Prepared remarks
Thank you for joining us for FTAI Aviation's First Quarter 2025 Earnings Conference Call. Currently, all participants are in listen-only mode. After the presenters finish, we will have a question-and-answer session. I would now like to turn the call over to Alan Andreini from Investor Relations. Please proceed.
Thank you, Latif. I would like to welcome you all to the FTAI Aviation first quarter 2025 earnings call. Joining me here today are Joe Adams, our Chief Executive Officer; Angela Nam, our Chief Financial Officer; and David Moreno, 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 would 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. I'm pleased to announce our 40th dividend as a public company and our 55th consecutive dividend since inception. The dividend of $0.30 per share will be paid on May 23rd based on a shareholder record date of May 16. Angela is going to take you through the numbers in more detail. But before that, I wanted to highlight a few things. We started the year with momentum, recording another strong quarter in aerospace products with $131 million in adjusted EBITDA at a margin of 36%. With a consistently growing backlog of purchase orders for 2025 and beyond, demand for our aerospace products and services continues to accelerate, strengthening our position as a leader in the engine maintenance aftermarket. Turning to production. We refurbished 138 CFM56 modules this quarter between our two facilities in Montreal and Miami. We anticipate a significant ramp to occur in Q2, particularly in Montreal, as we execute on our growth initiatives and operational throughput to enhance efficiency.
As we expand production of refurbished modules and engines, our core focus is to increase our market share of restorations beyond the current 5% to 25%. Now, let's talk about adjusted free cash flow. In the first quarter, we closed on approximately $234 million of aviation equipment at attractive prices as replacement CapEx for the seed portfolio of aircraft, which are being sold to Strategic Capital Initiative, or SCI. The transition of these aircraft started in Q1, where we sold four aircraft for $59 million, and we are proceeding on plan to have completed the sale of the remaining assets by the end of Q2, generating a significant inflow of approximately $440 million. We expect adjusted free cash flow to be in the range of $300 million to $350 million for the first half of the year, which is in line with our target to achieve $650 million in adjusted free cash flow for all of 2025. For the strategic capital initiative or SCI, it was great to announce one investment management as an equity investor to the partnership.
Since then, we have secured an additional equity partner and expect further closings during Q3 of this year. We remain on track to deploy $4 billion plus in capital by the end of the year through a combination of these commitments and our $2.5 billion secured asset-level financing facility with ATLAS, a wholly-owned affiliate of Apollo and Deutsche Bank. Finally, we've been working extensively on operational plans with our partner IAG Engine Center Europe in Rome, and are confident we can ramp up production immediately following the acquisition to support our regional customer base in Europe and the Middle East. We already have five engines in the facility and expect to close the new joint venture very soon. Therefore, overall, we feel increasingly confident in our business segment EBITDA 2025 goal of between $1.1 billion to $1.15 billion, excluding corporate and other, rising to approximately $1.4 billion in 2026.
While tariffs create some challenges and opportunities, we do not currently see tariffs having any material negative effect on our business, and we are reiterating our guidance for both 2025 and 2026, as we continue to see growing and accelerating demand for our proprietary set of aerospace products. With that, I'll hand it over to Angela to talk through the numbers.
Thanks, Joe. The key metric for us is adjusted EBITDA. We began the year strongly with adjusted EBITDA of $268.6 million in Q1 2025, which is up 7% compared to $252 million in Q4 2024 and up 64% compared to $164.1 million in Q1 of 2024. During the first quarter, the $268.6 million EBITDA number was comprised of $162 million from our Leasing segment, $130.9 million from our Aerospace Product segment, a negative $17.4 million from corporate and other, excluding intra-entity eliminations. Turning now to leasing. Leasing continued to deliver strong results, posting approximately $162 million of EBITDA. The pure leasing component of the $162 million came in at $152 million for Q1 versus $128 million in Q4 2024. Included in the $152 million was a $30 million settlement related to Russian assets written off in 2022, which is an additional settlement to the $11 million the amount we received last quarter.
For gains on sales, we began the year with $68 million in book value of assets being sold for a 13% margin gain of $9.8 million, which will significantly increase next quarter as we close out the transition of the seed assets to the SCI. Looking ahead, we remain comfortable assuming leasing EBITDA will be $500 million in 2025 as we pivot our focus towards an asset-light business model. Aerospace products had yet another good quarter with $130.9 million of EBITDA at an overall EBITDA margin of 36%, which is up 12% compared to $117.3 million in Q4 of last year and up 86% compared to $70.3 million in Q1 2024. We continue to see accelerating growth and adoption and usage of our aerospace products and remain focused on ramping up production in both of our facilities in Montreal and Miami as well as commencing operations in Rome. In 2025, we continue to expect to generate $650 million in EBITDA, up from $381 million in 2024 and $160 million in 2023. With that, let me turn the call back over to Alan.
Thank you, Angela. Latif, you may now open the call to Q&A.
Questions and answers
Thank you. Our first question comes from Giuliano Bologna of Compass Point. Please go ahead, Giuliano.
Good morning. Congratulations on another successful quarter. I wanted to ask about the Aerospace Products segment, which shows around $100 million in revenue tied to the 2025 partnership or the SCI program. My assumption is that this was a strategic move to support the SCI program in launching and acquiring assets. Could you provide some insight into the rationale behind this? Additionally, it would be helpful to hear your thoughts on the third-party or non-SCI business, as it seems there's significant demand from external parties, which may be growing substantially. As you mentioned earlier, capacity at the Montreal facility has been a limitation, but this is expected to improve significantly in the second quarter and beyond. Therefore, it would be great to get your perspective on all of this.
Sure, that's a great question. First, you're right that there is immense demand today, and we anticipate this demand for our rebuilt engines will continue strongly over the next few years across the industry. Currently, our production is constrained, meaning we can sell all that we produce. For these engines, we have various options for selling to third-party customers, and we could have achieved similar financial outcomes by doing so rather than selling to SCI. However, we made the decision to prioritize SCI for a couple of reasons. We are committed to engine exchanges with this partnership, and we want to see it grow substantially. There are considerable cost savings for owners and airlines through these engine exchanges, which is the primary rationale behind our business model. This is why demand in the industry is increasing for these products; they offer both time and cost efficiency.
The purpose of establishing SCI was to enhance that entity's ability to manage these assets. By confirming these benefits for the partnership, especially as we anticipate maintenance events for engines in the coming years, we reinforce SCI's position as a better owner. If SCI sees improved returns over time, they will likely acquire more assets, leading to more engine exchanges for FTAI. This gives us greater clarity on our future engine rebuilding needs, boosting our efficiency and reducing costs, ultimately enhancing our margins. It creates a positive cycle, which was one of our main objectives in setting this up. Currently, about 30% of our activity is directed toward SCI as we've been preparing assets over the past six months following our acquisition of 30 aircraft in the partnership. We expect this to represent around 20% of our total activity in 2025, a figure we believe will remain consistent in future years as both SCI and the market expand significantly.
Our aim is to increase our market share from 5% to 25% across the industry. What has transpired aligns perfectly with our expectations for Q1 when we initiated SCI, and we see this as a significant positive for both the near term and long-term for FTAI and its shareholders.
That is very helpful. Just to confirm what I understood, looking at the 20% figure suggests about $130 million of EBITDA growth within an EBITDA target of $650 million for the year. It also suggests that the non-SCI business could see growth in the high 30% to potentially 40% range. It seems that this growth is additive and does not involve any cannibalization; rather, it appears to be filling orders based on your order book and your capacity to produce the modules. As your production capacity increases, you'll be able to fulfill orders quickly since you have a substantial backlog. Thus, this development is indeed additive to the core business, and the pre-SCI segment is still experiencing significant growth at a solid pace.
Yes. And I think I agree. I think that we would have had growth even without SCI, but even if we didn't sell the SCI, we would have engines available for someone. So we'll have growth without it, but you can't zero it out, because we really do something else for those assets. But no, I agree with the math that you laid out, it's basically right. But we see the entire market growing for the products, and there is no cannibalization. These aircraft that are being acquired in SCI, we would not have been doing these engines on this other than the fact that we now own them in the partnership.
That’s very helpful. I really appreciate it, and I’ll jump back in the queue.
Thank you. Our next question comes from the line of Sheila Kahy of Jefferies. Your line is open, Sheila.
Good morning and thank you very much. My first question is maybe on tariffs. If you look at aerospace products, margins improved sequentially to 36% even with a 2-point drag from legacy Montreal in the quarter. So how are you sizing the potential impact and opportunities with tariffs to the business and any work-around at your disposal?
We don't observe any significant negative impact from tariffs on our business for three main reasons. Firstly, our business focuses on rebuilding assets, often using used materials, which are not typically affected by tariffs. Secondly, we have operations in Canada, the United States, and the EU, allowing us to deliver products from different locations based on market needs, although there is no immediate necessity to do so. Lastly, we can pass on price increases to customers, and we hear from OEMs and others that they can do the same if their costs rise. Should that situation arise, we would follow suit, as we believe we have the capability to adjust prices as well. Over the long term, if tariffs persist, new asset prices may increase, making used assets more appealing, which ultimately benefits us. Higher prices enhance the value of our products and also lead to greater cost savings.
Thank you for your response. Joe or Angela, when you provided the $650 million free cash flow guidance for the year, it seemed to be based on pre-growth capital expenditures and suggested that you could meet the 2026 targets without additional investments. You spent $127 million on parts in the first quarter. I'm interested in your thoughts on growth capital expenditures and the opportunities this year, including how that might impact the ramp-up of aerospace products in the coming years.
Yes, I'll take that. We plan to invest around $200 million in parts during the first half of this year as part of our cash flow strategy. I consider this to be focused on building our parts inventory because we believe that the cost of holding extra inventory is much lower than the cost of losing a sale. Therefore, we're committed to ensuring we don't miss any sales opportunities. As I mentioned earlier, we are currently constrained by production capacity, so we are prioritizing the acquisition of more materials rather than less right now. Our approach is to increase both production and inventory levels, and while this will stabilize eventually, I expect this trend to continue in the next few months. This is factored into our cash flow assumptions for 2025. We anticipate a roughly $200 million increase in parts during the first half of this year, and despite this, we still expect to generate approximately $350 million in free cash flow.
Great. Thank you.
Thanks.
Our next question comes from the line of Kristine Liwag of Morgan Stanley. Please go ahead, Kristine.
Hey, good morning everyone. Joe, just want to follow-up on the commentary you made on cash now. So when you said that the inventory step-up $200 million in cash for the first half for aerospace product, and that $350 million free cash flow, is that at the same time? Or do you mean $350 million of positive free cash flow for the full year? I guess my question is, ultimately, trying to understand the cash stream with aerospace product, especially if you're trying to grow from 5% to 20%, how much more inventory investment you need to make? And when does that become a positive working capital event?
Sure, let me first outline the numbers for the first half of the year in terms of cash flow. I begin with operating cash flow, which is essentially EBITDA minus interest and maintenance capital expenditure, totaling around $450 million for six months. We anticipate $500 million from asset sales, primarily to the SCI. This brings the total to $950 million, and we plan to invest about $300 million for total replacement capital expenditure, which aligns with our earlier projections for 2025 and will be concentrated in the first half of the year. Additionally, we have equity in the SCI of about $100 million, which raises the figure to $550 million. After accounting for $200 million in inventory investment for the first half of the year, we arrive at $350 million in free cash flow for the first half of 2025. So that's the framework. The $200 million inventory investment is larger than we initially anticipated for the first half of the year, but we believe it's a solid investment, and we are still on track to meet our targets due to the increase in free cash flow and EBITDA from the business. Do you have any thoughts on the growth rate of parts moving forward?
As we mentioned that we want to provision parts ahead of shop visits. So generally speaking, working capital as far as what we have today, we'd like to maintain that. And we provision ahead for the remainder of the year. So we don't see that growing materially quarter-over-quarter.
Great. Thanks. And maybe following up just on this parts thing, the $127 million CFM56 that you acquired at opportunistic attractive prices, can you talk more about how you source that? How you're able to get a deal like that in this environment, where there's a lot of demand, not enough supply? And also, as you provision ahead of time, are you seeing these prices go up more? I mean, in anticipation of the tariff costs, the engine OEMs have been pretty clear that pricing pass-throughs will be part of their strategy to offset some of the pain they could have on tariffs?
Yes, we are sourcing these parts in various ways, but our competitive advantage lies in acquiring unserviceable parts from asset owners and airlines. For instance, we purchase LLPs and utilize our repair capabilities in Montreal, which can handle about 70% of the CFM56 repairs in-house. This includes LLPs, combustors, cases, framings, and other components. We buy these parts when they are removed and then perform specialized repairs to restore them to a serviceable condition. This approach allows us to acquire them at a significantly lower cost, and our salvage repairs help increase yields. We have a strong understanding of scrap rates for specific parts, enabling us to maximize value through our repair network. We are beginning to observe an increase in parts availability. As mentioned, manufacturers are likely to implement tariff surcharges, which we anticipate will lead to an uptick in used parts pricing as well. Overall, we are in a favorable position because as the cost of new replacement parts rises, we can offer more cost-effective alternatives. We are starting to see this trend develop, although it is still in the early stages.
Thanks. And then a follow-up to that, if I may. On the repair that you're doing in Montreal, it sounds like the tariff duties are on places of manufacture. The value add that you do on repair, does that trigger some sort of tariff piece, when you bring it back to the US? Or is that why you're having a lower expected tariff impact? And then as a second question to that, with airlines being more focused on cost, are you seeing more adoption of your PMA parts in engines today?
On the first question, the answer is no; we do not anticipate a tariff impact on the repair segment. Regarding the second question, we believe airlines are increasingly concerned about the rising costs of engine maintenance, which are disproportionately affecting all carriers. Therefore, there is significant attention on cost-saving strategies, and all alternatives are being considered, with PMA being one of them. We see our strong competitive advantage in PMA, which has not yet reflected in our numbers, but we believe there is significant potential for margin improvement, and we expect good industry adoption.
Great. Thank you.
Thanks.
Thank you. Our next question comes from the line of Josh Sullivan of the Benchmark Company. Please go ahead, Josh.
Hey, good morning. Can you provide an update on the approval progress for the remaining PMAs?
I would say that we continue to make excellent progress, and we are very close on approval on the next part, and that's kind of where I stopped.
Got it. Regarding aerospace products in general, what is the level of acceptance among airlines and lessors for PMA parts? Could you elaborate on the adoption and any other metrics you have that illustrate how they impact your margins?
Yes. Typically, the initial phase involves bringing assets into service, and then there's interest in their performance, which is what we expect to see. People assess the quality of the parts and their performance when making decisions. Historically, these parts have performed exceptionally well, as we've observed with the first two parts now in service. Once the assets are operational and accumulating usage hours, adoption tends to increase significantly, and we have the capability to boost that adoption rate through our SCI tool, which is unprecedented. One major challenge PMA faced early on was that lessors hesitated to take risks on residual value, but we've moved past that. As a substantial lessor, we are now operating in a different market environment compared to what we've experienced before. Therefore, I believe people are more receptive, especially when provided with data and evidence demonstrating that the parts perform well.
Great. Thank you for the time.
Thanks.
Thank you. Our next question comes from the line of Andre Madrid of BTIG. Please go ahead, Andre.
Hey, good morning, everyone. I know we're talking about the free cash flow cadence through the year, and I think this was first mentioned last quarter. But could you give us maybe any more update about how you're thinking about shareholder-friendly capital deployment moving forward?
Sure. So the priorities we've set are growth CapEx, number one, debt repayment number two; and third, shareholder repayments. So we expect by the end of this year to be on the debt side, down close to three times debt-to-total EBITDA, which is kind of the low-end of the range of what we set. So if we assume we don't have significant growth CapEx opportunities and we've paid down debt to three times, then we would move to the third bucket, which is shareholder repayment or dividends or stock buybacks. And I would say probably towards the end of this year was when we achieved that objective.
Got it. Got it. I'll keep it one actually. Thanks.
Thank you. Our next question comes from the line of Brandon Oglenski of Barclays. Please go ahead, Brandon.
Good morning, team. Thank you for taking my question. Joe, just to follow up on that, did you mention that you are targeting a net leverage of three times this year?
Yes. Well, we've communicated previously our range. We expect it to be in a range of three to 3.5, and we think by the end of this year, we will be at three.
Okay. I mean, maybe this question is really for Angela, but how do we think about the moving pieces with the SCI aircraft out, new assets in impacting the debt profile of the business, and maybe like from a ratings agency perspective, too?
Sure. So as Joe mentioned, we had previously said that we're targeting low-threes, 3.5, by end of this year. And with the SCI, we think can accelerate that and get closer to three, by the end of the year, which would give us a strong BB with the rating agencies, which Dave, we've communicated that's our goal. And that's possible by the fact that in prior years, we've spent a good amount of acquisition CapEx on bonding aircraft, which with the SCI, we are no longer required to do. And in addition to that, we'll generate about $500 million of proceeds from the sales of our seed assets. So all those things combined we think we'll definitely be in a position to be the strong BB with the rating agencies by the end of the year.
Okay. Angela, does that give you any opportunity maybe to think about refining things in the future and get your cost...
I think, that's definitely possible, yeah. Currently, our $3.5 billion debt, which is maturing until 2028, we're at weighted average interest rate about 6.5%. So that's something that we can definitely look at, but not something that's a priority given our rates.
Okay. Joe, could you discuss the deal you signed with Pratt last year? Have you started using any V2500s within that partnership, and what are your initial thoughts on the relationship and its profitability?
Yes. We've put quite a few engines through their network, and we're very happy with the relationship and how it's developed. And the margins, as I said, would not be dilutive to our aerospace products business, and that's been true the actual results. And we see that as a very important part of our product offering because, as I mentioned, we are offering to airlines and owners full coverage of 737NGs and A320ceos, no matter what engine they have. So it's a very big positive marketing customer relations development for us that we think is going to be in place for many years. And we don't see anybody with the market position that we have coming in at this stage. So we feel very good about that market for the next 10 years really being the dominant provider for engines in the aftermarket.
Thank you.
Thanks.
Thank you. Our next question comes from the line of Hillary Cacanando of Deutsche Bank. Your question please, Hillary.
Thank you. So Joe, I know you had cited about 100 modules to be sold per quarter. But now that you're significantly ramping up production through the remainder of the year and you have over 100 customers worldwide, why would you be looking for in order to revise that guidance of 100 modules per quarter?
Well, the original 100 modules per quarter was only in Montreal. So, when you add in Miami and then soon to be Rome, that total capacity will be, what do you think?
200 plus.
Our production capacity is 200 modules per quarter. Although we don't currently have enough mechanics to produce that many, we are working quickly to utilize this capacity. When discussing a 25% market share, that's approximately 700 to 800 engines, or about 750 when focused specifically on engines for modules. We have physical capacity across our network for about 600, which positions us well, but we need to build our manpower and related assets, and we are prioritizing that effort. David can provide more details about our operations in Montreal.
Yes, we're keenly focused on output in Montreal. For Q1, we produced 77 modules, which is in line with our plan of 100 modules per quarter on average. It's been just to recap, it's been six months since our acquisition. We acquired the facility in September, really focused on specialization as well as moving out any non-CFM56 work. We're very proud of all the work that's been done in Montreal, and we've officially now completed the specialization effort, which we're going to see significant benefits going into Q2 and the remainder of the year. Just to give you a little more color. For Q2, we're expecting between 90 to 100 modules in Montreal, and we're expecting to grow thereafter. So we're very happy with all the process with the team and where we're at right now.
So, the 90 to 100 module produced, right? As a production number?
Correct. This is production. Yes, 90 to 100 and that's just in Montreal.
Just Montreal.
Got it. Great. That's helpful. Thank you very much. And then just on insurance. You recovered $30 million this quarter, $11 million last quarter. Could you just remind us how much more you expect to recover this year versus how much was written originally and where you are in the settlement process?
Yes, we had a $30 million recovery in the first quarter. We have agreements for $24 million in the second quarter that I believe are still pending closure. The remaining claims amount to roughly $100 million, and we don't have clear visibility on the timing for those. Overall, we will have collected more than what we previously wrote off, taking the $100 million into account. So, we are in a favorable position overall. However, that $100 million still needs to be settled, recovered, and litigated, but we are anticipating $54 million this year.
That's great. Great. Thank you very much.
Thanks.
Thank you. Our next question comes from the line of Brian McKenna of Citizens. Please go ahead, Brian.
Thanks. Good morning, all. It's great to see that the module factory now has over 100 customers globally. I'm curious though, is there a way to think about the usage or consumption per third-party customer on average at the module factory today and then where this ultimately goes over the next couple of years?
Initially, we had around four modules per customer, which then increased to about six, and we believe it's now closer to eight, aligning with our original expectations. Our strategy has always been to encourage customers to try it out at least once. If they don't enjoy it, they can stop, but we find that most people do like it and come back for more. Consequently, many customers are expanding their usage, with some utilizing 25 to 30 modules in a year. Our ultimate aspiration is to capture 100% of their business, though we're realistically targeting a 25% market share. While we may not achieve that complete share, we are witnessing an increase in usage per customer and a growing customer base, which serves as a significant multiplier. Furthermore, as we realize more cost savings from PMA, we expect the margins per module to improve. Our original projection indicated that if we double the modules per customer, we also double the number of customers and the margin, leading to an eightfold effect. This multiplier effect highlights why we believe this is an excellent business opportunity.
Okay. Great. That's helpful. And then maybe just a governance question for you, Joe. You're still the Chairman of the Board of FTAI Infrastructure. So do you plan on being the Chairman of FIP longer term? Or should we expect that role to transition to someone like Ken over time?
We haven't really talked about any changes. Ken and I have collaborated for 20 years, and we have a strong relationship. To my knowledge, we don't plan on changing that at this time. Fortress oversees this, so while they could alter that arrangement, I don't intend to.
Yeah. Got it. That’s helpful. I'll live it there and congrats on another great quarter.
Thanks.
Thank you. Our next question comes from the line of Ken Herbert of RBC Capital Markets. Please go ahead, Ken.
Good morning, Joe and team. Thank you for your time. First, Joe, considering the uncertainty from tariffs and the overall macroeconomic situation, could you share your insights on aircraft and engine lease rates in the first quarter? Specifically, I’d like to know about any changes in absolute lease rates compared to the previous year and what you’ve observed in lease extensions, which have been notably high over the past few years. Have you noticed any softening in these areas? Additionally, could you provide an overview of the underlying demand you are seeing?
We haven't observed any decline in the market. Rates remain relatively stable, with no significant drops and only modest increases. There is significant demand for extensions. When speaking to airlines, nearly every airline globally would be interested in a 15-year-old 737 NG if available. This indicates very high demand. I monitor the percentage of the fleet in storage as a key indicator of market strength. A strong market is indicated by 5% of narrowbodies being stored, while a weaker market sees that figure rise to 10%. Currently, we're just under 5%, signaling a very strong market. Although there could be some traffic weakness in the United States, which often receives more attention, airlines like United might retire some A319s; however, those planes are likely to be relocated to markets such as Indonesia, the Philippines, or the Middle East. This is beneficial for us, as these assets tend to transition from major airlines to second or third-tier operators, which is a common trend. Overall, there is a robust global demand for these assets, which we consider a crucial sign of market strength. These assets are easily repositioned, highlighting the advantages of a global market.
That's helpful. And coming out of the first quarter, can you just remind us, either in terms of aerospace products, any discrepancies or any underlying geographic exposures, we should think about; I know, obviously, now with the geographic footprint, it helps offset tariff risk from a delivery standpoint. But are you over-indexed to any part of the world as we think about the Aerospace Products segment?
No, I think we’ve indicated over the last few quarters that the largest growth in our portfolio is expected to come from Southeast Asia, primarily because we were previously underrepresented in that market. We do not see any significant weakness or changes. Regarding China, we initially considered it to be negligible for us. However, we now recognize it as a potential area for significant growth since China has drastically underordered over the past four years. To sustain their flying levels, they will need to retain older assets longer, and as those older assets continue to operate in China, they will require engines. We have the capability to provide engine exchanges in China. Additionally, the facility in Rome that we are acquiring has a license from the CAAC, the Chinese equivalent of the FAA. Therefore, we view China as a potential wildcard for growth. We have very little exposure there, which means any development would be entirely positive from our perspective, and it could be substantial.
Great. Thanks, Joe. I’ll pass the floor.
Thank you. Our next question comes from the line of Myles Walton of Wolfe Research. Please go ahead, Myles.
Thanks. Good morning. Joe, I was wondering if you could comment on the SCI ownership assets. And of the 98, you have either now owned or under MOUs, about what percentage is powered by these versus CFM56? And is that similar to the 30 aircraft you had in the first quarter?
So we currently own in the partnership like 30 aircraft, 98 under OI. It's probably 90% CFM, right?
Yes. The vast majority is CFM.
Okay. And in terms of your target customer base to acquire the assets from in the $250 million for the year, can you give us some color as to airlines, lessors, other financial sponsors or buyers or owners what's the target audience and where you're seeing the most activity?
We are acquiring assets through two main channels. The first is from lessors who are eager to keep their fleets updated and maintain their investment grade ratings. This pushes them to sell off older equipment, making us an excellent buyer. Recently, we've been engaged in bilateral transactions with large lessors and anticipate this will continue throughout the year. The second channel is directly from airlines. Many airlines expected to receive new orders, but some Tier 1 airlines have aging engines that they need to keep in service longer. We provide them with a way to manage maintenance through various sale leaseback agreements, allowing us to take over the maintenance responsibilities. We excel in these transactions because airlines prioritize our ability to manage engine exchanges. Given our capabilities and resources, we stand out as the sole provider of this service. We've identified significant opportunities in the sale-leaseback market, and we believe this trend will persist. A substantial portion of the 98 aircraft relates to sale leasebacks.
Okay. Got it. And maybe one for Angela. The $7 million of profit elims is that simply your 20% stake on the $100 million of sales to the SCI or about 35% margins? And then what should we expect from the full year corporate and elims sort of contra account to total reported EBITDA?
Yes, sure. Yes, that's correct. The $7 million elims is the intra-entity profit on the $100 million on aerospace products that we're eliminating. On the corporate and other, I think included in that is, are these elims also included about a little over $3 million in costs that we've incurred this quarter related to the report, so that is also not included in the run rate, so I would incorporate both of those items.
Okay. Got it. And last one, Joe, just to square it for me. Sorry, for the question on cash flow again. Slide 9, you have sort of two different cash flows. You've got one adjusted cash flow on one cash flow from operations less investing. When you talk about the $350 million for the first half, is that comparable to the $54 million of cash flow or the $73 million of cash flow listed on slide 9?
$73 million.
Okay. Got it. Understood. Thanks so much.
Thank you. Our next question comes from the line of Stephen Trent of Citi. Please go ahead, Stephen.
Good morning, everybody, and thanks for taking my question. The first one from me, just sort of keen to follow-up on the geographic color you mentioned Southeast Asia, and I believe in the past, you may have even been considering potential acquisitions in that region. And I'm kind of curious whether the noise from tariffs has accelerated or decelerated the extent to which you might still be looking for targets in that market. Thank you.
Sure. I think looking ahead, that could be an option we consider, but for now, we're focused on finalizing our acquisition of Rome. It's important for us to ensure that this is properly established and managed. In the short term, pursuing additional opportunities in that area isn't a priority for us, and we can effectively serve that market from Rome. Additionally, since Rome has a CAC license, it allows us to extend our services into China as well. For the immediate future, we feel comfortable with our current setup. In terms of longer-term prospects, if we were to expand, Southeast Asia seems like a likely destination. The facilities we've acquired are notable because they were previously airline engine shops. For instance, in Montreal, we acquired an ex-Air Canada shop; in Miami, it was an ex-Pan-Am shop; and in Rome, we took over an ex-Alitalia facility. All these locations had significant physical capacity but lacked business operations. We managed to acquire these facilities for less than what it would cost to build similar ones from scratch and will fill them with our own engines. This gives us a unique advantage since no other company can immediately supply engines to those locations. Most rely on attracting third-party customers before bringing in engines, but we already have our own business. This positions us as excellent buyers for these assets at a low cost.
Okay. That's super helpful, Joe. I appreciate that. And maybe just a quick sort of accounting follow-up for Angela maybe. When we think about the partnership you guys have the SCI from an iconic perspective longer-term, should we think about eventual equity method and inclusion of those earnings or am I thinking about that incorrectly. Thank you.
I think you're asking, currently, we do pick up our equity income related to the SCI partnership now. So, if you're asking will we include earnings of that going forward, it depends on materiality that we'll do every quarter and if it meets the materiality threshold for that equity investment then, yes, you're required to include the earnings and assets related to that equity investment, if that's your question.
Yes. Yes. And if I have anything for both, maybe follow-up you guys offline, but that's very helpful. Thanks very much.
I would like to mention that as this business expands, the asset side will also grow, and the management fees associated with it will increase. We will report this as a separate line item once it reaches a certain level of materiality, and it could become a significant income source for us.
Very helpful color. Thank you very much.
Thanks.
Thank you. I would now turn the conference back to Alan Andreini for closing remarks. Sir?
Thank you, Latif, and thank you all for participating in today's conference call. We look forward to updating you after Q2.
And this concludes today's conference call. Thank you for participating. You may now disconnect.