And so I think the best is coming yet for us that whatever we’re seeing today and is growing is going to be dramatically better when the aircraft — the new aircraft problems are solved.
Bert Subin: Thanks, Nick. Just a clarification on some of your earlier AerAware comments. Have you started the process for approval with international regulators and for the A320?
Nicolas Finazzo: Not yet on the A320, but yes, on the international regulators in multiple jurisdictions.
Bert Subin: Thank you.
Nicolas Finazzo: You’re welcome.
Operator: The next question comes from Michael Ciarmoli from Truist. Please go ahead.
Michael Ciarmoli: Hi, good evening, guys. Nice quarter. Thanks for taking the question here. Nick, you just said I think you bid on $500 million in the first quarter. How is it looking quarter-to-date? I mean are you still as active?
Nicolas Finazzo: Well, we’re still — yes, we are still active on looking at everything. And I would tell you that our hit rate is no better.
Michael Ciarmoli: Okay. How is the documentation issue? I know that came up last quarter and even at the MRO Americas show, a lot of guys were saying, you don’t even much buy the equipment, you really are paying for the accurate documentation. So what’s sort of the update there?
Nicolas Finazzo: It’s the same. We continue to assess the records condition of pretty much everything we look at and in almost every case, the records that we see have deficiencies. And we have developed an AI tool that we’ve been working on for a year where we can take a record package now and what would normally take us a week to do in about four hours, we can take an engine, we can run it through our system. And the four hours, we could get a full summary of everything we need to know about that engine. And what does that do for us? That one, it allows the limited amount of resources that are available to review records to instead of assemble the records and figure out what the condition of the records are and what’s missing.
I take a week to do that, a computer could do it in four hours or AI does it in four hours, spits out the report, would otherwise take one of our people a week to do and that person can now focus on solving the problems that exist immediately rather than spending a week just to understand what the problems are. So that’s a significant investment we made to facilitate the rapid review of records and to help solve some of these records issues. They exist. It’s just — they’re always going to exist. And the key is how quickly can you get through them and can you get your people focused on fixing them.
Martin Garmendia: And like we noted in the meeting, if anything, that’s a competitive advantage that we have. So we have the expertise, we have the records team that can actually go through this material and make sense of it. Other competitors might just move away from it, but we can work with counterparties to clean up those records and come through it. And if we can’t, we adjust the pricing fairly. So if we cannot do not have the records, we do not pay for those that material. And subsequently, we continue to work on it to see if we can fill in the gaps and sell that material. So if anything, that is a competitive advantage. And in this market where feedstock is more limited, having that ability is absolutely something that we are proud of, and we’re making investments to continue to support.
Michael Ciarmoli: Got it. That’s helpful. And then I don’t know if this is Nick or Martin, and I don’t know how much intel you want to give us here. But out of this inventory, the $350 million, significantly higher than it’s been, and you’ve got $50 million of feedstock added to that. Can you give us any color in terms of how much is readily available for sale right now versus something like the 757s, can you even slice it in terms of do you have x amount of value or percentage in whole assets versus more sort of USM piece parts or components? And then I guess would just — I mean, an update on how many AerAware kits you have and kind of how much of that is reflected in the inventory?
Martin Garmendia: So overall, from a — let me try to go through all the overall points. AerSafe kits, we have 150 kits overall, can’t provide you an overall exact inventory value for that for competitive reasons, but there are 150 kits in that overall number. 757s, we’ve noted we have nine assets that are — well, sorry, we have seven assets, one with fetch ready and another six that are in process, that those inventory costs are there. That’s a mixture of the airframe value and the engine value. I can’t give you those specific amount either for competitive reasons as we’ve given out the numbers. So giving you a dollar value would nearly [indiscernible] what our net book value is there. But I think we made the comment earlier.
We feel confident in the position that we have in the book value based on what we’re seeing in the market that we can monetize those assets going forward. As far as the breakdown of overall inventory, as a reminder, our whole assets are pretty much assets that are being evaluated to either be monetized through USM, full asset opportunities or leasing. But I can tell you about three quarters of that inventory value is engine material that’s readily available. We have a variety of engines, CFM56, CF6-80, PWs, [indiscernible] engine materials not ready [indiscernible] 2,500 overall engines, flight equipment material, overall —
Nicolas Finazzo: A lot of that is still —
Martin Garmendia: — of material. That is being processed. And as Nick is noting some of that is being processed through the USM channel. In engines, we’re definitely seeing a slowdown in our ability to monetize that, which is a good sign. That means that there’s a lot of demand for that material, which is why it’s taking longer for us to get that through the system overall. But we also have bought with the amount of feedstock that we bought last year, inventory to replenish our inventory portfolio. So we already have opportunities of various engine types to add those into the leasing portfolio. We’re starting to deploy those out. We’ve added a couple already in the current quarter. We have more that are available, and we’re starting to see demand.
We have about 10 additional engines that are in repair that will come into the leasing portfolio. So what I expect to see in the remainder of the year is you’re going to see growth in our engine leasing portfolio as we start monetizing some of those assets. From a USM perspective, we’re also going to be monetizing at a faster rate. We started seeing a pick up during March. We expect the second quarter to be comparable to Q1 and as you start seeing a stronger growth in the second half of the year.
Michael Ciarmoli: Got it. That’s helpful. Last one for me. I know you don’t want to disclose the margins on AerAware with the updated pricing. But I know you’ve been building these kits for quite some time. I mean, assuming we get an order, is it realistic to think that the drop-through is significantly better on these first 150 kits? I mean it seems like they’re ready to go. You just have to have the labor for the install? Is that — should we get maybe a disproportionate margin benefit when these first ones go out the door?
Martin Garmendia: I think we’ll get a better margin profile for the ones that are made after the first one because I think — I don’t think we did it. I’m very happy with our cost, by the way. But I think that there’s — it can be done more efficiently than we did it in-house. I’m not concerned about the margin — the gross margin that we can make off the sale of the kits. As far as — and again, we’re not going to reveal drop-through at some point when we start — you start seeing AerAware sales, we’ll talk about how many AerAware cells did we make? And I guess, yes, I guess, we’ll talk about — we’ll disclose gross dollars. But we — and margins you are probably not going to see. I think you’ll see the margin in our TechOps side, maybe you’ll see the dollar margin. But just that’s really tough to start disclosing that type of level as we’re negotiating with the industry. Q – Michael Ciarmoli Understandable. All right, perfect. Thanks guys. Appreciate it.
Operator: And we have a follow-up question from Ken Herbert. Please go ahead.
Kenneth Herbert: Yes. Hi, Martin. I maybe just wanted to follow up on a comment you made earlier in the call. We’re sort of five to six weeks here into the second quarter. I can appreciate you don’t want to give any sort of full-year guidance, but it sounds like you were just commenting the second quarter EBITDA. It wasn’t clear if that was for the company or a particular segment. But second quarter EBITDA looks very similar to first quarter EBITDA. Did I get that correctly with maybe a more pronounced step-up in the second half over the first half?
Martin Garmendia: No, that comment was specifically to USM sales overall [indiscernible] activity improving, probably Q2 will be similar to Q1 activities. And then as more material flows through, specifically engine material, we’ll see an acceleration of that through the remainder of the year.
Kenneth Herbert: Okay. But are you — any sort of high-level views on EBITDA in the second quarter and sort of maybe expectations relative to first quarter? Or just anything you can help with as we think about sort of the setup here near term?
Martin Garmendia: Yes, I think we won’t provide any specific financial guidance overall. What we can say is we are seeing good opportunities in all sides of the business. We’re starting to see AerSafe sales that Nick mentioned in his remarks. So we’re starting to see that contribution flow through the P&L. We’re seeing a pick-up in our component MROs that we’ve talked about with some of the new contract sales. So we’re expecting improvements there. And then from the asset management side, we’ve already have done some deals related to engines, so we expect whole asset sales in the second quarter and USM, as I noted, being overall. And you will start seeing some increase in leasing, but that also will be a stronger acceleration starting in Q3.
Kenneth Herbert: Perfect. Thanks, Martin.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Nick Finazzo, CEO. Please go ahead.
Nicolas Finazzo: I want to thank Gautam, Ken, Bert and Michael, for the good questions because it really does help our investors better understand our business. So thank you, guys. For everyone else, we appreciate you listening to our call today and for your interest in AerSale. And I hope everyone has a good evening — good night.
Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
