FTAI Aviation Ltd. (FTAI) Earnings Call Transcript & Summary

For Jamie and me -- this is Mark Streeter and Jamie Baker. This is our last company, our only company today, but we're pleased to have Joe Adams with us, who is the Chairman of the Board and Chief Executive Officer of Fortress Transportation and Infrastructure Investors, which will soon be 2 companies. And Joe, is there a name yet for -- what's the naming going to be for the...

We are going to call the existing company -- rename that FTAI aviation, and the new company will be FTAI Infrastructure.

Okay. There you go, so embracing the FTAI.

We'll have the common FTAI and then the descriptors.

Well, thanks, Joe, for joining us. You've been here many times before to this conference. We just had you down in Miami as well at our high-yield conference. And Jamie and I, as you know, just had all the airlines here on Tuesday, all the aircraft lessors on Wednesday. We want to...

The rating agencies as well.

And we had the rating agencies as well. We want to obviously focus on the engine business and everything going on there with Russia. But before we get there, we also don't want to ignore the infrastructure because that's still 1 of the 2 companies here that will be created and so forth.

And maybe you can just walk us through, again, any updates in terms of timing and what the remaining deliverables are, and then we'll talk a little bit about the capital structures as well.

Yes. Sure. Thanks very much again for having me and pleased to be here again this year in person. And we will -- hopefully, this will be the last time we'll present as one company. So we'll have maybe 2 slots next year. But on the spin, we're still targeting April for -- to have the spin go effective. We have audited financials we're preparing that will be submitted fairly soon. And then that will be, more or less, the final disclosure document, which will then be available. And we are also in the throes and in the mix on the $800 million financing in infra, which we're targeting to close at -- simultaneously at the same time the spin happens, which assuming roughly mid-April. And then the stock would be distributed, and we have 2 companies. So everything is on schedule, on track, and we're really just in execution mode now.

And no SEC deliverable, shareholder deliverables, nothing like that? You'll green light all the way to the end here?

No. I mean, we have to refile with the SEC in a public document with financials. They've seen earlier versions. So it's the normal process of submit and answer any questions, and then we should be good to go. But it's part of our time line is anticipating that.

So let's talk a little bit about the capital structure on the infrastructure side, right? I think you're raising debt but also some converts or...

Some kind of a structured equity, which we haven't finalized, but we're looking at a couple of different alternatives with preferred portion of that and some pure common equity component and small measures. So we'll have a mix of the 2 securities or some warrants, but we're still finalizing that. So it will be an equity component, a structured equity component for $300 million.

And then on the capital structure for infrastructure, will the debt be additional project-specific debt? Or will you be funding it like you plan to fund sort of FTAI aviation remainco, which is sort of at the mothership level, if you will, because you haven't been doing any sort of asset-level debt on the engine leasing business, but it's different on the infrastructure side?

Yes, it is. But this will be corporate debt like the holdco debt we've done at aviation. So the $500 million would be at the topco level obligation of all different -- all the assets of the company available.

Okay. And then...

As you remember, we bought Transtar with no debt on that. So there's -- the cash flow from Transtar is completely unlevered and unattached.

Okay. And then capital structure-wise, really, we can talk about both companies here, right? You were running, I think, end of September -- well, end of the year, you were in the 70s right on a debt-to-cap basis, 2 and a -- I'd like to think at least on the engine leasing side, on a debt-to-equity basis, sort of 2.5x, something like that. What will leverage and ratings look like on infrastructure? What will leverage and ratings look like on aviation?

So Moody's affirmed -- they came out with a report just last week and affirmed the rating at FTAI aviation existing where it is today. So that's pro forma for the spin and the $800 million financing. And that is -- so we've maintained that rating. And we could see potentially having some debt come down over time, use some of the cash flow to repay some debt because I'd like to be a strong BB over time, but nothing necessary to do there, nothing urgent. We will be repaying some debt from the $800 million of proceeds there. So pro forma debt is roughly about $1.8 billion post spin and $500 million of equity. And on the infrastructure side, we're anticipating a strong B or mid- to strong B rating for that transaction, and that's something we'll be in the market with in April.

And how are you going to measure leverage? Is it still debt to cap? Is that how you're going to benchmark yourself? Or are you going to convert...

No, I think it's evolving to more debt to EBITDA.

Okay.

Yes.

So where should debt-to-EBITDA shake out on infrastructure? And where should it shake out on the aviation side?

Yes. So when we had RailAmerica, Florida East Coast, as you remember, it's probably debt to EBITDA for the infrastructure side, I would anticipate it to be around 4x. And maybe it's gone as high -- I think we had Florida East Coast at one point was at 6 or 7x depending on the cycle. So -- but I would say 4 to 5x for the infrastructure business. And then I think on aviation, I would say more like 3 to 4x.

Okay. And so -- okay, so more like 3:1 debt equity, something like that. Okay. Again, I'm always doing the conversion on the engine side because I'm comping you more there towards leasing. So maybe just a step back on -- and you've been at many other conferences. You've talked about the origins of the decision to split the company up and so forth. But how have your conversations gone with investors on the equity side and the receptiveness to sort of what you're doing here? Do you feel like this is -- that you're going to be validated with the decisions that you've made and so forth?

Yes. I think it's very positive. We've really just started discussing this in June, middle of last year. So people have had plenty of time to think about it, commented, and I've had nothing but positive feedback from the decision. And really, the 2 benefits that I've mentioned repeatedly are: one, the story simplification in the division because you have a lot of people that would either be very familiar with aviation or very familiar with infrastructure. But the intersection of the 2, the Venn diagram is not that large. So you don't have a lot of people that have both knowledge base, so that for some people that's been restrictive. And also just in a 20-minute update, it's very hard to cover both topics. So I think the time has come, as I said. We added Transtar last year, which added a lot of contracted cash flow. And both companies now have a level of critical mass and maturity that they're able to be and should be separate stories on a stand-alone basis. And then the second big benefit is really the elimination of K-1s, which as I said to Alan, we have...

I saw one in the mail. I hate those d*** thing.

Yes. Well, me, too. I get one, too. But it's a nuisance and it also means you have no passive money. You have no ETFs, no index funds in the stock. And so I said from a starting point of 0, we can only go up. So that has to be a big benefit. It's been a big benefit. When other companies -- and there's plenty of examples of companies that have eliminated K-1s by converting from a PTP to C-corps, and the stocks have done extremely well. So that's another significant benefit that everyone is really excited about and enthused about.

Good. And then lastly, before we start getting over to engine leasing and Russia and all that kind of stuff. Can you just give us the update on Jefferson and Repauno and Long Ridge and Transtar and just maybe just run through the big 4, just so we can make sure everyone is up to speed with the latest?

Yes. So Transtar being the largest is a run rate of about $75 million of annual EBITDA. It's a good time for the steel industry. So there's a lot of strength in the sector. Shipments are good. We have significant downside protection built into that contract, and it's essentially a perpetual agreement to provide the critical rail services to those -- Gary plant and Mon Valley in Pittsburgh. So there is a little bit of weakness right now because the auto industry has kind of slowed down production. And so some of the cars are loaded with steel, but they're not turning as much as they used to. So -- but we expect in the Q2, Q3 that, that will smoothe itself out. And the deliveries, there's a significant amount of backlog in orders for the year. And in general, with infrastructure spending in the U.S. looking very positive, the outlook for that business is quite good. Then on the longer-term growth aspects, we just hired Gary Long a few weeks ago, and he's started. He was in Genesee & Wyoming, ran their U.K. and European business. And we're working on additional transloading opportunities, right-of-way income. They had no signage on any of the properties, and they have a lot of space in Pittsburgh, which is right next to highways and things like that. There are development opportunities. There's growth in repair and maintenance businesses. And then there's some big industrial development projects where we have properties that were part of the deal that had no -- essentially very little business that were thrown in as a kicker, where we think that there will be some significant opportunities to bring in major customers like Longview, Texas, which is one of the big properties. So longer term -- near term, the opportunities to add to the business is good. And long term, we think it's also excellent. So very good opportunity there, and there's no correlation or tie to Russia or the Ukraine in any of these assets. Secondly, Jefferson is in Beaumont, Texas, and we really connected in the terminal to Exxon and Motiva, and we're seeing a lot of additional project opportunities with the 2 of them. We're also seeing additional crude moving from the Utah market, the yellow and black wax market. We have shipments coming in by water for Motiva. We have some interim storage deals of intermediates for Exxon. So in total, we have probably 10 active projects between the 2 refiners. And both of those refiners are doing extremely well in this environment. They're going to be shifting some of their sources of crude. Obviously, Russia is going off and more Canadian likely to come in. So owning a terminal on the Gulf Coast is good, and we see a lot of increasing business opportunities from that. Next would be Long Ridge, which is the power plant in Ohio, is running smoothly. And the big next opportunity really is to bring in additional tenants to the site to build industrial properties there. And we're in the final stages of negotiating a deal with a biodegradable plastics manufacturer, which is a really neat business. It's a lot of utensils and packaging that restaurants use that doesn't stay around for 300 years in landfills. It actually dissolves very quickly. So there's an environmental play in that, and they use microbes, natural gas and electricity. And we have 2 of those 3. Well, we don't have the microbes, but we have electricity and natural gas. So that's an opportunity to do what we've always thought there, which is bring in industrial tenants to use the great assets of the terminal, which are low-cost natural gas and low-cost electricity.

Now was that a change? Weren't you looking at some data centers there at one point in time?

Yes. We still have people looking for data center opportunities, but the location is I think that most people have elected to stay in the big data centers, which is in Northern Virginia and California. So it was always a challenge to say, "Come to Eastern Ohio," and I think that has been a challenge. It's got the advantage of low-cost electricity, but not the location. So I think it's more likely going to be industrial companies. There's a lot of chemical companies and people that need the natural gas that are really attracted to the Utica region. But that's -- it's the same outcome, actually a little bit better because we can sell natural gas to them as well. So Long Ridge is -- and Long Ridge is fully contracted for the next 8.5 years, so with all investment-grade customers. So that revenue -- that EBITDA is basically locked in. Then on Repauno is sort of the next big one, and it's -- I think it's a terrific asset in moving natural gas liquids through the terminal. Mostly today, we've been using loading propane and butane and transloading that into vessels for export. And so that business, we expect to continue, and we are looking at a big addition of aboveground storage tank starting next year, which would be fully contracted to ship VLGC load cargoes to Europe, primarily to Europe for PDH plants, which make plastics. So that terminal is -- this year, we'll do -- last year, we did about 130 million gallons through the terminal. This year, we're looking at 150 million to 170 million. And if we build this new storage tank, it would go to 450 million gallons. And we also have a broader array of liquid products that we can -- that we've discovered we were capable of handling, which for one is propylene, which were delivered to Braskem, which is a chemical company across the river. And we also are looking at butadiene, which is a big opportunity for import and exports. we see the location, the advantage of being above granite, which we can build a very low-cost storage on, and having deepwater access 42 feet on the East Coast of the United States to be a huge strategic opportunity. And we have 1,800 acres there that are available. So great sort of medium- to long-term growth story there.

So I always save infrastructure for last, so I let it go first this time.

Well, that's good.

Now we get to talk about for what Jamie and to me is the fun stuff, not trying to make -- say anything going on with Ukraine is funny because it's certainly not. It's tragic. There has been, I think, some misreporting of your exposure to Russia because of some asset sales and so forth and some timing. And so can you -- obviously, when we look at your aviation assets, you still have actual aircraft, and then you have your engine pool. So can we sort of break down and set the record straight for what your actual sort of hole and operating aircraft exposures in Russia and then regarding the lease engine pool, what your exposure is? Maybe break it down that way.

Yes. And it feels like the moving around that was happening previously before the Bermuda revoked the AOC and the Russian government instructed all airlines to not give any assets back is done. In my opinion, it feels like what is there today is what's going to stay there. So it's a lot easier to put specific numbers on it. So in Russia, we have 8 aircraft and 16 engines, and the total book value of those assets is about $90 million. And in Ukraine, we have 4 aircraft and 2 engines, and the total book value of those assets is about $35 million. So total assets that are affected directly in those 2 countries is $125 million. The insured value for those assets is $285 million approximately, which is not unusual for older assets because it's -- over time, you can basically pick whatever insured value you want for the assets. And generally, you're overinsured significantly on those assets. And we've -- those are older assets that have been used extensively, and the book values are quite low. So that's the math. That's -- those are the facts in terms of what's -- and I think it's done. Nobody is getting airplanes out anymore. And I'd be surprised if we ever saw those airplanes again.

But the assets that are in Ukraine, were those deployed in Ukraine? Or are they Russian customers and the aircraft just has to be on the ground? Because they're not subject to the...

They're not subject to the sanctions, but there's no fly. You can't fly.

Right. Right.

So no one knows...

Are you still collecting [ then ]?

No.

Okay.

So no one knows the condition of those airplanes.

Fair enough.

The key [ to ] airport and it's impossible to get any kind of a read on the condition. But given the state of affairs in the country, you could guess that they're probably not going to be [indiscernible]. So I think those -- I feel like it's sort of crystallized now as it is what it is.

And for the assets that were not in either country, have you repossessed them? You had a 4...

Yes, we had 5. No, that wasn't affected. We had a cargo 747 ERF in the U.K. That's not affected. We did get like 5 airplanes out that were -- for example, Ukraine International moved some 737s out before the airspace was shut. A couple of the tour operators moved some airplanes out. So we got some airplanes out, and those we'll look at redeploying, and it's a very strong market. And there's lots of interest, particularly in the -- we got 2 767s that are -- they are very attractive to cargo operators. So we're going to reposition those. And we were hopeful -- we were glad to get some of these airplanes out of there. But that's what we're planning on not ever being able to get out at this point. And there's direct communication that the airlines themselves would love to help, but they can't [ rather ] in great peril, personal peril, and there's been orders from the government and others that you were not to help move any airplanes out. And now the AOCs revoked, so I don't see how they could possibly fly out. And if the plane did fly out, you would grab it, but it's not going to.

And on the assets that you have gotten back, are you going to begin the remarketing effort immediately or...

Immediately.

[indiscernible] what you have...

No, no, immediate. We're already on that. And as I mentioned, cargo -- 767s for cargo conversion is one that's immediate and happening.

Well, it's funny. I don't know if you heard our lunchtime speaker, but sort of referenced and something that really didn't come up yesterday, Jamie, I want to -- because I know you weren't here, but 20% of all freighter capacity is owned by Russian-related airlines, AirBridgeCargo, which is a name that didn't come up, but no one really put the percentage on it. So does that impact your business, the fact that all these 747 freighters that AirBridge and their other cargo lift is now -- that seems more immediate as having an impact on global supply chain and so forth?

Yes. No, I mean airfreight is very positive, and that's helpful to have fewer freighters in the world that are going to be able to serve that market. So it was a tight market, and it's going to get tighter. And so all of our 757, 767s are perfect feedstock for freighter candidates. And we do have some 747 ERF freighters, which if actually they came back off lease, we'd be able to put them out at much, much higher rates. So the freighter market, I'm not at all concerned about.

That was a point that several of your competitors made.

Yes, they got them back.

In addition to what was already in their order book that they thought was going to be -- that had been earmarked for Russia, they're perfectly happy to have those...

Yes. You would hope almost that the lease got terminated.

Yes.

So do you feel that -- because I want to ask your opinion now dealing with engines specifically. So yesterday -- and there's been some chatter on LinkedIn amongst all the aviation lawyers that I follow on everything that the fact that Russia is -- Bermuda pulled registrations and the U.K. did and so forth. And now Russia is like formally passed the law that they're going to confiscate the aircraft and so forth that -- the good news is that, that becomes the triggering event, the insurable event in that boom. Now everyone can file the claims and say, "Putin is taking my planes."

Confiscation.

Confiscation.

Very clear, yes.

Pay me out.

Right.

The general consensus certainly at the ISTAT conference, where I know your team was last week, was that the insurance is there, but it's all going to be litigated, and it's going to take years to actually receive payments. How are you thinking about it?

I don't think it's that clear. I think you're seeing a lot of articles written by people who don't have any experience in that market who are trying to get up to speed and quickly understand what is -- and it becomes to them very complicated because there's all these things people are talking about that aren't relevant like sanctions and other things that people could throw up there. And their assumption is always, "Oh, insurance companies always do that." But to us, it seems very clear. There was -- there's a war provision and a confiscation provision, and it says your asset is insured in the event of war or confiscation. There was a war in Ukraine. I think it's pretty clear that there's a lot of evidence that happened. And there's clear evidence that the assets were confiscated in Russia. We have a cut-through provision on the payment, so that doesn't have to run through Russia. So you don't have to deal with Swift lockdowns, all the stuff people were talking about at the beginning. And the real question is like what grounds would anybody take not to pay? What is your argument? Because it doesn't seem like -- I haven't heard a good one. You can't also -- the insurers will use that term. If you're in the grip of the peril, you don't get an out. In other words, if you're driving a car and you hit a patch of ice, the insurance company can't cancel the insurance while you're on the ice saying that you're driving recklessly. It's already happened. So I don't think it's as complicated as people are making out, and the assumption is that insurance companies always litigate and they always delay. The corollary is that aviation has been a very profitable business for insurance companies. They've never had -- they've always had a very good P&L on it. And so oftentimes, insurance companies say, "Oh, well, the 700-year event happened. I'm just going to raise rates 30% next year, and I'll be -- and I'm never going to lower them." And so that, to me, seems like the commercial argument because if you get into litigation, you say, "I'm not doing it," then maybe the aviation industry will set up their own insurance entity and say, "Well, we'll never use you again."

Or we have a situation like 9/11, where governments had to step in to provide war cover at a subsidized level.

Maybe. Yes, I could see. I mean -- I don't -- I wouldn't really put a lot of faith in that happening in a timely fashion because there's no emergency today that -- if airlines around the world were all going to shut down, then maybe they would do that, but that doesn't seem like to me that's going to happen. It's not happening. And that's like a last resort is you want the government to come in and sort of fix it.

We're sort of skeptical, but there was allusion to it.

Yes. Well, the aircraft -- but the aircraft are all registered in Ireland. So why would the United States do that, something to help? I mean it should be the EU.

It was -- I mean it was a combination of Air Lease was sort of talking about their conversations with the Commerce Department but also saying that parallel conversations are happening in the U.K. and in Ireland and so forth with EU officials about will there be a need for just government support to come in and work with the insurance consortium, who has a $12 billion problem on its hands right now when you add it all up. $10 million to $12 million is the estimated amount of potential loss.

Well, as you remember, I ran the ATSB back when -- after 9/11. And I would say that if there is truly a crisis that has to involve governments stepping in because the markets aren't functioning, it might happen, but it's really a last resort. And as soon as it's clear that it's not happening, the government wants out.

We had Doug Parker here yesterday. Remember him from ATSB,

Absolutely.

American West?

I did that loan.

And pardon my ignorance, but my experience is geared towards the plain vanilla lessors. How does it work with security deposits and maintenance deposits? Because -- I mean are the engines leased directly to the airline? Or they leased to Air Lease, which then places the completed unit?

So most of our...

I'm just wondering as a percentage of the value, I would think that your security deposits, again, as a percentage would be higher since that's where the bulk of the value of an airplane.

Or are there any material security deposits or offsets? The numbers you quoted, were those gross or net?

Net.

Okay.

Okay. I've taken that out. There are material security deposits and maintenance reserves. Maintenance reserves tend to be much larger than security deposits.

Yes, I would think so.

So if you have -- you could have $4 million or $5 million on a single engine prepaid in a maintenance reserve account, and you might have 2 months' rent or 3 months' rent. So the maintenance reserves are much, much higher as a percentage of the total assets. But the numbers I gave you were net.

So what's the -- so on that 1 25, which is the 35 Ukraine, 90 in Russia, 1 25 net, what's the gross?

It's probably like 1 40.

Okay. So it's a 10% reduction or something like that. Okay.

It works both ways.

Okay. No, understood. Is there -- so one of the things, a huge topic of debate yesterday. And I'll just tell you because you weren't here. Air Lease said point-blank, "We only have exposure to S7 and other private airlines. We don't have Aeroflot and, therefore, we could have a differentiated outcome." Other lessors said, "We have both." Avolon and SMBC, "We have Aeroflot and S7 and others, and we don't think the ultimate outcome will be all that different." So 2 questions for you. Number one...

So everybody's talking [indiscernible].

Which side of the fence are you on? And -- well, and more specifically, your exposure in Russia, for example, that $90 million net, do you even look at it? Does it matter how much is Aeroflot? How much is non-Aeroflot, et cetera?

No, it doesn't matter. We have both. So I'm indifferent. And the way that the airlines have behaved is almost identical. They -- none of them really want to be in the middle of this fight, but they're forced to be because of their own personal peril. So it's not an option, but they would choose if they could to sort of give the assets back and help the leasing companies, but they can't. So we have seen no difference. We have Ural as one of our customers, a state-owned. And then we have private owned and they're basically being treated the same way by the Russian government. There's no -- I've seen no difference.

And you're in contact with your customers? I mean there's nothing to suggest that they stopped keeping records or just [ punched ] out?

No, they're allowed -- they're preserving the airplanes. They're taking care of it. They don't know how long -- if by some miracle, there was a ceasefire next week. They don't want to be in a situation where they haven't been prepared. Where we'll get very difficult is if they have to fly in a domestic operation, and they have to perform maintenance. And if you have to perform maintenance, then all of a sudden, you are no longer -- then you don't have an airplane that can be recertified.

So -- and that's really what I want to get at as well because there is certainly certain lessors were offering up a scenario where Russian aviation, by definition, has to have Western jets from Boeing and Airbus. You can't -- COMAC doesn't have planes that are going to work, right? These jets need to remain in the fleet and that there needs to be a commercial relationship between Russian airlines and the Western counterparties at the end of the day, assuming Russia does not become Iran or North Korea, which maybe is a big assumption because maybe it could.

That's exactly what I was going to say. Look at Iran. And so it's a little bigger, but it's been done before.

But the point that -- I think it was John [indiscernible] that made the point was that just given the sophistication of aircraft today...

Yes, it is different.

Versus [indiscernible] the ability to...

No, it's different and...

It's going to be a much shorter time line.

That's what I'm hearing. And things like the Jeppesen Avionics that have to be updated every 2 weeks has been cut off. So it's possible that they're not being updated after 2 weeks. Now what people are saying is, "Well, can you fly that?" Like, I don't know. Can you fly without the latest mapping and the latest weather? Probably, until you have an accident, and then it becomes a big issue. So I think we're in unknown territory because I don't think anybody. There's never been an experiment like this. The aircraft are very sophisticated. They're probably going to -- it's going to be very difficult to maintain them. The longer it goes on, the less likely that those airplanes are going to be -- continue to be made available. However, if there's the will to sort of figure it out, they'll -- I wouldn't count that scenario out that they just -- they never come back.

So let's make sure we frame this and then we move on. The total book value of your aviation portfolio is what right now?

It's about $1.8 billion.

Okay. So this is a 7% -- I mean the exposure to Russia is sort of in that range.

Yes, 6. We've been around that, yes.

6% and change , right? So there is a lot of other stuff going on here. So let's talk about that in the 8 minutes we have left here. We'll take any questions that we have. So one of the things we heard from the airlines yesterday -- 2 days ago was just gangbusters demand domestically. I mean, I don't know if you saw the headlines coming out of this conference. Sure you were paying attention.

It was good timing, yes.

Record bookings, surge in demand, probably...

Strongest demand environment, strongest demand recovery -- it kind of makes sense -- that Delta has ever seen.

And the thing is -- we knew about this a week before. I am wanting to tell the story why we knew about this.

Well, the Chase data turned positive.

Yes, we saw that.

The prior week -- last week and...

And you did write a little piece on it.

We did. We should have amplified that because, obviously, if Chase swipes...

I read it.

Yes, but did you buy Delta ahead of...

No, I didn't.

Well, that's what...

[ 5% up. ] That's where we failed you. So in any event. So let's talk about the rest of the world because one of the things -- assuming these aircraft, obviously, are ring-fenced in Russia, don't come out, et cetera, one of the things we've been debating as well with the lessors specifically is the industry narrative last year was Boeing Airbus are going to put their foot on capacity too hard. They're going to build too much. The lessors were talking about trying to send the signals to losing Seattle. You're going too fast. But by the end of the year, we were talking about, are they going fast enough and can the supply chain keep up? And now we have further supply chain pressure on titanium and so forth. So how are you thinking about the supply-demand dynamic? And how are you thinking about the ramp-up in traffic? And what that means for your engine leasing business and your parts business, which we need to talk about here, too.

Yes, in 6 minutes. But the -- no, I've been a big believer in air travel coming back. I remember every crisis we have ever had, people got incredibly negative. And the number of people that told me after 9/11, they would never fly again ever in their life was a lot. So we're seeing a similar phenomenon. People have to go back. They want to see relative the trip, they want to go visit their customers. And I've always been a big believer that, that comes back. So I'm not surprised at the rebound, and we've been seeing it because we talked in the last call we had about airlines are starting to ask for more capacity, and that's the best sign ever. When they have visibility as the bookings, when they start to see they need aircraft, that's when you know it's real. So I'm not all surprised at that. In terms of the supply side of Boeing and Airbus, we're sort of in the trickle-down phase. It takes a long time for that to affect us. I would say it affects more of the new aircraft deliveries than it does the 15-year-old 737-800 market. And -- but they have significant issues with labor and parts. And I think those are significant issues that are not going away quickly. So I would be surprised to see a big ramp up because of those constraints. I think it's coming on the parts side, too. We didn't have a lot of supply chain problems last year because people were not doing a lot of shop visits. Now they are starting to do auto shop visits. And if an engine goes into a shop now and instead of taking 2 months, it takes 8 months because you're waiting on 1 part, you're going to see a lot of chaos and panic in the market on the supply side. And that's -- that happens to be good for us, and that's why I'm sort of watching it, but it's -- but that's coming, I think.

Well, I went on your module store and I registered because I'm thinking of buying Jamie for his 20-year anniversary at JPMorgan a CFM56-5B LPT.

Yes, get those LPTs.

That will make a good playground.

Can we talk about your -- on the parts side in terms of your manufacturing efforts and sort of where you stand because I think you have 1 approved. You have others in the hopper. Just give us the update on that.

Yes. So 1 approved, 4 on the way, 4 in development, and we expect as many as 3 to be submitted this year and another 1 next year. And so it's all progressing and moving forward.

Give us a sense for where you can manufacture, sell and what the OEM part alternative costs? Like what's the economics here?

I mean the margins on -- and that's why the OEMs, they raised prices last year, 7%. And they'll raise prices again this year, I suspect. If they raised it 7% when there was no inflation, what do you think they'll do when there is inflation?

It's like [ bolt ].

And so I'm expecting that -- and I'm just speculating, but I would guess that it could be more than that, and it could be significantly more than that. So the margins on manufacturing are extraordinary in that business. It's like 75% margins off of manufactured costs.

But just for people that aren't in the market, right? So your 1 approved part is the LPT or...

It's the LPT vein.

Right. So what does CFM sell that for list price? And what do you sell it for?

I think it's 28,000 list or something for a single one. Is that right, Alan?

Yes.

And our cost is like 10, 9.

Right. And you're selling it for 18 or something.

Yes. Typically, you sell it -- if you're selling it outright to the market, you'll give -- you'll do 30%, 40% off of OEM price as a PMA. However, I mean, one of the things that we built into our model that I really liked was, we own a lot of CF680 engines. We put PMA in those engines, which we buy at a discount, and we charge the same price to lease that asset as we would if it had all OEM parts in it. And that was really when the light bulb went off, it's like, you mean the airlines don't care. It's like, "No, they don't." They want thrust.

Did they care and now they don't?

You know you're on a webcast, right?

Okay. No. But did they care and their thoughts evolved? Or do you think they never cared? Because they did care to some degree, right? Some shops cared.

No, they really don't because the product performs the same. It's as good a product as the OEM. So they're paying for thrust. They're not paying for what's in it. If there is a residual value issue, which there's never apparently been one that I've seen and clearly, you can't see it on the CF680, they're not undertaking that risk. We are.

And we talked about this in Miami, right, but isn't there the issue with the data plate and how there was the lawsuit and everything and now you can upthrust the engine and so forth and actually get more money for them?

No. The airlines control the thrust, and they control the licensing and the payments for that. That's not our...

Okay. So you don't get involved in that, okay.

No.

It's clarified. Do you think that one of the big themes yesterday with all the airframe lessors was just the penetration in the market, the stretched balance sheets and the fact that the percentage of the world fleet that will be leased has gone up and will continue to go up because airlines just would rather lease aircraft. Do you think on your side of the business that, that trend continues? Are there any sort of in-house sort of MRO shops and sort of where they're managing their own engine pools and so forth where they've just -- are there any examples of a decent-sized airline where they sort of threw up their hands and said, "We're just not that good at this anymore. And let's partner with FTAI aviation," for example, going forward?

Yes, we've -- and that's what we're pitching is we can save time and money and get you out of the engine shop visit business. There's -- most airlines have found that there's only negative experiences in that. It either takes longer or it costs more. And if you don't have the staff and the experience to run your own programs, which many of them are stretched and the fact that they were undercapitalized and some of them were bankrupt, it makes it even worse. So it's basically outsourcing that function at a very attractive cost and it's competitive with -- because WestJet just bid out their program. It was a very competitive process, and we teamed up with Lufthansa and won. We're also building into many of our new leases the provision that we will manage the engines for you. So when an engine is run out, send it back to us, we'll send you a replacement engine and you're off and running. You don't have to ever deal with it again. And that's built into many of our new leases now, and the airlines are great. That's fine.

And remind us of the current EBITDA guidance for aviation this year is...

So it's $550 million or roughly 100 to -- $50 million to $100 million from services. There's some impact from Ukraine and Russia, obviously, given that we've had disruption in some of those leases, so we'll have to quantify that.

Okay. Got you. Anything in the room before we wrap? I want to make sure I don't squeeze everyone out.

Steve Tusa at JPMorgan.

We've got one quick, Steve Tusa. The clock is at 0, but you've got the mic.

Which airline -- do you have a couple of airlines that are close to signing up with you guys, meaningful contracts for these PMA parts?

Not for PMA. What we did is we won the engine maintenance business that Lufthansa won from WestJet. We were a contractor to Lufthansa. So that's the 1 named program that we wanted. That's a 7- to 10-year contract for the maintenance of the CFM56 engines that WestJet awarded to Lufthansa. And what we provide is we provide a low-pressure turbine exchange to Lufthansa and used serviceable material for them. And that made their bid more competitive and enabled them to win.

How many shops is that a year?

7 to 10.

Steve is doing the math in his head. With that, Joe, Alan, thank you very much. Appreciate you coming.

Thank you.