FTAI Aviation Ltd. (FTAIM) 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 would now like to 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 3 principal businesses: Aerospace Products, Asset Management and Power, which are each driven by our expertise in aftermarket turbine performance. Each of these 3 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 2 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 maintained repair and exchange, MRE, 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 2 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 or ABS 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. 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 4 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 2 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 volume 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 customized freighter solutions at a 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 the 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 4 to 5 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 5-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 5-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 road map 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 2 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, 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.

Following up on your 2027 outlook for FTAI Power, could you clarify a few things? You talked about $450 million of EBITDA for Power in 2027, but your supplemental deck references over 100 module deliveries in 2027. That math suggests about $4.5 million of EBITDA per module, which is well below the economics you previously provided. Can you clarify whether your 2027 outlook assumes 100 aeroderivative modules or a different number? And how do we reconcile this with the terms of the strategic agreement with Jereh — is this apples-to-apples on 100, or are there changes in units we should consider?

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 — and 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, right? 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 are going to be — the timing could shift. 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. And 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. And 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, CFM56 engine maintenance on their own. And so we are inclined to go for — say yes and take market share. And we indicated that for what we classified as the near term, which I would say is probably 1 to 2 years, we expect margins to be around 30%. We can take a look at it as we get out further and we have increasing market share, increased penetration about whether we take price up, but we're trying to set expectations around 30% for the near term.

Yes. And I would add that, look, we're thinking about the business in a long-term environment, right? So we're looking for over the next decade. And for us, we're — as we mentioned, we're intentionally working with and targeting Tier 1 airlines, right? We see enormous benefits not only for CFM, but other engines, future engines as well as benefits with fleets, for example, being able to enter into new sale leaseback transactions. We mentioned that on our previous call, but it's important to reiterate, this for us, scale is very important because it benefits all our businesses. And that's the way that we're thinking about it. So 30% margins are — it's 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. So 2 questions on that. The first is just a follow-up to Kristine's. When we think about the 500 bps of margin contraction, I guess, how much of that was due to customer share gains versus heavier work scopes and how SCI as a customer factors into that?

Yes. I think the mathematical example I walked through is helpful in that a lot of it is driven by the percentage of the heavier performance restoration work that we do. And 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 to that 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 — if you do one of each mathematically on one, you're making 40% on the bigger one, you're making 25% on the heavier overhaul, the average is about 30%. So a lot of the — most, I would say, of the compression comes from the mix. And we want to do that because we want — as I said in the beginning, we want the customers to be using all of our engine capabilities. So we're — even though you make less in terms of percent margin, you make more dollars. And so more dollars is what we're prioritizing.

No, that makes tons of sense, Joe. And then maybe as a follow-up to that, you announced Cairo and Jakarta, you guys are busy traveling all around. How do you think about how those 2 new sites funnel into just whether it's winning new business locally? Or how do you think about how that helps source engine feedstock as well as spare parts as well?

Sheila, I can take that. Yes. So first off, obviously, it increases our production capability. So overall, we're raising production capability capacity from 2,000 to 3,000 modules, which is obviously very important, especially when we're increasing market share and then introducing power. So we're well ahead of what our target — the capacity we need to achieve our 27 EBITDA as well as our 100-mod productions. As we mentioned, it's always important for us to build a presence near our customer, right? We did not have a facility east of Rome. So that was something that we continue to reiterate. We're very happy with both locations. They have the infrastructure already built out; they have world-class facilities, capabilities and tooling; they have a test cell. Number two is they have access to technicians. Both areas have a lot of young talent. Jakarta, for example, has close to 40 million people within the city and the outskirts and then Cairo has over 20 million. So we obviously have done this a few times. We have a playbook. We're going to effectively put a lot of throughput through those shops, and they're going to guarantee capacity. So that's really kind of the goal. Each of these strategic partnerships have 2 phases. The first phase is we, again, guarantee throughput and we get capacity. And the second is we want to be a long-term shareholder and partner. So they're effectively the same exact framework that we've done the other shops, and they're key to getting closer to each of the airlines in those regions as well as getting closer to the country.

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

Just as far as the comments on shifting away from the 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 reorg at some point, I guess?

Josh, this is Nicholas. I can take that. So as we exit the year, we expect Q4 to be a majority earnings stream from the SCI. And so going into next year, you can think of it as a majority of Aviation Leasing earnings will be from the SCI. So as we look to potentially resegmentation next year, effectively, that's how you can think of it as the 3 businesses we speak of, Aerospace Products, Power and Strategic Capital, our financial reporting should be reflective of 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. And maybe just shifting over to the LEAP, LEAP test cell for '28, what timeline could the LEAP enter the whole FTAI ecosystem, say, across an SCI or global facilities? And then how do we get our hands around the size of that LEAP market potential versus your CFM56, V2500 market share comments as they are currently?

I'll start. I mean most people expect that the LEAP market will be 2 to 3x the size of the CFM56 market in terms of annual maintenance spend. So it's going to be a very, very large market. And we still expect to be in that engine in 2028, 2029, most likely starting with investments through SCI through the SPVs, which will get us in. But we have the engineering know-how. We have the capability. It's a similar construction of that engine. We have licenses, and we will have a test cell. So we have a full playbook ready to use at the time we think the economics work out in total.

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

So 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 I guess, is it initially meeting your expectations? And obviously, you announced a customer backlog. Maybe if you can elaborate on that, please.

Brandon, I'll take it. So we're very pleased on the Mod-1 testing. It's been going through rigorous testing and performance has been exceptional. Just to reiterate, we started the majority and completed the majority of the testing first in Montreal, the first 5 months of the year. And we used our test cell, which for us is a huge advantage. Many folks don't have a test cell and let alone have the ability to dedicate a test cell for R&D. So that allows us to work through the engineering process very efficiently. Now you're right, the testing has moved to Miami, where we have a genset and the unit is up and running, and we're very pleased with the testing thus far. The way I would think about it from here on out is the turbine will just continue to run, right? We're building hours. We're building time on the field. That's a very important piece when it comes to being able to talk to customers; the more hours that we accrue, the better. So that's going to continue ongoing from here on out, but we couldn't be happier with the Mod-1. I would also reiterate this, and this is obvious to folks in aviation, but the CFM56 is the most reliable unit ever produced. It's got over 1 billion hours. We're expecting that to be the most reliable unit on the ground as well. So we couldn't be more pleased with the testing thus far.

And maybe for Nicholas, but you guys are targeting like 40% production growth next year in core aerospace products. I guess how much of that do you think you can attribute to the SCI vehicle, too? And are you making any progress with longer-term contracts with airline customers as well?

Thanks, Brandon. I think I'll take the first question. So what we have communicated historically is that the SCI will be about 20% of Aerospace Products revenue. And so going forward, we still expect that's a good range for analysts to model in. So regarding module production, you can basically reflect that it will be in alignment with that as well as revenue.

Yes. And just on the module production, I think this is an important piece to clarify. So we did set out module production targets for next year of 1,700. The way I would think about that is our internal production goals for the shops, right? I wouldn't necessarily try to do division based on EBITDA. Obviously, the goal is to produce excess modules to be able to continue to ramp the business as well as to be able to use into leasing.

And any development on long-term contracts with your airline customers?

Yes. We — yes, as we've always mentioned, the product itself is very sticky. So we have many customers that effectively we have visibility for their fleet for the next 4 to 5 years, where we work through exchanges. Obviously, the timing can shift quarter-to-quarter depending on utilization. We like to effectively give them or transact an engine right before the engine comes due. That's very good for the airline because they're able to use every cycle within the engine. That's always our motto: we want an airline to use every cycle. So we have these programs with airlines, and that's exactly what we've been building out, I'd say, for the last 5 years.

You might talk about the cargo business opportunity as well.

One thing that we did announce was our partnership with AEI on the 737-800 cargo. And that's important, because right now there's a shortage of engines that are fit for cargo. When you think about the operations on passengers and cargo, they're very different. A cargo aircraft could operate, let's say, a quarter of the utilization versus passenger. So it's important to build engines that have smaller cycles for that operation. For us, it's great because it allows us to use those engines and be able to maximize the returns for those engines. And for cargo customers, it's great because they don't want to overbuild engines and have to pay extra — it would impact the leasing economics. So that's always been the goal: to do the full life cycle. We think about it as you start off in passenger — that has its own utilization — then moves into cargo, which has less utilization, and then ultimately into Power, where effectively the engine is either operating baseload or could operate as backup. That's very low cycles per year. So that really allows us different customer types where we can effectively target the engines we're building or remanufacturing for the best mission.

And we expect that roughly we could produce about 20 cargo aircraft a year, which would require 40 engines. And so that becomes an Aerospace Products customer base that's really incremental to what we serve today in the passenger side.

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

Congrats on the results. A couple of questions that I ask were already addressed. But I think an important question topic here is if you can reiterate the value proposition and the long-term opportunity for FTAI Power because it's obviously a large business that's new, but it has a lot of opportunity and it could go on for a number of years going forward. But I'd love to hear your input there.

Sure, Giuliano. So we think about the Power, the Mod-1 value prop in 3 points. Number one, speed to power; number two, scale; and number three, cost. We want to win on all 3. Number one, speed to power: having the units available now and being able to install the unit quickly is a differentiator. Our unit is mobile, which means it can be installed in less than 2 weeks. That's very different than a large frame turbine that takes 12 to 18 months to construct. So we have a huge advantage on speed to power. Number two is scale: our customers are looking for gigawatts of power. Being able to use our units at scale creates a differentiated product versus anyone else. That fits our business: we have the capacity, we have the feedstock, and our partner Jereh has the scale to support this. Number three is cost: cost comes in many forms when you think about operating cost for power. It includes lower maintenance, since we'll be doing maintenance via exchanges, leading to dramatically lower downtime and less need for redundancy. Smaller, stackable units require less redundancy versus a large combined cycle turbine. We're also developing efficiency improvements like combined cycle capability which recycles excess heat to produce extra megawatts. We're thinking about that and it's in scope to make the unit even more attractive. Overall, the Mod-1 today is about speed, but we will continue to develop add-ons and improve the product so it can be the best power turbine out there.

That's very helpful. And maybe one follow-up on that. It's a little note that doesn't seem to have been caught or garner much attention. But in the presentation, you highlighted 100-plus units for 2027 and growing multiples thereafter. I'd be curious, when you think about multiples, is that — could that double, triple, could it be 200, 300 or more over time because that seems highly relevant when we're talking about '27 potentially being 450 to 750 and the range of potential outcomes.

Yes. It is clearly not lost on us and Jereh that this is a big opportunity. As David mentioned, this is a continuous improvement business. Unlike aviation where, by law, you're not allowed to change the engine design, in power you can make improvements and continuous enhancements. Our goal is to make this competitive with any source of power available anywhere. If that is successful, obviously this is a much, much bigger opportunity with tremendous duration. There are existing aeroderivatives operating today whose underlying designs are 50 years old, so longevity is real. We have focused on an engine where we could achieve scale. It was a happy coincidence that it lined up with our capabilities. It's very much on our minds, and we are past many of the difficult objectives that we had to overcome in the beginning, which is very exciting.

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

So maybe for David, 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? How do we think about the accounting here?

Yes, I can take the first one and then pass it to Nicholas for the second. Look, as we mentioned, nothing that we've said right now we're changing. We're still targeting delivery end of this year and then 100 units. Obviously, it is prudent to expect deliveries to be concentrated in 2027 at this point.

Shannon, on your second question, so you'll see it in next year's P&L in two places. First, when FTAI sells the turbine to the JV, that will be reflective similar to how we report Aerospace Products today, which is you'll see revenue and cost of goods sold. Then the second piece is when the JV sells it to the customer, as we are an equity stake in that, you'll see unconsolidated earnings and other income.

But it will all be under the heading of Power.

Great. And Joe, maybe one for you, just bigger picture here. With the ongoing conflict in the Middle East and volatile energy prices, a lot of investors have worried about an increase in retirement rates and the hit to values on old-tech narrowbodies. Are you seeing anything here? Maybe moving into the LEAP business is the next natural solution as the global fleet evolves sometime next decade? Any color would be great.

Sure. Jet fuel has bounced around. There's volatility which everyone is keenly aware of if you're in the aviation business. But customers have limited options to change fleet mix and the economics of NGs and CEOs are still very attractive for the airlines. Airlines have demonstrated pricing power and have raised fares. We are not seeing any material change in mix or fleet decisions by the end user. I was at the air show last week, and Airbus is telling people they're sold out until 2032. So there aren't many levers to change the mix other than raising fares, and that's what airlines are doing.

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?

Yes, it's performing as expected, and we're not providing a lot of detail on mix or usage at this point.

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

Yes, that's a great use for Power because in power applications there is more flexibility on parts. Power customers can use parts as long as they perform well. Power is a tremendous outcome for PMA and repair capabilities. Chromalloy has become one of the biggest segments selling to the power industry. There's a shortage of single crystal casting capability in the world, so it's very much in our repertoire for power. We're always looking at different ways to lower costs — it's our DNA to go line item by line item in shop visits and figure out how to do it better, faster and cheaper. PMA is one alternative. In terms of capital allocation, growth is our number one priority. We're looking at additional opportunities both in capacity to overhaul engines and also repairs and piece-part manufacturing. We are always looking at different companies. Pacific Aerodynamic is a great example we bought and now they're gearing up for compressor blade repairs to be in-house and using proprietary technology. We've got a number of projects underway in that vein to continue driving down costs and building competitive advantage.

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

Maybe a pivot back to Aviation Leasing, just to really understand this here. I think we all understand the shift to an asset-light model. But given the telegraphed nature of this transition, the $100 million leasing EBITDA revision does seem a bit aggressive. I just want to ask more importantly, what changed quarter-to-quarter?

Yes. I would just say we've always had the objective, going back several years, to shift our leasing activity over to SCI. It's not precise timing; SCI growth and balance sheet reductions don't align perfectly on a quarter-to-quarter basis. What happened is we had the opportunity in the first half of this year to reduce the balance sheet leasing, which caused the shift to play out quicker than SCI's ramp. The strategic goal is the same, it's just happening a bit ahead on the leasing side relative to SCI buildup.

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

Maybe just a quick follow-up on that. So you had $100 million of EBITDA being derived from those assets moved to Aerospace Products. Maybe can you just describe where the economics of moving those assets to Aerospace Products — because obviously, the Aerospace Products EBITDA didn't move.

Myles, yes. The change is attributable to two things. Number one, we are prioritizing growing Aerospace Products market share, meaning instead of taking modules and building engines for lease, we're directing production capacity toward third-party Aerospace Products. That translates to lower maintenance CapEx on the engine leasing business because we're not replenishing engines once they run out of green time. We're effectively building for Aerospace Products rather than to replenish the engine leasing fleet. That's the first part. The second part is SCI continues to ramp up. We close aircraft in tranches and closings can shift quarter-to-quarter. These aircraft are under contract and have economic close dates, so the economics continue to improve with rental and maintenance reserves. From an investment standpoint, it's positive but it shifts SCI pickup across quarters.

Okay. So we will see that economics; it's just shifted into future quarters. Is that the take?

Yes. On the SCI piece, that's correct. As Nicholas said, going into the fourth quarter, we expect SCI to be the majority of Aviation Leasing. It's a ramp-up period as we scale the business from zero, which introduces variability. As it scales, there will be less variability.

Okay. And then one for Nicholas. I think you said that the SCI-related EBITDA might be proportional to sales. But I guess I was thinking of SCI as being a captive customer, one that you don't have to necessarily chase down for market share gains, you pretty much control it. So why is the SCI margin not more consistent with what you were thinking about earlier in the year and last year and before in terms of 40% as a target?

So for the SCI, it's never been necessarily about margin targets. It's about build-to-suit based on what engines are being replaced. As a reminder, there's approximately 300 aircraft, so that's 600 engines in the first vehicle. In an exchange model, what FTAI rebuilds is what is needed for the SCI for the remainder of the lease term. If they need an engine with only a year or two remaining on the lease term, we'll build to that lower cycle requirement. FTAI might get a high-margin build on that. Conversely, if they need an engine exchange right away for a 5- to 6-year lease term, those margins will be lower. It's a mix issue similar to third-party customers.

It's the same mix issue that we talked about with margins for any other third-party customer. SCI is similar to any other large airline; it's just that we act as the general partner for the vehicle.

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

Congratulations. I have a longer-term question. Thinking about the '27 EBITDA guidance, you've given us kind of the free cash generation on '26. Can we imply what that looks like on your '27 EBITDA and maybe talk a little bit about how you would like to use that free cash, either shareholders, augment growth, special projects. Just as this free cash begins to grow, talk about the conversion from EBITDA to free cash as EBITDA gets bigger and then just kind of where you really want to use it.

I can take the first part. If you look at FTAI's results in 2025 and how we're projecting free cash flow in 2026, our free cash flow conversion is approximately in line with other aerospace peers in the 60% to 70% range. It's premature to give a detailed number for 2027 given the growth opportunities next year. However, for FTAI Power, moving into this industry involves different cash conversion dynamics. First, it's common for customers to do advanced prepayments — we noted that in our press release for our first customer contract. Second, there's optionality between Aerospace Products inventory and what we can place into Power. As we achieve economies of scale, you'll see synergies between the two businesses and improved inventory optimization.

On capital allocation, our number one priority has been growth and it will continue to be growth. We're focused on acquisitions for additional maintenance capability and capacity, as well as repair and piece-part manufacturing opportunities. We will continue to evaluate growth opportunities. We also continue returning capital to shareholders: we've increased the dividend for four straight quarters by $0.05 per quarter, and it's now $0.50 per quarter or $2 a year.

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.