FTAI Aviation Ltd. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. 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. The 2022 infrastructure spin-off is reported as discontinued operations, affecting period comparisons.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $291.1m | $230.4m | $858.2m | $434.1m |
| Net income (loss), continuing operations | $41.3m | $(4.1)m | $125.5m | $(137.4)m |
| Net income (loss) attributable to shareholders | $33.0m | $(22.8)m | $102.0m | $(240.4)m |
| Diluted EPS, continuing operations | $0.33 | $(0.11) | $1.02 | $(1.59) |
| Adjusted EBITDA (non-GAAP) | $154.2m | $108.9m | $435.0m | $304.6m |
- Revenue mix: Q3 lease income $45.6m, maintenance revenue $63.9m, asset sales $73.0m and Aerospace Products revenue $107.1m. Nine-month figures were $161.1m, $141.1m, $283.2m and $260.3m, respectively.
- Cash flow: Nine-month operating cash flow was $116.8m, investing cash outflow $191.1m and financing cash inflow $74.1m. Cash and cash equivalents were $52.9m at September 30, 2023; restricted cash was zero.
- Debt and liquidity: Debt principal was $2.304bn ($2.279bn net of issuance costs), versus $2.205bn at year-end 2022. Debt comprised $250m drawn on the revolver and senior notes due 2025, 2027 and 2028. No principal was due within one year; the filing reports $164.2m of interest payments due over the next 12 months. The company reported up to $50m of current borrowing availability and compliance with all debt covenants.
- Balance sheet: Total assets were $2.634bn, total liabilities $2.539bn and total equity $95.1m. Leasing equipment, net, was $1.924bn.
- Margins and interest: Q3 interest expense was $40.2m and nine-month interest expense $118.0m. The filing does not provide a single consolidated gross or operating margin; reported cost of sales and revenue mix include substantial asset and product sales.
Material changes versus the prior comparable period
- Q3 revenue rose $60.7m year over year, led by a $53.7m increase in Aerospace Products and $28.4m more maintenance revenue, partly offset by $12.5m lower asset sales and $4.6m lower lease income.
- Nine-month revenue increased $424.0m, primarily from asset sales (+$197.7m), Aerospace Products (+$166.1m), lease income (+$32.0m) and maintenance revenue (+$29.0m). Aerospace Products growth reflected a ramp-up in CFM56 engine, module, spare-parts and used-material sales.
- Nine-month continuing-operations net income improved by $262.9m. The comparison includes the prior-year $120.0m Russia/Ukraine equipment impairment, lower credit-loss provisions, and prior-year debt-extinguishment and asset-sale gains. Beginning in Q3 2022, routine aircraft and engine sales were presented as revenue with related costs in cost of sales, rather than as net gains; this also affects comparability.
- Adjusted EBITDA increased $45.4m in Q3 and $130.4m for the nine-month period. It is a non-GAAP measure and should be considered alongside GAAP results.
- Nine-month operating cash flow turned positive from an outflow of $21.3m in 2022. Investing outflow remained significant, reflecting $506.9m of leasing-equipment acquisitions, partly offset by $366.1m of leasing-equipment sale proceeds.
Outlook, risks and unusual items
- Management said it believes liquidity is sufficient, while noting plans to limit discretionary spending and reprioritize investments amid market volatility. It is evaluating possible debt and equity financings, but none were definitive or included in planned liquidity needs. No earnings guidance was provided.
- At quarter-end, four aircraft remained in Ukraine and eight aircraft and 17 engines in Russia. Their insured value was approximately $243m; recovery timing and insurance proceeds are uncertain. The filing says recovery of the equipment is unlikely.
- Operating cash flow has been less than distributions to shareholders. Nine-month cash dividends paid were $89.8m on ordinary shares and $23.5m on preferred shares. The board declared a further $0.30 per ordinary share for the quarter, payable November 28, 2023.
- Variable-rate debt creates interest-rate exposure: a hypothetical 100-basis-point rate change would change interest expense by approximately $2.5m over the next 12 months, assuming no hedging. Series A and B preferred distributions are scheduled to become floating-rate after September 15, 2024.
- Aircraft-sale guarantees were valued at $7.0m; maximum undiscounted potential payments were $34.7m, which management said is not reasonably expected. An offshore-energy charter dispute has a stated potential loss range of $0–$3.3m. Management did not expect current or threatened legal proceedings to have a material adverse effect, while noting outcomes remain uncertain.
- Key business risks include customer default, aviation-market oversupply and asset-value declines, financing and refinancing access, offshore energy exposure to volatile oil and gas markets, regulation, and the Russia-Ukraine conflict. A Fortress ownership transaction announced in May 2023 could affect the company’s manager relationship; the outcome was uncertain.
- Management reported effective disclosure controls and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether sale volumes, margins and cash proceeds from aircraft and engine dispositions are sustainable, and how asset-sale accounting affects comparisons.
- Collection and impairment exposure: the allowance for doubtful accounts was $72.2m; one Aviation Leasing customer represented 17% of accounts receivable.
- Progress on insurance claims and recovery of Russia/Ukraine assets, including any effect on carrying values or cash receipts.
- Liquidity and refinancing plans for the $2.3bn principal debt load, the 2025 note maturity, and the sustainability of dividends relative to operating cash flow and investment needs.
- Growth economics and cash requirements of the Aerospace Products ramp-up and investments in joint ventures, including Quick Turn.
- Management-fee and incentive-allocation costs: $13.1m for the first nine months of 2023, including $12.5m of income incentive allocation.