Hello, and welcome to FTAI Aviation Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask the question during this session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. I will now like to hand the conference over to Alan Andreini, Investor Relations. Sir, you may begin. Thank you, Tawanda. I would like to welcome you all to the FTAI Aviation Third Quarter 2023 Earnings Call. Joining me here today are Joe Adams, our Chief Executive Officer, and Angela Nam, our Chief Financial Officer. We have posted an investor presentation in 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. To start today, I'm pleased to announce our 34th dividend as a public company and our 49th consecutive dividend since inception. The dividend of $0.30 per share will be paid on November 28th, based on a shareholder record date of November 14th. Now, let's turn to the numbers. The key metrics for us are adjusted EBITDA. We had another strong quarter with adjusted EBITDA of $154.2 million in Q3 2023, which is up 1% compared to $153.1 million in Q2 2023, and up 42% compared to $108.9 million in Q3 2022. During the third quarter, the $154.2 million EBITDA number was comprised of $119.6 million from our leasing segment, $40.6 million from our aerospace product segment, and -$6 million from corporate and other. Turning now to leasing. Leasing had another good quarter, posting approximately $120 million of EBITDA. The pure leasing component of the $120 million of EBITDA came in at $102 million for Q3 versus $94 million in Q2. Additionally, on the acquisition side, we closed on 10 aircraft and 23 engines at attractive prices, which will contribute to further growth in future leasing EBITDA. Part of the $120 million in EBITDA for leasing came from gains on asset sales. We sold $55.4 million book value of assets at a 24% margin for a gain of $17.6 million, benefiting from strong demand for assets globally. And we've had more asset sales coming in the final quarter of this year. Aerospace products had yet another excellent quarter, with $40.6 million of EBITDA at an overall EBITDA margin of 38%. We sold 41 modules in Q3 to 11 unique customers, comprised of two new customers and nine repeat customers. We see tremendous potential in aerospace products and feel very good about generating consistent EBITDA growth. As to the balance of 2023, we see FTAI coming in above the high end of the $550 million-$600 million EBITDA range, which we communicated at the beginning of 2023. Looking ahead to 2024, our current expectation is for leasing EBITDA to total $475 million for the year, including $50 million from gains on asset sales. Based on a strong backlog and an expanding customer base, we are looking for $200 million-$250 million of aerospace products EBITDA in 2024, up from $98 million year-to-date 2023 and $70 million in 2022. Overall, we therefore expect annual aviation EBITDA for 2024 to be between $675 million-$725 million, not including corporate and other. With that, I'll turn the call back to Alan. Thank you, Joe. Tawanda, you may now open the call to Q&A. Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star one one on your telephone and then wait to hear your name announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Josh Sullivan with the Benchmark Company. Your line is open. Hey, good morning, Joe, Angela, Alan. Congratulations on the strong quarter here. Good morning. Just with the earnings this week, we've had some updates from the large aerospace OEMs. Just wanted to check in on what Fortress is seeing, you know, in the leasing and module market as these new generation of engines face these ongoing teething issues, and particularly, you know, as it relates to the G eared TurboFan engine versus the GE 56 options Fortress is offering? Yes. So, as you can imagine, demand for the prior technology equipment is very, very high in light of what is going to be accelerated maintenance on the new technology. And in some estimates, you know, the company or others are estimating that approximately 600 A320s with GTF engines on them will be grounded in the first half of 2024, and approximately 300 on average through 2026. So that's a significant amount of assets that are going to be out of service for an extended period of time. And so anybody that has, you know, A320ceos is keeping them and is doing the maintenance to refresh the engine. So both of those are very good for us in that lease rates are trending up, you know, almost week to week. You can see increases right now. And so that's positive, and is likely going to continue for some time. And maintenance events, people that were estimating they were going to take assets out of service or not, you know, do another shop visit or might park them out, are delaying and deferring that. So there'll be more maintenance and assets will last longer. So all of those factors are very, very good for the equipment that we maintain and own. Got it. And then secondly, just on the 2024 guidance you provided, what are you baking in for PMA assumptions into that number? And then if we get an approval sooner than later, what does the PMA ramp look like from manufacturing to stocking to actually getting a customer check? Yes, in that $200 million-$250 million number, we've included about $15 million-$20 million of EBITDA from PMA, and that would come from both the sale of PMA parts as well as modules. And we're not sure on the ramp. It's hard to actually forecast that, so I would assume that most of that is towards the back end of the year, is our current assumption. Great. Thank you for the time. Thanks. Thank you. Please stand by for our next question. Our next question comes from the line of Miles Walton with Wolfe Research. Your line is open. Hey, good morning, Joe, Alan, this is Louis Raffetto on for Miles. Morning. Maybe just within the aerospace products, I want to make sure I understand what drove the sequential step up in, in sales and EBITDA in the quarter. I mean, you did four more module swaps, but I'm not sure that equates to the, you know, the $40 million step up, you know, in sales and obviously the strong growth in EBITDA as well. Yeah, so we also had growth in the sale of used serviceable material. So USM was higher and is likely to continue to grow. As we've mentioned previously, we started a number of teardowns in the second quarter, and it generally takes three to six months for that revenue to show up and the EBITDA. So we're seeing strong demand for USM, obviously, with shop visits increasing, and that's one, you know, key way of saving money on a shop visit. So we see the teardown and used serviceable material activity growing. And then within the modules, the mix of modules matters in terms of the revenue, and the core has more revenue than the fan and the low pressure turbine. So, it's— we had more core sales activity in this third quarter than we had in the second quarter. So it's, it's proving to, you know— that's exactly, you know, what we've been expecting and what we're, what we're selling. It's a, it's a harder sell. It's a longer sell to sell core. It's easier to do a fan in two days or low pressure turbine in a week. The core is a little bit more complicated, but, but we've been pitching that for a couple of years now, and now we've got a lot of customers that are recognizing the substantial savings there. All right, great. And so just so I'm clear on the USM, so that's good to know. And does that tie at all to the step up that we saw, I think a $40 million step up in the CFM engine parts inventory? Or is it maybe not linked, but just you're building that inventory to sort of sell? But it's not, again, not necessarily directly linked, but sort of along the same line. Yeah. This is Angela. As Joe mentioned, the number of tear downs equates to increases in inventory, but you won't see the revenue generation for three to six months. So we had a lot of tear downs in Q2, Q3, and you'll see that revenue come through Q4, Q1. All right. So that's kind of like a, almost look at that as a leading indicator to some extent? Yes. Okay. And then maybe just within the leasing, can you comment on, you know, the strong step up in the maintenance revenue sequentially, you know, year-over-year and sequentially, while the lease income actually did step down sequentially, and I think year-over-year as well? Yeah, there's two things went on. One is we elected to terminate four A320 aircraft leases to a carrier in Southeast Asia, and we did that to get higher rates and better terms. And so we did that intentionally. There's such strong demand for these assets. We've already got multiple parties that are negotiating to get them. So we had when you terminate a lease, you have lease maintenance revenues that you recognize from the prior lease come through. So that's why you see a step up in the maintenance revenue. And then the lease side is a bit of an accounting issue. When we do engine swaps for aircraft that are on lease, we book the difference in value. When you put a new engine on an aircraft and you take an old engine off, there's generally an increase in the value from the new engine going in that gets amortized under the rules, the lease accounting rules as lease incentive. And so that shows up as it's a contra revenue, actually, so it reduces your lease revenue, strangely. That's why you see it going down. It's a non-cash item, too, so it's even more confusing from that point of view. I'm thoroughly confused, so thank you. I'll hang up, thank you. Thank you. Please stand by for our next question. Our next question comes from the line of Giuliano Bologna with Compass Point. Your line is open. Good morning, and congratulations on a great quarter. Thanks. One thing I'm curious about asking about is, you obviously, you know, mentioned that you're including, you know, $15 million-20 million of PMA contribution in the product outlook. So there's obviously, you know, some great confidence about being able to, you know, receive approval for PMA, you know, in the near term. What I was curious about asking, kind of, with that being said is, do you think the PMA approval timeline could be slowed down at all by the issues that the FAA is dealing with? You know, at the moment, you know, there's all the Geared TurboFan issues, the fake parts, government shutdown concerns. Just curious how you think about that and how you think it might, you know, impact the PMA approval timeline. Sure. So, you know, we've had a very good progress on the parts that are in the works, and a very good dialogue. So, we haven't seen anything significant on that front, but recognizing that the FAA does have a lot on its plate, probably never more than ever in history, and they now have an administrator, so that's a good thing, and they've added people. So, you know, we see it moving ahead, but it is inherently very difficult to be precise about when you expect things to actually be resolved. Got it. That's very helpful. And then one more on, kind of, a topic that, you know, kind of came up earlier, but, you know, there's obviously a lot of tightening in MRO capacity, across the industry, and I'm curious, you know, how you think about that impacting your business and, you know, how long that could, that trend could continue? Yeah, it's good for us because, you know, our pitch to airlines is we can save you time and save you money on maintenance events. And the longer the time you'd have to spend by sending an engine into an MRO, the more savings we provide. So, and I think the GTF issue, there's some, basically every GTF engine is gonna have to go through a shop visit in the next couple of years on an accelerated basis. So that's gonna push out what was potentially available capacity is gonna be used up, you know, by the GTF. The market is definitely very getting tight and gonna get tighter, and that's very good for us because we're essentially just pre-building modules to supply people in a short period of time and have them avoid or skip the agony of a shop visit. That's very helpful. I appreciate it. Yeah, well, congrats on the quarter, great quarter, and I will jump back in the queue. Thanks. Thank you. Please stand by for our next question. Our next question comes from the line of Hillary Cacanando with Deutsche Bank. Your line is open. Thank you. Congratulations on the great quarter. Just quick questions on the 2024 guidance. I was wondering if you could also provide how many modules you're expecting to sell, if you kind of maybe give, give us some guidance on that as well. And then on the USM side, could you tell us, like, how much of the EBITDA was attributed to USM for the third quarter? And then for 2024, if you could talk about, like, how many engines you know you expect to part out during the year from the USM? Thank you. Okay, I'll take two, and I'll give one to Angela. I think we expect to part out. I think this year we're parting out roughly 40 engines, and next year we're expecting it to go to 50. And we essentially make approximately $1 million per engine from that activity. On the number of modules next year, that we're—our assumption is in the neighborhood of 200 modules for next year. But there's a wide range on that, and there's different mix, so I wouldn't, you know... That's not terribly precise, but that's sort of order of magnitude where we are. What was this year? What would we think this year will be, 100? Or hun- A hundred. 130. 130 this year. So, that's sort of the order of magnitude of, of growth on that. And then USM, Angela? USM for fourth quarter? Q3. Q3. It's about 25% of our aerospace EBITDA from USM. No, for the third quarter- Yeah. -this year. Third quarter of this year. Yeah, 25% of our EBITDA. Oh, okay, 20%. So roughly $10 million. Yes. Okay. Okay. Got it. Thank you. That's, that's really helpful. Thank you very much. And then I just have one more follow-up question. So it looks like you sold fewer engines in the third quarter, you know, eight engines versus 17 engines last quarter. And just given the strong, you know, environment, just strong demand for engines, I was just wondering why you sold fewer than last quarter. Was that deliberate or just timing? We have been selling mostly the non-CFM56 or non-V2500 engines. So those engine sales we've been signing up in the last few quarters have been a lot of Pratt 4000, CF6-80s, RB211s, which we now own fewer and fewer of those. So that's why I think engine sales. We're not interested in selling a lot of our CFM56 or V2500 assets today because we think they're still going up in value, and, you know, we would, we expect to hold those, rather than monetize them. We could actually monetize them today, a very nice gain, but that would probably be short-lived. I mean, they're going to go up in value. So we're, and that's one of the reasons why we've stepped down gain on sale for next year, is we've repositioned our fleet to more CFM56 and increasingly now V2500, and we have fewer assets that we're looking to sell, and we also think they're all going up in value. Okay, so your strategy is more towards just leasing the engines rather than selling the CFM, right? You would rather lease them rather than sell. Yeah, on that basis, yes. We're also- Okay. Still, you know, we're effectively selling modules, so we're selling engines for engine shop visits and then rebuilding them, so. But just outright selling an engine, we don't see that as a big activity. Okay, got it. Great. Thank you so much. This is really helpful. Yeah. Thank you. Please stand by for our next question. Our next question comes from the line of Brian McKenna with JMP Securities. Your line is open. Thanks. Good morning, all. So it would be great just to get an update on where you are in the process around insurance claims related to the Russia-Ukraine war. And then is there any updated timeline around selling the ships portfolio? And can you just remind us how much liquidity both of these situations could bring in? Yes. I think a good number for the combined proceeds that we would expect to think is reasonable to get from both of those would be around $300 million. And I would break that out roughly half and half. So, on the insurance side, it's now turned into a negotiation with the airlines who wrongfully took our assets. But they're using Russian money, like Aeroflot has done on a couple of occasions already. We have three separate negotiations that are advancing to settle. So that would avoid the lengthy litigation that is the fallback strategy. So we're hoping we can resolve, you know, one or two of those, possibly fairly soon, and the other one by, say, the middle of next year. On the ship side, we also have two assets, both of which are being marketed. The macro for that industry is really good. People are not building any new ships, and there's very strong demand. So I would also expect that we could monetize those ships, possibly the smaller one fairly soon, but by the middle of next year would be a reasonable target on that as well. Helpful. Thanks, Joe. And then, just switching gears a little bit. So it's been a few quarters since you acquired QuickTurn. So can you just give us an update on how this acquisition is going so far, and then where you are in the integration process? And then just more broadly on M&A, in this environment, are you seeing any uptick in strategic opportunities that, you know, could accelerate the strategy or, or the growth of the, you know, company longer term? Yeah, so QuickTurn is doing great. We have streamlined the activity, focused mostly on engine tests and very light hospital shop visits and module swaps, and which is, was the big driver why we really were interested in that facility. We did over 20 engine tests in September, and what's our estimate for October? About. About 20. So that's a pretty good run rate. And demand from industry partners, you know, major airlines around the world is good. So we think that is playing out very nicely, and we'll continue to use that for delivering and exchanging modules. So very happy with that acquisition. On the broader topic of M&A, there are things happening in the industry. It's obviously, you know, the industry, the aftermarket segment has got people's attention. It's performing very well in a market where not a lot of things are performing well. So that's sort of a bit of a rising sector. And we are seeing things that are being, you know, offered for sale. We're very, you know, focused on, you know, engines and engine maintenance, so we're not going to get off of that track. But there are segments that have aspects that would be interesting to us that we're looking at. And I mentioned before, engine piece part repair is still a focus for us, and we've made progress on that, but still think of that as an interesting segment for us to get bigger in. Great. Thanks, Joe, and congrats on another nice quarter. Thanks. Thank you. Please stand by for our next question. Our next question comes from the line of Sherif Elmaghrabi with BTIG. Your line is open. Hey, good morning. Thanks for taking my questions. So first, you talked about having more core sales in Q3. Could we see some lumpiness going forward as the mix shifts between core and fan, or is this kind of a more of a hockey stick trajectory? I think it's moderate. I mean, the mix is not gonna shift dramatically because, again, you have, you know, an engine has three different modules, so you're gonna ultimately move all of them at some point. So it's really just a quarter-to-quarter fluctuation, not something that I would say would be that dramatic over a, you know, longer measurement period. Okay. Then, given PMA is sounding more of a 2025 story, and I know you said it's hard to be precise, but can you remind us of the timeline between PMA approval and when we, when we start seeing them show up in the modules? And where do we sit on that timeline for the four PMAs going through approval right now? So there, as I said, we're, you know, good progress on all of them. We will, as soon as those part numbers, parts are approved, we will put them into our engines, and so they will be available almost immediately. Chromalloy begins production usually ahead of when they submit, finally submit, so there's inventory available, immediately. The longer lead time will be third-party sales or other airlines who have to go through an approval process and an engineering review, and that varies, airline to airline, which is why, you know, it's always difficult to predict how long that will take and what the ramp period is. But you're talking months, not, you know, not years. That's very helpful. Thanks for taking my question. Yep. Thank you. Please stand by for our next question. Our next question comes from the line of Frank Galanti with Stifel. Your line is open. Great, thanks for taking my question. I wanted to sort of dig in, just sort of a true-up question. Earlier in your comments, you'd said this year you expect 130 modules to be sold. That'd be something like 10 modules in 4 Q. I just want to sort of give an opportunity to correct that number, if that number is indeed wrong. But then, on a bigger scale, you sort of, in the prepared remarks, you'd mentioned that EBITDA kind of growing sequentially, and in order to see that, especially around next year, if there's only 200 modules sold, your margins are in the 50%+ range, which means a lot more cores. How do you sort of think about the lumpiness and then the kind of sequential growth of cash flows out of modules sold? On the first question, you're right, the 130 is low. We should be in the $150-$160 for the year total for modules, for the year for modules. So you... That is correct. And the second question was margins. I mean, we've been talking about blended margins of around 35% for aerospace products. The USM margins tend to be lower than module module margins. So it, it sort of blends out to a, you know, mid-30s is what we've been indicating. And there could be some variations. We've had quarters where it was in the 40s, we haven't had any low quarters yet, but we could. So it's really hard to, you know, I think we're comfortable with the mid-thirties range, but actually how it, you know, plays out each quarter is gonna be, we'll have to, you know, talk about it when it happens. Sure, that's helpful. Then switching over to sort of the lease income on the aviation side. You'd mentioned lease amortization is sort of eased into that lease income number, but looking quarter-over-quarter, that's only a $5 million increase in lease intangible amortization. So if you back that in, you're only at $41 million, which is still a $7 million decrease in lease income for the quarter. And that seems like too much relative to utilization increasing. Really, the question is maybe if there's any comment on that. But then secondly, in the guide for 2024, can you sort of break down what your assumptions are from a utilization perspective relative to a portfolio growth perspective? Yeah, so we indicated that leasing for 2024 would be approximately $425 million, if you exclude gain on sale. We are seeing higher lease rates, and we have added quite a few engines on lease in Q3 and Q4, and we have some acquisitions we're making. So when you put that together, if you take a $100 million run rate currently, $425 assumes, I think, modest, you know, growth going forward for 2024 for leasing. And certainly we're seeing a, you know, very strong market, which, if it continues, would provide, I think, you know, some potential upside. Okay, and that's helpful. And one more, if I could. On the PMA side, is there any possibility you can comment on if the engineering work is complete for the four modules remaining to be approved? No, I wouldn't comment on specific parts at this point. Okay, great. Thank you for taking my questions. Appreciate it. Thank you. As a reminder, ladies and gentlemen, that's star one one to ask the question. Please stand by for our next question. Our next question comes from the line of Brandon Oglenski with Barclays. Your line is open. Hey, this is David Zazula on for Brandon. Thanks for taking the question, and, you know, congrats on, you know, the real growth in aerospace products this quarter. Joe, if I could ask, you know, kind of a broad one to start. You guys have done very well, it appeared to us anyway, on the cargo side, you know, during the last couple of years, and that market's been under at least a little bit more pressure from what we can tell. Can you talk a little bit about your exposure there and, you know, how you're thinking about the cargo mix, what you're hearing from those type of customers right now? Yeah, we, our cargo exposure is de minimis. We, we decided, I think starting 18 months ago, to basically get out. It was a very, very, you know, strong market, sort of driven by COVID and e-commerce, and we didn't see.—we saw a lot more downside than upside, and so we, we basically got out of the cargo market. Very helpful. Thanks. I don't, you know, I don't see an immediate rebound, so I wouldn't rush to go back in. Then, yeah, on the module side, it seemed like you had an uptick in repeat customers. I guess, can you talk anything about the composition of those customers and what feedback you're getting there? Yeah, we're getting great repeat. I mean, every customer I think we've had sold a module to has come back for more. So we have a 100% success rate on repeat customers, and we actually have a number of those customers who've given us orders for 2024, or indications. They've said, you know, "We want eight fans," or "We want six LPTs," or you know, "five cores next year." So that helps us because we can pre-position that and plan, you know, for the year ahead of time. And people have. I mean, it really is. It's an amazingly simple concept that really saves people time and money. And so people, once they do it, they're like: Wow! I mean, why didn't we do this for years? You know, so it's... We haven't—I don't think we've had a single negative, you know, comment from anybody on the customer side, indicating they wouldn't do it, they wouldn't use it more. Great. Thanks very much. And then for Angela, yeah, it looked like you drew down the revolver a little bit this quarter, and then Joe was talking about, you know, some kind of exciting opportunities down the pike. Is there anything you can tell us about kind of the incremental capital policy or, you know, what you're thinking about, at least as you stand right now? Yeah, we do have some needs for some of the opportunities. The investment opportunities are very attractive right now, and we're looking at several debt financing alternatives of, you know, not a huge amount, but some amount. And it may be temporary, given the $300 million of potential, you know, liquidity we get from the Russia assets and the ship sale. So we're in good shape. It's just, it's really just potentially timing. Thanks so much [inaudible] to you. Yeah. Thank you. Please stand by for our next question. Our next question comes from the line of Ken Herbert with RBC Capital Markets. Your line is open. Hey, thanks for squeezing me on. Joe, maybe wanted to see if I could ask a question on an earlier comment you made, specifically around just tightness in the CFM56 or more broadly, the narrow body MRO network. Are you starting to see that reflected yet in quotes for sort of extended turn times? As we think about turnaround times on the CFM56, sort of where they are now and where they could go into the first part of the next year. You want to take that? Sure. So broadly speaking, we are starting to see a longer lead time on piece part repair. So one of the key drivers for the turn time on shop visit is going to be piece part repairs. And what we're seeing is a delay in that supply chain side of the business. Our position on piece parts is we have a program where we're able to carry used serviceable material. As we've discussed, the engines that we're tearing down, the 40 engines this year, a lot of those engines we can tear down and use and mitigate a lot of those delays on turn times. And that's also gonna drive a lot of demand for modules, because modules, in a way, are a replacement of doing a full shop visit, and you can do a lot of these shop visits outside of a, you know, traditional overhaul shop. So the delay, in a way, is very good for our module program, and we're mitigated through having, you know, piece part repairs in our teardown program. But we are starting to see that delay creep up, and we're expecting that to continue to creep up as the new technology engines are going to take up more capacity in the OEM and MRO space. Great, helpful. Just one follow-up. Are you expecting any incremental pushback from your airline customers on piece part pricing in 2024, as you sort of think about your ability and the demand for USM and maybe even new parts or PMA parts? How is the pricing dynamic playing out, and is that going to continue to be, you know, sort of a nice tailwind for the alternative material marketplace? It's a great tailwind. I mean, the OEMs have taken, you know, significant price hikes, and as you're, I'm sure you're aware, it was, you know, low double digits in 2022, and then it was a sort of 9%-10% price hike on parts that was implemented in August of this year, so it wasn't even a full year. So that, that's sort of the pricing umbrella that USM operates under. And so to the extent the OEMs continue to raise prices like that, which I believe they will, we will benefit from that. And it also makes the whole engine worth a lot more, as basically the replacement value of that is, it goes up with really in lockstep with the piece part prices. Great. All right. Appreciate the cover. Thank you. Yep. Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to Alan for closing remarks. Thank you, Tawanda, and thank you all for participating in today's conference call. We look forward to updating you after Q4. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.