Joe Adams : Sure. So two things in the first quarter that depressed Leasing EBITDA, pure Leasing EBITDA. One is as you may recall we had four airplanes we took back terminated a lease with a Vietnamese airline in the fourth quarter last year and those are off lease. They go on lease in the second quarter and that had about a $5 million impact — negative impact to EBITDA. And then secondly the first quarter is typically seasonally the slowest period for flying hours and a lot of airlines don’t fly the same schedules and some of our EBITDA is driven off of hours flown. So all of that changes in Q2 and Q3 and we expect as I said a little uptick starting next quarter and we’re reaffirming our $425 million of leasing EBITDA for the year without gains on asset sales.
Hillary Cacanando : Okay, great. Thank you so much.
Operator: Thank you. Our next question comes from the line of Brian Mckenna with Citizens JMP. Your line is now open.
Brian Mckenna : Okay. Great. Thanks. Good morning everyone. Joe I appreciate the comments on the $250 million of EBITDA expected from Aerospace prosper this year. But if I annualize first quarter results you’re already run rating at $280 million. It sounds like — it seems like there’s quite a bit of on that committee heading into 2Q and beyond. So I would — so I would think it’s reasonable to assume continued growth from the first quarter level. So why not move the upper end of the range for 2024 for the segment?
Joe Adams : Well, it’s just one quarter. I mean, it was a good quarter and we see good things ahead, but it’s 25% of the year. And so we’re just not ready to do that. We’ll reassess a quarter. But at this point we’re sticking with the $250 million.
Brian Mckenna: Got it. Okay. Makes sense. And then just a follow-up, it’s great to see the V2500 program ramping. But how should we think about the incremental margin from this business? It would seem like there are some synergies with your existing platform and ways to leverage the infrastructure already in place. So could this business actually be margin accretive to the segment over time?
Joe Adams: It could. I think the — I mean, the LATAM deal is a good example where it’s both V2500 and CFM56 engines. And we offer engine solutions to every airline in the world that operates either a 737NG or an A320 CO family aircraft which is basically every airline. So it’s pretty powerful that we can combine and sell them essentially in a single transaction those services. There are some unique aspects right now because the V2500, the demand is so high given that there’s over — reportedly over 600 GTF aircraft — powered aircraft that are grounded right now which is times 2 that’s 1200 engines that are out of service. And so the demand for the V2500 is extremely high and will likely stay that way for the next three years and it’s a smaller market.
So airlines, I think are a little more fearful that they may not be able to get the V2500 at all. So, we see airlines willing to talk about longer-term leases on that product, which inevitably leads to more value creation, right? If we can do the MRE, put it on a long-term lease, then you can sell it as a cash flowing asset and create value two different ways. So, I think that possibility is something that we’re seeing now likely to play out. So, I do think it has some added upside.
Brian Mckenna: All right. Great. I’ll leave it there and congrats on another great quarter.
Joe Adams: Thanks.
Operator: Thank you. Our next question comes from the line of David Zazula with Barclays. Your line is now open.
David Zazula: Hey, thanks for taking my question. For David, I guess my understanding is with the V2500, you have a little bit less flexibility in how you execute the maintenance and operations of that type of engine. And just with high demand overall, can you just talk about some of the challenges you have in balancing the V2500 versus CFM56 and how you’re managing that?
David Moreno: Sure. So on the V2500, you have a lot of the same components that you do on any engine, right, which is you have access to use service raw material, you have access to independent MROs, then you have access to new parts via either OEM or PMA. The V2500 as we discussed a more expensive shop visit. It is a little more complicated from engineering, which therefore creates more demand for ways to avoid that shop visit. So we’re seeing a lot of folks come to us, not wanting to shop those engines and wanting us to come with solutions. We’re able to integrate those solutions and provide a better product. So we are working through all that. There’s a lot of innovations around the hospital side of that engine that are coming out, just because there’s not enough V2500s today in the market. So, we’re going to continue to develop our capabilities and continue to find innovative ways to maintain those engines.
Joe Adams: And it’s continuous improvement. We did the same thing on the CFM56 when we started that program, we knew about 10% of what we know now. So, I would expect in a year or 2, we’re going to be a lot — we’re going to have a lot more tools to work with on the V2500 that we didn’t have today. But even without the tools, it’s still a great market, so…
David Zazula: Very helpful. And for Joe or Angela, impressive work on the tender for the October 2025 notes. Just curious as to what the plan is for that funding. And if your balance sheet you’re not looking at expanding the leasing balance sheet significantly, would you consider potentially funding from the Aerospace Product side via a refi of those notes or what the plan would be?
Joe Adams: Well, I think the refi is done. The next opportunity is the $9.75 that are coal — the coal price drops in August that’s the next opportunity for refi to lower our interest costs. In terms of cash flow generation, we will look at using cash flow to repay debt. And our priority on cash flow is to; one, make investments; and two, then obtain a strong BB rating from all three agencies which we’re on track to do; and then three we would look at increased dividends or stock buyback. On the investment side, we are expecting to increase the balance sheet slightly for the V2500 investments that we’re making this year, we expect to end the year at 150 to 200 engines of V2500 which is up from 70 now. So, we will be increasing slightly that. But I think the opportunity will comment at some point later this year probably to look at repaying debt and paying some of that more expensive debt off.
David Zazula: Great. Thanks. And if I could just squeeze one more in. Any update on insurance or where you stand there?
Joe Adams: Yes. We have four separate work streams going, three of them are negotiations with counterparties they are not insurance companies and they’re very advanced and we expect hopefully to get those done around the middle of this year which represents about $75 million out of the expected $150 million that we expect in total to recover. The balance of that will be with insurance companies which we think will take somewhat longer which we’re expecting to be in the middle of next year. But we think we’ll get $150 million. We think half of that in the middle of this year and the other half in the middle of next year.
David Zazula: Thanks very much. Appreciate it.
Operator: Thank you. Our next question comes from the line of Sherif Elmaghrabi with BTIG. Your line is now open.
Sherif Elmaghrabi: Hey good morning. Thanks for taking my question. So, a couple on the LatAm deal. What’s the lead time on the V2500 exchanges? You touched on your capacity but I’m curious on the timing side you said you’d be sort of prepping the engines for exchange ahead of time. And I’m wondering how long it takes before FTAI can recognize revenue?
David Moreno: Yes. So, we have engines in shop right now and we’re starting to deliver those engines as soon as we will close the transaction. So, the engine exchanges will start relatively soon. The ramp-up will take time. So, we are — we have it in schedule right now for this year of shop visits at expected dates but we’re still working on the next outer years. So, we’re going to be receiving that soon and working through that and producing those engines ahead of time. But those engines have been produced and some of them are finalizing shop visit at the moment.
Joe Adams: We started — I mean we have 1,500 in the shop right now the V2500. We started that earlier this year. So, some of them are already coming out and we’ve got a schedule where we expect to be able to meet the requirements for LATAM when they need them and we’ll have those engines ready. We spend a lot of time asking us that question. So we went through the rigor on that. That was one of their key criteria given the shortages in the industry.
Sherif Elmaghrabi: Yes, that makes sense. And then on the sale/leaseback side of the deal. Obviously, that generates some liquidity for LATAM, right? So does it deal like that potentially for a future customer not just this airline, does that open up opportunities for asset sales under the Leasing business? Is that – is that sort of a multiphase deal something you’re thinking about?
Joe Adams: Yes. Yes it does. I mean LATAM in this situation wasn’t really focused as much as some airlines are and generating a lot of liquidity from this deal. So it’s – it’s not a huge amount to them but they were more focused on the engine exchange program. But airlines are – every deal ends up being a snowflake. And it’s always a different set of priorities. And – but the demand for unleased aircraft is very high, again. So there’s a lot of money that’s come into the Leasing segment again. If you have a six-year lease with a known airline you can easily monetize that. And we will be doing more of that in the second quarter so that we’ll generate some cash – more cash and more gains in – from that activity. So yes, we do like that.
Sherif Elmaghrabi: Okay. Thanks for taking my questions everyone.
Operator: Thank you. Our next question comes from the line of Stephen Trent with Citi. Your line is now open.
Stephen Trent: Good morning, everybody and thanks for taking my question. A couple of my questions have already been answered. But I’m curious as well when we think about the engine module side you’ve got very good exposure, in US you acquired that 50% stake in quick turn, I believe a facility in Montreal. When you think about this high level are there sort of any other geographic spots, where you maybe think you can add your footprint?
David Moreno: Yes, it would be Southeast Asia, which we did a relatively very good job early on of covering North and South America and Europe. And we started it about six, nine months ago really with a more intense focus on Southeast Asia. And we see – we’ve had success there and – but there’s a lot – I mean it’s a huge, huge market opportunity that we were relatively underrepresented but that will be changing this year and we see that as a future significant growth opportunity. Whether we had maintenance capacity there or not is something we’ve started thinking about. So I don’t have anything conclusive yet, but we will look at maintenance facilities and would potentially either our own or partners in that market in the coming months.
Stephen Trent: Okay. Appreciate that. It’s super helpful and thanks for the time.
David Moreno: Thanks.
Operator: Thank you. Our next question comes from the line of Frank Galanti with Stifel. Your line is now open.
Frank Galanti: Great. Thank you. Hi. Thanks for taking my questions and congrats on the great quarter. I wanted to ask about the Aerospace segment. Can you help us understand what the breakdown in the segment was between module swaps, USM sales and full engine sales or exchanges, given the varying levels of differentiation and margins between those businesses?
Joe Adams: Sure. So we — in the starting with the module factory. We generate about — this quarter was about $600,000 EBITDA per module sale or exchange. That’s up a little bit from the last quarter and it’s consistent with what we’ve been seeing since really when we started the Montreal factory. Module transactions happen in either one, two or three. So a customer can choose either any of those flavors that you want. Three modules is a whole engine. And in some cases what airlines realize is that rather than them working to try to keep their fan or the low-pressure turbine that they could actually save more money by just doing a whole engine exchange and not having to deal with that because they may have 0 days of downtime.
So — but on average the average transaction averages out to two modules per transaction. In terms of the rest of the — so we call that in the module factory in the MRE V2500 business is very similar. And the profitability from the V2500 on an equivalent basis it’s probably a little bit higher than the equivalent on the CFM56 today but they’re pretty comparable. And we expect that to remain similar. That’s assuming that an engine has three modules for the V2500. On USM it’s been — we’ve indicated in the past that we — it was roughly previously about 25% of EBITDA from Aerospace Products but as we have ramped up the MRE business that percentage is going down to where it less than 15% of EBITDA at this point. And we’ll continue as a percentage to decline because that’s not a high-growth business.
So hopefully that helps.
