Executive Summary / Key Takeaways

• FTAI Aviation is transforming from a traditional aviation lessor into a vertically integrated aerospace products leader, leveraging proprietary technology and strategic acquisitions to dominate the CFM56 and V2500 engine aftermarket.
• The company's unique Maintenance, Repair, and Exchange (MRE) model, centered around the Module Factory and green time optimization, offers airlines significant cost and time savings compared to traditional MROs, driving accelerating demand and expanding margins.
• Recent strategic moves, including the internalization of management, acquisitions of key maintenance facilities (Montreal, Miami, Rome JV), and the launch of the asset-light Strategic Capital Initiative (SCI), are designed to enhance operational control, secure committed maintenance volume, and fuel future growth without significant balance sheet expansion.
• Strong Q1 2025 financial results, particularly in the Aerospace Products segment, demonstrate the successful execution of this strategy, supporting management's confident guidance for substantial EBITDA and free cash flow growth in 2025 and 2026.
• While facing competitive pressures, operational ramp-up challenges, and macroeconomic risks, FTAI's differentiated technological approach and strategic partnerships position it favorably to capture a larger share of the multi-billion dollar engine maintenance market.

The Engine of Transformation: Building a Differentiated Aerospace Powerhouse

FTAI Aviation Ltd. is carving out a unique position in the aviation industry, strategically pivoting from a more traditional aircraft and engine leasing model towards becoming a dominant, vertically integrated provider in the high-demand aftermarket for CFM56 and V2500 engines. These workhorse engines power the majority of the world's narrowbody aircraft fleet, representing a vast and fragmented addressable market of approximately 600 small and medium-sized airlines globally, with an estimated $22 billion in annual maintenance spend. FTAI's ambition is clear: to increase its market share of engine restorations from the current ~5% to 20-25% by offering a compelling, low-cost, and flexible alternative to conventional maintenance solutions.

The company's journey reflects a deliberate evolution. From its consistent dividend history dating back over a decade, FTAI began investing in specialized engine repair capabilities, notably through joint ventures starting in 2016. This laid the groundwork for its core technological differentiator: the proprietary Module Factory process and the concept of "green time optimization." Unlike traditional Maintenance, Repair, and Overhaul (MRO) providers who often focus on full engine overhauls and rely on third-party parts and services, FTAI's model is built around acquiring unserviceable engines, dismantling them, refurbishing viable modules, and then either selling those modules individually or reassembling them into "right-sized" engines with balanced remaining useful life across all components. This process, honed over several years, allows FTAI to monetize every available cycle in an engine, significantly reducing material waste and optimizing value extraction.

This technological approach provides tangible, quantifiable benefits. While specific percentage cost savings figures compared to traditional MROs can vary, management emphasizes that their method enables them to offer a lower fixed price and minimal downtime compared to competitors. Operational metrics highlight this advantage: FTAI's turn time on modules is approximately 30 to 60 days for building a module and 5 to 25 days for a module swap, starkly contrasting with industry turn times often ranging from 120 to 180 days. Furthermore, the development of Parts Manufacturer Approval (PMA) parts through a joint venture is a key R&D initiative aimed at further enhancing cost savings and potentially adding 5 to 10 percentage points to margins once fully approved and adopted by the industry. The first PMA part is already installed and performing well, with significant progress reported on the next part approval.

In the competitive landscape, FTAI positions itself uniquely. Traditional lessors like AerCap (AER) and Air Lease Corporation (AL) operate at a much larger scale in aircraft leasing but primarily rely on third-party maintenance, incurring higher costs. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, FTAI's focus on specific engine types and its integrated model differentiate it from these broader lessors. Compared to engine leasing and parts specialists like Willis Lease Finance Corporation (WLFC), FTAI's vertical integration into maintenance provides a strategic advantage, allowing it to control the entire lifecycle of the engine and offer bundled solutions. FTAI believes its ability to acquire maintenance facilities at less than replacement cost and immediately fill them with its own engine volume gives it a unique edge over MROs that must rely on securing third-party business. The company's competitive moats include its large owned fleet of target engines, its in-house maintenance capabilities, the exclusivity of its PMA development for this engine type, and the institutional asset management capabilities brought by its Strategic Capital Initiative.

Strategic Execution and Accelerating Performance

The strategic transformation gained significant momentum in 2024 and early 2025 through a series of key initiatives and acquisitions. A pivotal move was the internalization of management, effective May 28, 2024. This transition eliminated external management fees and incentive distributions, contributing to expected annual savings of at least $30 million, projected to grow to $40 million-$50 million or more in the coming years. This enhances operational control and financial efficiency.

Complementing its Miami facility (QuickTurn/FTAI USA), FTAI significantly expanded its maintenance footprint through strategic acquisitions. In September 2024, the company acquired the Lockheed Martin Commercial Engine Solutions facility in Montréal (rebranded FTAI Canada). This acquisition was crucial for establishing permanent engine and module manufacturing capabilities in Canada and providing extensive repair services. Management noted that this facility was massively underutilized and is now ramping up productivity significantly, from approximately 30 modules per quarter in 2023 to an expected 100 modules per quarter in 2025 with essentially the same workforce, by specializing employees and standardizing work scopes. While legacy low-margin contracts from this acquisition temporarily impacted Aerospace Products margins in late 2024, they were expected to roll off by the end of Q1 2025, allowing margins to normalize and potentially expand further (an expected 3-4 percentage point add from CFM56 overhaul operations alone). Further expanding its global reach, FTAI closed a joint venture agreement for a new maintenance facility in Rome (QuickTurn Europe) in June 2025, targeting the European and Middle Eastern markets and gaining access to the Chinese market via its CAAC certification.

The launch of the Strategic Capital Initiative (SCI) in December 2024 marks another critical step in the strategic pivot. Partnering with third-party institutional investors, the SCI focuses on acquiring on-lease 737NG and A320ceo aircraft. FTAI acts as the General Partner and a minority equity investor (holding a 20% limited partner ownership in the first partnership, the 2025 Partnership), managing the aircraft while the partnership owns the assets. A key element is the exclusive agreement for FTAI's MRE business to provide engine and module exchanges for the life of the SCI partnerships. This initiative allows FTAI to transition the Aviation Leasing segment towards an asset-light model for aircraft ownership, reducing its direct capital acquisition needs for these assets, while simultaneously securing committed, long-term maintenance volume for its Aerospace Products segment. The SCI has already secured a $2.5 billion commitment for asset-level debt financing and expects to deploy over $4 billion in total capital, demonstrating strong investor confidence in the model.

These strategic moves are directly reflected in the company's recent financial performance. Q1 2025 saw total revenues jump to $502.08 million, a significant increase from $326.69 million in Q1 2024. This growth was overwhelmingly driven by the Aerospace Products segment, which saw revenue surge to $365.06 million in Q1 2025, up 93.1% from $189.06 million in the prior year period, including initial sales to the 2025 Partnership. The Leasing segment also saw a modest revenue increase to $137.01 million. Adjusted EBITDA, a key performance metric for management, continued its strong upward trajectory, reaching $268.6 million in Q1 2025, up 63.7% from $164.1 million in Q1 2024. Both segments contributed positively, with Leasing EBITDA at approximately $162 million (including a $30 million insurance settlement for Russian assets) and Aerospace Products EBITDA at approximately $130.9 million, achieving a healthy 36% margin. This margin performance reflects the inherent profitability of the MRE model, even while absorbing some initial costs and lower-margin contracts from recent acquisitions.

The company's liquidity position and capital allocation strategy are evolving in line with its strategic pivot. While cash used in operating activities increased in Q1 2025, reflecting changes in working capital (including heavy investment in parts inventory to support the production ramp), net cash used in investing activities decreased significantly due to proceeds from asset sales (including initial sales to the 2025 Partnership) and insurance settlements.

Net cash provided by financing activities decreased due to preferred share redemptions and debt repayments, partially offset by new debt proceeds. FTAI redeemed its Series B preferred shares in February 2025. The company is targeting a debt-to-total EBITDA ratio in the 3 to 3.5 times range, aiming to be closer to 3 times by the end of 2025 to achieve a strong BB credit rating.

Capital allocation priorities are clear: first, achieving the target credit rating; second, investing in growth CapEx (though SCI reduces direct asset acquisition needs); and third, shareholder returns (dividends and buybacks), expected to become a focus towards the end of 2025 as free cash flow generation accelerates.

Outlook and Risks

Management's outlook reflects strong confidence in the continued execution of its strategy and the favorable market environment. The company reiterated its guidance for 2025 Business Segment Adjusted EBITDA (excluding corporate and other) to be between $1.1 billion and $1.15 billion. This is underpinned by expectations for Leasing EBITDA to remain around $500 million and Aerospace Products EBITDA to grow significantly to $600 million to $650 million. Looking further ahead, FTAI projects annual aviation EBITDA to rise to approximately $1.4 billion in 2026, an increase from previous targets. This growth is expected to translate into substantial free cash flow generation, with a target of $650 million for the full year 2025, following an expected $300 million to $350 million in the first half, despite upfront investment in parts inventory. Key assumptions supporting this outlook include sustained high demand for engine maintenance, successful ramp-up of production capacity at acquired facilities, the contribution of committed volume from the SCI, and the realization of internalization savings and piece part repair potential.

However, the investment thesis is not without risks. Macroeconomic uncertainty and geopolitical instability, including the ongoing impact of the Russia-Ukraine conflict on asset recovery and insurance settlements, could affect demand and operational stability. The highly competitive nature of both the leasing and aerospace products markets means FTAI must continuously execute to maintain its edge. Operational risks associated with ramping up production at acquired facilities, managing complex supply chains for parts, and potential labor disruptions could impact throughput and margins. Contractual defaults by lessees or partners, particularly in emerging markets with less developed legal systems, remain a risk. The success of the SCI is dependent on continued investor appetite and the performance of the partnerships, and potential conflicts of interest in allocating investment opportunities could arise. Regulatory changes, including potential tariffs or evolving environmental standards, could impact operations and costs. Furthermore, the company has faced scrutiny from short sellers regarding its accounting practices, although an independent review concluded these allegations were without merit. While the company aims for a strong BB rating, its debt levels remain a factor to monitor.

Conclusion

FTAI Aviation is undergoing a significant and strategic transformation, leveraging its unique technological capabilities and integrated business model to capitalize on the robust demand in the CFM56 and V2500 engine aftermarket. The company's proprietary Module Factory process and green time optimization, coupled with strategic acquisitions of maintenance facilities and the innovative Strategic Capital Initiative, are creating a powerful, vertically integrated platform. This approach allows FTAI to offer a compelling value proposition to airlines, driving accelerating growth in its high-margin Aerospace Products segment.

Recent financial results demonstrate the successful execution of this strategy, supporting management's confident outlook for substantial EBITDA and free cash flow expansion in the coming years. While competitive pressures and operational challenges persist, FTAI's differentiated technological edge and strategic partnerships position it favorably to capture a larger share of the market. For investors, FTAI represents an opportunity to participate in a company executing a clear strategy to become a dominant player in a critical segment of the aviation industry, with a focus on operational efficiency, margin expansion, and increasing shareholder returns as its transformation continues to unfold.