Q2 2025 FTAI Aviation Ltd Earnings Call

July 30, 2025

We are in a listen only mode.

After the Speakers' presentation there'll be a question answer session to ask a question. During the session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one again please.

Please be advised that today's conference is being recorded.

I would now like to hand, the conference over to your first speaker today.

Alan <unk> head of Investor Relations. Please go ahead.

Thank you briana.

Like to welcome you all to the <unk> Aviation second 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.

We have posted an investor presentation in our press release on our website, which we encourage you to download if you have not already done. So also please note that this call is open to the public in listen only mode and is being webcast.

In addition, we will be discussing some non-GAAP financial measures during the call today, including EBITDA. The reconciliation of those measures to the most directly comparable GAAP measures can be found in the earnings supplement.

Before I turn the call over to Joe I would like to point out that certain statements made today will be forward looking statements, including regarding future earnings. These statements by their nature are uncertain and may year differ materially.

Good day, and thank you for standing by. Welcome to the Q2 2025 FTAI Aviation Ltd. earnings conference call.

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.

At this time, all participants are in 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 *1, 1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press *1, 1 again.

Please be advised that today's conference is being recorded.

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

Thank you Alan I am pleased today to announce our 40th first dividend as a public company in our 56th consecutive dividend since inception.

I would now like to hand the conference over to your first Speaker today Alan andreini head of investor relations. Please go ahead.

The dividend of <unk> 30 per share will be paid on August 19 based on a shareholder record date of August 12.

Thank you Brianna. I would like to welcome you all to the Phi Aviation second quarter, 2025 earnings call.

Angela will provide a detailed overview of the numbers, but first I'd like to highlight a few key updates.

Joining me here today are Joe Adams, our Chief Executive Officer; Angela Nam, our Chief Financial Officer; and David Marino, our Chief Operating Officer.

Aerospace products delivered another excellent quarter reporting $165 million and adjusted EBITDA at a margin of 34%.

We now estimate we are at 9% market share approximately double where we were this time last year with a strong focus on reaching our long term goal of 25% market share.

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. Please note that this call is open to the public and is in listen-only mode. It is being webcast.

We feel confident in this goal through our due to our large expanding backlog of purchase orders for 2025.

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 earning supplement.

And beyond supplemented by our maintenance repair and exchange agreement, our MRV agreement with the strategic capital initiative or Sci.

To support the portfolio's engine maintenance events over the life of the partnership.

Our scale asset ownership and unique maintenance capabilities positioned <unk> as the long term sustainable leader in engine aftermarket maintenance.

Before I turn the call over to Joe, I would like to point out that certain statements made today will be forward looking statements, including regarding future earnings, these statements by their nature, are uncertain, and may your different material leave from actual results. We encourage you to review the disclaimers at 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 FCC.

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

Overall market adoption of our unique MRI solution to engine maintenance continues to accelerate at pace and the CFM 56, and <unk> 2500 engine markets.

Thank you, Alan. I'm pleased today to announce our 41st dividend as a public company and our 56th consecutive dividend since in September.

Continued and growing global demand for prebuilt engines and modules for owners and operators of all sizes.

The dividend of 30 cents per share will be paid on August 19th, based on a shareholder record. Date of August 12th.

As a flexible cost effective alternative to complicated time consuming and expensive shop visits.

Angela will provide a detailed overview of the numbers. But first, I'd like to highlight a few key updates.

To that end in Q2, we had the opportunity to execute a sizable engine exchange program with a major U S airline, albeit at margins below our typical levels.

Aerospace products delivered, another excellent quarter reporting, 165 million, and adjusted ibida at a margin of 34%.

We now estimate we are at 9% market. Share approximately double where we were at this time last year.

We believe that offering attractive terms to showcase our capabilities with this customer will drive repeat business at higher volumes ultimately leading to stronger margins.

With a strong focus on reaching our long-term goal of 25% market share.

Furthermore, we are implementing several new programs procurement programs.

We feel confident in this goal due to our large expanding backlog of purchase orders for 2025.

Which we expect to contribute to margin expansion by the end of 2025.

and Beyond supplemented by our maintenance repair, and exchange agreement or MRE agreement with the Strategic Capital initiative or SCI,

With these strategies with the approval PMA part number three we continue to expect aerospace products margins to expand to the 40% plus range in 2026.

To support the portfolio's engine maintenance events over the life of the partnership.

Turning to production, we refurbished 184, CFM 56 module this quarter between our three facilities in Montreal Miami alone.

Our scale asset ownership and unique maintenance capabilities position FTI. As the long-term sustainable leader, in engine, aftermarket maintenance,

An increase of 33% versus last quarter.

Overall market adoption of our unique MRA solution to engine maintenance continues to accelerate at PACE in the cfm56 and d2500 engine markets.

In Montreal, our largest facility, we have been expanding operations by focusing on developing talent through our newly established training Academy as well as the use of specialization and technology to improve efficiency and throughput.

We anticipate these measures will contribute to drive significant production growth over the next several quarters.

There's continued and growing Global demand for pre-built engines and modules for owners and operators of all sizes, as a flexible. Cost-effective alternative to complicated, time-consuming and expensive shop visits.

We're also delighted to close on our 50% joint venture.

Now operating under the name quick turn in Europe.

To that end. In Q2, we had the opportunity to execute a sizable Engine Exchange program with a major US Airline albeit at margins below. Our typical levels

We've been impressed by how quickly the teams have scaled operations to meet <unk> production pipeline and we're excited for the plans we have to grow the facility.

Yes.

Customer will drive, repeat business and higher volumes, ultimately leading to Stronger margins.

To support our regional base in Europe, and the Middle East.

In addition, we're excited by the opportunity it provides to sell directly to the Chinese market to each of the CA <unk> license, which quick turn Europe holds.

furthermore, we're implementing several new programs procurement programs, which we expect to contribute to margin expansion by the end of 2025,

Additionally, we are pleased to announce the acquisition of Pacific aerodynamic a piece part repair facility based in California, which focuses on highly specialized precision repairs of CFM 56, compressor blades and dates.

With these strategies or with the approval of PMA part. Number 3, we continue to expect Aerospace products. Margins to expand to the 40% plus range in 2026.

Under <unk> ownership, the strategic purchase delivers an increased in cost savings, which will lead to further margin expansion.

Turning to production, we refurbished 184 CFM, 56 modules, this quarter between our 3 facilities in Montreal, Miami and Rome.

In addition, it will increase operational efficiencies further expand our repair capabilities for CFM 56 engines and further differentiate our offering.

An increase of 33% versus last quarter.

Over the past three years, we've now acquired four facilities across three countries in Europe and North America.

In Montreal, our largest facility, we've been expanding operations by focusing on developing talent through our newly established Training Academy, as well as the use of specialization and technology to improve efficiency and throughput.

And have a proven track record of integrating each into our MRV ecosystem, creating significant value.

We anticipate, these measures will contribute to drive significant production growth over the next several quarters.

We're actively reviewing other M&A opportunities in the global market and expect additional acquisitions in the near term our strong possibility to once again further differentiate <unk> offering.

We're also delighted to close on our 50% joint venture in Rome. Now operating under the name. Quick turn Europe.

Next let's talk about adjusted free cash flow.

In the first half of the year, we generated $370 million in free cash flow above our targeted $350 million.

We've been impressed by how quickly the team has scaled operations to meet FTAs, production pipeline, and we're excited about the plans. We have to grow the facility over the next couple of years to support our regional base in Europe and the Middle East.

It was driven by over $1 4 billion in gross cash inflows.

In addition, we're excited by the opportunity to sell directly to the Chinese market due to the CAAC license, which Quick Turn Europe holds.

<unk> then this number was the sale of 37 of the 45 seed portfolio of aircraft, which are being sold to the strategic capital initiatives.

The transition of these aircraft is almost complete with the sale of the remaining eight expected to close during Q3.

Additionally, we're pleased to announce the acquisition of Pacific aerodynamic a piece part repair facility based in California, which focuses on highly specialized Precision, repairs of cfm56, compressor, blades and veins.

We also expect adjusted free cash flow to be in the range of 380 million in the second half of the year.

As a result, we are increasing our overall target.

Under fee ownership, this strategic purchase delivers increased in cost savings which will lead to further margin expansion.

$650 million to now $750 million and adjusted free cash flow for all of 2025.

In addition, it will increase operational efficiencies further, expand our repair capabilities for CFM56 engines, and further differentiate our offering.

Yeah.

With our pivot to an asset light business model now nearly complete we anticipate substantial growth in free cash flow in the coming years for.

Over the past three years, we've now acquired four facilities across three countries in Europe and North America.

For capital allocation.

First priority has been to manage that in order to achieve strong double b rating with the rating agencies. Our goal we expect to reach by the end of this year, given our exceptional financial performance.

And have a proven track record of integrating each into our M ecosystem, creating significant value.

Secondly, we will continue to invest in targeted growth opportunities in areas, where we can expand our differentiated product offering and further widen our competitive advantage.

We're actively reviewing other m&a opportunities in the global market and expect additional Acquisitions in the near term. Are a strong possibility to once again, further differentiate F ties offering

Next, let's talk about adjusted free. Cash flow.

However, it is very unlikely.

Very likely there'll be a surplus above these two priorities, which means returning capital to shareholders will be part of our financial plan in the near term.

In the first half of the year, we generated $370 million in free cash flow above our target of $350 million.

As to our current estimates for EBITDA for all of 2025.

Raising our outlook for aviation leasing from $500 million 600 million.

It was driven by over 1.4 billion in Gross. Cash inflows included in this number, was the sale of 37 of the 45 seed portfolio, aircraft, which are being sold to the Strategic Capital initiative.

Which includes $54 million and insurance settlements received in the first half year.

And based on the strength of our current pipeline. We are also increasing our estimated 2025 aerospace products EBITDA from a prior range of $600 million to $650 million to a new range of $650 to 700 million.

The transition of these aircraft is almost complete with a sale of the remaining 8 expected to close during T3.

Overall, we are updating total estimated 2025 business segment EBITDA from one one to one 5 billion.

We also expect adjusted free cash flow to be in the range of 380 million in the second half of the year, which, as a result we are. Increasing our overall Target from 650 million to now, 750 million in adjusted, free cash flow for all of 2025.

So the new numbers of one to $5 to $1 3 billion.

With our pivot to an asset like business model. Now, nearly complete the anticipate substantial growth in free cash flow in the coming years.

For 2026, we're also seeing meaningful upside to our previous estimate of $1 4 billion and plan to provide an update later this year.

For Capital, allocation.

Okay.

For the Sci we've made great progress this quarter, we closed on additional equity partners and expect to have final closings completed by October this year.

A first priority has been to manage debt in order to achieve a strong doubled rating with the rating agencies, the goal. We expect to reach by the end of this year, given our exceptional financial performance.

Our target is to invest 4 billion through the 2025 partnership which will be approximately 250 on leased aircraft.

Secondly, we will continue to invest in targeted growth opportunities in areas where we can expand our differentiated product offerings and further widen our competitive advantage.

Half way through the year, we now have 145 aircrafts either closed or in an LOI commitment and have good visibility from the Sci investments team on sourcing the remaining aircraft through a combination of lessor counterparties and direct sale leaseback transactions with airlines.

However, it's very unlikely that it's very likely there will be a surplus above these two priorities, which means returning capital to shareholders will be part of our financial plan in the near term.

As to our current estimates for IBA, for all of 2025.

We're raising our outlook for Aviation leasing from 500 million to 600 million.

A key component to the <unk> investment strategy is the MRE agreement at that time.

Which includes 54 million in insurance settlements received in the first half of the year.

During the second quarter, we generated $70 million in aerospace products revenue.

Fulfilling orders to Sci, representing approximately 14% of our total sales and aerospace products or 20%.

50 to 700 million.

For the entire first half of 2025.

Fixed price engine exchanges are a great source of enhanced return to our equity partners, providing greater predictable cash flows and lower residual risks compared to peer lessors, while also delivering meaningful value to airline customers to avoid the costs and risks.

Overall, we're updating total. Estimated 2025 business, segments, ibaa from 1.1 to 1.15 billion.

To the new numbers of 1.25 to 1.3 billion.

For 2026. We're also seeing meaningful upsides to our previous estimate of 1.4 billion and plan to provide an update later this year.

Managing shop visits themselves.

We continue to believe Sci will be a major additional driver of growth in aerospace products as well as providing significant contributions at aviation leasing.

For the sci, we've made great progress. This quarter, we close on additional Equity partners and expect to have final closings completed by October this year.

Through management servicing fees incentive fees, and our 20% minority ownership.

Our Target is to invest 4 billion through, through the 2025 partnership, which will be approximately 250 on lease aircraft.

Okay.

Overall in the industry.

We see a very long horizon ahead for the lifecycle current technology aircraft and engines.

Many airlines today recognize that the economic useful life of 737, Mgs and <unk> hundred 20 aircrafts.

Halfway through the year. We now have 145 aircraft either closed or in an Loi commitment and have good visibility from the SEI Investments team on sourcing and remaining aircraft to a combination of less or counterparties and direct sales back transactions with Airlines.

A key component to the Sci's investment strategy is the M agreement with Fi.

Been extended to 30 years versus the previous assumption of 25 years.

While industry issues of multi year delays in new aircraft deliveries and the durability of new technology engines are well known.

Advancements in CFM 56, and <unk> 2500 engine maintenance such as the availability of module swaps development of new PMA parts.

During the second quarter, we generated 70 million Aerospace products Revenue by fulfilling orders to FCI representing approximately 14% of our total sales in Aerospace, products or 20%.

For the entire first half of 2025.

Allowing more airlines to economically reinvest in their existing fleet for longer than they originally planned.

Grams like advertise MRE engine exchanges provide predictable cost and offer airlines, a simple easy way to keep their current air aircraft flying profitably.

Fixed price. Engine exchanges are a great source of enhanced return, to our Equity Partners, providing greater predictable cash flows and lower, residual risks compared to peer less orders while also delivering meaningful V, value to the airline customers who avoid the costs and risks of managing shop visits themselves.

Thus an average useful life extension of five years means 20% more engine shop visits, which it means greater maintenance spend in a larger opportunity for <unk> to expand our market share and help sustainably support airlines and their long term maintenance needs.

We continue to believe SEI will be a major additional driver of growth and Aerospace products as well as providing a significant contribution to Aviation Leasing.

Through management servicing fees and Senate fees, along with our 20% minority ownership.

With that I'll turn it over to Amazon.

Thanks, Jim.

A key metric adjusted EBITDA, we conclude the year positively with adjusted EBITDA of $347 8 million in Q2 of 2025, which is up 30%.

Overall, in the industry. Uh we see a very long Horizon ahead for the life cycle of the current technology aircraft and engines.

Im going to 68 6 million in Q1, 2025 and up 63% to.

Many airlines today recognize that the economic useful life of 737 NGS and 8320 Co aircraft has been extended to 30 years versus the previous Assumption of 25 years.

$202 9 million in Q2 of 2024.

The first quarter the 347 eight.

Well, industry issues of multi-year, delays in new aircraft deliveries and the durability of new technology of engines are well known.

EBITDA number a combined $199 8 million from our leasing segment $164 9 million from our aerospace product segment and negative $16 4 million from corporate and other including intra segment alone.

Advancements in cfm56 and Z 25500 engine maintenance such as the availability of module swaps development of new PMA Parts is allowing more Airlines to economically reinvest in their existing fleets for longer than they originally planned.

Turning now to Lisa.

<unk> continued to deliver strong results posting approximately $199 million of EBITDA.

The pure lease income on that $199 million came in at $169 million or qui Tam versus $152 million in Q1 2020.

Programs like fti's M engine exchanges. Provide predictable costs and offer Airlines a simple easy way to keep their current air aircraft flying profitably.

Included in the $169 million with a $24 million settlement.

Related to assets in Russia, written off from 2022, let's say from a personal settlement plus $30 million, we announced we received last quarter and 11 million received in Q4 2024.

Thus an average useful life. Extension of 5 years means, 20% more engine shop visits which it means greater maintenance spend and a larger opportunity for FTI to expand our market share and help sustainably support Airlines in their long-term maintenance States.

With that. I'll turn it over to Ansel.

Thanks Joe.

Our gains on sale.

We use a year with $356 $2 million of book value of assets.

8% margin gain of $30 7 million as it closed on 33 additional aircrafts the seed portfolio to Sci, but eight phenomenon, which we expect to occur in Q3.

Looking ahead, we're assuming on leasing EBITDA will be $600 million in 2025, including an insurance settlement of $4 million as we can.

The key metric for us is adjusted even though we continued the year, positively with suggested Eva of 347.8 million in Q2 of 20125, which is up 30% compared to 268.6 million in q1, 2025, and up. 63% compared to 2 1 3. 9 9

<unk> focus towards an asset light business model.

The first quarter, The 347.8 Million ibaon number was comprised of 199.3 million from our leasing segment.

Aerospace product had yet another good quarter with $164 9 million of EBITDA on an overall EBITDA margin of 34%, which is up 26%.

164.9 million from our Aerospace product segments and negative -6.4 million from corporate and other including interest segment elimination.

Turning now, to Leasing.

<unk> $39 million in Q1 of 2025 and up 81% compared to $91 2 million in Q2 2024.

Leasing continues to deliver strong results, posting approximately $199 million of a

Continue to see accelerated growth in adoption and usage of our aerospace product and we remain focused on ramping up production in each of our facilities in Montreal Miami alone.

The pure leasing component of the $199 million came in at $169 million for Q2 versus $152 million in Q1 2025.

Laws, expanding one of our core operation at our new acquisition in California.

In 2025, we expect to generate aerospace products EBITDA of $650 million to $700 million, which is up from $381 million in 2024, and 160 $160 million generated in 2023.

Related to Assets in Russia, written off in 2022, which is an additional settlement to the 30th. We announced we received last quarter and 11 million. We received in 24 2024

8% margin gain of $30 7 million as they closed some 33 additional aircrafts the seed portfolio to the FBI, but eight.

With that let me turn the call back over to Alan Thank.

Thank you Angela.

You May now open the call Q&A.

What should we expect the current market.

Thank you.

Looking ahead, we're assuming a leasing EBITDA will be $600 million in 2025, including an insurance settlement.

At this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again please.

A $1 million.

As we pivot our focus towards an asset light business model.

Sure.

Aerosmith product had yet another good quarter with $164 9 million of EBITDA and an overall EBITDA margin of 34%, which was up 26%.

Please standby, while we compile the Q&A roster.

Our first question comes from Sheila <unk>.

Welcome Jennifer $39 million in Q1 of 2025.

Jefferies. Your line is now open.

Good morning, guys and thank you very much.

81% compared to $91 2 million in Q2 2024.

So Angela maybe first question for you guys on EBITDA for aerospace product just looking at the first half versus the second half the second half module increase.

We continue to see accelerated growth in adoption and usage of our aerospace products and we remain focused on ramping up production in each of our facilities in Montreal, Miami inbound as well as expanding on a regular operation at our new acquisition in California.

That's about 85 units in line with the EBITDA increase of $85 million at the midpoint. So it seems the business normalizes per 1 million of EBITDA per module, how do we think about the margin improvements into 'twenty.

In 2025, we expect to generate aerospace products EBITDA of $650 million to $700 million, which was up from $381 million in 2024, and 160 $160 million generated in 2023.

Including an X P&L to get to that 40% as Montreal inbound ramp.

So I'll.

I'll take it initially I think the.

The margin opportunity improvement.

Multifaceted I think I think we have.

With that let me turn the call back over to Alan Thank you Angela.

Repairs that we've been developing in Montreal, and the acquisitions of specific aerodynamic potentially as 1% to two percentage points, we have new service will material that we've been acquiring over the last.

You May now open the call Q&A.

Thank you at.

A few months that will flow through the P&L.

With core restorations and that ultimately wrap PMA kicking in and so we see 5% to 10 percentage points improvement in happening in 2026 from the result will be a lot of those.

Please standby, while we compile the Q&A roster.

Our first question comes from Sheila <unk> of.

Activities.

No one is <unk>.

PMA is clearly the biggest but all.

Jefferies. Your line is now open.

<unk> contributed positively to the.

Good morning, guys and thank you very much.

To improve next year.

So Angela maybe first question for you guys on EBITDA for aerospace products, just looking at the first half versus the second half the second half module increase.

Okay, and maybe if I could ask more on that point, so what specific aerodynamic that deal 12 million purchase price for 50 can't savings per shop visit and Jeff.

There is about 85 units in line with the EBITDA increase of $85 million at the midpoint.

A return within half a year so given it seems you're pushing more volume through there can you talk a little bit more about the business.

As the business normalizes to $1 million of EBITDA per module, how do we think about the margin improvements into 'twenty.

Further differentiation of tie in how you're thinking about future inorganic opportunities.

Including an X P&L to get to that 40% and as Montreal unbound ramp.

Yes, so we've been looking into repair space, we have developed a number of repairs internally in Montreal, but but the compressor blades is fairly specialized.

So I.

I'll take it initially I think the.

The margin opportunity improvement.

Is multifaceted that they think we have.

Repair and Theres only a handful of companies that are.

Repairs that we've been developing in Montreal, and the acquisition of Pacific aerodynamic potentially as 1% to two percentage points, we have new service material that we've been acquiring over the last.

<unk> really have that capability.

Specific had a great <unk>.

Acknowledged a great product.

Probably just a limited marketing.

A few months that will flow through the P&L.

Our customer base and so we saw that as an opportunity to combine our volume with their expertise.

With core restorations and that ultimately rep PMA kicking in and so we see 5% to 10 percentage points lindon happening in 2026 from resolve it will be a lot of those <unk>.

And you think about the.

And we are unique in being able to really deliver that volume so.

The company we acquired.

The acquisition price is roughly about $15 million and.

Activities.

No one is <unk>.

PMA is clearly the biggest but all will contribute positively to the.

If we can ramp that operation up to say I think the physical.

It's an improvement next year.

Passengers they have would be roughly heavily about 300 shop visits.

Okay, and maybe if I could ask more on that point, Joe with specific aerodynamic that deal 12 million purchase price for <unk> savings per shop visit and Jeff.

We can save 50000 per shop visit that's about $15 million a year in savings. So it's a one year pay.

Paybacks of it because of our ability to deliver volume.

A return within half a year so given it seems you're pushing more volume through there can you talk a little bit more about the business.

We have.

I think it really enhanced economics, and that's why the vertical integration of products like that is extremely accretive and attractive to us there are others out there.

Further differentiation of tie in how you're thinking about future inorganic opportunities.

Yes.

We've been looking into repair space, we have developed a number of repairs.

The nature of that.

We're also involved in looking at it really is it is completing the picture going line by line and looking at every item in the shop visit.

Currently in Montreal, but but the compressor blades is fairly specialized.

Care and Theres only a handful of companies.

I'm trying to figure out if we can.

Well when we have that capability.

Build that capability ourselves or acquire it.

Pacific had a great.

And we will.

Technology, great product.

We will look at both so I think it's it's directionally.

Probably just a limited marketing.

And a thing we really like.

Customer base and so we saw that as an opportunity to combine our volume with their expertise and you think about the.

Obviously, it's a small first acquisition, but there's other.

Parts that we could also develop in partnership with the Pacific our dynamic team on other engine parts as well. So we've got some R&D projects and can start working on.

And we are unique in being able to really deliver that volume so.

The company we acquired.

The acquisition price is roughly about $15 million and.

Do that with this team on an organic basis.

If we can ramp that operation up to say I think the physical.

Got it thank you.

Thanks.

Capacity, they have with the roughly handling about 300 shop visits.

Thank you.

Our next question comes from Christian <unk> of Morgan Stanley.

We can say 50000 per shop visit that's about $15 million a year in savings. So it's a one year.

Stanley Your line is now open.

Hey, Good morning, everyone. Joe you had 184 CFM 56 modules in the quarter, so up 33% sequentially, you've talked about 750 for the full year, which implies that the second half would see another 33% growth versus the first half. So maybe taking a step back can you talk about what the <unk>.

Backs of it because of our ability to deliver volume.

We have.

I think it really enhanced economics, and that's why that vertical integration in some products like that is extremely.

Accretive and attractive to us there are others out there.

The nature of that.

Airline customer reception of the modules have been I mean, clearly youre seeing some growth what's been their opinion of your service and what are their options are you seeing more repeat customers and can you expand more on the offering that you made for a major U S airline what does that mean and if if that.

We're also involved in looking at it really is it is completing the picture going line by line and looking at every item in the cost of shop visit.

Trying to figure out if we can build.

Build that capability ourselves or acquire it.

And we will.

We will look at both so I think it's directionally.

They're happy with your service what could that mean for growth in the long run.

The thing we really like.

Obviously, it's a small first acquisition, but there's other.

Sure I'll, let David start on the production and then we can take the other parts of that question was that come so yes, hi.

Parts that we could also develop in partnership with the Pacific aerodynamic team on other engine parts as well. So we've got some R&D projects and we have started working level.

Hi, Christine this is David so to start off with production just kind of give you. The story of Q2. So the majority of the increase in production were based on two things number one was the growth in Montreal as we announced in previous quarters, we focused that facility and specialization. So now we have a specific lines.

Do that with this team on an organic basis.

Got it thank you.

Thanks.

Thank you.

Focus on.

Our next question comes from Christian <unk> of Morgan Stanley. Your line is now open.

Module production. So we were able to increase production from 77 in Q1 to 91 in Q2.

That means as turnaround times improved from 83 days in Q1 to 66 days in Q2.

So we expect that to continue to improve our goal is to get to around 60 days turnaround timing per module.

The second catalyst was the introduction of our own facility. So we did close that transaction in the beginning of June. However, our transformation efforts started beginning of this year. So we had a deal signed up.

Align customer reception of the modules have been I mean, clearly youre seeing some growth what's been their opinion of your service and what are their options are you seeing more repeat customers and can you expand more on the offering that you made for a major U S airline what does that mean.

End of last year, and we started our transformation as we've done with our previous shops, which really focused on three initiatives number one is focus so focusing on CFM 56 volume only so in this case there were <unk> hundred 80 work when we prioritize the CFM over that number two is contributing our volumes. So we started putting <unk>.

If that.

If they're happy with your service what could that mean for growth in the long run.

Sure I'll, let David start on the production and then we can take the other parts of that question was that come so yes, hi.

<unk> ahead of time before our actual acquisition and started turning engines.

Hi, Christine this is David so to start off with production just kind of give you. The story of Q2. So the majority of the increase in production were based on two things number one was the <unk>.

And then number three we're going to copy the specialization that was done in Montreal at that facility up in the back half of this year. So we see that ramp up being significant.

<unk> in Montreal, as we announced in previous quarters, we focused that facility and specialization. So now we have a specific lines focused on.

Nine modules as what we produced in Q2, we feel very good about 100 for the entire year.

So you're going to see a lot of increase in production is going to be from Montreal, continuing the specialization.

Module production, so we're able to increase production from 77 in Q1 to 91 in Q2.

And continuing production turnaround time improvements and enrollment coming online.

That means as turnaround times improved from 83 days in Q1 to 66 days in Q2 so.

I think on the customer reception question.

Obviously, it's quite good.

So we expect that to continue to improve our goal is to get to around 60 days turnaround time per module.

What we what we present to the airline or the engine owner as an alternative to that.

The second catalyst was the introduction of our own facility. So we did close that transaction in the beginning of June. However, our transformation effort started beginning of this year. So we had a deal signed up and.

Party in managing their own engine maintenance.

And what we show them is that we can save them time and money.

And then we can deliver.

A lot of flexibility with how they want to.

They have their power delivered to them. So when you go through the advantages.

There are significant and most airlines realize that as they manage their own engine maintenance that it is.

A very.

It's an exercise that has very little upside.

<unk> ahead of time before our actual acquisition and started turning engines.

Potentially significantly significant downside in cost overruns and every airline has ever met has had that happen.

And then number three we're going to copy the specialization that was done in Montreal at that facility up in the back half of this year. So we see that ramp up being significant near 29 modules as what we produced in Q2, we feel very good about 100 for the entire year.

So.

Letting something and say, hey, here's a better idea.

When you save money and you eliminate all of the risk of overruns and people nod their heads and say Wow that's.

So you're going to see a lot of increase in production is going to be from Montreal, continuing the specialization.

That's incredible what am I missing.

And the answer is nothing and so we've pretty much been able to.

And continuing production turnaround time improvements and enrollment coming online.

Introduce that concept to everybody in the world.

I think on the customer reception question, which obviously is quite good.

People. Originally said why are you calling out the big Airlines, but we found that yes, we can do the big Airlines and.

Well, what we present to the airline or the engine owner as an alternative to that.

The same advantages.

Can be delivered to any customer really.

So.

Hardie managing their own engine maintenance.

So as we continue to do that and I don't think we've ever had a customer that was not happy with the product.

What we show them is that we can save them time and money.

Anything.

Liver.

And then we can deliver.

It has been done to the highest quality it performs well and people have all come back for more and so that's our job is to really just now now that we've introduced it the people to try it now.

A lot of flexibility with how they want to have their power delivered to them. So when you go through the advantages.

There are significant and most airlines realize that as they manage their own engine maintenance.

Now, let's just keep going with them to become a bigger and bigger source of there.

That it is a.

<unk>.

Jerry.

Requirements as they grow and in particular.

It's an exercise that has very little upside.

As platforms H B.

Potentially significantly significant downside in cost overruns and every airline has ever met that.

707, <unk> hundred <unk> H.

People are more and more likely to outsource more and more activity. So I've always said that that market share is not a static number it goes up.

That happened so youre presenting some figures.

Here's a better idea.

When you save money eliminate all of the risk of overheads and people nod their heads and say Wow that's.

As platform Z. So once you get into the system.

And you are an alternative that's always available we think with the easy button and people will just keep using this more and more.

That's incredible what am I missing.

And the answer is nothing and so we've pretty much been able to.

Introduce that concept to everybody in the world.

Thanks, Joe and look in hindsight looking at the 2025 does that get to 750 modules. I mean this is pretty impressive considering you know this is an initiative you've only started a few years ago. So I guess with the capacity that you've talked about of having 1800 for the CFM 56 module can you.

People originally February youre, probably not going to dig airlines, but.

We found that yes, we can do the big Airlines and the.

The same advantages.

Can be delivered to any customer really.

So.

So as we continue to do that and I don't think we've ever had a customer that was not happy with the product.

Talk about how quickly you could get there what are the key bottleneck is it labor I saw you started Alec.

Okay.

Liver.

Diversity.

It has been done to the highest quality it performs well people have all come back for more and so that's our job is to really just now now that we've introduced it if people try it now.

How does this how quickly can you get there and then also once you get to that 1800 capacity per year.

The economics of that kind of business model.

Now, it's just keep growing with them to become a bigger and bigger source of there.

Hi, Christine this is David I'll take that so we expect to get to around that 80 to 100 production in the next two years. The number one constraint for US is technicians, specifically, let's say the young technician at each of the facilities, we have a really experience.

<unk> as they grow and in particular.

As platforms H B 707, <unk> hundred Twenty's age people are more and more likely to outsource more and more activity.

Workforce that has many many years of experience however.

So I've always said that that market share is not a static number it goes up.

However, we do need to continue to hire young technicians and what we've done proactively is really two things number. One is we've developed a training academy in Montreal, what that is is a partnership with the local schools, where we takes internships and we have the students graduate and we teach alongside the schools that provides us a high <unk>.

As platform Z. So once you get into the system.

And you are an alternative that's always available we think we're the easy button when people were just keep losing its more and more.

Yeah, Thanks, Joe and look in hindsight looking at the 2025, you will get to 750 modules. I mean this is pretty impressive considering you know this is an initiative you've only started a few years ago. So I guess with the capacity that you've talked about of having 1800 for the CFM 56 module.

Retention rate to be able to take the best students into offering them full time.

The second piece is we've created a training center and what that is is effectively we're pulling up.

Folks before starting them on the production line.

New hires that you go into a immersive learning experience and with that we've rolled out an augmented reality so what.

Can you talk about how quickly you could get there what are the key bottleneck is it labor I saw you started out your university.

Our technicians are able to do is through augmented reality.

How does this how quickly can you get there and then also once you get to that 1800 capacity per year, what are the economics of that kind of business model.

Reality, so through an iPad or through an oculus type.

Device Theyre able to assemble and disassemble engines the way that that's done historically is through the manual sorts tech space, it's very difficult to pick up the learning curve now being able to assimilate that youre able to learn a lot faster. So the curve of learning has improved significantly.

Hi, Christine this is David I'll take that so we expect to get to around that 1800 production in the next two years.

One constraint for us is technicians.

We believe that's a competitive advantage that we have versus anyone else in the world. So we feel very good about our having.

Specifically, let's say the young technician at each of the facilities, we have a really experienced workforce that has many many years of experience.

Having the ability to control our future by being able to hire based on the efforts that we're doing today.

However, we do need to continue to hire young technicians and what we've done proactively is really two things number. One is we've developed a training academy in Montreal, what that is is a partnership with the local schools, where we takes internships and we have the students graduate and we keep alongside the schools that provides us a high <unk>.

And I think particularly.

The Montreal market in the rural market are very good markets to hire talent, if you think about.

We've acquired.

Three different maintenance facilities that were formerly.

Airline engine shops that basically went out of business.

Tension rate ought to be able to take the best students into offering them fulltime.

Montreal is air Canada.

In Miami It was once the Pan am shop relevant as Alitalia and they had.

The second piece is we created a training center and what that is is effectively we're pulling up.

Folks before starting them on the production line.

Full operations at the peak they had.

Tooling.

New hires they go into a immersive learning experience and with that we've rolled out an augmented reality so what.

Have a good workforce and then they just shut the facility down and so what we did we are unique in that we actually bring volume so.

Technicians are able to do is through augmented reality.

So we were able to acquire those facilities that much less than replacement cost and.

Reality, so through an iPad or through an oculus type.

And bring our volume immediately and we become a very attractive opportunity for mechanics in the area because we have the business in many people for instance wanted rather another in Rome and live in Northern Europe. So there's a lot of advantages that we offer and I think acquiring additional.

Device Theyre able to assemble and disassemble engines the way that that's done historically is through the manual sorts tech space, it's very difficult to pick up the learning curve now being able to simulate that youre able to learn a lot faster. So the curve of learning has improved significantly.

We believe that's a competitive advantage that we have versus anyone else in the world. So we feel very good about our having.

All maintenance capability on a similar basis.

Is very doable, so if we get to the point, where we think we need more another facility.

Having the ability to control our future by being able to hire based on the efforts that we're doing today.

There'll be no good options to do that if we choose to.

And I think particularly the.

The Montreal market in their own market are very good markets to hire talent, if you think about.

Great. Thank you for the color and if I could sneak in one last one.

Joe you already mentioned before the acquisition of the Pacific aerodynamic it sounds like the return.

We've acquired.

Three different maintenance facilities that were formerly.

Period, there is actually a year or maybe even less.

Aircraft airline engine shops that Glenn basically went out of business.

So does this mean that you plan to expand out more repair capabilities.

Charles is air Canada.

In Miami It was once the Pan am shop railroads Alitalia and they had.

You expand more regarding your M&A strategy and how we should think about potential deals.

Full operations at the peak they had.

Yes, I think the answer is yes, and I think filling in some of the holes on.

Tooling.

Have a good workforce and then they just shut the facility down and so what we did we are unique in that we actually bring volume.

<unk> part and component repairs.

Further vertical integration of our strategy. If you think back in the early days, what we decided this are first.

So we were able to acquire those facilities that much less than replacement cost and.

<unk> TMA manufacturing that we acquired maintenance facilities and then we.

And bring our volume immediately and we become a very attractive opportunities for mechanics in the area because we have the business in many people for instance.

We entered into a part out.

Debentures so.

We serve.

Approached all the various elements in the shop visit.

Rather than Rome, and live in Northern Europe. So there's a lot of advantages that we offer I think acquiring.

We've been talking about most recently as piece parts repair because a lot of <unk>.

A lot of parts go back into an engine, but before they can go back into an engine somebody has to do something to it and usually those are a lot of third party vendors and so thats our focus.

Additional maintenance capability on a similar basis.

Very doable, so if we get to the point, where we think we need.

Or another facility I think there'll be good options to do that if we choose to.

For M&A.

As you said, because we have a significant advantage that we can deliver.

Great. Thank you for the color and if I could sneak in one last one.

Our goal ultimately is to do 600 700 shop visits a year we are the largest.

Joe you already mentioned for the acquisition of the Pacific aerodynamic it sounds like the return.

Period, there is actually a year or maybe even less.

Yeah.

User of services in the world for that engine by far.

So does this mean that you plan to expand out more repair capabilities can you expand more regarding your M&A strategy and how we should think about potential deals.

David do you want to add any yes, we've previously.

Or disclose that in the Montreal facility, we have repair capability for 70% of the piece parts. So we're looking to fill the GAAP rate and the remainder of the 30%. So arrow specific dynamics as an example of that and we think we can do targeted investments to continue to.

Yes, I think the answer is yes, and I think filling in some of the holes on.

Piece part and component repairs as a further vertical integration of our strategy. If you think back in the early days, what we decided it was our first.

I'd capabilities, which increased margin and then give us control on the production side.

Investment was <unk> TMA manufacturing that we acquired maintenance facilities and then.

Great. Thanks for the color.

Thanks.

We entered into a part out.

Thank you.

Our next question comes from Giuliano Bologna of <unk>.

Debentures so.

We serve.

Approached all the various elements in the shop visit.

At this point your line is now open.

And the last that we've been talking about most recently piece part repair because a lot of a lot of parts that go back into an engine, but before they can go back into an engine somebody has to do something to it and usually those are a lot of third party vendors and so that's our focus.

Congrats on just executing.

Yes, yes.

On the aerospace for oxide.

One thing I wanted to.

Thank you Brenda.

The growth in the aerospace products segment as Joe Thanks, I'll re accelerating at this point I'm curious.

For M&A.

What you think is specifically driving that.

As you said, because we have a significant advantage that we can deliver.

And how durable those trends are and then.

Our goal ultimately is to do 600 700 shop visits a year we are the largest.

Along the same lines I am curious if there is any kind of trigger events out there.

And the industry that would help XR.

To accelerate the growth of at least <unk>.

User of services in the world for that engine by far.

Continue.

The accelerated growth rate, whether it's transitioning midlife aircraft from larger lines of small airlines or rolling out the STI vehicles or anything.

David do you want to add any yes, we've previously.

Or disclose that in the Montreal facility, we have repair capability for 70% of the piece parts. So we're looking to fill the GAAP rate and the remainder of the 30% So arrow.

Along those lines. Thank you.

Yes, so I would say the underlying dynamic too.

Vic dynamics as an example of that and we think we can do targeted investments to continue to add.

The adoption is really.

An airline or an owner avoiding a sharp is having to manage the shop visit and invest in that maintenance activity.

I'd capabilities, which increased margin and then give us control on the production side.

Great. Thanks for the color.

It can go very different and I think at the beginning so that's that's what drives a lot of the customer activity in the Senate and then everything that happens after that is positive for us.

Thanks.

Thank you.

Our next question comes from Giuliano Bologna of Compass point. Your line is now open.

As platforms age is big Airlines.

Congrats on.

Start to sell off older.

Yes, yes.

On the aerospace side.

The current generation type two smaller airlines the fleet gets more spread out.

One thing I wanted to.

Pick your brain about as the.

The growth in the aerospace products segment as Joe. Thanks, I'll re accelerating at this point I am curious.

Availability of parts.

It goes down the interested investing in full performance restoration decreases.

What you think is specifically driving that.

All of those things those trends that happiness and platform agents.

And how durable those trends are and then.

Along the same lines I am curious if there is any kind of trigger events out there.

We'll keep driving growth for us because all of those trends favor us doing the maintenance as compared to anyone else. This is very much a scale business.

And the industry that would help excel.

Accelerate the growth of at least <unk>.

Continue.

Joe the accelerated growth rate, whether it's transitioning.

<unk> said many times the bigger you get the better yet.

There's no question about it.

If aircrafts from large airlines airlines or rolling out the STI vehicles or anything.

Can establish the fact that you are the largest.

Vendors are the largest supplier of your largest buyer largest owner.

Along those lines. Thank you.

Yes, so I would say the underlying dynamic too.

When Andy.

When you keep winning more every year because.

The adoption is really.

Theres less and less in your way.

An airline or an owner of avoiding a short term having to manage the shop visit and invest in that maintenance activity.

And if I could add the strategic capital is an accelerant to.

<unk> market share so.

C J capital as we mentioned represents 20% of our sales in aerospace however, behind every single one of those sales isn't airlines. So ultimately the airline needs to approve the module or the engine. So theyre seeing the actual module exchange happen and they are benefiting from that so there is no better sales pace than actually executing on that.

It can go very different and I think at the beginning so that's that's what drives.

Lot of the customer activity in the Senate and then everything that happens after that is positive for us.

As platforms age is big Airlines.

Start to sell off older.

Exchange and what we're able to see is that.

The current generation tax of smaller airlines.

A lot of cross selling that comes about after after that today. The strategic capital is around 50 customers as we mentioned we're about halfway there. So let's say that we represent each vehicle could represent around 100 customers. So we see that all as being an accelerant to growth in our aerospace.

The fleet gets more spread out the availability of parts.

It goes down the interested investing in full performance restoration decreases.

All of those things those trends that happen as the platform agents.

We'll keep driving growth for us because all of those trends favor us doing the maintenance as compared to anyone else. This is very much a scale business.

If we look across our entire business you count leasing in aerospace products and NCI, we have over 250 customers today.

Which is.

Many times the bigger you get the better you get.

Pretty significant number because if you think about the <unk>.

<unk> system the current generation.

There's no question about it and if you can establish the fact that you are the largest vet.

No.

Aircraft and engines.

That's a significant touch point for us.

Vendors are the largest supplier of your largest buyer your largest owner.

As David said once you're doing business with one side of the airline.

When when you keep winning more every year because.

They look at us as same editing and no matter what pocket. The money is in so to us it just.

Theres less and less in your way.

And if I could add the strategic capital is an accelerant to.

Just gets better and better.

That's extremely helpful. Congrats on the continued great performance and I'll jump back in the queue.

Capture market share so.

The strategic capital as we mentioned represents 20% of our sales in aerospace however, behind every single one of those sales isn't airlines. So ultimately the airline needs to approve the module or the engine. So theyre seeing the actual module exchange happen and they are benefiting from that so there is no better sales pitch than actually executing on that.

Thanks.

Thank you.

Our next question comes from Josh Sullivan of the Benchmark Company. Your line is now open.

Hey, good morning, congratulations on the quarter.

George just following up on a strategic capital question now it's the <unk>.

Exchange and what we're able to see it.

First one often running how should we be thinking about <unk> at this point and then maybe beyond whats your sense on how the <unk> model is evolving into a repeatable relationship at this point.

A lot of cross selling that comes about after after that today. The strategic capital is around 50 customers as we mentioned we're about halfway there. So let's say that will represent each vehicle could represent around 100 customers. So we see that all as being an accelerant to growth in our aerospace.

I mean, we couldnt be happier about where we are right now.

Obviously, when you start something new there is it's a bit of an unknown.

If you look across our entire business account leasing with aerospace products at Sci.

Felt like a big number and it felt like the ambitious but.

We have over 250 customers today.

We're executing very well.

As we mentioned 145 aircraft owned or under LOI 50 customers a big pipeline of activity returns in line with what we hope does not better so check it checks all the boxes. So.

Which is.

Pretty significant number because you think about that.

Ecosystem, that's current generation.

Aircraft and engines.

A significant touch point for us.

David said once you're doing business as one side of the airline.

We will most likely decide.

They look at us as.

On Spi two in the third quarter fourth quarter. This year will make decision.

Same editing about at what pocket the money so.

So it just it just gets better and better.

But going ahead on that but as I said as it sits today it looks.

That's extremely helpful. Congrats on the continued great performance and I'll jump back in the queue.

So a much higher probability that will happen given where we are today, so I think that.

Thanks.

Yeah.

Just.

Thank you.

Not there yet obviously.

Our next question comes from Josh Sullivan of the Benchmark Company. Your line is now open.

In.

It's on a really really big path I think we laid out we sort of set of just do the math that you can do $4 billion, a year or 250 aircraft a year.

Hey, good morning, congratulations on the quarter.

George just following up on a strategic capital question now that's the first one is often running how should we be thinking about <unk> at this point and then maybe beyond whats your sense on how the Sci model is evolving.

In four or five years ago and over 1000.

Airplanes now 14000 of them out there in that universe. So it's not it.

It doesn't seem like that's huge.

Beatable relationship at this point.

Sad, but that's allowance that's a lot of airplanes.

I mean, we couldnt be happier about where we are right now.

And that would make us the biggest owner of current generation.

Obviously, when you start something new there.

It's a bit of an unknown it felt like a big number and it felt like the ambitious but we.

Errol aircraft in the world, including any airline political pickup so.

We're executing very well.

<unk> become the largest counterparty.

As we mentioned 145 aircraft owned or under LOI 50 customers.

Counterparty for all of that activity.

It's been a direct a lot of business.

Big pipeline of activity returns in line with what we hope does not better so check it checks all the boxes. So we will most likely be side.

That we can control and other things around the airplane and the aircraft so.

So the concentric circles get bigger and I think it just keeps getting more and more.

So.

Sci too in the third quarter fourth quarter this year will make decision.

Leverage in the marketplace and so we're very excited we see it is on track with that goal and we're able to achieve that goal.

Going ahead on that but as I said as it sits today it looks.

Sorry, much higher probability that will happen given where we are today, so I think that.

It's phenomenal.

Got it and then and then maybe another forward looking perspective, I guess, what's your view on when you might entertain starting to really earnestly look into assets either around the leap for GTS engine.

Just.

We're not there yet, but obviously it's in.

It's on a really really good path.

We laid out with sort of incentives.

I think it's still 2028 2029.

<unk> math that you can do $4 billion, a year or 250 aircraft a year.

Both engines have new parts that are.

In four or five years, you're going to own over 1000 <unk>.

Have been either have been introduced or being introduced this year and next year. So.

<unk> now has 14000 of them out there in that universe. So it's not it.

Obviously, you want to see those.

It doesn't seem like that's huge.

Platform stabilized before we start acquiring assets because of the changing parts.

Sad, but that's a lot of.

That's a lot of airplanes.

They're not out of the previous version.

And that would make us the biggest owner of the current generation.

That's one and then secondly.

<unk>.

Errol aircrafts in the world, including any airline for local pickup. So we then become the largest.

The number of engines that come off of the power by the hour programs.

And the important metrics that you won't have enough engines available.

Counterparty for all of that activity.

To do what we do which is to manage our own shop visits and then.

It's been a direct a lot of business.

And then thirdly is just going to be economics, youre going to look at.

That we can control and other things around the airplane aircrafts. So.

Whereas the price where you or can you.

So the concentric circles get bigger and I think it just keeps getting more and more.

Enter an unusually.

It happens around the time when a new engine. Another new engine is introduced or at least announced is that tends to drive segment of the market prices down. So those are those are the kind of the three things we would be looking at but I think it's tight 2028 and 2029.

So.

Leverage in the marketplace and so we're very excited.

See it is on track with that goal and we're able to achieve that goal. It's.

Phenomenal.

Got it thank you for the time.

Thanks.

Okay.

Thank you.

Our next call is from Brandon <unk> of Barclays. Your line is now open.

I think it's still 2028 2029.

Hey, good morning, Joe and team Thanks for taking my question.

Both engines have new parts that are.

So I was wondering if you could give us an update on PMA, because I feel we've been waiting for a while for the third and fourth and fifth parts to come out here is there anything you can talk about there.

Have been either had been introduced or being introduced this year and next year. So.

Obviously, you want to see those.

Platform stabilized before we start acquiring assets because changing parts.

Yes.

So, but I've always said, it's worth the wait.

Rather not own the previous version.

I think Chromalloy has said public.

That's one and then secondly.

Publicly now.

The number of engines that come off of the power by the hour programs.

The third part which is the.

The most expensive part into the shop as it is.

The important metrics that you won't have enough engines available.

Final application was submitted to the FAA by May 1st.

To do what we do which is to manage our own shop visits and then.

So they've disclosed that.

And then thirdly, this is going to be economics, youre going to look at.

And when asked what that means for their expectation of approval. They indicated in the previous section blade that they had accrued because of each one of them <unk> blade.

Whereas the price where you or can you.

Enter.

And usually.

Took six months from final application approval.

So they have sort of guided.

People to think October.

So thats.

Specific as we've mentioned in the third part is the most.

Got it thank you for the time.

Significant contributor too.

Thanks.

Yes.

Savings for us so that's kind of the.

Thank you.

Our next call is from Brandon <unk> of Barclays. Your line is now open.

Right right that the fourth and fifth parts will be 2026, no specific guidance on those yet in there.

Hey, good morning, Joe and team Thanks for taking my question.

I'd say there are nice to have but less important the big one is the next.

I was wondering if you could give us an update on PMA, because I feel we've been waiting for a walk for the third and fourth and fifth parts to come out here is there anything you can talk about there.

Hey.

Okay, and then I wanted to come back to the U S. Airline deal that you mentioned, Joe because I think you commented that maybe it's a little bit lower margin, but is there like a recurring element to this and maybe a structure of a deal that you can replicate more globally.

Yes.

So, but I've always said, it's worth the wait.

Hi.

Thank Chromalloy has said public.

We have several structures.

Publicly now.

The third part which is the most expensive part into the shop visits.

This particular deal.

Deal with probably.

<unk> performance restorations large.

Final application was submitted to the FAA by May 1st.

Ticket.

Exchanges, so it was a little bit of a.

So they've disclosed that.

One one part of it but we have other products could be module swaps.

And when asked what that means for their expectation of approval. They indicated in the previous section blade that they had accrued as of each one of our energy to plague took six months from final application approval.

Could be engine programs powered by sort of perpetual power deals.

All of which are in the mix I think this is.

This is probably a high dollar contributor, but it's a lower margin contributors. So I think that the sense of the mix.

So they have sort of guided.

People to think October.

Comes a more normal mix the margins will revert to more normal margins.

So thats very specific as we've mentioned in the third part is the most.

Significant contributor to <unk>.

Okay I appreciate that thank you.

Savings for us so that's kind of the <unk>.

Yes.

In light of that the the fourth and fifth parts will be 2026, no specific guidance on those yet in there.

Thank you.

Our next question comes from Myles Walton of Myles Walton Your line is now open.

I would say, they're nice to have but less important the big one is the next is to play.

With research good morning.

Given the pay down the revolver the expectation for further positive free cash flow gioia.

Joe you alluded to returning capital is something you'd look forward too can you maybe size how share repurchase fits in that scheme.

Where your leverage.

More globally.

<unk> levels are and what the quantum might be and timing. Thanks.

We have several structures.

This particular deal.

Yes, so I think.

Deal was probably.

What we indicated is we expect to achieve our goal.

Full performance restorations large ticket.

<unk>.

Rating agencies this year.

Exchanges, so it was a little bit of.

Given the financial performance. So we hope to check that box low very soon I think anything under three times three times debt to total EBITDA.

One one part of it but we have other products could be module swaps could.

Could be engine programs powered by sort of perpetual.

This is a perfectly.

<unk> power deals.

Comfortable acceptable level for us in terms of leverage and <unk> and should sustain.

All of which are in the mix I think this is.

This is probably a high dollar contributor, but it is a lower margin contributors. So I think that the to the extent that the mix becomes a more normal mix the margins will revert to more normal margins.

Sustain that kind of rating.

And then then you would look to whats out there in terms of growth Capex and as we've said before we are first and foremost have been a growth company and to the extent that we can accelerate.

Okay I appreciate that thank you.

Going from our goal of 25% market share with.

Yes.

Thank you.

Good acquisitions or investments, we will prioritize that.

Our next question comes from Myles Walton of Myles Walton Your line is now open.

I'll do the second thing we would look at and then beyond that I think.

With research.

Share buybacks would be top of the list and.

Yeah.

Given the pay down the revolver the expectation for further positive free cash flow.

The question is how much cash and liquidity you need to maintain company and it's it's probably around the levels, where we are right now so anything incremental will become.

Joe you alluded to returning capital is something you'd look forward too can you maybe size how share repurchase fits in that scheme.

Where your leverage comfort levels are and what the quantum might be and timing. Thanks.

Available for that for share buybacks.

Okay.

Yes, so I think.

Conceptually the second half the year is free cash flow is sort of unspoken for at this point and it could be looked at in that regard.

What we indicated is we expect to achieve our goal.

We're adding agencies this year.

Yes.

Given the financial performance, so we hope to check that box.

One other question, which I alluded to it is it sounds like you're running a lighter capital portfolio and you'll see how this is working the CFM 56 engine target portfolio has been reduced to 350 to 400 engines.

Soon I think anything under three times three times debt to total EBITDA is a perfectly comfortable acceptable level for us in terms of leverage and should.

At the same level of engine activity that Dara.

Sustaining that kind of rating.

Ownership you had when you were a quarter the size of our today.

And then when you look to whats out there in terms of growth Capex as we've said before we are first and foremost have been a growth company and to the extent that we can accelerate.

Is this $3 50 to 400 CFM 56 engines.

More of a multi year look or is it a current year look that grows into 'twenty six.

Going from our goal of 25% market share with.

Yes.

I think it's.

Feel sustainable and that we also have the benefit of the engines that are in Sci, which are effectively under management.

Good acquisitions or investments, we will prioritize that.

The second thing, we would look at and then beyond that.

So we thought about.

Share buybacks would be top of the list and.

How many engines do you need.

To have availability to show your customers that you can always deliver one.

The question is how much cash and liquidity you need to maintain company and it's it's probably around the levels, where we are right now so anything incremental will become.

We feel that because of the Sci is.

Is managed by <unk>.

And those engines are under contracts once they run out to return it effectively gives us more of an extended.

<unk> for that sort.

For share buybacks.

Okay.

Inventory.

Absolutely the second half the year is free cash flow is sort of unspoken for at this point and it could be looked at in that regard.

One separate moved from one but pretty close out so I think that's what's given us the opportunity to be even a little bit less capital intensive.

Yes.

Okay. One other question, which I alluded to it is it sounds like Youre running a lighter capital portfolio at <unk> is working.

Okay. That's great. Thanks, so much.

Thanks.

CFM 56 engine target portfolio has been reduced to 350 to 400 engines.

Thank you.

Our next question comes from Brian Mckenna of citizens Bank. Your line is now open.

That's the same level of engine activity.

Okay, great. Thanks, good morning, everyone.

Ownership you had when you were a quarter the size you are today.

Just a follow up on Sci I'm curious what the feedback has been over the last quarter or so from the alternative asset management industry given the early success.

Is this $3 50 to 400 CFM 56 engines.

More of a multiyear look or is it a current year look that grows into 'twenty six.

On the other vehicle I am assuming some of these managers took a wait and see approach in terms of investing in the vehicle.

That's it.

I think it's.

But given that they are all focused on delivering excess returns for their investors and that industry is really short high quality assets I'm curious what you're hearing from them in terms of that type of ability to drive excess returns for them given your set of capabilities here and then what this could ultimately mean for demand for Sci longer term.

Feel sustainable and that we also have the benefit of the engines that are in Sci, which are effectively under management.

So we thought about.

How many engines do you need.

To have availability to show your customers that you can always deliver one and we will feel that because of the Sci as.

And it is very positive and I think the.

Is managed by <unk>.

<unk>.

Every investor has a different timeline for how long it takes to get things approved so I don't I don't feel like any of us taking a wait and see approach I think they were basically operating within the constraints of what their system allows.

And those engines are under contracts once they run out to be turn it effectively gives us.

And extended.

Inventory.

One separate moved from one but pretty close out so I think that's what's given us the opportunity.

There are vastly different timelines to get approvals for people, but we have a great group of investors great names.

A little bit less capital intensive.

Okay. That's great. Thanks, so much.

All of them to my knowledge Wanna be repeat investors since we said we'd deliver.

Thanks.

Thank you.

The returns.

Our next question comes from Brian Mckenna of citizens Bank. Your line is now open.

No.

Forecast, then they'll be in for <unk>.

Okay, great. Thanks, good morning, everyone.

Fourth so so we feel like.

Just to follow up on Sci Im curious what the feedback has been over the last quarter or so from the alternative asset management industry given the early success.

The backdrop is great demand for the supply of capital is significant it's diversified.

And it's exactly what we really hope for.

On the other vehicle I am assuming some of these managers took a wait and see approach in terms of investing in the vehicle.

Okay. That's helpful. Thanks, Joe and then with respect to your debt capital I know you don't have any maturities until 2028, but a few of the tranche a and some of your notes still have coupons at or above 7%.

But given that they're all focused on delivering excess returns for their investors and that industry is really short high quality assets I'm curious, what you're hearing from them in terms of appetite ability to drive excess returns for them given your set of capabilities here and then what this could ultimately mean for demand for Sci longer term.

Given that these are trading north of 100 today I mean is there an opportunity to refinance these in the coming quarters.

And further reduce the cost of capital and then what can this ultimately mean for your for your bond ratings over time.

I mean, it was very positive and I think the.

Every investor has a different timeline for how long it takes to get things approved so.

Well I think the bond ratings as we said we wanted to get to double the strong double D.

I don't feel like any of us taking a wait and see approach I think they are basically operating within the constraints of what their system allows.

I mean, we could argue or I have argued that it could be investment grade but.

We don't really see.

Sure.

There are vastly different timelines to get approvals for people, but we have a great group of investors great names.

Doing anything operational.

Compromise the way, we run our business to get there so.

So I think we effectively will trade closer to investment grade.

All of them to my knowledge, one would be repeat investors since we said we'd deliver.

There could be some opportunities to reduce debt.

<unk> right now nothing's callable so would be.

The returns of it.

No.

Forecast, then there'll be inferred.

And exercise and Vas, it's probably it may not be worth.

Two an asset for.

So we feel like.

The fees that you have to invest to do at the moment, but.

The backdrop is great demand for the supply of capital is significantly diversified.

Obviously definitely we will look at that as cost of debt.

It's coming down for us.

Yes, Okay I'll leave it there thanks Joe.

And it's exactly what we really hope for.

Yep.

Thank you.

Our next question comes from Ken Herbert of RBC Your.

Your line is now open.

Yeah, Hi, good morning, maybe a question for Joe or David I Am just curious for the increased throughput and efficiency you saw on the shops in the second quarter. What are you seeing in terms of material availability or lead times on spare parts into the shop and how much of an improvement was that in the efficiency or productivity.

Given that these are trading north of 100 today I mean is there an opportunity to refinance these in the coming quarters.

And further reduce the cost of capital and then what can this ultimately mean for your bond ratings over time.

Well I think the bond ratings as we said we want to get to double the strong double the.

<unk>.

Ken I'll take those this is David so our inventory strategy is unique to anyone else in the world and where we're procuring parts in advance and we're not idling for parts to come back from shop. So what that means is that we're effectively kidding modules ahead of time and then we are providing the replacement.

I mean, we could argue or I have argued that it could be investment grade but.

We don't really see.

Doing anything operational.

Compromise the way, we run our business to get there so.

We effectively will trade closer to investment grade.

Kits and then the off parts Gulf of repair and then they come back into the to the pool of inventory.

There could be some opportunities to reduce.

Debt right now nothing's callable, so it would be.

We've been very proactive of buying the right parts at the right time, I'd say, Moreover, specifically, we've seen a trend where there's a lot of demand for core modules, we see that continuing in the back half of this year into next year. So we've been very opportunistic in the last I'd say three years to four years buying specific core LLP as to be able to build engines.

And exercise and Bath, that's probably.

It may not be worth.

The fees that you have to invest to do at the moment, but we are.

Obviously, we definitely will look at that as cost of debt is.

Coming down for us.

Yes, Okay I'll leave it there thanks Joe.

So we feel very good about our inventory levels.

Yes.

Thank you.

Going to be this is probably the highest it'll be we see that probably coming down.

Our next question comes from Ken Herbert of RBC.

Over over time, but again we were.

Your line is now open.

Procuring parts in advance for this core module production that we expect.

Yes, hi, good morning, maybe a question for Joe or David I'm, just curious for the increased throughput and efficiency you saw on the shops in the second quarter. What are you seeing in terms of material availability or lead times on spare parts into the shop and how much of an improvement was that in the efficiency or productivity.

In the back half of this year into next year, a lot of that is because of capabilities that we're adding in the core as well as our PMA that.

That we hope to come online soon.

Great. Thanks, and then Ken.

Go ahead sorry.

One thing that I did allude earlier was turnaround time on an on.

<unk>.

And that also is going to contribute to lower inventory levels.

Just to repeat those numbers. We went from 83 days of turnaround time, Inc. Q1, 266 in Q2, so that was a pretty strong improvement quarter over quarter.

Was that turnaround time comment specific to Montreal or is that across the network.

And then the off parts go through repair and then they come back into the.

Specific to Montreal.

Pool of inventory, so we've been very proactive of buying the right parts at the right time I'd say, Moreover, specifically, we've seen a trend where there's a lot of demand for our core modules, we see that continuing in the back half of this year into next year. So we've been very opportunistic in the last I'd say three years to four years buying specific core LLP.

Okay.

And if I could just as a follow up one of the primary dynamics of the market over the last few years has been the surge in value of both the new generation and legacy generation engines.

As you think about your business model over the next couple of years as we see value on the CFM 56, and the B 25, because the rate of growth slowed or even potentially start to come in a little bit I can appreciate that don't have a lot of impacts on your business, but how are you thinking about value of the legacy engines in particular over the next one.

To be able to build engines so.

So we feel very good about our inventory levels.

Going to be this probably the highest it'll be we see that probably coming down.

Over over time, but again we were.

Procuring parts in advance for this core module production that we expect.

For two years and what does that imply for your business as we start to maybe see that rate of growth slow or certainly eventually start to come down.

In the back half of this year into next year, a lot of that is because of the capabilities that we're adding in the core as well as our PMA that.

Okay.

We fully expect it to the rate of growth to slow and for it to come down I would think thats perfectly normal.

That we hope to come online soon.

Great. Thanks, and then Ken.

And our business is really.

Go ahead sorry.

One thing that I did allude earlier was turnaround time on.

Spread relative.

Relative value business. So what we do is we buy run out engines, we rebuild them and then we go to market to sell lease or exchange and so.

And that also is going to contribute to lower inventory levels.

Just to repeat those numbers, we went from 83 days of turnaround time in Q1 to 66 in Q2, so that was a pretty strong improvement quarter over quarter.

We don't need to increase in price.

Generating new business and the growth that we're that we're forecasting is perfectly normal.

Was that turnaround time comment specific to Montreal or is that across the network.

That that would happen there are two michigan's to that one is that Oems tend to raise prices regularly. So even if you had the same.

Specific to Montreal.

Okay.

And if I could just as a follow up one of the primary dynamics of the market over the last few years has been the surge in value of both the new generation and legacy generation engines.

Build on an engine that's going to cost.

7% more every year to succeeding year. So we do have.

As you think about your business model over the next couple of years as we see value on the CFM 56, and the B 25, even with the rate of growth slowed or even potentially start to come in a little bit I can appreciate that don't have a lot of impacts on your business, but how are you thinking about value of the legacy engines in particular over the next one.

Cost of assets tend to tend to go up and then.

And then secondly, what I mentioned is that market share isn't isn't.

A static number it goes up as planned for its age so we fully expect parts.

Price increases and market share gains to drive.

For two years and what does that imply for your business as we start to maybe see that rate of growth slow or certainly eventually start to come down.

Our growth not price increases in secondary markets.

Okay. Thanks, Joe.

We fully expect it to the rate of growth to slow and for it to kind of add.

Yep.

Thank you.

Our next question comes from Andre Madrid of BTA G. Your line is now open.

I think that's perfectly normal.

And our business is really.

Spread relative.

Relative value business. So what we do is we buy run out engines, we rebuild them and we don't market to sell lease or exchange and so.

Okay.

Thanks for taking my question good morning.

Could you maybe.

Break out a bit more on what youre thinking around the Chinese opportunity through Rome.

We don't need to increase in price.

Generating new business and the growth that we're that we're forecasting is perfectly normal.

Yes. This is David I'll take that question. So we think that Chinese opportunity for us as a growth market.

That that would happen there are two michigan's to that one is the Oems tend to raise prices regularly so even if you have the same.

Just to give you some data around it so as far as the current 737% to <unk> hundred 20, <unk> fleet. They represent about 20% of the world's fleet. However, if you look at their order book. The order book is around 4% of the total order book today. So with that means is these aircraft are going to operate much longer and would that mean.

Build on an engine, it's going to cost <unk>.

7% more every year to succeeding year. So we do have.

Cost of assets tend to tend to go up and then.

This is going to be more engine shop visits so we see this as a growth opportunity.

And then secondly, what I mentioned is that market share isn't isn't.

We're very excited about having the license because that allows us to be able to outperform engine exchanges within China.

A static number it goes up as platforms age so we fully expect parts.

And we've already started capturing some customers. So we're very excited by this opportunity and again, it's a growth market for us.

Price increases and market share gains to drive.

Our growth not price increases in secondary markets.

Can you maybe perfect market, where it's a perfect market for engine exchanges and module exchanges, because theyre going to have one.

Okay. Thanks, Joe.

Yes.

Thank you.

Replacements on a regular basis and theres not the capacity to do that.

Our next question comes from Andre Madrid of BTG. Your line is now open.

<unk>.

Our.

Okay.

Shar business locally so it's a perfect setup for.

Thanks for taking my question good morning.

For our model.

Could you maybe.

Yeah.

Do you think you can maybe parse out exactly how material. This could eventually be like are you targeting a specific percentage of mix overall.

Break out a bit more on what youre thinking around the Chinese opportunity through Rome.

Yes. This is David I'll take that question. So we think that Chinese opportunity for us as a growth market.

Are the margins in any way accretive to overall mix, how should we think about that from the numbers.

Just to give you some data around it so as far as the current 737% to <unk> hundred 20, <unk> fleet. They represent about 20% of the world's fleet. However, if you look at their order book. The order book is around 4% of the total order book today. So what that means is these aircraft are going to operate much longer and would that mean.

I think that we probably need another quarter or two to be able to.

Intelligently address when the market. We've just started doing business this year.

We have a pretty good list.

Prospects and so I think that.

Rather than.

There's going to be more engine shop visits so we see this as a growth opportunity.

Sort of.

First the number too early I think we need another quarter or two to answer that I think the margins are fine I mean, theyre going to be great.

We're very excited about having the license because that allows us to be able to outperform engine exchanges within China.

It's not a price sensitive market. So I think that's an easy one but.

And we've already started capturing some customers. So we're very excited by this opportunity and again, it's a growth market for us.

But the size of the market and I think I think it would be we'd be better served if we have a little more granularity into it.

Can you maybe perfect market, where it's a perfect market for engine exchanges and module exchanges, because theyre going to have one.

Which customers, we think can do what but.

There are some very very big customers, there that needs lots of engines. So it's.

Replacements on a regular basis and theres not the capacity to do those.

Not a small number it's just a question of how big.

Yeah, Yeah, no that makes sense and then if I could squeeze in another.

Shop visits locally so it's a perfect setup for.

Looking at the margin step down at AP I mean, it's very clear that this was associated more one off with with a large.

For our model.

Do you think you could maybe parse out exactly how material. This could eventually be like are you targeting a specific percentage of mix overall.

North American order, but how should we expect that progression moving forward for AP as we go through the second half of 'twenty five and into 26 I mean.

Are the margins in any way accretive to overall mix, how should we think about that from from the numbers.

Are the prior targets that you've outlined in terms of step up there still in play.

I think that we probably need another quarter or two to be able to.

Yes no.

I think that for the rest of this year.

We will continue to do.

Intelligently address one of the market. We've just started doing business. This year and we have a pretty good list.

It should be around the I think historically, we've been between 34 and 38% somewhere in that range.

For the rest of 2025, and then I think 2026 is what I indicated in my Mark boxes, we expect that that large.

Prospects and so I think that.

Rather than.

So.

First the number too early I think we need another quarter or two to answer that I think the margins are fine I mean, theyre going to be great.

Margins to go to 40% plus next year.

And feel very good about that.

It's not a price sensitive market. So I think that that's an easy one but the size of the market and I think I think it would be we'd be better served if we have a little more granularity into.

Got it got it very helpful. I'll leave it there team. Thanks, so much.

Yeah.

Thanks.

Thank you.

Which customers, we think can do what but there is.

I am showing no further questions at this time I would now like to turn it back to Alan for closing remarks.

There are some very very big customers, there that needs lots of engines. So.

Thank you Briana and thank you all for participating in today's conference call. We look forward to updating you after Q3.

Not a small number it's just a question of how big.

Yeah, Yeah, no that makes sense and then if I could squeeze in another.

Yeah.

Looking at the margin step down at AP I mean, it's very clear that this was associated more one off with a large.

Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

North American order, but how should we expect that progression moving forward for AP as we go through the second half of 'twenty five and into 'twenty six.

Are the prior targets that you've outlined in terms of step up there still in play.

Yes.

I think that for the rest of this year.

We will continue to.

Severe around the I think historically, we've been between 34 and 38% somewhere in that range.

For the rest of 2025, and then I think 2026 is what I indicated in my Mark boxes, we expect that that large.

Margins to go to 40% plus next year.

And feel very good about that.

Got it got it very helpful. I'll leave it there team. Thanks, so much.

Thanks.

Thank you.

I am showing no further questions at this time I would now like to turn it back to Alan for closing remarks.

Thank you Briana and thank you all for participating in today's conference call. We look forward to updating you after Q3.

Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

Okay.

[music].

Okay.

[music].

Mhm.

Okay.

[music].

Okay.

[music].

Okay.

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