FTAI Aviation Ltd. (FTAI) Q4 2022 Earnings Call Transcript

FTAI Aviation Ltd. (NASDAQ:FTAI) Q4 2022 Earnings Conference Call February 24, 2023 8:00 AM ET

Company Participants

Alan Andreini - Investor Relations

Joseph Adams - Chairman & Chief Executive Officer

Angela Nam - Chief Financial Officer

Conference Call Participants

Josh Sullivan - Benchmark

Kristine Liwag - Morgan Stanley

Giuliano Bologna - Compass Point

Hillary Cacanando - Deutsche Bank

Frank Galanti - Stifel

Brian McKenna - JMP Securities

David Zazula - Barclays

Robert Dodd - Raymond James

Operator

Good time and convey you for opinionated by. Welcome to nan Q4 2022 FTAI Aviation Earnings Conference Call. [Operator Instructions] Please beryllium advised that today's convention is being recorded.

I would now for illustration to manus nan convention complete to your speaker today, Alan Andreini, Head of Investor Relations. Please spell ahead.

Alan Andreini

Thank you, Michelle. I would for illustration to invited you each to nan FTAI 4th fourth and afloat twelvemonth 2022 net call. Joining maine present coming are Joe Adams, our Chief Executive Officer; and Angela Nam, our Chief Financial Officer. We person posted an investor position and our property merchandise connected our website, which we promote you to download if you person not already done so. Also, please statement that this telephone is unfastened to nan nationalist successful listen-only-mode and is being webcast.

In addition, we will beryllium discussing immoderate non-GAAP financial measures during nan telephone today, including EBITDA. The reconciliation of those measures to nan astir straight comparable GAAP measures tin beryllium recovered successful nan net supplement.

Before I move nan telephone complete to Joe, I would for illustration to constituent retired that definite statements made coming will beryllium forward-looking statements, including regarding early earnings. These statements by their quality are uncertain and whitethorn disagree materially from existent results. We promote you to reappraisal nan disclaimers successful our property merchandise and investor position regarding non-GAAP financial measures and forward-looking statements and to reappraisal nan consequence factors contained successful our quarterly study revenge pinch nan SEC.

Now I would for illustration to move nan telephone complete to Joe.

Joseph Adams

Thank you, Alan. To commencement today, I'm pleased to denote our 31st dividend arsenic a public institution and our 46th consecutive dividend since inception. The dividend of $0.30 per stock will beryllium paid connected March 22 based connected a shareholder grounds day of March 10.

Now let's move to nan numbers. The cardinal metric for america is adjusted EBITDA. We ended nan twelvemonth powerfully pinch adjusted EBITDA of $123.5 cardinal successful Q4 2022, which is up 13% compared to $108.9 cardinal successful Q3 2022 and up 22% compared to $101.4 cardinal successful Q4 of 2021.

During nan 4th quarter, nan $123.5 cardinal EBITDA number was comprised of $110 cardinal from our leasing segment, $21.7 cardinal from our aerospace products conception and antagonistic $8.5 cardinal from firm and other. Now let's look astatine each of 2022 versus each of 2021. Adjusted EBITDA was $428.1 cardinal successful 2022, up 33% versus $322.8 cardinal successful 2021.

Now turning to leasing. Leasing had a bully 4th posting astir $110 cardinal of EBITDA. The axenic leasing constituent of $110 cardinal of EBITDA came successful astatine $85 cardinal for Q4, up from $75 cardinal successful Q3. With beardown request for assets and nan summation of caller acquisitions successful precocious 2022, we expect Q1 2023 will proceed to grow.

We're very assured successful leasing EBITDA of $350 cardinal to $400 cardinal for nan twelvemonth excluding gains connected plus sales. Part of nan $110 cardinal EBITDA for leasing came from gains connected plus sales, which besides performed well.

We sold $102.6 cardinal book worth of assets for a summation of $25.7 million. And we stay comfortable assuming gains connected plus income continuing astatine astir $25 cardinal per 4th aliases $100 cardinal for each of 2023.

Aerospace products had different bully 4th pinch $22 cardinal of EBITDA. We started these activities a small complete a twelvemonth agone and successful nan past 5 quarters person booked astir $91 cardinal of EBITDA without immoderate publication from PMA.

We spot tremendous imaginable and proceed to consciousness bully astir generating $20 cardinal to $30 cardinal successful quarterly EBITDA and deliberation $100 cardinal positive successful 2023 EBITDA remains very doable. We consciousness assured astir this number because we're seeing a quickly expanding backlog of aerospace products business pinch different leasing companies, MROs aliases attraction and repair organizations and airlines.

With that, fto maine move nan telephone backmost complete to Alan.

Alan Andreini

Thank you, Joe. Michelle, you whitethorn now unfastened nan telephone to Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Our first mobility comes from Josh Sullivan pinch Benchmark. Your statement is now open.

Josh Sullivan

Hey, bully morning. Thanks for taking nan question.

Joseph Adams

Good morning/

Josh Sullivan

Just a mobility connected motor readiness peculiarly connected nan GE56, I deliberation you sold 19 engines successful nan quarter, purchased 19. What was nan operation there? And past what does nan GE56 marketplace look for illustration and nan constraints for caller motor supply?

Joseph Adams

Yes. It looks very good. The operation we bargain is - mostly what we're buying is CFM56 and a batch of what we're trading is Pratt 4000s, CF6-80s and RB211. So we've really been consciously shifting nan operation towards CFM56 engines complete nan past mates of years. And we person a small floor plan successful nan supplement, which I deliberation shows really overmuch we've grown that to complete - we now person astir 330 CFM56 engines betwixt stand-alone engines and craft engines. So - and we proceed I deliberation going guardant to spot very bully activity connected being capable to bargain engines moreover successful a beautiful beardown and basking marketplace for craft engines.

So look, we now person a portfolio aliases we person negotiations ongoing for various acquisitions that full complete 50 engines. Some of them are coming from craft that were parked aliases had been pinch an hose that went bankrupt. Some are coming retired of an hose that conscionable had surplus spare engines.

So it's a wide mix. And arsenic I've ever said you person nan largest fleet of engines successful nan world, you person complete 20,000 of these engines. We proceed to judge we'll spot galore bully opportunities to turn that number. Certainly I deliberation we'll decidedly turn that number this twelvemonth beautiful materially.

Operator

Our adjacent mobility comes from Kristine Liwag pinch Morgan Stanley. Your statement is now open.

Kristine Liwag

Hey, bully morning. Joe, I conscionable want to travel up connected PMA parts. Can you springiness america an update regarding certification advancement and immoderate feedback from nan FAA you've received truthful far?

Joseph Adams

Sure. So thing really caller since nan past clip we spoke. But nan first portion that was approved, we've installed it successful complete 10 engines now and there's different hose that's put it successful their fleet and operating. So it's performing highly well. So we'll proceed to do that and turn that.

The adjacent 4 parts made important advancement successful position of finalization of manufacturing design, accumulation and testing. And truthful we expect each 4 of those parts will beryllium submitted for last support this twelvemonth astir nan mediate of nan year. So they've each benignant of are progressing connected individual timelines, but they're each targeting that aforesaid goal. And truthful if history is simply a guide, we should person a afloat portfolio of products disposable for 2024, which is very exciting.

Kristine Liwag

Yes, that is. And then, Joe, tin you conscionable punctual america erstwhile you get each these 5 PMA parts afloat certified, really overmuch successful dollar savings do you deliberation you could extract from doing that versus buying from nan OEM catalogs successful nan aftermarket?

Joseph Adams

It's complete $2 cardinal per shop visit, our costs for those parts versus OEM list. And OEM database prices, arsenic you're astir apt aware, went up importantly past twelvemonth connected November 1. And that's coming without further increases.

If you look guardant complete nan adjacent fewer years, you could very good - if OEM database prices proceed to spell up precocious azygous digits, our ostentation - our escalator is capped astatine 3% truthful nan spread will get bigger and bigger. If you look retired 4 aliases 5 years, it's complete $3 cardinal per shop visit.

Kristine Liwag

Great. Thanks for nan update, Joe. And looking guardant to spot nan announcements erstwhile you get them certified.

Joseph Adams

We are too.

Operator

Our adjacent mobility comes from Giuliano Bologna pinch Compass Point. Your statement is now open.

Giuliano Bologna

Good morning, guys. Thanks for taking my question. It's awesome to spot immoderate awesome capacity connected nan operating side. One point I was funny astir moving to nan Module Factory, I was funny if there's a unsmooth consciousness of really galore modules you're capable to waste successful 2022 and past to get a unsmooth consciousness of really overmuch that could turn successful 2023?

Joseph Adams

Yes. That's a awesome question. So past twelvemonth each of 2022 we sold 100 modules astir and it was divided amongst 25 different customers, unsocial customers. It was a operation of plus owners and airlines and MROs. So it's a bully equilibrium and benignant of it touches nan full ecosystem of users of that engine, which is what we've ever liked.

So if you deliberation astir it, 4 modules per customer is not a large number and it really represents a batch of these users were fundamentally testing nan merchandise and trying it retired to spot if they for illustration it. And truthful everyone that's been a customer of nan Module Factory is becoming a repetition customer. So we haven't mislaid immoderate customers and we're picking up caller ones each nan time.

So if you deliberation we tin turn 25 - conscionable unsmooth mathematics if we could turn 25 customers to 50 and we tin summation nan number of modules per customer, nan maturation opportunity is correct successful statement pinch what we've been talking astir successful that you could spot upwards of 200 to 400 modules successful a twelvemonth coming successful nan adjacent fewer years.

For 2023 I would expect to spot meaningful percent growth. What that precisely is I would estimate location successful nan astir apt 150-plus scope of modules this twelvemonth and it could spell higher than that. We're seeing very beardown volumes and activity correct now.

Giuliano Bologna

That's great. Then I conjecture looking astatine immoderate of nan numbers, it's not surgery retired perfectly. But based connected nan aerospace products conception benignant of implies you guys will make location successful nan scope of opportunity $500,000 per module successful EBITDA and it seems for illustration that could astir apt double to adjacent to $1 cardinal pinch PMA.

I'd beryllium funny evidently reasoning astir 150-plus, that tin connote that you guys earnestly get to $75 cardinal connected nan existent tally complaint and PMA could thief you double that number decidedly nan pursuing twelvemonth without immoderate measurement improvements from nan number of modules. Is that a bully measurement of reasoning astir nan economics and really that could lend successful '23 and beyond?

Joseph Adams

Yes. It's a bully measurement of reasoning astir it. Even without meaningful maturation successful volume, we'll spot large maturation successful income and EBITDA.

Giuliano Bologna

That's great. And past 1 past mobility astir conscionable benignant of nan halfway leasing EBITDA and nan tally rate. You guys evidently closed connected a batch of acquisitions during nan 4th and I'm assuming you didn't get a batch of publication from those assets. And moreover successful nan past your target was trying to get to a tally complaint of $90 cardinal to $100 cardinal per 4th for nan benignant of halfway leasing EBITDA. I'm funny benignant of wherever you were really successful nan 4th pinch nan caller acquisitions aliases wherever nan tally complaint was, including nan caller acquisitions?

Joseph Adams

Well, we're continuing and immoderate of nan assets we bought were off-lease truthful they don't needfully lend instantly and we'll proceed to do that because we spot nan champion worth successful position of acquisition prices successful disconnected leased assets. So you person to build successful a small spot of clip to get those up and running.

And I would opportunity nan marketplace successful wide is really bully for leasing. So airlines are announcing each time they're looking for further aged procreation aliases not caller procreation assets, nan 737NGs and nan A320 CO fleets are successful tremendous request because of delays pinch caller manufacturing.

So we're seeing very beardown request that is really targeting 2nd and 3rd quarters of this year. I deliberation that's erstwhile you'll spot nan biggest maturation arsenic group will beryllium - are lining up assets now to beryllium capable to put successful their fleet successful nan 2nd 4th and tally very important schedules successful nan 3rd quarter. So I deliberation it's shaping up very nicely.

Giuliano Bologna

That's great. Thank you for reply my question. I admit it. And I'll jump backmost successful nan queue.

Joseph Adams

Thanks.

Operator

Our adjacent mobility comes from Hillary Cacanando pinch Deutsche Bank. Your statement is now open.

Hillary Cacanando

Hi. Thanks, Joe. Thank you for nan call. Your acquisition of iAero Thrust seems really good timed conscionable fixed nan existent situation of tight proviso and MRO proviso constraints. Could you conscionable spell complete really nan integration process is going and immoderate of nan longer-term strategical benefits of nan acquisition that you're expecting? Thank you.

Joseph Adams

Yes. So it's going great. It was very timely. We were fortunate to find nan installation successful Miami that had attraction capacity for infirmary and shop visits and a trial cell. And nan trial cell, arsenic I mentioned, there's only 4 of them that are independent trial cells successful North American marketplace and 1 of them is astatine Lockheed Martin, which we besides person a small spot of knowledge retired arsenic well.

So nan trial compartment is simply a tremendous plus for america and nan business is -there's astir apt 1 awesome customer successful that installation that has complete 30 engines there. So that's a large opportunity for nan business to ramp that up and turn that and besides for america to do further module swaps, which we are afloat engaged connected arsenic we speak.

We've besides made immoderate guidance changes and hires that are terrific. We sewage immoderate awesome people. And I deliberation having a beingness location for america that we tin showcase our expertise to store, do speedy repairs and module swaps is simply a terrific trading tool. So we couldn't beryllium immoderate much excited astir it.

Hillary Cacanando

Great. Thank you. And past I conjecture conscionable regarding nan proviso concatenation issues. When you perceive to convention calls from Boeing, Airbus, they're each talking astir it. Just wanted to get for illustration a precocious level view, for illustration your position arsenic good of what is nan problem and really agelong is this going to last? I mean do you spot nan proviso concatenation issues lasting for illustration good into adjacent twelvemonth aliases is this thing that could beryllium resolved this year? I cognize there's labour shortages, there's a full bunch of issues that are contributing to it.

But benignant of your return connected erstwhile do you deliberation this could extremity and if that does - erstwhile it does end, what's FTAI's strategy benignant of? I mean conscionable evidently this is simply a awesome environment, but erstwhile things commencement to beryllium amended for nan different guys, will location beryllium benignant of a strategical alteration for FTAI?

Joseph Adams

Yes. It's a awesome mobility and it's thing we deliberation astir and talk astir each nan clip and it has immoderate tremendous benefits for us. But it's a analyzable problem and I don't deliberation it's going to beryllium solved very quickly and each week we look to perceive astir a caller problem that nary 1 thought astir nan anterior week. So it's not slowing down, it's really increasing.

And nan potential, galore group are looking retired to nan summertime erstwhile you person a batch of activity that location could beryllium immoderate important challenges pinch group to get airplanes successful nan aerial because they're waiting connected 1 aliases 2 parts and that's a existent issue.

So I deliberation it's – and you perceive astir it from each subordinate successful nan spaces. And we've seen it besides successful our utilized serviceable worldly business wherever we waste utilized parts and location is peculiar parts that group conscionable can't get aliases nan lead clip is 8 weeks.

And truthful that 1 azygous portion could support an motor successful nan shop for 8 weeks aliases could support it from flying. So successful that event, portion prices person doubled and successful immoderate cases are tripled conscionable successful a matter of weeks because it doesn't matter nan price. If you person an motor tied up for 2 months, nan value of a portion is irrelevant, you person to salary immoderate it takes.

So I deliberation it's getting perchance worse and it could beryllium a captious - it could beryllium a meaningful situation for group this summer. But pinch us, I mean that's our full transportation really is we tin get engines up quickly repaired.

The QuickTurn conception is alternatively of sending a full motor successful and waiting for repairs and parts, we could really switch retired a module and person that motor backmost successful work successful 2 weeks. And truthful having repaired inventory connected nan support is portion of our full strategy and I deliberation it's cleanable timing for that.

I deliberation nan longer-term consequence of this is that we perceive a batch of airlines realizing that they cannot trust connected a azygous supplier and beryllium limited upon a azygous supplier for anything. So again our business exemplary is for illustration you don't person to, we'll backmost you up. We're really offering successful immoderate cases wherever we person perpetual powerfulness deals wherever we lease craft and engines, we'll put a spare connected nan crushed successful nan airlines hangar truthful they could person entree to a spare successful lawsuit thing goes incorrect and person it immediately.

So each these challenges and each these things that are popping up, we person solutions and really we've gone from an situation wherever it felt for illustration everything was moving against america to wherever it feels now for illustration everything is moving for us.

Hillary Cacanando

Great. Thanks, Joe. That was beautiful insightful.

Operator

Our adjacent mobility comes from Frank Galanti pinch Stifel. Your statement is now open.

Frank Galanti

Yeah, great. Hi, Joe. I wanted to commencement connected nan leasing side. So erstwhile I look conscionable benignant of connected a macro level based connected IATA data, home disposable spot kilometers are down still 16% from 2019 levels. And truthful to that point, there's still a ample area nether nan curve of engines aliases cycles that conscionable weren't utilized owed to nan pandemic.

Doesn't that connote that location is simply a important number of engines sitting connected nan sidelines that tin benignant of beryllium utilized arsenic incremental planes commencement flying again and shouldn't that yet push utilization down and yields down astatine slightest successful nan adjacent term?

Joseph Adams

No. I mean first of all, I deliberation that home narrowbody flying is globally astatine aliases supra 2019 levels correct now. So I deliberation that pinch China reopening, that has -- China was a large antagonistic connected that number globally. But now that they've reopened, they're backmost to 2019 levels and really I saw thing that said February schedules successful China were for illustration up 10% from 2019. So that marketplace has snapped backmost and globally nan U.S. is above, I deliberation United conscionable said this week that they're readying to beryllium above. The home business is up 30% and firm - leisure business is up 30% and firm is 100% of what it was pre-COVID. So that's nan first thing.

There is still surplus craft that person been retired of work and I deliberation nan number of - I ever look astatine nan number of parked airplanes by type. So if you look astatine nan 737 and A320, it's still a small spot supra 10% and that's ever been a cardinal level. When you spell beneath 10% and I deliberation nan lowest it's ever been is astir apt 3% aliases 4%, it starts to get very tight.

So we're still moving done immoderate of that and astir of that has been A320s, which was caused by Europe I deliberation being a small spot slower to retrieve successful nan recreation marketplace and being a dense A320 fleet user.

On nan motor side, it's a very different move because erstwhile COVID started, group stopped putting engines done shop visits. And truthful erstwhile you person engines that person greenish time, hose grabs those, puts them connected an airplane and flies them until they request a shop sojourn and past they parkland it. So you don't person - successful peculiar if you look astatine nan CFM56-7B market, which is nan motor that flies connected nan 737 fleet, there's virtually nary readiness correct now for that engine.

So each nan greenish clip was utilized up truthful moreover though there's engines parked aliases nan craft parked, those parked craft mightiness person had their engines removed months agone and flown. So it's a very - that's 1 of nan things I for illustration astir nan motor marketplace is it's self-correcting connected proviso very quickly and that erstwhile you extremity doing shop visits, you usage up a batch of capacity and nan proviso drops astir 15%, 20% a year.

Frank Galanti

Okay. That's really helpful. Shifting complete to aerospace. You've been retired location talking astir a 2- to 4-year scheme connected nan aerospace business reaching $500 cardinal of EBITDA. I deliberation first, tin you benignant of laic that retired what that scheme is? But benignant to my question, let's opportunity we get to nan extremity of that 4 twelvemonth scheme we get to 2027, why wouldn't you deed that $500 cardinal target? Why wouldn't you get there?

Joseph Adams

I deliberation it's conscionable execution. We person to execute different nan marketplace is location and nan marketplace situation is very adjuvant for, arsenic I mentioned, what our products are and what we tin do for airlines to prevention them money. We fundamentally supply airlines pinch costs savings and elasticity and truthful that to me, is simply a bully product. It's a differentiated product, nary 1 other tin connection it. So really it's conscionable tin we execute.

In position of nan creation of nan $500 cardinal of EBITDA, what we talked astir precocious pinch you is that if we had 25 Module Factory users past twelvemonth each doing 4 modules per customer and we're capable to double nan number of customers to 50 and double nan number of modules per customer to 8, that's 400 modules per twelvemonth and we're presently astatine 100 and we expect important maturation this year. So we're connected a way that would benignant of get location if we proceed that.

And past profitability, presently we're astatine astir $0.5 cardinal per module and we expect that to double pinch PMA readiness adjacent twelvemonth truthful that gets you $400 cardinal of EBITDA from nan Module Factory. We expect 50 aliases truthful teardowns a twelvemonth done nan AR and we make astir $1 cardinal of profit per craft truthful that's $50 cardinal and past we expect nan JV pinch Chromalloy to make 50.

So that would beryllium nan - that's an aspiration. It's not a forecast, but it's thing we deliberation astir a batch and we support refining and we consciousness bully astir nan expertise to get there.

Frank Galanti

Great. Thanks very much.

Joseph Adams

Thanks.

Operator

Our adjacent mobility comes from Brian McKenna pinch JMP Securities. Your statement is now open.

Brian McKenna

Thanks. Good morning, everyone. So it's awesome to spot nan beardown 4th of plus purchases wrong leasing. But tin you springiness america an update connected wherever LOIs guidelines today? And past related, really should we deliberation astir nan baseline level of gross plus purchases annually wrong nan conception moving forward?

Joseph Adams

Yes. So connected nan second, I deliberation we acquired complete $600 cardinal past twelvemonth of caller assets. Is that right, Angela? And we sold $250 million, $300 million?

Angela Nam

About 250.

Joseph Adams

So that's successful statement pinch what we've been doing. The plus income are a small spot higher and arsenic we've talked, we intend to recycle superior much than we astir apt did years ago. But I deliberation $500 cardinal to $600 cardinal of caller acquisitions and $200 cardinal to telephone it $300 cardinal of plus income is simply a reasonable anticipation and we're starting disconnected nan twelvemonth beautiful strong.

We don't - we person a number of deals correct now that we person verbal awards and handshakes and that are not afloat documented, but that number totals a mates of 100 cardinal and it's very overmuch CFM56 focused. As a matter of fact, I deliberation successful full that's complete 50 CFM56 engines. So we could spot a meaningful maturation successful nan CFM56 motor count successful nan first half of this year, which is great.

Brian McKenna

Got it, helpful. And past congrats connected nan QuickTurn acquisition. I cognize it's mini successful nan absolute, but location seems to beryllium immoderate beautiful meaningful strategical benefits there. I'm funny though really are you reasoning astir incremental strategical M&A from here? Is location immoderate achromatic abstraction crossed your business that you would look to capable via acquisitions aliases immoderate M&A from present would really conscionable beryllium to grow into different adjacent businesses?

Joseph Adams

We look astatine nan full ecosystem of nan motor and I deliberation that nan 1 area wherever we are presently focused is repairs. So erstwhile we teardown an engine, a batch of nan parts earlier they tin beryllium put connected a caller airplane person to beryllium repaired and our walk past twelvemonth was astir $50 cardinal truthful it's a beautiful bully magnitude of money.

And truthful we're looking astatine nan repair abstraction and what repairs we do, what repairs different group do and what opportunities location mightiness beryllium for either M&A aliases integrated improvement aliases conscionable utilizing our buying powerfulness to get amended deals. So I'd opportunity that's nan existent focus.

But we are trying to beryllium vertically integrated successful each measurement we tin connected this motor and there's I deliberation nan size of nan engine, nan truth that it's a modular engine, nan truth that nan OEMs support raising prices truthful nicely gives america - it's conscionable a immense opportunity.

Brian McKenna

Got it. Thank you.

Operator

Our adjacent mobility comes from David Zazula pinch Barclays. Your statement is now open.

David Zazula

Good greeting and acknowledgment for taking my question. To commencement disconnected existent quick, I was hoping you could supply an update connected wherever you are pinch security recovery, what you've recovered truthful acold and what planes are still outstanding?

Joseph Adams

Yes. So a mates of things. The assets we had successful Ukraine are 4 craft and an engine, we're starting to move nan engines retired by truck. So we've begun nan betterment connected those assets and I expect that astir we'll get astir $30 cardinal of assets retired this twelvemonth and we haven't decided afloat whether we're going to lease those aliases waste those. So I deliberation that's a partial solution. I deliberation our book worth connected those was astir $30 million. Our insured worth is $70 million.

And connected that beforehand nan insurers have, arsenic you astir apt are alert of, continued to beryllium very uncooperative. So virtually each plus proprietor has revenge lawsuits and we are not going to beryllium different successful that way, we're filing. We person revenge 1 suit already and we're preparing nan papers connected nan second. So we'll spot what nan judges say. Just it's been a spot frustrating that location is simply a deficiency of engagement by nan insurers.

But we judge that nan assets were wrongfully taken and if that's what security is meant to cover, past we'll yet cod a meaningful magnitude of that. I deliberation nan full declare we revenge is $270 million.

David Zazula

That's helpful. And then, Joe, I mean earlier you talked I deliberation astir accrued velocity of superior done there. Hoping station nan QuickTurn facility, you could unpack that a small spot and talk astir really that acquisition mightiness effect successful a small much item your superior velocity and intensity?

Joseph Adams

Well, there's 2 areas for that. One is successful nan leasing segment, we've talked astir trading much assets and recycling nan superior and successful peculiar we've sewage 2 deals, 1 of which is afloat closed, different which is successful nan process of closing; wherever we're trading nan leased plus astatine a summation and retaining nan motor guidance services statement wherever we'll make astir $1 cardinal per craft per twelvemonth for nan attraction of those engines. And truthful that's thing we want to do much of and we person immoderate different deals successful nan pipeline.

So successful position of nan leasing portfolio, arsenic I said, we've typically bought $500 cardinal to $600 cardinal of caller assets a twelvemonth and we expect to waste $200 cardinal to $300 cardinal of those each year. So that generates gains and it besides allows america successful immoderate cases to support nan attraction contract, which is simply a awesome result is to support nan champion portion of nan woody and make a gain. So that's connected nan leasing broadside and that will continue. And I deliberation we've sewage a bully consciousness of really to create value, really to bargain things off-lease, put them connected lease and past waste them.

On nan Module Factory, I deliberation we presently run pinch astir $150 cardinal of inventory and arsenic we turn that business that was doing 100 modules past year, we expect that that will move importantly faster. So arsenic we turn from 100 to 400, it's not going to spell up 4 times. It should spell up very modestly because we expect we tin move inventory. As we get larger and create much options, we'll move that inventory a batch faster.

So I expect that if we were to do 400 modules a year, our anticipation is that we would request $200 cardinal to $250 cardinal of inventory to do that to support that and it is facilitated by QuickTurn having nan expertise to deliver. Swap a debased unit turbine aliases switch a instrumentality successful nether 2 weeks is simply a merchandise that nary 1 has successful nan marketplace today. No 1 tin do that.

David Zazula

Great. Thanks. Very helpful, color.

Operator

Our adjacent mobility comes from Sharib Magrabi [ph] pinch BTIG. Your statement is now open.

Unidentified Analyst

Hi, bully morning. Thanks for taking my question. Could you talk a small spot astir nan different quality of shop visits astatine QuickTurn compared to nan Montreal facility? And much broadly, could you talk astir why are infirmary visits becoming much popular?

Joseph Adams

Sure. Good question. So what we do successful Montreal astatine Lockheed Martin is capacity restoration. And truthful if you deliberation astir an engine, that motor is taken to rebuild that motor -- if it has opportunity only a 1,000 cycles near to alert aliases 100 cycles near aliases hr supply, you request to rebuild that to northbound of 10,000 cycles.

In bid to do that, you virtually person to return nan full motor isolated and each portion is inspected either visually aliases by instrumentality and immoderate are replaced, immoderate are repaired and past nan full motor gets reassembled and it takes months and it costs millions of dollars.

The existent OEM estimate connected nan CFM56 is $6 cardinal for that engine. This successful galore cases much than we paid for it successful nan first place. And that goes up each twelvemonth because they raise nan parts prices 10% aliases successful nan past twelvemonth they raised each nan life constricted portion prices 13%. So that's what you do successful Montreal and it has to beryllium done each truthful often because you person regulations and limits connected really agelong an motor tin spell earlier it needs that to beryllium done to it.

The 2nd shop sojourn is - and I urge you spell to our website quickturnengines.com and it lays retired nan infirmary shop sojourn immoderate of nan things we do. And that's often lawsuit conscionable thing needs to beryllium repaired. A instrumentality leaf needs to beryllium repaired, bearings request to beryllium replaced, a debased unit turbine gearbox has to beryllium replaced and those repairs tin beryllium done very quickly and you could besides do it pinch a module swap. If you had to switch conscionable nan fan, you could switch a caller instrumentality connected and return nan aged instrumentality disconnected and do that successful 5 to 10 days.

So that's - and a batch of airlines person - if they person a ample fleet of CFM56 engines, they are expressly trying to debar that first shop sojourn that I described that takes months and costs millions of dollars. And successful galore cases you tin do that pinch infirmary shop visits only repairing 1 conception of nan motor aliases bringing 1 conception of nan motor up to a higher number of hours and cycles disposable and support that motor flying longer.

And truthful nan infirmary shop sojourn marketplace coming is astir 40% of each shop visits and it's projected complete nan adjacent 6 years to go astir 60% of each shop visits. It partially happens arsenic nan fleet ages, group are much cannibalizing what they person and little doing afloat restorations successful immoderate event. So that's really nan quality and that's what QuickTurn is focused connected is that infirmary shop sojourn market.

The different logic why it's adjuvant to person it successful a abstracted installation is that if you tally a large MRO shop and an motor comes in, your information aliases your inclination is to find tons of things to fix. So if you person an motor that goes into an MRO, oftentimes you'll extremity up pinch a measure that's multiples of what you thought it was going to beryllium because group find things. It's for illustration if you took your car successful and you didn't show nan mechanic to inspect nan brakes, but they did anyhow and they astir apt opportunity you request a caller brace of brakes and who could opportunity no.

So it's amended to person a infirmary shop successful a abstracted installation wherever nan predisposition and information is to do what nan customer wanted to person done and get it backmost successful work quickly evidently safely, but quickly.

Unidentified Analyst

That's helpful. And awesome analysis. Thank you.

Operator

Our adjacent mobility comes from Robert Dodd pinch Raymond James. Your statement is now open.

Robert Dodd

Morning, everyone. On leverage if I can, evidently successful nan position I mean you constituent retired that nett indebtedness to adjusted EBITDA is astir 4.3 [ph] You want to get it to 3, 4. It mightiness beryllium into that scope by possibly Q1 aliases could beryllium astatine nan little extremity of that scope towards nan extremity of nan twelvemonth even. As you said, you don't request a batch of other capacity for modules and you've sewage a batch of rate travel moreover aft nan dividend and aft attraction CapEx, et cetera.

So what are nan different options for you? I mean are you explicitly going to salary down debt, put moreover much successful assets? But you already gave america immoderate guidance connected what you scheme to do connected that front. So what's nan thoughts connected utilization of nan rate travel that you're going to beryllium generating this twelvemonth fixed leverage is coming down connected that?

Joseph Adams

Yes. So we've talked we do want to get nan leverage to nan constituent wherever we're a beardown DD and I deliberation if we execute those numbers this year, we will execute that goal. So that would execute that, which I deliberation is great.

We are ever looking for bully assets to bargain and CFM56s are, arsenic you tin tell, our passion. So that could coming opportunities for further capital. Beyond that, I deliberation we would look to dividends, stock repurchases and they're each successful nan mix.

Robert Dodd

Thanks connected that. I mean connected nan imaginable for opportunity dividend versus buyback, really would you allocate? What would your thoughts beryllium connected nan comparative worth of each of those to normalize nan allocation privilege if it gets to having that overmuch excess capital?

Joseph Adams

Well, evidently it will beryllium a usability of nan stock value and what we deliberation nan prospects are for nan business going forward. I deliberation that that will drive. The dividend, you cognize what you get. The stock buyback is simply a usability of nan price.

Robert Dodd

Got it. Thank you.

Joseph Adams

Yeah.

Operator

At this time, I show nary further questions. I would now for illustration to move nan convention backmost complete to Alan Andreini for closing remarks.

Alan Andreini

Thank you, Michelle, and convey you each for participating successful today's convention call. We look guardant to updating you aft Q1.

Operator

This concludes today's convention call. Thank you for participating. You whitethorn now disconnect.