Q1 2025 FTAI Aviation Ltd Earnings Call
Okay.
Speaker Change: Thank you for standing by and welcome to F. T. AI Aviation's first quarter 'twenty to 'twenty five earnings conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on.
Alan: Your telephone to remove yourself from the queue you May press star one one the game I would now like to hand, the call over to you Alan and Dreaming Investor Relations. Please go ahead.
Speaker Change: Thank you Latif I would like to welcome you all to the upside of aviation first quarter 2025 earnings call. Joining me here today are Joe Adams, Our Chief Executive Officer, Angela Aman, Our Chief Financial Officer, and David Marino, Our Chief operating Officer, we have posted an investor presentation in our press release at 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. 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 measure.
<unk> can be found in the earnings supplement 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. These.
Speaker Change: Statements by their nature are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and Investor presentation regarding non-GAAP financial measures and forward looking statements and to review the risk factors contained in our quarterly report filed with the SEC now I would like to turn to.
Joe Adams: Call over to Joe.
Joe Adams: Thank you Alan I am pleased to announce our 40th dividends as a public company in our 55th consecutive dividend since inception.
Joe Adams: The dividend of <unk> 30 per share will be paid on may 23rd based on a shareholder record date of May 16.
Speaker Change: Angela is going to take you through the numbers in more detail, but before that I wanted to highlight a few things.
Angela Aman: We started the year with momentum recording another strong quarter in aerospace products with $131 million and adjusted EBITDA at a margin of 36% with.
Angela Aman: With a consistently growing backlog of purchase orders for 2025 and beyond demand for our aerospace products and services continues to accelerate strengthening our position as a leader in the engine maintenance aftermarket.
Angela Aman: Turning to production, we refurbished 138, CFM 56 modules this quarter between our two facilities in Montreal in Miami.
Angela Aman: We anticipate a significant ramp to occur in Q2, particularly in Montreal, as we execute on our growth initiatives and operational throughput to enhance efficiency.
Angela Aman: As we expand production of refurbished modules and engines. Our core focus is to increase our market share of restorations beyond the current 5% to 25%.
Angela Aman: Now, let's talk about adjusted free cash flow.
Angela Aman: In the first quarter, we close at approximately $234 million of aviation equipment at attractive prices as replacement Capex for the seed portfolio of aircraft, which are being sold to strategic capital initiative our Sci.
Angela Aman: The transition of these aircrafts started in Q1, where we sold four aircrafts for $59 million and we are proceeding on plan to have completed the sale of the remaining assets by the end of Q2 generating a significant inflow of approximately $440 million we expect.
Angela Aman: Adjusted free cash flow to be in the range of $300 million to $350 million for the first half of the year, which is in line with our target to achieve $650 million and adjusted free cash flow for all of 2025.
Speaker Change: For the strategic capital initiative, our CIO has great to announce one investment management as an equity investor to the partnership.
Speaker Change: Since then we have secured an additional equity partner and expect further closings during Q3 of this year.
Speaker Change: We remain on track to deploy 4 billion plus in capital by the end of the year through a combination of these commitments and our $2 5 billion secured asset level financing facility with Atlas a wholly owned subsidiary affiliate of Apollo and Deutsche Bank.
Speaker Change: Finally, we have been working extensively on operational plans with our partner IAG engine Center European wrong and are confident we can ramp up production immediately following the acquisition to support our regional customer base in Europe, and the Middle East.
Speaker Change: We already have five engines in the facility and expect to close the new joint venture very soon.
Speaker Change: Therefore overall, we feel increasingly confident in our business segment EBITDA 2025 goal of between 1.1 to 1.15 billion, excluding corporate and other rising to approximately $1 4 billion in 2026.
Speaker Change: While tariffs create some challenges and opportunities we do not currently see tariffs, having any material negative effect on our business and we are reiterating our guidance for both 2025 and 2026 as we continue to see growing and accelerating demand for our proprietary set of aerospace products.
Speaker Change: With that I'll hand, it over to Angela to talk through the numbers.
Angela Aman: Thanks, Joe.
Angela Aman: Key metric for us as adjusted EBITA, We began the year strongly with adjusted EBITA of $268 6 million in Q1, 2025, which is up 7% compared to $252 million in Q4 of 2024 and up 64% compared to $164 1 million in Q1 of 2012.
Angela Aman: For.
Angela Aman: During the first quarter, the $268 6 million EBITA number was comprised of $162 million from our leasing segment $139 million from our aerospace product segment and negative $17 4 million from corporate another excluding intra entity eliminations.
Angela Aman: Turning now to leasing.
Angela Aman: <unk> continued to deliver strong results posting approximately $162 million of EBITDA.
Angela Aman: The pure leasing component of the $162 million came in at 152 million for Q1 versus $128 million in Q4 of 2024 <unk>.
Angela Aman: Included in the $152 million with a $30 million settlement related to Russian assets written off in 2022, which is an additional settlement to the $11 million, we announced we received last quarter.
Angela Aman: For gains on sales, we began the year of $68 million in book value of assets being sold for a 13% margin gain of $9 8 million, which will significantly increase next quarter as we closeout the transition of the seed assets to the Sci.
Angela Aman: Looking ahead.
Angela Aman: Remain comfortable assuming leasing EBITDA will be 500 million in 2025, as a pivot our focus towards an asset light business model.
Angela Aman: Aerospace products had yet another good quarter with $130 9 million of EBITDA at an overall EBITDA margin of 36%, which is up 12% compared to $117 3 million in Q4 of last year and up 86% compared to $70 3 million in Q1 2024.
Angela Aman: We continue to see accelerating growth in adoption and usage of our aerospace products.
Angela Aman: <unk> focused on ramping up production in both of our facilities and Montreal in Miami as well as commencing operations in wrong. In 2025, we continue to expect to generate 606 on your $15 million and EBITDA up from 381 million in 2024 and $160 million in 2023 with that let me.
Speaker Change: Turn the call back over to Alan. Thank you Angela <unk> you May now open the call to Q&A.
Speaker Change: Thank you as a reminder to ask a question you will need to press star one on your telephone to remove yourself from the queue. You May press Star one again, please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Giuliano Bologna of Compass point. Please go ahead Giuliano.
Speaker Change: Good morning, Congratulations on your competitor.
Speaker Change: A successful quarter.
Speaker Change: Okay.
Speaker Change: The first question I had.
Speaker Change: Sorry, I wanted to dig into is that we can sell.
Speaker Change: A few questions is that it looks like in the aerospace products segment.
Speaker Change: Roughly $100 million of revenue that was related to the 2020 that partnership with BARDA The RCI program.
Speaker Change: I'm curious when you think about that.
Speaker Change: My assumption there is that.
Speaker Change: That was kind of saying where you're seeding the portfolio to help the RCI program launched the program in and acquire a lot of assets.
Speaker Change: As it relates to.
Speaker Change: Yes, yes, yes, I forgot if you get to understand the rationale there and then it'd be great. If you can provide any perspective around the third party or non Sci business because it seems like this year.
Speaker Change: An opportunistic thing to do and that there is actually a tremendous amount of demand from third parties, if not growing pretty materially.
Joe Adams: And Joe the limitation as you highlighted before is capacity at Montreal, and that's expected to increase materially in <unk> and beyond Jake here. So you should have a lot of demand.
Speaker Change: But it'd be great to get your perspective around all of that.
Speaker Change: Sure sure Great question.
Speaker Change: Let me talk about several points that first of all Youre correct. There is today there is tremendous demand and for the next few years, we see tremendous demand for our rebuilt engines okay.
Speaker Change: The entire industry and today, we are constrained by production, which what that means is we can sell everything that we produce.
Speaker Change: So for those engines, we have multiple options to sell to third party customers and we could have done so and had no material different financial outcome than selling to the Sci.
Speaker Change: But we did prioritize Sci for a couple of reasons. One is we're committed to engine exchanges with the partnership and we also want to see that that partnership grows significantly and there are a significant.
Speaker Change: Benefits and material cost savings for an owner and an airline that are achieved through engine exchanges, which is our our underlying hull business rashard rationale through the MRE and Thats why demand across the entire industry is growing for these products because you save money and you save time and money and it's very efficient.
Speaker Change: And so our purpose of creating Sci was to make that entity a better owner of these assets.
Speaker Change: Bye bye confirming those benefits on to that partnership, particularly when Theyre engine maintenance events in the next few years for engines and that that is for the vast majority of assets out there have engine maintenance events coming up fairly soon.
Speaker Change: So in return so if F ci becomes a better owner, meaning they make higher returns that means over time they'll own more assets, which means <unk> will get more committed engine exchanges, which means we will then have more visibility on our future needs for engine rebuilding which.
Speaker Change: Makes us more efficient, which should lower our costs, which means we end up with better margins. So it's really a virtuous circle and that was the.
Speaker Change: The whole point of why we are why we are setting this up or one of the main points.
Speaker Change: In Q1, its roughly about 30% of our activity went to Sci.
Speaker Change: And that's because we've been lining up assets for the last six months. So there is a bit of pent up demand since we started closing and we now own.
Speaker Change: 30 aircraft in the partnership and we expect overall it'll be about 20% of all of 2025, and we think that 20% number is probably representative.
Speaker Change: For future years, as we see both Sci and the market growing significantly as I mentioned in the opening remarks, our goal is to grow our market share from 5% to 25% of the whole industry.
Speaker Change: So when we look at what happened and this is exactly what we hoped would have happened in Q1, when we setup Sci and we view this as a huge positive for both the near term and the long term for <unk> and the shareholders.
Speaker Change: It is.
Speaker Change: Certainly helpful and maybe just a quick follow up just to make sure.
Speaker Change: And you're exactly right.
Speaker Change: Just looking at that 20% number and what that kind of implies yes.
Speaker Change: That implies something in the range of $130 million EBITDA as a growth year on the EBITDA target.
Speaker Change: Thanks, Good afternoon for the year.
Speaker Change: Yes, the non Sci would be.
Speaker Change: Okay.
Speaker Change: Great.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: High 30%.
Speaker Change: Growth in non Sci business. So it seems to me and hopefully yes.
Sam: Sam as you see it the same way.
Sam: This is additive and theres, no cannibalization happening and adjust that youre feeling based on your order book or your ability to produce the modules and as that goes up youll, you'll fill the orders SaaS that you can have a huge backlog to continue doing that so this is really additive in the core business.
Sam: Im actually still growing pretty materially okay great.
Sam: Yes.
Sam: Think that.
Sam: I agree I think that we would have had growth even without sci, but even if we didn't sell at Sci. We would have been <unk> available for somewhat so we will have growth without it but could she can't zero it out because we do something else with those assets, but but no I agree with the math that you laid out.
Sam: Basically right, but when we see the entire market growing.
Sam: The products and.
Sam: There is no cannibalization these.
Sam: Aircrafts that are being acquired and Sci we would not have been doing these engines on this other than the fact that we now own them in the partnership.
Speaker Change: That's very helpful. I really appreciate it and I will jump back in the queue.
Sam: Thanks.
Speaker Change: Thank you. Our next question comes from the line of Sheila K of Jefferies. Your line is open that Sheila.
Sheila K: Good morning, Tim and thank you. So much my first question is maybe on.
Speaker Change: If you look at aerospace products.
Speaker Change: Margins improved sequentially to 36%, even with a two point drag from legacy Montreal in the quarter. So how are you sizing the potential impact and opportunities with tariffs to the business and any workarounds at your disposal.
So we don't see any material negative effect from tariffs on our on our business.
Speaker Change: Think there's three three reasons I would say for that one is it's the nature of our business, which is to rebuild assets and we use a lot of used material and this is not a new asset that's being delivered into our market. So it's typically not.
Speaker Change: The target of tariffs. The second is we operate in three different geographies. So we have a facility in Canada, one in United States and one in the EU and effectively we do essentially the same thing each one of those jurisdictions. So we could deliver products to different markets from different <unk>.
Speaker Change: Different sourced.
Speaker Change: Location, if we needed to do some optimization, but today, we don't we don't see the need to do that and then lastly, we have an ability to pass on price increases to customers and.
Speaker Change: We see public comments from Oems and others, indicating similar.
Speaker Change: Our philosophy is if their costs go up theyre going to they have the power and they have the capability to price.
Speaker Change: Flex price and pass it on and if that happens then we would obviously followed suit and we feel like we have a similar capability to pass on as well.
Speaker Change: And then longer term ultimately if these tariffs stick for extended period of time you should see.
Speaker Change: The price of new assets go higher which means ultimately to the price comparison for use assets used assets should should be more attractive as a result, and thats. Good for us ultimately if prices increase it gives our products more value and also more cost savings.
Speaker Change: Great. Thank you for that answer.
Maybe Joe when you said Angela when you said the $650 million free cash flow guide for the year.
Speaker Change: Sort of pre growth capex on that.
Speaker Change: <unk> thousand 26 targets without further investment.
Speaker Change: <unk> invested $127 million of parts in Q1, So just curious how you're thinking about growth capex opportunities. This year on that how that translates into the aerospace products ramp over the next few years.
Speaker Change: Yes, I'll take that I mean, we are.
Speaker Change: Our planning to invest about $200 million in parts in the first half of this year and as part of our cash flow.
Speaker Change: I would characterize this as.
Speaker Change: Being.
Speaker Change: The heavy on parts inventory and we view that.
Speaker Change: Because we think the cost of having extra parts inventory is way less than the cost of missing a sale. So we don't want to Miss a sale and as I mentioned and beginning work where production constrained and so we are being very heavy leaning towards owning more material than less material at this point.
Speaker Change: So I think we're taking the view that we're going to we're ramping up our production, we're going to ramp up our inventory as well that will level off it's not a continuing item, but I would say in the next few months.
Speaker Change: That's what that's what I would expect and that's that's in our assumption for 2025 on the cash flow side.
Speaker Change: So I think we are.
Speaker Change: We're expecting a roughly 200 million of parts increasing in the first half of this year.
Speaker Change: And even with that we still generated 350 million approximately of a free cash flow.
Speaker Change: Great. Thank you.
Thanks.
Speaker Change: Thank you. Our next question comes from the line of Christine Milwaukee.
Speaker Change: Morgan Stanley. Please go ahead Christine.
Speaker Change: Hey, good morning, everyone and Joe just wanted to follow up on the commentary you made on cash now. So when you said that the inventory step up of 200 million in cash for the first half for aerospace products and the $350 million of free cash flow is that at the same time or do you mean through $50 million of positive free cash flow for the full year I guess my question is.
Speaker Change: Ultimately trying to understand the cash stream with aerospace product, especially if you're trying to grow from 5% to 20% how much more inventory investment do you need to make.
Speaker Change: When does that become a positive working capital event.
Speaker Change: Sure well, let me first I'll walk you through my numbers for the first half of the year in terms of cash flow.
Speaker Change: I start with operating cash flow, which is effectively EBITDA minus interest and maintenance capex of about $450 million for the six months.
Speaker Change: Then we're going to have $500 million of asset sales.
Speaker Change: Mostly to the Sci.
Speaker Change: Start with $950 million.
Speaker Change: <unk> invested we would expect to invest in total replacement capex of about $300 million, which was in our previous numbers for 2025 and that will be front end loaded in the first half of the year than equity and the Sci roughly $100 million. So that brings <unk> to $5 50, and then if you take $200 million in the first.
Speaker Change: Half of the year for parts inventory that gets you to the $3 50 350 million of free cash flow for the first half of 2025.
Speaker Change: So that's kind of the building blocks as I said, the $200 million of inventory investment.
Speaker Change: Is.
Speaker Change: A bit higher than what we would've expected in the first half of the year, but we think it is.
Speaker Change: Good investment and we still are able to achieve our numbers given the growth in <unk>.
Free cash flow and EBITDA from from the business. So.
Speaker Change: Do you have any thoughts on.
Speaker Change: Going forward the growth rate of parts.
Speaker Change: As we've mentioned we want to provision parts ahead of shop visits so generally speaking working capital as far as what we have today, we'd like to maintain that and we.
Speaker Change: Provision to head for the remainder of the year. So we don't see that growing materially.
Speaker Change: Quarter over quarter.
Speaker Change: Great. Thanks, and maybe following up just on this part staying at $127 million CFM 56 that you acquired opportunistic attractive prices can you talk more about how you source that how youre able to get a deal like that in this environment where.
Speaker Change: There is a lot of demand not enough supply and also as you provision ahead of time are you seeing these prices go up more in anticipation of the tariff costs.
Speaker Change: Engine Oems have been pretty clear that pricing pass throughs will be part of their strategy to offset some of the pain that could have on tariffs.
<unk>.
Speaker Change: Yes, so we're sourcing these parts and a number of fashions, but where we have a competitive advantage as we're sourcing these parts and service level from asset owners and airlines. So we're buying for example, Mlps and then we have the backstop capabilities and Montreal to repair the mantra.
Speaker Change: Montreal, just to give you kind of model overall.
Speaker Change: The ability for about 70% of the CFM 56 in house.
Speaker Change: That includes Llp's combustor cases frame as other band base amongst other parts.
Speaker Change: So we buy these parts as removed and then we have special repairs. When we can repair. These parts are bringing back serviceable. So by doing so we're able to really get into them at a much lower cost as well as we have salvage repairs that are able to increase yields. So we're again, we're very knowledgeable about scrap rates in specific parts and then we can match.
Speaker Change: <unk> is the value through our repair network.
Speaker Change: We are starting to see yes parts starting to increase.
Speaker Change: Yes.
Speaker Change: Mentioned manufacturers are going to be passing through certain tariff surcharges, so we're expecting that to flow.
Speaker Change: Flow through like any OE.
Speaker Change: Annual Escalations. So we do expect that to increase the parts used parts as well I think generally speaking we're in a positive position because as pop.
Speaker Change: Prices for our replacement parts get more expensive for new cards, we can offer more cost savings. So we're starting to see that unfold. It's early days at the moment.
Speaker Change: Thanks, and I have follow up to that if I may.
Speaker Change: On the repair that youre doing in Montreal, It sounds like the tariff duties are on places of manufacturer the value added D. Do you want to repair does that.
Speaker Change: Trigger some sort of tariff piece when you bring it back to the U S or is that why you are having a lower expected tariff.
Speaker Change: Impact and then as a second question to that with airlines being more focused on costs are you seeing more adoption of your PMA parts.
Speaker Change: In engines today.
Speaker Change: Okay.
Speaker Change: Yeah on the first part the answer is no we don't see a tariff impact on the repair portion.
Speaker Change: And.
Speaker Change: The second part is yes, we think airlines are increasingly focused on engine maintenance costs as they continue to go up it.
Speaker Change: Disproportionate way for all airlines, so theres a lot of focus on cost saving techniques and people are opening.
Speaker Change: Any alternatives. They have is on the table and PMA being being one so we think that that will be.
Speaker Change: Obviously, we have a huge competitive advantage on PMA and we see that is.
Speaker Change: Not really in our numbers, yet, but tremendous upside for our margins and we think industry adoption will be quite good.
Speaker Change: Great. Thank you.
Speaker Change: Thanks.
Speaker Change: Thank you. Our next question comes from the line.
Josh Sullivan: Josh Sullivan of the benchmark company. Please go ahead Josh.
Josh Sullivan: Hey, good morning.
Josh Sullivan: Can you just update.
Josh Sullivan: Following up on the on the PMA conversation there can you update us on the approval progress for the remaining PMA is at this point.
Josh Sullivan: I would say that we continue to make excellent progress.
Josh Sullivan: And we are very close on approval in the next part.
Josh Sullivan: And thats kind of where I stopped.
Josh Sullivan: Yeah.
Josh Sullivan: Got it and then just.
Josh Sullivan: Just on aerospace products in general on TMA.
Josh Sullivan: Obviously, a conversation that continues to be out there is how accepting are airlines and lessors of PMA parts and can you just expand on the adoption.
Josh Sullivan: Wow.
Josh Sullivan: Any other metrics you have on.
Josh Sullivan: They have better margins for you.
Josh Sullivan: Yes, I mean one of.
Josh Sullivan: Usually the the part in the beginning is getting assets into service and then.
Josh Sullivan: People want to see how they perform and that's what you would hope would happen right as people.
Josh Sullivan: Look at the part for the quality of the part and how it performs when they make the decision and the history is that these parts are performed extremely well and Thats what were seeing in the first two parts that are in service.
Josh Sullivan: And then from there.
Josh Sullivan: Once the assets are in service and have a lot of have hours flown on them. The adoption increases then we also have the ability to increase that adoption rates significantly through Sci. So.
Josh Sullivan: It's a tool that no one ever had and one of the.
Josh Sullivan: One of the big reasons that PMA always had struggled.
Josh Sullivan: <unk> struggled in the early periods was lessors not being willing to two.
Josh Sullivan: Take a risk on residual value.
Josh Sullivan: But we're over that so and we're a pretty big lessor. So that is different market environment, and then I think we've ever had before.
Josh Sullivan: So.
Josh Sullivan: I think it's.
Josh Sullivan: I think people are open minded, particularly if they have data and facts.
Josh Sullivan: And the parts performed well.
Speaker Change: Great. Thank you for the time.
Josh Sullivan: Thanks.
Speaker Change: Thank you. Our next question comes from the line of Andre Madrid upbeat Tid. Please go ahead Andre.
Andre Madrid: Hey, good morning, everyone.
Andre Madrid: I know, we're talking about the free cash flow cadence through the year and I think this was first mentioned last quarter, but could you give us maybe any more update about how youre thinking about shareholder friendly capital deployment moving forward.
Speaker Change: Sure. So we've.
Andre Madrid: The priorities we have set our.
Andre Madrid: Growth Capex number one debt repayment number two in third shareholder and our repayments. So we expect by the end of this year to be on the debt side.
Andre Madrid: Down close to three times debt to total EBITDA, which is kind of a low end of the range of what we said so if we assume we don't have significant growth capex opportunities and we have to pay down debt to three times, then we would move to the third bucket, which is shareholder.
Andre Madrid: A repayment or.
Andre Madrid: Dividends or stock buybacks and I would say probably towards the end of this year was when we achieve that objective.
Andre Madrid: Okay.
Andre Madrid: Got it got it all occupant wont actually thanks.
Speaker Change: Thank you our next question.
Brandon: Comes from the line of Brandon <unk> of Barclays. Please go ahead Brandon.
Brandon: Hey, good morning team and thanks for taking my question, Joe maybe just following up on that I think you guys are targeting.
Brandon: You said three times net leverage rate that you are targeting this year.
Brandon: Yes.
Brandon: So we've communicated previously our range, we expect to be in a range of three to three and a half and we think by the end of this year, we will be at three.
Brandon: Okay.
Angela Aman: Maybe this question is really for Angela how do we think about the moving pieces with the Sci aircraft out new assets in.
Brandon: Impacting the debt.
Brandon: Debt profile of the business.
Brandon: And maybe like from a ratings agency perspective here.
Joe Adams: Sure So Joe mentioned.
Brandon: Had previously said that we're targeting.
Speaker Change: Luis <unk> by the end of the Sierra.
Speaker Change: And with the Sci, we can accelerate that and get closer to three by the end of the year.
Speaker Change: Give us a strong double beat with the rating agencies, which Dave we've communicated that circle.
Speaker Change: That's possible by the fact that in prior years, we spent a good amount of acquisition capex on buying aircraft, which with the STI. We are no longer required to do and in addition to that.
We will generate about 500 million.
Speaker Change: Proceeds from the sales of our seed assets so.
Speaker Change: All those things combined we think we will definitely be in position to be in a strong that will be what the rating agencies by the end of the year.
Speaker Change: Okay. So does that give you any opportunity maybe to think about refi and things in the future.
Speaker Change: And get your client, it's definitely possible yeah currently art.
Speaker Change: The $5 billion, which isn't maturing until 2028.
Speaker Change: Weighted average interest rate of about six and a half. So that's something that we can definitely look at but not something that's a priority given our rates.
Speaker Change: Okay, and then Joe can you talk to I know you signed the deal with last year, but have you put any b 2500, <unk> through that relationship yet.
Speaker Change: Whats your initial thoughts on.
Speaker Change: The relationship and the margin and the profitability of that business.
Speaker Change: Oh, yes, we've put quite a few engines through their network and we're very happy with the relationship and how it's developed in and.
Speaker Change: The margins as I said would not be dilutive to our aerospace products business and that's been true the actual results and.
Speaker Change: We see that is it.
Speaker Change: The important part of our product offering because as.
Speaker Change: As I mentioned, we are offering to airlines and owners full coverage of yes.
Speaker Change: 707, <unk> hundred 20, <unk> no matter what engine they have so it's a very positive marketing.
Speaker Change: Our customer relations development for us that we think is.
Speaker Change: It is going to be in place for many years and we don't see anybody with the market.
Speaker Change: Position that we have coming in at this stage. So we feel very good about that market for the next 10 years really being the dominant.
Speaker Change: Provider for engines in the aftermarket.
Speaker Change: Thank you.
Speaker Change: Thanks.
Speaker Change: Thank you. Our next question comes from the line of <unk>.
Speaker Change: <unk>.
Speaker Change: Of Deutsche Bank. Your question. Please hillary thank.
Speaker Change: Thank you.
Speaker Change: So Joe I know, what I will call it about 100 module to be fourth quarter.
Speaker Change: Now that you are significantly ramping up production through the remainder of the year.
Speaker Change: One is a compromise worldwide what would you be looking for in order to revise that program.
Speaker Change: Got it.
Speaker Change: Well the original 100 modules per quarter was only Montreal.
Speaker Change: So when you add in Miami, and then soon to be wrong.
Speaker Change: That <unk>.
Speaker Change: Total capacity will be what do you think too.
Speaker Change: 200, plus 200 modules per quarter, yes production.
Speaker Change: Capacity now that doesn't mean that we have enough mechanics to produce 200, yet, but we are moving as fast as we can to.
Speaker Change: To fill up that capacity.
Speaker Change: And if you look across.
Speaker Change: I wanted to talk about a 25% market share. If you think roughly 3000 engines a year. That's about 700 800 engines shifting now to engines for marginal zone.
As Mike Convention change, but.
Speaker Change: It's about 750, we currently have capacity physical capacity across the network of about 600, So we're pretty.
Speaker Change: We're pretty well.
Speaker Change: And equipped to have the physical capacity, we need to build up the.
Speaker Change: The manpower and all of the related assets, but we're doing that.
Speaker Change: As.
Speaker Change: Fast as we can and David can talk about Montreal bar, yes.
Speaker Change: Yes, we're keenly focused on output in Montreal.
Speaker Change: For Q1, we produced 77 modules, which is in line with our <unk>.
Speaker Change: Plan of 100 modules per quarter on average.
Speaker Change: It's been just to recap it's been six months since our acquisition we acquired the facility in September really focus on specialization as well as moving out any non CFM 56 work.
Speaker Change: We're very proud of all the work that's been done to Montreal, and we've officially now completed the specialization effort, which we're going to see significant benefits going into Q2, and the remainder of the year just.
Speaker Change: Just to give you a little more color for Q2, we're expecting between 90 to 100 modules in Montreal, and we're expecting to grow thereafter, So we're very happy about the progress with the T Mo and where we're at right now.
Speaker Change: So the 90 to 100 modules.
Speaker Change: Our production number.
Speaker Change: Correct as production of 90 to 100 and Thats just in Montreal, just Montreal only Montreal.
Speaker Change: Got it that's helpful. Thank you very much.
Speaker Change: And then just on insurance.
Speaker Change: About $30 million this quarter or 11 million last quarter.
Speaker Change: As a reminder.
Speaker Change: How much more you expect to recover this year versus how much was written operationally.
Speaker Change: Where you are in the settlement.
Speaker Change: Yes, we will have another.
Speaker Change: Yeah. Thanks, we did have $30 million recovery in Q1, we have agreements.
Speaker Change: We've actually closed but $24 million in Q2 is as committed.
Speaker Change: And then remaining claims are roughly $100 million.
Speaker Change: And we don't we.
Speaker Change: We don't have.
Speaker Change: Necessarily clear visibility on the timing of that.
Speaker Change: So we will have collected.
Speaker Change: In excess of what we wrote off without that $100 million. So we're in pretty good position net net but that 100 is still to be settled recover litigated.
Speaker Change: But we'll have 54 and this year.
Speaker Change: Alright.
Speaker Change: Great. Thank you very much.
Speaker Change: Thanks.
Speaker Change: Thank you. Our next question comes from the line, Brian Mckenna of citizens. Please go ahead Brian.
Brian McKenna: Thanks, Good morning, all it's great to see that the module factory now has over 100 customers globally.
Brian McKenna: I'm curious, though is there a way to think about the usage or consumption per third party customer on average at the module factory today, and then where this ultimately goes over the next couple of years.
Brian McKenna: Well, we originally.
Brian McKenna: Way back we were we were doing about four modules for customer and.
Brian McKenna: Then that increased to about six and we think it's probably closer to eight now which was our original number and it's it's what we've always.
Brian McKenna: Expected and hoped is that you get somebody to try at our pitch is always just try it once and if you don't like it don't do it again and we find that people like it so they do it again.
Brian McKenna: And then they do it for more of their fleet.
Brian McKenna: That's our goal so we have some customers who've done $25 30 modules and in a year.
Brian McKenna: And we ultimately we'd love to get a 100% of their business, but were only shooting for 25% market share. So we won't we won't we're not going to get that but.
Brian McKenna: We do see.
Brian McKenna: Usage per customer going up and numbers of customers continuing to go up which is great multiplier and then and.
Brian McKenna: Then as we have more cost savings.
Brian McKenna: From PMA, we'll see margins per module go up so that's how you get to the the original algorithm was.
Brian McKenna: If you double the modules for customary to double the customers and you double the margin that's a factor <unk> eight so it's a great multiplier effect and that's why we think this is just such a great business.
Speaker Change: Okay, Great. That's helpful. And then maybe just a governance question for you Joe Youre still the chairman of the board of <unk> infrastructure. So do you plan on being the chairman of <unk> longer term or should we expect that rule to transition to someone like Ken over time.
Speaker Change: We haven't really discussed that any changes so.
Speaker Change: I mean <unk>.
Speaker Change: And I have worked together for 20 years and we are.
Speaker Change: Have a great relationship.
Speaker Change: I don't.
Speaker Change: We don't have any intention of changing that to my knowledge at this point.
Speaker Change: Sure.
Speaker Change: Alright, thats controlled by fortress, so Idaho.
Speaker Change: For us as the managers, so they could change that equation, but I don't I.
Speaker Change: I don't intend to.
Speaker Change: Got it that's helpful I'll leave it there and congrats on another great quarter.
Speaker Change: Thanks.
Speaker Change: Thank you. Our next question comes from the line of Ken Herbert of RBC Capital markets. Please go ahead Ken.
Ken Herbert: Yes, hi, good morning, Joe and team. Thanks for thanks for the time.
Ken Herbert: I Wonder if maybe first ask Joe with all the uncertainty just not only from tariffs with the macro backdrop can you comment on what you've seen in lease rates on either aircraft or engines in the first quarter around either sort of absolute lease rates year over year, what youre seeing there and I guess also as part of that lease.
Ken Herbert: Tensions, which had been running incredibly highs for the last few years have you seen any softening in either of these metrics can you level set us on just what youre seeing there in terms of the underlying demand.
Ken Herbert: Sure. So no we haven't seen any softening I think rates are pretty relatively stable no deterioration in.
Ken Herbert: Modest increases we do see tremendous demand for extensions when you go talk to airlines.
Ken Herbert: Really every airline in the World is we would take a 15 year old 737, LNG. If you could find it for them. So the demand is very high the number did I.
Ken Herbert: <unk> watch in terms of market strength or weakness is the percentage of fleet thats in storage and so I track, how many narrow bodies are stored.
Ken Herbert: And a very strong market is 5% and a weaker market is 10% and it kind of tends to move between those two numbers.
Ken Herbert: Today, the last numbers I saw were a little bit under five so it's a very very strong market and you can see you.
Ken Herbert: You can see traffic weakness in the United States, which tends to get a disproportionate amount of headlines and United might retire some <unk> hundred 19, but those assets are probably going to go to Indonesia, Philippines, or the middle East or 20. Other places. They could go so that ultimately is good for us if they go out of the hands of the majors.
Ken Herbert: The second and third tier operators, which is what usually happens so.
Ken Herbert: So I think there is a very strong bid globally for assets.
Ken Herbert: What we look at it is the most important.
Ken Herbert: Indicator of strength. These are the most easily repositioned assets in the world.
Ken Herbert: So that's the beauty of it is it's a global market.
Speaker Change: That's helpful and coming out of the first quarter can you just remind us either either in terms of aerospace products any.
Speaker Change: Any discrepancies or any underlying.
Speaker Change: Geographic exposures, we should we should think about I know, obviously now with the.
Speaker Change: Vic footprint it helps offset tariff risks from a delivery standpoint, but are you over index to any part of the world as we think about.
Speaker Change: The aerospace product segment.
Speaker Change: No I think we've been indicating over the last few quarters, we see probably the biggest growth in our portfolio will be southeast Asia.
Speaker Change: But that's just because we were underrepresented there previously so.
Speaker Change: We don't see any weakness or change significantly we have talked about.
Speaker Change: On China, because originally we thought of China is kind of a zero for us but increasingly.
Speaker Change: We see that as potentially a big upside in that China is significantly under ordered.
Speaker Change: For the last four years, really and which means to keep.
Speaker Change: They're flying levels youre going to have to maintain and keep assets older assets longer.
Speaker Change: And older assets longer flying in China need engines.
Speaker Change: And so we have the ability to do engine exchanges into China, we have a.
Speaker Change: The room facility that we just are acquiring has a C AAC, which is a Chinese equivalent of the FAA for China license. So.
Speaker Change: So we see China as a potential.
Speaker Change: The wildcard on the upside we have virtually no exposure at all or very little but.
Speaker Change: It's all it's all upside from our point of view and it could be significant.
Speaker Change: Great. Thanks, Joe I'll pass it back there.
Speaker Change: Yes.
Speaker Change: Thank you. Our next question comes from the line of Myles Walton of Wolfe Research. Please go ahead Myles.
Myles Walton: Thanks, Good morning.
Myles Walton: So I was wondering if you could comment on the Sci ownership assets and of the 98, you have either now owned or under ml use.
Myles Walton: About what percentage is.
Myles Walton: Powered by <unk> versus CFM 56 is that similar to the 30 aircrafts you had in the first quarter.
Myles Walton: So we currently own in the partnership like 30 aircrafts 98 on a ROI, it's probably 90% CFM Ryan yes, the vast majority of the CFO.
Myles Walton: And in terms of your target customer base to acquire the assets from the 250 for the year can you give us some color as to airlines lessors other financial sponsors or buyers are owners.
Myles Walton: What's the target audience, and where you're seeing the most activity.
Myles Walton: Yes, we are sourcing from two avenues. The first are from less worse, where their large lessors looking to keep their fleet young.
Myles Walton: They're motivated by.
Myles Walton: Maintaining.
Myles Walton: Rating agencies biotech maintaining investment grade so as part of that they have mandates to sell older equipment.
Myles Walton: So we're a fantastic buyer and we're buying.
Myles Walton: Quite a bit so we have the ability to do bilaterals are sold over the last few months, we've been executing on bilaterals with large lessors.
Myles Walton: That to continue for the remainder of the year. The second Avenue is direct from airlines.
Myles Walton: So airlines.
Myles Walton: Many airlines had expected, let's say receiving new orders. So now, let's say tier one airlines, we have engines that are tired and they need to continue to operate these aircraft for longer. So here, we're really a source for them to offload maintenance.
Myles Walton: So we've entered into numerous sale leasebacks with airlines, where we take on and the maintenance so effectively we power everything to engine exchanges.
Myles Walton: And those type of transactions.
Myles Walton: 101, because the airlines really is focused on the counterparties ability to execute on engine exchanges.
Myles Walton: And based on our capabilities and our asset.
Myles Walton: The only folks that can deliver that service. So we see tremendous opportunities from the sale leaseback side and we expect that to continue so quite a bit of that 98 aircraft relate to sale leasebacks as well.
Angela Aman: Okay got it and maybe one for Angela the $7 million of property limbs.
Speaker Change: Is that simply your 20% stake on the $100 million of sales to the Sci or about 35% margins and then what should we expect for them from the full year corporate and <unk> sort of Contra account total reported EBITDA.
Speaker Change: Yeah sure Yeah, that's correct, that's 7 million elements the intra entity profit on the $100 million on aerospace products.
Speaker Change: For eliminating.
Speaker Change: On the corporate and other I think included in that is our these are land also included are about a little over $3 million in costs that we've incurred this quarter related to the first I'll report. So that is also not included in that run rate.
Speaker Change: So I would incorporate both of those items.
Speaker Change: Okay got it and last one Joe just to square for me sorry for the question on cash flow again slide nine you have sort of two different cash flows you've got one adjusted cash flow and one cash flow from investing operations less investing when you talked about the $350 million.
Speaker Change: For the first half is that comparable to the 54 million.
Speaker Change: Cash flow or the $73 million of cash flow listed on the slide nine.
Speaker Change: 73.
Speaker Change: Okay got it.
Speaker Change: Understood. Thanks, so much.
Speaker Change: Yep.
Speaker Change: Thank you. Our next question comes from the line of Stephen Trent of Citi. Please go ahead Steven.
Stephen Trent: Good morning, everybody and thanks for taking my question.
Speaker Change: The first one for me just sort of keen to.
Speaker Change: Follow up on the geographic color, you mentioned southeast Asia, and I believe in the past.
Speaker Change: You may have even been considering potential acquisitions in that region and I'm kind of curious whether.
Speaker Change: The noise from tariff SaaS accelerated or decelerated.
Speaker Change: The extent to which you might still be.
Speaker Change: Looking for targets in that market. Thank you.
Speaker Change: Sure. So I think long term that is an option and it's something we'll look at short term, though we're we're in the process of acquiring realm, and we want to make sure we get that set up embedded down in and manage that so I would say in the near term I wouldn't.
Speaker Change: Not a corporate priority for us and we will be able to serve that market pretty efficiently from realm.
Speaker Change: And as I mentioned, just a few minutes ago. It also has a C. AAC license. So we could we could serve roam into China as well so for the near term I would say we are good on what we've got longer term. If you look at a few years and he said where would you think you might end up with a facility I would say, it's probably likely.
Speaker Change: Southeast Asia.
Speaker Change: While we've done on these facilities, though is it is interesting in that if you think about our facilities. They're all former airline engine shops. So in Montreal. It was an ex air Canada shop in.
Speaker Change: Miami was an ex Panam engine shop, and enrollments in X Alitalia engine shop, and the characteristics. They all had is they had tremendous.
Speaker Change: Physical capacity and no business and so we're able to acquire these facilities at less than replacement cost and then fill them with our own engines and that's that's a unique capability that we bring no. Other party can come in and say I am going to deliver engines to this facility immediately.
Speaker Change: Because most people are relying on getting third party customers to give them business and then move the engines and we bring our own business, so where we.
Speaker Change: We're a great buyer for assets.
Speaker Change: Low cost low price, because we bring our own our own business to the table.
Joe Adams: That's super helpful. Joe appreciate that.
Speaker Change: And maybe just a quick sort of.
Speaker Change: Sort of accounting follow up for Angela maybe.
Speaker Change: When we think about.
Speaker Change: The partnership you guys have.
Speaker Change: The.
Speaker Change: The Sci.
Speaker Change: From an accounting perspective, the longer term should we think about.
Speaker Change: <unk> equity method.
Speaker Change: Inclusion.
Speaker Change: Of those earnings.
Speaker Change: Or am I thinking about that incorrectly, but thank you.
Speaker Change: I think youre asking.
Speaker Change: Currently we do pick up our equity income related to the Sci partnership now if you're asking will we include earnings of that going forward.
Speaker Change: It depends on materiality on that we'll do every quarter and if it meets a materiality threshold for that equity investment. Then yes. You are required to include the earnings assets related to that equity investment.
Speaker Change: To your question.
Speaker Change: Yeah.
Speaker Change: Yes, yes.
Speaker Change: And if I have anything further out.
Speaker Change: Maybe starting with you guys offline, but thats very helpful. Thanks for that.
Speaker Change: We're just.
Speaker Change: I would just add on that as that business grows the asset.
Speaker Change: Side of the business the management fees from that will grow and we will break that out as a separate line item and once it is there is a certain level materiality, but that could become significant.
Speaker Change: The source of income for us.
Speaker Change: Very helpful. Thank you very much.
Speaker Change: Thanks.
Speaker Change: Thank you I would now like to turn the conference back to Alan Andreini for closing remarks, Sir.
Alan Andreini: Okay. Thank you Latif and thank you all for participating in today's conference call. We look forward to updating you after Q2.
Alan Andreini: This concludes today's conference call. Thank you for participating you may now disconnect.
Alan Andreini: Okay.
Alan Andreini: [music].
Alan Andreini: Okay.
Alan Andreini: Okay.
Alan Andreini: [music].
Alan Andreini: Okay.