FTAI Aviation - Q4 2025

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Fourth Quarter 2025 FTAI Aviation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you'll 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 one again. Please be advised today's conference is being recorded. I would now like to turn the conference over to your speaker today, Alan Andreini. Please go ahead.

Alan Andreini (Head of Investor Relations)

Thank you, Kevin. I would like to welcome you all to the FTAI Aviation fourth Quarter 2025 Earnings Call. Joining me here today are Joe Adams, our Chief Executive Officer, David Moreno, our President, Stacy Kuperus, our Chief Operating Officer, and Angela Nam, our Chief Financial Officer. We have posted an investor presentation and our press release on our website, which we encourage you to download if you have not already done so. Also, please note that this call is open to the public in a 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 differ materially from actual results. We encourage you to review the disclaimers on our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements, and to review the risk factors contained in our quarterly report filed with the SEC. Now, I would like to turn the call over to Joe.

Joe Adams (CEO)

Thank you, Alan. 2025 was a defining year, and I'd like to start today by highlighting the major achievements we've accomplished over the past 12 months, positioning FTAI for further success and market leadership in the years ahead. We began the year with the launch of the Strategic Capital Initiative, or what we call SCI, raising our first fund focused on acquiring 737 NG and A320ceo aircraft. This allowed FTAI to maintain an asset-light business model, while the fund acquires narrow-body aircraft at scale. The SCI investors benefit from FTAI's engine maintenance capabilities, as well as our decade-plus track record of successfully investing in on-lease narrow-body aircraft. Market demand for the first fund was exceptionally strong, including our own 19% co-investment. In just 10 months, we secured $2 billion in equity commitments, making SCI One the largest fund ever dedicated to narrow-body midlife aircraft.

Together with the support of our leading financing partners, Atlas, an affiliate of Apollo and Deutsche Bank, we will invest $6 billion in total capital in Fund One. Deployment for 2025 has been strong, with 130 aircraft now closed as of December 31. The portfolio has a large concentration of aircraft with engine maintenance needs, which leverages the fund's agreement with FTAI for engine exchanges and further differentiates our offering to investors. I am also pleased to announce that we have started the fundraising process for SCI Two off the back of great success we've had with the first vehicle.

David will share additional details around the 2026 plan, but I can also share that we have an anchor equity commitment for SCI Two, which positions us to start investing out of SCI Two once the first vehicle wraps up its final few investments in the next couple of months. Turning now to results. Aerospace products finished the year with great momentum, generating $195 million of Q4 adjusted EBITDA at a 35% margin, an increase of approximately 66% year-over-year and up 8% from $180 million in Q3 of last year. For the full year, we delivered $671 million of adjusted EBITDA, in line with our upwardly revised target of $650 million to $700 million, and well above our original goal of $600 million to $650 million.

This represents 76% growth over the $380 million generated in 2024 and is over four times the $160 million we reported two years ago, only in 2023. Our growth is driven by the value we provide to the industry by offering readily available fixed-price engines, a flexible and cost-efficient alternative to traditional CFM56 and V2500 shop visits. We save our customers time and money, and our growth reflects the increasing market adoption of our products. The long-term outlook for the aftermarket on these platforms continues to strengthen as airlines increasingly opt to extend the life of their existing fleets rather than retiring aircraft for the newest technology.

Shop visits for the LEAP and GTF engines are not expected to surpass the CFM56 and V2500 until at least the middle of the next decade, supporting a long and durable addressable market for many years for us. We're seeing this inflection point in the market today. Total maintenance spend is now expected to grow at a double-digit rate this year to approximately $25 billion per annum, up from $22 billion per annum projected last year. Retirements remain at historically low levels, and shop visit demand is shifting towards heavier maintenance overhauls that signal longer economic useful life for these engine types. Altogether, these trends reinforce our confidence that FTAI's differentiated MRE, or Maintain, Repair, and Exchange model, and competitive advantages position us to continue to lead the aftermarket.

We remain firmly on track to achieve our interim goal of reaching 25% market share through a combination of new and repeat customers, as well as an increasing volume of engine exchanges from SCI funds each year. Turning to production, we refurbished 228 CFM56 modules this quarter across our three facilities, an increase of 68% compared to Q4 2024, bringing our total for the year to 757 modules. This surpassed our 2025 goal of 750 and was an outstanding collective achievement by our 1,000+ highly skilled and dedicated employees, spread across 13 locations on three continents. 2025 was a defining year for our aerospace business as we continue to widen our competitive moats.

Our multiyear materials agreement with CFM provides us with OEM replacement parts supply, thrust performance upgrades, and component repair, reinforcing our shared priority to extend the life of the CFM56 engines through an open MRO ecosystem. This agreement enhances supply resilience, helps us meet strong demand from our customers, and supports the continued scaling of our core module remanufacturing platform. Before I hand it over to David to talk about our key priorities for 2026, I want to take a moment to congratulate him and Stacy Kuperus, who were appointed President and COO of FTAI earlier this month. A well-deserved promotion for both David and Stacy. They've been exceptional leaders for many years at FTAI, and we're very grateful for their commitment to this business. With that, I will pass it over to David.

David Moreno (President)

Thanks, Joe. I would now like to talk about our priorities for 2026. First, I'll share an outlook for the strategic capital. We are pleased to report that the capital deployment for SCI One is largely complete. As Joe mentioned, we closed 130 aircraft in 2025. As of today, we now have 276 aircraft closed under LOI, representing $5.3 billion of our $6 billion target, and we remain on track to be fully invested by the end of the second quarter. As we complete the deployment of SCI One, we have started the fundraising process for the next fund, and we can share that we have an anchor equity commitment in place for SCI Two.

We expect to start investing SCI Two by June 30th and look forward to continuing to execute on the strategy of combining on these aircraft, investing in engine maintenance to generate outsized return with greater downside protection. Our ambition is to become the world's largest manager of mid-life narrow-body aircraft, and we believe we're well positioned to achieve this goal over the next few years. Shifting to our aerospace products production outlook, we are revising our 2026 target upward from 1,000 to 1,050 modules, representing a 39% growth compared to 2025. We continue to strengthen the foundation of each shop in our maintenance network, which will support the next phase of growth. In Montreal, throughput continues to improve as our training academy scales, and the benefit of specialization and workflow optimization are now visible in daily output.

We began integrating Palantir's artificial intelligence platform, providing our team's AI-driven insights and actions to further reduce downtime, optimize our supply chain hub, and act as a significant accelerator to productivity. In Rome, since our joint venture began in Q2 of last year, we have almost doubled the employee base from 101 to 185 today, rapidly building the workforce needed to take on greater repair volumes at high levels of productivity. The integration of Rome into the broader MRE network is in its advanced stages, and coordinated training in Montreal's training academy has accelerated the development of Rome's team's technical capabilities. At the same time, our investment in infrastructure and component repair capacity will support our goal to double production in 2026.

In Miami, our integration of last quarter's ATOP acquisition is progressing well and positions Miami to be a major hub for MRE production. The proximity to our existing facility and test cell drives significant synergies. The ATOP's Portugal facility is also being incorporated into our logistics network and is already making a meaningful contribution to our field service operations in Europe. We've also made significant progress with our two-component repair investment, Pacific and Prime Engine Accessories, both of which position us for meaningful CFM56 repair cost savings this year. At Pacific, we relocated the business into a new 75,000 sq ft facility to support the compressor blade repair volumes required by our own MRE network.

At Prime, we've invested heavily in tooling and equipment and are ramping up hiring so the Connecticut facility can become FTAI's global hub for engine accessory repairs. With substantial progress across our facilities and the combined build-out of our broader MRE ecosystem, we are well positioned to achieve further production growth in 2026 and beyond. Strengthening this foundation has been a major focus for us and sets the stage for the next phase of FTAI's evolution. At the end of last year, we announced the launch of FTAI Power, our new platform dedicated to converting CFM56 engines into aeroderivative power turbines. This business has been in development for over a year and is built on the simple belief that the CFM56 engine, already the most proven and widely deployed engine in commercial aviation history, will play a critical role in the meeting the world's accelerating need for electricity.

The surge in demand for AI data center has created an unprecedented and long-term need for fast, flexible, and scaled power solutions. Traditional infrastructure was never designed for the scale and speed of demand we're now seeing. With FTAI Power, we're adapting the world's largest and most reliable engine platform to deliver a 25 MW unit that offers grid operators greater flexibility and faster deployment. It's the exact same value proposition that has driven our success and scale in aerospace. Before moving on from power, we'd like to provide an update on our progress across five areas. Number one, engine feedstock and working capital. Number two, facility readiness. Number three, our procurement strategy. Number four, customer engagement. Number five, production timing. First, feedstock and working capital.

As we scale the power platform, we are targeting approximately $250 million of working capital to support turbine feedstock and a rotable pool of key components, including generator, gearboxes, and control systems. In the fourth quarter of 2025, we increased inventory by approximately $150 million to secure additional turbines required to support our expected 2026 production ramp. We are intentionally building inventory ahead of demand to ensure execution certainty as commercialization advances. Second, facility readiness. We have begun retrofitting our Montreal facility to establish a dedicated production line for the power business. As a reminder, our aerospace and power businesses must remain fully separate. Components that transition from aerospace into power applications will not return to aerospace service. Maintaining the separation is critical, both from a regulatory and asset integrity standpoint.

Although the additional space is not required for 2027, we are planning to well ahead for future expansions in Montreal, Miami, and Rome to support the growth of the business. From a labor perspective, the core technical skill set required for the CFM56 platform directly translates to our power application, providing a strong operational foundation. In anticipation of growth across both aerospace and power, we scaled our Montreal workforce from approximately 360 employees at the beginning of 2025 to 570 today, representing an increase of roughly 60%. In parallel, since opening our training academy in June, we have enrolled 220 trainees in total and are graduating over 50 per quarter, further strengthening our pipeline of skilled technicians to support sustained production growth. Third, we continue to refine our supply chain strategy for non-engine components and partners.

Our approach will be a combination of a multi-vendor sourcing of key components, collaboration with third-party vendors with proven track records, and the build-out of in-house capabilities that will allow us to control production from turbine to final assembly. Given the scale we aim to deliver in the market, this multi-pronged approach will give us the flexibility and the predictability to fulfill our commitments to customers. Fourth, customers. We continue active discussions with hyperscalers and data center operators. While we're not providing specific commercial details at this stage, engagement remains strong and focused on long-term deployment structures. As a reminder, the aeroderivative platform is a highly versatile asset, capable of supporting baseload, backup, and peaking applications.

We are currently seeing particular interest in baseload deployments, which aligns with our objective of establishing a durable foundation for long-term growth and which is consistent with our current theme in the market of bring your own power. Fifth, timing. We expect the first production units of Mod-1 to be delivered in the fourth quarter of this year. Our confidence continues to increase as we progress through final execution milestones. We continue to target 100 units of production in 2027. We are excited about the opportunity ahead and confident this platform will become a very significant contributor to FTAI's long-term growth. I'll now hand it over to Angela to talk through 2025 numbers in more detail.

Angela Nam (CFO)

Thanks, David. The key metric for us is adjusted EBITDA. We ended the year strongly with adjusted EBITDA of $277.2 million in Q4 2025, which was up 10% compared to $252 million in Q4 of 2024. The $277.2 million EBITDA number was comprised of $195 million from our aerospace products segment, $113.2 million from our leasing segment, and negative $31 million from corporate and other, including intra-segment elimination and startup expenses associated with our power initiative. As expected, aerospace EBITDA continues to exceed and outgrow aviation leasing EBITDA. Let's look at all of 2025 versus all of 2024. Adjusted EBITDA was $1.2 billion in 2025, up 38% versus $862 million in 2024.

Aerospace products had yet another great quarter, with $195 million of EBITDA at an overall margin of 35%, which is up 8% compared to $180.4 million in Q3 2025, and up 66% compared to $117.3 million in Q4 2024. Overall, we generated $671 million of adjusted EBITDA for 2025 in aerospace products, in alignment with the revised higher estimates for the year of $650 million to $700 million. Turning now to leasing. Leasing continues to deliver strong results, posting approximately $113 million of adjusted EBITDA in Q4. This included $20 million from the SCI through management fees and co-investment returns, and $93 million from leasing assets on our balance sheet.

We expect the mix of leasing EBITDA to continue shifting towards the SCI as we launch new SPV partnerships each year on a programmatic basis and pivot away from balance sheet aircraft leasing. For the full year, Aviation Leasing generated $609 million of leasing EBITDA in 2025, just above our target for the year of $600 million, including $54 million from Russian insurance claim recoveries. We also ended the year at 2.6× leverage on the low end of our targeted range of 2.5-3× agreed upon with our rating agencies. In addition, we are pleased to see recognition of our improved credit last quarter, with two notch upgrades from both S&P and Fitch.

With these actions, we've now achieved our objective of maintaining a strong BB rating across all three agencies, reflecting the continued strengthening of our balance sheet and the durability of our business model. Lastly, in 2025, we generated $724 million of adjusted free cash flow, compared to our original guidance of $650 million, and revised guidance mid-year of $750 million. This figure is further adjusted for three key investments we made in the fourth quarter to support our 2026 growth initiatives.

First, Strategic Capital, where larger fund size and faster deployment pace increased our co-investment by $52 million. Second, FTAI Power, where, as David mentioned, we proactively invested $150 million in additional turbines to support the 2026 production ramp. Third, we invested an additional $50 million in hot section parts, a critical input for our engine maintenance business in a market where parts access is very tight. With that, I'll hand it back over to Joe for final remarks.

Joe Adams (CEO)

Thanks, Angela Nam. As we close out 2025, I want to reiterate how proud we are of what the FTAI team has accomplished. This was a year defined by execution, scale, and strategic progress across every part of our business. We launched the SCI platform and completed the fundraise for the inaugural vehicle, launched the fundraising for SCI Two, expanded our global MRE footprint, and laid the foundation for FTAI Power, all of which strengthens our competitive position and supports durable long-term growth. Our aerospace products segment continues to demonstrate the power of our MRE model, delivering exceptional year-over-year growth and establishing a clear leadership position in the CFM56 and V2500 aftermarket. Our aviation leasing business is evolving into a high-quality, fee-driven asset management platform with recurring earnings and expanding co-investment opportunities.

Following a very strong start to 2026, we're even more confident in achieving the guidance we outlined last October. We're updating our outlook to increase total EBITDA by $100 million, split half attributable to an increase in aerospace products and half from leasing, coming primarily from insurance settlements tied to Russian asset recoveries. As a result, we now expect total business segment guidance of $1.625 billion, up from $1.525 billion. This includes $1.05 billion from aerospace products, up from $1 billion, and $575 million from aviation leasing, up from $525 million. 2026 is going to be a year of continued growth and new business launches at FTAI.

Our new initiatives are bigger and growing faster than we originally projected. We will be making larger investments in growth to maximize value and speed to market. While we remain confident in our original target to generate $1 billion of free cash flow, after incorporating several positive developments and incremental growth investments, we now expect 2026 free cash flow of approximately $915 million. This reflects $100 million of additional EBITDA, less $85 million of increased SCI investments tied to the launch of SCI Two, and $100 million of additional power working capital to support the 100-unit production pipeline for 2027. As a growth business, it's our priority to pursue high-return opportunities, and we are confident that these investments across SCI, Power, and Aerospace will drive meaningful value into 2027 and beyond.

As a result, redistribution of capital remains a strong consideration, and therefore, for the second consecutive quarter, we're increasing our dividend from $0.35 to $0.40 per share per quarter. The dividend will be paid on 23 March to shareholders of record of 13th March, which marks our 43rd dividend as a public company and our 58th consecutive dividend since inception. Overall, we enter 2026 with strong demand, a robust production pipeline, and a clear strategy to scale both our engine maintenance and asset management platforms.

The investments we've made in our facilities, our people, and our broader e-ecosystem position us to meet rising customer needs and capture the significant opportunities ahead across aviation leasing, the aftermarket, and now the rapidly growing power requirements driven by AI. I want to thank our employees around the world for their dedication and hard work, our partners for their continued support, and our shareholders for their confidence in our long-term vision. We're excited for the year ahead and look forward to updating you on our progress. With that, I will give it back to Alan.

Alan Andreini (Head of Investor Relations)

Thank you, Joe. Kevin, you may now open the call to Q&A.

Operator (participant)

Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star one one on your telephone. If your question has been answered, or you wish to remove yourself from the queue, please press star one one again. We will pause for a moment while we compile our Q&A roster.

Our first question comes from Sheila Kahyaoglu with Jefferies. Your line is open.

Sheila Kahyaoglu (Managing Director)

Hi, good morning, guys, thank you. I have two questions, please. The first one would be on AP margins. When we look at aerospace products margins, they've been nice and steady at the mid-thirties level throughout most of this year, you've talked about reaching 40% potentially in 2026. Can you talk about how the access to the PMA blades and now CFM, the materials deal, supports the margin profile and mix going forward, along with some of the other initiatives you've been taking to support margin upside?

Joe Adams (CEO)

Sure. Thanks, Sheila. When we talked about growing our margins from 35% to 40%, we mentioned three parts to that. First was the PMA HPT blade, which has been approved. Second was additional, you know, lower-cost parts supplies, which we've now achieved through both buying additional used service from material, but importantly, with the deal that we did with CFM, which included parts and repairs. Third was continuing to grow our piece part repair capability, which we, as David mentioned, we've advanced significantly with Pacific Aerodynamic in California and the Bauer joint venture in Connecticut. We've also added a lot of piece part repair capability in Montreal, and we continue to add a lot of repair capability.

It's been a priority of ours for the last, as we mentioned, for the last three years, and it's critical to sort of maintaining a low-cost position and developing competitive advantages in the overhaul of those engines. Great progress on all those. Everything we wanted to have in place to achieve that 40%, you know, margin is in place, and we are very confident that we have the capability to do that, to grow that in 2026 to 40%. I will say, on the further positive development side, there are a number of the large airlines in the world, or largest airlines in the world, that are increasingly in the mix for our MRE products.

I'd say more so than ever before, and over the last six to 12 months, we've increasingly been engaged on bigger deals. If we have the opportunity to accelerate market adoption and pick up some of the bigger programs, we will prioritize that over adding incremental margin to the business. If we can get more EBITDA from a broader base of customers faster, that we believe is more valuable than simply increasing percentage points of margin. That, that's sort of the way I would give the state of affairs today.

Sheila Kahyaoglu (Managing Director)

Perfect. If I could ask another one on FTAI Power. You know, it sounds like through the commentary from David and the slides, that you guys feel comfortable you have the right inventory to support the launch of the power business here. Can you maybe talk about steps from now through 2027 in terms of how you expect to achieve 100 units next year from a labor and equipment perspective? Secondly, how you're thinking about ultimately your ability to service these turbines once they're in the field.

David Moreno (President)

Sheila, this is David. I can take that. Just as far as the ramp-up first, right? We've been working on the power initiative for over a year. As we mentioned earlier, we've been leveraging the same infrastructure that we have, which includes our Montreal facility, which, as we mentioned, we've been hiring at a rapid pace. We feel very good about production for 2027, and in general, going from zero to 100, as far as production units for power, is gonna go a lot faster than when we started aerospace going zero to 100. That's for the same reason, that we're leveraging the infrastructure that we have, as well as the feedstock of engines. We see that as very complementary to our aerospace business.

The second piece, as far as maintenance and the opportunity there, we actually think this is a very important piece of our business model, not only from a revenue standpoint, but from a value prop to our customers. We're not going to provide exact numbers on the revenue opportunity, but just to give you just a general flavor, the engine, the turbine itself is going to have a similar life cycle as it does for aerospace, which means every five to six years, it's going to require maintenance.

As the business scales, the aftermarket servicing of that is going to be a significant opportunity for us. From a customer standpoint, as you know, our ethos as a company is all around zero downtime for our customers. We're gonna leverage the same exact exchange model that we've had a lot of success with, which is the turbine and module exchange model, to offer that as a big differentiator in the market. It's gonna set us apart from a lot of competitors.

Sheila Kahyaoglu (Managing Director)

Great. Thank you so much.

Operator (participant)

One moment for our next question. Our next question comes from Kristine Liwag with Morgan Stanley. Your line is open.

Kristine Liwag (Head of Aerospace and Defense Equity Research)

Hey, good morning, everyone. I guess, like, one, you know, with the assets that you need to acquire for SCI One, and, Joe, you know, you've launched, like, SCI Two, that would be my follow-up question. Let me finish this one first. You've got the assets you've got acquired for SCI One, the higher 2026 module target from 1,000 to now, 1,050, that, you know, David called out. You've got the donor cores for the 100, power conversions for next year. Can you talk about the sourcing environment? Where are you getting, this from, and how has been the pricing in that environment, and are you able to source all this volume?

Joe Adams (CEO)

You know, and the follow-up to that would be, you've got also the launch of SCI Two. I mean, how large could be SCI Two? Joe, you had previously mentioned that normally the second fund is larger than the first fund, and your first fund is, $6 billion. Just wanting to understand, how you could support all this growth. Sure. Thanks for the question. I mean, just going back, as we've mentioned, the investment opportunity in current generation narrow bodies is, you know, probably $30+ billion a year of total investment. Our goal was to, you know, achieve, you know, $6 billion a year, and which is a meaningful part of that, but not, you know, a disproportionate amount of those assets.

We've been successful at being able to do that, largely by focusing on assets that have a high level of engine shop visit intensity, which, as you can expect, is that's where our natural advantage is, because we have inventory, and we can manufacture engines, whereas other financial buyers, typically do not. We've focused on that part of the market. In a macro sense, a lot of lessors and a lot of airlines, you know, took the advantage to keep assets longer, you know, coming out of COVID, because lease rates were going up, and asset prices were going up, and every airline, you know, needed that lift. It was a great environment to hold on, but people have reached, you know, sort of limits, where now they're getting new deliveries.

Average age of the portfolio is pushed, you know, out limits with debt investors. We're seeing more and more volume, you know, coming to market, and we're a great counterparty for everyone, for lessors and for airlines, because we can solve engine problems, which is usually the biggest problem in the space. As you mentioned, the $6 billion, we estimate, will end up with about 350 aircraft in that first fund. That's 700 engines that will be fully committed to FTAI Aviation under the MRA contracts. By the middle of this year, we'll start investing out of SCI 2.

I believe that we'll probably launch the, you know, the size of SCI 2 around the same size of $6 billion, which, as you remember, was double what we originally launched SCI 1 at, was $3 billion, then we raised to $4 billion and ultimately did $6 billion. We'll probably launch SCI 2 at $6 billion. Our goal as a business, as we stated, you know, before, was to grow the asset management business to a $20 billion business, which, you know, this puts us, you know, in a very nice position to be able to say we're on track to achieving those goals and making it a significant, a significant, you know, player in that industry and the largest in the world for current generation narrow bodies. It's been a great.

I mean, when we launched it, people were a little bit, you know, taken aback by the size, but we've been able to go do very good deals, get great returns, generate solutions for airlines. Airlines, in many cases now, recommend to their other lessors that they sell to FTAI because they like the fact that they don't have to do engine shop visits anymore. It's really, you know, a nice flywheel that's in motion now.

Kristine Liwag (Head of Aerospace and Defense Equity Research)

Great. It sounds like, you know, you're able to source all of the volume to feed these businesses, right, Joe?

Joe Adams (CEO)

Yeah, if you think about, I mean, the power business, you know, one of the markets, if you take the total engine universe size, is about 20,000 CFM56 engines in the world, the estimated, you know, retirement rate from the market is generally between around 2%-3% per year. If you take 2%, that's 400 engines a year get parted out every year. For the power business, if you just go buy 100 of those and say, "Don't part them out," you know, they're worth more to us than they're worth in the secondary market for part value

You could get 25% of the, you know, of the part-out market and satisfy your needs for the power business every year. It's such a huge market 2% a year doesn't really estimate. I mean, if 2% a year, you know, existed in perpetuity, it would take you 50 years to use up the CFM56 market, so it's gonna get bigger. I just use that as an example, and we have not been an active buyer of engines that were part-out candidates previously, but we will be now.

Kristine Liwag (Head of Aerospace and Defense Equity Research)

Super helpful. Following up on the FTAI Mod-1 that you expect to have ready for the Q4 this year, can you talk about the technical specs of this derivative so far as you do that conversion? How has been the efficiency of this as a gas turbine? How does it compare with other things in the market? Also, you know, look, to get to the 100 next year, do you have these orders lined up? How firm are your discussions with customers, and what would be the distribution of your customer set for next year? How firm are those?

Joe Adams (CEO)

I'll start and then pass it to David. From a spec point of view, we estimate that the efficiency of the aeroderivative will be comparable to other aeroderivatives in the market. We are estimating a 25 MW output, so it puts us in a nice size range with a 35%-40% efficiency and then, you know, 9,000 heat rate. Very similar to, you know, other aeroderivative options, you know, in the market today, you know, which have been sold for, you know, 30 to 40 years. You know, it's not a, it's not a new product.

We think we're competitive with that. We think ultimately, the reliability and durability of the CFM56 will prove to be a competitive advantage from an overall total out cost basis, in that we think that the servicing cost and the maintenance costs will ultimately be lower. But it'll take some time, you know, for us to prove that out. That's sort of the first part of the question. Do you want to take the second?

David Moreno (President)

Yeah. As far as interest, as I mentioned, we're seeing interest, significant interest on baseload application. What's really resonated as far as the Mod-1 with customers, really three things, right? Number one is scale and reliability. The scale of engine feedstock, as well as the reliability of the CFM56. It's the engine that's flown the most amount of hours. It's the most reliable engine ever produced. The second point is speed to power, right? Everyone wants power now, not only just being able to deliver the units, but also actually putting them on site. Being a trailer mount unit and being deployable very fast, in about two weeks, is really a key advantage for our product. Number three is ultimately flexibility.

We talk about flexibility across the entire business, this unit is no different. It's 25 MW, which is a perfect size for stacking, for data centers that are growing. We talked about the maintenance piece, which is, you know, we're going to offer flexible maintenance, which is going to be a key differentiator for the product. Overall, there's a lot of interest for long-term use. As we mentioned, we're trying to set ourselves up for what's best long term. We're going to be updating, you know, the market as kind of we progress through that when appropriate for us.

Kristine Liwag (Head of Aerospace and Defense Equity Research)

Great. Thank you very much, guys.

David Moreno (President)

Thanks.

Operator (participant)

One moment. One moment for our next question. Our next question comes from Giuliano Bologna with Compass Point. Your line is open.

Giuliano Bologna (Managing Director)

Well, good morning, congrats on, you know, another great print. As a first question, when you look at module production, you know, the production this year was, you know, greater than what was originally targeted. You know, I'm curious what are the things that are driving that production and how that's, you know, being impacted?

Stacy Kuperus (COO)

Sure. Thanks. Hi, this is Stacy, and thanks for the question. I'm very proud of the work our team did in 2025 on module production. As a reminder, and as Joe said, in 2024, we had a total or in Q4 of 2025, we had a total production of 228 modules, which is approximately a 68% increase from Q4, 2024. And this was a tremendous accomplishment by the teams and the result of disciplined execution with clear focus on three things for us, which is our people, our parts, and process. First on the people. Our Montreal Training Academy launched in 2025, and as David mentioned, has enrolled over 220 trainees.

We've developed our own in-house training program, which includes augmented reality technology and has improved graduation rates and shortened training times. Second, on parts. We've made targeted investments in 2025 to expand our repair capabilities through Pacific Aerodynamic and Prime Engine Accessories. We've also upgraded significant piece part repair capabilities inside our facilities in Montreal and Rome. Combined with our strategic agreement with the OEM, these steps establish a strong foundation for our parts strategy that position us for success in 2026.

Lastly, on the process, supported by our partnership with Palantir, we've been optimizing our operations across all locations, which includes from asset management to supply chain. Leveraging AI-driven insights has allowed us to unlock additional efficiencies. Building on that digital foundation, we've also strengthened collaboration across the shops, sharing best practices and creating synergies through our MRE network. I think looking ahead for 2026, our goal is to increase production by approximately 39%, and we feel very confident in that based on all of these things, and this gives us a confidence in our ability to continue to scale.

Giuliano Bologna (Managing Director)

That's very helpful. Maybe as, you know, a slightly different, slightly different topic, hopefully, this hasn't come up yet, but yeah, sometimes towards the end of the year, you know, some sales can flip around from quarter to quarter, especially around year-end. I'm curious if that could have had any impact on the fourth quarter results this year, specifically?

Joe Adams (CEO)

Yes, it did. I mean, the aerospace products, EBITDA, came in a little bit less than what we thought it would be a few months ago. It was primarily two reasons, one of which was we've added over 100 employees to the business. There is a slight lag, I would say, not a major lag, between costs and productivity, so there's some impact from that. Secondly, as you point out, there are some customers who preferred to take delivery in Q1 as opposed to Q4, so we did have a few engines that slid from 2025 into 2026. Being a very customer-focused organization, we accommodated those needs. Everybody has budgets. Yes, there's a little bit of that, but I think it was a combination of the two reasons, for the, for the difference.

Giuliano Bologna (Managing Director)

That's extremely helpful. I appreciate the answers. I will turn it back in the queue.

Joe Adams (CEO)

Thanks.

Operator (participant)

One moment for our next question. Our next question comes from Josh Sullivan with JonesTrading. Your line is open.

Josh Sullivan (Managing Director and Equity Research)

Hey, good morning.

Joe Adams (CEO)

Morning.

Josh Sullivan (Managing Director and Equity Research)

Just, on cash flow, you know, given the investments here in Q4, how do we think of 2026 and the cadence of investments through 2026? Just the puts and takes.

Joe Adams (CEO)

Yeah, I'll start. I think it's a great opportunity in 2026, in that we have more cash flow available and more growth opportunities available. We're very excited about it. I'll pass it over to Angela to give you the details.

Angela Nam (CFO)

Yeah, happy to. For 2026, we do expect to generate $1.2 billion in free cash flow before any new growth initiatives. As mentioned by Joe, with the revised adjusted EBITDA guidance for 2026, we expect an additional $100 million, $50 million more from cash flow and aerospace products with the additional production, and another $50 million in leasing from settlement of Russian claims. What you also saw in our 2025 free cash flow walk was that we called capital on our SCI One earlier by $52 million, that improves our cash flow in 2026.

That overall is an increase of $152 million to the 2026 free cash flow, getting us to $1.2 billion before the growth initiatives. As mentioned by Joe, we do expect acceleration of our SCI Two investment, increase of about $137 million in 2026, as we will call capital earlier for deployment. Secondly, for the remainder of our $250 million that we expect for power, $100 million related to that. That brings us to the $915 that we shared with the group.

Josh Sullivan (Managing Director and Equity Research)

Got it. Then just one on the continued struggles of the OEM supply chain, Airbus adjusting deliveries here. Can you just comment on any impact on the leasing environment, you know, aircraft, engine, or leasing duration? Any comments you can make just on the general environment?

Joe Adams (CEO)

Well, I mean, we continue to be in love with the CFM56 and the V2500, and it just keeps getting better and better. We didn't expect, you know, as much of a tailwind, but the current assets, the, you know, the existing fleet is so durable, predictable, reliable, and importantly, it just makes money for the operators. That's what drives, you know, retirements. It's not technological, it's economic. The, the lower the cost we can do, you know, drive on the engine maintenance and the better. The other, you know, newer assets, you know, seem to be going the opposite direction, it just gets better and better for us in terms of longevity.

Josh Sullivan (Managing Director and Equity Research)

Great. Thank you for the time.

Joe Adams (CEO)

Yep.

Operator (participant)

One moment for our next question. Our next question comes from Myles Walton with Wolfe Research. Your line is open.

Myles Walton (Managing Director)

Thanks. Good morning. On the power initiative, excuse me, is it fair to expect a relatively steep delivery ramp through 27 to get to the 100 deliveries in 27? What does that mean for the exit rate of production or deliveries into 2028?

Joe Adams (CEO)

Well, I would say we haven't really mapped all that out yet. We've got, you know, 10 months before January of 2027 to gear up and set what we would expect to be a monthly production rate. So we've got ample time. We've got, you know, all the material that we need, you know, to go into the end products that it's required from third parties. We've already got multiple counterparties identified. We've got purchase orders that have already been executed, so we're planning ahead.

I wouldn't say it's going to be a very steep, you know, our goal would be to make it not terribly steep in terms of the ramp up. Given that we have, you know, you know, ample time to do that, you know, I think it'll just make for a more efficient production. The other thing is we may do multiple locations. We may not just do one location in terms of assembly, so we can have different sort of a diversification of supply and geography that will help also smooth that out.

Myles Walton (Managing Director)

Got it. Joe, it sounds like you're not seeing really much of a cannibalistic effect of this power initiative. You sort of talked to the 25% share on the growing MRO business, which gets you to $6 billion of revenue there at 40% margins, and then this power business looks like it's another, you know, $2 billion-$3 billion of revenue. You're talking about building a $8 billion-$9 billion business at 40% margins in aerospace products. Is that sort of where you're leading us to?

Joe Adams (CEO)

Sounds good to me. No, I think, I mean, we don't see it as being at all cannibalistic. I think it's complementary, and that the natural extension of the life after, you know, an aerospace life of, you know, 30 years is a ground-based operation. It's a perfect life extender for the CFM56 and V2500, as other aeroderivatives have proved out before this. And the supply of both, you know, raw material, if it's, if it's just not parting out an engine instead of parting it out, that doesn't take away from the existing supply of aerospace engines. The, the labor force is different, the third-party vendors are different, so it really is an add-on as opposed to detracting in any way from what our current aerospace business is.

Myles Walton (Managing Director)

Okay. All right. Thank you.

Joe Adams (CEO)

Thanks.

Operator (participant)

One moment for our next question. Our next question comes from David Eslami with Barclays. Your line is open.

David Eslami (Managing Director)

Hey, thanks for taking my question. I guess following up on that, could you give any more color on your expectations for margins in the power business? Specifically, you know, why you think your part of the value chain here in this delivery is going to earn you know, the type of margins you've previously talked about?

Joe Adams (CEO)

What we said on margins to date is that we expect the margins to be as good or better than margins in our aerospace products business today. One of the main reasons why we're very confident of that is that, you know, we have assets that are nearly fully depreciated, that we can repurpose into a whole another life and add, you know, potentially 10 to 20 years of life onto assets that we previously otherwise might have been scrap. We have a cost of input on the turbine that no one can match, and a supply of that that no one can match. That, and we also have built up repair capabilities, sourcing of, you know, used serviceable material parts, PMA, everything available, known to mankind.

We have already been working on that for the, you know, the past seven years. There's nobody that could come close to us in terms of the input cost of a turbine, and that is the most expensive and complicated and constrained part of the power business today. If you talk to anybody, they'll tell you what the biggest constraint on the power side right now is getting turbine blades, HPT blades in particular. We've solved that by taking an existing asset that is at or near the end of its life and then creating a whole new life for it.

David Eslami (Managing Director)

Thanks. Then could you talk about the strategic M&A strategy and how that plays into the power business? Specifically, you know, do you need to execute on that strategy to get to your margin target, or is that kind of standalone?

Joe Adams (CEO)

No, it's, I mean, it's standalone. We've built FTAI solely, really, almost exclusively with organic growth to date, and that's always our base case. If we find ways to accelerate it, that are available, that are at reasonable costs, we will always, you know, look at that or opt, you know, take advantage of those opportunities. We always start with a base plan that we can execute on our own, and then if we can figure out a way that, you know, that makes it better, is something that we can do faster or cheaper, we will look at that. That's our plan, is, you know, basically organic and do it ourselves. If we have an opportunity, you know, as we've done with adding some maintenance facilities or repair businesses in the aerospace side, we will look at that as well.

David Eslami (Managing Director)

Thanks, Joe.

Operator (participant)

One moment for our next question. Our next question comes from Sathish Sivakumar with Deutsche Bank. Your line is open.

Sathish Sivakumar (Managing Director)

Well, hi, good morning. We were very pleased to see, you know, GE Aerospace and CFM's endorsement of the FTAI business model. Maybe Joe or David, and David, congratulations on your promotion. Can you provide us more color on the partnership there?

Joe Adams (CEO)

Sure. It's something we think, was very positive, works well for both parties. The agreement itself is a multiyear deal that covers three things: supply of parts, piece part repairs and component repairs and thrust. From an FTAI point of view, it allows us to have, more access to more parts and volume at good pricing, which means we can scale and grow our business while continuing to drive down costs. From the CFM perspective, what they've expressed to us is, you know, their value proposition to their customer is based on an open aftermarket.

An open aftermarket ultimately delivers the best product, the lowest cost, the lowest total cost of ownership, and the longest life for that asset, which means if we working together, what we can do is create bespoke solutions for customers, as we've done with SCI and then we've done with many airlines, and we can optimize green time and ultimately save customers time and money, which means the asset flies longer, which means you sell more parts. Everyone wins. At the same time, you know, we can provide PMA for customers who like those products. We have, you know, a great portfolio of, solutions for the whole market.

Sathish Sivakumar (Managing Director)

That's great. Joe, as a follow-up, did you mention that you're gonna do 350 aircraft in SCI One? I think that original target was going to be 375. Is that going to be the same size for, you know, SCI Two, you're looking at 350?

Joe Adams (CEO)

It should be about similar. I think the 350, sometimes if you buy slightly younger vintaged aircraft, you pay a higher price per aircraft, just because you have more life on it. It's gonna swing around. It could vary, you know, by the types of deals we end up doing, but 350 is a good number for both.

Sathish Sivakumar (Managing Director)

Thank you.

Operator (participant)

One moment for our next question. Our next question comes from Brian McKenna with Citizens. Your line is open.

Brian McKenna (Managing Director)

Okay, great. Thanks. Good morning, everyone. You're still clearly in growth mode here, and you're leaning into a number of opportunities. This does come with some upfront costs and investment, including hiring. When you look across the business today, specifically some of the newer initiatives, where are you incrementally adding headcount? How should we think about the pace of hiring into 2026? Is there a way to think about the related impact to cash comp as well as stock-based comp?

David Moreno (President)

Yeah. This is David. As we mentioned in our prepared remarks, as well as comments from Stacy, we've been actively growing the workforce, so we're going to continue to do that. In general, in the market, there's a constraint of talent for technicians out there. We want to make sure that we're always controlling that, and we're able to get ahead of that. Obviously, what was very key to that initiative was the Cranium Academy, which allows us to take talent and incubate that within our organization.

We're going to continue to do that in 2026, right? Obviously, we're expecting to get to our 25% target on the aerospace as well as add power. I would expect similar ramp-up as far as employee headcount as the shop, as well as we're also looking at other opportunities for shops, let's say, east of Rome, right? We talked about in the past, opportunities in the Middle East as well as in Southeast Asia. Those are opportunities to grow headcount, and I don't see us stopping that anytime soon.

Brian McKenna (Managing Director)

Okay, that's helpful. Thanks, David. On SCI Two, you know, clearly, a ton of focus on private credit in the market today. Really, the focus has been entirely on corporate direct lending in areas like software. I would actually argue all this volatility is probably a good thing for capital flows into areas like asset-based finance, and there's been increasing demand for hard assets that are more insulated from AI. This is exactly the kind of exposure that sits within SCI, so I'd love to get your thoughts here, what you're seeing from a demand perspective for SCI Two, and then has sentiment or conversations shifted at all as fundraising starts to pick up here for the successor fund?

Joe Adams (CEO)

Yes, we're seeing that. I think that, you know, if investors are looking for asset-based, uncorrelated, contracted cash flow, you know, you came to the right place, right? We have that. We are in a great position, I think, on a sort of absolute basis and a relative basis in the market. All of our capital is, you know, locked up. It's private equity-style funds, so we feel like we're, you know, we have a terrific product.

I was reading, you know, recently about what they call the HALO trade, which is heavy assets, low obsolescence, and that's the new theme, and we have, we certainly qualify for both of those. We are, we feel very good about, you know, the market and where the private credit opportunities that we can offer people, how they compete with other things in the market. I don't think that I mean, I should never say something won't be hard, but it feels like we're in a really good position having fully invested fund one and launching fund two into this market.

Brian McKenna (Managing Director)

Great, that's helpful. Appreciate it, guys.

Operator (participant)

One moment for our next question. Our last question comes from Andres Maller with BTIG. Your line is open.

Andrew Maller (Managing Director)

Yep, good morning. I know for competitive reasons you've decided not to share an anchor customer, and I know somebody kind of pointed to this earlier, but I don't know if it was answered clearly, so I just wanna, you know, hit it head on. Is there just 1 customer lined up, or are there several lined up? I mean, can you provide any color on the order book or if a fleshed-out order book even exists right now? really, any color to show that there's firm customer demand for Mod-1.

Joe Adams (CEO)

We have an anchor investor, as we announced, and we have a number of other investors who are currently invested in fund one that want to re-up. Demand from the existing group of investors is being reflected as quite strong. In terms of deal flow, you know, we have a pipeline of deal opportunities that we've been working on. One of the things that when we started SCI One, we really started into a new business from a cold start.

We, in other words, we had no pipeline and not a lot of deal flow. We built that up, and we're able to invest in 18 months, the $6 billion in capital. Now we have a pipeline of opportunities we've been working on. Some deals can take, you know, six months, nine months, a year in some cases. The more that we have, you know, been at this, the more developed we have as a pipeline and feel very good about the ability to deploy that money.

Andrew Maller (Managing Director)

Sorry, Joe. I said Mod-1. I meant FTAI Power, like, if there's one or several customers lined up...

Joe Adams (CEO)

Oh.

Andrew Maller (Managing Director)

If the order book exists yet for Mod-1. My apologies.

Joe Adams (CEO)

No, no problem. I thought we were still on SCI, but

David Moreno (President)

As we mentioned, we're being very strategic on how we, you know, take on these orders. We're talking to hyperscalers data center operators. Some of these folks want the entire capacity. Look, our focus is beyond 2027 and the outer years. We want something that's going to be 10 to 20 years plus durable. I think now we understand we have a key asset, which is the turbine, and it's our best, you know, job to just do what's best for the company long term. We're gonna provide updates as we progress through those 100 units. Right now, it's not the right time from a commercial standpoint to do so.

Andrew Maller (Managing Director)

Got it. I know you said, and, you know, in the press release, you say Mod-1 development is on track, but can you provide some more specific updates of what steps remain here on out? I think you might have alluded to some earlier, but maybe if there's, like, a more step-by-step plan that you could outline.

Joe Adams (CEO)

You know, really what we said is we've done substantial amount of testing. Everything is designed, parts are ordered, and we will produce the first unit this year. That's kind of the most. That's really the timeline, the highlights given so far.

Andrew Maller (Managing Director)

All right, I appreciate the color. Thanks, everyone.

Joe Adams (CEO)

Thanks. Thank you.

Operator (participant)

Ladies and gentlemen, this concludes the Q&A portion of today's presentation. I'd like to turn the call back over to Alan.

Alan Andreini (Head of Investor Relations)

Thank you, Kevin, and thank you all for participating in today's conference call. We look forward to updating you after Q1.

Operator (participant)

Thank you, ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.