FTAI Aviation's Q3 2025: Contradictions Emerge on Production Capacity, Cash Flow, and SCI Expansion

Guidance:

• Full-year 2025 business segment EBITDA expected $1.25–1.30 billion (Aerospace Products $650–700M; Aviation Leasing $600M).
• 2026 estimates: Aerospace Products EBITDA ~$1.0B; Aviation Leasing EBITDA ~$525M; total business segment EBITDA ~$1.525B (up from prior $1.4B).
• Adjusted free cash flow target: $750M for 2025 (pre-SCI contribution); $1.0B in 2026 (~33% YoY increase).
• Production targets: 750 CFM56 modules in 2025; targeting 1,000 modules in 2026 (+33%).
• Aerospace products margins expected to exceed 40% in 2026; PMA approval expected imminently.
• Dividend increased to $0.35 per quarter payable Nov 19 (record Nov 10); company to evaluate future capital returns.

Business Commentary:

* SCI Partnership Upsizing and Growth: - FTAI Aviation successfully closed the final round of equity commitments for SCI, with an increased target of $2 billion, raising the number of funded aircraft to 375. - The growth was driven by strong demand from institutional investors and a strategic focus on enhancing returns relative to traditional leasing models.

• Aerospace Products Performance:
• Aerospace products generated $180 million in adjusted EBITDA, reflecting a 35% margin, which is an 77% increase year-on-year.

• The positive momentum is attributed to accelerated adoption of aerospace products and long-term partnerships like the Finnair perpetual power program.

• Cash Flow and Dividends:

• FTAI Aviation generated $268 million in adjusted free cash flow in Q3, with a total of $638 million year-to-date.
• The company increased its dividend to $0.35 per share, with a forecast to generate $1 billion in adjusted free cash flow next year.
• The growth in cash flow is due to strategic asset sales and expected future investments in high-impact growth initiatives.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted strong operating momentum: aerospace products generated $180.4M of EBITDA at a 35% margin (up ~77% YoY) and company adjusted EBITDA was $297.4M in Q3 2025 (up 28% YoY). They upgraded 2026 total business segment EBITDA to $1.525B and expect $1.0B adjusted free cash flow in 2026, characterizing the SCI launch as creating significant value and positioning FTAI for sustained long-term earnings growth.

Q&A:

• Question from Sheila Kayaglu (Jefferies): Can you walk us through the financial implications of the upsizing of SCI for segment EBITDA and free cash flow?
  Response: Upsizing accelerates SCI deployment, may raise SCI share of aerospace products from ~20% to ~25%, and delivers locked-in 5–6 year volume that enables production planning, cross-selling and faster market-share gains.

• Question from Sheila Kayaglu (Jefferies): Can you give color on the ATOPS acquisition—how it was sourced, how it adds ~150 modules of capacity, and expected EBITDA/savings?
  Response: ATOPS adds immediate 150-module capacity (Medley FL + Lisbon hub), lifts company module capacity (approx. 1,800→1,950), provides test-cell synergies and field service support; Bauer JV and other insourcing expected to deliver ~$75k savings per shop visit.

• Question from Sheila Kayaglu (Jefferies): How did you execute rapid module facility scale-up; what's the 'secret sauce'?
  Response: Deliberate focus on CFM56/V2500 and investing in people/training (VR/AI academy) drove rapid, repeatable scale and productivity gains.

• Question from Christine Lehwal (Morgan Stanley): How available are engine/aircraft assets to buy, what are pricing/returns and what resonated with investors on SCI?
  Response: Supply comes from lessors (~1,000 older narrow-body sales/year) and airlines seeking sale/leasebacks; investors liked predictable, asset-backed cash flows with higher returns and lower residual risk from the MRE model.

• Question from Christine Lehwal (Morgan Stanley): How will FTAI’s 19% equity in SCI be reported—equity income, servicing fees, and adjusted EBITDA treatment?
  Response: The 19% shows up as equity pickup in equity income; servicing fees are recorded in leasing other revenue, and SCI-related amounts are included in adjusted EBITDA.

• Question from Christine Lehwal (Morgan Stanley): You’ve grown quickly in modules—how did you gain share from zero to ~9% and scale production to 750 modules?
  Response: A focused product strategy on CFM56/V2500 plus targeted recruiting and accelerated training have enabled rapid market penetration and throughput expansion.

• Question from Josh Sullivan (Jones Trading): What are the gating factors to scaling module capacity via small M&A like ATOPS versus larger investments?
  Response: Opportunities exist to acquire underutilized facilities at low cost; the primary gating factor is skilled labor/mechanics, which the training academy addresses to shorten time-to-productivity.

• Question from Josh Sullivan (Jones Trading): Is the Bauer JV primarily to shorten turnaround times, improve margins, or win customers?
  Response: All of the above—insourcing accessories via the Bauer JV improves margins, reduces turnaround time, enhances capability, and supports customer wins.

• Question from Giuliano Bologna (Compass Point): You described FTAI as a 'spread business'—can you expand on that in weak and strong markets?
  Response: FTAI operates as a manufacturing spread business (buy run-out engines, rebuild, sell) and asset manager; in soft markets you can buy cheaper inventory and accelerate share gains, while rebuild pricing is supported by OEM part economics.

• Question from Giuliano Bologna (Compass Point): Under industrial accounting, do proceeds/gains on asset sales move from investing to operating cash flow?
  Response: Yes—under the presented industrial accounting view roughly $722M of proceeds would shift from investing to operating for the nine months ended 9/30, aligning certain inventory and sale flows with operating cash flow.

• Question from Hilary Kekkenando (Deutsche Bank): What drove the 2026 guidance upsell—new customers, PMA, ATOPS, JV, or mix?
  Response: Drivers are both volume (production +33% with new and larger orders from existing customers) and margin expansion (parts procurement, PMA approvals, insourcing and acquisitions like ATOPS/Bauer).

• Question from Hilary Kekkenando (Deutsche Bank): How should we think about the Finnair perpetual program’s margin or EBITDA impact?
  Response: Finnair is a fleet-wide perpetual program (36 engines), commercially in line with large programs—it delivers cost savings and operational flexibility for the airline and incremental, predictable aerospace product revenue for FTAI.

• Question from Brian McKenna (Citizens): Have you disclosed expected management and performance fees for SCI and how do you view leasing transitioning to asset management?
  Response: Fees are market-based—management fees generally ~1%+ of assets and incentive fees low double-digits above a hurdle; management views leasing shifting into a higher-margin asset-management model alongside the manufacturing business.

• Question from Brian McKenna (Citizens): Could FTAI’s GP/equity stake in future SCIs decline below 19% to create a more capital-light model?
  Response: Yes, it’s possible over time; initial co-investment sized to demonstrate alignment, but structures and commitments can evolve as track record is established.

• Question from Andre Madrid (BTIG): How should we think about the pace and scale of future long-term MRE partnerships—will they mirror major carrier deals or smaller ones like Finnair?
  Response: Pace is accelerating with substantial backlog; deals will vary in size but SCI is contracted at market pricing and margins comparable to third-party customers; management expects consistent growth in large programs.

• Question from Brandon Oleginski (Barclays): How should we think about the $1.0B adjusted free cash flow outlook for 2026 and the role of M&A for capacity build-out?
  Response: FCF growth is driven by higher aerospace margins and asset-management cash flows; capacity expansion will be pursued via accretive, relatively low-capex M&A and opportunistic facility builds rather than large capital projects.

• Question from Brandon Oleginski (Barclays): What is the sustainable level of maintenance CapEx going forward?
  Response: Maintenance CapEx is targeted around $125M for the year and is expected to remain at similar levels going forward; replacement CapEx is not expected to meaningfully increase due to exchange structuring.

• Question from Ken Herbert (RBC Capital Markets): Update on the V2500 program—progress against the committed full performance restorations?
  Response: About halfway through the multi-year V2500 program volume two years into a five-year timeline; demand remains strong and program proceeding well.

• Question from Ken Herbert (RBC Capital Markets): As SCIs scale, what share of aerospace products revenue might be SCI-related over time?
  Response: Management expects SCI-related volume to stabilize around ~20–25% of FTAI’s aerospace products business as both SCI and third-party volumes grow.

Contradiction Point 1

Production Capacity and Growth Strategy

It impacts company expectations regarding production capacity expansion and growth strategy, which are crucial for understanding the company's long-term planning and potential revenue growth.

How do we assess the calculation of module capacity potential from investments such as ATOPS? - Josh Sullivan(Jones Trading)

2025Q3: ATOPS increases the company's production capacity from 1,800 to 1,950 modules. - David Moreno(COO)

Can you explain the EBITDA increase of $85 million in the second half compared to the first half for Aerospace Products? - Sheila Karin Kahyaoglu(Jefferies)

2025Q2: We have new serviceable material that we've been acquiring over the last few months that will flow through in the P＆L with core restorations. - Joseph P. Adams(CEO)

Contradiction Point 2

Cash Flow and Capital Return

It involves changes in financial forecasts and strategic direction, affecting investor expectations regarding the company's financial health and capital allocation.

How should we assess the margin impact of the Finnair contract? - Hilary Kekkenando(Deutsche Bank)

2025Q3: With the extra production capacity from ATOPS, we will capture more free cash flow through the remainder of the year. - Alan Andreini(Head of Investor Relations)

Given the revolver paydown and positive free cash flow, how do you plan to size share repurchases, at what leverage levels, and what are the expected amount and timing? - Myles Alexander Walton(Wolfe Research)

2025Q2: What we indicated is we expect to achieve our goal with the rating agencies this year given the financial performance. - Joseph P. Adams(CEO)

Contradiction Point 3

Module Capacity and Production Expansions

It reflects inconsistencies in the company's production capacity and expansion plans, which are vital for understanding its growth strategy and operational capabilities.

How do you assess module capacity potential from investments like ATOPS? - Josh Sullivan (Jones Trading)

2025Q3: ATOPS increases the company's production capacity from 1,800 to 1,950 modules. These opportunities exist due to available facilities and vacant buildings, offering the potential for modular capacity increases. - David Moreno(COO)

Why is module guidance only 100 per quarter despite higher capacity? - Hillary Cacanando (Deutsche Bank)

2025Q1: The original guidance was for Montreal; Miami and Rome will increase this to over 200 modules per quarter. Montreal aims for 90-100 modules in Q2. We expect significant ramp-up in all facilities. - Joe Adams(CEO)

Contradiction Point 4

Profitability and Margin Sustainability

It pertains to the sustainability of the company's profitability and margins, which are critical factors for investor confidence and financial forecasting.

How does the calculation of module capacity potential account for investments like ATOPS? - Josh Sullivan(Jones Trading)

2025Q3: We are trying to grow faster and be more aggressive in terms of the capacity that we're going to build. - David Moreno(COO)

Can you clarify how you achieve the 35% margin and its sustainability? - Sheila Kahyaoglu(Jefferies)

2024Q4: We achieve margins through repair services, green time optimization, parts strategy, and white-glove service. Optimization improves with scale, margins are sustainable across market cycles. - Joe Adams(CEO)

Contradiction Point 5

Strategic Capital Initiative (SCI) Scope and Investment

It involves discrepancies regarding the scope and investment plans for the SCI, which is a significant initiative for the company's growth strategy and financial projections.

How will upsizing the SCI partnership impact segment EBITDA and free cash flow? - Sheila Kayaglu(Jefferies)

2025Q3: The upsizing will increase the number of aircraft in the SCI partnership by 33%, from 250 to 375. - Alan Andreini(IR)

Can you discuss the strategic capital initiative (SCI) and interest in additional funding? - Kristine Liwag(Morgan Stanley)

2024Q4: SCI is targeting $4 billion, with over $1 billion already committed. - Joe Adams(CEO)