there's any any change in your opinion there and if there's any update around the timetable compared to what you've laid out in the best.
There's no significant real change in the timeline or what we outlined before, which is we expect all four products to be ready for final submission in the middle of this year. And I would say good progress has been made on every front that you need to achieve to be able to do. And I would say good progress has been made on every front that you need to achieve.
different area of the cloud probably does notice you have much focus. You still have those two off-shore assets that are in the other category. I'd be curious if there's any update around your potential file process around maybe selling one or two of them this year and then also I'd be curious if those have any financial impact in the quarter.
Positive or negative and the results.
There was a little bit of a negative impact, probably 3 million in Q1, because we had some repairs that needed to be done on one of the larger vessels. So that was a bit of a drag on the numbers this quarter, which in the chip is back in service.
we expect the next two quarters to be good. So that should reverse. In terms of selling, we're actively evaluating it and still believe that most likely the best timing to do a transact would be towards the end of this year, around the end of this year, given that the vessel
the larger vessel just started operating in the whale intervention market and the more credentialized it becomes the wider the universe of potential buyers. So and that market is you know recovered a lot so I feel you know better and better about you know being able to achieve that this you know on that timeline towards the end of this year.
That's right. Thank you for us.
Take my questions and I'll jump back into you. Thanks. And thank you.
And one moment for our next question.
And our next question comes from Frank Galianti from Stiefel. Your line is now open. Your line is now open.
Great. Thank you very much for taking my questions. Congrats on the nice corridor here. I wanted to ask sort of on the aerospace business can you sort of talk about what the component I guess the the makeup or the mix of that 27 million of EBITDA like how much is module, how much is USM?
Yes, this quarter was about two-thirds from the module factory, one-third from USU Service One Cheerle, USM. There was a little bit more USM this quarter than there has been, as we've been predicting that market. Yes.
picking up given parts shortages and price increases. So that's a good thing. We've indicated we'll probably be targeting about 40 teardowns a year and we make approximately a million per teardown.
40 million of EBITDA divided by four would be 10, so there's a little bit of upside, I think, going forward for USM.
And then I think there's a lot of upside, as I mentioned before, our model factors.
We have a strong backlog of customers who some of whom are fully committed and some have just given us verbels that they're looking for programs of eight or more modules a year. And that number of lines indicating that, you know, keeps growing. So we feel very good about the...
The recon customer mix of rich in Q1, there were probably seven customers out of the pan who were who were repeats and three that were new customers. So we're progressing, you know, in a three seconds, in terms of both growing the number of customers as well as growing the number of modules.
I want to have a turn number. I know it might be early in the business to sort of get a sense for that, but give it like a percentage turn that the business is currently operating under. Or I guess another way to think about it is.
Is there a way to quantify how much capacity
those, what, see the 26, so 29 customers that you've used before, like are you at 10% of their shop visits? Are you at 5, 25, 50? Like is there a lot more room to grow in those 29 customers that you've worked with in the past?
Yes, there's a lot of room to grow. As you've indicated, first of all, I would say there's no churn and that we've not lost any customers. Nobody has used the product.
has said to us or indicated that they wouldn't use it again.
That's a very good thing and people like the product and if you look at their total number of shop visits starting out, you're talking about airlines that have potentially anywhere from 10 to 100 shop visits a year. So that's...
30 to 300 modules per year. So we're barely, if you're talking about doing four, going to eight, you're still at a very small percentage of their total available shop capacities opportunities. So we think that that number will continue to grow. We haven't lost any customers. We think people once they use it.
they will repeat it again and in particular as shop visit time, time in the shop keeps growing and getting longer, the more cost savings module swap presents to the airline. So we think the advantage of using them will only continue to you know get better and grow in the coming years.
And thank you. And one moment. And one moment for our next question.
And our next question comes from David Zazzula from Barclays. Your line is now open.
Thanks for taking my question. First on the aerospace products business, I think a lot of the investors we talked to are concerned about a macro slowing. I guess we'd be interested in your assessment of the sensitivity of those businesses to a slowdown in the macro. Do you think it would reduce or increase demand or how you think customers would respond?
We don't think it will have much of an effect because one is because of COVID and the fact that airlines stopped doing shop visits for basically two years, most green time has been burned off. There's very little.
available green time in fleets. Matter of fact, in the last month, we've had two or more airlines indicated that they need between 20 and 30 engines because they have nothing left. It's, you know, the bucket is empty. So I think that mitigates, you know, any type of macro slowdown.
And then secondly you always hear that if there is a macro slowdown the focus on cost cutting accelerates so more and more companies then go into a mode of like what can I cut what can I reduce and We offer cost savings. You know that is a very we're very direct about you know We can save you money on your shop visit or you can even avoid it
Additionally, CFM56, I think you guys have done very well there. A lot of life left in that project. But as you're thinking long term, are you evaluating any other, you know, further generation, engine ecosystems to get into?
How are you thinking about that? What would you think of for long term timing and how would you evaluate among the different potential projects as you look down the line?
Yes, we are thinking that we have two engines that we're particularly focused on right now, which we think are great candidates to do similar things that we've done on the CFM56. We don't.
Really, we see the sweet spot for the CFN56 really running from 2024 to 2030. It's probably been extended out now because of delays in new aircraft delivery, difficulty with new engines, you know, staying on wing as long as people thought they would, supply change disruptions, freighter conversions, all those factors are making.
the CFM56 life expectancy look longer and longer. So we don't feel that we need to divert attention from the organization, but as I say, everybody in every company needs to be thinking five years ahead, and so we do have.
I'm not going to disclose what those are, but feel like those would be excellent candidates for us to consider adding when the time is right to do that.
engines that we're working on. I'm not going to disclose what those are, but feel like those would be excellent candidates for us to consider adding when the time is right to do that. Great. Thanks very much.
And thank you.
And one moment for our next question. And our next question comes from Hillary, Kim Canado.
from equity analyst your line is now open. Yes, hi, hi Joe. Thanks for taking my question. So you previously mentioned that you were looking at other maintenance related products to develop this year. And I think you mentioned something about repair in like one of the industry conferences.
Would you be able to talk a little bit more about that, where you are in the process, and is this something that we can see happening this year? Yes, that's a great question. It is something that we're very actively engaged and working on. I'm very excited about the repair market opportunity. It's growing quite rapidly. It's got a lot of support from
both cost savings where you can, you know, essentially you could repair a part or you know 20% of the cost of a new part. So it's a great product and there's a number of companies that are continuing to develop more and more repairs. So we love the repair market. It fits perfectly into our portfolio. It's also
plays well with, you know, on the ESG side and then you're not making a new part. You're saving the old one. It's a recycling opportunity. So ESG is good. It's very pro repair business. In terms of progress, we do have a couple, I'd say two or three.
specific opportunities which were running down. And as I said before, we hope that we can conclude, you know, do something material on the repair side this year in 2023.
Great, that's great to hear. And then I had another question. In your presentation, you noticed that there's strong backlog from airlines, lessors, and MROs. I was wondering if you people provide a little more color regarding where you're seeing the most demand. I would think there's a strong demand coming from the airlines, but I was wondering if lessors are just as willing to use materials.
And I guess, you know, related to that, when you do get all your PMA parts approved, do you think that lessors would be, there will be strong demands on the lessors as well? Because I would think that lessors may be a little more sensitive about using non OEM parts.
Since they have to market those products, I just wanted to get your thoughts. Sure. So there's a few questions there. On the last part, the TMA question and lessors, I do think there's growing acceptance and there's actual evidence of that in the CF680 engine, which I've talked about as a great case study and...
where the prices were very competitive or as good or better than you know if it was all OEM equipment. And ironically many of the buyers of those engines were leasing companies and so sometimes you can go ask them if they have PMA in their engine and they will say no but they actually do it's just they don't know it.
So I think that the same fact pattern will play out in the CF-56 engine as well. So I do believe that there will be growing acceptance in that.
In terms of where the activity, I mean the good news is there's growing activity from all three categories. You have airlines, as I mentioned, a number of airlines have used up all their green time and so they're looking at summer schedules and then they're deciding to keep their, see if they're, they're, um, uh,
the NGs and their CO fleets longer so they need more engines or they might be doing it. An airframe overhaul that they didn't think they were going to do, and now they need engines for the next five years. So airlines are clearly demand for engines. This is very strong. MROs as well because shops are filling up and sometimes shop turn times.
are slowing down or extending. So they need more engines to be able to do the shop visits that they have in-house and want to bid for.
And then leasing companies, it's really two different activities. One is we buy a fair amount of off leased assets from leasing companies. So a lot of leasing companies don't have the ability to put a lot of assets out if they're off leased, particularly engines. And so we're a great buyer.
And then we can solve end of lease return comp issues with module swaps and we're doing more and more of that. So at the end of a lease, the finereline owes a lot of money cash as a return compensation because the engine they're going to get back doesn't have a certain number of hours in the cycles.
we can help solve that by doing a module exchange for less than what the cash outlay would be otherwise. So we have a lot of products and solutions that we can offer and the leasing companies are sort of accepting of all those because they are just trying to get things done and move on.
Great, thanks, that was really helpful. Thank you.
And thank you. And one moment for our next question.
And our next question comes from Brian McKenna from J&P Security. Your line is now open. Game player's color is colours in color.
Thanks. Good morning, everyone. So what's the outlook for asset acquisitions for the remainder of the year? It seems like it continues to be a good environment to acquire assets, particularly for assets off-least. And then, is there any increase in opportunity for sale leasebacks given that we're likely going to see a softening economic backdrop here, probably? Go away.
Yes, you're right on both counts. We're seeing a lot of off-leash assets available that we continue to be one of the best buyers for.
We have the ability to scrap airframes and just lease engines, which a lot of other people don't. And so we're acquiring two package deals right now that fall right into that category at great prices. And then a lot of one-offs.
leasing companies trying to clean up assets that they want to just get rid of and move on. So that area is pretty active.
And we also, in the module business, probably half of our module sales involve us taking back a module in return or as an exchange. So we're not really depleting the inventory on half of those transactions. We then take that, the run out module and then put it back through our factory and do it all over again. And so...
So we're able to replenish that. And then you're right on the, there's still a number of airlines, you know, the COVID and Russian Ukraine were pretty big jolts to the aviation system. And so there are airlines that...
have been sort of living on the edge for quite a while. And sale-e-spax are returning in terms of activity because it's a great way of raising capital. And we've done quite a bit of that. And so particularly end of
If an airline is looking at, you know, they have a new aircraft order and they're looking at phasing out a fleet, it's a way of raising cash today and forward selling their airplane. So we see all those areas of activity.
The good news about the CFM 56 market is there's 20,000 of those engines in the world, so it's enormous and will be for many, many years.
Super helpful. Thanks, Joe. And then just a question on capital and liquidity. You know, if the preferred market opens up again over the next few quarters, would you look to raise some additional capital through this part of the market? And then on liquidity more broadly, is there a minimum level of cash you'd like to run the business at?
We typically run around 25 to 50 million cash and then we have available availability on a revolver so we feel that that's...
very comfortable and have been doing that. In Q1, we actually paid down debt, so that was a good result in the quarter. We generated a lot of cash flow. And in terms of the preferred market, we will look to that periodically. We've always liked that market.
when it's open and if it becomes available, we'll look at it again for sure. Got it. Thank you.
And if it becomes available, we'll look at it again for sure. Got it. Thank you. Thanks.
And thank you. And one moment. One moment for our next question.
Hi everybody and congratulations on the quarter. Back to that capital question if I can. I mean obviously you paid down debt. You're now on just Q1 run late EBITDA. You're at four times debt to EBITDA. If things go right by the end of the year you could be pretty close to three. So I mean can you give us
asset purchases, accelerated inventory build in the module swap, or maybe a dividend increase, or can you give some idea of how you're thinking about allocating.
what could be an increased capital availability as we go through the year? Yes, conceptual capital availability.
You know, it's speaking to your priorities. Our first priority, as you mentioned, is to, you know, be sort of in three and a half times debt to total EBITDA range, which we think gets us into the solid strong double B with all agencies. So that's number one priority. I think that's we've been consistent about that and
So right now that is what we're shooting for. And obviously we're on track to do that with these numbers. So that's good. Then the second priority has always been investments. When you can generate 20 or 25% unlevered returns on new investments, those are things we never, we've never not been able to do a deal we wanted to do. So that is obviously having a fire power.
the time and what the various security prices are. We also have securities we could buy back as well other than just common. So we've got a lot of different opportunities and we like to be able to avail ourselves of those difference, you know, the things that get disrupted.
I mean, just to that point, on the inventory of the modules, I mean, I think I've asked about this before, you talked about it before.
Are you revising up the inventory level you'd like to keep or would you revise up the inventory level? If demand plays out the way you expect it to or the way you turn the components doesn't necessarily...
demand higher inventory levels. Yes, it's more the latter. We don't think, I mean, right now we're running the aerospace products business with between 150 and 200 million of capital or working capital, which we turn, you know, frequently. And we think as, you know, we grow the business that that number probably goes up to 250 to 300.
Thanks.
And thank you. One moment, please. And I am showing no further questions. I would now like to turn the call back over to Alan Andreni. You are available.
Thanks Justin, and thank you all for participating in today's conference call. We look forward to updating you after Q2. This concludes today's conference call. Thank you for participating. You may now disconnect.