FTAI Aviation Ltd. (FTAI) Q2 2026 Earnings Call Transcript

Good day, and thank you for standing by. Welcome to the Second Quarter 2026 FTAI Aviation Earnings Conference Call. Please be advised that today's conference is being recorded. I will now hand the conference over to your first speaker today, Alan Andreini, Investor Relations. Please go ahead.

Thank you, Marvin. I would like to welcome you all to the FTAI Aviation Second Quarter 2026 Earnings Call. Joining me here today are Joe Adams, our Chief Executive Officer; David Moreno, our President; Nicholas McAleese, our Chief Financial Officer; and Stacy Kuperus, our Chief Operating Officer. We have posted an investor presentation and our press release on our website, which we encourage you to download if you have not already done so. Also, please note that this call is open to the public in listen-only mode and is being webcast. In addition, we will be discussing some non-GAAP financial measures during the call today, including EBITDA. The reconciliation of those measures to the most directly comparable GAAP measures can be found in the earnings supplement. Before I turn the call over to Joe, I'd like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements, by their nature, are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC. Now I would like to turn the call over to Joe.

Thank you, Alan. FTAI today operates in three principal businesses: Aerospace Products, Asset Management and Power, which are each driven by our expertise in aftermarket turbine performance. Each of these three achieved amazing results in Q2, including Aerospace Products increasing production over 60% year-over-year and adding new capacity, bringing our total physical CFM56 module production capacity to 3,000 modules per year, which is enough to achieve our 25% market share objective and produce 100 Mod-1s per annum. SCI finished investing the 2025 SPV, made a regular and special distribution to investors and launched the 2026 SPV with a target raise of $6 billion, which will take us in just two short years to over halfway to our target for asset management of $20 billion of AUM. Power signed an anchor customer for our proprietary Mod-1 with many more expected to follow, which, if it is as successful as we believe it will be, will extend the economic useful life of the CFM56 by decades. Well done to everybody and a big thanks to the dedication and enthusiasm of our 1,500 plus employees. The second quarter was a continuation of many of the themes we discussed on our first quarter call. So this morning, we'd like to build off those key objectives we laid out and update you on the progress of each. Starting with Aerospace Products. First, let's discuss market share. Last quarter, we said accelerating market share growth was our top priority for 2026, and that's exactly what's playing out. Our market share grew from 12% to 14% this quarter as gains from our production capabilities, parts procurement strategies and overall maintenance, repair and exchange customer adoption continued. We're confident this trend will continue as the market develops and our differentiated approach to engine maintenance delivers time and cost savings to our customers. Second, as the market for CFM56 and V2500 engines matures further, demand for engine solutions from top-tier airlines, even those with in-house engine MRO capabilities, remains very strong. We offer flexibility, customized pricing and scale that no one else can match. And these large programs are very sticky. We made more progress again this quarter. As some of our peers have noted, the CFM56 market is supply constrained, not demand constrained. Today, our module production is increasingly directed toward our third-party customers rather than to our own aviation leasing pool. This is a deliberate shift in allocation and it reflects the strength of third-party demand, the superior economics of putting our module output to work in customer-facing channels and our ongoing focus on an asset-light balance sheet. In the second half of the year, we'll continue to prioritize market share and long-term customer relationships over our on-balance sheet assets. Third, production and footprint. We've always talked about expanding production capacity well ahead of growth and more recently about adding maintenance capabilities east of Rome, Italy. This quarter, we advanced two exciting developments, one in Egypt and one in Indonesia that bring us closer to our customers, add module production and diversify our footprint. David will talk more in a few minutes on those. Now on strategic capital. The 2025 SPV is now fully committed from an investment perspective and execution is on plan with the vehicle completing its first targeted quarterly cash distribution on June 30. SCI's inaugural asset-backed security issuance during the quarter also enabled a special distribution to investors in July. And we've launched the 2026 SPV and the vehicle is actively making commitments to acquire aircraft today. Our business plan for SCI has always been to make the vehicle launches programmatic, and we are excited to have graduated to the second SPV. We've demonstrated that combining our investment capabilities with our engine maintenance solution creates differentiated outcomes for our partners. And this has resonated and resulted in strong support across our investor base. Finally, FTAI Power. The business continues to make great progress towards its commercial launch in the fourth quarter. As we announced last week, J&F Power Systems, our joint venture with Jereh Group, signed a master supply agreement with a leading U.S. hyperscaler and an initial purchase order valued at $1.465 billion for 2027 Mod-1 deliveries. We're very proud of our combined teams for their hard work in establishing this great long-term relationship. I'll now hand it over to David to share more details.

Thanks, Joe. First, I'd like to talk about our mindset at FTAI. At our core, FTAI is a company of entrepreneurs. In each of our businesses—Aerospace Products, Strategic Capital and Power—we are disrupting industries with large addressable markets and deploying capital where it generates the most attractive long-term risk-adjusted returns. We're always thinking ahead to the next challenge because the next challenge creates the next opportunity. This quarter, we focused not only on execution, but also on continued investment in the foundation for future growth. I'll start with execution. Aerospace Products delivered strong top-line revenue growth of 78% year-over-year and 18% quarter-over-quarter. Second quarter adjusted EBITDA of $250 million was up 51% year-over-year and up 12% from the $223 million in the first quarter. EBITDA margins of 29% were in line with the prior quarter, which is a continued reflection of our decision to prioritize market share and large customer penetration. We expect this to be the trend line going forward as our scaled production capabilities allow us to bring volumes to markets that others cannot. On the production front, we refurbished 296 CFM56 modules this quarter across our four facilities, an increase of 61% compared to Q2 2025. That brings first half production to 566 modules, which is ahead of our midyear target. We now expect total module production for 2026 to be 1,200 modules, up from 1,050 we originally projected, reflecting the continued momentum in our shops as well as the hard work and commitment of our fast-growing team. Joe mentioned that we're in a supply-constrained, not a demand-constrained environment for the CFM56 engine. And I want to drill down on that a bit. First, the CFM56 population remains very young. Forecasted aircraft and engine retirements remain low and aircraft lives are being extended. Against that backdrop, we have made a proactive shift to direct our available module production toward third-party customers. Long term, this is structurally positive for FTAI and for the longevity of the CFM56 business, but it does negatively impact our near-term Aviation Leasing results. Between prioritizing an asset-light balance sheet with less asset reinvestment and placing a smaller portion of our module production back into our leasing fleet, we now expect 2026 Aviation Leasing EBITDA to be lower than our most recent guidance. Nicholas will share a revised outlook shortly. This is a further reflection of our strategic evolution from an asset-heavy leasing business to a company focused on advanced turbine technology built to disrupt the world's aviation and power markets. We are confident we are allocating our capital and resources to the most value-add markets for our investors with a commitment to creating long-term shareholder value. Against a supply-constrained backdrop, we have spent considerable time and resources over the last 12 months identifying the best maintenance partners worldwide in key regions where adding capacity is both strategic and drives network efficiencies. Today, we are pleased to announce two new strategic shop partnerships as well as our expansion at our Rome, Lisbon and Montreal facilities. The first strategic partnership is with GMF AeroAsia in Jakarta, Indonesia. This 250,000 square foot facility has both 5B and 7B heavy repair capabilities as well as an engine test cell and over 200 technicians. The facility is majority owned by Garuda Group, an important FTAI customer, and we look forward to moving large volumes of engine work for airlines in Southeast Asia to this shop. The second is with EgyptAir in Cairo. This facility is over 100,000 square feet, also has a test cell and today's focus on the 7B. We believe labor availability in Cairo is very attractive, and we look forward to building connectivity between the EgyptAir shop and our Rome and Lisbon facilities to further strengthen our Europe and Middle East maintenance network. Staying on the theme of expanding capabilities, we are also developing a new test cell at our quick-turn Europe facility in Rome that will include both CFM56 and LEAP testing capabilities. We've talked about LEAP engine maintenance being an important part of FTAI's future, and this is an intentional investment on our broader LEAP plan. As the LEAP engine matures, we want the infrastructure in place to extend our maintenance model to next-generation engines, and Rome will be an important anchor for that. We are also grateful for the strong support of ADR at Fiumicino Airport, a critical partner in the continued growth of our quick-turn facility. Finally, we have been very impressed with our Lisbon team, and we're committed to making them a significant player in Europe. We are adding a 113,000 square foot facility to our network with the goal of expanding production capacity to over 300 modules per year. On the cargo front, we announced a partnership with AEI, a leader in 737-800 freighter conversion. The combination of FTAI's engine maintenance capabilities and AEI's conversion leadership will deliver a customized freighter solution at scale and at a lower cost. This partnership also reinforces how we think about the CFM56 life cycle: maximizing value in passenger operation, extending life through cargo and ultimately redeploying proven turbine technology into mobile power. Next, I'll share a few updates on Strategic Capital. The 2025 SPV is now fully committed with over 300 aircraft closed or under LOI and has transitioned to harvest mode, making its first regular quarterly distributions on June 30. We expect distributions to continue every quarter until the vehicle is fully realized in four to five years. Our team continues to focus on capital market transactions that maximize returns by reducing the cost of asset level debt and optimizing the financing structure to align with portfolio cash flow. One big accomplishment during the quarter was SCI's first ABS issuance, MRE 2026, which consisted of $612 million of bonds and allowed for a special distribution to investors in July. We've officially launched the 2026 SPV and are actively putting aircraft LOIs for the vehicle. FTAI will remain a large co-investor in the vehicle with a 15% commitment and the investment strategy and structure will remain consistent with the 2025 SPV. Importantly, with all the engine maintenance being performed by FTAI creating a large competitive advantage. Turning to FTAI Power. This was a landmark order for the business. As Joe mentioned, our joint venture with Jereh Group signed a five-year master supply agreement with a U.S. hyperscaler along with an initial purchase order valued at $1.465 billion. This single order fulfills a key portion of our targeted 2027 Mod-1 deliveries, equipment delivered in batches through November 2027 to support customers' rapid power infrastructure build-out. The commercial structure of this agreement is worth highlighting. The order came with a significant advance payment at signing followed by milestone-based progress payments through production, testing and commissioning, meaning the customer is funding the production ramp as we go, which meaningfully derisks our working capital investment in the business. And the five-year master agreement is built for expansion. It establishes the framework under which the customer can issue additional purchase orders so incremental volume can be added quickly without renegotiating terms. Beyond this agreement, we are in active customer conversations to build further backlog for '27 and beyond. We won't be providing further commercial updates until agreements are finalized, but the level of inbound interest reinforces our conviction in the market opportunity. Importantly, the Mod-1 is not a stopgap solution. It's a platform we are already evolving. Our technology roadmap includes SCR for emission reductions, and combined cycle for efficiency gains—product advancements that position the Mod-1 to compete with grid power on cost and reliability. This is a product built to last for the next two decades and with an anchor customer signed and commercial launch on track for the fourth quarter, we are just getting started. I will now hand it to Nicholas.

Thanks, David. The key metric for us is adjusted EBITDA. We continued the year positively with adjusted EBITDA of $291.4 million for the quarter. The $291.4 million EBITDA number was comprised of $249.7 million from our Aerospace Products segment, $88.2 million from our Aviation Leasing segment, and a negative $46.5 million from Corporate & Other, including intersegment eliminations and start-up expenses associated with our power initiative. Aerospace Products delivered another good quarter with $249.7 million of EBITDA at an overall EBITDA margin of 29%. This was up 12% sequentially from $222.6 million in Q1 of 2026 and up 51% year-over-year compared to $164.9 million in Q2 of 2025, reflecting continued momentum from production growth and operating leverage. Turning to Aviation Leasing. As David mentioned, we continue to evolve our business model to be more asset-light with SCI now being the home for leased assets. This, in turn, will result in a smaller Aviation Leasing business in the near term until growth resumes in 2027. The remaining leasing portfolio continues to perform well and generated approximately $88.2 million of EBITDA in the second quarter. This included $5 million of insurance recoveries, $48 million in balance sheet leasing and gains on sale, and $35 million from 2025 SPV management fees and co-investment returns. Our balance sheet continues at a leverage profile in line with our target range of 2.5 to 3x and ended this quarter at 2.7x. During the quarter, we also redeemed at par the $105 million of 8.25% Series C preferred shares outstanding and received a credit rating upgrade from Moody's to Ba1, underscoring our continued balance sheet strength and the success of our transition to an asset-light strategy. Next, in the first half of the year, we generated $255 million of adjusted free cash flow, which included funding the final $95 million capital call under our 2025 SPV equity commitment for SCI. For the full year, we are maintaining our target of approximately $1.2 billion of adjusted free cash flow before new growth initiatives. This reflects our decision to reallocate module production to Aerospace Products over maintaining the engine leasing portfolio as well as an additional $30 million of R&D investments in FTAI Power to advance new capabilities. These impacts are partially offset by enhanced economies of scale in Aerospace Products, driving an improved working capital outlook. On new growth initiatives, we are accelerating the Mod-1 production build-out by $150 million following successful engineering testing and robust commercial demand, while a capital call financing facility for the 2026 SPV will bridge a substantial portion of FTAI's equity co-investment funding into 2027. Inclusive of this, overall, we are updating total adjusted free cash flow for 2026 from $915 million to $878 million. To expand on David's earlier point, as we continue to prioritize an asset-light balance sheet, our Aviation Leasing EBITDA will naturally decline until SCI's contributions fully kick in. Given the strong demand we have discussed from third parties for our module production, this has shifted more than expected year-to-date. Therefore, we are revising our 2026 Aviation Leasing EBITDA to $475 million for the year, and we are reaffirming our 2026 Aerospace Products EBITDA of $1.05 billion. Next, I would like to discuss 2027 guidance. We expect to generate total business segment EBITDA of $2.3 billion broken down as follows: Aerospace Products of $1.4 billion, Aviation Leasing of $450 million and Power of $450 million. With that, I'll hand it back over to Joe for final remarks.

Thanks, Nicholas. This is a quick summary. As our Aerospace Products business continues to benefit from a supply-constrained environment, we make further strides to an asset-light model and FTAI Power advances, we remain confident in both our 2026 and 2027 outlook, including our free cash flow expectations. As a result of this confidence for the fourth consecutive quarter, we're announcing another increase to our dividend from $0.45 a quarter to $0.50 per share. The dividend will be paid on August 24 to shareholders of record as of August 12. This marks our 45th dividend as a public company and our 60th consecutive dividend since inception. As we look ahead to the rest of 2026, our focus remains on building and expanding on the durable, scalable and differentiated platforms that deliver value over the long term. The investments we are making across Aerospace Products, Strategic Capital and Power will continue to strengthen our competitive position, expand our addressable markets and support sustainable growth for many years to come. With that, I'll turn it back to Alan.

Thank you, Joe. Marvin, you may now open the call to Q&A.

Our first question comes from the line of Kristine Liwag of Morgan Stanley.

So maybe following up on your 2027 outlook in FTAI Power. I was wondering if you could clarify a few things. You've talked about a $450 million EBITDA for Power in 2027. But at the same time, in your supplemental deck, you've talked about over 100 module deliveries in 2027. So if we just do that math, that seems to imply only about $4.5 million in EBITDA per module, which seems to be significantly below the economics that you had provided before. So I was wondering, can you clarify whether your 2027 outlook accounts for 100 aeroderivative units? Or is this a lower number? And how do we reconcile this with the terms of the strategic agreement you provided with Jereh? Is this an apples-to-apples on 100? Or are there changes in units we should think about?

Sure. Happy to do that. So just the first point is the $450 million does not assume 100 units. It's materially less than the 100 assumption. And just as background, since this is a new business for us, and happily, we have the first signed contract in hand for a material portion of next year's production. We took a look at a range of outcomes possible for 2027 and came up with a range of $450 million to $750 million. So what we decided to do was start with the $450 million at the bottom end of the range where we have the highest conviction and the most visibility such that as we sign up additional customers and contracts, which we very much expect to do, we hopefully will be raising that number up from $450 million, not decreasing that number. So the economics we're seeing on the first contract are consistent with our previous expectations, and we're very pleased with the outcome to date. But we want to—since it is a new start-up business for us next year—we wanted to start out on a very firm footing.

Great. And Joe, just to follow up on that, I want to confirm then with the economics for Power going forward, is it still about that $1 million to $2.5 million per megawatt for the CFM56 conversions?

Yes, this is David. So Kristine, as you can imagine, it's commercially sensitive, so we're not going to be providing exact numbers. Obviously, we're working through various customers, and that is an important piece. I would just reiterate what Joe said: the unit economics are—there's not been any change to the unit economics. I would think about—obviously, we're still targeting 100 units for next year. As you know, it's a business we're starting from zero. There are going to be some ramp-up costs and there may be timing shifts. So we just wanted to start off with a number that was the most conservative and then be able to build from there.

Super helpful. And if I could sneak a third one in. In Aerospace Products, you are clearly spending money for capacity to be able to get to your long-term market share target. In terms of margins, can you talk more about what's driving that pressure? Any color on how we think about mix? And also, right now, GE has said that they are 40% oversubscribed on service visits this year, 20% spare part delinquency. It seems like that's a fairly robust environment for engine MRO. So even if you were increasing market share, I would have thought that margins could have been maintained. Can you talk about the dynamics there and where you think margins could bottom in this industry for your specific business?

Sure. I'll start with that. As we talked last quarter, a lot of the margin compression has come from mix and that we have a higher percentage today of the heavy shop visits, more of the full performance restoration, which means you make a similar amount of dollars per engine, but you have to invest more to get that. So it naturally mathematically produces a lower outcome. Where we want to get to with customers is where we do everything for the customers so that they no longer have to do any engine maintenance on their own. We are inclined to say yes and take market share. And we indicated that for what we classified as the near term, which I would say is probably one to two years, we expect margins to be around 30%. We can reassess as we get further out and have increasing market share about whether we take price up, but we're trying to set expectations around 30% for the near term.

I would add that we're thinking about the business in a long-term environment. We're targeting Tier 1 airlines and see enormous benefits not only for CFM56, but other engines and future engines as well, including benefits with fleets being able to enter into new sale-leaseback transactions. Scale is very important because it benefits all our businesses. That's the way we're thinking about it. So 30% margins are the margin that we're going to hold; we feel very good about the long-term value add of achieving those margin profiles.

Our next question comes from the line of Sheila Kahyaoglu of Jefferies.

I wanted to ask about Aerospace Products margins. Two questions on that. First, as a follow-up to Kristine's question: when we think about the 500 basis points of margin contraction, how much of that was due to customer share gains versus heavier work scopes, and how does SCI as a customer factor into that?

I think the mathematical example I walked through is helpful: a lot of it is driven by the percentage of heavier performance restoration work that we do. If you take, for example, a 6,000-cycle engine, which we might sell for $6 million, we could make approximately $2.5 million, which is about a 40% margin. If you add a full 10,000-cycle engine and you sell that for $12 million, let's say we make $3 million on that—when you blend, the average is about 30%. So most of the compression comes from mix. We want to do that because we want the customers to be using all of our engine capabilities. Even though you make less in percent margin, you make more dollars. And more dollars is what we're prioritizing.

That makes sense, Joe. As a follow-up, you announced Cairo and Jakarta and you guys are expanding globally. How do you think about how those two new sites help win new business locally? How do they help source engine feedstock as well as spare parts?

I can take that. First, it increases our production capability. We're raising production capacity from 2,000 to 3,000 modules, which is important as we increase market share and introduce Power. We're well ahead of the capacity we need to achieve our 2027 EBITDA and our 100-mod target. It's important for us to build a presence near our customers; we did not have a facility east of Rome previously. Both Jakarta and Cairo have the infrastructure already built out, world-class facilities, tooling and a test cell. They also have access to technicians and young talent—Jakarta has close to 40 million people in the city and outskirts and Cairo has over 20 million. We have a playbook for these partnerships: phase one is guaranteeing throughput and getting capacity, and phase two is being a long-term shareholder and partner. These shops will be key to getting closer to the airlines in those regions and securing capacity.

Our next question comes from the line of Josh Sullivan of JonesTrading.

Just as far as the comments on shifting away from legacy leasing and towards the asset-light model, how should we think of that whole segment as SCI becomes a bigger contributor? Is it still primarily a leasing business next year? Or are we going to be calling it something else? Is there any reorganization at some point?

Josh, I can take that. As we exit the year, we expect Q4 to be a majority earnings stream from the SCI. Going into next year, you can think of a majority of Aviation Leasing earnings coming from the SCI. As we look to potentially resegment next year, that's how you can think about it: three businesses—Aerospace Products, Power and Strategic Capital. Our financial reporting should reflect that.

And I've started to refer to it, as you may have noticed, as Asset Management. So it wasn't an accident.

I can imagine it was. Maybe shifting over to the LEAP test cell for '28, what timeline could LEAP enter the whole FTAI ecosystem across SCI or global facilities? And how do we think about the size of that LEAP market potential versus your CFM56, V2500 market comments?

Most people expect that the LEAP market will be two to three times the size of the CFM56 market in terms of annual maintenance spend, so it's very large. We still expect to enter that engine in 2028 or 2029, most likely starting with investments through SCI and the SPVs, which will get us in. We have the engineering know-how, licenses, capability, and we will have a test cell. We have a full playbook ready to use when the economics work out in total.

Our next question comes from the line of Brandon Oglenski of Barclays.

I was wondering if you could update us on the Power Mod-1 prototype because it's my understanding that you do have one up and running in Florida. Is that correct? And is it initially meeting your expectations? And you announced a customer backlog—maybe you can elaborate on that, please.

I'll take it. We're very pleased with Mod-1 testing. It's been going through rigorous testing and performance has been exceptional. We started and completed the majority of testing in Montreal during the first five months of the year, using our test cell, which is a huge advantage because many folks don't have a test cell dedicated to R&D. That allowed us to work through the engineering process efficiently. Now testing has moved to Miami, where we have a genset and the unit is up and running, and we're very pleased with testing thus far. From here on out, the turbine will continue to run and build hours and time in the field, which is important for customer conversations—the more hours accrued the better. We couldn't be happier with the Mod-1. The CFM56 is the most reliable unit ever produced with over 1 billion hours on wing, and we expect the Power Mod-1 to be highly reliable on the ground as well.

Maybe for Nicholas, you guys are targeting about 40% production growth next year in core Aerospace Products. How much of that do you think you can attribute to the SCI vehicle? And are you making progress on longer-term contracts with airline customers as well?

Thanks, Brandon. Historically we've communicated that SCI will be about 20% of Aerospace Products revenue, and we still expect that's a good range for analysts to model. So regarding module production, reflect that alignment as well as revenue.

On module production, we set internal production targets for next year of 1,700. Think of that as our internal shop production goals. I wouldn't try to divide it strictly by EBITDA. The goal is to produce excess modules to continue to ramp the business and to supply leasing. On long-term contracts, our product is very sticky. We have visibility into customer fleets for the next four to five years through exchange programs. Timing can shift quarter-to-quarter depending on utilization, but we like to transact an engine right before it comes due so the airline uses every cycle in the engine. That's our approach and what we've been building out for the last five years. On the cargo business opportunity, we announced a partnership with AEI on 737-800 cargo conversions. There's currently a shortage of engines fit for cargo. Cargo operations have different utilization profiles than passenger—often they operate fewer cycles—and it's important to build engines for those missions. This allows us to maximize returns and provide better leasing economics for cargo customers. Our lifecycle thinking is passenger to cargo to Power, where the engine could operate baseload or as backup with very low cycles per year. That provides different customer types to target with engines remanufactured for specific missions.

We expect to produce roughly 20 cargo aircraft a year, which would require 40 engines, creating an incremental Aerospace Products customer base beyond what we serve in the passenger market.

Our next question comes from the line of Giuliano Anderes-Bologna of Compass Point.

Congrats on the results. Can you reiterate the value proposition and long-term opportunity for FTAI Power? It looks like a large new business with a lot of potential. Also, in the presentation you highlighted 100-plus units for 2027 and growing multiples thereafter—could those multiples meaningfully ramp to 200 or 300 over time?

Sure. We think about the Mod-1 value proposition in three points: speed to power, scale, and cost. Speed to power means units are available and can be installed quickly. Our unit is mobile and can be installed in less than two weeks, versus a large-frame turbine that takes 12 to 18 months to site and build. Second is scale: customers are looking for gigawatts of power, and being able to deploy our units at scale creates a differentiated product. Our partner Jereh brings scale as well. Third is cost: operating cost includes lower maintenance because we'll run maintenance via exchanges, lowering downtime and redundancy needs. Smaller, modular units reduce the need for large single assets and allow stacking for redundancy at lower cost. We're also developing efficiency improvements like combined cycle to reuse exhaust heat for extra megawatts. That improves competitiveness with grid power. That's our product evolution: deliver the Mod-1 now for speed, and continue development to make it ever more competitive.

To follow up on multiples: could the run rate double or triple over time?

It's clearly a significant opportunity. In power you can continuously improve the product, unlike aviation where engine design changes are constrained. If we make the Mod-1 competitive with any source of power anywhere, that expands the market substantially and with long duration. There are existing aeroderivative engines in service that were produced decades ago; the duration can be very long. We focused on an engine where sufficient feedstock exists to achieve scale and that has proven to be a favorable decision. We are past many of the difficult early objectives and are excited about the path forward.

Our next question comes from the line of Shannon Doherty of Deutsche Bank.

Do you remain on track to deliver the first power unit in the fourth quarter? And since we're getting close to first delivery, will you be breaking out the P&L for Power? Or is it only going to be reported as joint venture income?

Look, we're not changing our statements: we're still targeting delivery at the end of this year and then continued deliveries into 2027. It's prudent to expect deliveries into 2027 as well.

Shannon, on the P&L, you'll see it in two places next year. First, when FTAI sells turbines to the JV, that will be reported similar to Aerospace Products today with revenue and cost of goods sold. Second, when the JV sells to the customer, as an equity investor you'll see unconsolidated earnings and other income. All of that will be reported under the Power segment.

But it will all be under the heading of Power.

Great. Joe, maybe one for you: with the ongoing conflict in the Middle East and volatile energy prices, some investors worry about increased retirement rates and impact to values on older narrowbodies. Are you seeing anything? Is moving into LEAP the next natural step as global fleet evolves next decade? Any color would be helpful.

Jet fuel has bounced around and there is volatility, but customers have limited options to change fleet mix. NG and CEO economics remain attractive for airlines. Airlines have shown pricing power and raised fares, which has helped. I'm not seeing material change in fleet decisions by end users. At the air show last week, Airbus indicated they're sold out well into the next decade, so there's limited ability to rapidly change fleet composition.

Our next question comes from the line of Ken Herbert of RBC.

Maybe Joe or David, can you give an update on the CFM56 PMA blades—how those are performing in the market and what you're seeing in terms of yields on the production side?

We're not providing a lot of detail on mix or usage, but I can say the PMA blades are performing as expected.

As you think about broadening the PMA portfolio, are you looking at other opportunities? And how could this play a role in supporting FTAI Power as well?

Power is a great outcome for PMA because there is no aviation certification barrier for power applications—parts just need to perform well. Chromalloy has become a large segment selling to power. There's a shortage of single-crystal casting capability globally, so it's in our repertoire for power. We're always looking to lower costs line item by line item, shop visit by shop visit. PMA is one alternative. In terms of capital allocation, growth is our number one priority. We're looking at additional opportunities in capacity to overhaul engines and in repair and piece-part manufacturing. We have projects underway—acquisitions and in-house capabilities like compressor blade repairs—that continue to drive down costs and build competitive advantage.

Our next question comes from the line of Andre Madrid of BTIG.

Pivoting back to Aviation Leasing: given the telegraphed transition to an asset-light model, the $100 million leasing EBITDA revision seems aggressive. What changed quarter-to-quarter to drive that revision?

We've always had the objective to shift leasing activity to SCI over the last two to three years. It isn't a perfectly precise timing process. SCI is ramping up, and in the first half of the year we had the opportunity to reduce balance sheet leasing. The strategic goal is unchanged; it's just that the movement on the leasing side happened a bit ahead of SCI's buildup this year.

Our next question comes from the line of Myles Walton of Wolfe Research.

A follow-up: you had $100 million of EBITDA derived from assets that moved to Aerospace Products. Can you describe where the economics of moving those assets to Aerospace Products went, because Aerospace Products' EBITDA didn't move dollar-for-dollar?

Yes. The change is attributable to two things. First, we're prioritizing growing Aerospace Products market share. Instead of using modules to build engines for lease, we're directing production capacity to Aerospace Products. That translates to lower maintenance CapEx on the engine leasing business because we're not replenishing the lease engines as they run out of green time. We're building for Aerospace Products rather than rebuilding to replenish the leasing fleet. Second, SCI continues to ramp and closings can shift quarter-to-quarter. These aircraft are under contract with economic close dates, which means the economics continue to improve as the portfolio is realized. From an investment standpoint, that's positive, but it shifts when SCI pickup is recorded for the quarter.

So we will see that economics—it's just shifted into future quarters?

Yes. On the SCI piece, that's correct. We expect SCI to be the majority of Aviation Leasing in Q4, and as it scales there will be less variability in that business.

One for Nicholas: you said SCI-related EBITDA might be proportional to sales. But I thought of SCI as a captive customer where you control much of the economics; why wouldn't SCI margins be more consistent with the 40% target you'd discussed earlier?

For SCI, it's never been about fixed margin targets. It's about build-to-suit for what engines the SCI needs for the remainder of lease terms. The first vehicle has approximately 300 aircraft, or 600 engines. Exchanges are built to match remaining lease terms. If SCI needs low-cycle builds for short remaining lease terms, margins can be high. If they need a heavy rebuild with multiple years of lease term, margins will be lower. It's a mix-driven outcome tied to the economics of the replacements required by the SPV.

It's the same mix issue we discussed earlier: SCI is similar to any other large customer—you're seeing variations driven by the mix of work requested.

Our next question comes from the line of Jeff Kauffman of Citizens Bank.

As you look at 2027 EBITDA guidance growth, can we infer free cash flow growth as well? How do you plan to use growing free cash—return to shareholders, augment growth, special projects? And how do you think about EBITDA to free cash conversion as EBITDA gets bigger?

I can take part of that. Our free cash flow conversion has historically been in line with aerospace peers at roughly 60% to 70%. It's premature to give a detailed 2027 free cash flow number given the many growth opportunities next year. For Power, cash conversion dynamics differ because customers often make advance payments and those advance payments derisk working capital—our first customer contract included a significant advance. Also, there's optionality between Aerospace Products inventory and what we place into Power, which drives synergies and inventory optimization as we scale. Overall, efficiencies across businesses should improve working capital and cash conversion over time.

On capital allocation, growth is our top priority. We'll look at acquisitions to expand maintenance capability and capacity, as well as repairs and piece-part manufacturing opportunities. We will continue returning capital via dividends as we've increased the quarterly dividend for four consecutive quarters to $0.50 per share. Growth remains the primary focus.

I'm showing no further questions at this time. I'll now turn it back to Alan Andreini for closing remarks.

Thank you, Marvin, and thank you all for participating in today's conference call. We look forward to updating you again after Q3.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.