管理層發言
Good day, and thank you for standing by. Welcome to the Fourth Quarter 2025 FTAI Aviation Earnings Conference Call. Please be advised today's conference is being recorded. I would now like to turn the conference over to your speaker today, Alan Andreini. Please go ahead.
Thank you, Kevin. I would like to welcome you all to the FTAI Aviation's Fourth Quarter 2025 Earnings Call. Joining me here today are Joe Adams, our Chief Executive Officer; David Moreno, our President; Stacy Kuperus, our Chief Operating Officer; and Angela Nam, our Chief Financial 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. 2025 was a defining year, and I'd like to start today by highlighting the major achievements we've accomplished over the past 12 months, positioning FTAI for further success and market leadership in the years ahead. We began the year with the launch of the strategic capital initiative, or what we call SCI, raising our first fund focused on acquiring 737NG and A320ceo aircraft. This allowed FTAI to maintain an asset-light business model while the fund acquires narrow-body aircraft at scale. The SCI investors benefit from FTAI's engine maintenance capabilities as well as our decade-plus track record of successfully investing in on-lease narrow-body aircraft. Market demand for the first fund was exceptionally strong. Including our own 19% co-investment in just 10 months, we secured $2 billion in equity commitments, making SCI I the largest fund ever dedicated to narrow-body midlife aircraft. Together with the support of our leading financing partners, ATLAS, an affiliate of Apollo and Deutsche Bank, we will invest $6 billion in total capital in Fund I. Deployment for 2025 has been strong with 130 aircraft now closed as of December 31. The portfolio has a large concentration of aircraft with engine maintenance needs, which leverages the fund's agreement with FTAI for engine exchanges and further differentiates our offering to investors. I am also pleased to announce that we have started the fundraising process for SCI II off the back of the great success we've had with the first vehicle. David will share additional details around the 2026 plan, but I can also share that we have an anchor equity commitment for SCI II, which positions us to start investing out of SCI II once the first vehicle wraps up its final few investments in the next couple of months. Turning now to results. Aerospace Products finished the year with great momentum, generating $195 million of Q4 adjusted EBITDA at a 35% margin, an increase of approximately 66% year-over-year. For the full year, we delivered $671 million of adjusted EBITDA, in line with our upwardly revised target of $650 million to $700 million and well above our original goal of $600 million to $650 million. This represents 76% growth over the $380 million generated in 2024 and is over 4x the $160 million we reported 2 years ago only in 2023. Our growth is driven by the value we provide to the industry by offering readily available fixed price engines. A flexible and cost-efficient alternative to traditional CFM56 and V2500 shop visits. We save our customers time and money, and our growth reflects the increasing market adoption of our products. The long-term outlook for the aftermarket on these platforms continues to strengthen as airlines increasingly opt to extend the life of their existing fleets rather than retiring aircraft for the newest technology. Shop visits for the LEAP and GTF engines are not expected to surpass the CFM56 and V2500 until at least the middle of the next decade, supporting a long and durable addressable market for many years for us. We're seeing this inflection point in the market today. Total maintenance spend is now expected to grow at a double-digit rate this year to approximately $25 billion per annum, up from $22 billion per annum projected last year. Retirements remain at historically low levels, and shop visit demand is shifting towards heavier maintenance overhauls that signal longer economic useful life for these engine types. Altogether, these trends reinforce our confidence that FTAI's differentiated MRE or maintain repair and exchange model and competitive advantages position us to continue to lead the aftermarket. We remain firmly on track to achieve our interim goal of reaching 25% market share through a combination of new and repeat customers as well as an increasing volume of engine exchanges from SCI funds each year. Turning to production. We refurbished 228 CFM56 modules this quarter across our 3 facilities, an increase of 68% compared to Q4 2024, bringing our total for the year to 757 modules. This surpassed our 2025 goal of 750 and was an outstanding collective achievement by our 1,000-plus highly skilled and dedicated employees spread across 13 locations on 3 continents. 2025 was a defining year for our Aerospace business as we continue to widen our competitive moat. Our multiyear materials agreement with CFM provides with OEM replacement parts supply, thrust performance upgrades and component repair, reinforcing our shared priority to extend the life of the CFM56 engines through an open MRO ecosystem. This agreement enhances supply resilience, helps us meet strong demand from our customers and supports the continued scaling of our core module remanufacturing platform. Before I hand it over to David to talk about our key priorities for 2026, I want to take a moment to congratulate him and Stacy Kuperus, who were appointed President and COO of FTAI earlier this month. A well-deserved promotion for both David and Stacy. They've been exceptional leaders for many years at FTAI, and we're very grateful for their commitment to this business. With that, I will pass it over to David.
Thanks, Joe. I would now like to talk about our priorities for 2026. First, I'll share an outlook for strategic capital. We are pleased to report that the capital deployment for SCI I is largely complete. As Joe mentioned, we closed 130 aircraft in 2025. As of today, we now have 276 aircraft closed under LOI, representing $5.3 billion of our $6 billion target, and we remain on track to be fully invested by the end of the second quarter. As we complete the deployment of SCI I, we have started the fundraising process for the next fund, and we can share that we have an anchor equity commitment in place for SCI II. We expect to start investing SCI II by June 30 and look forward to continuing to execute on the strategy of combining on-lease aircraft investing and engine maintenance to generate outsized returns with greater downside protection. Our ambition is to become the world's largest manager of mid-life narrow-body aircraft, and we believe we're well positioned to achieve this goal over the next few years. Shifting to our aerospace products production outlook. We are revising our 2026 target upward from 1,000 to 1,050 modules, representing a 39% growth compared to 2025. We continue to strengthen the foundation of each shop in our maintenance network, which will support the next phase of growth. In Montreal, throughput continues to improve as our training academy scales, and the benefit of specialization and workflow optimization are now visible in daily output. We began integrating Palantir's artificial intelligence platform, providing our teams with AI-driven insights and actions to further reduce downtime, optimize our supply chain hub and act as a significant accelerator to productivity. In Rome, since our joint venture began in Q2 of last year, we have almost doubled the employee base from 101 to 185 today, rapidly building the workforce needed to take on greater repair volumes at high levels of productivity. The integration of Rome into the broader MRE network is in its advanced stages, and coordinated training in Montreal's Training Academy has accelerated the development of Rome's team's technical capabilities. At the same time, our investment in infrastructure and component repair capacity will support our goal to double production in 2026. In Miami, our integration of last quarter's ATOPS acquisition is progressing well and positions Miami to be a major hub for MRE production. We have added highly experienced engineers and technicians, expanded the floor space and the proximity to our existing facility and test cell driving significant synergies. The ATOPS Portugal facility is also being incorporated into our logistics network and is already making a meaningful contribution to our field service operations in Europe. We've also made significant progress with our two component repair investment, Pacific and Prime Engine Accessories, both of which position us for meaningful CFM56 repair cost savings this year. At Pacific, we relocated the business into a new 75,000 square foot facility to support the compressor blade repair volumes required by our own MRE network. At Prime, we've invested heavily in tooling and equipment and are ramping up hiring so the Connecticut facility can become FTAI's global hub for engine accessory repairs. With substantial progress across our facilities and the combined build-out of our broader MRE ecosystem, we are well positioned to achieve further production growth in 2026 and beyond. Strengthening this foundation has been a major focus for us and sets the stage for the next phase of FTAI's evolution. Finally, at the end of last year, we announced the launch of FTAI Power, our new platform dedicated to converting CFM56 engines into aero derivative Power turbines. This business has been in development for over a year and is built on the simple belief that the CFM56 engine, already the most proven and widely deployed engine in commercial aviation history, will play a critical role in meeting the world's accelerating need for electricity. The surge in demand for AI data centers has created an unprecedented and long-term need for fast, flexible and scaled Power solutions. Traditional infrastructure was never designed for the scale and speed of demand we're now seeing. With FTAI Power, we're adapting the world's largest and most reliable engine platform to deliver a 25-megawatt unit that offers grid operators greater flexibility and faster deployment. It's the exact same value proposition that has driven our success and scale in aerospace. Before moving on from Power, we'd like to provide an update on our progress across five areas: number one, engine feedstock and working capital; number two, facility readiness; number three, our procurement strategy; number four, customer engagement; and number five, production timing. First, feedstock and working capital. As we scale the Power platform, we are targeting approximately $250 million of working capital to support turbine feedstock and a rotable pool of key components, including generators, gearboxes, and control systems. In the fourth quarter of 2025, we increased inventory by approximately $150 million to secure additional turbines required to support our expected 2026 production ramp. We are intentionally building inventory ahead of demand to ensure execution certainty as commercialization advances. Second, facility readiness. We have begun retrofitting our Montreal facility to establish a dedicated production line for the Power business. As a reminder, our Aerospace and Power businesses must remain fully separate. Components that transition from Aerospace into Power applications will not return to aerospace service. Maintaining the separation is critical both from a regulatory and asset integrity standpoint. And although the additional space is not required for 2027, we are planning to well ahead for future expansions in Montreal, Miami, and Rome to support the growth of the business. From a labor perspective, the core technical skill set required for the CFM56 platform directly translates to our Power application, providing a strong operational foundation. In anticipation of growth across both Aerospace and Power, we scaled our Montreal workforce from approximately 360 employees at the beginning of 2025 to 570 today, representing an increase of roughly 60%. In parallel, since opening our training academy in June, we have enrolled 220 trainees in total and are graduating over 50 per quarter, further strengthening our pipeline of skilled technicians to support sustained production growth. Third, we continue to refine our supply chain strategy for non-engine components and partners. Our approach will be a combination of a multi-vendor sourcing of key components, collaboration with third-party vendors with proven track records and the build-out of in-house capabilities that will allow us to control production from turbine to final assembly. Given the scale we aim to deliver in the market, this multipronged approach will give us the flexibility and the predictability to fulfill our commitments to customers. Fourth, customers. We continue active discussions with hyperscalers and data center operators. While we're not providing specific commercial details at this stage, engagement remains strong and focused on long-term deployment structures. As a reminder, the aero derivative platform is a highly versatile asset capable of supporting baseload backup and peaking applications. We are currently seeing particular interest in baseload deployments, which aligns with our objective of establishing a durable foundation for long-term growth and which is consistent with our current theme in the market of bringing your own Power. Fifth, timing. We expect the first production units of Mod-1 to be delivered in the fourth quarter of this year. Our confidence continues to increase as we progress through final execution milestones. We continue to target 100 units of production in 2027. We are excited about the opportunity ahead and confident this platform will become a very significant contributor to FTAI's long-term growth. I'll now hand it over to Angela to talk through 2025 numbers in more detail.
Thanks, David. The key metric for us is adjusted EBITDA. We ended the year strongly with adjusted EBITDA of $277.2 million in Q4 2025, which was up 10% compared to $252 million in Q4 of 2024. The $277.2 million EBITDA number was comprised of $195 million from our Aerospace Products segment, $113.2 million from our Leasing segment and negative $31 million from Corporate and Other, including intersegment elimination and start-up expenses associated with our Power initiative. As expected, Aerospace EBITDA continues to exceed and outgrow Aviation Leasing's EBITDA. Now let's look at all of 2025 versus all of 2024. Adjusted EBITDA was $1.2 billion in 2025, up 38% versus $862 million in 2024. Aerospace Products had yet another great quarter with $195 million of EBITDA at an overall margin of 35%, which is up 8% compared to $180.4 million in Q3 of 2025 and up 66% compared to $117.3 million in Q4 2024. Overall, we generated $671 million of adjusted EBITDA for 2025 in Aerospace Products in alignment with the revised higher estimates for the year of $650 million to $700 million. Turning now to Leasing. Leasing continued to deliver strong results, posting approximately $113 million of adjusted EBITDA in Q4. This included $20 million from the SCI through management fees and co-investment returns and $93 million from leasing assets on our balance sheet. We expect the mix of Leasing EBITDA to continue shifting towards the SCI as we launch new SPV partnerships each year on a programmatic basis and pivot away from balance sheet aircraft leasing. For the full year, Aviation Leasing generated $609 million of leasing EBITDA in 2025, just above our target for the year of $600 million, including $54 million from Russian insurance claim recoveries. We also ended the year at 2.6x leverage on the low end of our targeted range of 2.5 to 3x agreed upon with our rating agencies. In addition, we are pleased to see recognition of our improved credit last quarter with 2 notch upgrades from both S&P and Fitch. With these actions, we have now achieved our objective of maintaining a strong BB rating across all 3 agencies, reflecting the continued strengthening of our balance sheet and the durability of our business model. Lastly, in 2025, we generated $724 million of adjusted free cash flow compared to our original guidance of $650 million and revised guidance midyear of $750 million. This figure is further adjusted for 3 key investments we made in the fourth quarter to support our 2026 growth initiatives: first, strategic capital for larger fund size and faster deployment pace increased our co-investment by $52 million; second, FTAI Power, where, as David mentioned, we proactively invested $150 million in additional turbines to support the 2026 production ramp; and third, we invested an additional $50 million in hot section parts, a critical input for our engine maintenance business in a market where parts access is very tight. And with that, I'll hand it back over to Joe for final remarks.
Thanks, Angela. As we close out 2025, I want to reiterate how proud we are of what the FTAI team has accomplished. This was a year defined by execution, scale, and strategic progress across every part of our business. We launched the SCI platform and completed the fundraise for the inaugural vehicle, launched the fundraising for SCI II, expanded our global MRE footprint and laid the foundation for FTAI Power, all of which strengthens our competitive position and supports durable long-term growth. Our Aerospace Products segment continues to demonstrate the power of our MRE model, delivering exceptional year-over-year growth and establishing a clear leadership position in the CFM56 and V2500 aftermarket. Our Aviation Leasing business is evolving into a high-quality fee-driven asset management platform with recurring earnings and expanding co-investment opportunities. Following a very strong start to 2026, we're even more confident in achieving the guidance we outlined last October. We're updating our outlook to increase total EBITDA by $100 million, split half attributable to an increase in Aerospace Products and half from leasing coming primarily from insurance settlements tied to Russian asset recoveries. As a result, we now expect total business segment guidance of $1.625 billion, up from $1.525 billion. This includes $1.05 billion from Aerospace Products, up from $1 billion and $575 million from aviation leasing, up from $525 million. 2026 is going to be a year of continued growth and new business launches at FTAI. Our new initiatives are bigger and growing faster than we originally projected, and we will be making larger investments in growth to maximize value and speed to market. While we remain confident in our original target to generate $1 billion of free cash flow after incorporating several positive developments and incremental growth investments, we now expect 2026 free cash flow of approximately $915 million. This reflects $100 million of additional EBITDA, less $85 million of increased SCI investments tied to the launch of SCI II and $100 million of additional Power working capital to support the 100-unit production pipeline for 2027. As a growth business, it's our priority to pursue high-return opportunities, and we are confident that these investments across SCI, Power, and Aerospace will drive meaningful value into 2027 and beyond. As a result, redistribution of capital remains a strong consideration. And therefore, for the second consecutive quarter, we're increasing our dividend from $0.35 to $0.40 per share per quarter. The dividend will be paid on March 23 to shareholders of record on March 13, which marks our 43rd dividend as a public company and our 58th consecutive dividend since inception. Overall, we enter 2026 with strong demand, a robust production pipeline, and a clear strategy to scale both our engine maintenance and asset management platforms. The investments we've made in our facilities, our people, and our broader ecosystem position us to meet rising customer needs and capture the significant opportunities ahead across Aviation Leasing, the aftermarket and now the rapidly growing Power requirements driven by AI. I want to thank our employees around the world for their dedication and hard work, our partners for their continued support, and our shareholders for their confidence in our long-term vision. We're excited for the year ahead and look forward to updating you on our progress. With that, I will give it back to Alan.
Thank you, Joe. Kevin, you may now open the call to Q&A.
分析師問答
Our first question comes from Sheila Kahyaoglu with Jefferies.
I have two questions, please. The first one would be on AP margins. So when we look at Aerospace Products margins, they've been nice and steady at the mid-30s level throughout most of this year, and you've talked about reaching 40% potentially in '26. Can you talk about how the access to the PMA blades and now CFM, the materials deal supports the margin profile and mix going forward, along with some of the other initiatives you've been taking to support margin upside?
Sure, thanks, Sheila. When we discussed increasing our margins from 35% to 40%, we identified three key areas. First, the PMA HPT blade has received approval. Second, we've achieved access to additional lower-cost parts supplies by purchasing more used service materials and through our agreement with CFM, which included parts and repairs. Third, we are expanding our piece part repair capabilities significantly, as David noted, particularly with Pacific Aerodynamic in California and the Bauer joint venture in Connecticut. We've also enhanced our repair capabilities in Montreal and continue to invest in this area, as it has been a priority for us over the last three years. This is essential for maintaining a low-cost position and creating competitive advantages in engine overhauls. We have made substantial progress in these areas, and we are confident that we can reach the 40% margin by 2026. Furthermore, we are witnessing increasing interest from some of the world’s largest airlines in our MRE products, more than we have seen before. Over the past 6 to 12 months, we've engaged in larger deals, and if we can accelerate market adoption and secure those bigger programs, we will focus on that rather than just increasing margins incrementally. We believe that gaining more EBITDA from a wider customer base quickly is more advantageous than merely boosting percentage points of margin. That summarizes the current situation.
Perfect. And then if I could ask another one on FTAI Power. It sounds like through the commentary from David and the slides that you guys feel comfortable you have the right inventory to support the launch of the Power business here. Can you maybe talk about steps from now through 2027 in terms of how you expect to achieve 100 units next year from a labor and equipment perspective? And secondly, how you're thinking about ultimately your ability to service these turbines once they're in the field?
Sheila, this is David. I can take that. So just as far as the ramp-up first, right, we've been working on the Power initiative for over a year. So as we mentioned earlier, we've been leveraging the same infrastructure that we have, which includes our Montreal facility, which, as we mentioned, we've been hiring at a rapid pace. We feel very good about production for 2027. And in general, going from 0 to 100 as far as production units for Power is going to go a lot faster than when we started Aerospace going 0 to 100. And that's for the same reason that we're leveraging the infrastructure that we have as well as the feedstock of engines. We see that as very complementary to our Aerospace business. Now the second piece as far as maintenance and the opportunity there, we actually think this is a very important piece of our business model, not only from a revenue standpoint, but from a value prop to our customers. We're not going to provide exact numbers on the revenue opportunity, but just to give you just a general flavor, the engine, the turbine itself is going to have a similar life cycle as it does for Aerospace, which means every 5 to 6 years, it's going to require maintenance. As the business scales, that's going to be the aftermarket servicing and that is going to be a significant opportunity for us. From a customer standpoint, as you know, our ethos as a company is all around 0 downtime for our customers. And we're going to leverage the same exact exchange model that we've had a lot of success with, which is the turbine and module exchange model to offer that as a big differentiator in the market. It's going to set us apart from a lot of competitors.
Our next question comes from Kristine Liwag with Morgan Stanley.
I guess like one, with the assets you need to acquire for SCI I, and Joe, you launched like SCI II, that would be my follow-up question, but let me finish this one first. So you've got the assets you've got to acquire for SCI I, the higher 2026 module target from 1,000 to now 1,050 that David called out. And you've got the donor cores for the 100 Power conversions for next year. Can you talk about the sourcing environment? Where are you getting this from? And how has been the pricing in that environment? And are you able to source all this volume? And then the follow-up to that would be, you've got also the launch of SCI II. I mean, how large could be SCI II? Joe, you had previously mentioned that normally, the second fund is larger than the first one. And your first fund is $6 billion. So just wanting to understand how you could support all this growth.
Sure. Thanks for the question. I mean just going back, as we mentioned, the investment opportunity in current generation narrow-bodies is probably $30-plus billion a year of total investment. So our goal was to achieve $6 billion a year, which is a meaningful part of that, but not a disproportionate amount of those assets. And we've been successful being able to do that largely by focusing on assets that have a high level of shop engine shop visit intensity, which as you can expect, is that's where our natural advantage is because we have inventory and we can manufacture engines, whereas other financial buyers typically do not. So we've focused on that part of the market. In sort of a macro sense, a lot of lessors and a lot of airlines took the advantage to keep assets longer coming out of COVID because lease rates are going up and asset prices were going up, and every airline needed that lift. So it was a great environment to hold on, but people have reached sort of limits where now they're getting new deliveries, average age of the portfolio has pushed out limits with debt investors. So we're seeing more and more volume coming to market, and we're a great counterparty for everyone for lessors and for airlines because we can solve engine problems, which is usually the biggest problem in the space. So as you mentioned, the $6 billion, we estimate we'll end up with about 350 aircraft in that first fund. That's 700 engines that will be fully committed to FTAI Aviation under the MRA contracts. And by the middle of this year, we'll start investing out of SCI II. I believe that we'll probably launch the size of SCI II around the same size of $6 billion, which, as you remember, was double what we originally launched SCI I at was $3 billion, then we raised to $4 billion and ultimately did $6 billion. So we'll probably launch SCI II at $6 billion. And our total goal as a business, as we stated before, was to grow the asset management business to a $20 billion business, which this puts us in a very nice position to be able to say we're on track to achieving those goals and making it a significant player in that industry and the largest in the world for current generation narrow-bodies. So it's been great. I mean, when we launched it, people were a little bit taken aback by the size, but we've been able to do very good deals, get great returns, generate solutions for airlines. Airlines, in many cases, now recommend to their other lessors that they sell to FTAI because they like the fact that they don't have to do engine shop visits anymore. So it's really a nice flywheel that's in motion now.
Great. So it sounds like you're able to source all the volume to feed these businesses, right, Joe?
Yes. And if you think about the Power business, one of the markets, if you take the total engine universe size of about 20,000 CFM56 engines in the world and the estimated retirement rate from the market is generally between around 2% to 3% per year. So if you take 2%, that's 400 engines a year get parted out every year. So for the Power business, if you just go buy 100 of those and say, don't part them out. They're worth more to us than they're worth in the secondary market for part value, you could get 25% of the part-out market and satisfy your needs for the Power business every year. It's such a huge market. And 2% a year doesn't really estimate. I mean, if 2% a year existed in perpetuity, it would take you 50 years to use up the CFM56 market. So it's going to get bigger. But I just use that as an example. And we have not been an active buyer of engines that were part-out candidates previously, but we will be now.
Super helpful. And following up on the FTAI Mod-1 that you expect to have ready for the 4Q this year. Can you talk about the technical specs of this derivative so far as you do that conversion? How has been the efficiency of this as a gas turbine? How does it compare with other things in the market? And also, look, to get to the 100 next year, do you have these orders lined up? How firm are your discussions with customers? And what would be the distribution of your customer set for next year, how firm are those?
So I'll start and then pass it to David. But from a spec point of view, we estimate that the efficiency of the aero derivative will be comparable to other aero derivatives in the market. We are estimating a 25-megawatt output. So it puts us in a nice size range with a 35% to 40% efficiency and a 9,000 heat rate. So very similar to other aero derivative options in the market today, which have been sold for 30 to 40 years. It's not a new product. So we think we're competitive with that. We think, ultimately, the reliability and durability of the CFM56 will prove to be a competitive advantage from an overall total cost basis in that we think that the servicing cost and the maintenance costs will ultimately be lower. But it will take some time for us to prove that out. So that's sort of the first part of the question. You want to take the second?
We are seeing significant interest in baseload applications. Customers are particularly drawn to three key aspects of the Mod-1: first, the scale and reliability, specifically the engine feedstock and the CFM56's proven performance as the most reliable engine ever produced. Second is the speed to power; customers want power quickly, and our trailer-mounted units can be deployed in about two weeks, which is a major advantage. Third is flexibility; this unit provides 25 megawatts, making it ideal for expanding data centers. Additionally, we will offer flexible maintenance options, which will be a notable differentiator for our product. Overall, there is considerable interest in long-term use, and we aim to position ourselves for long-term success, providing updates as needed.
Our next question comes from Giuliano Bologna with Compass Point.
Congrats on another great quarter. As a first question, when you look at module production, the production this year was greater than what was originally targeted. I'm curious what are the things that are driving that production and how that's being impacted.
Sure. Thanks for the question. I'm very proud of the work our team did in 2025 on module production. As a reminder, in Q4 of 2025, we had total production of 228 modules, representing approximately a 68% increase from Q4 2024. This was a tremendous accomplishment by our teams and the result of disciplined execution with a clear focus on our people, parts, and process. First, on the people aspect, our Montreal Training Academy launched in 2025 and has enrolled over 220 trainees. We've developed our own in-house training program that includes augmented reality technology, which has improved graduation rates and shortened training times. Second, regarding parts, we made targeted investments in 2025 to expand our repair capabilities through Pacific Aerodynamics and Prime Engine Accessories. We also upgraded significant repair capabilities within our facilities in Montreal and Rome. Combined with our strategic agreement with the OEM, these actions provide a strong foundation for our parts strategy, which positions us for success in 2026. Lastly, on the process side, supported by our partnership with Palantir, we've optimized our operations across all locations, focusing on everything from asset management to the supply chain. Utilizing AI-driven insights has enabled us to unlock additional efficiencies. Building on that digital foundation, we've strengthened collaboration across shops by sharing best practices and creating synergies through our MRE network. Looking ahead to 2026, our goal is to increase production by approximately 39%. We feel very confident in this based on all these initiatives, which reassures us of our ability to continue scaling.
That's very helpful. Maybe a slightly different topic and hopefully, this hasn't come up yet. But sometimes towards the end of the year, some sales could flip around from quarter to quarter, especially around year-end. I'm curious if that could have had any impact on the fourth quarter results this year specifically.
Yes, it did. I mean, the Aerospace Products EBITDA came in a little bit less than what we thought it would be a few months ago, and it was primarily two reasons, one of which was we've added over 100 employees to the business. And there is a slight lag, I would say, not a major lag, between costs and productivity. So there's some impact from that. And then secondly, as you point out, there are some customers who preferred to take delivery in Q1 as opposed to Q4. So we did have a few engines that slid from 2025 into 2026. And being a very customer-focused organization, we accommodated those needs. Everybody has budgets. So yes, there's a little bit of that, but I think it was a combination of the two reasons for the difference.
Our next question comes from Josh Sullivan with JonesTrading.
Just on cash flow, given the investments here in Q4, how do we think of '26 and the cadence of investments through '26, just the puts and takes?
Yes, I'll start. I think it's a great opportunity in 2026 and that we have more cash flow available and more growth opportunities available. So we're very excited about it. I'll pass it over to Angela to give you the details.
Yes, happy to. So for 2026, we do expect to generate $1.2 billion in free cash flow before any new growth initiatives. So as mentioned by Joe, with the revised adjusted EBITDA guidance for 2026, we expect an additional $100 million, $50 million more from cash flow in Aerospace Products with the additional production and another $50 million in Leasing from the settlement of Russian claims. What you also saw in our 2025 free cash flow walk was that we called capital on our SCI I earlier by $52 million. So that improves our cash flow in 2026. So that overall is an increase of $152 million to the 2026 free cash flow, getting us to $1.2 billion before the growth initiatives. So as mentioned by Joe, we do expect acceleration of our SCI II investment increase of about $137 million in 2026 as we will call capital earlier for deployment. And then secondly, for the remainder of our $250 million that we expect for Power, so $100 million related to that. So that brings us to the $915 million that we shared with the group.
Got it. And then just one on the continued struggles of the OEM supply chain, Airbus adjusting deliveries here. Can you just comment on any impact on the leasing environment, aircraft engine or leasing duration? Any comments you can make just on the general environment?
We continue to have a strong appreciation for the CFM56 and the V2500, and their performance continues to improve. While we didn't anticipate such a significant benefit, the current assets and existing fleet are incredibly durable, predictable, and reliable. Importantly, they generate revenue for the operators, which influences retirements. The driving factor is economic rather than technological. Therefore, the more we can reduce engine maintenance costs while newer assets appear to be trending in the opposite direction, the better it is for us regarding longevity.
Our next question comes from Myles Walton with Wolfe Research.
Regarding the Power initiative, can we expect a significant increase in deliveries through 2027 in order to reach 100 deliveries that year? What implications does that have for the production or delivery rate as we move into 2028?
We haven't fully outlined our plans yet, but we have 10 months before January 2027 to prepare and establish what we expect our monthly production rate will be. This gives us plenty of time. We have all the necessary materials for the end products sourced from third parties, and we already have multiple suppliers identified with purchase orders in place. We are planning ahead and don't anticipate a steep ramp-up; our aim is for a gradual increase in production. Additionally, we may operate from multiple assembly locations to diversify our supply and geographical reach, which will also help us manage the ramp-up smoothly.
Got it. And Joe, it sounds like you're not seeing really much of a cannibalistic effect of this Power initiative. You sort of talked to the 25% share on the growing MRO business, which gets you to $6 billion of revenue there at 40% margins. And then this Power business looks like it's another $2 billion to $3 billion of revenue. So you're talking about building an $8 billion to $9 billion business at 40% margins in Aerospace Products. Is that sort of where you're leading us to?
Sounds good to me. But no, I think we don't see it as being cannibalistic at all. I believe it's complementary, and the natural progression after a 30-year aerospace life is a ground-based operation. It's an ideal way to extend the life of the CFM56 and V2500, as other aerospace derivatives have shown before. The supply of raw materials, if it's not just parting out an engine, does not diminish the existing supply of aerospace engines. The labor force and third-party vendors are different. So, it really is an addition rather than taking away from our current Aerospace business.
Our next question comes from David Zazula with Barclays.
I guess following up on that, could you give any more color on your expectations for margins in the Power business? And specifically, why you think your part of the value chain here in this delivery is going to earn you the type of margins you previously talked about?
Yes. We expect our margins to be equal to or better than those in our Aerospace Products business. Our confidence stems from our nearly fully depreciated assets, which we can repurpose to extend their life by an additional 10 to 20 years, assets that would otherwise have been scrapped. This gives us unmatched input costs for turbines and a unique supply that others cannot replicate. Additionally, we've developed extensive repair capabilities and have access to used serviceable material parts and PMA, all of which we've honed over the past seven years. Consequently, no one can compare to us in terms of turbine input costs, which is crucial as turbines represent the most expensive, complex, and constrained aspect of the Power business. Currently, the major challenge in the Power sector is acquiring turbine blades, particularly HPT blades. We have addressed this by revitalizing existing assets that are nearing the end of their life, thus creating new value from them.
Our next question comes from Shannon Doherty with Deutsche Bank.
We were very pleased to see GE Aerospace and CFM's endorsement of the FTAI business model. Maybe Joe or David and David, congratulations on your promotion. Can you provide us more color on the partnership there?
Sure. We view this as a very positive development that benefits both parties. The agreement is a multiyear deal that encompasses three main aspects: the supply of parts, piece part repairs, and component repairs and thrust. For FTAI, this agreement gives us access to a greater number of parts and volume at competitive pricing, which enables us to scale our business and reduce costs. From CFM's standpoint, they have indicated that their value proposition to their customers relies on an open aftermarket. This open aftermarket ultimately provides the best products at the lowest costs, along with a reduced total cost of ownership and increased asset lifespan. By collaborating, we can develop tailored solutions for customers, similar to what we achieved with SCI and various airlines. This collaboration helps optimize turnaround time and saves customers both time and money, allowing the asset to operate longer, which in turn increases parts sales, benefitting everyone involved. Additionally, we can offer PMA options for customers who prefer those products. Thus, we have an excellent range of solutions for the entire market.
That's great. And Joe, as a follow-up, did you mention that you're going to do 350 aircraft in SCI I? I think that original target was going to be 375. And is that going to be the same size for SCI II, you're looking at 350?
It should be about similar. I think the 350, sometimes if you buy slightly younger vintage aircraft, you pay a higher price per aircraft just because you have more life on them. So it's going to swing around. It could vary by the types of deals we end up doing, but 350 is a good number for both.
Our last question comes from Brian McKenna with Citizens.
Okay. So you're still clearly in growth mode here, and you're leaning into a number of opportunities. This does come with some upfront costs and investment, including hiring. So when you look across the business today, specifically some of the newer initiatives, where are you incrementally adding headcount? How should we think about the pace of hiring into 2026? And then is there a way to think about the related impact to cash comp as well as stock-based comp?
Yes. So this is David. As we mentioned in our prepared remarks as well as comments from Stacy, we've been actively growing the workforce. So we're going to continue to do that. In general, in the market, there's a constraint of talent for technicians out there. And we want to make sure that we're always controlling that, and we're able to get ahead of that. So obviously, what was very key to that initiative was the training academy, which allows us to take talent and incubate that within our organization. We're going to continue to do that in 2026, right? Obviously, we're expecting to get to our 25% target on the Aerospace as well as add Power. So I would expect a similar ramp-up as far as employee headcount as the shop, as well as we're also looking at other opportunities for shops, let's say, east of Rome, right? So we talked about in the past opportunities in the Middle East as well as in Southeast Asia. So those are opportunities to grow headcount, and I don't see us stopping that anytime soon.
Okay. That's helpful. And then on SCI II, clearly, a ton of focus on private credit in the market today. Really, the focus has been entirely on corporate direct lending in areas like software. I would actually argue all this volatility is probably a good thing for capital flows into areas like asset-based finance, and there's been increasing demand for hard assets that are more insulated from AI. This is exactly the kind of exposure that sits within SCI. So I'd love to get your thoughts here, what you're seeing from a demand perspective for SCI II? And then has sentiment or conversations shifted at all as fundraising starts to pick up here for the successor fund?
Yes, we're seeing positive developments. If investors are seeking asset-based, uncorrelated cash flow, they have come to the right place. We are well positioned both absolutely and relatively in the market. All our capital is secured and self-funded through private equity, which gives us confidence in our offering. Recently, I came across the concept of the halo trade, focused on heavy assets with low obsolescence, and we certainly fit into that category. We feel very optimistic about the market and the private credit opportunities we provide, especially in comparison to other options available. While I hesitate to claim that challenges don’t exist, it appears we are in a strong position with Fund I fully invested and Fund II launching into the market.
Our last question comes from Andre Madrid with BTIG.
I know for competitive reasons, you've decided not to share an anchor customer, and I know somebody kind of pointed to this earlier, but I don't know if it was answered clearly. So I just want to hit it head-on. But is there just one customer lined up? Are there several lined up? I mean, can you provide any color on the order book or if a fleshed out order book even exists right now? Really any color to show that there's firm customer demand for Mod-1?
Yes. We have an anchor investor as we announced, and we have a number of other investors who are currently invested in Fund I that want to re-up. So demand from the existing group of investors is being reflected as quite strong. In terms of deal flow, we have a pipeline of deal opportunities that we've been working on. One of the things that when we started SCI I, we really started into a new business from a cold start. In other words, we had no pipeline and not a lot of deal flow. So we built that up and we're able to invest in 18 months, the $6 billion of capital. And now we have a pipeline of opportunities we've been working on. Some deals can take 6 months, 9 months a year in some cases. So the more that we have been at this, the more developed we have as a pipeline and feel very good about the ability to deploy that money.
Ladies and gentlemen, this concludes the Q&A portion of today's presentation. I'd like to turn the call back over to Alan.
Thank you, Joe. Kevin, you may now open the call to Q&A.
Thank you. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.