FTAI Aviation Ltd. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. FTAI owns, leases and sells aviation equipment, repairs and sells aircraft-engine products, and also owns and leases offshore energy equipment. Its reportable segments are Aviation Leasing and Aerospace Products.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Total revenue | $326.7 million | $292.7 million; up 11.6% |
| Net income | $39.6 million | $29.4 million |
| Net income attributable to shareholders | $31.3 million; $0.31 basic and diluted EPS | $22.6 million; $0.23 basic and $0.22 diluted EPS |
| Adjusted EBITDA (non-GAAP) | $164.1 million | $127.7 million; up $36.4 million |
| Cash from operating activities | $(0.3) million | $38.7 million |
| Cash used in investing activities | $(169.2) million | $(12.3) million |
| Cash from financing activities | $144.0 million | $(38.4) million |
| Cash and cash equivalents | $65.2 million | $90.8 million at December 31, 2023 |
| Debt, net | $2.694 billion | $2.517 billion at December 31, 2023 |
| Total assets / total equity | $3.176 billion / $177.6 million | $2.965 billion / $175.9 million at December 31, 2023 |
Revenue growth was led by Aerospace Products revenue, up $103.9 million to $189.1 million, as engine, module, parts and used-material sales ramped. Maintenance revenue rose $10.6 million to $45.8 million. These increases more than offset Aviation Leasing asset-sale revenue falling $70.1 million to $38.6 million and lease income declining $2.8 million to $53.2 million. Net income attributable to shareholders was approximately 9.6% of revenue, versus 7.7% in Q1 2023 (calculated).
Adjusted EBITDA by segment was $104.8 million for Aviation Leasing (down $2.7 million), $70.3 million for Aerospace Products (up $42.9 million), and $(11.0) million for Corporate and Other. Adjusted EBITDA is a company-defined non-GAAP measure and should not be treated as a substitute for GAAP earnings or cash flow.
Operating cash flow declined to slightly negative as working capital changes and the larger gain on asset sales reduced cash conversion. Investing outflows reflected $277.0 million of leasing-equipment acquisitions and $25.5 million in acquisition deposits, partly offset by $128.4 million of asset-sale proceeds. Financing included $210.0 million of debt proceeds and $35.0 million of repayments; ordinary and preferred dividends totaled $38.4 million. Management cited $303.0 million of cash used for investments and $9.4 million of cash flow from operations plus finance-lease principal collections and maintenance-reserve collections.
Material changes, outlook and risks
- Interest expense increased $8.4 million to $47.7 million, reflecting higher average debt outstanding, including the 7.875% notes issued in November 2023. Depreciation and amortization rose $9.0 million; acquisition and transaction expenses rose $2.9 million. Preferred dividends were $8.3 million versus $6.8 million.
- The Company reported $2.725 billion of debt principal outstanding before issuance costs, including $175 million drawn under its revolving facility. No debt principal was due within one year as of March 31; management disclosed $191.6 million of interest payments due within twelve months. The Company said it was compliant with debt covenants.
- Subsequent refinancing: On April 11, 2024, FTAI issued $700 million of 7.00% senior notes due 2031. It used proceeds to tender for $324.6 million and redeem the remaining $325.4 million of its 2025 notes; remaining proceeds were for general corporate purposes.
- Management said it believes liquidity is sufficient and expects short-term needs to be met with cash, unused borrowing capacity, future financings and operating cash flow. It is evaluating potential transactions and financings, but none were definitive or included in planned liquidity needs. No numerical earnings or revenue guidance was provided. Management noted discretionary spending may be limited and investments reprioritized as needed.
- At quarter-end, the aviation portfolio included 380 assets (103 aircraft and 277 engines); utilization was approximately 78%. Eight aircraft and 17 engines remained in Russia. Their insured value was approximately $210.7 million, but timing and amount of any insurance recovery remain uncertain.
- Bermuda’s new 15% corporate tax regime takes effect in 2025 for qualifying groups. FTAI recorded a $3.4 million Q1 tax provision to reduce a deferred tax asset related to the law change. Total tax provision increased to $5.6 million from $2.0 million.
- Other material risks include leverage and refinancing availability, variable interest rates, customer defaults, aircraft-market oversupply and asset values, supply-chain constraints, regulatory and environmental requirements, and potential conflicts arising from the external Manager and affiliate incentive arrangements. Management reported disclosure controls were effective and no material quarterly change in internal control over financial reporting.
- Contingencies include engine-condition guarantees valued at $7.1 million; maximum undiscounted potential payments were $34.7 million, which the Company said are not reasonably expected. An offshore-energy charter dispute has a stated potential loss range of $0 to $3.3 million. Management does not expect current or threatened legal proceedings to have a material adverse effect, while noting outcomes are inherently uncertain.
Most important facts for investors to verify
- Whether Aerospace Products’ rapid sales growth and associated margins and cash conversion are sustainable.
- How acquisitions, working-capital needs and asset-sale proceeds affect operating cash flow and liquidity, particularly alongside recurring ordinary and preferred dividends.
- The terms and completed use of the April 2024 notes proceeds, and FTAI’s remaining debt, interest costs and refinancing needs after retiring the 2025 notes.
- Any recovery progress for the aircraft and engines in Russia, and the coverage, timing and collectability of related insurance claims.
- The effects of Bermuda’s 2025 tax regime and the continuing sustainability of dividends, which the Board may change.