FTAI Aviation Ltd. — Form 10-Q Summary
Registrant note: The supplied filing is for Fortress Transportation and Infrastructure Investors LLC (FTAI), not an entity named FTAI Aviation Ltd. It covers the quarter and six months ended June 30, 2017; amounts below are in U.S. dollars unless noted.
Business context and reporting period
FTAI owns and leases aviation, offshore energy and shipping-container assets and operates transportation infrastructure. Its six reportable segments are Aviation Leasing, Offshore Energy, Shipping Containers, Jefferson Terminal, Railroad, and Ports and Terminals. On June 16, 2017, FTAI acquired the Hannibal assets for $30.0 million plus $2.3 million of capitalized transaction-related costs.
Financial results and liquidity
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $51.2 million | $33.2 million | $95.9 million | $64.6 million |
| Net loss attributable to shareholders | $1.5 million | $11.2 million | $5.9 million | $17.0 million |
| Loss per share, basic and diluted | $0.02 | $0.15 | $0.08 | $0.22 |
| Adjusted EBITDA (non-GAAP) | $28.8 million | $14.0 million | $51.0 million | $26.3 million |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $33.3 million | $1.0 million |
At June 30, cash and cash equivalents were $32.6 million and restricted cash was $51.5 million. Net debt was $494.8 million, up from $259.5 million at December 31, 2016; total assets were $1.74 billion and total equity was $1.10 billion. FTAI had a $75 million revolving credit facility with no borrowings outstanding at quarter-end; it drew $60 million on July 28, leaving $15 million of stated capacity before considering any letters of credit.
Six-month investing cash outflow was $254.8 million, mainly reflecting equipment and property investment; financing cash inflow was $186.1 million. Cash dividends were $50.0 million in the first half, while operating cash flow was below distributions. FTAI reported non-GAAP Funds Available for Distribution of $56.4 million, a measure that includes asset-sale proceeds and excludes acquisition and capital-investment outflows, among other limitations. The board declared a $0.33-per-share dividend for the quarter, payable August 28, 2017.
The filing does not present a conventional gross-margin measure. As a simple indicator, consolidated net loss was approximately 11.3% of revenue in Q2 2017 and 15.7% for the first half.
Material changes versus prior comparable periods
- Revenue rose 54% in Q2 and 48% in the first half. Growth was led by Aviation Leasing, as more aircraft and engines were on lease and maintenance revenue increased; first-half revenue also benefited from higher Offshore Energy and infrastructure activity.
- Expenses increased with portfolio growth, particularly depreciation and amortization and operating costs. Interest expense rose to $7.7 million for Q2 and $12.4 million for the first half, mainly reflecting the 2017 senior notes.
- FTAI issued $250 million of 6.75% senior unsecured notes due 2022 in March and used part of the proceeds to repay a $100 million term loan. The six-month results include a $2.5 million loss on extinguishment of debt.
- The prior-year comparable periods included a $7.45 million impairment relating to the abandoned MT6015 vessel project; there was no such impairment in 2017.
- Aviation Leasing held 140 assets at June 30—39 aircraft and 101 engines—and reported approximately 70% utilization by equity value. The reported improvement in earnings also reflects asset growth and, in part, gains on equipment sales.
Outlook, commentary, risks and unusual items
- Management gave no specific earnings or revenue guidance. It said potential acquisitions were being evaluated but were not definitive or included in planned liquidity needs. It expects to meet short-term liquidity needs with cash and operating cash flow, and cited access to borrowing and securities issuance for longer-term needs.
- Management reported that operating cash flow had been less than shareholder distributions and that future dividend amounts remain at the board’s discretion. Its long-term stated goal is a payout ratio of 50%–60% of FAD; FAD is non-GAAP and has limitations disclosed in the filing.
- Debt, refinancing and interest-rate exposure are important risks. A hypothetical 100-basis-point change in floating rates was estimated to affect annual interest expense by approximately $0.7 million before derivatives. Debt agreements include financial covenants; FTAI reported compliance at June 30.
- Offshore Energy lessees asserted claims for reimbursable expenses or charter adjustments; potential damages were estimated at $0–$10.3 million, with no amount accrued. Repauno and Hannibal also carry environmental and redevelopment risks, although the former owners have specified remediation obligations and related indemnities.
- Contingent payments may be due to Repauno’s non-controlling holder, capped at $15 million, and to the Hannibal seller, capped at $5 million, if specified conditions are met. The filing says ordinary-course legal proceedings were not expected to have a material adverse effect, while noting outcomes are uncertain.
- Fortress’s proposed merger with SoftBank was pending. FTAI’s disinterested directors approved consent to assignment of the management agreement; the filing notes there can be no assurance the transaction will not affect FTAI or its manager relationship.
Important facts for investors to verify
- Confirm the entity being analyzed: the supplied 10-Q names Fortress Transportation and Infrastructure Investors LLC as registrant.
- Review the $60 million post-quarter revolver draw, remaining availability, borrowing cost and covenant headroom.
- Assess whether operating cash generation can sustainably support dividends and planned investment, without relying on asset sales or additional financing.
- Reconcile adjusted EBITDA and FAD to GAAP cash flow and results, including the measures’ exclusions and assumptions.
- Track aircraft and engine utilization, lease expirations, maintenance revenue sustainability, and exposure to offshore-energy customers.
- Monitor Hannibal and Repauno redevelopment spending, environmental obligations, contingent payments and expected contribution to revenue.
- Review the offshore claims, debt maturities and covenants, and any effect of the Fortress–SoftBank transaction on management or conflicts of interest.