FTAI's Q3 2025: Contradictions Emerge on SCI Expansion, PMA Timelines, and Margin Drivers

Guidance:

• 2025 business-segment EBITDA $1.25B–$1.3B (Aerospace Products $650M–$700M; Aviation Leasing $600M).
• 2026 estimates: Aerospace Products EBITDA $1.0B; Aviation Leasing EBITDA $525M; total business-segment EBITDA $1.525B.
• Adjusted free cash flow target $1.0B for 2026 (vs $750M 2025 target pre-SCI contribution).
• Production targets: 750 CFM56 modules in 2025; targeting 1,000 modules in 2026.
• Aerospace Products margins expected to exceed 40% in 2026.
• Quarterly dividend increased to $0.35; ongoing evaluation of further capital returns.

Business Commentary:

* Capital Expansion and Strategic Partnerships: - FTAI Aviation announced a significant increase in the capital committed to its Strategic Capital Initiative (SCI) #1 from $3 billion to $6 billion. - The expansion is driven by high demand from institutional investors and a plan to deploy capital through 2025 partnerships. - This initiative is forecast to result in a larger total portfolio of approximately 375 aircraft, compared to the previous target of 350.

• Aerospace Products Segment Growth:
• The Aerospace Products segment delivered $180 million in adjusted EBITDA in Q3 2025, representing a 35% margin, up approximately 77% year-over-year.

• The growth is attributed to strong adoption and usage of aerospace products, particularly CFM56 and V2500 modules, and increased production capacity.

• Dividend and Cash Flow:

• FTAI Aviation reported generating $268 million in adjusted free cash flow in Q3 2025, positioning them on track to reach their revised goal of $750 million for the year.

• The company announced an increase in the quarterly dividend from $0.30 to $0.35 per share, reflecting strong financial health and confidence in future growth opportunities.

• MRO Acquisitions and Capacity Expansion:

• FTAI acquired ATOPS for $15 million, enhancing its Miami MRE operations and adding 150 module capacity, along with expanding its presence in Europe.
• The acquisition complements existing facilities and is part of a broader strategy to increase production capacity without significant capital outlay.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted a major milestone—upsizing SCI equity and raising deployment target to ~$6B—and called the outcome "confident" for sustained long-term earnings growth. Q3 momentum: Aerospace Products $180.4M adj. EBITDA (up 77% YOY). 2026 guidance includes $1.525B segment EBITDA and $1.0B adjusted free cash flow—all upbeat forward-looking metrics.

Q&A:

• Question from Sheila Kahyaoglu (Jefferies LLC): Can you walk us through the financial implications of the SCI upsizing, both segment EBITDA and free cash flow perspective?
  Response: Upsizing accelerates SCI deployment, likely raising SCI's share of Aerospace Products volume from ~20% to ~25%, locking in volume and accelerating market-share gains and cross-selling benefits.

• Question from Sheila Kahyaoglu (Jefferies LLC): Can you give color on the ATOPS acquisition—how it adds 150-module capacity and expected EBITDA/savings?
  Response: ATOPS adds ~150-module capacity (Medley facility) with immediate synergies to Miami test cell and a Lisbon field-service hub; primary aim is capacity expansion; Bauer JV complements margin gains (~$75k savings per shop visit expected).

• Question from Kristine Liwag (Morgan Stanley): How available are assets to buy, pricing and expected returns; what did investors like or worry about with SCI?
  Response: Supply comes from lessors (~1,000 runouts/year) and airlines doing sale-leasebacks; FTAI's exchange capability makes it an advantaged buyer; investors value predictable, asset-backed cash flows with higher returns and lower residual risk.

• Question from Kristine Liwag (Morgan Stanley): How will FTAI account for the 19% equity stake in SCI—where will leasing income appear?
  Response: The 19% stake will be recorded as equity income (equity pickup) with servicing revenue in Leasing's other revenue; management confirmed the 19% is included in adjusted EBITDA in Leasing.

• Question from Kristine Liwag (Morgan Stanley): How did you execute rapid module-facility growth—what's the secret sauce?
  Response: Two factors: focused strategy on CFM56/V2500 (no diversification) and hiring/retaining experienced people combined with training to accelerate productivity.

• Question from Joshua Sullivan (JonesTrading): How should we understand the calculus for adding module capacity via small investments like ATOPS—what are gating factors?
  Response: Many low-cost idle facilities exist to plug into; primary constraint is skilled mechanics—training academy increases yield and shortens ramp; significant runway to add similar low-capex capacity.

• Question from Joshua Sullivan (JonesTrading): Is the $75k per-visit saving from the accessories JV about turnaround time, margin, new customers, or margin in-sourcing?
  Response: All of the above—insourcing accessories via the JV improves margins, turnaround times and capability, reducing reliance on third parties and supporting customer growth.

• Question from Giuliano Anderes-Bologna (Compass Point): Expand on FTAI as a spread business and how it behaves in weak vs strong markets.
  Response: Core model is buy-build-sell spread: buy runout engines, rebuild, sell; in soft markets you can buy cheaper and accelerate market-share gains; margins managed via parts/repair efficiency.

• Question from Giuliano Anderes-Bologna (Compass Point): On industrial accounting pro forma, does gains-on-sale move from investing to operating cash flow?
  Response: Yes—pro forma industrial accounting shifts about $722M of asset-sale proceeds from investing to operating for the 9 months ended 9/30; inventory purchases now flow through operating activities.

• Question from Hillary Cacanando (Deutsche Bank): What specifically drives the 2026 upside—new vs repeat customers, acquisitions, JV, etc.?
  Response: 2026 upside is volume plus margin: production up ~33% with more repeat and larger customer orders, and margin expansion from parts procurement strategies, imminent PMA approvals and repair/acquisition initiatives.

• Question from Hillary Cacanando (Deutsche Bank): How should we think about margin impact or EBITDA from the Finnair perpetual power contract?
  Response: Finnair program is market-rate and consistent with large programs; covers 36 engines, prepositions serviceable engines to lower airline maintenance costs and provide operational flexibility.

• Question from Brian Mckenna (Citizens JMP Securities): Have you disclosed management and performance fees for SCI; will Leasing become asset-management earnings?
  Response: Fees are market-based—asset-management fee around ~1% of assets plus low-double-digit incentive fees above a hurdle; this creates meaningful, higher-margin asset-management economics over time.

• Question from Brian Mckenna (Citizens JMP Securities): Could FTAI's GP/equity ownership in vehicles decline below 19% as demand grows?
  Response: Yes—while the initial equity shows alignment, over time and with a proven track record the GP/equity stake is negotiable and could decline to create a more capital-light model.

• Question from Edward Morgan (BTIG) on behalf of Andre Madrid: Pace and scale of future long-term partnerships—will they resemble major U.S. carrier deals or Finnair; margin impact?
  Response: Pace is accelerating (≈$3.5B LOI/closed already); SCI pricing mirrors third-party customers so margins are comparable; SCI provides contracted, committed volume enabling scale.

• Question from Brandon Oglenski (Barclays): How much does M&A factor into the $1B cash flow outlook and is large build-out capital needed?
  Response: M&A supports low-capex capacity expansion—targeting low-cost facility acquisitions and selective tuck-ins that are highly accretive; no large capital-intensive builds are planned.

• Question from Brandon Oglenski (Barclays): What is the right sustainable level of maintenance CapEx going forward?
  Response: Maintenance CapEx targeted ~ $125M for 2025 and expected to remain at similar levels; replacement CapEx should stay modest due to exchange-structured work.

• Question from Kenneth Herbert (RBC Capital Markets): Update on the V2500 program and pipeline progress?
  Response: V2500 program is about halfway complete (≈2 years into a 5-year arrangement) and progressing well with strong demand driven by life-extension needs.

• Question from Kenneth Herbert (RBC Capital Markets): Over time, what share of Aerospace Products will be SCI-related and is there a natural cap?
  Response: FTAI expects SCI to represent roughly 20%–25% of Aerospace Products long term; the company intends to grow both SCI and third-party volumes, so SCI is not expected to dominate beyond that range.

Contradiction Point 1

SCI Upsizing and Impact on Economy of Scale

It involves the strategic expansion of SCI and its impact on FTAI's business model, which affects potential market leverage and revenue growth.

What are the financial implications of SCI's upsizing? Also, what are the capacity impacts of the ATOPS acquisition? - Sheila Kahyaoglu (Jefferies LLC)

2025Q3: The upsizing increases the number of aircraft in SCI to 375, accelerating growth. It represents a 25% share of FTAI Aviation's business, with a 19% equity stake. - Alan Andreini(IR), David Moreno(COO)

Is SCI 2 something to consider now? - Giuliano Jude Anderes Bologna (Compass Point)

2025Q2: SCI is on track to meet goals. We could decide on SCI 2 by end of this year. The model looks promising, potentially making FTAI the largest owner of current tech aircraft, driving more market leverage. - Joseph P. Adams(CEO)

Contradiction Point 2

PMA Approval Timeline

It involves the timeline for PMA approval, which is crucial for cost savings and operational efficiency.

Update on PMA parts? - Brandon Oglenski (Barclays)

2025Q3: The third part was submitted to the FAA in May. Approval expected around October. It's the most significant cost saver. The fourth and fifth parts will follow in 2026. - Joseph Adams(CEO)

What is the latest update on PMA parts? - Brandon Oglenski (Barclays)

2025Q2: The third part was submitted to the FAA in May. Approval expected around October. It's the most significant cost saver. The fourth and fifth parts will follow in 2026. - Joseph Adams(CEO)

Contradiction Point 3

SCI Partnership Financial Impact

It involves the financial implications of the SCI partnership, which are crucial for understanding FTAI's financial health and growth prospects.

What are the financial implications of the SCI expansion? Also, can you discuss the ATOPS acquisition and its capacity implications? - Sheila Kahyaoglu (Jefferies LLC)

2025Q3: The upsizing increases the number of aircraft in SCI to 375, accelerating growth. It represents a 25% share of FTAI Aviation's business, with a 19% equity stake. - Alan Andreini, David Moreno

What is SCI's impact on the debt profile, and how is the Pratt relationship developing? - Brian McKenna (Citizens)

2025Q1: SCI helps achieve a strong BB rating with agencies by reducing acquisition CapEx. The Pratt relationship is positive with no dilutive impact on aerospace products. - Angela Nam(CFO), Joe Adams(CEO)

Contradiction Point 4

Aerospace Product Module Production

It involves the production capacity and output of aerospace product modules, which are critical for understanding FTAI's operational capabilities and revenue potential.

Can you explain the capacity potential calculation related to the ATOPS acquisition? Also, does the JV with Bauer prioritize turnaround time or margin in-sourcing? - Joshua Sullivan (JonesTrading Institutional Services, LLC)

2025Q3: The combined capacity of Montreal, Miami, and not Rome, but in our European facility in Portugal is expected to be 250 modules per quarter. - Joseph Adams(CEO)

Why revise the guidance on aerospace product modules? - Hillary Cacanando (Deutsche Bank AG)

2025Q1: Guidance was set for Montreal only. Combined capacity of Montreal, Miami, and Rome is expected to be 200 modules per quarter. - Joseph Adams(CEO)

Contradiction Point 5

Margins and Margin Drivers

It involves changes in the explanation of margin drivers, which are crucial for understanding FTAI's financial performance and operational strategy.

How does FTAI's role in the spread business work? How does it apply in weak vs. strong markets? - Giuliano Anderes-Bologna (Compass Point Research & Trading, LLC)

2025Q3: FTAI operates in a manufacturing business buying, rebuilding, and selling engines, and an asset management business buying and managing aircraft. In strong markets, the focus is on buying low, selling high. In weak markets, there's an opportunity for faster market share gains by decreasing costs. - Joseph Adams(CEO)

How will you maintain 35% margins, and what are the expected drivers for 2025 margins? - Sheila Kahyaoglu (Jefferies)

2024Q4: Margins are driven by repair, green time optimization, parts strategy (PMA), and just-in-time services. Green time optimization grows as we acquire more modules, and standardization in production methods will drive efficiency. PMA implementation can add 5-10% to margins. - Joe Adams(CEO), David Moreno(COO)