FTAI Avitaion Stock

Good day, and thank you for standing by. Welcome to the Second Quarter 2026 FTAI Aviation Earnings Conference Call. [Operator Instructions] Please be advised that today's conference will be recorded.

I would now like to hand the conference over to your first today, Alan Andreini, Investor Relations. Please go ahead.

Thank you, Marvin. I would like to welcome you all to the FTAI Aviation Second Quarter 2026 Earnings Call. Joining me here today are Joe Adams, our Chief Executive Officer; David Moreno, our President; Nicholas McAleese, our Chief Financial Officer; and Stacy Kuperus, our Chief Operating 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 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 in our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC.

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

Thank you, Alan. FTAI today operates in 3 principal businesses. aerospace products, asset management and power, which are each driven by our expertise in aftermarket turbine performance. Each of these 3 achieved amazing results in Q2 and including aerospace products increasing production over 60% year-over-year and adding new capacity, bringing our total physical CFM56 module production capacity to 3,000 modules per year which is enough to achieve our 25% market share objective and produce 100 Mod-1's per annum.

SCI finished investing the 2025 SPV, made a regular and special distribution to investors and launched the 2026 SPV with a target raise of $6 billion, which will take us in just 2 short years to over halfway to our target for asset management of $20 billion of AUM. Power signed an anchor customer for our proprietary Mod-1 with many more expected to follow, which, if it is as successful as we believe it will be, we'll extend the economic useful life of the CFM56 by decades. Well done to everybody and a big thanks to the dedication and enthusiasm of our 1,500-plus employees.

The second quarter was a continuation of many of the themes we discussed on our first quarter call. So this morning, we'd like to build off those key objectives we laid out and update you on the progress of each. Starting with aerospace products, first, let's discuss market share. Last quarter, we said accelerating market share growth was our top priority for 2026, and that's exactly what's playing out. Our market share grew from 12% to 14% this quarter as gains from our production capabilities, parts procurement strategies and overall maintain repair and exchange MRE customer adoption continued. We're confident this trend will continue as the market develops and our differentiated approach to engine maintenance delivers time and cost savings to our customers.

Second, as the market for CFM56 and V2500 engines matures further, demand for engine solutions from top-tier airlines, even those with in-house engine MRO capabilities remains very strong. We offer flexibility, customized pricing and scale that no one else can match and these large programs are very sticky. We made more progress again this quarter. As some of our peers have noted, the CFM56 market is supply constrained, not demand constrained.

Today, our module production is increasingly directed toward our third-party customers rather than to our own aviation leasing pool. This is a deliberate shift in allocation and it reflects the strength of third-party demand the superior economics of putting our module output to work in customer-facing channels and our ongoing focus on an asset-light balance sheet. In the second half of the year, we will continue to prioritize market share and long-term customer relationships over our on-balance sheet assets.

Third, production and footprint. We've always talked about expanding production capacity well ahead of growth and more recently about adding maintenance capabilities east of Rome, Italy. This quarter, we advanced 2 exciting developments, one in Egypt and one in Indonesia that bring us closer to our customers, add module production and diversify our footprint. David will talk more in a few minutes on those.

Now on strategic capital. The 2025 SPV is now fully committed from an investment perspective and execution is on plan, with the vehicle completing its first targeted quarterly cash distribution on June 30. SCI's inaugural asset-backed security or ABS issuance during the quarter also enabled a special distribution to investors in July. And we've launched the 2026 SPV, and the vehicle is actively making commitments to acquire aircraft today.

Our business plan for SCI has always been to make the vehicle launches programmatic and we are excited to have graduated to the second SPV. We've demonstrated that combining our investment capabilities with our engine maintenance solution creates a differentiated outcomes for our partners. And this has resonated and resulted in strong support across our investor base.

Finally, FTAI Power. The business continues to make great progress towards its commercial launch in the fourth quarter. As we announced last week, J&F Power Systems, our joint venture with Jereh Group signed a master supply agreement with a leading U.S. hyperscaler and an initial purchase order valued at $1.465 billion, for 2027 Mod-1 deliveries. We're very proud of our combined teams for their hard work in establishing this great long-term relationship.

I'll now hand it over to David to share more details.

Thanks, Joe. First, I'd like to talk about our mindset at FTAI. At our core, FTAI is a company of entrepreneurs. Each of our businesses, aerospace products, strategic capital and power. We are disrupting industries with large addressable markets and deploying capital where it generates the most attractive long-term risk-adjusted returns. We're always thinking ahead to the next challenge because the next challenge creates the next opportunity.

This quarter, we focused not only on execution but also on continued investment in the foundation for future growth. I'll start with execution. Aerospace Products delivered strong top line revenue growth of 78% year-over-year and 18% quarter-over-quarter. Second quarter adjusted EBITDA of $250 million was up 51% year-over-year and up 12% from the $223 million in the first quarter. EBITDA margins of 29% were in line with the prior quarter, which is a continued reflection of our decision to prioritize market share and large customer penetration. We expect this to be the trend line going forward as our scaled production capabilities allow us to bring volumes to markets that others cannot.

On the production front, we refurbished 296 CFM56 modules this quarter across our 4 facilities, an increase of 61% compared to Q2 2025. That brings first half production to 566 modules, which is ahead of our midyear target. We now expect total module production for 2026 to be 1,200 modules, up from 1,050 we originally projected, reflecting the continued momentum in our shops as well as the hard-working commitment of our fast-growing team.

Joe mentioned that we're in a supply constraint, not a demand-constrained environment for the CFM56 engine. And I want to drill down on that a bit. First, the CFM56 population remains very young. Forecasted aircraft and engine retirements remain low and aircraft lives are being extended. Against that backdrop, we have made a proactive shift to direct our available module production for third-party customers. Long term, this is structurally positive for FTAI and for the longevity of the CFM56 business, but it does negatively impact our near-term aviation leasing results.

Between prioritizing an asset-light balance sheet with less asset reinvestment and placing a small portion of our module production back into our leasing fleet, we now expect 2026 aviation leasing EBITDA to be lower than our most recent guidance. Nicholas will share revised outlook shortly. This is a further reflection of our strategic evolution from an asset-heavy leasing business to a company focused on advanced turbine technology, built to disrupt the world's aviation and power markets. We are confident we are allocating our capital and resources to the most value-added markets for our investors with a commitment to creating long-term shareholder value.

Against a supply-constrained backdrop, we have now -- we have spent considerable time and resources over the last 12 months identifying the best maintenance partners worldwide in key regions where adding capacity is both strategic and drives network efficiencies. Today, we are pleased to announce 2 new strategic shop partnerships as well as our expansion at our Rome, Lisbon and Montreal facilities.

The first strategic partnership is with GMF AeroAsia in Jakarta, Indonesia. This 250,000 square foot facility has both 5B and 7B heavy repair capabilities as well as an engine test cell and over 200 technicians. The facility is majority owned by Garuda Group, an important FI customer, and we look forward to moving large volume of engine work for airline in Southeast Asia to this shop.

The second is with EgyptAir, Cairo. This facility is over 100,000 square feet, also has a test cell on today's focus on the 7B. We believe labor availability in Taro is very attractive, and we look forward to building connectivity between the EgyptAir shop and our Rome and Lisbon facilities to further strengthen our Europe and Middle East maintenance network.

Staying on the theme of expanding capabilities, we are also developing a new test sell at our QuickTurn Europe facility in Rome that will include both CFM56 and LEAP testing capabilities. We've talked about LEAP engine maintenance being an important part of FTAI's future, and this is an intentional investment in our broader LEAP plant. As the LEAP engine matures, we want the infrastructure in place to extend our maintenance model to next-generation engines and Rome will be an important anchor for that. We are also grateful for the strong support of ADR at Fiumicino Airport, a critical partner in our -- in the continued growth of our QuickTurn facility.

Finally, we have been very impressed with our Lisbon team, and we're committed to making them a significant player in Europe. We're adding a 113,000 square foot facility to our network with the goal of expanding production capacity to over 300 modules per year. On the cargo front, we announced a partnership with AEI, a leader in 737-800 freighter conversion. The combination of FTAI's engine maintenance capabilities and AI's conversion leadership will deliver customized freighter solution at a scale and at a lower cost. This partnership also reinforces how we think about the CFM56 life cycle, maximizing value in passenger operations, extending life through cargo and ultimately redeploying proven turbine technology into mobile power.

Next, I'll share a few updates on the strategic capital. The 2025 SCB is now fully committed with over 300 aircraft closed or under LOI and has transitioned to harvest mode, making its first regular quarterly distributions on June 30. We expect distributions to continue every quarter until the vehicle is fully realized in 4 to 5 years. Our team continues to focus on capital market transactions that maximize returns by reducing the cost of asset level debt and optimizing the financing structure to align with portfolio cash flow.

One big accomplishment during the quarter was SEI's first ABS issuance MRE 2026 which consisted of $612 million of bonds and allowed for a special distribution to investors in July. We've officially launched the 2026 STV and are actively putting aircraft LOI for the vehicle. FTAI will remain a large co-investor in the vehicle with a 15% commitment and the investment strategy in structural will remain consistent with the 2025 SPV. Importantly, with all the engine maintenance being performed by FTAI creating a large competitive advantage.

Turning to FTAI Power. This was a landmark quarter for the business. As Joe mentioned, our joint venture with Jereh Group signed a 5-year master supply agreement with a U.S. hyperscaler along with an initial purchase order valued at $1.465 billion. This single order fulfills a key portion of our targeted 2027 Mod-1 delivery equipment delivered in batches through November 2027 to support customers' rapid power infrastructure build-out.

The commercial structure of this agreement is worth highlighting. The order came with a significant advance payment at signing followed by milestones-based progress payments through production, testing and commissioning. Meaning the customer is funding the production ramp as we go, which meaningfully derisk our working capital investment in the business, and the 5-year master agreement is built for expansion. It establishes the framework under which -- the customer can issue additional purchase order, so incremental volume can be added quickly without renegotiating terms.

Beyond this agreement, we are in active customer conversations to build further backlog for '27 and beyond. We won't be providing further commercial updates until agreements are finalized, but the level of inbound interest reinforces our conviction in the market opportunity.

Importantly, the Mod-1 is not a stopgap solution. It's a platform we are already evolving. Our technology road map includes SCR for emission reductions and combined cycle for efficiency gains, product advancements that position the Mod-1 to compete with grid power on cost and reliability. This is a product built to last for the next 2 decades. And with an anchor customer signed and commercial launch on track for the fourth quarter, we're just getting started.

I will now hand it to Nicholas.

Thanks, David. The key metric for us is adjusted EBITDA. We continued the year positively with adjusted EBITDA of $291.4 million for the quarter. The $291.4 million EBITDA number was comprised of $249.7 million from our Aerospace Products segment, $88.2 million from our aviation leasing segment a negative $46.5 million from Corporate and Other, including interest segment eliminations and start-up expenses associated with our power initiative.

Aerospace Products delivered another good quarter with $249.7 million of EBITDA at an overall EBITDA margin of 29%. This is up 12% sequentially from $222.6 million in Q1 of 2026 and up 51% year-over-year compared to $164.9 million in Q2 of 2025, reflecting continued momentum from production growth and operating leverage.

Turning to Aviation Leasing. As David mentioned, we continue to evolve our business model to be more asset light with SCI now being the home for leased assets. This, in turn, will result in a smaller aviation leasing business in the near term until growth resumes in 2027. The remaining leasing portfolio continues to perform well and generated approximately $88.2 million of EBITDA in the second quarter. This included $5 million of insurance recoveries, $48 million in balance sheet leasing and gains on sale and $35 million from 2025 SPV management fees and co-investment returns.

Our balance sheet continues at a leverage profile in line with our target range of 2.5 to 3x and ended this quarter at 2.7x. During the quarter, we also redeemed a part the $105 million of 8.25% Series C preferred shares outstanding and received a credit rating upgrade from Moody's to Ba1 underscoring our continued balance sheet strength and the success of our transition to an asset-light strategy.

Next, in the first half of the year, we generated $255 million of adjusted free cash flow, which included funding the final $95 million capital call under our 2025 SPV equity commitment for SCI. For the full year, we are maintaining our target of approximately $1.2 billion of adjusted free cash flow before new growth initiatives. This reflects our decision to reallocate module production to aerospace products, over maintaining the engine leasing portfolio as well as an additional $30 million of R&D investments in FTAI Power to advance new capabilities. These impacts are partially offset by enhanced economies of scale in aerospace products, driving an improved working capital outlook.

On new growth initiatives, we are accelerating the Mod-1 production build-out by $150 million following successful engineering testing and robust commercial demand. While a capital coal financing facility for the 2026 SPV will bridge a substantial portion of FTAI's equity co-investment funding into 2027. Inclusive of this, overall, we are updating total adjusted free cash flow for 2026 from $915 million to $878 million.

To expand on David's earlier point, as we continue to prioritize an asset-light balance sheet, our aviation leasing EBITDA will naturally decline until SCI's contributions fully kicks in. Given the strong demand we have discussed from third parties for our module production, this has shifted more than expected year-to-date. Therefore, we are revising our 2026 aviation leasing EBITDA to $475 million for the year, and we are reaffirming our 2026 Aerospace Products EBITDA of $1.05 billion.

Next, I would like to discuss 2027 guidance. We expect to generate total business segment EBITDA of $2.3 billion, broken down as follows: Aerospace Products of $1.4 billion, Aviation leasing of $450 million and Power of $450 million.

With that, I'll hand it back over to Joe for final remarks.

Thanks, Nicholas. This is a quick summary as our Aerospace Products business continues to benefit from a supply-constrained environment. we make further strides to an asset-light model and FTAI Power advances, we remain confident in both our 2026 and 2027 outlook, including our free cash flow expectations.

As a result of this confidence for the fourth consecutive quarter, we're announcing another increase to our dividend from $0.45 a quarter to $0.50 per share. The dividend will be paid on August 24 to shareholders of record as of August 12. This marks our 45th dividend as a public company and our 60th consecutive event since inception.

As we look ahead to the rest of 2026, our focus remains on building and expanding on the durable, scalable and differentiated platforms that deliver value over the long term. The investments we are making across aerospace products, strategic capital and power will continue to strengthen our competitive position, expand our addressable markets and support sustainable growth for many years to come.

And with that, I'll turn it back to Alan.

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

[Operator Instructions] And our first question comes from the line of Kristine Liwag of Morgan Stanley.

So maybe following up on your 2027 outlook and FT Power. I was wondering if you could clarify a few things. So you've talked about a $250 million EBITDA for Power in 2027. But at the same time in your supplemental deck, you've talked about an over 100 module deliveries in 2027. So if we just do that math, that seems to imply only about $4.5 million per module, which seems to be significantly below the economics that you had provided before.

So I was wondering, can you clarify whether your 2027 outlook accounts for 100 air derivatives? Or is this a lower number? And how do we reconcile this with the terms of the strategic agreement you provided with Jereh. Is this an apples-to-apples on 100? Or are there changes in units we should think about?

Sure. Sure. Happy to do that. So just the first point is the $450 million does not assume 100 units, it's materially less than the 100 assumption. And just as by background, since this is a new business for us, and happily, we have the first signed contract in hand for material portion of next year's production we took a look at a range of outcomes possible for 2027 and came up with a range of $450 million to $750 million.

So -- and what we decided to do was start with the $450 million at the bottom end of the range, where we have the highest conviction and the most visibility such that as we sign up additional customers and contracts, which we very much expect to do we hopefully will be raising that number up from $450 million, not decreasing that number.

So the economics we're seeing on the first contract are consistent with our previous expectations. We're very pleased with the outcome to date. But we want to -- since it is a new start-up business for us next year, we wanted to start out on very firm footing.

Great. So -- and Joe, just a follow-up on that. I want to confirm that with the economics for Power going forward, is it still about that $1 million to $2.5 million per megawatt for the CFM56 conversions?

Well, do you want to chime in?

Yes, this is David. So Kristine, as you can imagine, it's commercially sensitive, so we're not going to be providing exact numbers. Obviously, we're working through various customers, and that is an important piece. I would just reiterate what Joe said, right? The unit economics are -- there's not been any change to those unit economics. I would think about -- obviously, we're still targeting 100 units for next year. As you know, it's a building we're starting -- it's a business we're starting for 0. There are going to be some ramp-up costs and there are going to be -- the timing could shift. So we just wanted to start off with a number that was the most conservative and then be able to build from there.

Super helpful. And if I could sneak a third one in. On Aerospace products, you are clearly spending money for capacity to be able to get to your long-term market share target. In terms of margins, can you talk more about what's driving that pressure? Any color on how we think about mix? And also, right now, EEG has said that they are 40% oversubscribed on service visits this year, 20% spare part delinquency. It seems like that's a fairly robust environment for engine MRO. So even if you were increasing market share, I would have thought that margins could have been maintained. Can you talk about the dynamics there and where you think margins could bottom in this industry for your specific business?

Sure. So, I'll start with that. And as we talked last quarter, a lot of the margin compressors come from mix and that we have a higher percentage today of the heavy shop visits more of the full performance restoration which means you make a similar amount of dollars per engine, but you have to invest more to get that. So it naturally mathematically produces a lower outcome. And where we want to get to with customers is where we do everything for the customer so that they no longer have to do any engine maintenance, CFM56 maintenance on their own.

And so we are inclined to go for, say, yes and take market share. And we indicated that for the -- what we classified as the near term, which I would say is probably 1 to 2 years we expect margins to be around 30%. We can take a look at it as we get out further, and we have increasing market share, increased penetration about whether we take price up, but we're trying to set expectations around 30% for the near term.

Yes. And I would add that, look, we're thinking about the business in a long-term environment, right? So we're looking for over the next decade. And for us, we're -- as we mentioned, we're intentionally working with and targeting Tier 1 airlines, right? We see enormous benefits not only for CFM, but other engines, future engines as well as benefits with fleets, for example, being able to enter into new leaseback transaction.

We mentioned it on our previous call, but it's important to reiterate. This, for us, scale is very important because it benefits all our businesses. And that's the way that we're thinking about it. So 30% margins or it's the margin that we're going to hold. We feel very good about the long-term value add of achieving those margin profiles.

Our next question comes from the line of Sheila Kahyaoglu of Jefferies.

I wanted to ask about Aerospace Products margins. So 2 questions on that. The first is just a follow-up to Kristine's. When we think about the 500 bps of margin contraction, I guess, how much of that was due to customer share gains versus heavier work scopes and how SCI as a customer factors into that?

Yes. I think the mathematical example I walked through is helpful in that. A lot of it is driven by the percentage of the heavier performance restoration work that we do. And if you take, for example, a 6,000 cycle engine, which we might sell for $6 million. We can make approximately $2.5 million, which is about a 40% margin. If you add to that a full 10,000 cycle engine and you sell that $12 million, let's say, we make $3 million on that. When you blend -- if you do one of each mathematically on one, you're making 40% on the bigger ones you're making 25%, the average is about 30%.

So a lot of the -- most, I would say, of the compression comes from the mix. And we want to do that because we want -- as I said at the beginning, we want the customers to be using all of our engine capabilities. So we're even though you make less -- in terms of percent margin, you make more dollars. And so more dollars is what we're prioritizing.

No, that makes tons of sense, Joe. And then maybe -- as a follow-up to that, you announced Cairo and Jakarta. You guys are busy traveling all around, how do you think about how those 2 new sites funnel into just whether it's winning new business locally? Or how do you think about how that helps source engine feedstock as well as spare parts as well?

Sheila, this is David. I can take that. Yes. So first off, obviously, it increases our production capability. So overall, we're raising production capability capacity from 2,000 to 3,000 modules, which is obviously very important, especially when we're increasing market share and then introducing power. So we're well ahead of what our target -- the capacity we need to achieve our '27 EBITDA as well as our 100 mod productions.

As we mentioned, it's always important for us to build a presence near our customers, right? We did not have a facility east of Rome. So that was something that we continue to reiterate. We're very happy with both locations, right? They all -- number one, they have the infrastructure already built out of both. They have world-class facilities, they have capabilities, tooling. They have also a test cell. Number 2 is they have access to technicians, right? So both areas have a lot of young talent.

Jakarta, for example, has close to 40 million people within the city and the outskirts and then Cairo has over 20 million. So we obviously -- I've done this a few times. We have a playbook. We're going to effectively put a lot of throughput through those shops and they're going to guarantee capacity. So that's really kind of the goal.

Each of these strategic partnerships have 2 phases. The first phase is we, again, guarantee throughput and we get capacity. And the second is we want to be a long-term shareholder and being a partner. So they're effectively the same exact framework that we've done the other shops, and they're key to getting closer to each of the airlines in those regions as well as getting closer to the country.

Our next question comes from the line of Josh Sullivan of Jones Trading.

Just as far as the comments on shifting away from the legacy leasing and towards the asset-light model, how should we think of that whole segment as SCI becomes a bigger contributor. Is it still primarily a leasing business next year? Or are we going to be calling it something else? Is there any reorg at some point, I guess?

Josh, this is Nicholas. I can take that. So as we exit the year, we expect Q4 to be a majority earnings stream from the SCI. And so going into next year, you can think of it over a majority of SCI earnings will be -- or sorry, a majority of aviation leasing earnings will be from the SCI. So as we look to potentially resegmentation in next year, effectively, that's how you can think of it as the 3 businesses we speak of. So aerospace products, power and strategic capital, our financial reporting should be reflective of that.

And I've started to refer to it as you may have noticed, is asset management. So that wasn't an accident.

I can imagine it was. And maybe just shifting over to the LEAP, LEAP to test cell for '28, what time line could LEAP enter the whole FTAI ecosystem, say, across an FTAI, our global facilities. And then how do we get our hands around the size of that LEAP market potential versus your CFM56, V2500 market share comments as they are currently.

Yes, I'll start. I mean the most people expect that the LEAP market will be 2 to 3x the size of the CFM56 market in terms of annual maintenance spend. So it's going to be a very, very large market. And we still expect to be in that engine in 2028, 2029, most likely starting with investments through SCI through the SPVs, which will get us in. But we have the engineering know-how. We have the capability. It's a similar construction of that engine. We have licenses and we will have a test cell. So we have a full playbook ready to use at the time we think the economics work out in total.

Our next question comes from the line of Brandon Oglenski of Barclays.

So I was wondering if you could update us on the power Mod-1 prototype because it's my understanding that you do have one up and running in Florida. Is that correct? And I guess, is it initially meeting your expectations? And obviously, you announced customer backlog. Maybe if you can elaborate on that, please?

Brandon, this is David. I'll take it. So we're very pleased on the Mod-1 testing. It's been going through a rigorous testing and performance has been exceptional. Just to reiterate, we started the majority and completed the majority of the testing first in Montreal, the first 5 months of the year. And we used our test cell, which for us is a huge advantage, right? Many folks don't have a test cell and let alone has the ability to dedicate a test cell for R&D. So that allows us to work through the engineering process very efficiently.

Now you're right, the testing has moved to Miami, where we have a gen set and the unit is up and running, and we're very pleased with the testing thus far. The way I would think about it from here on out is the turbine will just continue to run, right? We're building hours. We're building time on the field. That's a very important piece when it comes to being able to talk to customers. is the more hours that we accrue. So that's going to continue ongoing from here on out, but we couldn't be happier with the Mod-1.

I would also reiterate this, this is obvious to folks in aviation. But the CFM56 is the most reliable unit ever produced. It's got over 1 billion hours. We're expecting that to be the most reliable unit on the ground as well. So we couldn't be more pleased with the testing thus far.

And maybe for Nicolas, but you guys are targeting like 40% production growth next year in core aerospace products. I guess how much of that do you think you can attribute to the FCI vehicle too? And are you making any progress with longer-term contracts with airline customers as well?

Yes. Thanks, Brandon. I think I'll take the first question. So what we have communicated historically is that the SCI will be about 20% of Aerospace products revenue. And so going forward, we still expect that's a good range for analysts to model in. So regarding module production, you can basically reflect that it will be an alignment with that as well as revenue.

Yes. And just on the module production. I think this is an important piece to clarify. So we did set out module production targets for next year of 1,700. The way I would think about that is our internal production goals for the shops, right? I wouldn't necessarily try to do division based on EBITDA. Obviously, the goal is to produce extra excess modules to be able to continue to ramp the business as well as to be able to use into leasing.

And any development [indiscernible] contracts with your airline customers?

Yes. We -- yes, as we've always mentioned, the product itself is very sticky. So we have many customers that effectively we have visibility for their fleet for the next 4 to 5 years. where we work through exchanges. Obviously, the timing could shift quarter-to-quarter depending on utilization. We like to effectively give them or transact an engine right before the engine comes do. That's very good for the airline because they're able to use every cycle within the engine. That's always our motto is we wanted airline to use every cycle. So we have these programs with airlines, and that's exactly what we've been building out, I'd say, for the last 5 years.

You might talk about the cargo business opportunity as well.

Yes. So one thing that we did announce was our partnership with AEI on the 737-800 cargo. And that's important, right, because really, there's right now a shortage of engines that are fit for cargo, right? And when you think about the operations on passengers and cargo, they're very different, right? The cargo aircraft could operate, let's say, 1/4 of the utilization versus passenger. So it's important to build engines that have smaller cycles for that operation, right?

So for us, it's great because it allows us to use those engines and be able to maximize the returns for those engines. And for cargo customers is great because they don't want to effectively overbuild engines and have to, let's say, pay extra or -- it would impact the leasing economics. So look, that's always been the goal was to do the full life cycle. We think about it as you start off in passenger, right, that has its own utilization.

Then moves into cargo, right? That's got a less utilization and then ultimately into power, where effectively the engine is either operating base load or is operating -- could operating theory back up. So it's going to be very little cycles per year. So that really allows us customer -- different customer types where we can effectively target the engines we're building remanufacturing or the best mission.

And we expect that roughly we could produce about 20 cargo aircraft a year, which would require 40 engines. And so that becomes an aerospace products customer base that's really sort of more or less incremental to what we serve today in the passenger side.

Our next question comes from the line of Giuliano Bologna of Compass Point.

A couple of other questions on [indiscernible] were already addressed. But I think an important question topic here is if you can reiterate the value proposition and the long-term opportunity for FTAI Power because it's obviously a large business that's new, but it has a lot of opportunity and there's could go on for a number of years going forward. But I'd love to hear your input there.

Sure, Giuliano, this is David. So we think about the power of the Mod-1 value prop really 3 points number one, speed to power; number two, scale and then number three, cost, right? So we want to win on all 3. Number one, speed to power, right? It's having the units available now. Obviously, as you know, it's a very supply-constrained market. but it's also being able to install the unit quickly, right? So our unit is mobile, which means it can be installed in less than 2 weeks. That's very different than a large frame engine frame turbine that takes, let's say, 12 to 18 months as a construction. So we have a huge advantage to speed to power.

Number 2 is scale, right? What's important for our customers is scale. They're looking for gigs of power. So being able to use our units at scale creates a differentiated product out there versus anyone else. I would say that's fundamentally true to, obviously, our business where we have the capacity, we have the feedstock. And also for our partner, Jereh, that has the scale, and then we're working with them to be able scale both our businesses. So we -- for us, we're very comfortable in delivering that.

And number 3 is cost, right? And cost comes in many different forms when you think about the operating cost for power, right? It includes, number one, lower maintenance, right? So we're going to be, as we mentioned, doing maintenance via exchanges. So that's going to dramatically lower how many times the units are out of service. So that means you have less redundancy. It's going to be lower maintenance cost as well as naturally, you're going to need less redundancy because the units are smaller and you can stack them up versus, let's say, a very large 300-megawatt combined cycle turbine.

And then we're -- to that, we're going to continue to develop more ways to improve efficiency, right? So one thing that we've working on right now is combined cycle efficiency. So the engine itself is combined cycle capable. It produces excess heat that can be recycled to produce extra megawatts. So we're thinking about that. That's obviously something we have in scope, something that's going to make this entire unit very, very attractive. And that's overall how we're thinking about the evolution of the product is we have the Mod-1 today, really, the goal here is speed, but we want to continue to develop add-ons and improve the product where it can be the best power turbine out there.

That's very helpful. And maybe one follow-up on that, a little note that doesn't seem to have been caught or get much attention, but in the presentation, you highlighted 100-plus units for 2027 and growing multiples thereafter. I'd be curious when you think about multiples, is that -- could that double, triple could be 200, 300 or more over time because that seems highly relevant when we're talking about '27 potentially being 450 to 750 in the range of potential outcomes.

Yes. I mean it is clearly not lost on us and Jereh that this is a big opportunity. And as David mentioned, the -- this is a continuous improvement business. Unlike aviation, where you by law, you're not allowed to change the engine design in power, you can and you can make improvements. And so our goal is to make this competitive with any source of power available anywhere. And if that is successful, obviously, this is a much, much bigger opportunity and also with a tremendous duration to it.

We have their existing aeroderivatives out there today operating that were -- there were engines that were produced 50 years ago, 5-0. So we are keenly focused on that, as is Jereh. As David mentioned, scale was something when we thought about this business in the first instance, we sat around and said, what's the only engine that you could have enough of to really achieve scale? And the answer is there's only one and happened to be the one we were had focused on as a business. So that was a happy coincidence, but it's very much on our minds, and we are -- we achieved a lot of the difficult objectives that we had to overcome in the beginning, we're past those, which is very exciting.

Our next question comes from the line of Shannon Doherty of Deutsche Bank.

So maybe for David, do you remain on track to deliver the first power unit in the fourth quarter. And since we're getting close to first delivery, will you be breaking out the P&L for power? Or is it only going to be reported as joint venture income. How do we think about the accounting here?

Yes, I can take the first one and then pass it into Nicholas for the second. Look, as we mentioned, nothing that we've said right now we're changing. We're still targeting delivery end of this year and then 100 units. Obviously, we did not put guidance for power this year. I think it's probably conservative to expect deliveries to 2027 at this point.

Yes. Shannon, on your second question, so you'll see it in next year's P&L in 2 places. So first is when FTAI sells the turbine to the JV, that will be reflective similar to how we report aerospace products today, which is you'll see revenue and cost of goods sold. Then the second piece is then ultimately when the JV sells it to the customer, as we are an equity stake in that, you'll see an unconsolidated earnings and other income.

But it will all be under the heading of power. It's all power as a separate group.

Great. Great. And Joe, maybe one for you. Just bigger picture here with the ongoing conflict in the Middle East and Valla energy prices, a lot of investors have worried about an increase in retirement rates and the hit to values on OTC narrow-bodies. Are you seeing anything here? Maybe moving into the LEAP business as the next natural solution as the global fleet evolves sometime next decade? Any color would be great.

Sure. So obviously, jet fuel A has bounced around. It went from $2 to $4 and back to $3. So there's a lot of volatility, which everyone is keenly aware of is if you're in the aviation business. But the customers have limited options to change the mix of the fleet. And the economics of the NG is -- and CEOs are still very, very attractive for the airlines. What they have been very good at is raising fares to a little bit to their own surprises that they had pricing power, and they're using it.

So the answer is we are not seeing any change in mix or fleet decisions by the end user. And if you talk -- I was at the air show last week and I think Airbus is selling people that are sold out until 2032. So you don't have a lot of ways to change the mix. The only -- the best answer for the airline industry has raised the fares, and that's what they've done.

Our next question comes from the line of Ken Herbert of RBC.

Maybe Joe or David, can you give an update on the CFM56 PMA blade, how those are performing in the market and what you're seeing in terms of yields on the production side?

Yes, we're not -- I mean, all I've said to people is that it's performing as expected, and we're not giving a lot of detail on mix or usage at this point.

Okay. As you think about sort of broadening the PMA portfolio, are you looking at other opportunities? And maybe just as we tie this in how could this eventually play a role in supporting FTAI Power as well?

Yes. That's -- it's a great use for FTAI Power because, as you know, there's no FAA to certify anything. So you just -- you can use any part as long as it performs well. So power is a tremendous outcome and [indiscernible] actually, it's become one of their biggest segments is selling to the power industry. And as you know, there's a shortage of single crystal casting capability in the world. So it's certainly very much in our repertoire for power.

I would say we're always looking at different ways to lower costs. That's kind of our DNA is to go line item by line item and shop business and try to figure out how to do it better and faster and cheaper. And PMA is one alternative. And in terms of capital allocation, growth is our #1 priority. We are looking at additional opportunities in both capacity to overhaul engines, but also repairs and piece part engine piece part manufacturing. So we're always looking at different companies.

Specific aerodynamic is a great example we bought and now they're gearing up for compressor blade repairs to be in-house and using a proprietary technology. So we've got a number of projects underway in that -- of a similar vein to continue to just keep driving down costs and building the competitive advantage that we have to keep it moving forward.

Our next question comes from the line of Andre Madrid of BTIG.

Yes. Maybe a pivot back to -- just to really understand this here. I think we all understand the shift to an asset-light model. But just given the telegraph nature of this transition, the $100 million leasing EBITDA revision does seem a bit aggressive. I just want to ask a bit more importantly, just what changed quarter-to-quarter?

Yes. I would just say, we've always -- this has been our objective going back several years, 2, 3 years is to shift our leasing activity over to SCI. And it is -- unfortunately, you can't -- it's not precision driving the way SCI grows and you have the opportunity to reduce the balance sheet. And what happened is we have SCI ramping up, but we had the opportunity in the first -- in the second quarter, first half of this year to reduce the leasing on the balance sheet. So it didn't exactly on a quarter-to-quarter basis, sync up. But the strategic goal is exactly in line, and it's just happening on the leasing side, a little bit ahead of the SCI buildup.

Our next question comes from the line of Myles Walton of Wolfe Research.

Maybe just a quick follow-up on that. So you had $100 million of EBITDA being derived from those assets, the assets moved to AP. Maybe can you just describe where are the economics of moving those assets to AP because obviously, the EBITDA didn't move.

Myles, I can take that. This is David. Yes, so the way that I would think about it, right, is really the change is attributable to 2 things. Number one is we are prioritizing growing AP market share, right? So effectively, instead of taking modules and building engines for lease, we're directing all the production capacity to growing aerospace products. So effectively, that translates to lower maintenance CapEx on the engine leasing business, which means we're not replenishing the engines once they run out of green time, we're effectively building for AP versus building to replenish engine leasing. That's the first part.

The second part is obviously on the SCI as it continues to ramp up. We often are closing aircraft in tranches or in portfolios and closings can shift quarter-to-quarter. However, these aircraft are all under contract and have economic close dates, which means the economics continue to improve. So you're effectively getting the benefit of rental and maintenance reserves. So it's -- from an investment standpoint, it's a positive, but obviously, it's going to shift SCI pickup for the quarter.

Okay. So we will see that economics. It's just shifted into the future quarters. Is that the take David?

Yes. On the SCI piece, that's correct. And I think as Nicholas said, going into the fourth quarter, we expect SCI to be the majority of our aircraft leasing that's going to continue to scale. Look, it's obviously what we're -- in a way, we're starting this business and growing this business as well from 0. So that's part of the ramp-up period, which is obviously as we scale it, there's going to be less variability in that business.

Okay. And then one for Nicholas. I think you said that the SCI-related EBITDA might be proportional of sales, but I guess I was thinking of SCI as being a captive customer, one that you don't have to necessarily chase down for market share gains, you pretty much control it. So why is the SCI margin not more consistent with what you were thinking about earlier in the year and last year in 4 in terms of 40% as a target.

So for the SCI, it's never been necessarily about margin targets. It's all about build-to-suit of what engines we're replacing. So as a reminder, there's approximately 300 aircraft, so that's 600 engines in the first vehicle. So what happens in the exchange nature is what FTAI is rebuilding to is what is needed for the SCI for the remainder of the lease term. So if they need an engine with only a year or so or 2 years remaining on the lease term, so let's say, a low cycle build, then we'll build to that FTAI might get a high-margin build on that.

But then similarly, if they need an engine exchange right away within the first year of the vehicle, and we're doing a heavy rebuild for, let's say, a 5 to 6 year lease term, those margins will be below that number.

It's the same mix issue that we talked about with margins for any other third-party customer, SCI is similar to any other large airline. It just happens to be we're the GP, but it's similar in nature.

Our next question is from the line of Jeff Kauffman of Citizens Bank.

Congratulations. I have a longer-term question. Thinking about the 27% EBITDA guidance, you've given us kind of the free cash generation on '26, can we imply what that looks like on your '27 EBITDA and maybe talk a little bit about how you would like to use that free cash either shareholders, augment growth, special projects. Just as this free cash begins to grow, talk about the conversion from EBITDA to free cash as EBITDA gets bigger? And then just kind of where you really want to use it.

Yes, I can take the first part of the question. So if you look at FTAI's results in '25 and how we're projecting on free cash flow in '26, you can see that our free cash flow conversion is approximately in line with other aerospace peers in that 60% to 70% range. It is, of course, a little premature to be giving a detailed number for given the tremendous amount of growth opportunities we're looking to do next year.

However, what I will say is that for FTAI Power moving into this industry, it is a much higher cash conversion cycle for 2 reasons. First, it is the industry norm that a lot of customers will do advanced prepayments, and we noted that in our press release for our first customer contract. And then the second reason is because of the optionality between aerospace products inventory and what we can place into power. So what that means is as we do efficiencies of scale, you'll see a lot of synergies between the 2 businesses, and that ultimately means we should optimize inventory further.

And then on the capital allocation, our #1 priority has been growth, and it will continue to be growth. And in that regard, we're always looking at acquisition opportunities for additional maintenance capability and capacity, is one; and two, we look at repair -- piece part repair and piece part manufacturing opportunities.

So we've got acquisition opportunities, we're always looking at and we're always evaluating different growth opportunities and that's the #1 priority. We did also increase -- I think we've increased the dividend now for straight quarters, $0.05 a quarter. So it's been going up. It's now $0.50 or $2 a year. So we continue to return capital to shareholders in that manner.

I'm showing no further questions at this time. I will now turn it back to Alan Andreini for closing remarks.

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

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

Hello everyone. I'm Brandon Oglenski, U.S. airlines and transportation analysts from New York and up next at our Americas Select Conference here at Barclays, we have FTAI Aviation, and joining us is Joe Adams, CEO of the company; and Alan Andreini is somewhere in the back there, I think, Head of IR. And Joe, I guess I'll hand it over to you. I think you have a couple of slides you wanted to talk about your business, and then we'll get into the Q&A.

Sure. Thanks, Brandon, and I appreciate you having us here again this year. It's our second annual European conference and really enjoyed the opportunity to meet investors in the U.K. and the EU on this trip. So we're very happy to be here.

Just to give you a little overview on FTAI Aviation, we think of ourselves today as being in 3 different businesses. They're all tied to us really being an expert and a leader in advanced turbine technologies and for the most commonly used jet engines in the world being the CFM56 and V2500. And today, we operate in 3 different businesses. The first business is the one that we've been growing over the last few years, our Aerospace Products business and what we call an MRE product, which is to maintain, repair and exchange.

And essentially, the business model we created is to be the outsourced provider of engine maintenance for airlines and owners in that we've developed the capability to do that maintenance better than anyone else in the world with an array of products and facilities and capabilities. So we are able to perform the engine rebuild, which is to put hours and cycles back on an engine, so that the owner and the airline doesn't have to do that. And we provide a value proposition where it's cheaper and faster, which generally is two good things for customers.

So that business is doing extremely well. Our goal is to grow our market share now. We most recently announced a 12% market share of about a $25 billion a year spend. And our stated goal is 25% market share, and we don't think it's going to stop there. Obviously, this current market environment for airlines is not the ideal market environment for airlines, but we do provide a partnering function with airlines where we can provide liquidity and help airlines avoid spending money on engine maintenance. So we think of -- in some ways, this is -- could be an opportunity for us to increase our market share more rapidly as we did in previous crises before.

The second business we've grown over the last 2 years is our asset management business. And we took some assets that we had owned on the balance sheet and then raised third-party capital in a private pool of capital so that we can own aircraft and then those aircraft are leased to airlines. And as part of the transaction, we then, again, eliminate engine maintenance responsibilities for the airline by providing engine exchanges from the public company FTAI Aviation. So it has the benefit of making FTAI Aviation more asset-light, but also has a benefit of locking in long-duration contracts for doing engine exchanges and growing our market share, accelerating the growth in our market share.

And this is a great environment for us because the industry obviously is looking at more ways to generate liquidity. One of those is sale leasebacks, also lessors who are selling assets become more focused on the counterparty they're dealing with and the track record of closing because the nightmare scenario for anybody is working on a deal for 2 months and then finding out that the lender doesn't want to fund or something.

So it's a perfect environment for us to accelerate that business. We raised our first pool of capital, which is about $6 billion, which will be fully deployed by the second quarter and -- this quarter, and then we're raising -- in the market raising another $6 billion pool of capital and ultimately, that's 300 aircraft and 600 engines in the first pool and then you could -- essentially, we could double that in the next 12 months. So a very large high-growth business for us that is very exciting, which also feeds the MRE product.

The third business is a relatively new business in that it's the power business. It's turning CFM56 engines into generators of electricity, which obviously the demand market is growing extraordinarily with data center requirements. This product is designed for the data center user. We have done the hard part of the engineering starting over a year ago, which is to convert the turbine into a piece of machinery that can power a generator. And we've done all the testing and the modifications on that part of the asset. We also, last week, announced that we partnered with Jereh, which is a leader in packaging, and they will be doing the assembly of the generator in the gearbox and the fuel control systems in a joint venture with us, so we can accelerate the growth of that business.

We're estimating 100 units delivered in 2027, which with 25 megawatts per asset per, what we call our, Mod-1, that's about 2.5 gigawatts of electricity capability generating next year and the demand, obviously, in the industry is multiples of that for the next foreseeable number of years. So we're very excited about that. It also has the added benefit of extending the useful life of the CFM56 engine and that it could operate at the end of its aviation life of 20 or 25 years. You can move that into a ground-based operation and have it operated for another 20 years.

So again, all 3 businesses work together with each other. It's all sort of feeds the ecosystem and it draws on our engineering and maintenance capabilities for the turbine technologies, but everything is moving in a great direction.

That's a great overview. And maybe it's always fun isn't because there's volatility all the time, especially the last 10 weeks. So maybe we'll start there because we've gotten a lot of questions from folks. With flight hours potentially down and maybe down longer based on where oil prices ultimately land, and I know they're down this morning, how is that going to impact your business? Or has it impacted the business thus far?

Yes. It hasn't really had any impact to date. Fleet decisions that are made by an airline generally take a long time. And if you think about the way an airline may have to change things is by retiring assets earlier and then they need a replacement asset. And today, the market has been very short of new capacity. And if you want to add new assets to the fleet and go order from the OEMs, you're looking at potentially multi-years before you get any of those deliveries.

Secondly, people have learned previously that if you give airplanes back and then the market returns to a more normal level, you can't get them back. So airlines tend to be very slow to make these types of major fleet decisions. The 737 NGs and the A320 CEOs are a core part of the world's narrow-body fleet. They're profitable, they make money. What we have -- we could see, we haven't seen too much to date is airlines could reduce some of the flying and instead of flying 12 hours a day, maybe they fly 10 hours a day and they change a schedule so they don't fly on Tuesday or Wednesday or something like that. And so you might see some of that.

In the end, it's not going to have a material impact on our growth strategy because we're trying to go from a 12% market share to a 25% market share. So whatever rate of retirement you see is actually much, much smaller and less consequential than growing our market share. So if this environment allows us to grow faster and take more market share than ironically, that could be a good thing. So we're not really worrying. These platforms are going to be around for many, many years and they're profitable assets in the aviation system. So -- and again, we haven't seen any impact to date.

Well, and can you talk to the older technology that you've in the CFM56, which powers the prior generation, 737 fleet in the most -- or half of the A320 fleet. How does that relate to the newer technology like the LEAP and the GTF? We all know the GTF has a lot of issues, but the LEAP overhaul costs are coming in pretty significantly above budget too, right?

Yes. So the big picture trade-off is you get about 15% fuel savings for the new technology. The two negatives are, it costs a lot more from a CapEx point of view, and your maintenance cost is higher. So if you're looking at it as an operator, you set up a model which basically compare what does a seat cost you to fly in different assets and you'll look -- you put in your stage length, your utilization, your -- and then you build in a model for the maintenance costs. As I said, the maintenance cost is going to be a negative to the operating costs. And then you factor in capital costs.

So a brand-new, new technology narrow-body could cost you $50 million or $60 million eventually. That compares to an 18-year-old or a 16-year-old asset today of $15 million. So if you're flying in a -- if capital cost -- capital is an issue for you, you favor the older technology. If utilization is lower than the high-frequency operators, you're also going to benefit by having the older technology. So it's actually -- it's a fairly close call. But again, if you want to grow and you need assets, both of them make money. So it's all a positive contributor.

So those are kind of the puts and takes. But again, nobody makes rapid decisions of this type because it takes many, many years to affect it.

When I think there can still be confusion with your business because a lot of folks will initially compare it to a traditional MRO business, but that's not what you're doing, you are doing MREs. Maybe can you talk to the differences there, too.

Yes, the key construct of our business developed years ago in that what we decided is the best way to do -- to manage a fleet of engines is to own the engine and own the maintenance facility together in the same company. And then your orientation changes in that you're trying to be the most optimal provider of an engine hour and cycle in the world. So you can recombine modules, you can manufacture, you can run your shop like a factory where you own all the parts in that shop, so in that -- in the shop, so everything as it goes down the line, goes into the next engine.

You don't have to wait for parts to be repaired and come back. So the whole process is much, much more efficient, and you can generate very high margins that way because you're doing -- you're optimizing green time. And so that is a fundamentally just a very different construct. And from -- when you take that to the customer then that result is the customer could take their engine, send it out to like a mechanic, a shop, have the work done and then the engine comes back.

And oftentimes, when that engine comes back, the bill ends up a lot higher because there's other things that need to be fixed. So what we -- when we sell the product, we go to the airline and say, look, you tell us and based on your experience, how much does it cost you to build -- to put an hour and a cycle on to an engine. And we will match or beat that price and then we'll eliminate your cost of ranging for spare engines, shipping it to and from the maintenance shop, having an engineering department track all of the decisions and the functions, the things you need to do and source the parts often, all of those expenses go away, which often is between $0.5 million and $1 million per shop, is it?

And then very importantly, the risk of a cost overrun goes away because we provide the engine on an exchange, on a fixed price, and you can inspect the engine, it's done, it's on the shelf, and you have an immediate replacement, and immediate swap. So when the airline thinks about it, they said, "Well, what's wrong -- what don't I like about that"? And the answer is nothing. So people are like, "Why shouldn't I do that? If I can get as good or better price, eliminate $1 million of expenses, and I have no risk of a cost overrun, why wouldn't I do that"? And the answer is, everyone comes to the conclusion ultimately that, that is better.

And that's why we expect to keep gaining market share. We accelerate the development of the markets share by -- in SCI, we immediately convert airlines to the exchange model. And oftentimes, what happens now is we'll go buy 5 or 10 aircraft on lease to an airline. We go to them and say, "Great news. You don't have to do any engine shop visits ever again". And they're like, "That's fantastic. Why don't you go buy the other aircraft that are on lease to my airline so that you can convert all of them"? And we're like, "We're happy to do that".

You eliminate that friction that the leasing lessors and airlines have and that they're always fighting about return compensation at the end of the lease or engine maintenance costs. So it's a win-win for everybody, and we continue to develop that and point out the significant benefits for the airline. And really as a partner to them, where we're always providing power and always having power available if they need it.

Well, this is effectively how a large airline would manage their fleet, right?

Correct. So if you think about a large airline that developed their own capability 40 years ago, they had an engine shop. They did everything in-house, and they optimized. And so what we've done is take that same model of owning the engine and the maintenance shop and make it available to the rest of the industry.

Right. You're effectively offering small airlines economies of scale on the maintenance side?

Correct.

Otherwise, they couldn't tap into it.

Correct.

Well, that's right. The customer profile in the first quarter shifted. Is that right?

Yes. We've been surprised somewhat in that 12 months ago, 18 months ago, a lot of the bigger airlines are saying that, "That's interesting, but I can do it myself, and I don't need that". Now we find a lot more airlines are saying, "I'd like to access more engines and I'd like to do more exchanges". And so our goal ultimately with an airline is to get to the point where the airline says, "Okay, you do it all, you do everything for me". And that -- the result of that is that you can do a small build engine, maybe deliver a 6,000 cycle engine, but they also want a 10,000 full restoration engine together. And so the goal is to get all of that and ultimately be the solutions provider to the airline for everything.

And how much visibility do you have in Aerospace Products?

So it varies, but some, we have multiyear relationships with airlines like we've announced with Finnair, LatAm, ITA. And then all the aircraft we own in SCI is fully contracted. So the goal is to get, as I said, to the point where people say, "Okay, you can have all of it, let's either structure it as a contractual relationship or I'll basically do exchanges on this basis with you whenever I need an engine". But we also have airlines that are still just trying the product, just developing, understanding how it works, seeing how we perform.

So we also have some spot business as well that comes in where people say -- I'll say, "Just try the product and see if you like it" or if you can't decide which way to go, you want to manage some yourself and some we provide exchanges, why don't you run them side by side and see which one after a year works better, then choose.

Okay. With SCI, the first fund that you launched last year, $6 billion of capital, is that right? Can you talk to the economics on that?

Yes. So we discovered that by providing a bespoke custom built engine, you can actually generate a higher return for the investor, and they take less risk. And so what we did is we compared -- take, for example, an aircraft that's on a 5-year lease and at the middle of that lease in your 2.5, you need a replacement engine. It hits limiters. The traditional way to do that would be to send that engine to a third-party shop and they would build you a 5-year engine.

The 10,000 cycle full build because that's what they have available in terms of parts and capability and you'd spend a lot of money, I mean, to do a full performance restoration. And yet at the end of that lease, 2.5 years, then you have a big residual value in your engine. So what we did is said, "Well, we can deliver, FTAI can build a 2.5-year engine", so the owner and the airlines spend less money in that middle of that year putting a replacement engine in.

And at the end of the life of that lease, you have lower residual value, just part-out value. So when you run the math, you can generate 400 or 500 basis points of incremental return and have something which is less risky because you're less reliant on residual value and monetizing that residual value at the end of the lease. So that's basically the underlying economics that we present to the investors like here's a better -- what I always say that every private credit investor in the world is always looking for a higher return and lower risk. And that's really what this model allows people to do.

We're the only people in the world that can do it because we can build that 2.5-year engine because we build hundreds of engines a year, and we can -- we know when it's coming, and we know how to assemble the various parts to optimize that. So that's really the construct. And we've fully invested, Fund I by the end of this quarter. And then we're now in the market to raise Fund II and we're getting a great reception because returns are good and the pipeline of deals is also very good.

And can you talk to the profile of that fund? I think it's closed in, right, and one, you target just one lease term on the asset, right?

The assumption we make when we show the economics to investors that 5-year asset that I mentioned would run at the end of the 5 years. And at the end of that, you'll sell the airframe and sell the engines. And you'll have a realization. We're actually finding a lot of extensions are happening and extensions are additional upside because you don't have to do anything, you don't spend any money on that aircraft and you continue to get rent and maintenance reserves.

So that's what's -- we're seeing a fair amount of extensions that are happening, which we didn't model in to the original deal, again, speaks to the strength of the CFM56, V2500 and in the NG and CEO markets being very robust, and that's in this market environment. So it also speaks to the view of the airline as to when they're going to retire these assets. People are not giving them up at this point.

And I guess, how susceptible is your business to asset values?

So very little. I mean, if you think about the 3 different businesses, the MRE business were basically buying runout engines, rebuilding them and then selling them. And so you have a relative spread business, you have a relative value. We're adding hours and cycles more efficiently than anybody in the world can do, and that's not dependent really on how -- where assets are being bought and sold. So we're relatively insulated from that as markets fluctuate.

Historically, though, the prime driver of engine values is the parts value, which really is determined by how the OEM raises parts prices. And historically, that's been at well-above inflation on an annual basis. And that's why asset values and engine values tend to go up more than other parts of the industry.

In the Asset Management business, I mentioned, we're relatively insulated because we've got part-out value at the end for our engines, and we're seeing a lot of extension. So I'm not -- we're not seeing much in terms of asset value pressure or it's not that sensitive to returns for the Asset Management business. And in the power business, it's totally insulated in that we're basically buying run-out engines to repurpose into a different market. So to the extent if part out values were to go down, which they typically don't do by much, it would be good for us.

And do you run into problems because everyone knows you're in the market, I guess, for these types of aircraft, especially launching SCI too, is that negotiate against yourself at all?

I mean, if you think the market size on an annual basis for narrow-body current generation assets, is a roughly $25 billion to $30 billion a year business of asset sales. And so our first 18 months was $6 billion. So it annualizes roughly around $4 billion a year. So it's not a market mover. It's a significant amount, but it doesn't move the entire market. Where I think we're moving into, though, is a market which is more favorable for us in that when assets are being sold by many of the big leasing companies, the counterparty strength is a really important factor when there's uncertainty in the market.

So to the extent that they know we're going to close, we don't have financing conditions. We don't have -- we're not a new fund, and we know -- we're underwriting engines effectively. They know we're going to close. And so that actually plays to our advantage. And then you also will have more airlines doing sale leasebacks in this market environment because liquidity becomes the top priority in the airline. So if this cycle is similar to others, then we'll see more flow from airlines and more focused on our strength as a counterparty to close from the big sellers.

Okay. And do you have capacity, physical capacity to get to 25% market share?

We do. I mean we were able to double our capacity production year-over-year. We added a facility in Rome. We made an acquisition of additional property in Miami, which -- also added a facility in Lisbon, Portugal. So looking ahead, we expect to grow our capacity across the board with more mechanics. We have the physical capacity to get from 12% to 25%, but we're also focused on most likely adding another facility somewhere, as we indicated, east of Rome, which would be Middle East or Southeast Asia in the next 12 months, so that we will have another location to continue ramping our production.

And the facilities we've acquired are not that expensive. I mean, typically, what we've bought were once great engine shops that, for whatever reason, went out of business. It was usually because it was part of an airline, either Alitalia or PanAm or Air Canada, and they got out of the engine maintenance business, and they left a beautiful building with lots of tools in it, and nobody -- no business.

And so we're able to acquire these assets for way less than replacement cost. And the benefit we bring is we can immediately fill the shop. So if you're competing with a third-party MRO who's looking at, if I buy a shop, I then got to go get customers, so let me put the engine in there. Typically, the customers don't want to be the first one in. So we have a huge advantage, competitive advantage looking at these types of assets.

Okay. And you also have a partnership or an agreement with GE Aerospace. Is that right?

CFM, which is a joint venture with Safran and GE.

But why is that significant?

So it gave us a lot of additional supply of parts. We've been -- if you think back to the example about a smaller build and a full performance restoration, a lot of our business was focused on the smaller builds and doing lighter repairs, modules, exchanges, using used service material, so now that we have a relationship -- direct relationship with the OEM and an attractive deal -- price deal that gives us the ability to do more of the full performance restorations, the heavier shop visits. So more parts, more flow. And it positions us really to be the go-to place for aftermarket shop visits in this CFM56 market for the foreseeable future.

What we bring to the OEM is really investing in rebuilding engines to extend the life of the platform. And so the OEM will ultimately benefit if the asset flies longer, it flies more, the OEM is going to sell more parts. And so it's a win-win. I mean there's a partnership benefit to both of us for investing in these platforms to keep the engines flying.

Okay. Let's talk about power, too. And by the way, if there's questions in the audience, just raise your hand, we'll get you a mic. But the margin profile on Aerospace Products, where do you see that longer term?

So we're sort of guiding to people to low 30s. And as I just mentioned, if you think about the math of the two different engine types, if you take a 6,000 cycle engine, we typically would sell that around $6 million. Our cost of goods sold is about $3.5 million. So it's $2.5 million of profit, which is about a 40% plus margin on that smaller build engine. If you then -- also as part of the program, we're developing with some of the bigger airlines, they'll say, but I also want a 10,000 cycle engine because when I look at my fleet, I need a mixture of assets that are going to last different lengths. So that 10,000 cycle of full performance restoration would likely sell for about $12 million or -- and our cost of goods sold would be about $9 million.

So that's a 25% margin on an asset that's twice -- weights twice as heavily on the overall margin. So the combined margin of those two transactions is 31%. Now you want to do both. They're both good transactions. You would never go to an airline and say, well, thank you very much, but I only want to do the small build because my margins are higher. Of course, not. You want to do all of it. You want to get the market share now so that you can basically be the outsourced provider of power for the whole industry on a go-forward basis.

And so that's our -- that's our mission, has shifted a little bit in that over the next several years, if we can build our market share, maybe at some point in the future, there's an opportunity to be more aggressive on price. But today, we're looking at like get the real estate now. And it's all -- they're all good transactions. It's not like you're doing bad transactions or doing too good transactions, but it is mathematically just going to have lower margins.

Okay. And longer term, looking out a few years, should we be thinking FTAI gets into maybe one of the newer platforms?

Yes. We're expecting by 2028, 2029 to be in the LEAP and the GTF engines. That's about the time where you'll have enough engines that are off of the OEM power-by-the-hour programs and they will have stabilized the platforms. Because right now, there's still parts that are being upgraded for performance and durability issues. So you want to wait until the platform is going to be in the long run part of that manufacturing process.

So the architecture of the LEAP is very similar to CFM56. We have the licenses to be able to do the repairs in our existing facilities. So it's really just economics that will drive us. And we think by 2028, '29, those parameters will line up, so it will be in those businesses. Most likely, we'll start by buying aircraft that have LEAP or GTF engines into our SCI vehicles. So we'll start to get ownership there, and then we'll develop the maintenance expertise and experience in our shops.

But it's going to be a big market. The cost, as I mentioned earlier, the maintenance cost on the current -- the new technology engines is higher and they're not staying on wing as long. So you're going to have a much bigger market for maintenance, which for us is a good thing. So -- and the same value proposition of buying an asset, doing the work in our own shops and delivering it on a completed basis to the customer will exist in that market, too.

Okay. I think a great pivot maybe into power, which seems to be like an endless opportunity right now, doesn't it?

It does.

So how did you come about thinking the CFM56 as a proper aeroderivative platform for this business?

So we've looked at aeroderivatives for over 10 years, primarily the CF680, which was when we first started the company, as you may remember, we had a variety of engines. CF680 was one of our bigger ones. But every time we looked at an aeroderivative conversion, the market wasn't that big and the end market and the supply of feedstock wasn't that big. So we have knowledge of how those markets work, but it never really lined up until the world changed with the growth in data centers.

And now the constraint in the industry is really getting hot section parts, the blades and the veins, is severely constrained because the production of those is an art as much as a science. It's limited and there's demand on all of those manufacturers from the LEAP, the GTF, the CFM56, the V2500, the IGT blades, everyone wants more blades. So that's why if you go today to try to buy a significant amount of new generation assets, you can't get anything until 2030 or 2032.

So we looked at it and said, well, what's the answer to that. The obvious answer is find an asset that doesn't need new hot section parts, which is an existing engine type, and there's no bigger platform in the world than the CFM56 engine. So it became the obvious solution. We had internal engineering capability, people with aeroderivative experience, and we said how difficult will it be to convert that to an aeroderivative since that's the path that every other product has taken.

And we did that starting over a year ago, and we did the hard part first, which is to modify the turbine, you take off the fan, you change some of the air flows, you change the fuel system. And then you make sure that, that engine can operate with the efficiency that it was designed for. And so we did that starting over a year ago. We have 30 engineers in the company. They are focused solely on this product. And now we're in the phase of packaging and putting it together with the generator, with the gearbox, with the trailer to make it a portable product that can be delivered in scale in the near term, which is 2027.

You're targeting 100 units next year?

100 units, it's a 25-megawatt per unit generator, so that's about 2.5 gigawatts of power to the market in 2027. Estimates of demand are 60, 70, 80 gigawatts that needs to be delivered per annum. So it's not a huge part of the market, but it's meaningful to us, and it's a start. It could get bigger from there.

And you mentioned feedstock too. Do you have inventory that will meet that demand looking out from here?

Yes, we called out in the -- starting in the fourth quarter, we already started identifying and buying turbines, and we're converting those turbines now. If you think about the market overall, if you have 20,000 engines and you have -- in today's market, you have roughly about a 2% scrap rate on the existing platform, so that's about 400 engines a year that get parted out. And we've been identifying candidates that we previously wouldn't have been interested in to buy to position for the power business, and there's plenty of feedstock out there.

Okay. Can you talk to the economics on the power business, though?

Yes. So when we originally launched, we indicated that the margins would be as good or better than the aerospace products business. We -- also, people have been using a reference point of $1 million per megawatt hour, so that's $25 million. So roughly about $7 million to $8 million of EBITDA per unit. When we looked at the Jereh structure, it's slightly different in that FTAI sells the turbine to the joint venture, and then the joint venture completes the product and FTAI will own between 25% and 50% of the profits in the joint venture.

When you add the two together, you effectively get to the same place for those units. But you have a partner that's got 20 years of experience. They manufacture a lot of the parts going into the aeroderivative and they have 4 locations to do this work, and there's no learning curve for them. So all of that essentially makes it -- derisks the process but preserves the economics. So that's why we decided to go that route.

And Jereh is the JV partner, right?

Correct.

And is all the business going to flow through the JV then on the power side?

We have the capability and preserved the right to be able to do our own packaging in Miami but we don't expect that we will do that. It's really a risk management tool.

Okay. And can you talk to the customer profile for this business?

Yes, it's -- the ultimate end market is data centers where there's, as I mentioned, 60, 80 gigawatts of demand. And the customer base is assuming these will be baseload and most of the customers are looking at long-term leases. So they're expecting to have these operating for a number of years, up to 10 years. And they're also all looking for a service contract. What's not in the math is we will provide a long-term service agreement for each turbine that's in the field and will be paid on an operating basis for however many hours, very similar to aviation, you're paid on an hour of usage in advance and then you provide the replacement turbine.

I do have one picture that I'd like here that's something that we've done that's very different on the maintenance side. I can't find it now. It's not here. Anyway, sorry, we built in a -- into the container a door on the side of it. And the door opens so that you can put a forklift in, remove the turbine from the power unit solely and then replace a new turbine into that generator in 2 days. So you can do a field service replacement of the turbine.

So that means you don't have to remove the whole unit, send it off to a shop, wait for 6 months for it to come back and then put it back in service. We can do an immediate exchange. And so that ultimately will lower the maintenance cost of the operation, and it reduces the number of units that people will need for redundancy. So the lower maintenance costs and the lower asset intensity will make this a very, very competitive product in the market, and it's unique.

I don't think anyone else is going to have that capability ever that we have given our capability to manufacture these turbines and have them available in scale and size.

Joe, we're only down to about a minute left. I appreciate you sharing some time with us today. But I guess, what could be potential limiter on the power business here?

Well, it's primarily our ability to produce units, and that's just going to be an execution issue between us manufacturing -- modifying the turbine in Montreal, which we feel very good about and then Jereh being able to supply the parts for the assembled package unit.

You're hoping to have a prototype built this year. Is that right?

Yes, absolutely. For delivery next year, we will have -- we've -- every one of the potential customers has been to Montreal to see the turbine and to see the operation of the turbine and the testing of that. So now it's really more of an assembly process.

All right. Well, Joe, thank you very much for attending.

Thank you.

Good day, and thank you for standing by. Welcome to the First Quarter 2026 FTAI Aviation Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Alan Andreini, Investor Relations. Please go ahead.

Thank you, Marvin. I would like to welcome you all to the FTAI Aviation First Quarter 2026 Earnings Call. Joining me here today are Joe Adams, our Chief Executive Officer; David Moreno, our President; Nicholas McAleese, our Chief Financial Officer; and Stacy Kuperus, our Chief Operating 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 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 in our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC.

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

Thank you, Alan. The first quarter was a solid start to the year for us, and we'd like to begin this morning by highlighting the key objectives for each of our businesses in 2026 and the progress we made during this first quarter. Across Aerospace Products, strategic capital and power, we are scaling platforms with strong structural demand in a disciplined manner and deploying capital to support growth where we see the most attractive long-term returns. I'll start with Aerospace Products.

First, a top priority for us in 2026 is to focus on accelerating our market share growth. As our production capabilities, parts procurement strategies and overall MRE customer adoption reach an inflection point, now is the time for us to take full advantage of our competitive moat and focus on market share growth. As a reminder, we're only 5 years into building our Aerospace Products business. And as the business continues to mature and grow, we have the opportunity to leverage our enhanced execution capabilities to take more market share more quickly from traditional engine maintenance shops.

Second, as the market for the CFM56 and V2500 engines continues to mature, we've seen a notable increase in demand for leased engine solutions from top-tier airlines, even those with in-house engine MRO capabilities. We offer flexibility, customized pricing and scale that no one else can fulfill and these large programs are very sticky. It's a key priority for us in 2026 to win more of this business.

Third is production. We've always talked about expanding production capacity well ahead of growth as well as adding maintenance facilities in parts of the world, where we see strong traction with our customer base. It's notable today that when you look at the map, we have no major maintenance facilities east of Rome, Italy. I'd expect this to look different when we are in next year's first quarter call.

Turning to results. Aerospace Products results support the objective I just outlined with top line revenue growth accelerating both year-over-year and quarter-over-quarter, up to 104% year-over-year and 32% quarter-over-quarter. respectively. First quarter adjusted EBITDA of $223 million is an increase of 70% year-over-year and up 14% from $195 million in Q4 of 2025. EBITDA margins for the quarter of 30% are indicative of an increased mix of deals with large airline customers and a larger mix of full performance restoration shop visits. We expect this to be the trend line going forward as our capabilities have been built out, and we're able to bring volumes to the market that others simply cannot. Shifting now to strategic capital, where our top priority is completing the deployment of the 2025 SPV or special purpose vehicle. Our deployment pace for the first vehicle has been strong and our engine maintenance-focused approach to adding value to aircraft ownership has been well received by the market.

As we approach the end of the second quarter, the 2025 SPV will be fully invested, and we will shift from the deployment period to the harvest period, where quarterly distribution will now begin. David will share more about -- with you about the goals for adding value to the portfolio during this phase. As an active asset manager, we're always pursuing ways to enhance the returns above what is the contractual lease stream. Our second area of focus for strategic capital is the launch of the 2026 SPV. We continue to plan to have a first close at the end of the second quarter, and we'll start acquiring aircraft in the third quarter of this year. The investment strategy, 12- to 15-month deployment period and size of the vehicle will be consistent with the 2025 SPV.

Last, to support the build of the strategic capital business, we've added to the team and now have over 40 dedicated individuals focused on sourcing, underwriting and servicing the portfolio across offices in Dublin, Dubai, Cardiff and New York. The growth ambitions and differentiated strategy around the engine maintenance has resonated in the market, and we've been able to attract great talent to supplement our existing team and scale the platform.

Finally, the FTAI Power business continues to make strong progress towards its commercial launch in the fourth quarter of this year. This week, we signed an important joint venture agreement with the Jereh Group for packaging and customer conversions that are in advanced stages. Both of which David will share more details about shortly.

Before I pass it over to David, I want to address the conflict in the Middle East that began at the end of February and the broader geopolitical environment our industry is navigating today. We are hopeful for a peaceful resolution and a return to more normal energy trading and prices, but we're also realistic about some of the challenges of today's environment.

Beginning with Aerospace Products, our exposure to the Middle East is limited. Less than 3% of our global current-gen narrow-body fleet is based in the region, and we have very little customer exposure. More generally, we've not seen any meaningful change in shop visit demand to date. That said, elevated oil prices and fuel prices do negatively impact our customers' financial situation, and while this can create some volatility, it's the exact environment where our FTAI value proposition becomes even more critical to the customer.

When an airline is facing a multimillion dollar engine shop visit in comparison to a faster, lower-cost engine exchange with FTAI, the decision is even easier to make when liquidity is top of mind. It's also worth remembering that airlines cannot meaningfully change their fleets in response to short-term volatility. New aircraft orders are locked in for the next 4 to 5 years, and the current generation aircraft will continue to be a vital part of the global fleet for many, many years. In short, market share gains in aerospace products are much more consequential to us compared to overall market growth.

For strategic capital, periods of volatility create opportunities -- investment opportunities. When liquidity is tight, sale-leaseback transactions help raise funds and avoid future shop visits. As the only lessor in the world that covers all engine maintenance for its aircraft portfolio, we are uniquely positioned to help airlines in this manner.

And lastly, for power, our business is largely insulated from the geopolitical dynamic today. For Mod-1, our product runs predominantly on natural gas and to the extent we see additional aviation retirements, it will just provide additional feedstock to grow our conversion efforts.

So I will now hand it over to David Moreno.

Thanks, Joe. I will start by providing an update on Aerospace Products production. We refurbished 270 CFM56 module this quarter across our four facilities, an increase of 96% compared to Q1 2025. This is a good start to our 2026 production goal of 1,050 modules and continues to reflect the hard work of our fast-growing team.

As Joe mentioned, we have built a strong Aerospace Products foundation over the last 5 years, and we are ready to further accelerate our market share growth. From a commercial perspective, we are seeing customer engagements expand to larger, more programmatic partnership as airline adoption accelerates. This is driven by both the overall market tightness as well as FTAI's capabilities continuing to broaden to now include engine and module exchanges, engine leasing and aircraft leasing.

We can't emphasize enough the stickiness that's created as our relationships with airlines and asset owners expand. We become a solution provider that is integrated into the operational plans for the airline's future growth. Our close relationships with airline customers is something we are very proud of, and we believe this will continue to accelerate our market share in the years to come.

Next, I'll share a further update on our strategic capital. To support the full deployment of the 2025 SPV, we upsized the vehicles warehouse debt facility at the end of March, adding $1 billion of committed capacity. This facility is now $3.5 billion in size across 10 lenders, creating a strong roster of partners for our significant debt capital needs in the business going forward. As we mentioned last quarter, capital deployment for the 2025 is largely complete. We have closed 165 aircraft as of the end of Q1. And after we signed a few LOIs that are in process, all new aircraft will go into the -- all new future aircraft will go into the 2026 SPV.

With the 2025 SPV transitioning from investment mode to harvest mode, we are very focused on maximizing the value of potential cash flows for our investors. We do this through active management of maintenance events, both airframe and engines as well as through lease extensions. We continue to see strong desire from our airlines to fly current gen aircraft as long as possible, especially when they do not have to worry about engine shop visits. Our all-in-one solution of combining leasing and engine maintenance has resulted in many lease extensions, and we believe this will continue to be an important trend in the portfolio.

Finally, on FTAI Power. I want to share updates on the timing of our commercial launch, our packaging integration and progress with customers. First, we remain firmly on track to commercially launch the Mod-1 in the fourth quarter, and our prototype testing is actually running ahead of schedule. We have completed all the major mechanical testing milestones, including testing our redesigned Mod-1 fan stage at synchronous speed, and we expect to wrap up final testing in the third quarter. The results to date have exceeded our expectations. We have been also hosting customers on site to observe the Mod-1 prototype directly, and that has become an important part of how we sell this product.

Second, as Joe mentioned, we signed a joint venture agreement with Jereh Group, one of the leading packagers for mobile gas turbines. This is a foundational step for the program as Jereh will be our primary partner responsible for taking our turbine and combining it with a mobile package that includes the key components like the generator and gearbox. Through the joint venture, we will draw on Jereh's manufacturing footprint across the United States, the UAE, Canada and China, which gives us scale, geographic reach and a clear path to global product rollout. The joint venture derisks our supply chain, accelerates our speed to market and aligns the incentives of both parties across the long-term success of the platform.

Third, we are building a customer base committed to the long-term deployment of the Mod-1. The customer momentum we discussed last quarter has accelerated meaningfully. We are in deep and active negotiations with leader across the energy and digital infrastructure landscape, and every one of these deals is anchored by a long-term service agreement or LTSA on the turbine. One exciting element is that customers are coming to us with a range of commercial structures in mind from outright purchase to lease, which speaks of the flexibility of our model and the strength of the underlying demand. The interest in lease structure is in particular, fits naturally with our strategic capital initiative and gives us the ability to offer customers a sought after leasing solution while preserving capital efficiency. Several of these conversations are framed around multiyear, multi-block deployment plans, which gives us visibility well beyond 2027.

Last, what has resonated most with customers is the maintenance model. The ability to swap a turbine in place in just two days rather than take the unit offline for an extended overhaul is a capability that power -- the power industry has not had access to before, and it translates directly into a lower levelized cost of energy or LCOE for the customer. Based on these conversations stand today, we expect to be mostly sold out of our 2027 target production in the near term with a meaningful portion of 2028 spoken for.

Before I hand it over to Nicholas, I want to take a moment to congratulate him on his promotion to CFO as well as Mike Hazan on his promotion to CAO. Both Nicholas and Mike have been key contributors to our operational success and their new leadership roles, they are positioned to have a large impact on our future success.

With that, I'll now hand it over to Nicholas to talk through the first quarter numbers in more detail.

Thanks, David. The key metric for us is adjusted EBITDA. We started 2026 with adjusted EBITDA of $325.6 million in Q1 of 2026, which represents a 17% increase compared to $277.2 million in the fourth quarter of 2025. The $325.6 million EBITDA number was comprised of $222.6 million from our Aerospace Products segment, $153 million from our Aviation Leasing segment, and negative $50 million from Corporate & Other, including intersegment eliminations and start-up expenses associated with our power initiative. Aerospace Products delivered another good quarter with $222.6 million of EBITDA and an overall EBITDA margin of 30%. This is up 14% sequentially from $195 million in Q4 of 2025 and up 70% year-over-year compared to $131 million in Q1 of 2025, reflecting continued momentum from production growth and operating leverage.

Turning to Aviation Leasing. The segment continued to perform well, generating approximately $153 million of EBITDA in the first quarter. This included $45 million of insurance recoveries, $12 million in gains on sale, $25 million from 2025 SPV management fees and co-investment returns and $71 million from leasing assets held on our balance sheet.

For insurance recoveries, in addition to the $45 million recognized in the first quarter, we continue to expect approximately $5 million to be settled later this year, consistent with our previously communicated $50 million for 2026. When combined with the $65 million recovered during 2024 and 2025, this brings total recovery since the outbreak of the war in 2022 to approximately $115 million against the $88 million we wrote off in 2022. For gain on sales, we began the year with $127.5 million in asset sale proceeds, generating a 9% gain or $12.1 million as we closed the first 9 of 14 aircraft expected to be sold to the 2025 SPV this year and divested several noncore assets during the quarter, including airframes and an RB211 engine.

Overall, as we continue to launch new strategic capital vehicles on a programmatic basis, we expect the mix of leasing EBITDA to increasingly shift towards strategic capital-driven earnings as we further pivot away from balance sheet aircraft leasing and toward a more capital-light fee-driven asset management model. This shift in our business model is also driving continued improvement in our financial profile. We began the year at approximately 2.3x leverage on an annualized basis, now below our targeted range of 2.5x to 3x agreed with our rating agencies and meaningfully lower than the leverage levels of approximately 5x in 2022 and 4x in both 2023 and 2024 before we pivoted to an asset-light strategy.

In April, we also upsized our revolving credit facility from $400 million to $2.025 billion and extended the maturity of the facility through 2031 on improved pricing terms, providing FTAI with a long-term source of liquidity. The facility was significantly oversubscribed and is supported by a diverse syndicate of 15 lenders, including several institutions that also financed the debt facility of our 2025 SPV. As we continue to scale our asset management platform, this alignment across financing relationships enhances flexibility, lowers our cost of capital and delivers tangible financial benefits to the public company.

Finally, in the first quarter, we generated $158 million of adjusted free cash flow, reflecting several strategic investments made early in the year to position the business for further growth in 2026. These included approximately $75 million in prepayments under our multiyear CFM56 parts agreement with the OEM, approximately $81 million in induction prepayments for V2500 engines, where demand for full performance restoration remains strong and $19 million of incremental inventory for FTAI Power to build working capital in support of a target 100-unit production run in 2027. Excluding these growth investments, adjusted free cash flow for the quarter totaled approximately $333 million, reflecting the strong underlying cash generation capability of the business.

With that, I'll hand it back over to Joe for final remarks.

Thanks, Nicholas. I'd like to reiterate how encouraged we are by the start of 2026. Despite a dynamic geopolitical backdrop, demand across our customer base remains robust, execution across our 3 platforms is extremely strong and the strategic investments we're making today position FTAI well for continued growth in 2027 and beyond.

While developments in the Middle East remain fluid and could present both challenges and opportunities, we continue to see strong underlying fundamentals across our business and a durable competitive advantage in all of our platforms. Consistent with that view, we reaffirm our 2026 total business segment EBITDA outlook of $1.625 billion, comprised of $1.05 billion from Aerospace Products and $575 million from Aviation Leasing, supported by growing and accelerating demand across our proprietary aerospace offerings.

Based on this outlook, we also remain confident in our expectation to generate approximately $915 million of adjusted free cash flow in 2026, which reflects continued execution against our annual production plan of 1,050 CFM56 modules to meet customer demand while prioritizing excess cash flow for reinvestment in high-return growth initiatives, including M&A, minority investments in the 2026 SPV and the continuing development of FTAI Power. As a result of this confidence for the third consecutive quarter in a row, we're announcing an increase to our dividend from $0.40 per quarter to $0.45 per share per quarter. The dividend will be paid on May 26 to shareholders of record as of May 13. This marks our 44th dividend as a public company and 59th consecutive dividend since we started.

As we look ahead to the rest of 2026, our focus remains on building a durable, scalable and differentiated platform that delivers value over the long term. The investments we are making across Aerospace Products, strategic capital and power are designed to strengthen our competitive position, expand our addressable markets and support sustainable growth for many years to come. And I want to recognize the teams, the fabulous teams across our organization for their continued focus on execution and delivery in a demanding operating environment.

And I also want to thank our customers and partners for the trust they place in FTAI as we help them navigate capacity constraints and rising demand, and our shareholders for their ongoing support as we continue to scale our business. We are focused on executing against the opportunities in front of us and remain confident in FTAI's ability to deliver.

With that, I will pass it back to Alan.

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

[Operator Instructions] And our first question comes from the line of Sheila Kahyaoglu of Jefferies.

Nice quarter. I had two questions, if that's okay. First one is on Aerospace Products. Market share continues to climb higher, up from 10% to 12%, while the margin rate is healthy but has taken a step back. Can you maybe talk about some of the puts and takes? How much came from higher work scope versus the market share in new customers?

Yes. I mean we really don't have a specific breakout of the components. It's really a mix of things that go into it. And as we mentioned previously, as the customers get bigger, the potential orders get bigger, the work scopes get bigger, we are consciously going for higher market share and to drive faster growth in EBITDA in an absolute dollar amount. And we think that moves the needle much more than anything else and really the opportunity to take advantage of this scale that we have today and really capture as much of the market as possible is something that we've been working hard to get ourselves in a position to be able to do for years, and we feel like we're there at this point.

Yes. And this is David. To add to that, right, I think, as Joe mentioned, the scale is intentional. It's obviously intentional on the aerospace products, but it's also intentional across the value it creates on the entire business, right, our strategic capital and our power business. So when we look about and think about the value creation, there's no better lever than increasing market share for us as a top priority.

Great. And then maybe, David, you mentioned much of the '27, '28 modules should be committed to in the near term. Can you give us some flavor of what your customer set looks like and the underlying assumptions in terms of volumes and packaging capability as you get into the 2028 time frame?

Yes. So we've made meaningful progress with customers. As I mentioned, we've had customers on site as well to look at the prototype, understand that. I think that's a very important piece of the sales process. So to give you a little more color, the customers really consist of four types of customers: number one, hyperscalers; number two, data center operators; number three, gas distributors; and number four, financial sponsors. There's a lot of activity from financial sponsors, who are actually -- who are providing a lot of capital in this space.

We feel very good about being where we're at, and we expect to be, as I mentioned, in a short matter of time sold out of 2027 volumes. The conversations we're having are beyond '27, they're multiyear, multi-block conversations. So we're talking about conversations or orders into 2028 and beyond. And I think that's a very important piece is when we built this, we wanted to create a diverse group of customers really with the intention of having them operate this base load for a long term. And I think we've seen that, and we're very happy with the progress. And as I mentioned, I think we're kind of in the final steps here, and we hope to update you guys shortly.

Our next question comes from the line of Ken Herbert of RBC.

Maybe Joe or David, can you just talk a little bit more about the relationship with your JV partner, Jereh Group and maybe how that came about, why you picked them and the value uniquely they sort of bring to this FTAI Power opportunity?

Yes. This is David, Ken. So I can take that. Yes, we're very excited about our partnership with Jereh Group. They're one of the largest oil and gas equipment manufacturers across the world. And what they're going to be doing with us is they're going to basically handle everything except the turbine, right? What that means is the actual trailer, all the key components on the trailer, including the generator, the gearbox and all the controls. And that will allow us to focus on the Mod-1, which is our -- obviously our specialty around the turbine.

Jereh, we selected Jereh because of their scale and manufacturing. They have manufacturing facilities across the U.S., Canada, the UAE and in China. So that scale is obviously an important theme, and it's something that we're going to continue to talk about as well as they have a lot of experience with aeroderivative packaging. They package turbines for, let's say, folks like GE Vernova, Baker Hughes, Siemens, and that they can create a lot of value in everything but the turbines. So I think it's a really good marriage between both companies, and we have shared incentives to continue to work and scale this business together.

Does the work with Jereh at all impact sort of your access to the post-sale economics when we think around maintenance and spare parts and other ways to sort of monetize, obviously, the FTAI Power?

Yes, I would say there's no real change to how we've talked about economics, right? So the overall unit economics will remain roughly the same or in line, right? But obviously, a part of this will come through a joint venture. So the way that it will look on the face of the financials may be a little different, meaning revenue may be slightly lower, and then we'll have earnings -- a piece of this earnings through earnings in a joint venture. But overall the unit economics remain the same.

Obviously, as part of the Jereh Group handling the packaging, that means for us, we have to invest less in working capital around the packaging piece of the equation, which is obviously a good part. But overall, look, they're best-in-class. They can package at scale and they're vertically integrated, so they add a lot of value there. So it does not have any impact on our overall margins.

And the LTSA.

Ken, I think we talked about this on the call, but we're obviously very focused on the long-term service agreement when we talk about economics to FTAI on the turbine. What that is, is effectively customers will pay for us to service the turbine. And I would think of that as very similar type economics as our aerospace business, where effectively customers will pay us based on usage. And depending on usage, every 3 to 6 years, turbines will have to get replaced. And we're going to be handling that through our exchange business, which we're very excited. And what that means is effectively we can replace these turbines in 2 days or less. And we're excited because typically, the lead times of doing maintenance on turbines is actually a bit longer than the aerospace business. So we think that's going to be a huge competitive advantage as well as a revenue stream, which we're very excited about.

Our next question comes from the line of Kristine Liwag of Morgan Stanley.

Maybe, David, since you're talking about power, I just want to touch a bit more on some of the things you said. So one, I just want to clarify, when you said that you're mostly sold out for 2027, does this mean that these things are accounted for and you're just waiting for ink to dry on the orders? That's the first question.

And also as a second question, can you provide more color in terms of how your interactions are with these hyperscalers? What's important to them? When you talk about being able to service these engines, these turbines at a shorter period, is that a key differentiator? Are they valuing this? And ultimately, how competitive is your offering to what they're considering right now?

Yes. So we're in advanced negotiations. I'd say we're in kind of the final steps, and we expect, let's say, to be sold out imminently. So that's the first question. As far as the second question, what differentiates our product and what's important for our customer, really, it's three things, right? Number one is speed to power, right? So customers want units now, right? There's really a shortage of equipment out there. And our unit is mobile, and it can be installed in less than 2 weeks. So that's a big value add, very different than, let's say, an EPC or construction that takes, let's say, it can take up to 18 months.

Number two is scale. Customers want scale. I think now between our ability on the turbines as well as Jereh's ability on the packaging, we have really scale that no one has today. And then number three is really reliability of the product, which includes obviously reliability of the turbines, so it's the CFM56. It's the most durable engine ever produced and then as well as the maintenance or the servicing of it, which is a huge advantage, right? Ultimately, if you can service a unit in 2 days versus 6 months, that ultimately means you need less units and lower operating costs for our customer. So all that's very important, and I think they're very excited about the Mod-1. And again, we've really been thoughtful about building the customer base, not just thinking about 2027, but thinking about the longevity of this platform.

Super helpful, David. And then you guys have historically talked about the power margins would be better or equal than aerospace products. With your investment now and higher market share for aerospace products within the margin pressure that that's yielding, can you talk about where you think power margins could be in the long run? I mean, compared to when you guys have talked about the power initiative, this ability to turn around the maintenance in 1 to 2 days seems like a very significant opportunity. So does that materialize in better pricing, better margins? Anything to level set us on power margins and what to expect for '27 and '28 would be helpful.

I would say our margins, right, when we talked about it, are going to be in line to our historical aerospace margins, right? So I would say there's no changes based on our growth in market share in aerospace that has no impact on power. We're obviously going to be providing more color as we progress through the specifics of these contracts. But you're right, the long-term service agreement is a key differentiator. It's really value-add for the customer. And for us, it's recurring revenue, right? Really sets up a long-term base. Typically, the type of contracts we're going to enter are going to be long term in nature. So let's say, 10 years plus. And I think that's a very important piece because it's not only the day 1 sale, but it's also the ability to provide services on that equipment, which is a huge differentiator for our customers and something they prioritize when talking to us.

Our next question comes from the line of Giuliano Bologna of Compass Point.

Congratulations on the continued impressive results and the scaling of the business. One thing I'd like to focus on is the real acceleration in the module count and producing 270 this quarter. Can you tell us more about what's driving that acceleration in the module production? It seems like a pretty impressive acceleration in your production volumes and I'd be curious about the durability and where things could go from there because it does very well versus your stated targets for the year.

Yes. No, no, we're proud of the execution from the team, right? And as we said all along, right, we've been really focused on execution, and that includes adding the capacity, which we've done. Number two is the people, right? We've been focusing on adding the right people, and we talked about the training academy, so that continues to be humming. And then obviously, number three is execution. So we're very excited. I think that's playing out in the numbers. As you mentioned, we went from 138 modules in Q1 in 2025 to 270. So pretty dramatic increase year-over-year.

And I would point out that Rome and Lisbon are still ramping up. So I think we see a lot of momentum from those facilities and a lot of growth coming. So we're very excited. I think Joe also mentioned this earlier, we continue to look for additional capacity east to Rome. I think that's a key priority for the business. We want to get ahead -- well ahead of capacity as we continue to go for market share.

And I think also having a parts supply deal from the OEM helps us scale as well, and that's a huge provider of parts, so you need parts, people and facilities to build an engine. And so we've really concentrated in the last year on all three of those. And the result is we're able to double production year-over-year.

Our next question comes from the line of Josh Sullivan of Jones Trading.

I wanted to touch base on the conflict in the Middle East. I know your exposure is pretty limited. But if this is a projected broader event, given the cost-saving tools that FTAI offers, are you seeing any early conversations with new customers who might feel they're exposed to preparing?

Well, I think -- I mean, when you get in these environments, liquidity becomes #1, #2 and #3 for airlines to focus on. And so any time that happens, you start having inquiries on sale-leaseback opportunities, asset sales, avoiding engine shop visits. So yes, it's a direct result of the -- when you get into these environments, the priorities change for the airlines customers, and we're there to partner with them. We're always offering help. We've done this in other past crises. If you think about COVID or back when airlines have been -- the Russian situation. So we're always flexible, and we have a lot of access to capital, and we can save -- so we really go in and try to sort of sit down and work with the clients, figure out what they want and what they need and what we can do and how to help them as opposed to sort of an adversarial relationship. It's really a partnering approach, which has worked very well.

And then I guess kind of relatedly, are you seeing any acceleration in engine assets for sale in the Middle East or Europe becoming available as a result of the conflict? And I guess it's really a question on the retirement dynamic and how that's playing out in your view.

Yes. No, it's early. So we're not seeing that yet. As Joe mentioned, obviously, for us, we want airlines to do well. The entire aviation industry is better when airlines are doing well, but we're well prepared with the tools that we have, right? I mean Joe covered it. But the ability for us to do a sale leaseback with engine management really has two benefits. It's day 1, you create liquidity and day 2, you avoid the expensive shop visits. So we're really one of one that can execute at that scale. So it's still early, but we're prepared to help when the time comes right.

I mean the only things you see in the beginning are if people are flying A340s or 747s or sometimes some regional jets that are either really high cost or low revenue, those can be taken out of operation, and that's sort of what you see in the early periods. But core fleets that people need to operate their schedule and they plan over multiple years and you can't get replacement capacity. It's been such a tight market. We don't expect to see much, if anything, on that changing in the next few months, even if this goes on.

Our next question comes from the line of Brandon Oglenski of Barclays.

Joe, can you speak maybe a little bit more on the customer profile of these larger airlines that you had in the quarter and looking forward as you seek to get more market share here? I think this might actually be very much a validation of the model that you have here, but I don't know, maybe you want to elaborate?

Yes. I mean it's a great question because I mentioned last time that if I was targeting some of the big airlines 12 or 18 months ago, they would have been somewhat -- we don't need this product and we're a little bit more dismissive. But now we talk to airlines, virtually everyone in the world is a potential customer, if not an actual customer today. And the reason is to see you can go to an airline and say, you tell me what you think you're going to spend to rebuild an engine and I'll match that price or beat that price for you, and I'll get rid of all of the expenses you have to incur to manage that event like spare engines, engineering departments and the risk that the cost becomes -- you have a negative surprise in the cost overrun, all that goes away. It's like who wouldn't want to do that. So it is a great pitch. So when airlines hear that and they think about it and say, why shouldn't I if -- particularly if I'm moving into the new technology to LEAP and even if I have my own maintenance capabilities, why shouldn't I begin to use this product at least for a portion.

And then ultimately, a conversation becomes, well, if you like it for 10% of your fleet, why not 100% of your fleet. And we have conversations now where we go into an airline and we might have acquired some aircraft on lease to an airline through SCI and the airline says, we go and say, great news, you never have to do another engine shop visit on that fleet ever again. So you don't have to fight with your lessor. And you don't have to manage the engine shop visit and end up spending a lot more money, and they're like, that's fantastic. Why don't you go try to buy all of my other leased aircraft from other lessors and convert those. And so they're actually helping us to expand the relationship.

And ultimately, the goal is to manage for an airline their entire fleet. And once you get to the level of comfort, it is like why wouldn't they want to do that? So I would say virtually every airline in the world, I can't think of -- maybe a handful that might not, but almost everybody in the world is an actual or potential customer, so...

And Nicholas, I think you -- congrats on the new role, but you improved liquidity with a larger revolver, but I think also enhanced the warehousing facility on SCI. Is that correct?

Yes. Thanks, Brandon. So I think it's probably important to clarify first, they are two independent facilities from each other. So the revolver is related to the public company and is the primary source of liquidity. The warehouse upsize was all related to closing out the deployment of capital for SCI I as we track to that $6 billion number. But said that, we do have -- we do have lenders in both facilities across them. And then so as we become a bigger and bigger player on the SCI, we're able to see financial benefits. And we're both very pleased with the outcome of this is that we're able to improve the terms on the public company given we're becoming a much larger player on the SCI.

And can you just put that in context of your expected capital commitments or capital costs at the corporate level looking out the next year or two?

Yes. So for the first SCI, we did -- we have 19% of the $2 billion that we closed earlier in the year. The capital pull for that, there's approximately $95 million remaining from that as of 3/31. We do expect that to be closed by Q2, and that will fully close. As a reminder, SCI I is a closed-end fund. So once we commit that capital, we'll then switch from being in investment mode to harvest mode. And at that point, we'll start doing distributions back to all the institutional LPs, including SCI for its 19%. Related to SCI II, we are actively now in the equity fundraising mode. So from that, we will expect to deploy capital in the second half of the year, but the timing of that will ultimately relate to the cadence of when we first do our equity closing.

Our next question comes from the line of Brian McKenna of Citizens.

Okay. So there's clearly a lot of noise across private credit today, although most of that is within corporate direct lending. But what are your dialogues like today for SCI II? We've been hearing that institutional allocators continue to deploy capital in a big way across private credit despite all the rhetoric out there, specifically into ABF opportunities. So I'm curious what you're seeing on this front. And then from your seat, what's ultimately driving such strong demand for your product?

Well, I would say, ultimately, it's returns. And these are -- we're not seeing any impact from whatever the private credit side has experienced in withdrawals or redemptions because our investors are all committed into private equity style vehicles and non-redeemable structures. So it has no impact on our ability. And really what people like is an uncorrelated asset-based return that has high contractual cash flows and that's a sweet spot in the market. It always has been, it is and we hit that perfectly. So -- and what we're able to show people is a higher return with lower risk, which is another thing that every investor I've ever met is always trying to find that.

So we're able to show better returns than a traditional approach given our engine maintenance exchange program. and lower risk because we have less residual value exposure. So there's really nothing. What we offer is a great product in today's world. And all of the investors in the first SPV we're doing this with an idea there will be a program, and they will be able to do this over multiple funds over the next few years, and they're seeing great returns. And so they're very happy with what we've been able to do and are very committed to continuing to invest.

That's helpful. And then you're clearly building a great network here of alternative asset managers and large institutional allocators for SCI, but I'm curious, a lot of these large investors also own or are invested in data centers and energy-related infrastructure. And I think you guys alluded to this a little bit, but is there an opportunity to leverage some of these relationships on the SCI side to further enhance the adoption and distribution of your power product over time?

Yes, this is David. And the answer is absolutely. So we're -- we've talked about the demand being -- a lot of demand for leasing, long-term leasing. And we're thinking about it very similar to the way that we thought if you think about our aviation business, where we can create these long-term contracted cash flows. And then our capital partners are very much wanting to invest in these type of assets. So we feel very good about being able to scale that, and I think that's a very capital-efficient way to do so. So absolutely.

It also further differentiates our product because most equipment sellers don't offer financing. And so when we go to a customer, we say, like we did in aviation on the power side, you can either buy it, you can lease it or you can have a power purchase agreement. You tell us what you want. And that flexibility is hugely beneficial to today's world where there's a lot of demand for capital, as you can see, and people are trying to figure out how to make it go farther. So the flexibility that we can offer on the financing is extremely well received, and it's a perfect structure for an SCI power vehicle.

Our next question comes from the line of Shannon Doherty of Deutsche Bank.

First one for Nicholas, and congratulations on your new role. After the additional $5 million of expected insurance proceeds this year, will you be completely finished with the insurance claims?

Thanks, Shannon. Yes, that's correct. So we settled on $44.6 million in Q1, of which we received $27 million of that. The balance of that will be received in Q2 from cash proceeds. And then remaining that $5 million is consistent with our original guidance of $50 million. After that, that will be ultimately hit and closed.

Great. And for my second question, any update on the progress of getting the remaining PMA parts approval with the FAA? We all know that parts inflation is an issue for everyone in the industry right now. So maybe you can provide us with some more color on levers that you can pull to manage costs.

Sure. So the -- I mean, just to recap, there are 5 parts in total that Chromalloy has been working on, 3 are approved. Those 3 represent about 80% of the total cost savings. So the last 2 parts are in process to getting approved. But the majority of the cost savings is already with parts that are already available and in the market, so -- but they are in the works in terms of getting approval for those last 2.

Our next question comes from the line of Myles Walton of Wolfe Research.

This is Greg Dahlberg on for Myles. I just had a quick follow-up on Giuliano's question regarding module production. I wanted to focus more on Miami and Montreal specifically just because it looks like Montreal was down sequentially in 1Q and Miami was well above the full year run rate. So can you just talk about the dynamics specifically in 1Q and kind of how those play out through the year?

Yes, I can take that. So Montreal is our most mature shop, which that means they're going to handle the heaviest work scopes. So the product production mix is based on -- purely on work scopes. So Montreal is doing, let's say, heavier shop visits, while Miami is doing a bit lighter and then Rome today and Lisbon are doing the lightest work scopes.

Got it. And then a quick one for Nicholas. Just given the corporate expense in 1Q was embedded with some of the power costs. Can you talk about the full year expectation?

Yes. So we had approximately $10 million in incremental expenses related to power. That's R&D expense, and that's -- but that's also incremental headcount from building out the teams of engineers, technicians and support staff. So decomposing that, you can assume that we will be approximately slightly less on an annualized level related to that for 2026. But as in the future years, we plan on growing this into a 100-unit production growth, we will be increasing headcount. So in outer years, you can expect that our expenses for power will continue to grow. But ultimately, there are some onetime expenses in Q1, Q2, Q3 as we do R&D that will immediately hit our P&L rather than being capitalized.

But probably in 2027, it will be a segment, and we will not have it incorporated.

Yes, that's correct.

It will be a sizable business, and we'll set it up as a separate reporting segment. And so all those expenses will be attributed -- allocated to the power business at that point.

Our next question comes from the line of Andre Madrid of BTIG.

This is the first quarter in a while that I can remember at least that we didn't see some kind of acquisition being announced. Obviously, it still remains a capital deployment priority. I guess just could you give more color as to what the M&A pipeline looks like? Maybe obviously not too deep in the details, but color around scale and maybe geographic location and capability.

Yes. I didn't realize we've built an expectation that we have an M&A every quarter. But it is hard to control that. But I would say on M&A, the activity is in two different categories. This one is adding capacity to the overhaul business. And we did allude to the fact that we expect by this time next year that we'll have another facility somewhere east of Rome, Italy. So we do have some candidates. We're working on that. It's often hard to control the timing on M&A, so -- but we've been very disciplined and we found great assets to add. And when we get the right structure and the right asset, we can move quickly. So we're working on deals in that category.

And then the second area where we've been active is in piece part repair and part manufacturing. And we have several deals that we're looking at in that space as well. So we'll continue to vertically integrate in our product offering. Any time we can undertake an activity to reduce the cost of overhauling and building an engine, we're going to be very aggressive about that. And we've added -- last year, we added Pacific Aerodynamics and Prime through the Bauer partnership. So we'll keep looking and hopefully add additional capability in the repair and piece part manufacturing business in the future.

I'm showing no further questions at this time. I'll now turn it back to Alan Andreini for closing remarks.

Thank you, Marvin, and thank you all for participating in today's conference call. We look forward to updating you after Q2.

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

Good day, and thank you for standing by. Welcome to the Fourth Quarter 2025 FTAI Aviation Earnings Conference Call.

[Operator Instructions]

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.

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 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 in our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC. Now I would like to turn the call over to Joe.

Thank you, Alan. 2025 was a defining year that 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 737NG 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, the largest fund ever dedicated to narrow-body midlife aircraft. Together with the support of our leading financing partners, Atlas and affiliate of Apollo and Deutsche Bank, we will invest $6 billion in total capital in Fund I. 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 funds 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 II 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 II, which positions us to start investing out of SCI II 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 4x the $160 million we reported 2 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 differentiated MRE or maintained 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 3 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-plus highly skilled and dedicated employees spread across 13 locations on 3 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 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 Kaperis, who are 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.

Thanks, Joe. I would now like to talk about our priorities for 2026. First, I'll share an outlook for strategic capital. We are pleased to report that the capital deployment for SCI I 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 I, 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 II. We expect to start investing SCI II by June 30 and look forward to continuing to execute on the strategy of combining on-lease aircraft investing and 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 and daily output. We began integrating Palantir's artificial intelligence platform, providing our teams 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 positioned Miami to be a major hub for MR production. We have added highly experienced engineers and technicians expand into floor space and the proximity to our existing facility and Tessel drive significant synergies. The ATOP Portugal facility is also be incorporated into our logistics network and is already making a meaningful contribution to our field service operations in Europe. We also made significant progress with our 2 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 square foot 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 MR 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 F5's evolution. Finally, 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 a simple belief that the CFM56 engine Already the most proven and widely deployed engine and commercial aviation history will play a critical role in the meeting the world 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 that we're now seeing. With FTAI Power, we're adapting the world's largest and most reliable engine platform to deliver a 25-megawatt 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 5 areas: number one, engine feedstock and working capital, net facility readiness; number three, our procurement strategy; number four, customer engagement; and 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. And 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 multipronged 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 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.

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. We -- the $277.2 million EBITDA number was comprised of $195 million from our Aerospace Products segment $1.2 million from our Leasing segment and negative $31 million from corporate and other, including intrasegment elimination and start-up expenses associated with their power initiative. As expected, Aerospace EBITDA continues to exceed and outgrow Aviation leasings EBITDA.

Now 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 of 2025, and up 66% compared to $117.3 million in Q4 2024. Overall, we generated $671 million of adjusted EBITDA for 2025 and aerospace products in alignment with the revised higher estimates for the year of $650 million to $700 million. Turning now to leasing. Leasing continued 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 their 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 2.6x leverage on the low end of our targeted range of 2.5 to 3x [indiscernible] upon with our rating agencies. In addition, we are pleased to see recognition of our improved credit loss quarter with 2 notch upgrades from both S&P and Fitch. With these actions, we have now achieved our objective of maintaining a strong BB rating across all 3 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 midyear of $750 million. This figure is further adjusted for 3 key investments we made in the fourth quarter to support our 2026 growth initiatives.

First, strategic capital. For larger fund size and faster deployment pace increased our co-investment by $52 million. Second, Taipower, where, as David mentioned, we proactively invested $150 million in additional turbines to support the 2026 production ramp. And 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. And with that, I'll hand it back over to Joe for final remarks.

Thanks, Angela. 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 fund raise for the inaugural vehicle, launched the fundraising for SCI II, 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 $1.25 billion. This includes $1.05 billion from aerospace products, up from $1.575 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, and 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 II and $100 million of additional power of 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 March 23 to shareholders of record of March 13, which marks our 43rd dividend as a public company and our 58th consecutive dividend since inception. Overall, we entered 2026 with strong demand and 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 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'll give it back to Alan.

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

[Operator Instructions]

Our first question comes from Sheila Kahyaoglu with Jefferies.

I have 2 questions, please. The first one would be on AP margins. So when we look at aerospace products margins, they've been nice and steady at the mid-30s level throughout most of this year, and you've talked about reaching 40% potentially in. 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?

Sure. Thanks, Sheila. So when we talked about growing our margins from 35% to 40%, we mentioned 3 parts to that. First was the PMA HPT blade which has been approved. Second was additional lower cost parts supplies, which we've now achieved through both buying use -- additional used service from material, but importantly, with the deal that we did with CFM, which included parts and repairs. And then 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.

And 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 3 years, and it's critical to sort of maintaining a low-cost position and developing competitive advantages in the overhaul of those engines. So great progress on all of those. So everything we wanted to have in place to achieve that 40% 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 12 to 6 to 12 months, we've increasingly been engaged on bigger deals.

And 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. So that's sort of the way I would give the state of affairs today

Perfect. And then if I could ask another one on FTAI power. 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?

And secondly, how you're thinking about ultimately your ability to service these turbines once they're in the field.

Sheila, this is David. I can take that. So just as far as the ramp up first, right, we've been working on the power initiative for over a year. So 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 0 to 100 as far as production units for power is going to go a lot faster than when we started aerospace going 0 to 100. And 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.

Now 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 5 to 6 years, it's going to require maintenance. As the business scales, that's going to be 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 0 downtime for our customers. And we're going to 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 is going to set us apart from a lot of competitors.

Our next question comes from Kristine Liwag with Morgan Stanley.

I guess like one, with the assets that you need to acquire for SCI I and Joe, you've launched like SCI II, that would be my follow-up question. But let me finish this one first. So you've got the assets you've got acquired for SCI I, the higher 2026 module target from 1,000 to now 150 that David called out. And 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? And the follow-up to that would be, you've got also the launch of SCI II. I mean how large could SCI II Joe, you had previously mentioned that normally, the second fund is larger than the first one. And your first one is $6 billion. So just wanting to understand how you could support all this growth?

Sure. So thanks for the question. I think just going back, as we've mentioned, the investment opportunity in current generation narrow-bodies is probably $30-plus billion a year of total investments. So our goal was to achieve $6 billion a year and which is a meaningful part of that, but not a disproportionate amount of those assets and we've been successful at being able to do that largely by focusing on assets that have a high level of shop 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.

So we focused on that part of the market. In sort of a macro sense, a lot of lessors and a lot of airlines took advantage to keep assets longer coming out of COVID because lease rates are going up and asset prices were going up and every airline needed that lift. So it was a great environment to hold on, but people have reached sort of limits where now they're getting new deliveries average age of the portfolio is pushed out limits with debt investors. So we're seeing more and more volume coming to market, and we're a great counterparty everyone for lessors and for airlines because we can solve engine problems, which is usually the biggest problem in the space.

So as you mentioned, the $6 billion we estimate we'll 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 and by the middle of this year, we'll start investing out of SCI II. I believe that we'll probably launch the size of SCI II around the same size of $6 billion, which, as you remember, was double what we originally launched SCI I was $3 billion, then we raised $4 billion and ultimately did $6 billion. So we'll probably launch SCI II and $6 billion. And our total -- our goal as a business, as we stated before, was to grow the asset management business to a $20 billion business, which this puts us in a very nice position to be able to say we're on track to achieving those goals and making it a significant player in that industry and the largest in the world for current generation narrow-bodies.

So it's been great. I mean, that when we launched it, people were a little bit taken it back by the size, but we've been able to 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 business anymore. So it's really a nice flywheel that's in motion now.

Great. So it sounds like you're able to source the volume to feed these businesses, right, Joe?

Yes. And if you think about -- I mean, the Power business, one of the markets, if you take the total engine universe size is about 20,000 CFM56 engines in the world. And the estimated retirement rate from the market is generally between -- around 2% to 3% per year. So if you take that's 400 engines a year get parted out every year. So for the power business, if you just go buy a 100 of those and say, don't part them out, they're worth more to us than they're worth in the secondary market for part value, you have -- you could get 25% of the part-out market and satisfy your needs from the power business every year. It's such a huge market.

And 2% a year doesn't really estimate -- I mean if 2% of your existed in perpetuity, it would take you 50 years to use up the CFM56 market. So it's going to get bigger. But I just used that as an example. And we have not been an active buyer of engines that were part of candidates previously, but we will be now.

Super helpful. And following up on the FTAI MOD 1 that you expect to have ready for the 4Q this year. Can you talk about the technical aspects 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. And also, look, to get to the $100 million 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?

So I'll start and then pass it to David, that from a spec point of view, we estimate that the efficiency of the aeroderivative will be comparable to other aero derivatives in the market. we are estimating a 25-megawatt output. So it puts us in a nice size range with a 35% to 40% efficiency and a 9,000 heat rate. So very similar to other aeroderivative options in the market today, which have been sold for 30 to 40 years. It's not a new product. So 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 cost basis in that we think that the servicing costs and the maintenance costs will ultimately be lower. But it will take some time for us to prove that out. So that's sort of the first part of the question, David, do you want to take the second?

Yes. As far as interest, as I mentioned, we're seeing significant interest on baseload application. And what's really resonated as far as the MOD 1 with customers, really 3 things, right? Number 1 is scale and reliability. So 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? And everyone wants power now. So not only just being able to deliver the units, but also actually putting them on site. So being a trailer mountain unit and being deployable very fast, in about 2 weeks is really a key advantage for our product.

And number 3 is ultimately flexibility. And we talk about flexibility across the entire business, but this unit is no different at 25 megawatts which is a perfect size for stacking for data centers that are growing. And then we talked about the maintenance piece, which is we're going to offer flexible maintenance, which is going to be a key differentiator for the product. So 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 the market as kind of we progress through that when appropriate for us.

Our next question comes from Giuliano Bologna with Compass Point.

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

Sure. This is Stacy, and thanks for the question. I am 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 2020 -- Q4 of 2025 with a total production of 228 modules, which is approximately a 68% increase from Q4 2024. And -- and this was done -- this was a tremendous accomplishment by the teams and the result of disciplined execution with clear focus on 3 things for us, which is our people, our parts and process. So 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 Aerodynamics 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 part strategy that position us for success 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. And building on that digital foundation, we've also strengthened collaboration across the shops, sharing best practices and creating synergies through our MRE network. So I think looking ahead for 2026, our goal is to increase production by approximately 39%. And then -- and we feel very confident that based on all these things, and this gives us our confidence in our ability to continue to scale.

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

Yes. It did. I mean we -- the Aerospace Products EBITDA came in a little bit less than what we thought it would be a few months ago, and it was primarily 2 reasons, one of which was we've added over 100 employees to the business. And there is a slight lag, I would say, not a major lag between costs and productivity. So there's some impact from that.

And then 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. And being a very customer-focused organization, we accommodated those needs. Everybody has its budget. So yes, there's a little bit of that, but I think it was a combination of the 2 reasons for the difference.

Our next question comes from Josh Sullivan with Jones Trading.

Just on cash flow, given the investments here in Q4, how do we think of $26 million and the cadence of investments through '26, just the puts and takes?

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

Yes, happy to. So for 2026, we do expect to generate $1.2 billion in free cash flow before any new growth initiatives. So as mentioned by Joe, with the revised adjusted EBITDA guidance for 2026, we expect an additional $100 million, $50 million more from cash flow in aerospace products with 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 I earlier by $52 million. So that improves our cash flow in 2026.

So that overall is an increase of $152 million to free cash flow, getting us to 1.2 million before the growth initiatives. So as mentioned by Joe, we do expect acceleration of our SCI II investment increase of about $137 million in 2026 as we will call capital earlier for deployment. And then secondly, for the remainder of our -- so in your $50 million that we expect for power, so $100 million related to that. So that brings us to the $15 million that we shared with the group.

Got it. And 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 aircraft engine or leasing duration? Any comments you can make just on the general environment.

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

Our next question comes from Myles Walton with Wolfe Research.

On the Power initiative, is it fair to expect a relatively steep delivery ramp through SP118361642 To get to that 100 for deliveries in '27 -- excuse me, steep delivery ramp through '27 to get to the 100 deliveries in '27. And so what does that mean for the exit rate of production or deliveries into 2028?

Well, obviously, we haven't really mapped all that out yet. We've got 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 all the material that we need to go into the end products, that'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 don't -- I wouldn't say it's going to be very steep. Our goal would be to make it not terribly steep in terms of the ramp up. And given that we have ample time to do that, I think it will just make for a more efficient production. The other thing is we've we may do multiple locations. We may not just do one location in terms of assembly, so we can have different sort of diversification of supply and geography that will help also smooth that out.

Got it. And 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 $2 billion to $3 billion of revenue. So you're talking about building a $8 billion to $9 billion business at 40% margins in Aerospace products. Is that sort of where you're leading us to?

Sounds good to me. But 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 an aerospace life of 30 years is a ground-based operation. So it's a perfect life extender for the CFM56 and V2100 is as other aeroderivatives have proved out before this. So -- and the supply of both raw material, 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 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.

Our next question comes from David Zazula with Barclays.

I guess following up on that -- could you give any more color on your expectations for margins in the Power business and specifically, why you think you're part of the value chain here in this delivery is going to earn the type of margins you previously talked about?

Yes. So 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. And one of the main reasons why we're very confident of that is that the -- we have assets that are nearly fully depreciated that we can repurpose into a whole another life and add potentially 10 to 20 years of life on to assets that we previously otherwise might have been scrapped.

So we have a cost of input on the turbine that no one can match and a supply of no one can match that. And we also have built up repair capabilities, sourcing of new service from material parts PMA, everything available known to mankind, we have already been working on that for the past 7 years. So 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 I'll tell you what the biggest constraint on the power side right now is getting turbine blades, HPT blades in particular. So that -- we saw that by taking an existing asset that is near -- at or near the end of its life and then creating a whole new life for it.

And could you talk about the strategic M&A strategy and how that plays into the power business? And specifically, do you need to execute on that strategy to get to your margin target? Or is that kind of stand-alone?

No, it's -- 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, are available that are at reasonable costs. We will always look at that or take advantage of those opportunities. But we always start with a base plan that we can execute on our own. And then if we can figure out a way that makes it better is something that we can do faster or cheaper we will look at that. So that's our plan is basically organic and do it ourselves. And if we have an opportunity, as we've done with adding some maintenance facilities or repair businesses in the aerospace side, we will look at that as well.

Our next question comes from Shannon Doherty with Deutsche Bank.

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

Sure. So it's something we think was very positive. It works well for both parties. The agreement itself is a multiyear deal that covers 3 things: supply of parts, piece-part repairs and component repairs and thrust. And so 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. And from the CFM perspective, what they've expressed to us is their value proposition to their customer is based on an open aftermarket.

And 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 our customers as we've done with SCI and 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 and so everyone wins. And at the same time, we can provide PMA for customers who like those products. So we have a great portfolio of solutions for the whole market.

That's great. And Joe, as a follow-up, did you mention that you're going to do 350 aircraft in CIN. I think that original target is going to be 375. And is that going to be the same size for [indiscernible] , you're looking at 50

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

Our next question comes from Brian McKenna with Citizens.

Okay. So 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. So when you look across the business today, specifically some of the newer initiatives, where are you incrementally adding head count? How should we think about the pace of hiring into 2026? And then -- is there a way to think about the related impact to cash comp as well as stock-based comp?

Yes. So 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. And we want to make sure that we're always controlling that, and we're able to get ahead of that. So obviously, what was very key to that initiative was the Crane 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 ad power. So I expect similar ramp-up as far as employee headcount as each of the shop as well as we're also looking at other opportunities for shops, let's say, east of Rome, right? So we talked about in the past, opportunities in the Middle East as well as in Southeast Asia. So those are opportunities to grow headcount, and I don't see us stopping that anytime soon.

Okay. That's helpful. And then on, 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 II? And then has sentiment or conversations shifted at all as fundraising starts to pick up here for the successor fund?

Yes. So we're seeing that. I think that if investors are looking for asset-based uncorrelated cash contracted cash flow, you came to the right place, right? We have that. So we are in a great position, I think, on a sort of absolute basis and a relative basis in the market. And all of our capital is locked up. It's private equity sell funds. So we feel like we're -- we have a terrific product. I was reading 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. So we are -- we feel very good about the market and where the private credit opportunities that we can offer people how they compete with other things in the market. And 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 I and launching Fund II into this market.

Our last question comes from Andre Madrid with BTIG.

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 want to hit a head on. But is this just a 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.

Yes. We have an anchor investor as we announced, and we have a number of other investors who are currently invested in Fund I that want to re-up. So demand from the existing group of investors is being reflected as quite strong. In terms of deal flow, we have pipeline of deal opportunities that we've been working on. One of the things when we started SCI I, we really started into a new business from a cold start. In other words, we had no pipeline and not a lot of deal flow.

So we built that up and we're able to invest in 18 months, the $6 billion of capital and now we have a pipeline of opportunities we've been working on. Some deals can take 6 months, 9 months a year in some cases. So the more that we have been at this, the more developed we have as a pipeline and feel very good about the ability to deploy that money.

Sorry, Joe, I said MOD I, I meant FTAI Power, like if there's one or several customers and if the order book exists yet for MOD I, my apologies.

No problem. I thought we were still on SCI. But yes, as we mentioned, right, we're being very strategic on how we take on these orders. we're talking to hyperscalers, data center operators. Some of these folks want the entire capacity. But look, our focus is beyond 2027 and the outer years, right? We want something that's going to be 10 to 20 years plus durable and I think now we understand we have a key asset, which is the turbine, and it's our best job to just do what's best for the company long term.

So we're going to provide updates as we progress through those 100 units, right? And we just -- right now, it's not the right time from a commercial standpoint to do so.

Got it. And then I know you said in the press release, you say MOD I 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?

Really, what we said is we've done a substantial amount of testing. Everything is design parts are ordered and we will produce the first unit this year. That's kind of the most -- that's really a good time the highlights that we've given so far.

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

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

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

Good day, and thank you for standing by. Welcome to the FTAI Aviation Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Alan Andreini, Head of Investor Relations. Please go ahead.

Thank you, Marvin. I would like to welcome you all to the FTAI Aviation third quarter 2025 earnings call. Joining me here today are Joe Adams, our Chief Executive Officer; Angela Nam, our Chief Financial Officer; and David Moreno, our Chief Operating 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 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 in our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC.

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

Thank you, Alan. Angela will provide a detailed overview of the numbers. But first, I'd like to highlight a few key updates. #1, we passed a significant milestone this month with the successful close on the final round of equity commitments for SCI, which is strategic capital initiative #1. 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. FTAI 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 the $500 million increase in equity capital, 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 we announced in December of last year when we launched SCI. This expanded partnership corresponds to a larger total portfolio size of approximately 375 aircraft with full deployment of capital now anticipated by mid-2026.

Today, we now have over 190 aircraft either closed or under LOI commitment and continue to have confidence and visibility from the SCI investments team on sourcing the remaining aircraft through a combination of lessor counterparties and direct sale-leaseback transactions with airlines.

The successful $6 billion launch of this partnership creates significant value and positions FTAI for sustained long-term earnings growth. The MRA agreement, which provides fixed price exchanges for all engines in the SCI portfolio establishes a multiyear contractual pipeline of demand for rebuilt engines within our Aerospace Products segment.

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, SCI represents a compelling opportunity of enhanced returns relative to the traditional leasing business model. Through the MRE 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, 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, FTAI, our equity LP partners and airlines, we see strong opportunities -- opportunity to launch additional SCI 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. This positive momentum underscores the strong and accelerating global demand for prebuilt engines and modules in the CFM56 and V2500 aftermarket. We continue to see adoption of our aerospace products expanding across both new and existing customers, supplemented by our MRE agreement with the SCI.

Airline operators and asset owners 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.

A recent example of this is Finnair, with whom we announced a multiyear perpetual power program. Through our scale, asset ownership and extensive in-house maintenance capabilities, FTAI's engine exchanges help Finnair manage their maintenance costs, improve reliability and ultimately deliver a better service to their passengers. The trend toward longer-term partnerships like Finnair is increasing, and we expect to announce additional new airline perpetual power programs in the future.

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. 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 3 facilities in Montreal, Miami and Rome, an increase of 13% versus the last quarter, and we remain on track for our goal of producing 750 modules in 2025.

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

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. We have successfully integrated FTAI's MRE 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.

We're also actively investing in upgrading Rome's infrastructure and component repair capability, enabling heavier and more complex module repairs, which will position us to ramp production next year to double our 2025 target. We're also pleased to announce agreement to acquire ATOPS for approximately $15 million, an MRO with extensive CFM56 engine operations, strengthening our presence in Miami.

This acquisition will transform our Miami MRE operations by complementing our nearby module and test cell facilities, adding expansion space and adding experienced technical staff to support increased production next year once the integration into our operation is complete. Additionally, the purchase includes an ATOPS facility in Portugal, which will serve as a logistics and field service hub in coordination with our European operations in Rome.

We've also made good progress in expanding our component repair capabilities through the launch of a 50-50 joint venture called Prime Engine Accessories with Bauer, Inc. out of Bristol, Connecticut. The Bauer team brings tremendous experience and expertise in accessory test equipment. And together, we're building an industry-leading MRE repair facility for accessory parts. 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 visit.

Our initial $10 million working capital investment will enable us to redirect FTAI volumes to this facility rather than to outside vendors, driving meaningful cost efficiencies and time savings. This investment like Pacific Aero, which we did last quarter, further differentiates our offering and aids us in both expanding productivity and expanding margins.

With a substantial activity in enhancing our facilities and the broader MRE ecosystem, we are now targeting growth in production next year to 1,000 CFM56 modules, an increase of 33% compared to this year's production. We also continue to expect Aerospace Products margins to grow to 40% plus next year as we optimize our parts procurement and repair strategies, including the approval of PMA Part #3, which we continue to expect approval of in the very near term.

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 8 aircraft from the 45 aircraft seed portfolio, which were sold to SCI 1. Year-to-date, 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 prior to our expanded contribution to SCI 1.

As FTAI 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. 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.

FTAI's targeted disciplined approach is to identify opportunities complementary to our MRE operations in areas where we can accelerate production, expand margins and further differentiate our product offerings to customers worldwide. We do expect surplus cash balance above these investment opportunities, and therefore, we are announcing an increase to the dividend this quarter from $0.30 per quarter to $0.35 per share. The dividend of $0.35 per share will be paid on November 19 based on a shareholder record date of November 10. This marks our 42nd dividend as a public company and our 57th consecutive dividend since inception.

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 business segment EBITDA for all of 2025, comprised of Aerospace Products EBITDA ranging from $650 million to $700 million and Aviation Leasing EBITDA of $600 million.

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 million to $700 million this year and approximately $380 million, which we generated 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, 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 SCI 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. 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 prior to our expanded contribution to SEI 1.

With that, I'll hand it over to Angela to talk through the numbers in more detail.

Thank you, Joe. The key metric for us is adjusted EBITDA. We maintained our strong momentum this quarter with adjusted EBITDA of $297.4 million in Q3 2025, which is up 28% compared to $232 million in Q3 of 2024 and in line with Q2 2025 results after excluding the onetime 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 our Aerospace Products segment, $134.4 million from our Leasing segment and a negative $17.4 million from Corporate and Other, including intersegment eliminations. As we have predicted, Aerospace EBITDA is now exceeding leasing's EBITDA. Aerospace Products had yet another great quarter with $180.4 million of EBITDA and 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 2024.

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 our new joint venture launched in Connecticut.

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 as we closed on the final 8 aircraft of the seed portfolio to SCI 1 and divested several noncore assets, including several Pratt & Whitney 4000 and CF680 engines.

Overall, the total 45 aircraft seed portfolio contributed an aggregate gains on sale of $50.1 million to 2025 leasing EBITDA at a margin of 10%. The pure leasing component of the $134 million of EBITDA came in at $122 million for Q3 versus $152 million in Q2 of 2025. But included in the $152 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 SCI.

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

Thank you, Angela. Marvin, you may now open the call to Q&A.

[Operator Instructions] Our first question comes from the line of Sheila Kahyaoglu of Jefferies.

Congratulations on upsizing of SCI. It looks like great traction from the investor base and sourcing these aircraft, and I think you have now 375 aircraft target or the size of United Airlines CFM fleet. So can you maybe walk us through the financial implications of the upsizing, both from a segment EBITDA and free cash flow perspective?

Sure. So I mean, the way I think about it is we're increasing the number of aircraft that we'll have in SCI by that amount of 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. So our plan has always been to do -- continue to do additional SCIs every year.

So I think it really is -- the main impact is just accelerating the growth under SCI. And we originally said we expected the SCI business for FTAI to represent about 20% of the Aerospace products volume. And probably with this acceleration of the SCI fundraising, that number might go up to 25%. 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 FTAI Aviation for the duration of the ownership period, which we expect will be 5 to 6 years.

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. We can have engines prepositioned -- it's just a great -- there's just so many benefits that come out of us having -- being the manager of these capital pools. It also makes us 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, the ability to get business from them on other engine products that we offer is higher, is bigger. So it has cross-selling opportunities that also will benefit FTAI. But I think the main thing is just faster -- what we're pushing for overall as a company is really just faster market share gains in the MRE business and aerospace products.

Got it. And then maybe, if I could ask one on the ATOPS acquisition, if you could give any color on how that came about, how it adds 150 modules worth of capacity? And similar to Pacific Dynamic, if you could give color on EBITDA contribution as we think about the savings from that?

This is David and I'll take that Sheila. So on our M&A strategy, you're really seeing 2 themes play out, right? We're doing investments to either increase margin or expand our capacity well ahead of our production needs. So ATOPS specifically is the latter, where we're increasing production well ahead of our production needs. ATOPS, as Joe mentioned earlier in the opening remarks, has 2 facilities. The main facility is in Medley, Florida, 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 ability to process 150 modules out of that location. 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. That has a small team that we expect to grow. Our goal out of that facility is to run our field service, and those are the employees that actually deliver the module exchanges to customers, specifically out of Europe. And we expect to grow that facility because we see a lot of local talent that we could recruit from.

So the ATOPS transaction is mostly focused on increasing capacity. We also did announce the Bauer transaction. That represents the first theme, which is we're looking to increase margin and looking to continue to vertically integrate. So that is a 50-50 joint venture, which we call Prime Engine accessories based in Bristol. It is for the engine accessories. So that includes fuel pumps, HMUs, actuator and valves. Those are the components that regulate air, fuel and oil between the engine and the aircraft. It was a repair that we were lacking that now we're able to in-source.

And we're very happy to partner up with Bauer, which is a leading manufacturer of a lot of this -- the test and bench equipment. As Joe mentioned, for that investment specifically, we're expecting to capture around $75,000 of savings per shop visit. And we're expecting to do about 350 engines per year, when that starts ramping in 2026.

[Operator Instructions] And our next question comes from the line of Kristine Liwag of Morgan Stanley.

I just want to follow up on SCI. I mean you guys are significant buyers of aircraft engine assets now in a time where that 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, pricing, expected returns? I mean, ultimately, what were your conversations with investors like? What do they like about SCI? And where are areas of potential concern?

Sure. I'll start on that. If you think about the market, there are 2 different sellers of these narrow-body current tech aircraft. 1 is lessors, and they own roughly half of the world's fleet. So if you think about 14,000 aircraft, that are 737NGs and A320ceo family aircraft, about 7,000 are owned by lessors. 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. Those rating agencies and debt investors and lenders look to that metric of average age of your portfolio as one that they track very carefully. So during COVID, I think a lot of lessors were able to hold on to assets longer. They extended the average life of their portfolio, maybe, for example, from 12 years to 14 years. But now people are saying, you got to sell the older stuff.

So that portion of the market represents north of probably 1,000 aircraft a year that are sold by lessors. So we're buying from that group. And we have a very significant competitive advantage in that we can do engine exchanges. So we're an advantaged buyer, and we're one of the larger pools of capital that are focused really solely on NGs and ceos.

The second source of deals is airlines. And a lot of airlines had deferred as much of the engine maintenance as possible during COVID. They've kicked the can down the road pretty far. But there are a lot of shop visits coming up in the near future and airlines are looking to do sale leasebacks, which allow them to avoid both raise 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, and they're looking at alternatives for how to do that, and we present the perfect alternative, which is an engine exchange. 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. So it's a perfect product.

Industry sort of have all cited that airlines in the maintenance world, there's an increasingly heavy orientation on heavier shop visits. The core restoration is the most expensive part. There's more of that, that's going to be needed in the next few years, and that plays perfectly into our strengths because that's what we do in our facilities as we rebuild those. So that's the supply side.

In terms of the investors, when we look at this compared to a traditional approach, what we show the investors that we solve problems. MRE, Maintain Repair and Exchange is a better way of doing engine maintenance. 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. And it's actually a very simple explanation, people get it immediately. And who in the credit world doesn't want higher returns with lower risk. So we're finding a high receptivity to that.

It's relatively -- it's predictable cash flows, relatively short duration, and it's an asset-backed structure that's uncorrelated to public markets. So it really fits in nicely into today's investment world and we have a terrific group of investors, all of whom will -- as I say, if we deliver the returns that we show people, then we'll be able to raise a lot more capital.

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 SCI, I mean, with the upsized amount, this is a pretty sizable leasing income. How do we think about that portion? Is that going to be reflected in the adjusted EBITDA in the leasing segment? Will this be reported in the other line? I mean, ultimately, what's the treatment of SCI in your financials?

Yes. On that 19% specifically, as you mentioned, yes, so it will show up in our equity pickup line. So you'll see that as the equity income line pick up for the 19% that we own from SCI's leasing returns. 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 the Leasing segment.

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 SCI at the fixed price that we've already committed to.

We will include that in adjusted EBITDA. 19% will be included in adjusted EBITDA in Leasing.

Good. 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. I mean, I think sometimes we kind of gloss over the success you've had in 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 V2500.

I mean 5 years ago, you guys were at 0. And so this has been a fairly astronomical growth and penetration, especially for what was a financing company to really enter into the wrench-turning MRO business. 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?

Thank you. But I would say 2 things that we did. I would -- looking back that were important one was focus, which most people in the business tend to get into this diversification mode, where every -- they're trying to do, [indiscernible] is aircraft or a fleet of -- or different engine types and diversify often to people they equate to less risk. But we consciously decided that with these engines that this was the best opportunity in the industry and that we should do nothing else. And so I would attribute a large part was that decision to say, let's get out of the other engine types. So let's just focus on CFM56 and then ultimately V2500. So that was big.

And then the second is really people. You have to attract great people and retain them. And we have a terrific team of people across the entire organization. And everybody -- it is always ultimately about that. And to do that, people have to -- you have to sell the vision and people have to buy into it. And I think people have. When you go out to meet with customers, that's kind of the biggest reinforcement is when people on the buy side are saying, I really -- I'm not that good at doing shop visits. 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 solve your problem. That really invigorates people because they feel like they're doing something worthwhile.

Our next question comes from the line of Josh Sullivan of JonesTrading.

Congratulations on the quarter. Just on -- a follow-up on ATOPS. $15 million in equity for $150 million -- sorry, 150 modules, fantastic trade. How do we understand the calculus in module capacity potential here?

Just looking at maybe like the FTAI USA as an example. What are the gating factors to finding these relatively small investments for such a big yield on module capacity increase? 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?

No, I think it's 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 and there's a building and 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.

And so these opportunities do exist and as you mentioned, the math on them because there is no real vibrant business operating inside of these buildings today, we can acquire them at very low prices and fill them up. And the gating factor is the people. It's the mechanics. That's why we've been talking about the training facility in Montreal is a big initiative because we found we could hire people, but you couldn't make them productive as fast as we wanted.

And sometimes you have -- people don't actually ever become productive. So you have to focus on how do you increase your yield and shorten that time to get people into a mode of being a contributor. 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. There are people offering us deals all the time now. So it's really going to be trying to find those ones that are the easiest for us to plug-in and have the biggest available pool of mechanics in the nearby area.

Got it. And then I guess similarly, just on the JV of Power, $75,000 cost saving per visit. Is the capability more about improving turnaround times for your customers or margin in-sourcing at FTAI? And I guess, were customers pushing you to add this capability, which might lead to additional new MRE customers. Or is it just a good asset to have in source to drive margin?

There were a multiple choice question I would choose E, all of the above. I mean it's really phenomenal. These -- the engine is so complicated in some ways and so simple in other ways, but these accessories are very complicated and the know-how that people with Bauer have is phenomenal.

I mean they make all the test equipment that everyone uses. And so we are partnering with them, and we've already had interactions with our engineers and their engineers and there's a sharing of experiences and we think they'll make us better, and we hope we can contribute and make them a little better. But it's really just widening, expanding circle with people that have specialized knowledge and intellectual property in areas that are incredibly expensive to fix the engine is full of them.

It's every time you look at something else that is also a very high cost and very specialized knowledge. So it's -- we feel like we found a phenomenal partner that works -- the math works well for both of us. And we think it's going to continue just to -- as you said, it makes our margins better. It makes our people smarter. It shortens the turnaround time.

And if you send an accessories out now to a third party, you're beholding upon that third party to get it back to you so you can keep producing. In this way, we have more control over our -- the whole process.

Our next question comes from the line of Giuliano Bologna of Compass Point.

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 FTAI as being in the spread business. Can you expand on that? And as it relates -- and especially as it relates to both weak and strong markets?

Yes. So when you -- increasingly, we think about our business as being really in 2 different areas. 1 is the manufacturing business, where we buy, run out engines, rebuild them and sell them. And the other is the asset management business, which we raised capital and buy airplanes and that gets committed volume to FTAI aviation.

So if you think about the 2 businesses that the first business is buying an engine at a price in the market 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. And so that's the spread. It's the buy and then the build and we can control the cost of the build and then the sell.

And so we're basically, like in the manufacturing business, I say, isn't that what Apple does, when they make an iPhone. They buy parts and people. They put them together and they sell it. So that's our core business. And in a soft market, you're going to buy cheaper on the runout side, and you'll maybe sell a little bit cheaper, but usually not for long. And so I think of the market is very strong. The price of rebuild engine is driven primarily by the OEM list prices on those parts because that's your alternative.

And as long as people are flying aircraft, they're going to need to replace hours and cycles on those engines. And so that's what drives it. If we were to hit a period where there's excess availability of engines, and that's happened in the past and other engine types, not this one in recent history. Well, if you go back to COVID. But what happens is I would look at that as a 3- to 6-month window to accelerate market share gains for us because it always rebounds.

So if there's an opportunity to pick up some inventory at a lower price or build our capacity then when it rebounds, you'll be in a better position at the end of that. And we've really done that consistently of our entire careers.

That's very helpful. And I appreciate that. Maybe the next question for Angela. I see the new slide on Slide 39 of the supplement data details the way that the cash flow statement would change and the reporting would change using industrial accounting versus lease accounting. Is the right way to think about it that effectively all of the gains on sale or economics that were flowing through cash spread by investing activities would effectively move into operating cash flow when you change the industrial accounting because of a more streamlined methodology there?

Yes. No, that's the right way to think about it. So as you mentioned, we did include the pro forma cash flow statement on Slide 39 of our supplement. And what you will see is that for 9 months ended 9/30, we would essentially be moving about $722 million in cash proceeds from our sales assets from investing to operating activities.

And we've outlined the line items that was specifically changed, 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. So you will see a transition of that aligning with our GAAP cash flow statement going forward.

Our next question comes from the line of Hillary Cacanando of Deutsche Bank.

Could you unpack the guidance for 2026? What's the upside driven by new customers, repeat customers, new contacts from Finnair or the acquisition of ATOPS and the launch of JV, et cetera. I'm assuming it's a combination of all of those, but if there's anything that stands out, if you take this kind of a detail.

Well, I think if you break it into 2 parts, it's volume and margin. And so on the volume side, the MRE product, as we mentioned, continues to grow. Our production is expected to grow 33% next year. And it's a mix of new customers and existing customers. And I would also highlight that there's bigger volumes coming from existing customers. So where we've gotten the foot in the door, and we've enabled people to try the product and say, this is really how it works. It works terrifically and the experience that then we are seeing customers come back with larger orders for their engines going forward. So that's a great -- that's exactly what we have hoped would happen with those initial orders. So we're seeing continued adding new customers. We highlighted Finnair last quarter and we're seeing existing customers get bigger.

On the margin side, we've indicated next year, we expect to see 40% margins, 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 one of those contributors where we expect imminently to have approval of the third part.

And then we've also had acquisitions of used serviceable material that we've been implementing. 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.

Great. That's really helpful. And then just on Finnair, how should we think about the margin impact or EBITDA contribution from that contract? I mean are they market rate? Or how should we think about that?

Hi, Hillary, this is David. Yes, they're in line with a large program that we have with customers. I would say they're largely in line. But just to give you a little more flavor on the Finnair program, we're covering their entire fleet. So 36 engines and we're prepositioning engines ahead of shop visits. We effectively provide them a serviceable engine and then take the unserviceable engine back.

So it provides cost savings for the airline. It lowers maintenance costs and then provides more importantly, flexibility for the airline. So we're -- as Joe mentioned earlier, we're focused with airlines on winning large programs that cover their entire maintenance, and this is an example of one that we won, and we expect others to happen soon after.

Our next question comes from the line of Brian Mckenna of Citizens.

Just one more here on SCI. Have you disclosed what FTAI will be earning in terms of management and performance fees for managing the SCI vehicles. I asked this because Leasing assets have declined 30% year-to-date. And that's really just from 1 SCI vehicle that's not even fully deployed yet. So with a couple more vehicles, most or all of these assets will likely move into third-party asset management vehicles that you're managing.

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. And if that's the case, you have 2 high multiple earnings streams not 1. So any thoughts here would be appreciated?

Yes, Brian, 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. And so the asset management fee that FTAI earns is on total assets. So that would be on the $6 million. And 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. But it's meaningful.

Those numbers, as we've mentioned, we always try to have an aspiration, and we initially said, why not manage $20 billion in this way in some point. So we started out we were at $3 billion and now we're at $6 billion. So we may -- it may not be that crazy that we get there. And it is a much better way to own assets in a private capital structure, a partnership like this than in a public company. So increasingly, as I said, we look at that we have 2 businesses. 1 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.

Got it. That's super helpful. And then maybe just a related follow-up. So it's pretty minor, but FTAI's ownership in the first vehicle, SCI vehicle came down to 19% from 20%. I mean if demand remains elevated, and it feels like it's pretty robust here, just given the upsized commitments, et cetera, I mean, is there an opportunity for your ownership or essentially the GP stake to decline to something lower than that? And then essentially, it creates an even more capital-light model. Like I'm just trying to take through that a little bit more moving forward.

Yes, it's possible. I mean, we wanted to make the first -- I mean, as you can imagine, one of the concerns that investors always have is are you aligned? Do you have the same interest that I have as the manager? And obviously, that equity commitment is -- goes a long way to answering that question. But over time, if you demonstrate a track record and you show people repeatedly good numbers, everything is negotiable.

And our next question comes from the line of Andre Madrid of BTIG.

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, will future deals be more in line with the major U.S. 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?

Well, the pace of investing, as I said, we started the first partnership really at the beginning of this year, and we have under LOI or closed about $3.5 billion, and it's next week is November, I guess. So we're -- our original thought was we could invest $4 billion in the first year. And I expect that, that will go up as we get -- we have more of a backlog than we had when we launched the first partnership. So I think the pace of investment, I'm pretty optimistic. This is a $300 billion market that we should be able to deploy that type of capital regularly.

And the margins, the SCI is treated like any other third-party customer from a pricing point of view. The only difference is it's contracted. So it is 100% committed. So the margins and the profitability from SCI business for FTAI are very similar to the other third-party customers. 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. So that trend we expect to continue to get more engines from third-party customers per customer as they experience the benefits of the product.

Our next question comes from the line of Brandon Oglenski of Barclays.

Joe, I guess, can we come back to the $1 billion cash flow outlook for next year? 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?

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 -- it doesn't cost a lot of money. So if you look at the other -- the deals we've done in Rome or in Miami, we're adding a meaningful amount of capacity, but the total investment is like $20 million or $30 million. So that I have to apologize that it's not bigger, but it's not -- we're not trying to invest more capital. We're trying to get more capacity at the best price. So we will continue to do that.

On the M&A repair side, equally, we've -- the deals we've done are fairly -- are extremely accretive and then not a lot of dollars invested to get in the business. And when we look at a part or repair activity, we try to evaluate all the different ways we could get into that. We look at the companies that could be for sale. We look at building it organically in Montreal or Rome. We look at partnering with other people. And we've done all of the above, we just try to find the best way in and the way that has the most accretive effect on our business.

So we're sort of very flexible, but thus far, the opportunities we found have been extremely attractive from a return perspective and not require a lot of capital.

Okay. I appreciate that, Joe. And Angela, can you walk us through what you think is like the right sustainable level of maintenance CapEx and maybe reinvestment in the Leasing business as we look forward?

Yes. 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. And the replacement CapEx, we don't expect that to increase as well. As we've mentioned, most of all of our SCI work that we'll do with the engines are structured as exchanges, where we will give a serviceable engine and get an unserviceable engine back. So the replacement CapEx, we don't expect to be expensive going forward either.

Our next question comes from the line of Ken Herbert of RBC CM.

Joe, maybe to start, can you just provide an update on where you are on the V2500 program? I know you'd initially committed to or procured access to, I think, 100 full performance restoration shop visits? How is that going? And where are you on that pipeline?

Yes. We're about halfway through. And what are we -- 2 years into it now, 2 years in of a 5-year deal and we're about halfway in terms of the volume. And it's going quite well. I mean that engine is -- it's a more expensive engine to do a performance restoration on, as we all know and by design, but the demand is incredible because of the continuing saga of the GTF grounding.

So there's been a huge life extension. We have a lot of operators that are very eager to avoid the shop visit, and that's exactly what we delivered to them. So we expect that it will continue and at some point in the next couple of years, we'll talk about an extension or other alternatives, but we're going to stay in that engine.

Okay. That's helpful. And I know the percentage of work that has flown through or the revenues within Aerospace products dedicated to the SCI has bounced around, and I can appreciate timing is a piece of that. But as you think out a couple of years and SCI subsequent versions continue to attract capital how much of the Aerospace Products segment or revenue do you think eventually is SCI related? And how do you view sort of a natural cap on that?

Well, the way you have a natural cap is to continue to grow third-party business because the SCI business will grow, but we're also expanding the third-party business at really a very similar clip. So I expect it to be roughly 20% to 25% of FTAI Aviation's business for the foreseeable future. And the answer is we grow both of them.

This concludes the question-and-answer session. I'll now turn it back to Alan Andreini for closing remarks.

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

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

Great. Good morning, everyone. Welcome to our session FTAI Aviation. I'm Kristine Liwag, Morgan Stanley's aerospace and defense analyst. And this morning, I have the pleasure of having Joe Adams, CEO of FTAI with me on stage. Welcome, Joe.

Thank you, Kristine. Great to be here.

Great. We're very happy for you to be here. Joe, I feel like we've gone through a journey together in these past few years, really understanding the FTAI story. Just because in aviation, usually, you're dealing with behemoths, right? The market share, this piece and then the market share is really set on shipset content, but you're building something different with FTAI.

Even with my conversations with investors today, there still seems to be a misunderstanding of exactly who you are and what you do. I was hoping before we get through some of the questions, if we can go through that. So one, you started out as an aircraft and engine leasing business. Now you've got an MRO shop. Now you've got this engine module factory, you've got exchanges -- you've now got a strategic capital initiative with outside capital.

And then you've got PMA with your joint venture with Chromalloy, I mean that's quite a lot of different parts. Before we get started and diving deeper on each one of these, can you give us your origin story, how did this come about? What came first? And what's the rationale in entering these specific markets and then finally, like what is it today?

Yes. Good question and I appreciate the opportunity to be here again this year. It's been many years coming to this conference, and we value the relationship with Morgan Stanley, and you've done a great job explaining the story. What has -- it sometimes seemed a bit complicated. And I remember when we first met and we said we wanted to generate $500 million in aerospace products, and you sort of almost fell out of your chair. And said, did you say that right? But I think that there are a lot of steps along the way, but the overall vision has really remained pretty constant, which is for us to be the leader in providing aftermarket engine power to the industry, the commercial aviation industry.

And we focused on the 2 biggest count engines by number, which is the CFM56 and the V2500, which are maintained in the aftermarket. So our vision has been to be the best in the world at managing those assets and in particular, the maintenance of those assets, which is the biggest driver for the economics in the industry is the maintenance of those engines. It's somewhat unique in asset classes and that you can spend more after owning an asset for 5 years than you spend buying it in the first place. So that's our goal.

And effectively, what we do is we go to the industry and say, look, we spend our entire life trying to be the most efficient, best at doing the maintenance on that engine. So why don't we do it instead of you doing it? And the end customer, what we deliver to them is a benefit of saving them time and money and providing them a lot of flexibility. And so that's the proposition is like we can do it better. And in return, you, the owner are going to get tangible benefits in time, money and flexibility. And people get it because most airlines and most people who try to manage the engine maintenance find that it's very complicated, it's more expensive and it has a lot of pitfalls. And so very few customers I ever talk to says, I love engine maintenance, and I think I'm really good at it. It's not what you hear.

And so what we do, if you roll back the clock, what we started looking at owning engines. And we got into the business 12 years ago, and realize that as an owner of an engine, you provide that as a leased product to the airline that really that key -- where all the problems are and where all the challenges are in the maintenance activity. So that's when we decided to sort of not pivot, but it's like let's focus on engine maintenance.

And early on in that process, we discovered PMA with Chromalloy on CF680 engines, which is the engine that flies the 74 and 76. And we found that product to be a great product that performed extremely well and was misunderstood. And so we then looked around the industry and said, well, what -- where could we apply that knowledge and that experience and make the most impact. And the answer was the CFM56 engine. So it was probably around 2017 where we said let's do what no leasing company ever thinks of doing, let's focus instead of diversify. And it was a big decision because we had 6 or 8 engine types. And we're like there's nothing in life we could do that would be better than the CFM56 engine. So why do anything else? And so that was a big decision.

And then as we made that decision, we said, well, the key to controlling the expense and the experience is owning vertical integration. And I think I mentioned that to you early on, it's like own the engine shop, own the parts, own the entire chain and figure out where the money is spent and then do that yourself so you can be the best and be the most efficient. And then everything that after that sort of follows logically from wanting to be the leader of engine aftermarket maintenance, vertically integrating and focus are all sort of what drove us to where we are today.

Well, I mean it's been quite a phenomenon. And actually, Joe, kudos to you. I remembered when you first started in that journey, our first conversation, you didn't really have a lot of market share on that CFM56 module factory and now here you are, what, 5%? And if you add a 29%, is that included the V2500 too?

No. That was just -- we originally last year, we were saying we had 5% of the $22 billion of spend. And this year, the most recent quarter, we're up to 9% with a goal of 25%.

And where were you 4 years ago?

Like 0%.

I mean that's a pretty phenomenal share gain. Now when you look out the next 3 to 5 years, how much market share do you want to have on this market?

Yes. So what we've said is our goal is to achieve about 25% of that market share, which if it's a $22 billion a year spend, that's roughly $5.5 billion of revenue from aerospace products in our company. And so that represents -- if you think about it in terms of number of engine events we would be managing. If the CFM56 is about a 3,000 number of shop visits per year, that would mean we would need to get 750 of those engine events.

And so we've built our own maintenance capability today that can handle about 600 of those between the 3 facilities, Rome, Miami and Montreal. And so we have the physical capacity to achieve most of that number. And as we grow over the next few years, we think that, that's a very achievable goal.

A leasing company going to an engine MRO business, you don't often really see that. So what was the barrier to entry for FTAI to be relevant in that engine MRO? And also your engine MRO approach is different. It's not like you're a standard aero where you bring the engine and quote parts and labor. Your approach is novel. Can you talk more about that?

Yes. So we took a very different approach to it. In the beginning, when we looked at it, we said, well, look, if we're going to use PMA in our engines to be able to deliver that to the market, we have to be able to control the experience the whole chain because we can't be dependent upon someone else who might or might not be able to do that for us. So we were sort of -- it was partly a defensive approach to say we need to be in the business to do the maintenance to make sure we can deliver that product.

That led us to buying a facility in Miami and then doing a deal with a long-term contract with Lockheed Martin in Montreal. And we -- as we got into that business, we made another critical decision when I talk about diversification, the other one we made at that point was we don't want to do any third-party engines. And so we bought facilities and gotten rid of the customers, in essence, which I remember many times people in the facility may be like, are you crazy? Is like why would -- who does that? And I was like, well, I don't think anybody does it, but that's what we're going to do because we own our engines, and we have the unique ability to deliver all those engines to wherever we want.

And if we own the shop, obviously, that's where we're going to deliver those engines. So that was a big differentiating factor. As you said, it's a different approach other than American and Delta who do the same -- effectively the same thing. They own their engines and they own the shop. No one else in the industry does it that way. So -- but that is the way if you think like an owner, and you are an owner, then you're going to use the most efficient and best practices to be the best at managing it. So it's a critical combination to have that ownership and maintenance in the same entity.

Great. Can you talk about capacity for this engine module? Now that you do own Montreal, you bought that from Lockheed, you bought Miami, you have room. I mean how much capacity could you expand to? And how long could that take?

Yes. So as I mentioned, we have physical capacity to do 1,800 modules per year, switching over from engines to modules. But this year, we expect to produce about 750 modules in the 3 facilities. We bought Rome, Italy in May of this year, and we expect to do 100 modules for the year in that facility. And then next year, we expect to double that to 200 modules for the year.

Our goal for next year is instead of 750 in production is 1,000 through the system for our 3 facilities. Rome will be a double. Obviously, as I mentioned, 100 going to 200. We'll also increase Montreal meaningfully and so we think that there is a 33% growth rate in the production is very manageable and achievable for next year for us. And then obviously, we're going to keep looking at expanding the existing facilities, adding mechanics and potentially adding another physical -- another fourth location.

Great. Now you think about the cash requirements to fund this business, and this is probably our time to dovetail into SCI or Strategic Capital Initiatives. Historically, aircraft and engine leasing business, when you're growing, your negative cash flow because you're a financing entity. How does the strategic capital initiatives thought come about to put these assets effectively off-balance sheet and earn an asset management fee. I kind of like the multiple streams of income here, Joe. How did that come about?

And ultimately, as you scale up the aerospace products business, what are the capital needs for CapEx and inventory? And how much are you freeing up versus the SCI and how does this asset-light business materialize?

Right. So it's a great question. It really was 2 drivers that started last year when we -- we've been thinking about how do we become more asset light and how do we reduce the amount of investment in leased assets for years. And then a year ago, we realized that a lot of our customers in the leasing space were using engine exchanges to solve problems with their leases because at the end of life return compensation issues, you have minimum commitments on hours and cycles, and we became a problem solver for the owner.

And so we looked at it and said, well, there's a lot of private capital out there trying to invest in the space, we can actually deliver tangible benefits to generate higher returns with lower risk if we did -- we access that private capital. So we went about and we set that up, and we listed all the things we wanted to get, and we were able to achieve that and that we manage the partnership, we make all the investment decisions, we are the interface with the airline.

We get management fees, incentive compensation and very importantly, all of those engine maintenance events are committed to FTAI Aviation. So immediately, you become 100% customer using our MRE product. So it was all positives, and we said we should absolutely do this. So we went -- our goal this year was to buy 250 aircraft with 500 engines on them. And we, at July 31, we're at 145. So we're on track to be able to achieve that this year, which was a big as ambitious target and -- but we're on track to be able to do that. And the returns are very good. So when we look at that, we said we should be able to do this every year, and we would like to do an SCI 2 next year. We should have visibility on what the returns are looking like for the portfolio and what the pipeline of deals are looking like.

So we feel like we'll be in a position to make that decision by the fourth quarter of this year, but it looks very promising at this point in time. And effectively, what that allows us to do is to reduce our leasing fleet. So as you said, the cash flow now from the leasing activity doesn't become a negative. It becomes -- and this year, it became a positive because we sold some assets.

We're also developing tools to be able to take some of the engines that we lease that are on longer-term lease and do a similar structure with an off-balance sheet partnership. So we're headed towards a more and more asset-light business model such that effectively, where we would like to end up is all of our activity in the parent company is really the factory. It's really buying an engine, rebuilding it and then selling it and doing that over and over again for the industry, which becomes a very different -- the transition would be completely from one business model to the other business model as we achieve that.

Thanks, Joe. I mean that's a pretty -- so a few quick things following up on SCI. So one, you said higher returns in industry. Can you expand a little bit more on that? Like what kind of returns could SCI provide to its stakeholders? And how could you achieve better returns than what they were doing before? Where are the optimization? What's your value add?

Yes. So I'll answer the second question first, which is -- so if you take an aircraft that's on lease for, say, 5 years when we acquire it. And let's say that an engine is due for its full performance restoration in the middle of that lease, say, 2.5 years in. The traditional approach to managing that would be to have the airline rebuild that engine and make it a 5-year engine.

So we do a complete performance situation and put 5 years of hours and cycles on that engine. So you're investing in a full performance restoration. And at the end of the lease, the 2.5 years, you now have an engine that has 2.5 years of remaining life on it. So what we do instead is we say, okay, instead of doing it that way, why don't we do an exchange with an engine that has 2.5 years of life on it. So you're able to, as the owner invest less because that's a less expensive engine.

And at the end of the lease, the residual value is all part-out value. So when you look at the total economics of that, you end up with a higher return because you've put less cash in and less dependency on residual value, meaning lower risk. And so that's the box that is a private credit investor, you're always trying to find as higher return, lower risk.

We can't -- publicly, we're not allowed to sort of talk about returns for that partnership. But let's just say it's a meaningful difference in returns for being able to do those engine exchanges, which provides a product that's uniquely -- that we uniquely can do because we have the capability of delivering a 2.5-year customized engine into that structure.

Great. And now the dollars amount of this, I think it's also -- I think sometimes people forget, I mean it was a $4 billion fund and you've deployed over $2 billion already in about 6 months. I mean that's a pretty fast pace Joe and now you're hinting at a -- well, not hinting you actually said SCI 2 so how large could this outside capital be?

And then when you think about getting the market share that you want to get in aerospace product, what's the absolute size of this potential structure could be SCI 3, SCI 4 and what's the total aggregate value.

Well, the answer is I hope so that we'd love to be an asset manager and manage $20 billion in assets someday. But you have to build it block by block. If you look at the total size of this market, today, there's about 14,000 current generation narrow-body in existence. And about half of those are owned by leasing companies and half are owned by airlines.

On the leasing companies side, if you take 7,000 of those, on average, leasing companies will turn that portfolio as they're getting into the later years, 20% per year. So that would be a 1,400 aircraft per year an average price in the high teens that you have a $25 billion a year investment opportunity. So -- and that's just the lessor community.

You also then have airlines where we've done sale leasebacks where the airline is looking ahead saying, I've got 30 shop visits I need to do. I don't want to do those shop visits. I don't want to put my capital into that. Why don't they do a sale leaseback and then FTAI does it. So both of those markets in aggregate are massive markets.

And our plan is to invest $4 billion a year, which is still a relatively low percentage of that market. But if you roll that forward and you do 250 airplanes every year, it would make us the largest owner of current generation narrow-bodies in the world, which is -- as I say, that scale keeps making our business even more and more efficient.

It's definitely an advantage to have more assets. We will then know exactly when engine shop visits are needed. We can plan in advance for the provisioning of parts for the facilities. We have -- we know all the engine specs. So you just -- as you get bigger, you get better.

Great. Wow, like that's another leg. Now last leg we'll touch on PMA, which is kind of where it seems like the evolution started as part of your origin story. So where are we now on PMA approval of CFM56 parts? I mean you're also not doing little PMAs of little nuts and bolts, Joe. You went straight for the engine. So can you walk us through the timing of that approval, where we are today in economics?

Yes. So when we started the partnership with Chromalloy back in 2018, we looked at the hot section of the engine, and we picked the 5 parts where you have the highest cost per shop visit. Obviously, somebody said, well, how did you do this? I said, well, we looked at the ones that cost the most. And that's what we chose. And in total, the savings between our deal with Chromalloy is we get to buy parts for own engine at cost to manufacture, which is effectively OEM economics, which is significant discount, 75% discount to OEM list prices, we can save over $2 million per shop visit across all 5 parts.

Now they're not all equal. So the first 2 parts were sort of in ranking order #2 and 3. And then the third part is, #1, where it's almost 60% of the savings of that total number. So that's the part that's expected to be approved very soon. And I've said, soon Chromalloy indicated back to investors recently that they made the final application -- submitted the final application to the FAA in May. And the last part they had that was approved was a hot section part for the V2500. It took 6 months. So they're indicating October, but effectively, it could come any time and very soon.

So that provides a significant amount of savings across the engine, which then allows people if they want to go the PMA route, to generate enough savings for them to sort of justify the investment and whatever they would have to do differently internally to own or manage and operate a PMA engine. So that's a big event for the industry.

I mean very soon, we're September 12, Joe, I mean?

That's correct.

I guess that look at the recent stock price, I guess.

I'm not a good forecaster of stock price. So I don't.

I guess with that, for PMA, how do you think about adoption? I mean, historically, the OEMs scare the bejesus out of industry, okay, residual value, a rate performance. So can you talk about your approach, especially now that, look, you're going to own your MRO shops, so you can't be shut out of that. You're also going to own the assets with FEI. You're in control of maintenance. How do you think about that PMA distributions when it does come online?

Yes, that's a great question. And our experience is really comes from the CF680 engine, where we did exactly that. The first market that we went into was leasing engines to people. So if you put PMA in an engine and then you go to market to lease, on the CF680 engine, virtually every operator of 747s and 767s was willing to lease an engine with PMA.

And I remember asking our team that over and over again. I was like, are you sure because that's not what conventional wisdom is that people say, oh, someone is so-and-so—, so we'll take it. But the [ Part ] had a great track record, great performance and any airline in the world was willing to lease that engine. So that's number one. And we have put the first 2 parts in our engines that are in our leasing portfolio already.

The second opportunity, as you mentioned, is SCI because we are the general partner of that partnership. So any approval needed, we can give approval to put PMA in an engine. And those restrictions that typically a lessor would say no PMA or something like that with an airline, we can amend that. So that's an easy next step.

And then the third part is selling it to people and what drives adoption is what you would hope, which is performance. If the part performs well and Chromalloy has had 12 hot section or 13 hot section parts that have flown over 2.5 billion hours with no [ airworthiness ] directives that if that part performs similarly, then people will say, that's a very good part. It's a very high-quality part, and it costs less.

So why wouldn't I use it? And that's the sort of the third step. Now that can come in different time frames, but typically also, it increases as platforms age. So as more and more operators are saying, well, I'm not going to be in that engine longer, and I'll put PMA in because I want to save money today, it goes up over time.

Capacity for Chromalloy, do you have any visibility into how much they could produce if...

We do. And I think they recently had an Investor Day, and they talked about how they invested $200 million in Tampa, expanding -- they have an EB-PVD which is -- I don't know if know coatings, but that was a 2-year lead time item to be ordered, and it's now operating in Tampa. So that was a big -- they moved their coatings business basically solely from Orangeburg, New York down to Tampa.

So now they have the castings, machining and coatings, all in a brand-new facility down in Tampa, and they have substantial capacity to focus on these new hot section PMA parts.

It took us like half an hour just to go through your business, Joe. That's a pretty complicated one. So maybe a simpler question. We've never really seen an engine lessor or aircraft leasing company, do all the pieces that you're doing with the PMA and the engine module and the SCI. I mean, how is it that you've kind of come up with this fairly unique niche business to attack the 737 MAX and 737NG and A320ceo with the CFM56 when others haven't done it. Like why you and how are you able to have all these different competencies to be the right person to provide a solution to airline customers?

Well, I mean it was always there. And to me, it always surprised me that no one really sort of woke up and looked and said, "Oh my god, the CFM56 is a lifetime opportunity. And I remember that thinking that like 7 or 8 years ago, is like someday I might wake up and people -- it's going to be like the headline on the Wall Street Journal because it's the best engine. It's the best aftermarket. It's the most durable. It's a fantastic product. It's modular. So I don't know. I mean I just -- when we got into it, we looked at it and said, this is nirvana.

I mean there's nothing like this maybe that ever happens again in our lifetime. And so we became obsessive about like just be the best at that and then take wherever that takes you, think about can you manage that. And as I mentioned, the big decisions we made which were not easy at the time was don't diversify and buy a maintenance facility.

And so when we did that, and then we bought the maintenance facility, we said, don't do third-party work. So no one had done those steps, and it's hard because you buy something and then you're like, I'm going to do it differently. You have to believe what you're doing because a lot of people say, you're nuts, and they did. And -- but we're like, no, I think you're wrong because this is how you should -- this is how engine maintenance in the aftermarket should be done.

So it's one thing to go from 0% market share and talk about a dream, then have 5%, then have 9% and then really go for that 20%, 25% and then be the largest asset owner. At that point, you're not just a little disruptive guy that's kind of annoying. You're actually a pretty meaningful part of the market. So can you talk about your expectations for competitive responses? How do you think the industry would respond to what you're doing? And where are you seeing either adoption and welcoming of your approach versus a lot of friction.

Well, I mean, when you're changing a business model, somebody is going to lose something, and it's really the third-party MRO shops that if their approach is to go convince an airline to put their engines in their shop and then they'll manage it for them.

And in many cases, they are motivated to try to find more work to do, right? So the business models expand the work scope. So that's kind of what we're changing. And if you think about it, United and American and Delta don't manage their maintenance shops that way, right? They manage it the way what we did is basically copied that, which -- because they're an owner and the maintenance provider, your motivations are be the most efficient, not spend the most.

So if you think about who competitively the third-party MRO business is in a good position today in that you've got the LEAP and the GTF they're requiring more maintenance -- and as there are new engines, there's issues. So those companies today have a very strong backlog and a significant amount of business coming down the pipe for their traditional model.

And so I think if you think about it, they have to reengineer their business to sort of try to copy what we've done and maybe that ship already sailed on the CFM56 engine. They look ahead and say, but why do I care? My business is good. So I'm set for the next 4 or 5 years because I've got locked in order book.

So I don't know for sure, but I just think that we've spent 7 years obsessing about this engine. And we have the scale, we have the assets in place. There's a lot of things people would have to do to replicate what we did. Not to mention the leases, which is be to go buy a lot of engines, which isn't as easy as it was when we were doing it. So and then we've -- now we have SCI, which on top of that, how many MRO shops can go manage $4 billion of assets I don't know many.

So there's a lot of things in every year, we try to add 2 or 3 more things to the list like repair capabilities. And we're not stopping, and we haven't had a year where we didn't do anything new. So we're going to keep making it hard, but I can't be sure forever. We're always paranoid.

I mean it sounds like, look, the pie is getting bigger. Everybody was capacity constrained. It's capacity they probably couldn't have met and you would have had some idle assets for longer, and you just happen to be in the market creating that capacity, taking that share. And by the time they wake up after they finished their work, you would have had that market already.

Yes, maybe.

Hopefully, I mean, that's what I'm hoping for. So look, with that, we will take some questions from the audience. If you want to ask a question, raise your hand. I will bring a mic to you. Don't be shy, raise your hands.

Maybe we get into a Ship of Theseus-type thing. But as you know, the expected life or fly life for CFM56 keeps getting longer and longer. Do you think with PMA and everything you're doing that we're actually underestimating the number of years ahead for the CFM56.

Well, I do. I mean that's clearly been part of our investment thesis. If you look back, my experience with the 757 was it was the gift that just kept on giving and the asset ended up flying a lot longer than people expected. And if you think about why do airlines not -- why do they retire aircraft, it's for economic reasons, not technological.

And so if you think today, you've got a 737, 800 or A320ceo, that cost $14 million or $15 million. It's predictable in its maintenance cost, and it has a mission that every airline in the world has roots that they can make money on. It's a moneymaker for the industry. So people don't retire it. What happens is you get out in the year '25 and you say, do I want to invest in the next D-check. So that's typically the point in which people say, well, it's $2 million, I'm not sure, or they look at it and say, it's a no-brainer.

And that's why we came out recently and said, every airline we talk to says that 30 is the new 25. If you thought you were going to fly at 25 years now, you're all looking at 30 years. And we can help them actually make the economics better by lowering the engine maintenance costs by doing module swaps, by doing hospital shop repairs, by doing exchanges. We had several airlines that said when they put all of their estimated costs into their algorithm, we've extended the life of that asset by 5 years already.

So we believe that it is an asset that makes a lot of money and it will continue for a long time. And if you think about the alternative, it might be $60 million or $65 million MAX or NEO that is your benchmark for comparison. That's a big -- that's a lot of capital. So there are a lot of airlines in the world that really capital cost matters a lot and not the least of which is cargo operators. So that's always sort of the life extension at the end for the 75 and 76 is the cargo market, and that's still out there in a big way.

Are there questions? So Joe, last question for me. It took us a while to get through your business model, right? You've got a lot of very complicated pieces. And as an engine, I mean, it all makes sense in terms of what you're building. And I feel like it's finally materializing for investors to see this fortress that you're building.

Historical reference...

Sorry, I don't know these funds just kind of come up. And so at this point, where are you spending the most of your time? What are you most thinking about? I mean, allocation of time is usually a reflection of priorities? What are you spending the most of your time on right now?

So the I would say the production of modules is a focus in getting Rome this year, increasing productivity in ramping up Montreal, looking at things we can do in Miami to increase production because that is a constraint. The more we can produce today, the more we can sell. So that's a priority.

The second is making sure that SCI is off to a really good start with good deals, capital raising and capital formation around that is another priority. And then thirdly is these M&A opportunities in the repair space. And looking at -- we've got a couple more that we're working on. We did the one with Pacific Aerodynamics.

We'd love the repair business because the economics are phenomenal. And it also -- we talk about fortress, we always talk about widening the moat. So we want -- the more we can lower our costs by internalizing things like that, the better and more efficient we become and repairs are a tremendous opportunity for saving money. So I would say those 3, I would say the production, capital formation in SCI and M&A.

Well, great. Well, thank you very much, Joe. Thank you for joining our session today. This concludes FTAI Aviation.

Thank you.

Good afternoon, everyone. My name is Sheila Kahyaoglu, the Jefferies Aerospace Defense and Airlines Equity Research Team. Thanks so much for being here for our last fireside chat of the day. We have Joe Adams from FTAI Aviation. Joe is going to start with a few minutes of prepared remarks, and then we'll get to Q&A.

Thanks very much, Sheila. Appreciate being here once again. It's a great conference, and it's a great way to kick off the fall season with a lot of energy.

Just as a recap, FTAI Aviation is company's mission is to be the largest aftermarket engine power provider in the industry, commercial aviation for today, 2 of the most popular and widely used engines in the industry, which is the V2500 and the CFM56 engine. And we've designed our business to be a full-service provider to owners and airlines in that we prebuild engines and do the maintenance work on engines that we own so that the airline or the lessor doesn't have to do engine maintenance, which is an increasingly complex and difficult part of the engine once that engine is off of its original power-by-the-hour program from the OEM or in the "aftermarket."

And so what we do is -- our business is we go acquire run-out engines. We rebuild them in 3 maintenance shops that we own. And then we go to market to offer those as finished products to the owner, and we offer them either for sale, for exchange or for lease. And so when we go to the customer and say we can save you time and money because you never have to do the engine maintenance work yourself. You don't have to have a team of engineers. You don't have to have spare engines. You don't have to ship it around the world or send your team to live out of a hotel in Germany while that's being done. All those costs go away. You have no risk of negative surprise on that engine event costing a lot more than you expected and we'll provide you a great deal of flexibility. If you want an engine for 6 months or 6 years on a lease, we'll provide that, too, and we'll always have a spare engine available for you.

So our business model is built around us being the biggest, the best and most efficient provider of that power to the industry so they can outsource that activity to us. And so today, we have wide acceptance from the customer base. It was originally a challenge to get people to accept a different way of doing business. But once people try it and get used to not having a lot of those headaches or downside risk, we found that people love the product, and we have over 100 customers have used our aerospace products and growing out of the universe of probably about 600 total users.

Our goal for the company is to achieve about a 25% market share. The industry spends on an annual basis for V2500 and CFM56 engine maintenance annually, about $22 billion a year. So our goal is to achieve a 25% market share. And today, we've increased that from last year, about 5% to about 9% this year. So we still have a lot of room to continue to grow.

And as I said to people, a lot of the products that we've developed and have implemented are relatively new. Today, I was saying we celebrated our 1-year anniversary of owning Montreal, which feels like it was actually 5 years, but it was only a year ago. We bought it. It was 50 engine -- 50 modules a quarter of production. And today, it's 100 modules per quarter. We bought Rome -- the facility in Rome in the spring of this year. And we expect to produce 100 modules this year from that facility and 200 next year. So we're on a big ramp in terms of production because the customer acceptance is so high. So that's sort of an overview. And obviously, I know you're going to have a lot of questions.

I have a lot. So let's think about the CFM56 and V2500 overhaul market. If it's $20 billion, you said you've increased the share from 5% last year to 9%, over 100 customers. So how do you think about the incremental customers you brought on, how you convince them to try you out? And what are you seeing going forward?

Yes. So I remember a couple of years ago, when you were -- we were talking to you in the beginning, we said...

I think I called you Fortress Aviation back then.

I know. And Google still does. So can't figure out how to get rid of that. But the -- when we sat down and we created this thing called the module factory, and we discovered like other people that own that engine that, that engine is built in 3 different modules and you can swap them.

And it's a brilliant design because each one of those modules gets delivered with a different number of hours and cycles on it. And so you can pick up a lot of efficiency by exchanging those modules. So we started this trademark this company called the module factory up in Montreal. And we started telling people we can do a fan swap and you can avoid putting that engine into a shop or we can do a low-pressure turbine swap.

So we created that, and we had 50 customers the first year -- 25 customers the first year, and we were doing like 4 modules per customer and we were making $0.5 million per module. And we said, gee, that seems like very low numbers, let's set the bar higher. And we said, let's double the number of customers from 25 to 50. Let's try to increase the number of modules from 4 to 8 and double the profitability from $0.5 million to $1 million and 2 -- 3 time, 2 cubed is 8x. So 50 will grow to 400. And we've exceeded those numbers based on that early plan.

And what our pitch has always been to people is avoid the shop visit, try it out, do an engine exchange do a module exchange. And if you don't like it, don't do another one and people -- obviously, they love it and they've come back and they've done a lot of repeat business. And the word of mouth gets easier to expand and get people to try it. We had success with a company called Lion Air in Southeast Asia, where they had a whole fleet of low-pressure turbines that we're going to time out.

We said, do one, and they did in the field. They've videotaped. They've put out on Instagram and started selling it to other people, telling how great it was and we saved them millions and millions of dollars. So it's a lot of individual marketing, get the fleet plan, get people to try it and then use those real-life experiences to get referrals. And so today, a lot of times, we'll go into a customer and they'll say, give me referrals, tell me other airlines I can call.

And so we give them 3 names and they call and they say, very good things about it. So it's a lot of different techniques to get people to change from the traditional way to sort of the new way, but they're working and they're working across the entire size from big carriers down to little carriers.

Just curious, how long does it take before they -- like Lion Air as an example, when they were flying that in the -- like test deal, does it take a week or a month before they give you additional opportunities?

Well, it was -- it took us probably 3 to 4 months to get them to do the first one. And then once the first one was done, they turn out and said, okay, we have 14 more we want to do next year. So it was literally that fast.

And do you think that the typical agreement is for 1 to 10 modules or engines as you bring on customers?

Usually, what happens is we'll get the next -- we try to get from the airline in the next 12 to 18 months of expected shop visits. So that we can start making proposals back on a specific engine specific serial number, a specific module back to them. And that's usually the way the dialogue gets going after the first one.

You have 3 facilities, Montreal, Rome and Miami. I've been to one, so I'm waiting for the other 2. They have capability, capacity for 600 engines or 1,800 modules per year. How do you think about the capacity filling up at those sites?

So this year, if you think about 1,800 modules, this year, our goal is to do about 750 modules in production across the 3 facilities. And then next year, roughly 1,000. So about a 33% growth rate. As I mentioned, Rome is the newest facility. We expect this year to go from 100 to 200. We expect to add probably about 150 to the Montreal production and about 50 from Miami.

So the real -- they're all increasing and moving in the right direction. It takes 2 things to overhaul an engine, which is parts and people. Parts, we did a lot of investing in inventory starting about a year ago. And so we are very well supplied with inventory for parts to manage. And now it's really training and making new hires productive as soon as possible. And we should have an Investor Day in November up in Montreal, and we can showcase our training academy, some of the things we're doing with augmented reality to increase the speed by which people become productive and well trained. But we're doing a lot to do that because, obviously, this market, there's a lot of demand and the more we can produce, the more we can sell.

Some folks might not know this, but your margins are quite good, and a lot has been said about the sustainability of your margins this year. You're targeting 40-plus percent in '26 compared to 34% at the start of this year. Can you talk about the composition those margins and what drives further upside?

Yes. So we -- one of the key differences that we have is we own both the asset and the maintenance facility together. So we actually go buy assets and we buy maintenance facilities. And so therefore, everything we do in our own shops is an asset that we own.

So when you break down the margins the way we think about it, there's probably a 15% margin that anybody in the industry would get paid for fixing something for someone else, more or less a service of if you're a mechanic and you fix somebody's car, you charge 15% markup. Then we make money by optimizing green time. And we have a very good slide in our deck that we laid out how we buy 3 different engines, and we do maintenance on those -- some of those engines, some of the modules and recombine them into 2 uniform build engines and a runout engine and we generate $6 million -- we invest $10 million and we generate $16 million of value. And that green time observation contributes another 15% to 20% margins.

And then lastly, our part strategy has been very focused on how do we acquire parts, buy used life-limited parts, teardown engines that we own and recycle those parts back and then importantly, PMA. And that combination generates another 5 to 10 percentage points of margin that we keep because we own both the inventory and the facility. So when you add it all up, we started the business, we were generating about 35% margins. We see the potential to grow that to 50%, full potential.

So it used to be super easy to model the business out because we would take the modules sold times by the number of customers and come up with an EBITDA per module, which was around $500,000. Now it's closer to $750,000 last year, but you've had Aerospace Products EBITDA up more than 80% year-over-year. So how do we think about growing volumes, growing economics and how the 2 trend from here and the difference between modules produced and modules sold?

Yes. Right now, modules produced and sold are pretty close to the same number. And we started to focus people more on the production as opposed to the profitability for margins per sale for competitive reasons and also for customer reasons. So we think that proxy is a better way to gauge how much we can produce and how much we can grow our revenues.

And as I said, I expect next year to increase the production of modules by about 3% year-over-year. So -- and then profitability that's reflective of -- as we obtain more benefit from the acquisition of Life Limited Parts and PMA importantly, we will see those margins increase, and we indicated next year to 40% or higher.

So we'll start to see that be a material contributor in 2026 and to some extent, maybe in the fourth quarter this year. But that's how we kind of think about it. And then just directly growing the production volume will result in additional continuing growth.

Maybe just taking a step back, the EBITDA per module story from $500,000 to $750,000 last year to $800,000 this year is sort of what we're modeling. How do we think about what's driven that and where it could go?

So I think a lot of it is off of the doubling of production in the facilities where we've been doing the work and the acquisition of use of material that we've acquired and -- from used serviceable material and from the secondary market. And so we've become -- I always say this is very much a scale business that as you get bigger, you get better and you develop more ways of acquiring material, more ways of being efficient in the assembly and the building of those and then also in the acquisition of the Parts and the PMA and the optimization you can do with the modules across all those. So all of those are basically contributing to making us better and more efficient as we get bigger.

Let's talk about PMA because we just presented with how you and somebody accidentally took one their bushels. So they didn't realize how expensive PMA...

$50,000, right?

Yes, actually are...

I just saw a picture outside.

Your strategy is 5 PMA parts within your modules to say, $500,000 in total. The first 2 PMA parts have been approved. What would you say adoption is? Is it really showing up in the EBITDA per module number? And how do we think about the third turbine blade certification, which we estimate on our own estimates is about half that $500,000 savings.

Yes. So the way I would describe the total savings per shop visit instead of module is that the total savings with all 5 parts is over $2 million, $2.2 million, $2.4 million. And the first 2 parts are -- the next part that's coming is the most valuable part and most expensive part of the shop visit. And that's the one we expect in the next month or so, that is about 60% of the savings.

So a lot of what the first 2 parts have been, we've been installing in our engines that we have in our lease pool and there's other airlines that are installing and flying in their fleets. But most of the participants in the industry have been waiting for this third part because that is a significant needle mover in terms of savings before they commit to sort of PMA'ing a hot section of an engine.

So that will drive further expansion of the market, it will drive us to put those into engines that we put into SCI and then also engines that ultimately get sold into the third-party market following the performance data that will be available once those engines start flying a significant number of hours. So it will happen in a sort of a step function over the next few years, but a lot of the participants want to see how that next part is going to perform.

Before adopting the first 2 as well?

Yes.

Okay. What would you say adoption currently is?

Well, we put it into a significant percentage of our lease fleet. I don't think there's a material adoption across the rest of the industry. So I don't think it's a material number.

Can we talk about -- you produced 322 modules in the first half of the year, your full year guidance is 750, implying, I think, 30% sequential pickup in the second half. So how do you think about optimization of the playbook and what you've put across those sites?

Well, the biggest -- I mean, we didn't -- we had 29 modules produced in Rome in Q2, which wasn't in Q1 at all, and we're saying 100 for the year. So there's a pretty big material contraction from the Rome facility, which has been terrific and it's been a great addition to see that ramp up that quickly. And then obviously, we were, I think, 90 so modules in 70-something, 77, I think, in Q1 in Montreal and 92 in Q2. I might be off by a little bit, but ramping up probably closer to around 125 or so by the end of the year.

So it's a steady -- it's a significant increase from beginning to end. So the run rate production is going to put us on a good trajectory to achieving the 1,000 that we are targeting for next year.

You talked earlier this year that you're seeing growing interest in full engine swaps versus individual. First off, why would anybody have done an individual module to begin with? And just talk about that trend a little bit more if you can.

Yes. So we do both. When a customer needs only to -- they have an engine that might be hitting limiters on the fan or the low-pressure turbine. The easiest thing to do is do a module swap on those modules, either fan or low-pressure turbine, and you can actually do those in the field. So you're going to totally avoid taking that engine inducting it for a shop visit.

So most of the module swaps are done with fans or low-pressure turbines. Usually, when an airline has limiters on the core, then it's more complicated for an airline to have to take off their fan and their low-pressure turbine have us supply a new core and then reattach the fan and the LPT and run it through a test cell. So when people think about that, they say, "Oh, well, just give me a whole engine."

So we put it together, we will then run it through the test cell and deliver the finished product because in the end, you need an engine that has run through a test cell before you can put that on wing. So it's really module by module is what drives that decision or customer preference. They could do it if they want. They can buy a core from us, but most people like not to. And so that's kind of the -- and if you think about a fan has 30,000 cycles when delivered new core 20,000 cycles and a low-pressure turbine 25,000 cycles. The core is going to hit the limiter more time -- more frequently than the fan of the LPT.

How do you think about the time for just a module versus a whole engine swap, how long it takes and the profitability profile for each?

So a fan -- or a fan, you can do in 1 to 2 days in the field, a low-pressure turbine you can do a week in the field. A core will be -- turnaround time on a core would be like 60, 80 days to rebuild it. But when you talk about the time to do it, what we're really doing is immediate engine swap.

So if an airline says, I want to do an exchange, we'll say, well, okay, we'll deliver an engine to you in XYZ city, and then we'll buy back your runout engine and it's done immediately. So there's literally no downtime for that operator. And that's really the key of this product is it's an immediate -- there is no downtime. Whatever our turnaround time is in rebuilding it is irrelevant to the customer. Having said that, we're running probably 60 to 80 days to do a full performance restoration of a core.

And how do you think about the profit profile of each?

They're all good. I mean I think that you're going to see the profitability of each one is a good contributor. Obviously, the core has bigger dollars, it's more valued, but the margins -- their margins are similar.

Maybe if we could talk -- we all love the CFM56, but I think most folks don't even realize you have a V2500 partnership. So if you could talk about that.

Yes. So we had looked at -- we had owned these for many years. And then when the powder metal issue came out and grounded a lot of the geared turbofan engines. A lot of operators realize they were going to use and need the V2500 for much longer than they originally thought. They thought they'd be retiring sooner, but then they got a huge life expansion.

So we got a lot of calls from airlines saying, we need these desperately. And so we decided at that point that was a perfect time to get into that market in a bigger way. And then we called -- we had our own network of maintenance shops that we use with Chromalloy's PMA. And then we also called Pratt and said we could also do full overhauls with you, but we need to make the math work. And so after a series of 6 months of back and forth, we had a proposal from Pratt that was very attractive.

There's many things they can do on that engine that no one else can do, and they rebuild that engine to 20,000 cycles, upgrade the thrust, provide, in some cases, you can convert from a preselect to a select one, different things they can do that are very, very valuable. So we chose to put it in a large order with Pratt to do that.

What we do is we go buy the runout engines. We acquire those. We send them to Pratt and they put them in the network, they rebuild them, and then we go back to market, as I said, with a sale exchange or lease option to the customer. So the biggest difference is they're putting all new parts in and they're managing the overall process instead of us doing it. But in the end, it's just math. If you can get the price that we wanted and which we did, then it's a great way for us to rebuild those engines.

So you're essentially a placement agent for those engines? And how does the margin profile differ?

I don't know if I'd call us a placement agent...

Okay. Sorry, I made it sound as a little simpler than it is.

We aggregate the engines and then we manage the rebuild and then go to market. I mean we've always said that the margins are not dilutive. However, we did point out that there was a customer in the first -- second quarter this year, where we did some significant material amount of the V2500 sales that was slightly dilutive to margins. But we're doing that in the context of looking for a bigger opportunity with that customer, which most probably would involve CFM56 engines.

Got it. Maybe if you could just refresh us on your 2026 targets, which you've kind of almost reached anyway. If you could talk about that a bit and how SCI factors into it?

Yes. So what we did say is that the targets that we put out there, we're going to revise upward, but we would do it at the end of the third quarter when we had better information on next year. So we raised the 2025 numbers, but we didn't adjust 2026 at this point. What we said about SCI is that we're -- our goal for the year was to acquire into that partnership, 250 aircraft, which is a private partnership that we set up at the end of last year. And those -- we were -- at the July 31, we had about 145 aircraft either committed or closed. So we're on track for our goal of investing and acquiring 250 for the year.

And the process has gone quite well. We're very happy with the deals. We've been able to line up. And the expectation is that we will be, if not done very close to done on the 250 by the end of this year. And we've said is we want to -- we would like to do one of those every year. So if there's 2 things you need to do the next one, which is good results on the last one and an investment pipeline.

So what we expect to see is by the fourth quarter this year, we will know how far we've gotten on investing, what we've got in front of us and what the results are from the current portfolio, at which point we -- based on today's results, expect that we will launch a second one for next year in 2026. It's not a sure thing because we're 3/4 of the way through, but we're on a very, very good track to be able to complete that and then launch another one.

Maybe if you could talk about just 20% of Aerospace Products will be sales into the SCI. So how that filters into the revenue and EBITDA recognition both within your Aerospace Products segment, but also leasing?

Yes. So the way SCI contracts with FTAI Aviation for all the engine maintenance events is that the partnership SCIs sells a runout engine to FTAI Aviation and FTAI Aviation sells a rebuilt engine to SCI on a formula basis, it's based on hours and cycles on that engine that's predetermined and contractual. When that happens, it's booked as any third-party sale would be with one exception in that because FTAI Aviation owns 20% of SCI, there will be a deferral of that 20% on that.

You'll see it on the top line, but then you'll see a deferral of the EBITDA for that 20% of those sales. And you saw that in the last 2 quarters where it was deferred. So other than that, it's treated like any third-party customer. We did have, in the first half of this year, approximately about 20% of the sales from Aerospace Products into -- from Aerospace Products were to SCI, and we expected that to be a good estimate of what the future will be as we both grow Aerospace Products and grow SCI.

Can you talk about also on the cash flow statement, how SCI relieves impact of working capital usage for you?

Yes. So on the cash flow, we -- as part of the setup we took all of the aircraft that were on the FTAI Aviation balance sheet that fit the criteria for SCI and sold those 45 aircraft to SCI. And that generated roughly about $500 million of asset sale proceeds and some gains on sale.

At the same time, we've also invested the 20% ownership which our estimate is if we -- total equity of SCI is about $1.2 billion and 20% of that is about $240 million. So we've taken roughly the $240 million of that, and we'll put it back into the equity of SCI. And so we've made the asset balance sheet of FTAI Aviation more asset-light and at the same time, had a net cash positive that.

And we're continuing -- our goal has been over the years to make FTAI Aviation more capital -- less capital intensive, more asset light. And we see that as a first step of continuing that trend so that we grow the Aerospace Products business, we don't -- are not investing in sort of leasing assets on the balance sheet, and we generate a significant amount of free cash flow.

So leasing assets are down to [$375 million, I believe, from $420 million] at the end of 2024. How should we think about modeling the leasing segment going forward?

Yes. So the leasing, what we said is roughly assuming no further investment in other SCIs is basically not a growing business. So it's roughly $550 million of EBITDA. And what would change that is if we decide to do another SCI 2, then we would have another investment next year and then you can look at growing the leasing business going forward. But since we haven't made that decision yet, which I think will happen in the fourth quarter, I think at this point, we're assuming that the leasing business today is just a basically steady state.

And you've announced that financing Deutsche and ATLAS on the first equity tranche with OneIM. So as we think about Q4, we'll see debt come in first and then equity in '26?

Well, you won't actually see that on FTAI aviation balance sheet. It will show up as our equity investment will be the only thing you'll see. That debt is all nonrecourse in a private partnership. So you won't see that, but it is committed. And so that's part of what's used to acquire those 250 aircraft.

Can we talk about free cash flow in -- this was a big focus item in Q1, and you ensured that in Q2, it would be -- you raised it essentially proving investors wrong. So 2025 free cash was raised by $100 million to $750 million after $370 million in the first half. Can you talk about the puts and takes to this and how you think about that trending?

Yes. So there was -- growth in EBITDA is a big contributor. And as I mentioned, we have taken some assets and sold them into the SCI partnership and invested in the equity. And then we also bought some additional engines to replace some of the engines that we moved over with that.

And so that's -- that's basically taken away what was -- in the past, we always had a lot of investment in leased assets that we added -- that we put together in co-mingled, which is, I think, what caused some of the confusion because we're running a leasing company, which is divesting as well as a manufacturing business, which is operating.

So we've streamlined that and eliminated as much of the investing activity as possible. And as I said, our goal is to keep the leasing business sort of as a status quo, so we're not going to need to do any significant investing in that. So EBITDA should generate -- incremental EBITDA should generate significant amount of additional free cash flow going forward.

I think Angela must be one of the busiest CFOs at this conference because you acquired Pacific Aerodynamic, you have PMA JVs going, you have SCI, you've delevered. How do we think about what's next with the balance sheet and what you do from here?

Well, we're always trying to keep moving. And as I said, we keep widening the moat. And I think one of the things that SCI, to my mind, has also done is added another dimension and that we now have the potential to grow that and to become one of the largest owners of narrow-body assets in the industry and have all of that committed to FTAI Aviation, which is a significant increase in our sort of presence with both aviation maintenance in general as well as all the airline customers we deal with.

So I think that's been a -- and if you think about how do you do what FTI does, now that there's another jump up in that we're going to be a significant manager -- asset manager as well. So -- we think of these things is how do they integrate, how they keep producing more. And so on that level, I think it's a huge strategic achievement and it's a big increase in our competitive advantage to be able to convert those immediately into long-term FTAI Aviation customers.

And then on the other side, we look at -- we're always looking at the cost of a shop visit and how can you keep driving that down? How do you save more money and repairs has been something we've been talking about, as you know, for like 2 years. And we've started to see the results of that effort to either grow it organically or buy it. And I think there's still a lot of potential in the piece part repair business and repair of things that are connected to the engine that we've just started to -- really started to grow and explore. And the Pacific Aerodynamic is a great company, has a terrific technology. It's protected IP. They develop this on their own.

And there's other parts of that engine, which we can take their knowledge and expand that to increase our own repair capability using their knowledge. So it just keeps -- it's sort of a virtuous circle. It keeps getting better and better.

Sounds good. Well, thank you so much, Joe. Thanks, everyone.

Thanks.

Thank you, everyone. I would like to introduce Joe Adams, CEO of FTAI, and thank you, everyone, for joining us today.

So Joe, I think most investors here are familiar with your business. But for those that are not, could you give us a brief description of your business and talk about how you're different from traditional lessors and how you're different from traditional MROs?

Yes. Well, thank you very much. Thanks again for having us this year. It's a great conference and happy to be here. Just to give you a recap, FTAI Aviation, our mission is to be the largest provider of aftermarket engine power for the commercial aviation industry with 2 specific engines in focus, the engines that fly the workforce of the industry, the current generation 737NGs and the A320CEO, which is the largest by 14,000 airplanes flying around the world every day. And so those 2 engines, we provide a full service product to the industry where we effectively manage the entire asset class, including the maintenance activity. And what we've done is we've created a vertically integrated company that owns and maintains those airplanes and what we provide to the end user, the customer, the airline is a combination of time and money savings as well as a great deal of flexibility.

So effectively think of us as the outsourced engine maintenance provider for airlines around the world who don't either want to be in that business or probably shouldn't be in that business. And our business model is essentially to go acquire run-out engines. So we own the engine then we rebuild those engines in our own facilities, facilities we own in Montreal, Miami and Rome. And then we go to market and offer those either for outright sale for an exchange for a runout engine or for lease. And therefore, the customer eliminates all the hassles and time requirements and expense of managing that shop visit and they get a price certain at the time when they do that engine exchange. So it's a unique model in that what you mentioned is lessors and MROs. What we've done is combine the 2 functions together and that -- and the key to our business is that we both own the asset and maintain the asset, which is different.

And so it's created a real success in terms of winning people over because I would like to say -- very few times does anything good happen in a shop visit. It's usually something either longer delay or a higher cost or both. And therefore, we can solve problems for the industry in what is an increasingly expensive and complex process. And so that's kind of in a nutshell what we do.

Yes. I mean it's a fascinating business model. And what's also fascinating is that you've been evolving. Your business has been evolving in the latest, I guess, business that you've introduced is SCI. And I guess, for those of us for those investors that are not familiar with what SCI is, if you could give an overview of that business? And how many aircraft you have in there currently? Are you on track to deploy $4 billion of capital, which is the equivalent of about 250 aircraft and what progress you've made so far?

Yes. So sure. So the background of this was a little over a year ago, we realized that oftentimes, we're involved in end-of-lease discussions where there's a return compensation difference between airline and lessor where an airline can be bankrupt and doesn't have the money to rebuild the engine, and we became a problem solver. And the problem solution ends up with a more well-defined engine exchange to meet the needs of the customer and the lease term. So you end up lowering the capital investment in that asset, which reduces the risk and increases the return.

So we started thinking about that and said, well, if we can do that, why don't we create our own leasing company for aircraft, and we can convey those benefits to our own investor base. We'd also then manage that partnership. We'd have an ownership interest in that, and we would also lock in all of those engine maintenance events as engine exchanges with FTAI aviation. So there's a tremendous amount of benefits. The first partnership we formed our goal was to invest roughly about $4 billion this year and by doing that invest and own about 250 aircraft. And as of July 31, we had either closed or under LOI 145.

So we're ahead of the pace that we had hoped for. And we expect by the end of this year to be very close, if not on target for investing and owning 250 aircraft in this first partnership. And it's been a great -- it was an ambitious target when we set off doing it, but it's a huge market as there -- as I was saying, there's 14,000 737 and A320 aircraft, current generation flying around the world. Half of those are owned by lessors and the other half are owned by airlines. And we often provide a value-add product to the lease by buying or acquiring assets that have near-term engine events.

And I talk about engines coming due for performance restoration in the next year or 2 years of that lease because we have inventory, we own our own maintenance facilities, we can do that very, very efficiently. And so that's where we're seeing a lot of opportunities for investing and the goal is, if we're successful this year, both in terms of return and investment programs to do another 1 next year and do 1 every year after that. So ultimately, if you roll that forward, that would make us most likely the largest owner of current generation narrow-bodies in the world, which also just converts a lot of other benefits on the ability to be a meaningful counterparty to airlines to be able to predict and schedule our engine maintenance events, be a big buyer of material. It's a scale business. And definitely, the bigger you get, the better you get.

So would your -- with the next SCI partnership, I guess, next year, would that also be for $4 billion or?

Most likely. I think that seems like a good number that we've been able to deploy smartly without being overly aggressive or making sure that we're doing good deals. And as I said to the team, the key to raising the next partnership is make sure that the returns are good on the first partnership. So we most likely will make a decision on going forward with that in the fourth quarter of this year. Right now, the indications are the returns are great and the investment pace is very good. So as I said today, it looks likely that we will. But until you get there, you can't start the next one until you finish the first one.

Yes. I mean I could tell you some of the more skeptical investors would ask me, how are they going to achieve the return hurdle in such a tight aircraft market where you might have to pay up a little bit to get your aircraft. So could you talk about how you're achieving the return hurdle? I mean I would assume it's probably through maintenance, right?

A lot of -- in my prior life, I was involved with Aircastle. And I -- my observation was most of the problems around aircraft leasing industry occurred around the engine. It's always an engine problem here and there. It's a cost overrun that we thought it was going to cost $2 million, and it cost you $8 million. Those things happen. And because we have our own inventory, our own capability and vertically integrated, we can manage that very, very efficiently. And we also did a sale leaseback with an airline that had 5 engines that were timed out today when we did the deal. So they had airplanes that were grounded and there's not a lot of engines around in the industry. So we were one of the few -- maybe the only part that could provide immediate engines to that customer.

And a lot of it is -- it really comes down, in many cases, that people want to avoid the shop visit. It could be a module exchange that you have an engine that is timed out because the low pressure turbine has no hours and cycles on it, and we can do a module swap and have that engine flying in 48 hours as compared to taking that engine and sending it into an MRO shop where it takes you 30 days just to get inducted. So those kinds of solutions are basically, that's what we've built as a machine that can actually have prepositioned inventory available, which solves problems and creates higher returns.

And as I said also, the -- the other key is if you have a 5-year lease on an airplane and you have a 2.5-year engine event in the middle of that, the typical approach would be the airline would take that engine and build it for 5 years. Well, then you've put a lot of money into the engine, and then you have to sell that engine at the end of 5 years with 2.5 years on it, which is not the easiest thing to monetize. What we can do is deliver an engine that has 2.5 years on it, so you have a lower investment, less residual value risk, which means you get a higher return and have lower risk, which in my history of investing is always the box you're trying to get into, which is higher return, lower risk.

So it's very customized and it's because we own 500 engines and 3 maintenance facilities and have invested hundreds of millions of dollars in parts inventory. We have PMA products available. We have repair businesses we bought and really have gone line by line item down the cost of a shop visit to be the most efficient in the world at that. Our goal is to be the lowest cost producer of aftermarket power for that engine bar none.

So when I used to tell investors to pitch the business to investors, a lot of them would say, "Well, it's green time, as you mentioned, green time utilization. Why can't other MROs cut of copy what you're doing and do you green time utilization? I mean, isn't that essentially being done by other airline tech ops and stuff, right? So how would you answer that?

Well, I mean we didn't invent module swaps. It was created as part of the design of that engine. And if you look at a Delta, American and United, they do that internally. And so they will take modules of FAA core and LPT and recombine those so that instead of -- if you have 2,500 cycles on a low-pressure turbine or 5,000 cycles, you don't overbuild that and just waste those cycles, you recombine it to be able to be the waste nothing people. So they created that because that's the way the engine was designed. But prior to us sort of launching the module factory, you couldn't buy a low-pressure turbine in the market. If you put an ad on Google and said, does anyone have an LPT with this many cycles, you get nothing. There was nobody offering that to other airlines.

And there's 600 owners of CFM56 engines in the world, only 5 of them have the capability to do it themselves. So that 595 is our market opportunity to take a product that saves money, creates efficiency and basically offer it to anybody. So that's all we did. It was just no one had sort of optimized and then offered that as an independent party to the rest of the world.

So you're essentially doing what, let's say, Delta tech ops would do, but you're doing it for external clients?

Yes.

Okay. Got it. And you're rapidly ramping up production in Montreal, your European facility is contributing to production. Could you go over your production goals and like what does that imply in terms of your market share and where you want to get? I know you want to get to 25% market share. So like your production goal, how does that get to where you want it?

Yes. So this year, our goal is to produce 750 modules across the 3 facilities. Rome is a contributor this year for about 100 of those, which we didn't have last year. So that's brand new and we expect to grow that -- we hope to grow that next year to 200 modules. And the goal in 2026 is to produce around 1,000 modules. So about a 33% growth in production. We have the physical capacity to do that. It's really training technicians and getting them productive that is the part that takes some time, and we're working really hard on that. So we've ramped up the production very significantly now I have 3 different operations. And I think we have the physical capacity to double that number over the next few years.

So to get to a 25% market share, we essentially have the capacity today, physical capacity to do that. We are currently at about 9% of the market. If I talk about the addressable market spend on V2500 and CFM56 is about $22 billion a year in maintenance spend. And so we're at about a 9% market share, up from 5% a year ago. And we think the 25% is achievable, if not higher than that. I mean there's no scientific reason why we would stop there, particularly if we keep growing the SCI because 100% of that business is committed.

And to get to something above 25%, you will probably need to just buy another facility or something, right?

We expand the existing facilities or buy another one. I would say, geographically, if you look at where we would probably think about adding another facility would be Southeast Asia or Middle East potentially. But those markets are growing extremely fast. We have a lot of customers out there. You don't have -- I mean, shipping an engine isn't that expensive. But having another operation in that part of the world might make sense for us. So -- but we don't need to do that. I think we -- as I said, we're going to double the capacity in Rome. We're expanding. We have a basement in Montreal that is essentially empty. We have 150,000 square feet below grade that we could use.

So we haven't really pushed hard on the existing facilities, which we could also do it. But what we did is we -- essentially, we bought 3 former airline engine shops that had no business. It was Montreal, it was Air Canada. Miami was originally Pan Am and Rome was Alitalia. And these were once great engine shops that the airline had gone bankrupt, and they had good tooling. They had a well-trained workforce. We bought them for way below replacement costs, and we're uniquely able to bring our inventory into those engines immediately -- into those shops immediately.

Yes. So talking about acquisitions, you've made a lot of interesting acquisitions, buying facilities, buying businesses. The most recent one you bought was Pacific Aerodynamic, I guess, it's a repair specialist. So could you talk about your -- how does that business benefit you? And just your acquisition strategy broadly? And I guess, what are you looking for in your next acquisition target.

Yes. And so if you remember, I've been talking about piece part repairs for almost 2 years now, and it's another area of vertical integration because when you do a performance restoration on an engine, you take it down to piece part level. And a lot of those parts can be reused if you repair them. So we spent over $50 million last year to third-party vendors on repairs. And one of them were spending a lot of money on is compressor blades because compressor blade is where if you ingest a rock or debris, the first thing it's going to hit is that compressor blade is before the combustor. So you have a lot of damage, and it's a very thin blade, very light.

So we started looking around I was like, who does that, how can we get in that business and we found a company in Southern California that was essentially an entrepreneur who had built a company and his sun was running it, and they had a specialized technology that they patented and had a great repair process. But they only had a handful of customers. And so we look at it and said, well, instead of spending $300,000 to repair a set of blades, we could -- if we owned it, we would pay $250,000 to the mechanics and the people in the shop so we'd save $50,000, and we would -- if we can run 300 shop visits through that facility, we'd save $15 million a year, which is essentially what we paid for the whole company, you pay for it every year.

So that's the kind of math that we see on the repair side because of the -- it's a good business, high margins, intellectual property, and we can deliver a substantial amount of volume. So we're looking at other -- we can also take that team and say there's other parts in that engine, which they also could apply that technology to do repairs also. So there's a lot of growth in that space. And it's -- again, it's another barrier to entry. It's another way we can reduce our cost structure further and differentiate our product because we have a capability that's really unique.

And so you've been -- you -- I guess the module exchange business has been up been running for a couple of years. Could you just talk about the customer reception? What kind of general commentary are you getting from them? And I'm assuming your customers are all becoming repeat customers, right?

That's a good assumption. They are. And it's funny because in most cases, when you go propose a fan swap or low-pressure turbine swap, people didn't know that, that was possible. And so when we introduce it, you had a customer like Lion Air, Volotea and their sort of engineering team as we have to induct that engine into a shop and then that engine is going to sit there for potentially 3, 4 months waiting for that process to end. And in the meantime, you have people walking around an engine, finding things that they could fix if they had -- so -- we went to them and said, "You can do this in the field and you can do it in 1 to 2 days, and they were like that, you can't be -- you're kidding me, right? And it's like no.

And so we started doing it and people loved it. I mean, it saves them literally probably save Lion Air millions and millions of dollars, not having to ship those -- all those engines in to swap the low-pressure turbine. So it's one of the things where, again, we're sort of -- we're problem-solving and sort of our pitch to the customer is avoid the shoppers. That's the end goal that should be your goal, our goal and we'll help you do it. And so the people love it.

People love it. Okay. And I guess, turning to PMA. I'm assuming you probably have no update. But if you could talk about -- it seems like the module exchange is a very popular business that airlines like and I assume the same for PMA in terms of acceptance. But I think in terms of PMA acceptance, I think the lessors are a little less willing. I'm just wondering in this tight market, has that changed at all? Or what your...

Yes, I feel very good about it. First of all, on the timing, Chromalloy did indicate to people they thought October approval. And as I said to people today, no update is a good update, right? It seems it's possible it could come sooner than that and things are on track. So it's very much near the end of the process on that on the next part, which is great.

In terms of receptivity, what I always do, as I talk to people, not about the CFM56 because we don't have the parts approved yet, talk about the CF680 engine, which is the engine where we really had a lot of experience putting the hot section parts in that's the engine that fly 747s and 767s. And we found that, that product had universal acceptance across all airlines around the world. And then when we went to sell those engines, it also had universal acceptance. And so while people will tell you that, "Oh, I don't put PMA in my engine. I don't -- that's not my process. Almost everybody in the business owns engines with PMA in them because everyone accepts that engine. And it's also market share on PMA is not a static number. It tends to go up as platforms age.

So I look at it and say, well, we have this great experience with the CF680, what would be different about the CFM56 engine that would make it different than that engine. And I have never gotten anybody giving me a good answer other than I say it's bigger. It's like, hey, I'm aware of that. It's 10x the size.

So I don't profess to predict, but I think that the history indicates that if the products are good, and perform well, the acceptance will be there.

I think in the past couple of quarters, we've seen OEM production rates improve. How does that impact the value in your view, value and demand for mid-life aircraft. And I guess, as a result, demand for CFM56 and -- does that affect the value of that?

Yes. So I don't see any impact. And there's such a deficit that has been established of deliveries over the last few years that it's going to take a long time, aim for that to catch up. But also aircraft don't -- they don't stop flying for technological reasons, they stop flying for economic reasons. So when I go visit airlines and customers, I say, what are you thinking about? And would you put in order for new technology and when, and they say, well, I can't get 1 until 2030. And then if it is, it's going to be potentially north of $60 million and I love my NG at $14 million, and I know exactly what the maintenance cost is going to be the reliability is tremendous 1 airline told me they need 20% more new technology to fly the same schedule as the old technology.

So to me, it's the economics that drive it, and it's been true with the 757 and the 767. You had new competitors that didn't displace those airplanes because if the operators are making money, they're going to keep flying it. And people have consistently underestimated the useful remaining life of those platforms. And I think the 737, 800 and A320ceo are tremendous moneymakers for airlines. So -- and then you have cargo market, which is another life extension. But -- as we mentioned in the last call, when talking to airlines, they all tell us that 30 is the new 25. And if you thought an airplane who's going to fly for 25 years, now you're saying 30 and who knows? It still takes -- it's going to take years to replace what's been -- what has not been delivered.

Yes. And I guess, is it 40% of CFM56 has never got?

I have not gone through the first shop visit. Yes. And one of the things about that engine is it's so reliable and dependable it stays on wing for a long time which makes it very, very efficient to operate because maintenance costs is one of the things that will drive operators to retire the asset. And as we introduce more and more ways to reduce the engine spend, we will extend the longevity of that fleet as well. We had 1 operator tell us before they were doing module swaps they expected to retire their fleet by 2026, and they extended it to 2030, which is what you'd love to hear because it's like we're making it more cost effective to operate that and then therefore, they're going to fly it longer.

Yes. I mean I've heard people say CFM56 will go down in history as one of the -- as the best engine ever.

I would agree with that. I'm a bit biased, but I...

Let me take a question -- audience questions, if there's any.

There was a big announcement, yesterday about a bunch of private equity guys taking over a leasing company. Any implications for your business?

No, I think that the -- I mean it was -- to me, it was a transfer from public markets to private markets, and we did that a year ago with SCI. I mean I think that the public markets asset-based leasing companies are always hard to -- and I was talking about that with Hillary is the history, we took Aircastle public in 2005, and it traded to 3x book and then 5 people came in and copied the business model and then it traded at 1.25x book. And it's like there's nothing you can do that you can't really argue that you have a unique operation. And so at the end of the day, you're buying a bunch of metal.

So I think it's really more that it's private credit is a huge influx of capital, a huge amount of money once we invest in private credit. Public markets don't really love the -- I have to buy $5 billion and finance it every year model. And at the end of the day, it's a bunch of assets. So it's kind of like, to me, that's -- that's really what I took from that is probably a better way to organize capital for that sector than in the public markets. And you have Japanese investors and private credit investors and you've got Middle Eastern investors coming. So it's going to gravitate money will go to whoever has the lowest cost of capital for those assets, I think. And we're doing that as well. We've got a bunch of private credit on the site that is buying those aircraft and then we're managing it and getting all the engine exchange business. So it's great.

Any other questions from the audience? I do have a question on product -- new product. Is the LEAP your next most logical product to come into the mix? And when would that happen if still?

Most likely, it's going to be a huge market. It will be by 2028, '29, there'll be more LEAP'S in operation than CFM56. A lot of those will be off of the power-by-the-hour programs with OEMs. The product will have stabilized, so they won't have introduction of new parts. So at that point, I would expect it will be investable for us and it is a huge market. It's the same architecture as the CFM56. So I very much expect around 2028, '29, we'll be investing in that space and the GTF as well.

GTF as well but GTF is not modular, right?

It's not, but it's just a different process. We're still -- it's a higher cost. The V2500 shop visit cost is a higher cost than CFM56. But it's not necessarily because of the architecture, it's just because of the structure of the aftermarket, the way they set it up. So the idea is the same is that you have an opportunity to save money for the owner by doing the maintenance more efficiently. And if you spend your entire life focusing on nothing other than that means, and you should be better than anybody else.

Okay. Got it. And then you have an audience question.

Ashley McCarthy, JPMorgan Asset Management. You mentioned that you will have an interest in the GTF eventually. What's your view on the introduction of the Advantage engine? And is there a danger that will get into a DAC engine versus subsequent variance type of situation value-wise?

Well, I think the advantage solve -- was designed to solve a lot of the problems that existed with harsh environments with that engine operating before the powder metal problem came up. And as I understand, I don't have a lot of data on that, how that's performing yet, but Pratt seems to think it's going to answer a lot of those questions on durability, which is great. I mean, I think ultimately, all of the kinks the new technology will ultimately be worked out.

I'm just saying from an investment point of view, I would wait for the advantage and not buy the older model because at some point in time, you're going to have an older model, which people are going to look at and say, I don't want that. I want the new one. And who's going to pay for the upgrade. So I think from our experience, it pays to wait until you know the answers.

Any other audience question. I think we're -- well, actually, I do have 1 more question. Now that you're with the SCI, you expect to generate significant cash flow -- could you just talk about your capital allocation strategy? I think you've mentioned maybe returning some capital to shareholders by your priorities?

So our estimate for the year is -- and we're on track to produce about $750 million of free cash flow this year. And we have had as a priority to obtain a double -- strong BB rating from all agencies. And we hope our numbers would argue that we should be there because we're under 3x debt to total EBITDA. And so we hope that happens in the next couple of months. That's #1.

Number 2 is growth initiatives. And I mentioned piece part repair and maintenance capacity investments also areas that are adjacent to the engine that are connected to the engine or things that we're looking at as well. So we like to look at all avenues for growth for acquisition or organic.

And then thirdly, I would -- based on the size of the acquisitions that I expect we would be looking at, we will have excess above that. And at that point, we will look to most likely stock buybacks which would most likely happen around the end of the fourth quarter this year. Okay.

That's great. Okay. Sounds good. I think we're out of time. Thank you so much, Joe.

Thank you.

And I don't see Doug. So maybe we take a -- there you are. Great. Well, thank you so much, Joe.