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    FTAI Aviation Ltd (FTAI)

    Q2 2024 Earnings Summary

    Reported on Feb 18, 2025 (After Market Close)
    Pre-Earnings Price$109.25Last close (Jul 24, 2024)
    Post-Earnings Price$109.11Open (Jul 25, 2024)
    Price Change
    $-0.14(-0.13%)

    What went well

    • Strong leasing performance driven by increased rents and hours flown due to high demand for older equipment, as airlines extend leases amid delays in new aircraft deliveries, leading to significant growth in leasing EBITDA.
    • The Aerospace Products segment exceeding EBITDA margin targets, with margins trending towards 40%, due to increased revenues and controlled expenses, indicating strong profitability and supporting raised EBITDA estimates for 2024 and 2026.
    • Increased cost savings from internalization expected to grow from at least $30 million in 2024 to $40 million to $50 million in the next couple of years, exceeding previous expectations and improving margins.

    What went wrong

    • FTAI's current strong performance may be partially due to supply chain disruptions, which are expected to normalize between 2026 and 2030; as supply chains improve, the company's advantageous position might diminish, potentially impacting future profitability.
    • Acquiring new engines could become increasingly challenging and costly due to market tightness, which may impact FTAI's margins and ability to grow its engine portfolio.
    • The company's plans to improve margins are dependent on obtaining Parts Manufacturer Approval (PMA); any delays or difficulties in this process could negatively affect profitability.

    Q&A Summary

    1. Margin Outlook
      Q: How will margins evolve with Lockheed acquisition?
      A: Margins are trending up due to increased revenues and controlled expenses. With the Lockheed Martin facility, we expect margins to trend towards 40% and continue growing as we gain experience and increase volume. This includes approximately $30 million of annual savings, adding 3 to 4 percentage points to margins.

    2. Internalization Savings
      Q: Will internalization savings exceed prior estimates?
      A: Yes, we initially anticipated $30 million in annual savings but now expect this to grow to $40 million to $50 million in the next couple of years, potentially higher.

    3. Demand Outlook
      Q: What's the demand outlook for CFM56 and V2500 engines?
      A: We have long-term contracts providing 6- to 8-year visibility with airlines like WestJet, LATAM, and Avianca. For transactional business, we have 3- to 6-month visibility, improving planning and material ordering.

    4. Capital Allocation
      Q: What are your capital management priorities?
      A: First, achieve and maintain a strong BB rating with debt to EBITDA at 3x to 3.5x. Second, invest in growing our engine count, targeting 150 to 200 V2500 engines by year-end. Afterwards, we'll consider shareholder returns via dividends and buybacks.

    5. Engine Sourcing
      Q: Are engine acquisitions becoming more challenging?
      A: We excel in sourcing engines needing near-term shop visits. We can perform shop visits at lower costs and optimize through module swaps, making these acquisitions more viable for us than competitors.

    6. Supply Chain Impact
      Q: How will supply chain normalization affect you?
      A: We operate assuming normalization; current supply issues are an unexpected benefit. Normalization will be gradual, and our business remains strong even as operations return to normal.

    7. PMA Parts Update
      Q: What's the status of PMA parts development?
      A: We're making good progress and expect approvals soon. Our first part is installed in 15 engines, performing well with no issues. Industry acceptance is growing, also helping with supply chain challenges.

    8. Piece-Part Repair Expansion
      Q: Is Piece-Part repair growth organic or inorganic?
      A: Both. Our base plan is organic growth, but we're open to working with industry partners. There's insufficient global capacity, presenting significant opportunities for us.

    9. Free Cash Flow Expectations
      Q: How should investors view free cash flow and leverage?
      A: We expect to generate hundreds of millions in free cash flow soon. We'll maintain leverage at 3x to 3.5x EBITDA, focusing on faster asset turnover rather than constant growth.

    10. Potential M&A
      Q: Would you consider being acquired?
      A: We're shareholder-oriented and would entertain the right offer. It's ultimately a board-level decision, and we're open to opportunities benefiting shareholders.

    11. Vessel Sales Progress
      Q: What's the status of vessel sales?
      A: The market is improving; we have a handshake deal on both vessels, expecting to close by year-end. They're generating EBITDA, and we anticipate proceeds around $150 million, in line with expectations.

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