Q1 2024 FTAI Aviation Ltd Earnings Call
Operator: Good day, and thank you for standing by. Welcome to the FTIE Aviation First Quarter 2024 Earnings Conference Call. At this time, 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 will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alan Andreini, Investor Relations. Please go ahead.
Yes.
Speaker Change: Good day and thank you for standing by welcome to the F tie aviation first quarter 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Speaker Change: You will then hear an automated message advising your hand is raised.
Speaker Change: Your question. Please press star one again.
Speaker Change: Please be advised that today's conference is being recorded I would now like to hand, the conference over to you.
Speaker Change: Ellen entering Investor Relations. Please go ahead.
Alan John Andreini: Thank you, Shannon. I would like to welcome you all to the FTI Aviation First Quarter 2024 Earnings Call. Joining me here today are Joe Adams, our Chief Executive Officer; Angela Nam, our Chief Financial Officer; and David Moreno, our Chief Operating 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, please note that this call is open to the public in a listen-only mode and is being webcast.
Ellen: Thank you Shannon I would like to welcome you all to the FY Aviation first quarter 2024 earnings call. Joining me here today are Joe Adams, Our Chief Executive Officer, Angela Nam, Our Chief Financial Officer, David Murray, Our Chief operating Officer.
Ellen: 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 please note that this call is open to the public in listen only mode and is being webcast.
Alan John Andreini: In addition, we will be discussing some non-GAAP financial measures during the call today, including EVITA. 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, I would like to point out that certain statements made today will be forward-looking statements, including statements regarding future earnings. These statements, by their nature, are uncertain and may differ materially from actual results.
Ellen: In addition, we will be discussing some non-GAAP financial measures during the call today, including EBITDA.
Ellen: A reconciliation to those measures.
Ellen: Directly comparable GAAP measures can be found in the urgent supplement.
Speaker Change: Before I turn the call Liberty, Joe I would like to point out that certain statements made today will be forward looking statements, including regarding future earnings.
Speaker Change: These statements by their nature.
Speaker Change: Are uncertain and may differ materially from actual results.
Alan John Andreini: 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 Change: Encourage you review.
Speaker Change: 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.
Joseph P. Adams: Thank you, Alan. To start today, I'm pleased to announce our 36th dividend as a public company and our 51st consecutive dividend since inception. The dividend of 30 cents per share will be paid on May 21, based on a shareholder record date of May 10. Now, let's turn to the numbers.
Joseph P. Adams: Thank you Alan.
Joseph P. Adams: Could you start today I am pleased to announce our 36th dividend as a public company and our 50 <unk> consecutive dividend since inception the.
Joseph P. Adams: The dividend of <unk> 30 per share will be paid on May 21, H not a shareholder of record date of May 10.
Joseph P. Adams: The key metric for us is adjusted EBITDA. We began the year strongly with adjusted EBITDA of $164.1 million in Q1 2024, which is up 1% compared to $162.3 million in Q4 2023 and up 29% compared to $127.7 million in Q1 2023. During the first quarter, the $164.1 million EBITDA number was comprised of $104.8 million from our leasing segment, $70.3 million from our aerospace product segment, and negative 11 from corporate and others.
Speaker Change: Now, let's turn to the numbers the key metric for US is adjusted EBITDA.
Speaker Change: We began the year strongly with adjusted EBITDA was $164 1 million in Q1, 2024, which is up 1% compared to $162 3 million in Q4, 2023, and up 29% compared to $127 7 million in Q1 of 2023.
Speaker Change: During the first quarter, the $164 1 million EBITDA number was comprised of $104 8 million from our leasing segment.
Speaker Change: $70 3 million from our aerospace product segment and negative 11 from corporate and other.
Joseph P. Adams: Turning now to leasing, leasing had another good quarter, hosting approximately 105 million of EBITDA. The pure leasing component of the $105 million came in at $98 million for Q1 versus $99 million for Q4 of last year. With exceptionally strong demand for assets in the commencement of the Northern Hemisphere summer season, we expect meaningful growth in Q2.
Turning now to leasing leasing had another good quarter, posting approximately $105 million of EBITDA.
Speaker Change: The pure leasing component of the $105 million came in at 98 million for Q1 versus $99 million of Q4 of last year.
Speaker Change: With exceptionally strong demand for assets and the commencement of the northern Hemisphere summer season, we expect meaningful growth in Q2.
Joseph P. Adams: We remain very confident in leasing EBITDA of $425 million for the year, excluding gains on asset sales. Part of the $105 million in EBITDA for leasing came from gains on asset sales. We sold 31.9 million book value of assets for a gain of $6.7 million. Slightly below our expectations, but we have more asset sales coming in Q2 and the rest of the year and are comfortable assuming gains on asset sales of approximately $12.5 million per quarter or $50 million for all of 2024.
Speaker Change: We remain very confident in leasing EBITDA of $425 million for the year, excluding gains on asset sales.
Speaker Change: Part of the $105 million in EBITDA for leasing came from gains on asset sales, we sold $31 9 million book value of assets for a gain of $6 7 million slight.
Speaker Change: Slightly below our expectations, but we have more asset sales coming in Q2, and the rest of the year and are comfortable assuming gains on asset sales of approximately $12 5 million per quarter or $50 million for all of 2024.
Joseph P. Adams: Aerospace Products had yet another excellent quarter with $70.3 million of EBITDA, at an overall EBITDA margin of 37%. We sold 72 CFM56 modules in Q1 to 16 unique customers. Additionally, we sold six V2500 engines in Q1 to three customers through our recently launched V2500 engine program. We continue to see tremendous potential in aerospace products and are comfortable that we will generate approximately $250 million in EBITDA in 2024, the high end of our previous range.
Speaker Change: Aerospace products had yet another excellent quarter with $70 3 million of EBITDA.
Speaker Change: At an overall EBITDA margin of 37%.
We sold 72, CFM 56 modules in Q1 to 16 unique customers.
Speaker Change: Additionally, we sold six V 2500 engines in Q1 to three customers through our recently launched V 2500 engine program.
Speaker Change: We continue to see tremendous potential in aerospace products and are comfortable that we will generate approximately $250 million EBITDA in 2024, the high end of our previous range.
Joseph P. Adams: Our Maintain, Repair, and Exchange (MRE) model for the two most widely used engines in commercial aviation produces cost savings and operational flexibility for airlines and aircraft lessors by allowing them to avoid shop visits through engine or module exchanges. A recently executed perpetual power agreement with LATAM covering over 60 V2500 and CFM56 engines illustrates the growing acceptance of airlines and lessors to outsource this activity to FTIA aviation. Overall, looking ahead, we continue to expect our annual aviation EBITDA for 2024 to be approximately $725 million, not including corporate and other. With that, I'll turn the call back to Alan.
Speaker Change: Our maintain repair and exchange or <unk> models for the two most widely used engines in commercial aviation producers.
Speaker Change: Reduces cost savings and operational flexibility for airlines and aircraft lessors by allowing them to avoid shop visits through engine or module exchanges.
Speaker Change: Our recently executed perpetual power agreement with Latam covering over 62500, and CFM 56 engines illustrates the growing acceptance of airlines and lessors to outsource this activity to FY aviation.
Speaker Change: Overall looking ahead, we continue to expect our annual aviation EBITDA for 2024 to be approximately $725 million not including corporate and other.
Alan John Andreini: Thank you, Joe. Shannon, you may now open the call for Q&A.
Speaker Change: With that I'll turn the call back to Allen.
Allen: Thank you Joe Shannon you May now open the call to Q&A.
Operator: Thank you. As a reminder, to ask a question, please press star 1-1 or your touch-tone 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. Our first question comes from the line of Kristine Liwag with Morgan Stanley. Your line is now open. Hey, good morning.
Allen: Thank you as a reminder to ask a question. Please press star one one or it has some telephone and wait for your name to be announced.
Allen: To withdraw your question. Please press star one again.
Speaker Change: Please standby, we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Cristina <unk> with Morgan Stanley. Your line is now open.
Unknown Attendee: Hey, good morning, guys. Good morning.
Cristina: Hey, good morning, guys.
Unknown Attendee: Um, you know, yesterday you announced the successful execution of a perpetual power agreement with Latham Airlines. Can you provide more color on what this agreement entails? How meaningful is this contract?
Cristina: Good morning.
Cristina: Yesterday, you announced the successful execution of our perpetual power agreement with Latam Airlines.
Can you provide more color on what what does the agreement in Paris, how meaningful is this contract.
David Moreno: Hey, Christine, this is David. So to provide additional color on LATAM, the deal itself is predominantly a B2500 maintenance, repair, and exchange contract. It does have a smaller component related to the sale-leaseback, but what we're doing is building engines ahead of shop visits, and we're providing engine exchanges that are avoiding shop visits for LATAM and offering flexibility. As far as EBITDA and how that's going to show up, we're going to be recognizing the B2500 MRE contribution as soon as engines are exchanged.
Cristina: Hey, Christine this is David.
Christine: To provide additional color on the Tam the deal itself is predominantly a <unk> 2500 maintenance repair and exchange contract. It does have a smaller component related to the sale leaseback.
David Murray: But what we're doing is we're building engines ahead of shop visits and we're providing engine exchanges.
David Murray: Avoiding shop visits for Latam and operating flexibility.
David Murray: As far as EBITDA, and how thats going to show up.
David Murray: We're going to be.
David Murray: Be recognizing a 2500 MRO MRV contribution as soon as engines are exchanged theres going to be a ramp up period.
David Moreno: There's going to be a ramp-up period, so as we exchange more engines, there's going to be a ramp-up in aerospace EBITDA. We're expecting that ramp-up to take about two to three years, as well as there being a smaller
David Murray: So as we exchange more engines theres going to be a ramp up on aerospace EBITDA.
David Murray: We're expecting to ramp up to take about two to three years.
David Moreno: I see. Thanks, David. And then when you said the ramp-up over two to three years, you said, you know, over 30 aircraft would be part of this agreement. Can you parse out the timing of when that could occur? And also, regarding the EBITDA contribution of this deal, what are the economics?
David Murray: As well as there was a smaller contribution on the leasing side, that's going to commence as soon as we close those airplanes.
Speaker Change: Thanks, David and then when you said the ramp up over a two to three years.
Speaker Change: Ted over 30 aircraft would be part of this agreement can you parse out the timing of when that could occur and also regarding the EBITDA contribution of this deal what are the economics.
David Moreno: Well, we're not giving a specific number on that yet. I think it's a bit of a function of how many engine exchanges occur and how quickly they occur.
Ted: Well, we're not giving a specific number on.
Speaker Change: That yet I think the.
Ted: A bit of a function of how many engine exchanges occur and how quickly they occur and we don't have certainty on that yet but.
David Moreno: And we don't have certainty on that yet, but we do expect that it will ramp up such that, you know, it'll be a needle mover in years two, three, four, five for our aerospace products business. So that's, that's really all we're saying at the moment. At this point, it's going to take a little bit of time for that to kick in. But then once it does, it's a needle mover, and it's very stable.
Ted: But we do expect that it will ramp up.
Ted: It'll be a needle mover in years 2345.
Ted: For our aerospace products business so.
Ted: That's really all we're saying at the moment at this point is it's going to take a little bit of time for that to kick in but then once it does.
Ted: It's a needle mover and it's very stable.
Unknown Attendee: Thanks. If I could do one more follow up on this. You know, with the V25 MRE that you announced earlier this year, how should we think about the LATAM contract as a proxy for economics for additional V25 MREs? Should this be what we look at for additional V2500 contracts? Is this a good starting point? Is this better?
Thanks, if I could do one more follow up on this.
Speaker Change: With the 25 MRI E that you've announced earlier this year, how should we think about the Latam contract as a proxy for economic floor additional avi twenty-five MRE. So this b well we look at four additional 700 2500 contracts is this a good starting point is this better any sort of context.
David Moreno: Any sort of context would be helpful.
David Moreno: It's a great starting point, and we would love to do more of these. And we hope we will have several projects that are, you know, of a similar nature. Each airline obviously has, you know, their own requirements and their own specifications. So they'll all be a little bit different, but we hope that, you know, this model is used by other airlines. And we In discussions with the big operators of E2500s, we've gotten very positive feedback on this, so we expect to do more, and we hope to do more.
Speaker Change: Helpful.
Speaker Change: It's a great starting point and we would we would love to do more of these and we hope we will we have several projects that are similar in nature. Each airline obviously has their own requirements in aerostat, so they'll all be a little bit different but we hope that.
Speaker Change: This model is used by other airlines.
Speaker Change: And we.
Speaker Change: In discussing sort of the big operators of <unk> five hundreds we we've gotten very positive feedback on this so we expect to do more and we hope to do more.
Unknown Attendee: Great, thank you. I'll stop there.
Speaker Change: Great. Thank you I'll stop there.
Operator: Thank you. Our next question comes from the line of Lewis Raffetto with Wolf Research. Your line is now open.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Louis Raffetto with Wolfe Research. Your line is now open.
Unknown Attendee: Thank you. Good morning.
Louis Raffetto: Thank you and good morning.
Joseph P. Adams: Joe, on the last or maybe October earnings call, you said you thought maybe 200 module swaps, not a precise number, but ballpark for 24, but doing 72 in the first quarter. Any thoughts on that now? And then sort of rolling into that, obviously, you've got module swaps, you've got the MRE and the V2500, where you just said you're kind of doing these shop visits ahead of time. How should we think about capacity limitations at this point?
Louis Raffetto: Good morning.
Louis Raffetto: Thanks.
Louis Raffetto: Joe on the last night or maybe October earnings call. You said, you thought maybe 200 module swaps not precise.
Louis Raffetto: But ballpark for 'twenty, four but doing 72 in the first quarter any thoughts on that now and that sort of rolling into that obviously, you've got module swaps you've got the MRE and the V 2500, where you just said you know you're kind of doing the sharpest ahead of time.
Louis Raffetto: How should we think about capacity limitations at this point.
Joseph P. Adams: So on the first point, I think we indicated between 250 and 300 module swaps, or exchange sales, for this year and 2024. And so we're obviously on a great path, you know, given the first quarter, and we have a pretty strong backlog. So I feel very good about that number we have built our plan around being able to deliver that. So we have ample capacity at our two maintenance facilities that we use, the Montreal facility and the Miami facility.
Speaker Change: So on the first point I think my recollection is we indicated between $250 and 300 module swaps Eric.
Speaker Change: Our exchange sales for this year for 2024, and so we're obviously.
Speaker Change: Great path, given the first quarter of that and we have pretty strong.
Speaker Change: Backlog, so I feel very good about that number we have bill.
Speaker Change: Built our plan around being able to deliver that so we have ample capacity.
Speaker Change: Our two maintenance facilities that we use the Montreal facility in the Miami facility. So we've got.
Joseph P. Adams: So we've got adequate capacity to do that. Obviously, we're working to increase capacity and ramp it up because we wanna stay ahead of this, and we do see substantial upside in the years ahead. So we're building additional capacity, but we have in place what we need to deliver this year.
Speaker Change: Adequate capacity to do that obviously, we are working to increase capacity.
Speaker Change: Ramp up.
Speaker Change: Because you want to stay ahead of this and we do see some substantial upside.
Speaker Change: In the years ahead. So we're building additional capacity that we have in place what we need to deliver this year.
Unknown Attendee: Okay, great. Thank you. And then, I'm sorry, just go for it.
Speaker Change: Okay, great. Thank you and then.
Joseph P. Adams: What was the second question, or did I...
Speaker Change: Sorry go for it Jeff.
Jeff: What was the second question here today.
Unknown Attendee: No, you've covered both of them, so I was just going to ask a quick one. Angela, any commentary around how to think about cash flow in the quarter and the rest of the year?
Speaker Change: No you've covered both of them sorry, just can I ask a quick one Angela.
Eun Nam: Just any commentary around how to think about cash flow in the quarter rest of the year.
Eun Nam: Sure. So our cash flows for this quarter, as you can see, our operating cash flows were about neutral. But that's because part of our proceeds from sales is sitting in investing. We believe for the rest of the year, our cash flow operations will improve significantly.
Eun Nam: Sure.
Eun Nam: So our cash flows for this quarter as you can see operating cash flows were about neutral.
Eun Nam: That's because part of our proceeds from sale sitting on investing we believe for the rest of the year, our cash flow from operations will occur significantly.
Unknown Attendee: Okay, thank you very much.
Speaker Change: Okay. Thank you very much.
Operator: Our next question comes from the line of Josh Sullivan with the Benchmark Company. Your line is now open.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Josh Sullivan with the Benchmark Company. Your line is now open.
Joshua Ward Sullivan: Hey, good morning.
Unknown Attendee: Just with the addition of the V2500 here, can you just help us understand, you know, some of the relative savings maybe versus the GE56 for an airline? You know, I want to say in the past, you've talked about a, you know, three and a half million dollar differential on the GE56, but is there a way to think about that for the V2500?
Joshua Ward Sullivan: Good morning.
Joshua Ward Sullivan: With the addition of the V 2500 here can you just help us understand some of the relative savings maybe versus the <unk> 56 for an airline and I want to say in the past you've talked about $3 $5 million differential on the 56, but is there a way to think about that for the 2500.
Joseph P. Adams: Yes, we have the same, you know, set of approaches to that engine that we take with the CFM 56. I mean, we've looked at sourcing new serviceable material, doing hospital repairs, potentially PMA, better, being able to get better deals with MROs because of volume commitments, and it's all on the table. The shop visit cost for the V is higher than the CFM56. It's typically, you know, full front to back is $9 to $10 million versus probably $7 million for the CFM56.
Speaker Change: Yes, we have the same set of <unk>.
Speaker Change: <unk> approach to that engine as we take it with the CFM, 56% and we've looked at.
Speaker Change: Sourcing used serviceable material doing hospital repairs potentially.
Speaker Change: Potentially PMA.
Speaker Change: Better.
Speaker Change: Being able to get better deals with MRO because of volume and it's all.
Speaker Change: It's all on the table the shop visit cost for the V is higher than the CFM 56.
Speaker Change: It's typically a full front to back is $9 million to $10 million versus probably $7 million for the CFM 56. So we think we can get similar dollar savings out of using all of those.
Joseph P. Adams: So we think we can get similar dollar savings out of using all those, albeit at a higher price. So it's a lower percentage, but it's still the same amount of savings. So I think, you know, we feel very good about that. We haven't locked in all of the partners that we will, that we're talking to right now on this program, and as the volumes increase and build, we'll be able to give more specifics around who we're working with and what, you know, what are the components of.
Speaker Change: Albeit at a higher <unk>.
Speaker Change: So it's a lower percentage, but it's still the same amount of savings. So I think we feel very good about that we haven't.
Speaker Change: A locked in all of the partners that we will.
We're talking to right now on this program and as the volumes increase and build will we'll be able to give more specifics around it.
Speaker Change: Who were working with and what what are the components of that.
Unknown Attendee: And then, you know, just given the move in the stock, all the changes, do you have a sense of the investor base at this point versus last year? Any major changes you're seeing?
Speaker Change: Got it.
And then just given the move in the stack all the changes.
Speaker Change: Do you have a sense of the Investor base at this point versus last year any major changes youre, saying.
Alan John Andreini: You know, hi, it's Alan. There have been, and I think that, you know, there are people that are initiating on the stock right here. And I think when you see the 13 F's filed, you know, for this quarter, on May 15, you're going to see some names that you've never seen before.
Alan: Hi, it's Alan.
Alan: Ben and I think that.
Alan: There are people that are initiating on the stock right here.
Speaker Change: And I think when you see the 13 Fs filed.
Alan: For this quarter.
Alan: May 15, youre going to see some names that you've that you've never seen before.
Unknown Attendee: Great, thank you for your time.
Speaker Change: Great. Thank you for that.
Operator: Thank you. Our next question comes from the line of Giuliano Bologna with Compass Point. Your line is now open.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Giuliano Bologna with Compass point. Your line is now open.
Unknown Attendee: Good morning and congratulations on the continued performance in the product segment. What I was curious about asking was that, you know, we would obviously love to have a, you know, an update on PMA. But, you know, with that being said, we've heard a lot of discussion recently about the industry pushing into PMA and increased demand for PMA from airlines. I'm curious if you agree with that. And, you know, why do you think that happened?
Giuliano Jude Anderes Bologna: Hi, good morning, Congrats on the continued our performance on the product segment.
Giuliano Jude Anderes Bologna: Alright.
Giuliano Jude Anderes Bologna: What I was curious about asking what's out there.
Giuliano Jude Anderes Bologna: <unk>.
Giuliano Jude Anderes Bologna: Yes.
Giuliano Jude Anderes Bologna: We would obviously love to have.
Giuliano Jude Anderes Bologna: Yes.
Giuliano Jude Anderes Bologna: And I've talked about PMA.
Giuliano Jude Anderes Bologna: But with that being said, we've heard a lot of discussion recently about the industry pushing into PMA and increased demand for P&I.
Giuliano Jude Anderes Bologna: From an FRE Airlines I'm curious if you agree with that.
Giuliano Jude Anderes Bologna: Why do you think thats happening.
Joseph P. Adams: Sure. So on the first part, we, you know, continue to make very good progress on getting approval for the next set of parts. And we don't have, we're not giving a specific estimate on the timetable, but we are making very good progress, and the quality and the performance of those parts are going to be terrific. And we're very excited about that.
Speaker Change: Sure so on the first part.
<unk> made very good progress on.
Speaker Change: Getting approval on the next set of targets.
Speaker Change: We don't have we're not giving.
Speaker Change: Specific estimate on the timetable but.
Speaker Change: Very good progress and the quality and the performance of those parts is going to be.
Speaker Change: Terrific and we're very excited about that so.
Joseph P. Adams: So, as I said consistently, it's worth the wait. And on the acceptance of PMA, I think that a lot, you know, in the last year or so, people have focused a lot on supply chain reliability. And when you have a sole source for critical parts, that's a bad dynamic. And so I think people are recognizing that PMA not only delivers cost savings in a very high-quality product, but it delivers a second source of product, which can be very, very important if you have an engine sitting in a shop and shop turn times are stretching out beyond six months now.
Speaker Change: <unk> said consistently it's worth the wait.
On the acceptance via I mean, I think that a lot of the recent last year or so people will focus a lot on the supply chain reliability and when you have a sole source for critical parts. That's a bad dynamic and so I think people are recognizing that PMA not only delivers cost savings.
Speaker Change: And a very high quality product, but it delivers.
Speaker Change: Second source of products, which can be.
Speaker Change: It can be very very important if you have an engine sitting in a shop in shop turn times stretching out beyond six months now.
Joseph P. Adams: If you're waiting for a single part and you have a single supplier, and they tell you they can't get you that part for a year, then you're in a bad position. So that's, I think, why it's becoming, you know, more talked about, or maybe more people are recognizing it's not just a cost-saving opportunity.
Speaker Change: If you are waiting for a single part and you have a single supplier.
Speaker Change: And they tell you they can't get to you that's it for a year that you're in a bad position. So that's I think why it's.
Speaker Change: Becoming more talked about or maybe more people are recognizing it's not just.
Speaker Change: Cost saving opportunity.
Unknown Attendee: That's very helpful, and I will jump back into it. Thank you.
Speaker Change: Alright very helpful.
Speaker Change: I'll jump back in queue. Thank you.
Speaker Change: Thanks.
Operator: Our next question comes from the line of Hillary Cacanando with Deutsche Bank. Your line is now open.
Speaker Change: Thank you.
Our next question comes from the line of Hillary pack of Nandan <unk> with Deutsche Bank. Your line is now open.
Unknown Attendee: Hi, thank you for taking my question. So this one's for Angela.
Eun Nam: So Angela, you have, you know, two preferreds that go from fixed to floating this year, you know, one in September and one in December. And obviously, you've had some great returns on those preferreds, those securities. Could you talk about what your plans are for them? And you know, how your discussions are going with the rating agencies? Sure.
Unknown Attendee: Hi, Thank you for taking my question.
Hillary: One for Angela Angela you have to confirm that go from fixed to floating debt.
Hillary: And one in December and obviously, you've had some great returns on that.
Speaker Change: The Securities could you talk about what your plans are for that.
Speaker Change: Questions are going with the rating agency.
Eun Nam: So yes, you're correct that our Series A's and B's are converting to floating later this year, and we're currently planning on refinancing those preferreds before those reset dates. So we'll continue to reassess. In regards to the rating agencies, our current analysts are those that typically cover aircraft lessors, but each rating agency is recognizing the great contributions that we're getting from the aerospace products business and the different metrics that will be involved in those sectors. So we are bringing in aerospace products business coverage analysts to each of our discussions with the rating agencies this year, which we think will be beneficial to our ratings.
Eun Nam: Sure Hey, Hillary.
Hillary: Yes, Youre correct.
Hillary: And b are converting to a floating later this year.
Speaker Change: And we're currently planning on refinancing those preferreds before those reset dates so well.
Speaker Change: We continue to reassess that.
Speaker Change: In regards to the rating agencies.
Speaker Change: Analysts are those that typically cover our class plus stores.
Speaker Change: Each rating agency is recognizing the great contribution that we're getting from the aerospace products business and the different metrics that will be involved in the sector. So.
Speaker Change: We are bringing in aerospace products.
Coverage analysts to each of our discussions with the rating agencies. This year, which we think will be beneficial to our meeting.
Unknown Attendee: Great, thank you. And then my second question is just on the leasing side, you know. You mentioned that the demand for these assets remains strong. You know, I know the gains could be lumpy. So how should we think about the segment for the rest of the year? And, you know, can you just talk about the pipeline for that segment? You sounded pretty excited about it. In terms of what the pipeline looks like for the second quarter,
Speaker Change: Great. Thank you and then my final question just on the leasing side, you mentioned that the demand for these assets you made John.
Speaker Change: And I know the games can be lumpy, how should we think about the segment with the rest of the year.
Speaker Change: Could you just talk about the pipeline.
Speaker Change: Got it.
Speaker Change: Hum.
Speaker Change: Yeah.
Speaker Change: Sure.
Speaker Change: Two things in the first quarter that dip.
Joseph P. Adams: Sure, you know two things in the first quarter that depressed leasing EBITDA, pure leasing EBITDA, one is, as you may recall, we had four airplanes we took back from a Vietnamese airline in the fourth quarter last year. And those are off lease; they go back on lease in the second quarter, and that had about a $5 million impact on the negative impact on EBITDA. And then secondly, the first quarter is typically the slowest period for flying hours, and a lot of airlines don't fly the same schedules, and some of our EBITDA is driven off of hours flown.
Speaker Change: Depressed leasing EBITDA purely you seem to kind of what is.
Speaker Change: As you May recall, we had four airplanes, we took back terminated a lease with a Vietnamese airline in the fourth quarter last year and those are those are off lease. They go on lease in the second quarter and that had about a $5 million impact negative impact to EBITDA.
Speaker Change: And then secondly, the first quarter is typically seasonally the slowest period for flying hours.
Speaker Change: A lot of airlines don't fly the same schedules.
Speaker Change: Some of our EBITDA is driven off of.
Speaker Change: Our flows so all of that changes in Q2, and Q3, and we expect as I said a meaningful uptick.
Joseph P. Adams: So all of that changes in Q2 and Q3, and we expect, as I said, a meaningful uptick starting next quarter. We're reaffirming our $425 million of leasing and development for the year without gains on asset sales.
Speaker Change: Starting next quarter and we are.
Speaker Change: We are reaffirming our 425 million of leasing EBITDA for the year with without gains on asset sales.
Unknown Attendee: Okay, great. Thank you so much.
Okay, great. Thank you so much.
Operator: Our next question comes from the line of Brian McKenna with Citizens JMP. Your line is now open.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Brian Mckenna with citizens JMP. Your line is now open.
Unknown Attendee: Okay, great. Thanks. Good morning, everyone.
Brian J. McKenna: Okay, great. Thanks, Good morning, everyone. Joe I appreciate the comments on the $250 million of EBIT.
Joseph P. Adams: Joe, I appreciate the comments on the $250 million of EBITDA expected from aerospace products for this year. But if I annualize first quarter results, you know, you're already rendering $280 million. You know, it sounds like, and it seems like there's quite a bit of momentum hitting, you know, heading into 2020 and beyond. So, yeah, I would, so I would think it's reasonable to assume continued growth from the first quarter level. So why not move the upper end of the range for 2024 to the second year?
Brian J. McKenna: EBITDA expected from aerospace products for this year, but if I annualized first quarter results you already run rating at $280 million.
Brian J. McKenna: Yes, it sounds like and it seems like there's quite a bit of walnuts and hitting heading into Q2 and beyond so.
Joe: Yes, so I would think it's reasonable to assume continued growth from the first quarter level. So why not move the upper end of the range for 2024 for the segment.
Joe: Well, it's just one quarter and it is a good quarter and we see good things ahead, but it's 25% of the year and so we're just not.
Joe: Ready to do that we'll reassess on the second quarter, but at this point, where we're sticking with the $2 50.
Joseph P. Adams: Well, it's just one quarter. I mean, it's a good quarter, and we see good things ahead, but it's, you know, 25% of the year, and so we're just not ready to do that. We'll reassess at the second quarter, but at this point, we're sticking with the 250.
Speaker Change: Got it Okay makes sense and then just a follow up it's great to see that 2500 program ramping but how should we think about the incremental margin from this business. It would seem like there are some synergies with your existing platform and.
Unknown Attendee: Got it. Okay. It makes sense.
Speaker Change: And ways to leverage the infrastructure already in place. So can this business actually be margin accretive to the segment over time.
Joseph P. Adams: And then just to follow up, it's great to see the V2500 program ramping up, but how should we think about the incremental margin from this business? It would seem like there are some synergies with your existing platform and ways to leverage the infrastructure already in place. So could this business actually be margin-accretive to the segment over time?
Speaker Change: It could I think the I mean.
Speaker Change: I'll, let Sam Deal's, a good example, where it's both 300 2500 and CFM 56 engines and we we offer engine solutions to every airline in the world that operates either a 737 LNG or an <unk> hundred 20 <unk>.
Speaker Change: <unk> family aircrafts, which is basically every airline.
Joseph P. Adams: It could I think the Let's Am deal is a good example where it's both 32500 and CFM56 engines. And we offer engine solutions to every airline in the world that operates either a 737NG or an A320CO family aircraft, which is basically every airline. So it's pretty powerful that we can combine and sell them, as essentially, in a single transaction, those services.
Speaker Change: So it's pretty powerful.
Speaker Change: You can combine.
Speaker Change: Sell them.
Speaker Change: Essentially you've got a single transaction those those services.
Speaker Change: There are some unique aspects right now because of the V 21, hundreds of demand is so high given that there.
Speaker Change: Theres over reportedly over 600 <unk>.
<unk> aircraft powered aircraft that are grounded right now which is times two that's 1200 engines that are out of service.
Joseph P. Adams: There are some unique aspects right now because the V2500, the demand is so high given that there are reportedly over 600 GTF aircraft powered aircraft that are grounded right now, which is times two, that's 1200 engines that are out of service. And so the demand for the V2500 is extremely high, and will likely stay that way for the next three years. And it's a smaller market.
Speaker Change: And so the demand for the V 2500 is extremely high and will likely stay that way for the next three years and it's a smaller market. So airlines I think are a little more fearful that they may not be able to get the 2500 at all so we see airlines willing to talk about longer term leases on that product, which.
Speaker Change: Inevitably leads to more value creation right. If we can if we can do the MRI put it on a long term lease then you can sell it as a <unk>.
Joseph P. Adams: So airlines, I think are a little more fearful that they may not be able to get a V 2500 at all. So we see airlines willing to talk about longer-term leases on that product, which inevitably leads to more value creation, right? If we can, if we can do the MRE, put it on a long-term lease, then you can sell it as a cash flowing asset and create value in two different ways. So I think that that possibility is something that we're seeing now, and it will likely play out. So I do think it has some added upside. All right, great.
Speaker Change: Cash flowing asset.
Speaker Change: And create value two different ways. So.
Speaker Change: That possibility is something that we're seeing now likely to play out so I do think it has.
Speaker Change: Some added upside.
Speaker Change: Alright, great ill leave it there and congrats on another great quarter.
Speaker Change: Thanks.
Thank you.
Speaker Change: Our next question comes from the line of David Zaslow with Barclays. Your line is now open.
David Zaslow: Hey, Thanks for taking my question.
David Zaslow: For David I guess my understanding is with the B 2500, do you have a little bit less flexibility.
Unknown Attendee: Alright, great. I'll leave it there and congratulate you on another great quarter.
David Zaslow: And how you execute the maintenance and operations of that type of engine.
Operator: Our next question comes from the line of David Zazula with Barclays. Your line is now open.
David Zaslow: Just with the high demand overall can you just talk about some of the challenges you have in balancing the 2500 versus CFM 56.
Unknown Attendee: Hey, thanks for taking my question. For David, my understanding is with the V2500, you have a little bit less flexibility in how you execute the maintenance and operations of that type of engine and just with high demand overall. Can you just talk about some of the challenges you have in balancing the V2500 versus CFM56 and how you're managing that?
David Zaslow: How you are managing that.
Speaker Change: Sure. So on the <unk> 500, and you have a lot of the same components that you do on any engine right, which is you have access to used serviceable material you have access to independent MRO and then you have access to new parties OEM a PMA.
Speaker Change: <unk> thousand 500, as we discussed is a more expensive shop visit it is a little more complicated from an engineering, which therefore creates more demand for ways to avoid that shop visit. So we're seeing a lot of folks come to us not wanting to shop, those engines and wanting us to come with solutions.
David Moreno: Sure. So on the V2500, you have a lot of the same components that you do on any engine, right? Which is that you have access to use serviceable material, you have access to independent MROs, and then you have access to new parts via either OEM or PMA. The V2500, as we discussed, is a more expensive shop visit; it is a little more complicated from an engineering point of view, which therefore creates more demand for ways to avoid that shop visit.
Speaker Change: We will integrate those solutions and provide a better product.
Speaker Change: So we are working through all that there is a lot of innovations around the hospital side of that engine that are coming out.
Speaker Change: Just because there's not enough 25 hundreds today in the market. So we're going to continue.
Speaker Change: Develop our capabilities and continue to find innovative ways to maintain those engines.
David Moreno: So we're seeing a lot of folks come to us not wanting to shop for those engines and wanting us to come up with solutions. We're able to integrate those solutions and provide a better product. So we are working through all that. There are a lot of innovations around the hospital side of that engine that are coming out just because there are not enough V2500s today in the market. So we're going to continue to develop our capabilities and continue to, you know, find innovative ways to maintain those engines.
Speaker Change: And its continuous improvement we did the same thing on the CFM 56, when we started that program. We knew about 10% of what we know now so I would expect in a year or two we're going to be a lot we're going to have a lot more.
Speaker Change: Tools to work with on the V 22 that we didn't have today.
Speaker Change: But even even without the tools, it's still a great market. So.
Speaker Change: Great Thats very helpful.
Joe or Angela.
Speaker Change: Impressive work on the tender for the October 2025.
David Moreno: And it's continuous improvement. We did the same thing on the CFM56. When we started that program, we knew about 10% of what we know now. So I would expect in a year or two, we're going to have a lot more tools to work with on the V2500 that we didn't have today. Even without the tools, it's still a great market.
Speaker Change: Just curious as to what the plan is for that funding.
Speaker Change: Yes.
Speaker Change: If your balance sheet, you're not looking at expanding the leasing balance sheet significantly.
<unk>.
Speaker Change: Potentially funding from the aerospace products side.
Speaker Change: Yes.
Five of those notes or what the plan would be.
Unknown Attendee: Great, very helpful. For Joe or Angela, you know, impressive work on the tender for the October 2025 notes. I'm just curious as to what the plan is for that funding and, you know, If you're not looking at expanding the leasing balance sheet significantly, would you consider potentially funding from the aerospace product side a refi of those notes or what the plan would be?
Speaker Change: I think the refi is done.
Speaker Change: The next opportunity is the.
Speaker Change: <unk>.
The nine and three quarters that are callable.
Speaker Change: Price drops in August so that's the next <unk>.
Speaker Change: <unk> refi to lower our interest costs.
Speaker Change: Terms of cash flow generation, we will look at using cash flow to repay debt.
Speaker Change: Our our priority on cash flow is too.
Joseph P. Adams: Well, I think the refi is done. The next opportunity is the nine and three quarters that are callable; the call price drops in August. So that's the next opportunity for, you know, refi to lower interest costs. In terms of cash flow generation, we will look at using cash flow to repay debt. And, you know, our priority for cash flow is to, one, make investments, and then obtain a strong BB rating from all three agencies, which we're on track to do.
Speaker Change: One make investments.
Speaker Change: And to then.
Speaker Change: <unk> a strong double b rating from all three agencies, which we're on track to do and then three we would look at.
Speaker Change: Increased dividends or stock buyback on the investment side, we are expecting to increase.
Speaker Change: The balance sheet slightly for the V 2500 investments that we're making this year, we expect to end the year at 150 to 200 engines to the V 2500, which is up from 70 now.
Joseph P. Adams: And then three, we would look at increased dividends or stock buyback. On the investment side, we are expecting to increase the balance sheet slightly for the V2500 investments that we're making. This year, we expect to end the year at 150 to 200 engines of V2500, which is up from 70 now. So we will be increasing that slightly. But I think the... opportunity will... come at some point later this year to look at repaying that and paying some of that more expensive debt off.
Speaker Change: So we will be.
Speaker Change: Increasingly slightly that.
Speaker Change: But I think.
Speaker Change: Yes, it will.
Tom at some point later this year, probably to look at repaying debt and.
Speaker Change: And paying some of the more expensive debt off.
Great. Thanks, and if I could just squeeze one more in.
Speaker Change: Any update on insurance or where you stand there.
Speaker Change: Yes, we have four separate.
Speaker Change: Work.
Speaker Change: Streams going.
Speaker Change: Three of them are negotiations with.
Speaker Change: Counterparties that are not insurance companies and they're very advanced and we expect.
Unknown Attendee: Great, thanks. If I could just squeeze one more in,
Speaker Change: Hopefully to get those done around the middle of this year, which represents about $75 million out of the expected 150 than we expected in total to recover the balance of that.
Unknown Attendee: Any update on insurance or where you stand there?
Joseph P. Adams: Yes, we have four separate work transcripts provided by Transcription Outsourcing, LLC. Hopefully, we will get those done around the middle of this year, which represents about $75 million out of the expected $150 million that we expect in total to recover. The balance of that will be with insurance companies, which we think will take somewhat longer, which we're expecting to be the middle of next year. But we think we'll get $150 million. We think half of that will happen in the middle of this year and the other half in the middle of next year.
Speaker Change: We will be with insurance companies, which we think will take somewhat longer.
Speaker Change: Which we're expecting to be in the middle of next year, but we think we will get 150, we think half of that the middle of this year.
Other half in the middle of next year.
Speaker Change: Thanks, so much appreciate it.
Speaker Change: Yes.
Speaker Change: Thank you. Our next question comes from the line of series L. Mcgee with CIBC. Your line is now open.
L. Mcgee: Hey, good morning, Thanks for taking my questions.
L. Mcgee: A couple on the light end deal what's the lead time on the <unk> 2500 exchanges.
L. Mcgee: Touched on your capacity, but I'm curious on the timing.
L. Mcgee: It would be sort of prepping. The engines for exchange ahead of time and I am wondering how long it takes before F banking recognized revenue.
Unknown Attendee: Thanks, Joe. It is much appreciated.
Operator: Thank you. Our next question comes from the line of Sherif Elmaghrabi with CIG. Your line is now open.
Speaker Change: Yes, so we have engines in shop, right now and we're starting to deliver those engines as soon as we will close the transaction. So the agent exchanges will start.
Unknown Attendee: Hey, good morning. Thanks for taking my question. So a couple on the lead-in deal. What's the lead time on the V2500 exchanges? You touched on your capacity, but I'm curious on the timing side. You said you'd be sort of prepping the engines for exchange ahead of time. And I'm wondering how long it takes before SI can recognize revenue.
Speaker Change: Relatively soon the ramp up will take time, so we are.
Speaker Change: We have a scheduled right now for this year of shop visits and expect to date, but we're still working on the next outer years. So we're going to re receiving that soon and working through that.
Speaker Change: Producing those engines ahead of time.
Speaker Change: But those at engines had been produced.
Speaker Change: Some of them are finalizing shop visit at the moment.
David Moreno: Yep. So we have engines in the shop right now. And we're starting to deliver those engines; we will close the transaction. So the engine exchanges will start, you know, relatively soon; the ramp-up will take time. So we are, you know, we have a schedule right now for this year of shop visits and expected dates, but we're, you know, still working on the next few years. So we're gonna be receiving that soon and working through that, and producing those engines ahead of time. But those engines have been produced, and some of them are finalizing shop visits at the moment.
Speaker Change: We started I mean, we have 15 engineered shop right. Now 2500, we started that earlier this year. So some of them are already coming out and we've got a schedule.
Speaker Change: Where we expect to be able to meet the requirements for Latam.
When they need them and we will have those engine is ready.
Speaker Change: They spent a lot of thank you spent a lot of time asking that question.
Speaker Change: So we went through the ringer on that.
Speaker Change: One of their key criteria given the shortages in the industry.
Speaker Change: Yes that makes sense.
Speaker Change: And then on the sale leaseback side of the deal obviously that generate some liquidity for Latam right.
Joseph P. Adams: We started, I mean, we have 15 engines in the shop right now, the V2500. We started that earlier this year, so some of them are already coming out, and we've got a schedule where we expect to be able to meet the requirements, WATAM. When they need them, we'll have those engines ready. They spent a lot of time asking us that question.
Speaker Change: Does the deal like that potentially for future customer not just this airline does that open up opportunities for asset sales under the leasing business and that is that sort of multi phase something youre thinking about.
Speaker Change: Yes, yes, it does and then Latam on this situation wasn't really focused as much as some airlines are generating a lot of liquidity from this deal.
Unknown Attendee: Thank you for that question.
Unknown Attendee: And then on the sale-leaseback side of the deal, obviously, that generates some liquidity for LATAM, right? So does a deal like that, potentially, for a future customer, not just this airline, open up opportunities for asset sales under the leasing business? Is that sort of multi-phase deal something you're thinking about? Yes.
Speaker Change: It's not a huge amount to them, but they were more focused on the engine.
Speaker Change: Exchange program, but airlines.
Every deal ends up being a snowflake and it's always a different set of priorities and.
Speaker Change: But the demand for auto leased aircraft is very high again, so there's a lot of money that's come into the leasing segment again, if you have a six year lease.
Joseph P. Adams: Yes, yes, it does. I mean, my time on this in this situation wasn't really focused as much as some airlines are and generating a lot of liquidity from this deal. So it Normal Owner Microsoft Office Word Microsoft, Inc. So that we'll generate some cash, more cash, and more gains from that activity. So yes, we do like that.
Speaker Change: We are now in the airline you can easily monetize that we will be doing more of that in the second quarter.
Speaker Change: So that will generate some cash more cash and more gains in from that activity. So yes, we're we do like that.
Unknown Attendee: Okay, thanks for taking my questions.
Speaker Change: Okay. Thanks for taking my questions everyone.
Operator: Our next question comes from the line of Stephen Trent with Citi. Your line is now open.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Stephen Trent with Citi. Your line is now open.
Unknown Attendee: Good morning, everybody. And thanks for taking my question. You know, a couple of my questions have already been answered. But I'm curious as well when we think about, you know, the engine module side. You've got very good exposure in the US since you acquired that 50% stake in QuickTurn, I believe, a facility in Montreal. What do you think about this high level? Are there sort of any other geographic spots where you maybe think you could, you know?
Stephen Trent: Good morning, everybody and thanks for taking my question.
Stephen Trent: A couple of my questions have already been answered, but I'm curious as well when we think about.
The engine module side, you've got.
Stephen Trent: Very good exposure in U S. You acquired that 50% is taken quick turn I believe our facility in Montreal. When do you think about this high level are there sort of any other geographic spots where you.
Stephen Trent: Maybe you think you can.
Joseph P. Adams: add your footprint.
Stephen Trent: AD.
Unknown Attendee: Yes, it would be Southeast Asia, which we did a relatively very good job early on of covering, you know, North and South America and Europe, and we started about, you know, six, nine months ago really with a more intense focus on Southeast Asia, and we see we've had success there, but there's a lot. I mean, it's a huge, huge market opportunity, and we were relatively underrepresented, but that will be changing Whether we add maintenance capacity there or not is something, you know, we've started thinking about, so I don't have anything conclusive yet, but we will look at maintenance facilities and, potentially, either our own or partners in that market in the coming months. Okay, I appreciate that as super helpful, and thanks for the time. Thanks.
Stephen Trent: Footprint.
Speaker Change: Yes, it would be a southeast Asia.
Speaker Change: Which we.
Speaker Change: We did a relatively very good job early on of covering North and South America, and Europe and we.
Speaker Change: We started about.
Speaker Change: Six nine months ago really with a more intense focus on southeast Asia, and we see we have had success there and but there's a lot I mean, it's a huge huge market opportunity that we were relatively underrepresented.
Speaker Change: That will be changing this year, and we see that as a future.
Speaker Change: Significant growth opportunities, whether we whether we add maintenance capacity there or not is something we started thinking about.
Speaker Change: So I don't have a.
Speaker Change: Anything conclusive, yet, but we will look at.
Speaker Change: Maintenance facilities potentially either either our own or partners in that market in the coming months.
Speaker Change: Okay. I appreciate that is super helpful and thanks for the time.
Speaker Change: Thanks.
Operator: Our next question comes from the line of Frank Galanti with Stifel. Your line is now open.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Frank Galanti with Stifel. Your line is now open.
Unknown Attendee: Great. Thank you. Hi. Thanks for taking my questions and congrats on the great quarter. I wanted to ask about the aerospace segment. Can you help us understand what the breakdown in the segment was between module swaps, USN sales, and full engine sales or exchanges, given the varying levels of differentiation and margin between those businesses?
Frank Galanti: Great. Thank you hi, Thanks for taking my question and congrats on the great quarter.
Frank Galanti: I wanted to ask about the aerospace segment.
Frank Galanti: US understand what the breakdown in the segment was between module swaps <unk> failed and Paul engine fails our exchanges.
Frank Galanti: Given the varying levels of differentiation in margin between those businesses.
Joseph P. Adams: Sure, so In starting with the module factory, we generated about 600,000 EBIT per module, sale or exchange. That's up a little bit from the last quarter, and it's consistent with what we've been seeing since really when we started the module factory. Module transactions happen in either one, two, or three. So a customer can choose any of those flavors that they want.
Speaker Change: Sure so we.
Speaker Change: Starting with the module.
Speaker Change: Factory.
Speaker Change: Generate about this.
This quarter was about 600000 EBITDA per module.
Speaker Change: Our exchange.
Speaker Change: That's up a little bit from the last quarter and that's consistent with what we've been seeing since really when we started the module factory larger transactions happen in either.
Speaker Change: One two or three.
Speaker Change: So a customer can choose either want any of those flavors that you won.
Joseph P. Adams: In some cases, what airlines realize is that rather than them working to try to keep their fan or their low-pressure turbine, they can actually save more money by just doing a whole engine exchange and not having to deal with that because then they have zero days of downtime. So, so, but on average, the average transaction averages out to two modules per transaction. In terms of the...
Speaker Change: Three modules as a whole engine.
Speaker Change: In some cases, what airlines realizes that rather than them working to try to keep their fan or the low pressure turbine.
Speaker Change: They can actually save more money by just doing a whole engine exchange and not having to deal with that because they may have zero days of downtime. So so but on average.
Speaker Change: Average transaction averages out to two modules per transaction.
Joseph P. Adams: The rest of the, so we call that in the module factory, in the MRE V2500 business is very similar, and the profitability from the V2500 is, on an equivalent basis, probably a little bit higher than the equivalent on the CFM56 today, but they're pretty comparable, and we expect that to remain similar. That's assuming that an engine has three modules for the V2500. On USM, it's been, you know, we've indicated in the past that it was roughly previously about 25% of EBITDA from Erosase Products, but as we have ramped up the MRE business, that percentage is going down to where it's less than 15% of EBITDA at this point, and will continue to decline because that's not So, hopefully, that helped.
Speaker Change: In terms of the.
Speaker Change: The rest of the so we call that in the.
Speaker Change: Our module factory in the MRE.
Speaker Change: 25 of our business.
Speaker Change: It was very similar and the profitability should review 2500.
Speaker Change: On an equivalent basis is probably a little bit higher than.
Speaker Change: The equivalent on the CFM 56 today, but they are pretty comparable and we expect that to remain similar.
Speaker Change: That's assuming that an engine has three modules for the <unk> 900.
Speaker Change: On U S M.
Speaker Change: It's been we've indicated in the past that.
Speaker Change: It was roughly previously at about 25% of EBITDA from.
Speaker Change: Erez aerospace products, but as we have.
Speaker Change: Ramped up the MRA business that percentage is going down.
Speaker Change: Where its less than 15% of EBITDA at this point and we will continue as a percentage to decline because thats not a high growth business.
Unknown Attendee: That does work. Thanks.
Speaker Change: So hopefully that helps.
Unknown Attendee: And so sort of digging in on the three whole-engine CFM sales, based on last quarter's reclassification of the V2500 gain on sale from that liner segment into the aviation segment, it's sort of my understanding, right, that when you sell a full CFM56 engine, that shows up as three modules, and it results in a gain on sale that shows up in the aerospace segment. So just confirm for me that that's And then So how many of those 72 modules were full engines? And of those full engines sold, how many of those engines did you sell with the same three modules that you had purchased them with?
Speaker Change: Thanks.
Speaker Change: Yes.
Speaker Change: Sort of digging in on to the three whole engine.
Speaker Change: <unk>.
Based on last quarter's reclassification.
Speaker Change: 2500 gain on sale from that leasing segment in the aviation segment sort of my understanding.
Speaker Change: Alright, then when your cell phone CFM 56 engine.
It shows up a three modules.
Speaker Change: And it resulted in a gain on sale it doesn't mean aerospace segment. So just.
Speaker Change: Confirmed for me that Thats correct and then.
Speaker Change: How many of those 72 modules were full engine in that format.
Speaker Change: <unk> sold how many of those engines that you sell with sort of the same three module that you had purchased them with.
Joseph P. Adams: I have no idea. I don't, you know, when we sell a whole engine, as I said, it's the customer's choice. If they want to take their fan off, and only take two modules off, they can do that.
I have no idea.
Speaker Change: When we sell a whole engine as I said, it's the customer's choice.
Speaker Change: If they wanted to take their fan off and only by two modules. They can do that so we don't really think of it any differently.
Joseph P. Adams: So we don't really think of it any differently. We don't break it out that way. It's not relevant to us, as a, you know, from a business operation. I don't have any numbers on that.
Speaker Change: And we don't break it out that way, it's not relevant to us.
Speaker Change: Is it from from our business operations.
Speaker Change: I don't have any numbers on that.
Unknown Attendee: Okay, but just like if you'd purchased an engine in COVID and did no work on it, it's just sort of no value-added work. When you sell that, is that showing up in aerospace EBITDA?
Speaker Change: Okay.
Speaker Change: I gave you had purchased an engine in Covid.
Speaker Change: Did no work on it and so certain low value added work.
Speaker Change: When you sell that is that showing up in aerospace EBITDA.
Joseph P. Adams: Well, there's no such thing as an engine that sits around for two to three years, so... That doesn't happen. When we buy an engine, we put it into the facility, and it's split into three modules. It's either repaired, torn down, or combined, reassembled into an engine. So that doesn't happen.
Speaker Change: Well there is no such thing as an engine that sits around for two to three years. So.
Speaker Change: That doesn't happen when we buy an engine.
Speaker Change: We've put it into the facility.
Speaker Change: Split into three modules, it's either.
Speaker Change: Repaired torn down or combined reassembled into an engine so that doesn't happen.
Unknown Attendee: Okay, so then, just to be clear, every CFM56 extension goes through the module factory.
Speaker Change: Okay, then just to be clear every CFM 56 engine goes through the module factory.
Joseph P. Adams: No, I mean we've bought airplanes, sold the airframe, and leased engines directly. If the engine doesn't require work, it doesn't go into the module factory.
Speaker Change: In some capacity.
Speaker Change: No I mean, we bought airplanes sold the airframe and leased engines directly if the engine doesn't require work it doesn't go into the module factory.
Unknown Attendee: Okay, that's really helpful. I appreciate you taking the time to answer my question. Thank you very much.
Speaker Change: Okay. That's really helpful. I appreciate you taking my questions. Thank you very much.
Operator: Thank you. Our next question comes from the line of Robert Dodd with Raymond James. Your line is now open.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Robert Dodd with Raymond James Your line is now open.
Unknown Attendee: Morning, everybody, and congrats on the quarter. Thanks for all the detail about cash flow and potential use of funds, et cetera, to pay down debt. You did mention the dividend. I'm going to ask about the dividend. I mean, you're barely yielding more than the S&P 500 given the stock performance. Is there, you mentioned maybe increasing the dividend later this year with the cash flow you're going to generate. Is there a rule of thumb you're thinking?
Robert James Dodd: Good morning, everybody and congrats on the quarter. Thanks.
Robert James Dodd: Thanks for all the detail about our cash flow and potential use of funds et cetera.
Robert James Dodd: You did mentioned the dividend I'm going to ask about the dividend.
Robert James Dodd: I mean that you're barely yielding more than the S&P 500, given the stock performance.
Robert James Dodd: Is that I mean, you mentioned may be increasing the dividend later this year with the cash flow youre going to generate.
Unknown Attendee: I mean, Way back in the past, there used to be a two-times, yeah, two times the fad coverage. We'll think about the dividend, obviously, the whole thing. The metrics are different now, but it's sort of a rule of thumb we should think about, what would give you the comfort necessary to increase the dividend from what it is right now.
Youre thinking I mean.
Way back in the past they used to be two times two times Fad coverage will think about the dividend obviously the hole.
Robert James Dodd: The metrics are different now.
Robert James Dodd: Some we should think about.
Robert James Dodd: Two what would you then put necessary to.
Joseph P. Adams: Yeah, you're right. We really haven't thought about the coverage calculation in the last four years or five years, but you have the history. I don't think that's necessarily the way we're approaching it today; we have investments, we want to have a strong BB, and then when we have excess cash, we'll return it to shareholders somehow. That's kind of the, you know, the waterfall.
Robert James Dodd: Increase the dividend right now.
Speaker Change: Yes, you are right, we really haven't thought about the coverage calculation recently for the last four years or five years, but you have the history.
Speaker Change: Yes.
Speaker Change: Right now I don't think Thats.
Speaker Change: <unk> the way we are approaching it today is it it's more.
Speaker Change: Have investments we wanted to have a strong double b and then when we have excess cash we'll return to shareholders somehow.
Speaker Change: That's kind of it.
Speaker Change: The waterfall.
Speaker Change: Got it thank you and one more if I can one on.
Speaker Change: On the capacity question I mean, you're very opportunistic when you added the Lockheed capacity for example.
Unknown Attendee: Are those kind of facilities aren't being underutilized now, right? There's backlogs everywhere.
Speaker Change: On Covid and the facility was being underutilized and we were very opportunistic kind of unlocking that long term.
Speaker Change: All of those.
Speaker Change: These aren't being underutilized.
Joseph P. Adams: Are those kinds of opportunities going to be available? Or is there not going to be any? Is an expansion in capacity going to be more? Is it going to necessitate an acquisition or be capital intensive? Or are you going to be able to find capacity on an as-needed basis?
Speaker Change: This backlog is everywhere.
Speaker Change: All of those kind of opportunities going to be available or is it going to be and is an expansion in capacity.
Speaker Change: Some of them to be.
Speaker Change: Is it going to necessitate an acquisition will be capital intensive or are you going to be able to find.
Speaker Change: Capacity on a as needed basis do you think.
Joseph P. Adams: There's capacity out there. There are some shops that, I mean, the successful shops and the large shops are very busy, and many of them have Now Gear Turbofan work that they either want to do or have to do, which is sort of squeezing out some other capacity.
Speaker Change: There is capacity out there there is.
There are some shops that.
Speaker Change: I mean, the successful shops within large shops are very busy and they have and many of them have.
Speaker Change: Now geared turbofan work they either want to do or have to do which is sort of squeezing out some other capacity, but there are lots of other facilities out in the world.
Joseph P. Adams: But there are lots of other facilities out in the world that we look at and see, and we also have partners in different parts of the world. The opportunity for the maintenance side, it's more of a, you know, it's available, and we have plenty of capacity right now, but we are always, you know, looking ahead and trying to be, you know, stay, ahead of it. So yes, there's still opportunities, maybe, maybe not the same as during COVID, but it's a big industry, and it's global, and there are lots of smaller and medium-sized players.
Speaker Change: That we.
Speaker Change: Look at and see and we also have partners in different parts of the world. So.
Speaker Change: The opportunity for the maintenance side, it's more of a.
Speaker Change: It's available and.
Speaker Change: And we have.
Speaker Change: Plenty of capacity right now, but we are always looking ahead and trying to be stay.
A stay in front of it so yes, theres still opportunities maybe maybe not the same as during COVID-19.
Speaker Change: But.
Speaker Change: But there is.
Speaker Change: It's a big industry.
Speaker Change: There's lots of.
Alan John Andreini: Thank you, and I'm currently showing no further questions at this time. I'd like to hand the call back over to Alan Andreini for closing remarks.
Speaker Change: Smaller and medium sized players out there.
Speaker Change: Got it thank you.
Speaker Change: Yes.
Speaker Change: Thank you and I'm currently showing no further questions at this time I would like to hand, the call back over to Alan Andreini for closing remarks.
Operator: Thank you, Shannon, and thank you all for participating in today's conference call. We look forward to updating you after Q2.
Alan John Andreini: Thank you Shannon and thank you all for participating in today's conference call. We look forward to updating you after Q2.
Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.