FTAI Aviation Ltd. Q4 FY2023 earnings call

Management Statement and Operational Highlights

• Dividend: Announced the 35th dividend as a public company and 50th consecutive dividend, with $0.30 per share paid on March 20.
• Adjusted EBITDA: Q4 2023 adjusted EBITDA was $162.3 million, up ~5% QoQ and 31% YoY. Full-year 2023 adjusted EBITDA was $597.3 million, up 40% YoY.
• Leasing: Had $122 million EBITDA in Q4, acquired $229 million in new equipment, and expects $425 million Leasing EBITDA in 2024 excluding ~$50 million asset sale gains.
• Aerospace Products: Had $54.6 million EBITDA in Q4, 34% margin, sold 61 modules to 17 customers, and sees $200M-$250M EBITDA in 2024. Focus on V2500 engine with strong demand for shop visits and close to large fleet deals.

Segment Performance

• Leasing: In Q4 2023, leasing contributed $121.8 million to the adjusted EBITDA of $162.3 million. The pure leasing component had $99 million in Q4, down from $102 million in Q3. For 2024, FTAI expects approximately $425 million in Leasing EBITDA, excluding projected gains on asset sales of ~$50 million. The company acquired $229 million in new equipment (10 aircraft and 33 engines) in Q4.
• Aerospace Products: Generated $54.6 million in EBITDA in Q4 2023 with a 34% margin. Sold 61 modules to 17 unique customers (6 new, 11 repeat). For 2024, it anticipates EBITDA in the $200 million to $250 million range. The company sees strong potential in the V2500 engine, aiming to be the leading full-service aftermarket power provider for 737NG and A320neo aircraft.

Guidance

• Annual aviation EBITDA for 2024 expected between $675 million to $725 million (excluding corporate and other).
• Leasing expects ~$425 million EBITDA in 2024 excluding ~$50 million asset sale gains.
• Aerospace Products aims for EBITDA in the $200 million to $250 million range in 2024.

Risks

• Leasing: Termination of 4 A320 leases to Bamboo Airlines affected Q4 and Q1 2024 revenue, but moved to higher rate leases.
• Asset Availability: Off-lease assets needing maintenance have limited buyers, but FTAI can fix anything.
• FAA PMA Process: Rigorous and time-consuming, though progress on PMA initiative is good.
• Vessel Operations: Off-hire vessels in Q4, but Pioneer on hire since December, Pride expected on hire by April.

Question and Answer Q: On the leasing portion, what drove the sequential decline in revenue?

A: Termination of 4 A320s lease to Bamboo Airlines, moved to higher rate leases with better terms.

Q: Market response to lease rents after MAX production cap?

A: Lease rates up, cap on MAX production extends supply-demand imbalance for at least a couple of years.

Q: Update on V2500 MRE program?

A: 15 engines in maintenance shops, close to large fleet deal for V2500 engines, strong demand for shop visits.

Q: Status of PMA initiative?

A: Great progress, FAA process rigorous but successful, excited about results once approved.

Q: Discounts for off-lease assets?

A: Still see discounts, FTAI can fix anything and relishes fixing assets to add value.

Q: CapEx needs and cash flow?

A: Priorities include maintaining BB rating, investing in V2500 engines, and considering stock buybacks/dividends for excess capital.

Q: Well intervention vessels?

A: Pioneer on hire since December, Pride in repair until March, expected on hire by April, aiming to sell both vessels this year.

Q: 2025 notes due?

A: Monitoring, no immediate deadline, over 18 months until October 2025