Filing identity and reporting period
Important metadata discrepancy: The supplied filing is for Fortress Transportation and Infrastructure Investors LLC, not FTAI Aviation Ltd. It is a Form 10-Q for the quarter and six months ended June 30, 2022—not 2022 Q1. Amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise.
The company owns and leases aviation equipment and operates or invests in terminals, ports and railroads. Its reporting segments are Aviation Leasing, Jefferson Terminal, Ports and Terminals, and Transtar. The filing describes a planned spin-off of the infrastructure business.
Financial performance and position
| Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 |
|---|---|---|---|---|
| Revenue | $177.9 | $96.9 | $315.8 | $174.1 |
| Net income (loss) | $9.8 | $(36.6) | $(219.9) | $(71.5) |
| Net income (loss) attributable to shareholders | $11.4 | $(36.5) | $(217.5) | $(71.1) |
| Diluted earnings (loss) per share | $0.11 | $(0.42) | $(2.19) | $(0.83) |
| Adjusted EBITDA (non-GAAP) | $165.3 | $68.0 | $216.9 | $115.1 |
Quarterly revenue increased about 84%; six-month revenue increased about 81%. The six-month loss included $123.7 million of asset impairment and a $47.2 million provision for credit losses. Net gains on asset sales were $63.6 million in Q2 and $79.9 million for the six-month period. The filing does not present a standard consolidated operating-margin measure; Adjusted EBITDA is a non-GAAP measure.
- Cash flows, six months: Operating cash outflow was $48.6 million; investing cash outflow was $306.8 million; financing cash inflow was $212.1 million. Cash and restricted cash totaled $296.8 million at June 30, 2022, including $118.9 million of cash and cash equivalents.
- Debt and liquidity: Debt, net was $3.50 billion ($3.56 billion before debt issuance costs), up from $3.22 billion at December 31, 2021. $339.8 million was due within one year, primarily the 2021 Bridge Loans maturing December 15, 2022. The company reported compliance with all debt covenants.
- Balance sheet: Total assets were $4.88 billion, total liabilities $4.19 billion, and total equity $689.3 million at June 30, 2022.
- Distributions: Common dividends declared were $0.33 per share for the quarter; Series A, B and C preferred dividends were $0.52, $0.50 and $0.52 per share, respectively. The company cautions that dividends are discretionary and that operating cash flow has been below distributions.
Material changes versus prior comparable periods
- Revenue growth reflected the inclusion of Transtar, acquired in July 2021, higher Aviation Leasing revenue and the May 2022 consolidation of FYX. Transtar contributed $72.1 million of revenue for the six-month period; FYX contributed $10.1 million from acquisition through June 30.
- Aviation Leasing revenue benefited from higher maintenance revenue and sales of engine modules, spare parts and used material. Lease income was affected by terminated Russian airline leases.
- For the six months, Aviation Leasing recorded a $120.0 million impairment, net of maintenance deposits, for equipment not expected to be recovered from Russia and Ukraine, plus $3.7 million of other transactional impairments. Four aircraft and two engines remained in Ukraine and eight aircraft and seventeen engines in Russia at June 30.
- Higher debt and borrowing costs, including debt associated with the 2028 Notes, bridge loans and revolving facility, contributed to higher interest expense: $105.0 million for six months versus $70.5 million a year earlier.
- Equity-method losses were $37.8 million for six months, mainly reflecting losses at Long Ridge, including unrealized and realized losses on power swaps.
- Operating cash flow remained negative, while investing outflows increased with equipment and property purchases; asset-sale proceeds were $142.3 million for six months.
Outlook, risks and unusual items
- Spin-off and financing plans: After quarter-end, the board approved details for a pro-rata distribution of FTAI Infrastructure shares, then expected on or about August 1, 2022, subject to conditions. FTAI Infrastructure was expected to issue $300 million of preferred stock and warrants and $500 million of secured notes, with proceeds remitted to the company. The company said it expected to repay bridge loans and revolving borrowings and use remaining proceeds for part of the 2025 Notes; it had issued a conditional notice to redeem $200 million of those notes. Completion, timing and benefits were not assured.
- Russia/Ukraine exposure: Approximately $294 million was the insured value of aircraft and engines still in the region. The company intends to pursue insurance claims, but timing and recoveries are uncertain. It also terminated all Russian airline leases and reported related bad-debt expense and asset impairments.
- Liquidity and capital allocation: Management said it believed liquidity was sufficient and expected short-term needs to be met with cash, borrowing capacity, financing and operating cash flows. It also described limiting discretionary spending and reprioritizing capital projects. The company’s FAD measure is non-GAAP and excludes, among other items, asset acquisitions and changes in working capital; the filing warns it has limitations and does not assure dividend coverage.
- Other key risks: COVID-19 and macroeconomic uncertainty; customer defaults and concentration (one Transtar customer represented approximately 20% of Q2 revenue and 22% of six-month revenue); interest-rate exposure; refinancing and capital-market access; infrastructure development and environmental obligations; and the possibility that the spin-off could be delayed or fail to achieve expected benefits. A 100-basis-point change in floating rates was estimated to change interest expense by about $4.4 million over the next 12 months, assuming no hedging.
- The filing cites an offshore-energy lessee dispute with a potential exposure range of $0 to $3.3 million and a Repauno contingent payment obligation of up to $15 million, subject to specified conditions. Management did not expect current or threatened legal proceedings to have a material adverse effect, while acknowledging litigation outcomes are uncertain.
- Management reported effective disclosure controls and no material quarterly change in internal control over financial reporting.
Most important facts for investors to verify
- Confirm the issuer and period: this is Fortress Transportation and Infrastructure Investors LLC’s Q2 2022 10-Q, not an FTAI Aviation Ltd. Q1 filing.
- Verify the status and final terms of the infrastructure spin-off, related proceeds, debt repayments and the conditional 2025 Notes redemption.
- Track insurance claims and any recoveries for aircraft and engines stranded in Russia and Ukraine, alongside potential further impairment or collection losses.
- Assess refinancing and liquidity against the $339.8 million of debt due within one year, negative operating cash flow, investment spending and dividend commitments.
- Reconcile adjusted EBITDA and FAD to GAAP cash flow and earnings, and evaluate the effects of asset-sale gains, impairments, credit losses and Long Ridge derivative losses.
- Monitor Transtar customer concentration, the economics of the consolidated FYX business, and the company’s dividend capacity after the spin-off.