FTAI Aviation Ltd. quarterly report, Q2 FY2021

FTAI Aviation Ltd. — Filing identity and period

Important identification note: The supplied filing is a Form 10-Q for Fortress Transportation and Infrastructure Investors LLC (FTAI), not FTAI Aviation Ltd. It reports the quarter and six months ended June 30, 2021; financial statements are unaudited. FTAI operated aviation leasing and infrastructure businesses, including Jefferson Terminal, Repauno and an equity-method investment in Long Ridge.

Financial results and liquidity

Metric	Q2 2021	Q2 2020	Six months 2021	Six months 2020
Revenue	$96.9 million	$94.3 million	$174.1 million	$207.1 million
Net loss attributable to shareholders	$(36.5) million	$(15.7) million	$(71.1) million	$(18.6) million
Adjusted EBITDA (non-GAAP)	$68.0 million	$66.5 million	$115.1 million	$138.5 million
Interest expense	$37.5 million	$21.8 million	$70.5 million	$44.7 million

For Q2, revenue rose about 3%, but shareholder net loss widened. For the first half, revenue fell about 16% and Adjusted EBITDA fell about 17%. The filing does not state a consolidated operating margin; Adjusted EBITDA is a non-GAAP measure and is not equivalent to operating profit or cash flow.

Cash flow: First-half operating cash flow was $(63.9) million, versus $44.7 million generated in the prior year. Investing cash outflow was $204.2 million and financing cash inflow was $250.0 million. Cash and restricted cash totaled $143.2 million at June 30.
Balance sheet: Total assets were $3.554 billion, total equity $1.041 billion and debt, net of issuance costs, $2.127 billion at June 30. Debt increased from $1.905 billion at December 31, 2020.
Debt and liquidity: In April, FTAI issued $500 million of 5.50% senior notes due 2028 and used part of the proceeds to redeem $400 million of 6.75% notes due 2022, recording a $3.3 million extinguishment loss. The company reported compliance with debt covenants. It subsequently drew another $50 million on its revolver in July; after that draw, stated remaining capacity was $100 million.
Distributions: First-half cash dividends on common and preferred shares totaled about $68.0 million. First-half Funds Available for Distribution (non-GAAP) was $82.7 million, down from $143.3 million; the company cautions that this measure excludes important cash uses, including acquisitions and capital expenditures.

Material changes and operating performance

Aviation Leasing: First-half segment revenue declined $23.7 million year over year, reflecting aircraft redeliveries, lessees placed on non-accrual and lower maintenance revenue. At June 30, the segment owned 77 aircraft and 207 engines; 68 aircraft and 134 engines were leased. Reported aircraft-equipment utilization was approximately 74% for Q2.
Infrastructure: Jefferson Terminal revenue declined, primarily due to lower terminal volumes amid COVID-related weakness in global oil demand and the discontinued crude-marketing strategy. Repauno’s LPG facility began operations, supporting higher Ports and Terminals revenue; Long Ridge equity-method losses increased, primarily due to unrealized power-swap losses.
Interest burden: Higher average debt balances, including the new 2028 notes, were the principal reason interest expense rose materially year over year.
Asset investment and impairment: First-half purchases included $170.1 million of leasing equipment and $84.1 million of property, plant and equipment. Aviation leasing impairment was $2.2 million in the first half, compared with $10.5 million in the prior-year period.

Outlook, risks and unusual items

Management said COVID-19 continued to stress some aviation lessees and that several were on non-accrual status. It cited $155.1 million of maintenance and security deposits as protection against lessee defaults, while noting uncertainty over the pandemic’s duration and effects.
Management expected Jefferson Terminal to generate positive Adjusted EBITDA in 2021 and anticipated terminal volumes normalizing by 2022. These expectations depend on contract execution, volume ramp-up, pipeline capacity and market conditions; delays could affect valuation and performance.
Transtar acquisition: After quarter-end, FTAI completed its $640 million acquisition of short-line railroad operator Transtar on July 28, 2021. It arranged a $650 million bridge facility maturing in one year, initially priced at adjusted Eurodollar Rate plus 5.50%, with the margin rising by 50 basis points every three months. Management said it planned to raise debt and/or equity in Q3 to refinance the bridge. Initial purchase accounting was incomplete at filing.
Other notable commitments include a Jefferson Terminal pipeline-capacity agreement with minimum fees of $10.2 million per year for two years, and a potential offshore-charter loss exposure of $0 to $3.3 million. A Repauno contingent payment of $5 million was recorded during the first half.
Principal risks include ongoing COVID-19 effects, lessee defaults and aircraft utilization, refinancing and interest-rate exposure, leverage, asset values, project execution and environmental obligations, and integration and customer concentration risks from Transtar. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.

Important facts for investors to verify

Confirm the intended issuer: this filing is for Fortress Transportation and Infrastructure Investors LLC, rather than the company named in the request metadata.
Track aviation non-accruals, redeliveries, lease renewals and utilization, and whether deposits are sufficient to limit credit losses.
Assess operating cash generation against dividends, capital investment and debt service; consider the limitations of management’s FAD calculation.
Review the bridge-loan refinancing plan, post-acquisition leverage, integration progress and Transtar’s dependence on U.S. Steel as a primary customer.
Monitor Jefferson Terminal volume and contract ramp-up, Repauno operations, Long Ridge power-swap exposure, and project-related environmental or permitting delays.