Q3 2025 FTAI Aviation Ltd Earnings Call

Speaker #2: Good day and thank you for standing by . Welcome to the FTAI Aviation Ltd. . Third quarter 2020 Earnings Conference Call . At this time , all participants are listen only mode .

Speaker #2: After the speaker's presentation , there will be a question and answer session . To ask a question during the session , you will need to press star one on your telephone .

Speaker #2: You will then hear automated message providing your hand is raised . To withdraw your question , please press star one one again . Please be advised that today's conference is being recorded .

Speaker #2: I would like to turn the conference over to your first speaker today, Alan Andreini, Head of Investor Relations. Please go ahead.

Speaker #3: Thank you . Marvin , I would like to welcome you all to the FTAI Aviation Ltd. third quarter 2020 earnings call . Joining me here today are Joe Adams , our chief Executive Officer .

Speaker #3: Angela Nam , our chief financial officer . And David Marino , our chief operating officer . We have posted an investor presentation and our press release on our website , which we encourage you to download .

Speaker #3: If you have not already done so . Also , please note that this call is open to the public and listen only mode and is being webcast .

Speaker #3: In addition , we will be discussing some non-GAAP financial measures during the call today , including EBITDA . The reconciliation of those measures to the most directly comparable GAAP measures can be found in the earnings supplement .

Speaker #3: Before I turn the call over to Joe , I would like to point out that certain statements made today will be forward looking statements , including regarding future earnings .

Speaker #3: These statements , by their nature , are uncertain and may differ materially from actual results . We encourage you to review the disclaimers in our press release and investor presentation regarding non-GAAP financial measures and forward looking statements , and to review the risk factors contained in our quarterly report filed with the SEC .

Speaker #3: would like to turn the call over to Now , I Joe .

Speaker #4: Thank you . Allen . Angelo will provide a detailed overview of the numbers . But first , I'd like to highlight a few key updates .

Speaker #4: Number one , we passed a significant milestone this month with the successful close on the final round of equity commitments for Qssi , which is strategic capital initiative number one .

Speaker #4: We've had tremendous interest from institutional investors in the partnership throughout the year , and given this high level of demand , we have upsized the total equity capital of the 2025 partnership to 2 billion .

Speaker #4: FTI will co-invest up to approximately 380 million , including the 152 million we have invested year to date for a 19% minority equity interest compared to our original expectation of 20% , with a $500 million increase in equity capital .

Speaker #4: Our new target is now to deploy over $6 billion in capital through the 2025 partnership, up from our previous target of $4 billion and double the original goal of $3 billion.

Speaker #4: We announced in December of last year when we launched Qssi this expanded partnership corresponds to a larger total portfolio size of approximately 375 aircraft , with full deployment of capital now anticipated by mid 2026 .

Speaker #4: Today , we now have over 190 aircraft either closed or under Loi commitment and continue to have confidence in visibility from the Qssi investments team on sourcing the remaining aircraft through a combination of lessor counterparties and direct sale leaseback transactions with airlines .

Speaker #4: The successful $6 billion launch of this partnership creates significant value and positions FTI for sustained long term earnings growth . The MRI agreement , which provides fixed price exchanges for all engines in the SDI portfolio , establishes a multi-year contractual pipeline of demand for rebuilt engines within our aerospace Products segment .

Speaker #4: Additionally , our role as servicer and 19% minority equity investment is expected to generate attractive returns within our aviation leasing segment for our equity partners .

Speaker #4: Qssi represents a compelling opportunity of enhanced returns relative to the traditional leasing business model through the MRR or maintenance Repair Exchange Agreement . LPs benefit from higher , more predictable cash flows combined with lower residual risk across a highly diversified lessee pool for our airline counterparties .

Speaker #4: Engine exchanges also provide clear , meaningful value by eliminating the financial and operational risk and burden of managing engine shop visits . With this significant value proposition to all parties , FTI , our equity LP partners and airlines , we see strong opportunities .

Speaker #4: Opportunity to launch additional qssi partnerships each year . Going forward . Turning now to Q3 results , aerospace Products delivered another strong performance , generating 180 million in adjusted EBITDA at a 35% margin , up approximately 77% year over year .

Speaker #4: This positive momentum underscores the strong and accelerating global demand for pre-built engines and modules in the Cfm56 and V 2500 aftermarket . We continue to see adoption of our aerospace products expanding across both new and existing customers , supplemented by our MRR agreement with the CI airline operators and asset owners .

Speaker #4: Increasingly recognize Ftai as the most flexible , cost efficient alternative to traditional shop visits , which are more expensive , more complex , and more time consuming than a simple and cost effective exchange with Ftai .

Speaker #4: The recent example of this is Finnair , with whom we announced a multi-year perpetual power program through our scale asset ownership and extensive in-house maintenance capabilities .

Speaker #4: FTI engine exchanges help thin air manage their maintenance costs , improve reliability , and ultimately deliver a better service to their passengers . The trend toward longer term partnerships , like thin air , is increasing , and we expect to announce additional new airline perpetual power programs in the future .

Speaker #4: Overall , we're confident our differentiated business model and competitive advantage places Ftai to be the long term leader in engine aftermarket maintenance . For these engine types .

Speaker #4: We're well positioned to achieve our goal of reaching 25% market share in the years ahead . Moving over to production , we refurbished 207 Cfm56 modules this quarter between our three facilities in Montreal , Miami and Rome .

Speaker #4: An increase of 13% versus the last quarter . And we remain on track for our goal of producing 750 modules in 20 2025 .

Speaker #4: In Montreal, our recently established training academy has already enrolled over 100 trainees who are graduating significantly faster than traditional methods.

Speaker #4: Thanks to our technology-driven approach, using virtual reality and AI technology protocols combined with our emphasis on specialization and operational efficiencies, these initiatives are delivering measurable improvements in throughput and productivity.

Speaker #4: We remain confident in the trajectory of substantial production growth ahead as we scale the Montreal facility to capacity. In Rome, our operations continue to develop at an impressive pace.

Speaker #4: We have successfully integrated Fti's MRR operations with the facility and technicians from Rome have conducted extensive training seminars at our Montreal Training Academy to improve skill development and optimize production efficiency .

Speaker #4: We're also actively investing in upgrading Rome's infrastructure and component repair capability , enabling heavy , heavier and more complex module repairs , which will position us to ramp production next year to double our 2025 target .

Speaker #4: We're also pleased to announce an agreement to acquire Atps for approximately $15 million. An MRO with extensive CFM56 engine operations, strengthening our presence in Miami.

Speaker #4: This acquisition will transform our Miami MRR operations by complementing our nearby module and test cell facilities , adding expansion space , and adding experienced technical staff to support increased production .

Speaker #4: Next year . Once the integration into our operation is complete . Additionally , the purchase includes an Atps facility in Portugal , which will serve as a logistics and field service hub in coordination with our European operations in Rome .

Speaker #4: We've also made good progress in expanding our component repair capabilities through the launch of a 5050 joint venture called Prime Engine Accessories , with Bauer Inc. out of Bristol , Connecticut .

Speaker #4: The Bauer team brings tremendous experience and expertise in accessory test equipment , and together we're building an industry leading MRR repair facility for accessory parts .

Speaker #4: Once operational, which we expect by the end of this year, this facility is expected to deliver up to $75,000 in average savings per shop.

Speaker #4: Visit . Our initial $10 million working capital investment will enable us to redirect FTE volumes to this facility , rather than to outside vendors , driving meaningful costs , efficiencies and time savings .

Speaker #4: This investment , like Pacific Aero , which we did last quarter , further differentiates our offering and aids us in both expanding productivity and expanding margins .

Speaker #4: With the substantial activity in enhancing our facilities and the broader MRR ecosystem, we are now targeting growth in production. Next year, we aim to produce 1,000 CFM56 modules, an increase of 33% compared to this year's production.

Speaker #4: We also continue to expect aerospace product margins to grow to 40% plus next year as we optimize our parts procurement and repair strategies, including the approval of PMA part number three, which we continue to expect approval of in the very near term.

Speaker #4: Next , let's talk about adjusted free cash flow . In the third quarter , we generated 268 million , which includes 88 million from the sale of the final eight aircraft from the 45 aircraft , seed portfolio , which were sold to Qssi one year to date .

Speaker #4: We have now generated 638 million in positive free cash flow , positioning us on track to our revised goal of $750 million for all of 2025 .

Speaker #4: Prior to our expanded contribution, SDI number one as FTI pivots to an asset-light model focused on aerospace products and strategic capital, we continue to expect substantial growth in free cash flow in the years ahead.

Speaker #4: Our primary use for available cash is to pursue investments in high impact growth initiatives , and we're seeing today a significant number of these opportunities and possibilities for targeted , disciplined approach is to identify opportunities complementary to our MRR operations in areas where we can accelerate production , expand margins and further differentiate our product offerings to customers worldwide .

Speaker #4: We do expect a surplus cash balance above these investment opportunities, and therefore, we are announcing an increase to the dividend this quarter from $0.30 per share to $0.35 per share.

Speaker #4: The dividend of $0.35 per share will be paid on November 19th , based on a shareholder record date of November 10th . This marks our 42nd dividend as a public company and our 57th consecutive dividend since inception .

Speaker #4: Additionally, we will also continue to evaluate future opportunities for capital redistribution to shareholders. And finally, we remain confident in our full-year 2025 estimates of $1.25 billion to $1.3 billion.

Speaker #4: Business segment EBITDA for all of 2025, comprised of aerospace products, will have EBITDA ranging from $650 million to $700 million, and aviation leasing EBITDA will be $600 million.

Speaker #4: Looking ahead to 2026 for aerospace products, we're estimating $1 billion in EBITDA for next year, which represents significant further growth versus the $650 to $700 million this year.

Speaker #4: And approximately 380 million , which we generated in just recently . In 2024 for aviation leasing . We're estimating 525 million in EBITDA in 2026 , which is in line with our expected results for 2025 .

Speaker #4: Excluding insurance recoveries and gains on sale within the leasing segment , we estimate the growth in servicing fees and our 19% minority equity investment will offset the decline in on balance sheet leasing revenues from the seed portfolio sold to the CI .

Speaker #4: As we continue to pivot to an asset light growth model overall , we now anticipate total business segment EBITDA in 2026 of 1.525 billion , up from our original estimate of 1.4 billion .

Speaker #4: Based on these projections , we expect to generate 1 billion in adjusted free cash flow next year , representing a 33% increase over the 750 million we are targeting in 2025 .

Speaker #4: Prior to our expanded contribution to CI , one . With that , I'll hand it over to Angela to talk through the numbers in more detail .

Speaker #4: Thanks , Joe .

Speaker #5: The key metric for us is adjusted EBITDA . We maintain our strong momentum this quarter with adjusted EBITDA of 297.4 million and Q3 2025 , which is up 28% compared to 232 million in Q3 of 2024 .

Speaker #5: And in line with Q2 2025 results . After excluding the one time benefits from insurance recoveries and seed portfolio gains on sale , we recorded last quarter during the third quarter , the 297.4 million EBITDA number was comprised of 180.4 million from an aerospace product segment , 134.4 million from our leasing segment , and a -17.4 million from corporate and other , including Intersegment eliminations .

Speaker #5: As we have predicted , aerospace EBITDA is now exceeding leasing EBITDA . Aerospace products had yet another great quarter , with 180.4 million of EBITDA at an overall EBITDA margin of 35% , which is up 9% compared to 164.9 million in Q2 of 2025 and up 77% compared to 101.8 million in Q3 2020 .

Speaker #5: Four . We continue to see accelerated growth in adoption and usage of our aerospace products and remain focused on ramping up production in each of our facilities in Montreal , Miami and Rome , as well as expanding component repair operations at our recent acquisition in California and a new joint venture launched in Connecticut .

Speaker #5: Turning now to leasing . Leasing continued to deliver strong results . Posting approximately $134 million of adjusted EBITDA for gains on sale . We continue the year with 126.8 million of asset sales proceeds , generating a 7% margin gain of 8.3 million .

Speaker #5: As we closed on the final eight aircraft of the seed portfolio to sky number one and divested several non-core assets , including several 24,000 .

Speaker #5: And Cf6 80 engines . Overall , the total 45 aircraft portfolio contributed an aggregate gains on sale of 50.1 million to 2025 . Leasing EBITDA at a margin of 10% .

Speaker #5: The Pure Leasing component of the 134 million of EBITDA came in at 122 million for Q3 , versus 152 million in Q2 of 2025 .

Speaker #5: But included in the one . 52 million last quarter was a 24 million settlement related to Russian assets written off in 2022 , as well as leasing revenue generated from seed portfolio , which we have now sold to the CI .

Speaker #5: With that, let me turn the call back over to Alan.

Speaker #3: Thank you, Angela. Marvin, you may now open the call to Q&A.

Speaker #2: Thank you . At this time , we'll 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 .

Speaker #2: To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. And our first question comes from the line of Sheila Kahyaoglu of Jefferies. The airline is now open.

Speaker #6: Good morning, guys, and congratulations on the upsize of SDI. It looks like great traction from the investor base and sourcing these aircraft.

Speaker #6: And I think you have now 375 aircraft targeted, or the size of United Airlines CFM seats. So can you maybe walk us through the financial implications of the upsizing, both from a segment EBITDA and free cash flow perspective?

Speaker #4: Sure . So , I mean , the way I think about it is we're increasing the number of aircraft that we'll have in CI .

Speaker #4: You know , by that amount of , you know , going up 33% , 250 , up to 375 , and we'll probably do it a little bit faster than we had expected , given the pace of investing activity .

Speaker #4: So our plan has always been to do , you know , continue to do additional size every year . So I think it really is the main impact is just accelerating the growth under CI .

Speaker #4: And you know , we originally said we expected CI business for Ftai to represent about 20% of the aerospace products volume . And , you know , probably with this acceleration of the CI fund raising , that number might go up to 25% .

Speaker #4: So 20 to 25% going forward . And the important thing is that that business is 100% of all the engines in those partnerships are dedicated , committed to to aviation for the duration of the ownership period , which we expect will be 5 to 6 years .

Speaker #4: So it's locked in volume . We know everything you need to know about the engines . We have access to . We can plan our production very efficiently .

Speaker #4: We can have engines pre-positioned . It's just a great you know , there's just so many benefits that come out of us having , you know , being the manager of these of these capital pools .

Speaker #4: It also makes us , you know , look a lot bigger to the airline customers . So when you go into a visit , an airline and you own a significant chunk of their fleet as a lessor , you know , the ability to get business from them on other engine products that we offer is higher , is bigger .

Speaker #4: So it has , you know , cross-selling opportunities that also , you know , will benefit Ftai . But I think the main , main thing is just faster .

Speaker #4: You know , what we're pushing for overall is a company is really just faster market share gains in in the MRR business , in aerospace products .

Speaker #6: Got it . Thank you . And then maybe if I could ask one on the attacks acquisition , if you could give any color on how that came , how it adds $150 worth of capacity and similar to Pacific Dynamic , if you could give us some color on EBITDA contribution , as we think about the savings from that .

Speaker #4: Yep .

Speaker #5: This is David .

Speaker #7: I'll take that . Sheila . So on our M&A strategy , you're really seeing two themes play out , right ? We're doing investments to either increase margin or expand our capacity well ahead of our production needs .

Speaker #7: So atop specifically is the latter where we're increasing production while well ahead of our production needs atop , as Joe mentioned earlier in the opening remarks , has two facilities .

Speaker #7: The main facility is in medley

Speaker #7: which is very close to our test cell today . So it immediately creates synergy between our test cell and the facility . It also includes 60 employees , and we have the about ability to process 150 modules at that location .

Speaker #7: So effectively, that raises our overall production at the company from 1,800 modules to 1,950. Additionally, the second facility is located in Lisbon, Portugal, where we have a small team that we expect to grow to meet our goals.

Speaker #7: Out of that facility, we run our field service, and those are the employees who actually deliver the module exchanges to customers, specifically out of Europe.

Speaker #7: And we expect to grow that facility because we see a lot of local talent that we could recruit from . So the atopic transaction is mostly focused on increasing capacity .

Speaker #7: We also did announce the power transaction that represents the first theme , which is we're looking to increase margin and looking to continue to vertically integrate .

Speaker #7: So, that is a 50 over 50 joint venture, which we call Prime Engine Accessories, based in Bristol. It is for the engine accessories.

Speaker #7: So this includes fuel pumps, hummus actuators, and valves. Those are the components that regulate air, fuel, and oil between the engine and the aircraft.

Speaker #7: It was a repair that we were lacking that now we're able to insource and we're very happy to partner up with Bower , which is a leading manufacturer of a lot of this .

Speaker #7: The test and bench equipment, as Joe mentioned, is for that investment specifically. We're expecting to capture around $75,000 of savings per shop.

Speaker #7: Visit , and we're expecting to do about 350 engines per year . When that starts ramping in 2026 .

Speaker #6: Great . Thank you .

Speaker #2: Thank you . One moment for our next question . And our next question . Concerned line of Christine Lee of Morgan Stanley . Your line is now open .

Speaker #8: Hey , good morning everyone . I just want to follow up on C.I. . I mean , you guys are significant buyers of aircraft engine assets .

Speaker #8: Now , in a time where there still seems to be a shortage of assets out there , can you talk about the availability of assets that you're able to buy ?

Speaker #8: Pricing expected returns . I mean , ultimately , what were your conversations with investors like , what did they like about CI and where are areas of potential concern ?

Speaker #4: Sure , I'll start on that . And if you think about the market , there are two different sellers of these , you know , narrowbody tech aircraft .

Speaker #4: One is lessors and they own , you know , roughly half of the world's fleets . If you think about 14,000 aircraft that are , you know , seven , three , seven and eight through 20 co family aircraft , about 7000 are owned by lessors .

Speaker #4: And as lessors begin to take delivery of new aircraft into their portfolios , they need to sell off older aged equipment . One of the big drivers of that is just to maintain ratings .

Speaker #4: Those rating agencies and debt investors and lenders look to that metric of average age of your portfolio . As you know , one that they track very carefully .

Speaker #4: So during Covid , I think a lot of lessors were able to , you know , hold on to assets longer . They extended the average life of their portfolio , may be , for example , from 12 years to 14 years , but now people are saying , you know , you got to sell the older stuff .

Speaker #4: So that portion of the market , you know , represents , you know , north of probably 1000 aircraft a year that are sold by lessors .

Speaker #4: So we're buying , you know , from that group and , and , you know , we have a very significant competitive advantage and that we can do engine exchanges .

Speaker #4: So, we're in buyer, and we're one of the larger pools of capital that are focused really solely on, you know, NGS and COS.

Speaker #4: The second source of deals is airlines . And a lot of airlines , you know , had deferred as much of the engine maintenance as possible during Covid .

Speaker #4: They've kicked the can down the road pretty far. But there are a lot of shop visits coming up in the near future.

Speaker #4: And airlines are looking to do sale , which allow them to avoid both raised capital today and avoid a shop visit so that investment in that shop visit can be a significant amount of their capital for an airline .

Speaker #4: And they're they're looking at alternatives for , you know , how to how to do that . And we present , you know , the perfect alternative , which is an engine exchange .

Speaker #4: There's no downtime , no shop visit . And they're back in service . And they totally avoid the capital investment in that engine shop visit .

Speaker #4: So it's a perfect product . You know , industry sources of all cited that , you know , airlines in in the maintenance world , there's an increasingly heavy orientation on heavier shop visits .

Speaker #4: You know , the core restorations is the most expensive part . There's more of that . You know , that's going to be needed in the next few years .

Speaker #4: And that plays perfectly into our strengths , because that's what we do in our facilities , as we rebuild those . So so that's the supply side in terms of the investors .

Speaker #4: You know , when when we look at this compared to a traditional approach , what we show the investor is that we solve problems , you know , MRR maintain repair and exchange is a better way of doing engine maintenance .

Speaker #4: And we solve problems and save people money . And so when you solve problems and you save money , that means higher returns for investors and less risk .

Speaker #4: And it's actually a very simple , you know , explanation . People get it immediately . And who in the , you know , in the credit world doesn't want higher returns with lower risk .

Speaker #4: So we're finding , you know , a high , you know , receptivity to that . It's relatively , you know , it's predictable cash flows relatively short duration .

Speaker #4: And it's an asset backed structure that's uncorrelated to public markets . So it really , you know , fits in nicely into today's , you know , investment world .

Speaker #4: And you know , we we have a terrific group of investors , all of whom , you know , will as I say , if we deliver the returns that you know , that that we showed people , then we'll be able to raise a lot more capital .

Speaker #8: And that's super helpful . Color , Joe . And maybe a follow up question , it could be for Angela . When we look at your 19% equity portion of CI , I mean , with the upsized amount , this is a pretty sizable leasing income .

Speaker #8: How do we think about that portion ? Is that going to be reflected in the adjusted EBITDA and the leasing segment will be this will this be reported in the other line ?

Speaker #8: I mean , ultimately , what's the treatment of CI in your financials ?

Speaker #5: Yeah , on that 19% specifically , as you mentioned , yes , it will show up in our equity pick up line . So you'll see that as the equity income line pick up for the 19% that we own from CI leasing returns .

Speaker #5: But in addition to that , as Joe mentioned , as we are the servicer , we'll also pick up servicing revenue , which is currently in other revenue in leasing segment .

Speaker #5: So that will grow with the asset base also growing . And then we'll also see in our aerospace products business , the engine exchanges that are coming through for all the engines that are coming up for exchanges with the CI at the fixed price that we've already committed to .

Speaker #4: We will include that in adjusted EBITDA . That's correct . 19% will be included in adjusted EBITDA in leasing . Yes .

Speaker #8: Great . Super helpful . And look , sorry , there's just so many things going on . So if I could ask a third question here , look , I want to take a step back on the module facility .

Speaker #8: I mean , I think sometimes we kind of gloss over the success you've had the past few years , but ultimately you're targeting 750 modules by year end , and you've already gotten 9% of the market share for Cfm56 and V 2500 .

Speaker #8: I mean , five years ago , you guys were at zero . And so this has been a fairly astronomical growth . And penetration , especially for , you know , what was the financing company to really enter into , you know , the wrench turning MRO business ?

Speaker #8: I wanted to ask you , can you share with us some of the secret sauce and how you were able to execute ? I mean , fairly seamlessly with this kind of volume that we've never really seen others be able to accomplish .

Speaker #4: Well , thank you , but I would say two things that that we did , I would , looking back , that were , you know , important one was focus , which , you know , most people in the tend to get into this diversification mode where every they're trying to do a Noah's Ark of , you know , aircraft or a fleet of or different engine types and , and diversify .

Speaker #4: You know , often to people they equate to less risk . But we we consciously decided that with these engines that this was the best opportunity in , in the industry and that we should do nothing else .

Speaker #4: And so I would attribute a lot a part of that decision to say , let's , let's get out of the other engine types .

Speaker #4: Let's just focus on Cfm56 . And then and then ultimately V2 thousand 500 . So that was big . And and then the second is , is really people , you know , you have to attract , you know , great people .

Speaker #4: And retain them . And we have a terrific team of people across the entire organization . And you know , everybody . It is always ultimately about that .

Speaker #4: And to do that , people have to you have to sell the vision and people have to buy into it . And I think people people have , you know , when you go out to meet with customers , that's kind of the biggest reinforcement is when people on the , you know , buy side are saying , I , you know , I really am not that good at doing shop visits .

Speaker #4: I've had bad experiences . I want to do anything to not have to do a shop visit . So when you show up and you say , I can , I can solve your problem , that that really , you know , invigorates people because they feel like they're doing something .

Speaker #4: You worthwhile .

Speaker #9: Well , great . Thank you very much . I really appreciate the time .

Speaker #4: Thanks .

Speaker #2: Thank you . One moment for our next question . Our next question comes from the line of Josh Sullivan of Jones Trading . Your line is now open .

Speaker #10: Hey . Good morning . Congratulations on the quarter . Just on a follow up on on 15 million in equity for 150 million or 150 modules .

Speaker #10: Fantastic trade . How do we understand the calculus in module capacity potential here ? Just looking at maybe like the USA as an example , what are the gating factors to finding these relatively small investments for such a big yield on module capacity increase ?

Speaker #10: Is there a lot of runway to do these relatively small investments, or do we need a larger investment eventually to drive significant module capacity growth?

Speaker #4: No , I think it's you know , there's a surprising number of what I refer to them as , almost like empty buildings that once upon a time , somebody was in the business and they left their tooling .

Speaker #4: And there's a building and there's a , somebody is trying to figure out what to do with it . And that's where we have a unique ability to walk in and say , well , we can deliver engines immediately .

Speaker #4: And so these opportunities do exist . And as you mentioned , the math on them , because there is no , you know , real vibrant business operating inside of these buildings today , we can acquire them at very low prices .

Speaker #4: And fill them up . And the gating factor is , is the people . It's the mechanics . That's why we've been talking about , you know , the training facility in Montreal is a big initiative because we found we could hire people .

Speaker #4: But you couldn't make them productive as fast as we wanted . And sometimes you have , you know , people don't actually ever become productive .

Speaker #4: So you have to , you know , focus on how do you , you increase your , your yield and , and shorten that time to get people into a mode of , you know , being a contributor .

Speaker #4: So that's where a lot of our energy has gone . I think there are more facilities out there that we can find . There don't seem to be a shortage of that .

Speaker #4: There are people offering us deals all the time now . So it's really going to be trying to find those ones that that are the easiest for us to plug in and have the biggest available pool of mechanics in the near nearby area .

Speaker #10: Got it . And then I guess similarly , just on the JV 75,000 cost saving per visit is the capability more about improving turnaround times for your customers or margin insourcing ?

Speaker #10: Deepti , you know , and I guess we're customers pushing you to add this capability , which might lead to additional new MRR customers .

Speaker #10: Or is it just a good asset to have in source to drive margin?

Speaker #4: There are multiple choice . Question I would choose E .

Speaker #7: Yeah .

Speaker #4: All of the above . I mean it's it's really phenomenal . These the engine is so complicated in some ways and so simple in other ways .

Speaker #4: But these accessories are very complicated . And the know how the people at Bauer have is phenomenal . I mean , they make all the test equipment that everyone uses .

Speaker #4: And so we you know , are partnering with them . And we've already had interactions with our engineers and their engineers . And there's a sharing of , you know , experiences .

Speaker #4: And , you know , we think they'll make us better . And we hope , you know , we can contribute and make them a little better .

Speaker #4: But it's really just widening , you know , expanding the circle , you know , with people that have , you know , specialized knowledge and intellectual property and in areas that are incredibly expensive to , fix , you know , the engine is full of them .

Speaker #4: It's every time you look , there's something else that is also , you know , very high cost . And very specialized knowledge .

Speaker #4: So , so it's , you know , we've we feel like we've found , you know , phenomenal partner . And , you know , the it works the math works well for both of us .

Speaker #4: And you know , we think it's going to continue to just to you know as you said , it makes our margins better .

Speaker #4: It makes our people smarter . It shortens the turnaround time . You know , if you send an as out now to a third party , you're beholden upon that third party to get it back to you .

Speaker #4: So you can keep producing . In this way , we have we have more control over our the whole process .

Speaker #10: Got it . Thank you for the time .

Speaker #4: Thanks .

Speaker #2: Thank you . One moment for our next question . Our next question comes from the line of Giuliano Bologna of Compass Point . Your line is now open .

Speaker #11: Good morning . Congratulations on the continued great execution on all fronts . Here . As the first question , you mentioned several conferences and on some calls that we should think about as being in the spread business .

Speaker #11: Can you expand on that ? And as it relates , and especially as it relates to both weak and strong markets .

Speaker #4: Yes . Yeah . So when you you know , I increasingly we think about our business as being really in two different areas .

Speaker #4: One is the manufacturing business where we buy run out engines , rebuild them and sell them . And the other is the asset management business , which , you know , we raise capital and buy airplanes .

Speaker #4: And and that gets committed volume to FTI aviation . So if you think about the two businesses , the the first business is buying an engine at a price in the market .

Speaker #4: And then rebuilding it . And you're adding basically hours and cycles to that engine , and then you're selling it for whatever people will pay for hours and cycles on a rebuild basis .

Speaker #4: And so that's the spread . It's the buy . And then the build . And we can control the cost of the build .

Speaker #4: And then the sell . And so we're basically like in a manufacturing business I say isn't that what Apple does when they make an iPhone .

Speaker #4: They buy parts from people . They put them together and they sell it . So that's our that's our , you know , core business .

Speaker #4: And in a soft market , you're going to buy cheaper on the runout side . And you'll maybe sell a little bit cheaper .

Speaker #4: But but you know , usually not for long . And so I think of , you know , the market is very strong .

Speaker #4: The price of rebuilt engine is driven primarily by the OEM list prices on those parts . Because that's your that's your alternative . And as long as people are flying aircraft , they're going to need to replace ours .

Speaker #4: And cycles on those engines . And so that's what drives it . If we were to hit a , you know , a period where there's excess availability of engines and that's happened in the past in other engine types , not this one in recent history .

Speaker #4: Well , if you go back to Covid , but what happens is , you know , I would look at that as a 3 to 6 month window to accelerate market share gains for us because it always rebounds .

Speaker #4: So if there's an opportunity to , you know , pick up some inventory at a lower price or , or build our capacity , then when it rebounds , you'll be in a better position at the end of that .

Speaker #4: And we've really done that consistently over our entire careers .

Speaker #11: That's very helpful . I appreciate that it is a next question for Angela . I see the new slide on slide 39 of the supplement that details some , you know , the way that the cash flow statement would change in the reporting would change using industrial accounting versus lease accounting is the right way to think about it .

Speaker #11: That effectively , all of the , you know , gains on sale or economics that were flowing through cash provided by investing activities would effectively move into operating cash flow .

Speaker #11: When you change to industrial accounting because of , you know , a more streamlined , you know , methodology , there .

Speaker #5: Yeah , no , that's right . That's the right way to think about it . So as you mentioned , we did include the proforma cash flow statement on slide 39 of our supplement .

Speaker #5: And what you will see is that for nine months ended 930 , we would essentially be moving about 722 million in cash proceeds from our sale of assets from investing to operating activities and we've outlined the line items that were specifically changed .

Speaker #5: But you've hit on them where it would include the gain of assets and the proceeds from asset sales . And starting in third quarter , we have classified all of our inventory purchases going through operating .

Speaker #5: So you will see a transition of that aligning with our GAAP cash flow statement going forward .

Speaker #11: That is very helpful . I appreciate it . And I think that'll make things a lot simpler and streamline going forward . Thank you very much .

Speaker #11: And I'll jump back in the queue .

Speaker #2: Thank you one moment for our next question . Our next question comes on line of Hilary Kuykendall of Deutsche Bank is now open .

Speaker #6: Thank you .

Speaker #12: Thank you for the time . Could you unpack the guidance for 2026 ? You know , what's the upside driven by new customers up customers , new contract from thin air or the acquisition of HIV and the launch of JV , etc.

Speaker #12: ? I'm assuming it's a combination of all of those . But if there's anything that stands out , if you could just kind of detail .

Speaker #12: Thank you .

Speaker #4: Yes . Well , I think if you break it into two parts . It's volume and margin and so on . The volume side , the MRR product , as we mentioned , continues to grow our production is expected to grow 33% next year .

Speaker #4: And it's a it's a mix of new customers and existing customers . And I would also highlight that there's a bigger volumes coming from existing customers .

Speaker #4: So where we where we have gotten , you know , the foot in the door and we've , you know , enabled people to try the product and say , this is really how it works .

Speaker #4: It works , you know , terrifically . And the experience that then we we are seeing customers come back with larger orders for their engines going forward .

Speaker #4: So that's a great you know , that's exactly what we hoped would happen with those initial orders . So so we're seeing , you know , continued adding , adding new customers .

Speaker #4: We highlighted thin air last last quarter . And we're seeing existing customers , you know , get bigger on the margin side . We've indicated next year we expect to see 40% margins .

Speaker #4: And it's really driven off of the parts acquisitions strategy that we've been implementing . And repairs . And so we've highlighted that PMA is , you know , one of those contributors where we expect imminent , imminently to have approval of the third part .

Speaker #4: And then , you know , we've also had acquisitions of used serviceable material that we've been implementing and and then on the repair side , we've highlighted we have capability in Montreal , which we've been adding , but we also specifically added Pacific Aerodynamic and now Bauer .

Speaker #12: Great . Thank you . That's that's really helpful . And then just on thin air , how should we think about the margin impact or EBITDA contribution from that contract ?

Speaker #12: I mean, are they market rate, or how should we think about that?

Speaker #7: Hey , Hilary , this is David . Yes , they're in line with a large program that we have with customers . So I would say they're largely in line .

Speaker #7: But just to give you a little more flavor on the thin Air program , we're covering their entire fleet . So 36 engines and we're pre-positioning engines ahead of shop visits .

Speaker #7: We effectively provide them a serviceable engine and then take the unserviceable engine back . So provides cost savings for the airline . It lowers maintenance costs and then provides more importantly , flexibility for the airline .

Speaker #7: So we're , you know , as Joe mentioned earlier , we're focused with airlines on winning large programs that cover their entire maintenance .

Speaker #7: And this is an example of one that we won. We expect others to happen soon after.

Speaker #12: Great . Thank you , David and Joe .

Speaker #4: Thanks .

Speaker #2: Thanks . Thank you . One moment for next question . And our next question comes from the line of Brian McKenna of citizens .

Speaker #2: The line is now open .

Speaker #13: Thanks . Good morning everyone . Just one more here on CI . Have you disclosed what FTI will be earning in terms of management and performance fees for managing the CI vehicles ?

Speaker #13: I asked this because leasing assets have declined 30% year to date , and that's really just from one CI vehicle that's not even fully deployed yet .

Speaker #13: So with a couple more vehicles , most are all these assets will likely move into third party asset management vehicles that you're managing .

Speaker #13: Maybe I spend too much time covering alternative asset managers and private credit more broadly , but it would seem like leasing ultimately turns into an asset management business over time .

Speaker #13: And if that's the case , you have two high multiple earnings streams , not one . So any thoughts here would be appreciated .

Speaker #4: Yes , Ryan , we think alike . I mean it's very much what we've been how we've been repositioning the business . I would say that first of all , the fees are market based .

Speaker #4: And so the asset management fee that FTI earns is , is on total assets . So that would be on the $6 million .

Speaker #4: And you know , 1% or higher is typically market for that type of structure . And then the incentive compensation will be low double digits for provided that the returns exceed a hurdle .

Speaker #4: But it's it's meaningful . Those those numbers , you know , as we've we've mentioned , we always try to have an aspiration and we initially said why not manage $20 billion in this in this way .

Speaker #4: And some point . So , you know , we started out we were at three and now we're at six . So , you know , we may it may not be that crazy that we get there .

Speaker #4: And it is a a much better way to own assets in a private , capital structure partnership like this than in a public company .

Speaker #4: So increasingly , as I said , we look at that we have two businesses . One is a factory that makes engines and the other is an asset manager that manages the money that owns the aircraft , that has the engine on it .

Speaker #13: Got it . That's super helpful . And then maybe just a related follow up . So , you know , it's pretty minor , but you know , ownership in the first vehicle CI vehicle came down in 19% from 20% .

Speaker #13: I mean , if demand remains elevated and it feels like it's pretty robust here , just given the upsized commitments , etc. , I mean , is there an opportunity for for your ownership or essentially the GP stake to decline to something lower than that ?

Speaker #13: And then essentially it creates an even more capital light model , like I'm just trying to think through that a little bit more moving forward .

Speaker #4: Yeah , it's possible . I mean , we wanted to make the first I mean , as you can imagine , one of the concerns of investors always have is , are you aligned ?

Speaker #4: Do you do you have the same interest that I have as the manager ? And obviously that equity commitment is , is goes a long way to to answering that question .

Speaker #4: But over time , you know , if you demonstrate a track record and you show people , you know , repeatedly good numbers , everything's sociable .

Speaker #13: Okay , that's helpful . Thanks , Joe .

Speaker #10: Yep .

Speaker #2: Thank you for the next question . And our next question comes from a line of Andre Madrid of Btig . Your line is now open .

Speaker #14: Hi , this is Ned Morgan on for Andre . This morning . I just wanted to ask how should we think about the pace of long term partnerships to materialize in terms of scale ?

Speaker #14: Will future deals be more in line with the major US carrier deal or the Finnair deal ? I guess , and also , if you're able to comment on the margin impact of these partnerships , what that could look like .

Speaker #4: Well , the the pace of investing , as I said , we you know , we started the first partnership really the beginning of this year .

Speaker #4: And we have under Loi or closed about $3.5 billion . And it's , you know , next week's November , I guess . So we're our original thought was we could invest $4 billion in the first year .

Speaker #4: And I expect that that will go up as we get , you know , we have a more of a backlog than we had when we launched the first partnership .

Speaker #4: So I think the pace of investment , you know , I'm pretty optimistic . This is a , you know , $300 billion market that we should be able to deploy that type of , you know , capital regularly in the margins .

Speaker #4: You know , the sky is treated like any other third party customer from a pricing point of view . The only difference is it's contracted .

Speaker #4: So, it is 100% committed. The margins and profitability from the CI business for FTI are very similar to those of other third-party customers.

Speaker #4: And as I indicated , next year , we expect an improvement in margins to 40% . And we are seeing an increase in larger orders from existing customers .

Speaker #4: So that trend , we expect to continue to get more engines from third party customers . Customers per customer as they experience , you know , the benefits of the product .

Speaker #14: Got it . Thank you very much .

Speaker #4: Yep .

Speaker #2: Thank you . One moment for our next question . Our next question comes from line of Brandon Oglenski . Barclays is now open .

Speaker #15: Hey good morning everyone . Thanks for taking the question , Joe . I guess can we come back to the billion dollar cash flow outlook for next year ?

Speaker #15: That's pretty impressive . Just given where this business has been , how much should M&A factor into your outlook for capital deployment ? Looking forward , I think you got asked the question a little bit previously , but do you see like long term needs for build out of incremental capacity here .

Speaker #4: Well , I would turn it around a little bit differently . We expect to continue to expand our capacity , but we're doing so in a way that's not , you know , it doesn't cost a lot of money .

Speaker #4: So if you look at the other the deals we've done in Rome or in Miami , you know , we're adding meaningful amount of capacity .

Speaker #4: But the total investments like 20 or $30 million . So that , you know , I have to apologize that it's not bigger , but it's it's not we're not trying to , you know , invest more capital .

Speaker #4: We're trying to get more capacity at the best price . So we will continue to do that . On the on the M&A .

Speaker #4: You know , repair side , you know , equally , we've the deals we've done are fairly are extremely accretive . And then not a lot of dollars invested to get into the business .

Speaker #4: And when we when we look at a part or a repair activity , we try to evaluate all the different ways we could get into that .

Speaker #4: We look at companies that could be for sale . We look at , you know , building it organically in Montreal or Rome .

Speaker #4: We look at , you know , partnering with other people . And , you know , we've we've done all of the above .

Speaker #4: We just try to find the best way in and , and , you know , the way that has the , you know , the most accretive , effect on our , on our business .

Speaker #4: So , you know , we're we're sort of very flexible . But thus far the opportunities we've found have been extremely attractive from a return perspective and not require a lot of capital .

Speaker #15: Okay , I appreciate that , Joe and Angela , can you walk us through what you think is like the right , sustainable level of maintenance CapEx ?

Speaker #15: Maybe reinvestment in the leasing business as we look forward?

Speaker #5: Yeah . As mentioned as you can see , our maintenance CapEx this year is targeted to about 125 million and going forward , we expect that it will maintain similar levels .

Speaker #5: And the replacement CapEx , we don't expect that to increase as well . As we've mentioned , most of all of our CI work that we'll do with the engines are structured as exchanges where we would give a search engine and get an unserviceable engine back .

Speaker #5: So the replacement CapEx , we don't expect to be extensive going forward either .

Speaker #15: Okay . Thank you .

Speaker #2: Thank you . One moment for our next question . Our next question comes from the line of Ken Herbert of Rbcm . Your line is now open .

Speaker #16: Yeah . Hi . Good morning . Joe . Maybe just can you just provide an update on where you are on the V 2500 program ?

Speaker #16: I know you initially committed to or procured access to , I think 100 full performance restoration shop visits . How's that going ? And where are you on that pipeline ?

Speaker #4: Yeah , we're about halfway through and what are we year two years into it now ? Two years in of a five year deal .

Speaker #4: And we're about halfway in terms of the volume . It's going quite well . I mean , that engine is more expensive engine to do a performance restoration on , you know , as we all know and by design .

Speaker #4: But the demand is incredible because of the , you know , the continuing saga GTF , you know , grounding . So there's been a huge life extension .

Speaker #4: We have a lot of operators that are very eager to avoid the shop visit, and that's exactly what we delivered to them.

Speaker #4: So , you know , we expect that it will continue . And at some point , you know , in the next couple of years , we'll talk about , you know , an extension or other alternatives , but we're going to stay in that engine .

Speaker #16: Okay . That's helpful . And I know the percentage of work that has flown through or the revenues within aerospace products dedicated to the PSI has bounced around .

Speaker #16: And I can appreciate timing as a piece of that . But as you think out a couple of years and psi , you know , subsequent versions continue to to attract capital , how much of the aerospace products segment or revenue do you think eventually is , is STI related , and how do you view sort of a natural cap on that ?

Speaker #4: Well , the way you have a natural cap is to continue to grow third party business because the PSI business will grow . But we're also expanding the third party business at really a very similar clip .

Speaker #4: So I expect it to be roughly 20 to 25% of , you know , FTI aviation business for the foreseeable future . And the answer is , you know , grow both of them .

Speaker #16: Okay . Thank you .

Speaker #4: Yep .

Speaker #2: Thank you . This concludes the question and answer session . I'll now turn it back to Alan Andreini for closing remarks .

Speaker #3: Thank you Marvin , and thank you all for participating in today's conference call . We look forward to updating you after Q4 .