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Ladies and gentlemen, thank you for standing by. Welcome to the Third Quarter 2026 FTAI Aviation Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Charlie Arestia Principal Investor Relations. Please go ahead.

Thank you, Michelle. I'd like to welcome you all to the FTAI Aviation Third Quarter 2026 Earnings Call, which is open to the public in listen-only mode and is being webcast. 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 posted an investor presentation and our press release on our website, which we encourage you to download if you have not already done so.

We will be discussing some non-GAAP financial measures during the call today, including adjusted EBITDA. The reconciliation of these measures to the most directly comparable GAAP measures can be found in the earnings supplement. In addition, 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, Charlie. We have built FTAI around solving the problems our customers face. Our solutions combine engineering and asset ownership to innovate around the turbine. In both Aviation and Power, customers want a partner that is flexible and thinks differently and creatively now more than ever. We are very well-positioned to be the go-to partner in both of these markets. Every business we've built at FTAI began with a challenge our customer face. We built our MRE business originally to help airlines avoid costly engine maintenance and streamline their operations. Today, with the challenges facing new generation engines and new aircraft sold out until 2032, we are helping our customers fly their 737 NGs and A320ceo fleets longer by providing efficient ways to support their engine maintenance needs. In addition, with higher oil prices pressuring airline liquidity, predictable engine maintenance costs is more important than ever.

FTAI was built for exactly this environment. We keep midlife fleets flying at lower costs through our Aerospace Products division and we turn these fleets into liquidity for the airline through strategic capital, and we've started to offer flexible financing solutions for engines in partnership with institutional investors. I'll touch on the high-level impacts and David will walk you through how that is benefiting each of our businesses.

Aerospace Products had a strongest quarter yet. Adjusted EBITDA was $282.4 million, up 57% year-over-year at an EBITDA margin of 31% in line with our guidance of 30%. We produced a record 311 CFM56 modules and our market share reached approximately 15% this quarter. The strategic capital ramp is accelerating with 410 aircraft closed or under LOI, across SCI I and SCI II. And importantly, the second vehicle, SCI II, started investing in September of this year and is off to a great start.

For Power, we reached two important milestones this quarter. First, we now have over 100 Mod-1 units under contract for 2027 and 2028 with a significant pipeline of customer demand behind that. And second, we have completed all critical testing milestones and the Mod-1 unit has produced 25 megawatts at peak output and 23 megawatts at ISO continuous output.

Finally, capital allocation. This morning, we announced a $500 million accelerated share repurchase program that will be complete by the end of this year, and was accompanied by an increase in overall authorization from $500 million to $1 billion. In addition, we've completed $80 million of share repurchases since our initial announcement in September, and this will leave us with $420 million of authorization available for 1 year after the ASR or accelerated share repurchase program has been completed.

I'll now hand it over to David.

Thanks, Joe. Expanding on Joe's comments, three things are shaping the market today. First, midlife aircraft and engines remain supply constrained. New 737 MAX and A320neo orders are unavailable until 2032 and beyond, and the LEAP and GTF still spend far more time in the shop than the CFM56 and the V2500. Airlines continue to extend leases and add midlife aircraft as a result. Second, airlines are prioritizing liquidity. Higher oil prices have made cash a top priority and sale-leaseback interest has grown meaningfully. At FTAI, sale-leaseback come with engine maintenance attached. So it's both a liquidity lever and a cost control tool, which makes these transactions even more attractive. Third, Financing Solutions make our engine products more compelling. Whether an airline buys the engine outright or takes an operating or finance lease through our capital partners, FTAI builds the engine, sells it and keeps the customer relationship.

WestJet shows what happens when these come together. The airline sold 27 Boeing 737-700, 17 on-lease aircraft went to SCI II via sale-leaseback, so WestJet keeps operating them. And 10 of leased aircraft went to Aerospace Products where the engines become modules for the MRE network. WestJet extends the life of the 737 NG fleet and created liquidity for its balance sheet.

Now to the quarter. Starting with Aerospace Products, which delivered a record on every measure, $910 million of revenue, up 76% year-over-year and $282.4 million of adjusted EBITDA, up 57% at a 31% margin in line with guidance. We produced a record of 311 CFM56 modules in the quarter, bringing year-to-date production to 877, and we remain on track for 1,200 units in 2026 and 1,700 units in 2027.

Moving to Aviation Leasing. Strategic Capital is now more than half of the segment's EBITDA, exactly the asset-light transition we planned and both SCI vehicles will continue to scale into year-end. SCI I is fully committed at 301 aircraft. Since quarter end, we closed a landmark $1 billion deal for 30 aircraft and we expect to close substantially all 301 by December 31 for approximately $6 billion of total capital deployed. The vehicle is returning capital as well. We have distributed 17.5% of commitment this year and plan another 5% at the year end supported by strong realizations on airframe and engine [indiscernible] delivery. SCI II started investing in September and is deploying quickly with 109 aircraft committed and the first closings coming from WestJet. Across both vehicles, we have raised $5.5 billion of warehouse financing from 13 lenders in under 2 years and with sale leaseback activity rising, the pipeline is robust. What remains on our balance sheet is a simpler business. 150 to 200 spare engines, with a net book value of approximately $1 billion, earning $30 million to $50 million of EBITDA per quarter with minimal aircraft. These engines are how we keep customers flying. When an airline needs an engine immediately, they come to us and that short-term lease often becomes an engine sale once we have built a replacement. Growth in this segment from here comes from our Strategic Capital.

Lastly, Power, where we hit two milestones this quarter. The Mod-1 critical testing is complete, meeting its target of 25 megawatts for peak power and 23.1 megawatts for continuous baseload power. Testing completed on both natural gas and liquid fuels. And now we have more than 100 Mod-1 units under contracts across customer types in the U.S. and Canada extending into 2028. We've also received $234 million of customer deposits during the quarter ahead of our future deliveries, partially offsetting our inventory investment for 2027 production. Production is ramping now and at an expected full run rate of 10 to 15 units per month by year-end 2027, we are well positioned in our 100 unit guidance for 2027.

Let me spend a moment on why customers are choosing the Mod-1. It comes down to three things to care about most, speed, scale and cost. On speed and scale, that is where the market is heading. Data centers are taking longer build and require more capital, and the market needs power that installs quickly and be delivered anywhere in the world. Many GPU providers are moving to containerized compute with the goal being operational on-site in under 2 weeks. The Mod-1 is a modular unit that ships, installs and stacks in the same time line, modular power for modular compute. On costs, for behind-the-meter customer, equipment is the most important piece of the equation and the best way to save on equipment is to need less of it. A smaller stackable unit means less capital tied up in redundancy because incremental -- the increment you are protecting is 25 megawatts not 300 megawatts. It also means less downtime. Taking one unit offline takes a fraction of [indiscernible] down rather than all of it and a turbine exchange from our engine pull returns the unit into service in 2 days not months.

Combined cycle is the next lever on costs. The joint venture we launched this quarter as a fully mobile trailer-mounted unit that will convert excess heat into 9 megawatts of additional output with no additional fuel emissions or water taking efficiency to over 50% and lowering fuel cost per megawatt hour over the life of the asset. First units begin testing in the second half of 2027.

I will now hand it to Nicholas.

Thanks, David. The key metric for us is adjusted EBITDA. Adjusted EBITDA was $348.3 million for the quarter, up 15% from $303.5 million in the second quarter and up 17% from $297.4 million in the third quarter of 2025. The $348.3 million EBITDA number was comprised of $282.4 million from our Aerospace Products segment $104 million from our Aviation Leasing segment, a negative $38.1 million from Corporate and Other, including intersegment eliminations negative $5.1 million and $4.6 million of FTAI Power startup expenses associated with the Mod-1 [indiscernible]. Aerospace Products delivered a record quarter with $282.4 million of EBITDA at an overall EBITDA margin of 31%. This was up 13% sequentially from $249.7 million in Q2 of 2026 and up 57% year-over-year compared to $180.4 million in Q3 of 2025, reflecting production growth, mix and operating leverage. The segment revenue of $910 million was up 76% year-over-year.

Turning to Aviation Leasing. The segment generated $104 million of adjusted EBITDA in the third quarter, up 18% from $88.2 million in the second quarter, which included $50 million of balance sheet leasing EBITDA, in line with the $30 million to $50 million quarterly run rate David described. Strategic Capital contributed $54 million comprised of $7.4 million of servicing fees and $46.2 million of returns on our 19% co-investment in the 2025 SPV. Net income attributable to shareholders was $149.1 million or $1.45 per share compared to $117.6 million in the second quarter.

Turning to the balance sheet. We ended the quarter with total debt of approximately $3.5 billion, cash of $386 million and net debt of approximately $3.1 billion. Net debt to run rate adjusted EBITDA was 2.2x, down from 2.6x at the end of the second quarter, below our target range of 2.5x to 3.0x. Total liquidity was approximately $2.4 billion, including our undrawn revolver of approximately $2 billion. Our senior notes carry a weighted average cost of 6.5%, and we have no corporate bond maturities until May of 2028. We remain strong BB rated by all three of bond rating agencies.

On the share repurchase and financing, under the $500 million prime authorized on September 15, we have repurchased to-date $80 million of stock, and today, we are launching a new $500 million accelerated share repurchase program which will be completed by year-end. We intend to fund the ASR through a combination of our revolver and opportunistic access to the capital markets, and we expect for net debt to run rate adjusted EBITDA to remain below 3.0x. The remaining $420 million of the increased authorization is available for 1 year, and we expect to use it opportunistically through open market purchases.

Next, free cash flow. In the first 9 months of the year, we generated $724 million of adjusted free cash flow before $285 million of growth initiatives, much of which is driven by our Power business. For the full year, we expect to generate $1.1 billion free cash flow before growth initiatives, revised down by $61 million due to opportunistic engine acquisitions to support our Aerospace Products business. For the year, we expect to be up $463 million of growth initiatives, up $173 million from our original target of $290 million, predominantly driven by Power R&D and [indiscernible] in our FTAI facilities. These investments will allow us to scale at a faster pace [indiscernible] we produce Mod-1 turbines going into 2027. We are also reaffirming our segment guidance for both 2026 and 2027 as the business continue to execute on plan.

As a reminder, 2026 Aerospace Products adjusted EBITDA guidance is $1.050 billion and 2026 Aviation Leasing guidance of $475 million. 2027 adjusted EBITDA guidance of $2.3 billion comprised of $1.4 billion from Aerospace Products, $450 million to $750 million from FTAI Power and $450 million from Aviation Leasing.

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

Thank you, Nicolas. To sum it up, airlines today need solutions providers that help them maintain their fleets at lower cost and provide liquidity through sale-leaseback or leasing. And FTAI is built around being able to deliver all three of these products. The FTAI model produced a record quarter in Aerospace Products and an accelerating ramp in Strategic Capital. For Power, we're helping to fulfill the extraordinary demand for behind-the-meter solutions. And this unique combination is producing the excess capital that allowed us to raise our repurchase authorization to $1 billion while keeping leverage within our range. We're also maintaining our quarterly dividend of $0.50 per share. The dividend will be paid on November 23 to shareholders of record as of November 10. This marks our 45th dividend as a public company and our 61st consecutive dividend since inception.

We remain confident in both our 2026 and 2027 outlook, including our free cash flow expectations, and as we close out 2026, our focus remains on building durable, scalable and differentiated platforms that start with the customer and deliver value over the long term. The investments we're 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, many years to come. As a final reminder, we'll be hosting an investor meeting in New York City on December 10, and we're very excited and look forward to seeing many of you there.

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

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

[Operator Instructions] And the first question will come from Sheila Kahyaoglu with Jefferies.

Great execution during the quarter. Perhaps my first question would be on Aerospace Products. Just really great solid progress with margins at the 31% mark in the quarter. Production is up 50% year-on-year and your run rating at about 15% market share. Can you maybe update us on momentum you're seeing within Aerospace Products? And just given what's happening on a macro level, whether you're seeing any changes to customer behaviors, work scopes or fleet [indiscernible] and maybe how that's showing up in lease rates as well?

Sure. Thanks, Sheila. First on margins, as we indicated previously, we think 30% margin is a good assumption for the next couple of years. And it's a nice target. And it also is a representative mix, I think, across the entire industry. And our -- our ultimate goal is to provide engine [indiscernible] for narrow-body engines to the entire industry such that hopefully, in many years to come, no one ever thinks about doing their own shopping, and they just come to us because we give them an immediate availability at a cost that's as good as they're better than they could do on their own. And so when we think about that, why wouldn't everyone want to do that. And so nothing that we've seen in the current environment has changed our view about the ultimate customer acceptance.

As a matter of fact, as we see stress put on airlines, airlines are always looking for ways to raise liquidity, but especially now and shop visit costs for engines are one of the biggest users. So we can provide financing for shoppers that we can change the lease structure so that we can swap engines immediately and not have cash outflows. And we can do sale leasebacks to generate immediate cash. So I would say, in general, we're seeing probably an acceleration of our expectations about how we continue to pick up market share and nothing is shaking that view.

Okay. No, that's great to hear. And maybe one on Power, David, if you want to take this one. You mentioned we have 100-plus power units under contract, and the slides suggest that the '27 guide is $450 million to $750 million, which I think is some nuance from last quarter. I guess, how do you think about the production schedule from the [indiscernible] super helpful. Maybe if you could just talk through the investment going on in Power and how it translated to your '27 assumptions?

Yes. So we're very focused on the ramping of this business. So we provided guidance on initial production, which we expect to be roughly 0 to 5 turbines per month. But being able to scale quite quickly to 10 to 15 turbines, where we expect to exit the year at. Now as a reminder, we're using our existing infrastructure that we have today. We're starting off with Montreal, but we're planning to use our other facility as well to floor Power remanufacturing. So we have the ability to scale that business. Really entirely the range -- we came into this quarter, obviously, accomplishing two really large milestones, right? And they kind of go hand in hand.

The first is obviously on the testing side. We've completed all the testing on the liquid and natural gas side. And on the customer side, we've achieved over 100 units under contract. But really, when you think about the range, it comes out to really the ramp and our ability to execute on that ramp, which we feel good. We have visibility, and we feel good about 100 units for 2027. But of course, we're working through each of the customers' requirement, and that's why you have that wide range. As we progress, we will continue to update you, and that range should tighten up as we progress throughout quarter-over-quarter.

And our next question will come from Giuliano Bologna with Compass Point.

Congrats on a very solid quarter across the board. As the first question, obviously, it's very helpful to have that production ramp outlook for the Mod-1 units. What I'd be curious about is when you start looking at the end of '27, you're obviously planning on ramping production capacity up to 10 to 15 units a month, which comes down to 120 to 180 units annualized. I'm assuming that you wouldn't be planning for that production ramp unless you expected there to be the potential for orders and demand to fill that type of production requirement. Is that the way to think about it?

That's correct, Giuliano. I think our value prop is [indiscernible] with the market, really tailored around behind the meter, right? And you're seeing that today where folks are really focused on speed and scale, right? Data center building is taking a very long time. There's a lot of capital invested. And then there's a long period before we start generating returns on that, right? So you're kind of seeing this right now happening with industry where a lot of these GPU providers are offering containerized solutions. And we think on the Power side, our solutions containerized as well, and we can install it in less than 2 weeks. So that's really resonating well.

On the cost side, we understand -- I mean, that's really the heart of our Aviation business is lowering costs for our customers. We talk about redundancy and how we can be value-add there by the size and the stackability of our units as well as the uptime with our exchange model on the turbines. We also introduced again our combined cycle, which we think that's a big value add and helps reduce cost for our customer as well. So that's really [indiscernible] obviously, completing the testing and having that all come to place is a great accomplishment, and we expect to be able to add into backlog into the future.

That's very helpful. And maybe as a follow-up, I'd be curious when you look at the 100 units that you have under contract, [indiscernible] to assume that, that's really heavily weighted towards '27 versus '28? And then on a similar topic, obviously, having the combined cycle probably has a great impact on future demand. But I'd be curious how things are shaping up in terms of discussions and things are still very active and if there's still a large pipeline of opportunities out there that you are negotiating?

Yes. It's mostly '27, so that is correct on your first question. And the way we're thinking about our product is just add-ons, right? So you'll see that theme in the modular add-on. So effectively, today, you get the simple cycle version and then you get the add-on with the combined cycle. And that's really important when you think about how we can continue to deploy enhancements. There's going to be -- we're always thinking about product enhancements and product development. Obviously, on the Power side, you have the ability to, let's say, create more quickly because you're obviously on the Aviation side, there is the regulatory piece. So we're continuously focused on adding value, and that's resonated very well and that should come across into increasing backlog.

But also any unit that's installed in 2027 could be upgraded with the combined cycle unit retroactively. So you are not giving anything up. It's just a delay until that unit is available. So the people -- the customers are looking at that as a very, very positive long-term development for this product in that you get another 9 megawatts out of that 4 megawatts, essentially no additional fuel costs.

And our next question is going to come from Kristine Liwag with Morgan Stanley.

Maybe starting off on Aerospace Products. Joe, you mentioned that 30% EBITDA margin seems to be the right place for the next few years for that business. I was wondering, when you look at the scale here, you want to do 1,700 modules next year and the mix of customers, does that 30% assume you're going to maintain getting market share from Tier 1 airlines and doing more of those full-service restorations? Or is that potentially if you get more of those kinds of businesses, could you see pressure in that 30%? And also, you talked about financing engine shop visits? How do we think about that economically for FTAI?

Sure. We think that 30% is representative of the entire market and the mix that we're seeing now, is large airlines, small airlines, heavy shops visits and light shop visits, and we don't see that mix changing. So we feel very good about the 30% for the next couple of years. Given that our goal is to do business with the entire industry, and we're doing that now across the board. So we feel very good about the stability of that and the outlook.

In terms of financing shop visits, I mean, we always -- when we described the product [indiscernible], we said we go to the customer and said, we'll rebuild the engine for you and you can either buy it outright, you can exchange it for a runout engine, or you could lease it and the lease is really a financing option for the customer. And we're seeing probably an increase in leasing activity as we indicated, airlines are looking for every source of liquidity today. So if we see increased leasing activity, what we've been able to do is to sell those leased assets to financial partners. So in effect, from FTAI's point of view, it's the same as a sale. But from the customer's point of view, they're getting an additional value add in that in -- that we arranged the financing for that whole engine purchase for them. So it's a complete product offering that the airlines are very, very receptive and happy with it that really as far as we can tell, no one else can offer that product in the market.

Super helpful. And you guys talked about the test results for Mod-1 for Power. I was wondering, when you look at the results for that turbine as it got converted to an aero-derivative. How does it perform versus regarding other thermal efficiency -- you talk thermal efficiency, start time, all that stuff, versus existing aero-derivatives? And also, I thought it was interesting that you've called out that you only need 1 spare out of 12 in service, 1 spare versus if you're doing a large turbine, you have a 1:1 on a spare to turbine ratio. This seems pretty attractive. So are customers paying you the appropriate price that you don't have to have much capital equipment in place to have that kind of coverage. And also, when you look at the the combined cycle that you plan to take on, how does that change your pricing power for this business per megawatt?

Yes. So on the first question and how testing is compared to other aero-derivatives, I would say it's in line, right? So obviously, the CFM56, where we expect a lot of let's say, value creation is that the CFM56 is the most durable engine ever produced for aviation. So we're expecting that to actually play out on the ground as well. But as far as what you mentioned, start time efficiency, it's in line with other aero-derivatives. The next question as far as what the redundancy looks like, right? So we did put a Page 17 now, where it's an illustrative example of what a customer would need if they have N+1 depending on the customer and their contract with the hyperscaler, right, they may have different -- they may have N+2, N+3. The whole point here is to say that smaller units that are stackable are going to be a lot more cost efficient because you're going to tie up less capital costs and redundancy versus large units that in order to back those up, you need to have very large units backing them up, right?

And of course, you don't have access to the grid. So the only way to be able to do that is to have backup and be islanded. So that's an important piece, and that's a big selling point as we can effectively get you a lower capital cost upfront, and then combine cycle when you that obviously creates more value, right? The more value we can create, ultimately, that should translate to a higher price. Obviously, you're creating additional megawatts. Typically, these things sell on a cost per megawatt. So you could expect that to obviously increase. I would say it's too early to talk about the exact numbers. So we're still guiding 7% to 8%, and I would think about the potential of combined cycle being upside.

I would also just say, our maintenance model for the Mod-1 is to be able to do turbine exchanges in the field, in a 48-hour turn on time. So that's something that no one else can offer on aero-derivative side that we've been able to do replicate from our Aviation model, which is basically an engine exchange in the field. So that quick turnaround time on turbines will also facilitate less downtime and less redundancy because you'll be back in service. You don't take that unit out of service for months while the engine -- while the turbine is being overhauled.

And our next question will come from Andre Madrid with U.S. Bancorp.

I want to start off first on the point of sale leaseback. You guys are referencing frequently as a nice alternative option, providing flexibility to your customers. Just to provide us with a reference point, can you maybe talk about how the mix of this sale-leaseback work has kind of increased across both SCI and AL?

Yes. We're seeing a lot more activity, as you would expect, on sale leaseback because airlines are looking for liquidity. As a reminder, it's really two value adds. It's the liquidity day 1, but it's also saving costs for the airlines and the shop visits. And we're really the only party out there that can do both. So I would say on the first vehicle, on SCI I, we're sourcing about 80% of our aircraft from [indiscernible], 20% via sale-leaseback. But SCI, on the second vehicle, we're starting to see a significant uptake in sale leaseback. So today, that's more like 40% from sale leaseback, 60% from [indiscernible]. And I would expect that continue to rise. Obviously, it's early and we have over 100 aircraft in SCI II. So that's still to play out. But we're obviously going to see a lot of activity and we're in active discussions with many airlines.

That's really helpful, David. Maybe pivoting to maybe a broad question. I feel like it's been a couple of quarters since you announced any acquisitions. Obviously, a lot of organic investments have been made across the business, both on the Power and for feedstock. But I'm trying to understand, I mean, how are you prioritizing the two, are there still attractive opportunities out there, especially in light of kind of the recent decline in valuations, broadly speaking?

Yes. The M&A opportunity market is set, I think, continues to grow. And as we've said previously, for the last couple of years, our focus has been on really on two areas. One is additional maintenance facilities to increase production and modules and two, on more vertical integration in terms of repair capability or piece part manufacturing for engines. And both of those areas, I would say, are pretty active today. We did add additional investments. We've added -- we now have 6 facilities on the CFM56 overhaul side, and we continue to look at adding to that. But we're also investing in those locations.

And we called out some $50 million, $60 million of investments to increase production for facilities that we bought that needed more tooling and additional -- and in the case of [indiscernible]. So it's both adding facilities as well as building out what we have. And -- and there are more M&A opportunities out there, so we'll continue to look at those. And we've always said our priority in terms of capital allocation, number one is growth, and that remains the same today. We're able to do the buyback and still keep our debt to total to EBITDA under 3x, which is very -- gives us a lot of firepower and a lot of capability to take advantage of market dislocation.

And our next question comes from Ken Herbert with RBC Capital Markets.

Joe and David, appreciate the time. Maybe just to look at a higher level, Joe, there's just a lot of concern in the marketplace about the impact on airline financials from the higher crude prices and their ability to continue to pass on higher fares and ultimately, what it might do in the marketplace to travel. Obviously, you're sounding very confident on '27, and I think I don't want to put words in your mouth, but I think a lot of the marketplace today plays into, obviously, what FTAI offers. But can you talk about what you're seeing from your customers, say. How they're able to manage the elevated crude environment? And are there any risks we should be thinking about in '27 just from a broader macro perspective as a result of what we're seeing today?

Sure, I'll start. I mean obviously, we're watching that carefully and talking to the customers all the time. I would say the -- on the positive side, the airline industry has seen ability to raise fares that they probably were surprised that they had that much pricing power, and the demand has stayed very strong in many parts of the world, all around the world, there's still -- they're filling the planes and they've raised fares and they're seeing those fair stick. And ultimately, that is the best answer to how do you manage your business as you -- if your costs go up, you raise your revenues and you continue to grow. So when you think about that, that's the best answer from the customer's point of view. There's still very, very strong growth. I mean if you think about most of the concern around traffic growth has been focused on either U.S. or more mature markets, which don't grow as fast, but there's many parts of the world in Southeast Asia, Middle East, Africa, India that have very, very high traffic demand that's unsatisfied.

And if you think about -- you haven't been able to get a lot of new aircraft in those markets, they're undersupplied for the last 3 to 4 years because of the manufacturing and delivery delays. So from the customer's point of view, they look at it -- or from the airline point of view, they look at it and say, well, I can't get new aircraft quickly, I can raise my fares. There's tremendous demand out there. And I don't really want to give back aircraft too fast because I'm going to need those if I want to continue to grow. So across the board, we don't really see customers saying I'm going to flip my fleet mix because of the pressure on fuel, we see those airlines continuing to look to add capacity. We see extensions from airlines that we have leases to in the SCI vehicles, which is the most concrete form of confidence is when an airline says I'll extend my lease. So we're not seeing and we hope fuel prices do come down, which would alleviate some of the stress on the airline industry, but we're planning for -- for whatever the customer is going to need, we're able to provide a solution.

Have you seen any downward movement on CFM56 or more broadly narrow-body lease rates this year that you would call out or you point to?

No, Ken, we're not seeing that. The CFM56 is a very durable engine. It's the most durable engine ever. And we're seeing tremendous demand for -- as Joe mentioned, extensions, engine leasing. So we're not seeing that.

And our next question will come from Brandon of Oglenski with Barclays.

Joe, maybe we can follow up off that last question there because I think you guys recently put out an enhanced agreement with United. And I guess my question is, historically, we've thought about this business is really benefiting smaller airlines with economies of scale in the maintenance, but maybe you can talk to why you're seeing some of the larger airlines be core customers here as well?

Sure. No, it's -- I mean, basically, the pitch to anyone in the industry is that we can deliver the same or lower cost than the airline could do on their own, and we can provide an immediate availability with no downtime. And that removes all the costs of managing a shop visit, having spare engines and the risk of a negative surprise. So as we've said before, if you get airlines to start trying to and use the product, and then they realize, "hey, it really is a better alternative then you can convert anybody. There's nobody out there that doesn't benefit when you say, I'll give you the same or better cost, and I'll reduce a lot of your expenses like what don't you like about that. And as we get people using it, even airlines that have their own maintenance facilities. So and there's also some benefits on the expense side, if you capitalize instead of expense costs. So it's just a really -- it's a pitch that we've never had anybody come back and say, "Well, I don't like this about it. I don't like that about it". It's like there's nothing not to like. And so we really do see over the next coming years, why shouldn't we have every airline in the world who owns CFM56 and V2500 do an engine exchange with us. It's only a question of how much of the fleet do they do with us.

And then, David, I just want to clarify two things of Power side. So I think, A, you have 2 prototypes up and running. Is that correct because it said you were testing one with natural gas and one with liquid fuels?

But then secondly, maybe more importantly, I think there was some concern around your JV partner, Jereh, obviously, a Chinese company and the recent executive order about on-grid power equipment being non-Chinese source. So maybe you can speak to those concerns on the JV side, too?

Sure, Brandon. So on the testing, we've tested both with liquids, so jet fuel and with natural gas. Obviously, our customers are predominantly wanting this through natural gas. But we've tested on multiple fields, which is very important for us. On the executive order, we do not believe this has a big impact on the Mod-1. Our understanding is that EO is really aimed at bulk power and is not intended to cover behind the meter. The Mod-1, as we mentioned, is really focused on behind the meter and providing electricity where as you know, its very political and you have to bring your own power in order to actually build data centers. But specifically, why we're not concerned is the Mod-1 is at the heart [indiscernible] engine, and we obviously do maintenance in North America.

Packaging is not reliant on exclusively in China, right? So our partner, which is their partner in this program has facilities across the world, UAE, Houston, Canada, and that gives us multiple paths to delivery. And then next is many of the balance of plant equipment are components are interchangeable, which Jereh has the ability to source these parts from a diversified global supplier base rather than a single country. So we think we have the ability to adapt, and that's kind of how we thought about this. Obviously, we thought about the impact of China before getting into this joint venture, and we're very happy to be partnering with Jereh, and their ability to adapt should things change, but we're monitoring that closely.

And the next question will come from Jeff Kauffman with Citizens Bank.

Congratulations. Just terrific to see all this news. Thank you also for the slide in the presentation showing net working capital you're anticipating in Power for 2026. I was wondering if you could give us an idea of what that might look like based on your current expectations for '27? And kind of where does that peak and when does working capital start to come down a little bit?

Thanks, Jeff. This is Nicholas, I can take that. So we've always really grown inventory very strategically in line with our financial and production targets, and we've had a strong record on execution on this. So as a reminder, approximately 2 years ago, we had about $0.5 billion of inventory in balance and that preceded $1.9 billion in Aerospace Products revenue last year. Similar to last year, we had about just under $1 billion in inventory balance, and now we're on track in Aerospace Products to generate about $3.5 billion in 2026. So looking ahead, the two benefits are: one is that there is large optionality now between FTAI Power and Aerospace products. The CFM56 is ultimately the same original unit. And then the fact that we also have economies of scale related to our facilities. As parts come off go into our MRE network and a recycled range, we can ultimately drive lower unit cost. So we're looking ahead at approximately about 2x in inventory turnover from a forward-looking basis, but we see upside beyond that.

And the next question will come from Shannon Doherty with Deutsche Bank.

Congrats on the great results. Just doing the math, the implied ramp in 4Q to about $435 million of consolidated EBITDA is pretty steep. Given the current operating backdrop and strategic capital ramp, what is your level of confidence here? And what will be the biggest driver to hitting the full year target? Is it getting to 320 modules? Is it closing on incremental SA aircraft? Any thoughts here would be great.

Yes, Shannon. So the growth right, that is going to take us to those numbers is around the Strategic Capital, right? On the Aerospace Products, you look at that, you can see that we're very well positioned, where there's been some questions around our Leasing business and being able to have that big jump in Q4, right? So as we mentioned, really, the story here is Strategic Capital, right? And as for SCI I, we -- as of 9/30, we had $3.9 billion of invested capital, and we're going to go all the way to $6 billion by year-end. So we have extreme confidence in that. Because as an example, as I talked about earlier, we closed 30 aircraft in October for $1.1 billion. Today, we're sitting at $5.1 billion. So we're executing on closing aircraft, and we have 55 aircraft left to close. So we're -- we have really strong visibility on SCI I and SCI II is starting to close aircraft as well. And you're going to see that ramp come across mainly through SCI.

Great. And maybe, Nicholas, one for you. I think that you mentioned that 2027 adjusted EBITDA guidance includes $450 million to $750 million range for Power. What does that imply that the new adjusted EBITDA target would be $2.3 billion to $2.6 billion. I understand you guys are probably being conservative at Power, but I just want to clarify what EBITDA number we should be modeling for 100 units ramping production in 2027? And what is the timing lag from production to delivery?

Yes. So I think I'll take the first half of that question. So that's correct. The range is $450 million to $750 million. And then on the total, we're clarifying it on the lower end for conservative purposes, with obviously all related to FTAI Power deliveries.

Yes. And as far as the lag between production and delivery, right, we're meeting customer requirements. We're working hand-in-hand on the customer to deliver it to their site. So that should be rather quick. However, we want to make sure, again, this is the first year of ramping. We want to make sure we have a wide range, so we're able to execute on that.

And the next question will come from Myles Walton with Wolfe Research.

Louis Raffetto on for Myles. I was hoping you guys could speak a bit more to the WestJet deal and maybe a little bit more broadly on what you're seeing more on the aircraft transaction market as opposed to sort of the other side just given the fuel price and reduced flight hours that we're seeing? And then also, Nicholas, I think you mentioned the $61 million feedstock investment. Is that the 10 aircraft that you guys bought from WestJet? And I don't think that closed in 3Q, but I wanted to confirm.

Yes. So on WestJet, it was two transactions, right? 17 aircraft went into SCI II via sale leaseback, right? So that allows the airline to continue to operate those aircraft and have flexibility. 10 of those aircraft were acquired by FTAI for Aerospace Products. So really, that shows how we're able to work with airlines and buy equipment outright or work with them through sale leasebacks. As we mentioned earlier, sale leasebacks is really becoming a theme, really raising liquidity and then saving on shop visits, right? Really, as these aircraft mature, the biggest cost is going to be around shop visits, and we provide a solution for these airlines. So we have very strong relationships, and we're expected to execute on a lot of sale leasebacks at SCI II.

Yes. And just to follow on to David's point, the majority of those aircraft did close in Q3, and that's been reflected in our guidance numbers and cash flow.

Okay. I mean, I guess when I look at the number of aircraft in leasing a number of engines in leasing, those went down even -- they went down sequentially. So we're sort of putting those that into the leasing business, but we're then just taking them right out, I guess.

No. So these were specifically for Aerospace Products. So those engines are going to be harvested to ultimately be rebuilt and then sold on to customers. And then for the airframes, we plan on recycling capital for those. So this would not be reflective of Leasing.

Okay. So we're doing this a little bit different than we've done in the past, I guess, just from the way it's worked, I guess, realistically.

Yes. I mean, ultimately, these are unserviceable. We want the initial 10 that David spoke of. We're not planning on sale leasing back directly. These are going to be used for Aerospace Products business.

Which is the same as what we've done previously. If it's unserviceable it goes into Aerospace Products, it's never done. We've always treated it that way.

And the next question will come from Josh Sullivan with JonesTrading.

An upcoming Investor Day here in December, in the past, you talked about FTAI reports financials may evolve. SCI is now 50% of leasing. How should we think about the evolution of what accurately communicates business to the Street. At one point, your K-1 and obviously, the business evolved pretty substantially. But any previews or perspectives you can provide going into the number [indiscernible] would be great.

Well, I think probably there's a couple of unifying themes. One is how we partner with customers and that we provide a comprehensive package of solutions -- and that package of solutions sort of they all feed off and help each other. And so it's a very -- I think it would be that each of our business activities supports and helps the other business in a unifying way in an additive way. So we don't we really -- as I've said for many years, we don't think of ourselves as a sum of the parts where we have businesses that don't interact with each other. We have businesses that -- they're all supporting each other to ultimately provide the customer with a higher value add. And this combination that we've built is unique.

I mean, no one else has really been able to do this, and it's very, very powerful for the customer to be able to get these products together in a way that addresses their needs.

Got it. And then just on Aerospace Products, the upper limit on the 3,000 module capacity currently. Joe, you've been pretty successful and creative and finding latent capacity globally. What is the gating factor to that 3,000 limit or upwards? Is it the facilities? Or is it related by something else like the ramp SCI parts or engines?

Well, Dave has really been putting a lot of the facilities together, but we've we've been surprised on the upside as to how many facilities exist around the world where people built and had a dream of building an engine maintenance facility, and they built a nice building with tooling and and then they couldn't get business to put in it. And so we continue to find more locations like that where we have a very critical component, which is we can provide engines and that solves the biggest problem that many of these locations have. And so we think that there's more out there. We continue to source other new ideas, we don't see 3,000 as a cap in any way. We're going to continue to grow that.

And in some ways, the opportunities get get easier because we have a track record of having done this now 5 times where we've delivered, and we brought engines in, and we've increased employment in Rome, for example, went from 60 employees when we bought it to over 300 today and -- all you have to do is say, call the head of a call the ADR in Rome and ask them about us, and they will say unbelievable. It's amazing what they did, and they actually over-performed. We told them originally, we were going to get to 200 employees and we went to 300 in half the time. So -- so there's a huge value.

And if you go to different parts of the world, where they're looking for higher value high-paying technical jobs, aviation is always very attractive. If you can generate employment of these types of jobs in communities, you also then get an advantage for the local airline. The airlines are going to support their local production. And so that's another competitive advantage you can develop over others. And so it really -- it gets back to your [indiscernible] questions, all of these activities support and feed each other in a very, very positive way. And it's all about helping the customer, help the customer make their job easier, make their costs lower, make it so they have less capital to invest in things they don't want to like engine maintenance, and they love you. And that's our -- that's been our mission and our flywheel.

And the next question will come from Marni Lysaght with Macquarie Capital.

I just would like a bit more color on the -- like adjusted free cash flow further out. Appreciate at your prior print you called out kind of what your peers have been doing in that 60% to 70% range relative to EBITDA. So again, just some color on as you continue to execute on your growth and make a requisite investment for that? And if you could potentially provide any color of how analysts on The Street to be thinking about it relative to NPAT. And also any timing or seasonality nuances you'd like to call out just to help us with our modeling for periods further out?

Sure. I can take that, Marni. So we've yet to provide formal 2027 free cash flow guidance but we're very confident in the direction of free cash flow for next year. So our guidance for adjusted EBITDA is a substantial step-up in 2026. And this growth is also supported by a large portion of inventory we have on the balance sheet today. We have power units already committed with deposits in hand, and we have an integrated supply chain build for scale. So this business model has significant operating leverage. So as we continue to grow, revenue will grow faster than our fixed cost base and that ultimately flow next year and beyond into greater margin and cash. So we'll continue to benefit from economies of scale. And then the fact that the sharing infrastructure between power and Aerospace Products ultimately means that we continue -- we'll continue to see free cash flow conversion improve year-over-year.

I am showing no further questions at this time. I will now turn the call back to Charlie for closing remarks.

Thank you all for participating in today's call. We look forward to updating you again after Q4. Have a nice day.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

All right. Good morning, everyone. Bright and early here in the West Coast at 7:00 a.m., but it's already 10 a.m. Eastern. So I guess it's not so bad. I'm Kristine Liwag, Morgan Stanley's aerospace defense analyst. I'm very excited to host our next panel with FTAI Aviation, Joe Adams, CEO. Joe, welcome.

Thank you.

So before we start, let me read our disclosures for important disclosures. Please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley representatives.

So with that, Joe, maybe I'll pass it on to you for some opening remarks.

Sure. Thanks very much, Kristine. Thanks for having me back again this year. I think I've been -- I think I've been coming here almost 10 years now to this conference. It's a great get together, great conference, great investors. So really enjoy catching up with everyone. And I think we met probably about 4 or 5 years ago, I think, when you had your little radio broadcast at Morgan Stanley, and we were talking about -- I think it's the first time we started talking about aerospace products that we thought we could grow it from a business that was -- we just began, which we call the module factory, which was doing about $50 million of EBITDA to $500 million of EBITDA. And I don't remember if you actually said no way, but I sensed that you were thinking no way.

And now as we've grown that business this year, we're looking at doing $3.5 billion of revenues, over $1 billion of EBITDA and next year growing further to $4.7 billion of EBITDA or revenue and $1.4 billion of EBITDA. So the market acceptance and the market opportunity for that has been much bigger than we expected, and it still has an enormous potential. And essentially, what I think of it as is a better way to do aftermarket engine maintenance. It's a model where we combine the ownership of the engine with the ownership and management of the maintenance facilities and that gives us a different way of thinking about it in a more efficient way. When you're an owner, you think about maintenance differently. We've designed an extremely efficient production process. We optimize. We never -- we call ourselves the zero-waste people. We don't waste hours and cycles.

We have scale, so we can buy material, which is a big part of it -- flexibly and at very attractive prices. And so we combine really the opportunity to use every available tool to reduce the cost of maintenance for the owners and the airlines. And what that means is then we can go to the airlines and the owners and say, we have a better value proposition. We can actually save you real money time and time savings so we can demonstrate a demonstrable benefits to the product. And that's what has really allowed us to grow significantly. And we started with the best engines in the world, which I think are the CFM56 and the V2500, and we will expand from there. There are other engines that the same business model will work. And so we think of this as a very sustainable and durable way to do engine maintenance.

The other part of it is a couple of years ago, we realized that these benefits of owning engines and maintaining yourselves also would allow an owner like a lessor to create better returns. And so we realized that we had the opportunity to set up our own asset management business where we could show the investor we could demonstrate better returns, do all the engine maintenance through engine exchanges and allow us to increase our footprint in the industry, which means we look bigger to the customer. We look bigger to the industry. We control a lot of maintenance, and it has huge benefits and it allowed us to do it using other people's money. So it's not a capital-intensive activity for FTAI Aviation. And we think that, that combination further propels us and it gives us extraordinary leverage to continue to grow in multiple directions.

And then lastly, as you know, we didn't plan on power in the beginning because we didn't know the opportunity would exist in this scale. But when we realize that there's a shortage of blades and vanes for manufacture and people can't produce them fast enough, we started thinking about, well, how could you solve that problem? And the answer to us was, well, then don't make new blades and vanes. Why don't you take an existing asset and convert it. And we looked around and said, what asset is big enough to make a difference to produce gigawatts of power in the aviation industry, and there's only one. It's really the CFM56. And so we happen to be -- it happened to be our focus engine. We owned 1,000 of them, and we said, this is something we really can do and should do. And so that became really the third part. And it's also has the potential to extend the life of this platform for 20 years and gives us an alternative use for runout engines. So it has also tremendous benefits. So all 3 of these activities really feed each other in a positive way.

That's super helpful, Joe. And I think I do -- I will confirm in our first meeting when you did say the first $1 billion EBITDA, I did not believe you. I think there's a recording of that webcast somewhere in the Morgan Stanley portal. But here you are, you're at $1 billion for aerospace product this year. So maybe we could talk about the different businesses and pieces, right? You have aerospace products, you've got a Strategic Capital Initiative. And then by the way, in addition to power, you've got PMA somewhere in there as well.

Yes.

So can we break down some of these pieces? Because from my conversations with investors and when you look at the stock, there's a lot of skepticism regarding your value add. So can we go back to aerospace products and talk about how is your approach to engine maintenance different and the discussion that's happening in the industry initially, your margins in aerospace product was 40% in the last few quarters, it's below 30%. Where do we -- and historically, when you look at traditional engine MRO shops, their margins are around mid-teens, and that's for a good shop and some of the ones that are less efficient, they might be at low double digits.

Yes.

So can you level set us regarding what exactly do you do? How is this different? What's your value add? And what is normalized margin for that business? And what do you think about market share?

Sure. It gets a lot of the things I mentioned in the opening is really to contribute. The value add comes largely from owning the engine as opposed to other people do maintenance on an engine, they do not own and people are selling parts to someone who has an engine, they don't own. And so the incentive for every other participant or many other participants in the industry is to do more maintenance, is to expand the work scope. And as an owner, our incentive is not to do that. It's the opposite. And so what we did is when we first went into the maintenance business is literally went line by line in every area of expenditure in a shop visit and analyzed how to do that better, how to create additional savings and how to not waste hours and cycles that could be used in a different combination.

And so we used to lay out a slide that says a typical third-party MRO would earn a 15% margin. We believe we can get 15% to 25% additional from those efficiencies and optimization strategies and then an additional 5% to 10% from part savings just because we buy better, we have scale, we use used serviceable raw material. We're always developing repairs for our own parts to recycle a part instead of have to buy a new one. So there's a tremendous amount of savings and what I would call waste in the industry as it exists today that we've been able to identify and ring out.

So the value add comes from us being the owner. And the manifestation of that is it allows us to go to a customer and say, you tell us what you spend today or have spent historically to put hours and cycles on an engine, and we'll deliver to you a price that's better than that. And in addition to being better than that, you don't have to go get spare engines. You don't have to have an engineering team monitor the shop visit when it's in the field and you don't run the significant risk that the cost ends up being higher than you thought because oftentimes, an engine goes into shop and at least half the time, the bill ends up being bigger because there's discoveries on other parts of the engine.

And every airline in the world has had bad experiences with engine shop visits. So we go to them and say, we'll save you time and money, and you don't have to deal with any of those headaches, what don't you like? And the answer is people like it a lot. They say, where have you been all my life? The Strategic Capital part of it also gives you additional leverage because we then can go buy aircraft that are on lease to an airline. Let's say, an airline has 50 aircraft on lease, we buy 10 from a lessor. We go to the airline and say, great news, you never have to do another engine shop visit again. All of your engines will be supplied by us through engine exchanges. All you have to do is pay maintenance reserves in, and there's no return compensation fights. The airline says, "Wow, are you kidding? That's amazing." Why don't I introduce you to the owner of those other 40 aircraft that are on lease so that you could buy them and convert it to that model because I much prefer your model.

So the value add comes from ringing out efficiencies and then delivering savings. It's a basic economics of the business. And we see it as very, very durable. Now when we started out, if you think about the entire engine market opportunity, there are easy repairs, they're light repairs, there's sometimes recombinations. And then there's full performance restorations. And when we had limited availability and a lot of capability to recombine things, we were able to bring out the highest margins available. And as we grew the business, we realized the opportunity set is for everything. We want to be someday go to a customer and say, you should never have to do another engine shop visit again. We'll do all of it for you. If a customer says that, we say, okay, we have the capability, we'd be happy to do that.

And some of the bigger airlines that have large fleets are used to getting price discounts. So the combination of changing the mix and also having bigger customer -- end customers has led us to the conclusion that we can get more market share by having 30% margins than we would get if we had 40% margins. Either one is possible, but we choose more EBITDA, which we think is more valuable in the long run for the company. And so that's where we are. We think that the next 2 or 3 years, we would assume that margins are going to be steady at 30% because we have a representative mix today and a lot of large customers. And then maybe out in the future, if we have big enough market, there's an opportunity to take up price. But again, we're always looking for additional savings on the cost side, and we want to keep the customer saying, this is a great product, let's do more.

Joe, what you said about where have you been all my life comment here. I think that's where some of the investor skepticism is or industry skepticism regarding your approach. If it was so straightforward and just clear, why haven't others done it before? Why aren't they doing it now? And should they start copying your business model, what makes yours more durable than theirs?

Yes. As I said, the key to it is owning both the asset and the maintenance facility. And it's hard because a lot of people who are in the industry have done either one or the other, but not both. And so putting them together when we did that was considered risky. No one had taken the approach of I'm going to do maintenance on my own engine. Nobody developed the skill set to do that. We came -- we started from the asset management side of it. But when you look also now at third-party MROs, they don't have asset management functions internally. So until somebody puts the 2 pieces together in one company, I don't see them having the capability of doing what we do.

The other thing is that if you are in the third-party maintenance business today, you have a lot of customers that you've signed up for long-term contracts to work on their engines. When we bought our engine maintenance facilities, we made a decision we were going to do no third-party work. And I remember people thought we were crazy at the time. They said, who does that? And I said no one. But the point was if we have a scarce asset, which was mechanic and we work on a third-party airlines engine, we make $1 an hour from that mechanic. If they worked on our engines, they made $5 an hour for us. So I said, help me figure this out. I'm struggling. But it was obvious that if you have a scarce resource and you have a high-value product, that's where it should go. So that decision was not an easy one, and we bought basically a whole facility, and we had no third-party customers, just FTAI.

So Joe, on this maintenance facility, I think one of the underestimated value provided is you went from an asset manager to actually owning an MRO, right? I mean owning an MRO, you get your hands dirty, you're taking apart engines, wrenches versus paper signing. But you went from 0 market share, 0 shop visits to about almost 1,000 modules this year. How hard was that journey? And for the most part, from a third-party perspective, like mine, it seems like a pretty seamless execution strategy. But can you share with us what it took to get there? And you've seen a lot of -- and I guess also in the aerospace industry, to go from 0 modules to 1,000 modules in 4 years is a speed and growth that nobody has ever heard of. So can you give us context around that?

Yes. The capacity exists. I mean when we went out and started doing this, we found that there were a lot of maintenance facilities that had been built once upon a time, either for airlines or other people who thought engine maintenance is easy. And then they found it wasn't easy to get other people's business. So there were a lot of facilities that had great tooling and no business. And we realized that we bring all the engines, so we have the ability to fill the facilities.

And so acquiring the facilities at a very attractive price was not as difficult as I would have guessed. There were many locations. If you take Miami, which was a former Pan Am shop once upon a time, Montreal, which was a former Air Canada shop once upon a time, Rome, which is former Alitalia shop once upon a time, they were all empty. So we came in and said, great news, we have engines. You don't have to go chase third-party customers, we'll fill it. Then on the production side, I would say we were very concerned when we got in the business because we hadn't done it before. And so we're like, how hard is this going to be? And we sort of went back to basics and that 2 things we focused a lot on. One was standardization. So people focused -- we got rid of all the other engines they were working on. Some shops had 4 engines, 6 engines. And we said, no, no, you're just working on CFM56. And not only that, you, as a mechanic, might only work on the low-pressure turbine for the next 6 months, just one part of that engine.

And then we said, and guess what, if you do well and you produce a lot of engines, we'll pay you more. It was sort of like, as I thought about Henry Ford did this 100-and-something years ago. And those 2 things are very basic, but they really work. And we doubled the productivity in Miami within a year. And then we realized, well, now the shortage is, how do we get more mechanics because we can deliver the customer a value product. They want more. We don't have enough people to do it. So we realized in Montreal, it's not hard to hire people. It was hard to get them to be productive. And so what happens is the way the system was set up is you hire somebody and within a few weeks, they have to read a paper manual and pass a multiple choice quiz to get to the next step.

A lot of people who are good mechanics aren't really good at paper-based multiple choice tests. So we were losing about half the field. And so inside Montreal, people said, well, people are -- these people are better visual learners. Why don't we use virtual reality headsets to show them a step-by-step process of how to disassemble and reassemble an engine. And we did that. We developed our own product, and our yield went from 50% of the people passing to over 90%. And we said, that makes total sense. So we now have created a center of excellence in Montreal for the whole company, and we now have 1,600 employees. People go to Montreal to do some training from Miami, from Rome, soon to be Egypt, soon to be Indonesia. And these are great high-paying jobs, but there is an element of -- there's a learning curve, so you have to bring people along. And so that really became how we developed our production strategy.

And the answer is we have a great team of people. It's not one thing. It's a lot of people contributing. And it also gets back to that focus question. It's sort of -- I was a big believer that if you develop this tool for one engine and you really, really get to be the best in the world, you then can be -- are convinced you could do it again. You can do it on another engine once you have that playbook but you have to focus. You can't do 4 engines at once. And so those 2 decisions we made of vertical integration and focus were critical in sort of how we've accelerated the growth.

Moving to a Strategic Capital Initiative, having -- moving the assets off balance sheet and having third-party external money was an accelerant to the business. But you thought you were going to raise $4 billion and you ended up having $6 billion for your first tranche, you're now at SCI 2. And you've always told me the second time you're raising it should be higher than the first one that you did. So can you walk us through the economics from an investor perspective of why they should invest in SCI? Because for you, the economics make sense of why you would have it. And then also for the lessors, you're acquiring assets, they're just changing owners, that seems to make sense. But why would investors give you $6 billion for that and potentially another tranche.

Yes. No, it's a great question. It's one we thought about early on because unless you have some kind of a differentiating value add, why would we be in the asset management business? And the answer was we can create bespoke engine solutions for an owner. And what I mean by that is if you go to a third-party MRO and you say, rebuild my engine, they will say, okay, I'll rebuild it to 10,000 cycles. That's what we do. And the owner is like, well, what if I want 5,000 cycles? And the answer is I can't do that unless you supply me all the parts and the material. And I was like, "Oh, okay, well, I guess I can't do that."

But -- so what we've developed is we said, look, if an aircraft we buy is on lease for 5 years and the engine times out -- one engine times out in the middle of that lease, say, call it 2.5 years. The typical lessor requirement would be to rebuild that engine for another 5 years. So you put a lot of capital in, you do a full performance restoration and you have 5 years of life, but you only have 2.5 years left on the lease. So what we developed as a model said, no, let's build an engine that will last 2.5 years, so you invest less capital. And at the end of the lease, you have lower residual value risk. And what that does is produce higher returns and lower risk. And so as I've been in the business a little while, but any time you tell somebody, would you be interested in higher returns with lower risk, they usually say yes.

So that really was the simplicity of it was we -- it gets back to the fundamental premise. We can deliver a product that's a better product for aftermarket engine maintenance, and it works for airlines and owners. So that's what we did. And it's sort of like once you lay it out for people like that makes total sense. Why shouldn't we do that?

So what's the time line for SCI 2?

So we've had -- we've had a first close, and we're buying into SCI 2 now. So SCI 1 was fully invested, the $6 billion, which was another skepticism. First, people said when we launched SCI that it's fake and it's not real and we'll never raise it, and then we raised $6 billion and then people said, Oh, you'll never deploy it. That's too much capital. So we have 300 aircraft that we've bought, which, by the way, are actually really good deals because the team is aware that if you want to raise Fund 2, Fund 1 needs to be good, right? So we have great returns, and we're in the market and fundraising is going very well.

And as I said maybe a year or 2 ago, we want to build a world-class asset management business, and we picked a number of $20 billion as a target just because that sounds like a real business. And then -- but $20 billion is nowhere near where it should stop. If it really works -- it should work on any aircraft. If you as an owner can solve engine problems better than someone else, you will make more money for people. And that means if you make more money for people, you get more to manage. So that should be a potentially much, much bigger business.

Joe, I want to save time to be able to discuss power. But before we move to power, when you think about the business that you have with aerospace products, SCI 1, SCI 2, I mean, what is it that you're really building? And also at first, when you're a small market share, it seems like the growth is unlimited. But as you do get towards that journey of a $20 billion asset and also right now, your market share is over 10% of the CFM56 and V2500 shop visits, you're becoming a fairly large company. When are you starting to eat into other people's profit pools? And what does that mean for the growth opportunity for your business?

Yes. I sort of flip it around and think about why shouldn't everyone be doing it this way? I mean, because if literally owning your maintenance -- having your own maintenance capability in-house is a better way of managing it and it gives you higher returns, why shouldn't the entire aftermarket be managed this way? That's the way I think about it. And I don't have any real good answers, why not? So that's what's given me a lot of hope if you have a better product that produces better returns and it solves problems for customers, like what's -- why shouldn't this be the model? Like...

The one thing I would push back on that is, right, the engine OEMs, let's say, CFM, 1/3 of the shop visits are owned by GE, 1/3 by Safran and they are the OE. So when do you start...

I would say, first of all, that for the CFM56, I believe the OEM portion of shop visits is about 20% now. And they definitely set up the platform for that to decline over time. So in the out years, it will be very low. What they really designed it for, though, is to keep selling the parts. So as long as they're selling the parts, if they're not doing the maintenance, remember, the maintenance business is like a labor markup business. If you're making 75%, 80% margins on parts, do you really care about the labor market? Yes. I think the business model is designed for them not to do the maintenance in the aftermarket. It's for third parties to do it, but for them to keep selling parts.

So it's not a contradiction with the OEMs. I think it is a different model than what currently is used by third-party MRO shops. But on the other side, when they look at their business and if I were in their shoes, I'd say, well, but I've got a backlog of LEAP and GTF business for the next 4 to 5 years. So okay, the CFM56, maybe it's not going to be as good as it would have been otherwise, but I'm full. So what's the problem?

And actually, that dovetails into your part agreement with GE. How should we think about that?

Yes. So we've always -- as I said in the very beginning, our philosophy has been to take the cost spent in an engine shop visit and literally go line by line and think about what's the best way to drive the cost down on an engine shop visit. And the best way to have lower parts prices is to have choices, right? So we've set ourselves up so that we have the ability to use whatever is the best for the situation and the most flexible. And that fundamentally is the way we set up the company that way. We firmly believe that, that's the way to achieve the lowest cost over time is always have an alternative. I've never been in any business situation where if I didn't have a plan B and the customer knew it, that I ended up with a good deal. So we always have a plan B, and we always have an alternative. And that's fundamentally just the way we're going to continue running the company.

Great. Now on power, Joe, which is pretty topical for a lot of investors. What's your journey? How did you get into the power business? Can you talk about the economics of what you thought you could accomplish with your power approach? And also what's the technical maturity of Mod-1 as we speak today?

Sure. So we've looked at aeroderivatives through over 10 years. We spent a lot of time when we used to own a lot of CF6-80 engines, which is the engine that the next speaker sells, which is in the LM6000. And people used to come to us 10 years ago and say, well, the LM6000 costs new $25 million, but you can sell me a CF6-80 for $4 million. Why don't you make me one? And we would do the work and we'd look at it and say, well, you got to add -- there's other parts you have to add. You need a generator, you need electrical controls, emissions, all the stuff. And we didn't really have in-house the know-how.

And then we would say, well, how many LMs -- how many CF6-80s can we find to buy to build a business around? And the answer was not many. And so we always were like -- and the business wasn't driven by data centers. It was Fukushima, nuclear reactors being offline, things like that. So we always sort of passed until 2 years ago when the data center demand went up. And as I said, we realized that the shortage in the market is caused by the lack of capacity to make hot section parts. And we then said, well, now it makes sense because you could do this in scale but you have to have an engine, you can get enough quantity. And it was like the light bulb went off, and I say, well, of course, it's the CFM56. There's 20,000 of them.

So we went in-house, and we decided one of the fundamental business approach that I've always followed is do the hard part first, right? If you do the hard part last, you may end up risking doing a lot of work and then finding you couldn't do it. The hard part of that project is taking an aeroderivative jet engine and converting it into a torque device to turn a generator. You take the fan off, you change some of the airflows and you have to put a new fuel system in. And so those are the things we focused on first with an engineering team, firstly, that we had in-house, but secondly, that we hired from the industry, and we now have an engineering team in Indianapolis that is 20 people today.

So -- but -- and the other thing that you have to do when you design and make changes on an engine is test it. And if you're trying to do this as a small group team, it's very hard to go to somebody and say, could I borrow your test cell for the weekend? I have a project I'm working on because people are like, no. So we had the test cell in Montreal. We had the engineering team, and we did the hard part first. And so we're very, very happy with the test results from the turbine. The rest of it is buying industrial parts from the market that have been produced for decades, gearboxes and generators and fuel control systems. So that was Phase 2, and we decided we could have done that internally or we could have done it with a partner, and we found Jereh, who's done it for 20 years, has a lot of manufacturing capacity. And we said, let's partner because it will be faster, quicker. Customer acceptance will be good. And by the way, they could provide a lower price than we could do ourselves. And so that really was how it came together.

And then we have obviously a launch customer for the first units for next year, which is a validation. And we think that this is a continuous improvement business also where the first year's model is not necessarily going to be what you're going to be producing in 3 or 4 years. So we have a project underway to add a combined cycle capability, which generates a much higher efficiency for the unit. And that's project #1. And we also believe we've designed a better maintenance system because we put doors in the side of the unit, so you can actually open the doors, forklift in, takes turbine out and you have a turbine replacement in the field to swap in, so the unit never goes offline for more than 48 hours. That is unique which means that one of the big advantages is you don't need a lot of redundancy for our units. And redundancy, if you don't have free and easy access to the grid, you will need a lot of redundancy that's very, very expensive. And so we think we have a product that has decades of life and will be a huge add-on for us because no one in the world can produce that turbine at a cost lower than we can.

And Joe, for economics, your aerospace product, right, it used to be 40% EBITDA margin. You're like at 28%, 29%, but it seems like 30% plus is the more normalized level for that. How does the economics for power compared to aerospace products? And all this effort that you're doing worth it versus focusing more energy in expanding your capability in aero?

Yes. On that question, I think we talked about that in the beginning, and we're able to do both and that we had some engineers with in-house knowledge, but we've added a whole team of engineers with power. And so it's really a separate group in the engineering function. And we've now acquired capacity for engines that's 3,000 modules with the addition of Cairo and Indonesia, which encompasses us allocating a certain amount of that for the power project. So we're very comfortable with the capacity and the management of it.

In terms of the economics, the economics are attractive. We said we expect ultimately that when we're up and running, we'll have $7 million to $8 million of EBITDA per unit sold, and we're on track. It's going to come in 2 different parts because of the joint venture structure and that we will -- FTAI Aviation will sell a turbine to the joint venture and book 100% of the revenues, 100% of the expenses. But then the joint venture will sell the finished product to the end customer, and we will record between 25% and 50% of the ownership of that, which then combined works out to the $7 million to $8 million per unit.

Great. With -- also yesterday, you announced a $500 million share buyback authorization. Can you talk about what's the origin story of your buyback? Why buyback now when you've got so many other organic ways to deploy capital? And also with the recent stock market pullback and your stock pullback, what do you think the market is missing from your story?

Yes. On the last question, I think that the cases that people have come up with, with higher fuel prices and the AI question of whether data centers are going to get built in the U.S., people have come up with extreme scenarios on durability issues, like how long is this going to be able to be last, which I would characterize as very extreme. And so when we look at it, we don't agree with those scenarios. As I said, we think we have a long runway for all these businesses that continue to grow. But the market doesn't always agree with you. So we look at it and said, well, this seems like a great opportunity, very compelling value, and it won't curtail our ability to do -- to make growth investments. We'll do both. We've always been very, as you know, very pro-growth. We would never do anything to be -- to put ourselves in a position where we're unable to do something we want to do. So we're going to manage it so we can actually do both, but take advantage of what I think is very extreme scenarios that are circulating.

Great. We probably have time to take one question from the audience. If you want to raise your hand, we'll give you a mic. Anyone? Well, great. Thank you, Joe. I think this concludes our session on FTAI, thank you for joining us.

Thanks. Thank you.

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.