FTAI - NASDAQ

Thank you for standing by, and welcome to FTAI Aviation's First Quarter 2025 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the call over to Alan Andreini, Investor Relations. Please go ahead.

Thank you, Latif. I would like to welcome you all to the FTAI Aviation first quarter 2025 earnings call. Joining me here today are Joe Adams, our Chief Executive Officer; Angela Nam, our Chief Financial Officer; and David Moreno, our Chief Operating Officer. We have posted an investor presentation and our press release on our website, which we encourage you to download if you have not already done so. Also, please note that this call is open to the public in listen-only mode and is being webcast. In addition, we will be discussing some non-GAAP financial measures during the call today, including EBITDA. The reconciliation of those measures to the most directly comparable GAAP measures can be found in the earnings supplement. Before I turn the call over to Joe, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements, by their nature, are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC. Now, I would like to turn the call over to Joe.

Thank you, Alan. I'm pleased to announce our 40th dividend as a public company and our 55th consecutive dividend, since inception. The dividend of $0.30 per share will be paid on May 23rd based on a shareholder record date of May 16. Angela is going to take you through the numbers in more detail. But before that, I wanted to highlight a few things. We started the year with momentum, recording another strong quarter in aerospace products with $131 million in adjusted EBITDA at a margin of 36%. With a consistently growing backlog of purchase orders for 2025 and beyond, demand for our aerospace products and services continue to accelerate, strengthening our position as a leader in the engine maintenance aftermarket. Turning to production. We refurbished 138 CFM56 modules this quarter between our two facilities in Montreal and Miami. We anticipate a significant ramp to occur in Q2, particularly in Montreal, as we execute on our growth initiatives and operational throughput to enhance efficiency. As we expand production of refurbished modules and engines, our core focus is to increase our market share of restorations beyond the current 5% to 25%. Now, let's talk about adjusted free cash flow. In the first quarter, we closed on approximately $234 million of aviation equipment at attractive prices as replacement CapEx for the seed portfolio of aircraft, which are being sold to Strategic Capital Initiative, or SCI. The transition of these aircraft started in Q1, where we sold four aircraft for $59 million, and we are proceeding on plan to have completed the sale of the remaining assets by the end of Q2, generating a significant inflow of approximately $440 million. We expect adjusted free cash flow to be in the range of $300 million to $350 million for the first half of the year, which is in line with our target to achieve $650 million in adjusted free cash flow for all of 2025. For the strategic capital initiative or SCI, it was great to announce one investment management as an equity investor to the partnership. Since then, we have secured an additional equity partner and expect further closings during Q3 of this year. We remain on track to deploy $4 billion plus in capital by the end of the year through a combination of these commitments and our $2.5 billion secured asset-level financing facility with ATLAS a wholly-owned affiliate of Apollo and Deutsche Bank. Finally, we've been working extensively on operational plans with our partner IAG Engine Center Europe in Rome, and are confident we can ramp up production immediately following the acquisition to support our regional customer base in Europe and the Middle East. We already have five engines in the facility and expect to close the new joint venture very soon. Therefore, overall, we feel increasingly confident in our business segment EBITDA 2025 goal of between $1.1 billion to $1.15 billion, excluding corporate and other rising to approximately $1.4 billion in 2026. While tariffs create some challenges and opportunities, we do not currently see tariffs having any material negative effect on our business, and we are reiterating our guidance for both 2025 and 2026, as we continue to see growing and accelerating demand for our proprietary set of aerospace products. With that, I'll hand it over to Angela to talk through the numbers.

Thanks, Joe. The key metric for us is adjusted EBITDA. We began the year strongly with adjusted EBITDA of $268.6 million in Q1 2025, which is up 7% compared to $252 million in Q4 2024 and up 64% compared to $164.1 million in Q1 of 2024. During the first quarter, the $268.6 million EBITDA number was comprised of $162 million from our Leasing segment, $130.9 million from our Aerospace Product segment, a negative $17.4 million from corporate and other, excluding intra entity eliminations. Turning now to leasing. Leasing continued to deliver strong results, posting approximately $162 million of EBITDA. The pure leasing component of the $162 million came in at $152 million for Q1 versus $128 million in Q4 2024. Included in the $152 million was a $30 million settlement related to Russian assets written off in 2022, which is an additional settlement to the $11 million the amount we received last quarter. For gains on sales, we began the year of $68 million in book value of assets being sold for a 13% margin gain of $9.8 million, which will significantly increase next quarter as we close out the transition of the seed assets to the SCI. Looking ahead, we remain comfortable assuming leasing EBITDA will be $500 million in 2025 as we pivot our focus towards an asset-light business model. Aerospace products had yet another good quarter with $130.9 million of EBITDA at an overall EBITDA margin of 36%, which is up 12% compared to $117.3 million in Q4 of last year and up 86% compared to $70.3 million in Q1 2024. We continue to see accelerating growth and adoption and usage of our aerospace products and remain focused on ramping up production in both of our facilities in Montreal and Miami as well as commencing operations in Rome. In 2025, we continue to expect to generate $650 million in EBITDA, up from $381 million in 2024 and $160 million in 2023. With that, let me turn the call back over to Alan.

Thank you, Angela. Latif, you may now open the call to Q&A.

Thank you. [Operator Instructions] Our first question comes from the line of Giuliano Bologna of Compass Point. Please go ahead, Giuliano.

Good morning. Congratulations on another great successful quarter. The first question I had, and it's -- so I wanted to dig into is that we can -- a few questions is that it looks like in the Aerospace Products segment, you had roughly $100 million of revenue that was related to the 2025 partnership or the SCI program. And I'm curious when you think about that, my assumption there is that was kind of a selective thing where you're seeding portfolio to help the SCI program launch the program and acquire a lot of assets. And as it relates to the SCI program, maybe good to see and understand the rationale there. And then it will be good to -- if you can provide any perspective around the third-party or non-SCI business, because it seems like this is an opportunistic thing to do and that there's actually a tremendous amount of demand from third parties, if not growing pretty materially. And the limitation, as you highlighted before, is capacity at Montreal, and that's expected to increase materially in 2Q and beyond 2Q. So you should have a lot of demand is the assumption. But it would be great to get your perspective around all of that.

Sure, sure. Great question. And let me talk about several points there. First of all, you're correct. Today, there's tremendous demand. And for the next few years, we see tremendous demand for our rebuilt engines across the entire industry. And today, we are constrained by production, which -- what that means is we can sell everything that we produce. So for those engines, we have multiple options to sell to third-party customers, and we could have done so and had no material different financial outcome than selling to the SCI, but we did prioritize SCI for a couple of reasons. One is we're committed to engine exchanges with the partnership. And we also want to see that partnership grow significantly. And there are significant benefits in material cost savings for an owner and airline that are achieved through engine exchanges, which is our underlying whole business rationale through the MRE. And that's why demand across the entire industry is growing for these products because you save money -- and you save time and money, and it's very efficient. And so our purpose of creating SCI was to make that entity a better owner of these assets. By confirming those benefits onto that partnership, particularly when there are engine maintenance events in the next few years for engines. And that is for the vast majority of assets out there have engine maintenance events coming up fairly soon. So in return, if SCI becomes a better owner, meaning they make higher returns that means over time, they'll own more assets, which means FTAI will get more committed engine exchanges, which means we will then have more visibility on our future needs for engine rebuilding, which makes us more efficient, which should lower our costs, which means we end up with better margins. So it's really a virtuous circle, and that was the whole point of why we are setting this up or one of the main points. And if you want, it's roughly about 30% of our activity went to SCI, and that's because we've been lining up assets for the last six months. So there was a bit of pent-up demand, since we started closing and we now own 30 aircraft in the partnership. And we expect, overall, it will be about 20% of all of 2025. And we think that 20% number is probably representative for future years, as we see both SCI and the market growing significantly. As I mentioned in the opening remarks, our goal is to grow our market share from 5% to 25% of the whole industry. So when we look at what happened, this is exactly what we hoped would have happened in Q1, when we set up SCI. And we view this as a huge positive for both the near-term and the long-term for FTAI and the shareholders.

That is extremely helpful. And maybe just a quick follow-up, just to make sure I heard everything exactly right. But kind of just looking at that 20% number, what that kind of implies, that implies somewhere in the range of $130 million of EBITDA growth in an EBITDA target basis of $650 million for the year. And that implies that the non-SCI would be [Technical Difficulty] high 30%, if not 40% growth in kind of the non-SCI business. So it seems to me, and hopefully, you see it the same way as this is additive and there's no cannibalization happening and it's just that you're filling based on your order book? Show on your ability to produce the modules. And as that goes up, you'll fill the orders as fast as you can, you have a huge backlog to continue doing that. So this is really additive in the core business, pre-SCI is actually still growing pretty materially at a great pace.

Yes. And I think I agree. I think that we would have had growth even without SCI, but even if we didn't sell the SCI, we would have engines available for someone. So we'll have growth without it, but you can't zero it out, because we really do something else for those assets. But no, I agree with the math that you laid out, it's basically right. But we see the entire market growing for the products, and there is no cannibalization. These aircraft that are being acquired in SCI, we would not have been doing these engines on this other than the fact that we now own them in the partnership.

That’s very helpful. I really appreciate it, and I’ll jump back in the queue.

Thanks.

Thank you. Our next question comes from the line of Sheila Kahy of Jefferies. Your line is open, Sheila.

Good morning and thank you very much. My first question is maybe on tariffs. If you look at aerospace products, margins improved sequentially to 36% even with a 2-point drag from legacy Montreal in the quarter. So how are you sizing the potential impact and opportunities with tariffs to the business and any work around at your disposal?

We don't see any material negative effect from tariffs on our business. And I think there's three reasons, I would say for that. One is it's the nature of our business, which is to rebuild assets. And we use a lot of used material, and this is not a new asset that's being delivered into a market. So it's typically not the target of tariffs. The second is we operate in three different geographies. So we have a facility in Canada, one in United States and one in the EU. And effectively, we do essentially the same thing in each one of those jurisdictions. So we could deliver products to different markets from different source location, if we needed to do some optimization. But today, we don't see the need to do that. And then lastly, we have the ability to pass on price increases to customers, and -- we see public comments from OEMs and others indicating similar philosophy as if their costs go up, they're going to -- they have the power and they have the capability to flex price and pass it on. And if that happens, then we would obviously follow a suit and we feel like we have a similar capability to pass on as well. And then longer-term, ultimately, if these tariffs stick for an extended period of time, you should see the price of new assets go higher, which means ultimately the price comparison for used assets, used assets should be more attractive as a result. And that's good for us, ultimately. If prices increase it gives our products more value and also more cost savings.

Great. Thank you for that answer. And maybe, Joe, when you set -- or Angela, when you set the $650 million free cash flow guide for the year, it was sort of pre-growth CapEx and that you could hit 2026 targets without further investment. You invested $127 million of parts in Q1. So just curious how you're thinking about growth CapEx and opportunities this year, and that how that translates into the aerospace products ramp over the next few years.

Yes, I'll take that. I mean, we are planning to invest about $200 million in parts in the first half of this year as part of our cash flow. And I would characterize this as being heavy on parts inventory. And we view that because we think the cost of having extra parts inventory is way less than the cost of missing a sale. So we don't want to miss a sale. And as I mentioned in the beginning, we're production-constrained, and so we are being very heavy leaning towards owning more material than less material at this point. So I think we're taking a view that we're going to -- we're ramping up our production, we're going to ramp-up our inventory as well. That will level off. It's not a continuing item. But I would say, in the next few months, that's what I would expect. And that's in our assumption for 2025 on the cash flow side. So I think we're expecting a roughly $200 million of parts increase in the first half of this year. And even with that, we still generate $350 million approximately of free cash flow.

Great. Thank you.

Thanks.

Our next question comes from the line of Kristine Liwag of Morgan Stanley. Please go ahead, Kristine.

Hey, good morning everyone. Joe, just want to follow-up on the commentary you made on cash now. So when you said that the inventory step-up $200 million in cash for the first half for aerospace product, and that $350 million free cash flow, is that at the same time? Or do you mean $350 million of positive free cash flow for the full year? I guess my question is, ultimately, trying to understand the cash stream with aerospace product, especially if you're trying to grow from 5% to 20%, how much more inventory investment you need to make? And when does that become a positive working capital event?

Sure. Well, let me -- first, I'll walk you through my numbers for the first half of the year in terms of cash flow. I start with operating cash flow, which is effectively EBITDA minus interest and maintenance CapEx of about $450 million for the six months. Then we're going to have $500 million of asset sales mostly to the SCI. So you start with $950 million, we've invested or expect to invest in total replacement CapEx of about $300 million, which was in our previous numbers for 2025. And that will be front-end loaded in the first half of the year. Then, equity in the SCI, roughly $100 million. So that brings the number to $550 million. And then if you take $200 million in the first half of the year for parts inventory, that gets you to the $350 million of free cash flow for the first half of 2025. So that's kind of the building box. As I said, the $200 million of inventory investment is a bit higher than what we would have expected in the first half of the year. But we think it's a good investment, and we still are able to achieve our numbers given the growth in free cash flow and EBITDA from the business. So, do you have any thoughts on going forward, the growth rate of parts?

As we mentioned that we want to provision parts ahead of shop visits. So generally speaking, working capital as far as what we have today, we'd like to maintain that. And we provision ahead for the remainder of the year. So we don't see that growing materially quarter-over-quarter.

Great. Thanks. And maybe following up just on this parts thing, the $127 million CFM56 that you acquired at opportunistic attractive prices, can you talk more about how you source that? How you're able to get a deal like that in this environment, where there's a lot of demand, not enough supply. And also, as you provision ahead of time, are you seeing these prices go up more? I mean, in anticipation of the tariff costs, the engine OEMs have been pretty clear that pricing pass-throughs will be part of their strategy to offset some of the pain they could have on tariffs?

Yes. So, we're sourcing these parts in a number of fashions, but where we have a competitive advantage is we're sourcing these parts unserviceable from asset owners and airlines. So we're buying, for example, LLPs. And then we have the back shop capabilities in Montreal to repair those. Montreal, just to give you kind of overall has repair capability for about 70% of the CFM56 in-house. That includes LLPs, combustors, cases, framings, other fan banes amongst other parts. So we buy these parts as removed and then we have special repairs, where we can repair these parts of bringing back serviceable. So by doing so, we're able to really get into them at a much lower cost, as well as we have salvage repairs that are able to increase yields. So we're -- again, we're very knowledgeable about scrap rates in specific parts and then, we can maximize the value through our repair network. We are starting to see, yes, parts starting to increase. Again, as they mentioned, manufacturers are going to be passing through certain tariff surcharges. So we're expecting that to flow through like OEM annual escalation. So we do expect that to increase the parts -- used parts as well. I think, generally speaking, we're in a positive position because prices for replacement parts get more expensive for new parts, we can offer more cost savings. So we're starting to see that unfold. It's early days at the moment.

Thanks. And then a follow-up to that, if I may. On the repair that you're doing in Montreal, it sounds like the tariff duties are on places of manufacture. The value add that you do on repair, does that trigger some sort of tariff piece, when you bring it back to the US? Or is that why you're having a lower expected tariff impact? And then as a second question to that, with airlines being more focused on cost, are you seeing more adoption of your PMA parts in engines today?

Yes. On the first part, the answer is no. We don't see a tariff impact on the repair portion. And the second part is, yes, we think the airlines are increasingly focused on engine maintenance costs as they continue to go up in a disproportionate way for all airlines. So there's a lot of focus on cost-saving techniques and people are opening any alternative they have is on the table and PMA being won. So we think that, that will be -- obviously, we have a huge competitive advantage on PMA and we see that as not really in our numbers yet, but tremendous upside for our margins, and we think industry adoption will be quite good.

Great. Thank you.

Thanks.

Thank you. Our next question comes from the line of Josh Sullivan of the Benchmark Company. Please go ahead, Josh.

Hey, good morning. Can you just update -- just following up on the PMA conversation there. Can you update us on the approval progress for the remaining PMAs at this point?

I would say that we continue to make excellent progress, and we are very close on approval on the next part, and that's kind of where I stopped.

Got it. And then just on aerospace products in general, on PMAs, how – obviously, a conversation that continues to be out there is how accepting our airlines and lessors of PMA parts? And can you just expand on the adoption and how -- any other metrics you have on how they blend the margins for you?

Yes. I mean one of -- usually the part in the beginning is getting assets into service and then people want to see how they perform -- and that's what you would hope would happen, right? So people look at the part for the quality of the part and how it performs when they make the decision. And the history is that these parts have performed extremely well. And that's what we're seeing in the first two parts that are in service. And then from there, once the assets are in service, they have a lot of -- have hours flowing on them, the adoption increases, and we also have the ability to increase that adoption rate significantly through SCI. So that's a tool that no one ever had. And one of the big reasons that PMA always had struggled or struggled in the early periods was lessors not being willing to take a risk on residual value, but we're over that. So -- and we're a pretty big lessor. So that is a different market environment than I think we've ever had before. So I think it's -- I think people are open-minded, particularly if they have data and facts and the parts perform well.

Great. Thank you for the time.

Thanks.

Thank you. Our next question comes from the line of Andre Madrid of BTIG. Please go ahead, Andre.

Hey, good morning, everyone. I know we're talking about the free cash flow cadence through the year, and I think this was first mentioned last quarter. But could you give us maybe any more update about how you're thinking about shareholder-friendly capital deployment moving forward?

Sure. So the priorities we've set are growth CapEx, number one, debt repayment number two; and third, shareholder repayments. So we expect by the end of this year to be on the debt side, down close to three times debt-to-total EBITDA, which is kind of the low-end of the range of what we set. So if we assume we don't have significant growth CapEx opportunities and we've paid down debt to three times, then we would move to the third bucket, which is shareholder repayment or dividends or stock buybacks. And I would say probably towards the end of this year was when we achieved that objective.

Got it. Got it. I'll keep it one actually. Thanks.

Thank you. Our next question comes from the line of Brandon Oglenski of Barclays. Please go ahead, Brandon.

Hey, good morning, team. And thanks for taking my question. Joe, maybe just following up on that, if you guys are -- you just said three times net leverage, right, that you're targeting this year?

Yes. Well, we've communicated previously our range. We expect it to be in a range of three to 3.5, and we think by the end of this year, we will be at three.

Okay. I mean, maybe this question is really for Angela, but how do we think about the moving pieces with the SCI aircraft out, new assets in impacting the debt profile of the business, and maybe like from a ratings agency perspective, too?

Sure. So as Joe mentioned, we had previously said that we're targeting low-threes, 3.5, by end of this year. And with the SCI, we think can accelerate that and get closer to three, by the end of the year, which would give us a strong BB with the rating agencies, which Dave, we've communicated that's our goal. And that's possible by the fact that in prior years, we've spent a good amount of acquisition CapEx on bonding aircraft, which with the SCI, we are no longer required to do. And in addition to that, we'll generate about $500 million of proceeds from the sales of our seed assets. So all those things combined we think we'll definitely be in a position to be the strong BB with the rating agencies by the end of the year.

Okay. Angela, does that give you any opportunity maybe to think about refining things in the future and get your cost...

I think, that's definitely possible, yeah. Currently, our $3.5 billion debt, which is maturing until 2028, we're at weighted average interest rate about 6.5%. So that's something that we can definitely look at, but not something that's a priority given our rates.

Okay. And then, Joe, can you talk to -- I know you signed a deal with Pratt last year, but have you put any V2500s through that relationship yet, and what's your initial, thoughts on the relationship and the margin, the profitability of that business?

Yes. We've put quite a few engines through their network, and we're very happy with the relationship and how it's developed. And the margins, as I said, would not be dilutive to our aerospace products business, and that's been true the actual results. And we see that as a very important part of our product offering because, as I mentioned, we are offering to airlines and owners full coverage of 737NGs and A320ceos, no matter what engine they have. So it's a very big positive marketing customer relations development for us that we think is going to be in place for many years. And we don't see anybody with the market position that we have coming in at this stage. So we feel very good about that market for the next 10 years really being the dominant provider for engines in the aftermarket.

Thank you.

Thanks.

Thank you. Our next question comes from the line of Hillary Cacanando of Deutsche Bank. Your question please Hillary.

Thank you. So Joe, I know you had cited to about 100 modules to be sold per quarter. But now that you're significantly ramping up production through the remainder of the year and you have over 100 customers worldwide, why would you be looking for in order to revise that guidance of 100 modules per quarter?

Well, the original 100 modules per quarter was only Montreal. So, when you add in Miami and then soon to be Rome, that total capacity will be, what do you think?

200 plus.

200 modules per quarter production -- capacity. Now, that doesn't mean that we have enough mechanics to produce 200 yet, but we are moving as fast as we can to fill up that capacity. And if you look across -- when I talk about a 25% market share, if you think roughly 3,000 engines a year, that's about 700 to 800 engines. I'm shifting now to engines for modules. So, excuse my convention change. But that's about 750. We currently have capacity -- physical capacity across the network of about 600. So, we're pretty well-equipped to have the physical capacity, we need to build up the manpower and all of the related assets, but we're doing that as fast as we can, and David can talk about Montreal more.

Yes, we're keenly focused on output in Montreal. For Q1, we produced 77 modules, which is in line with our plan of 100 modules per quarter on average. It's been just to recap, it's been six months since our acquisition. We acquired the facility in September, really focused on specialization as well as moving out any non-CFM56 work. We're very proud of all the work that's been done in Montreal, and we've officially now completed the specialization effort, which we're going to see significant benefits going into Q2 and the remainder of the year. Just to give you a little more color. For Q2, we're expecting between 90 to 100 modules in Montreal, and we're expecting to grow thereafter. So we're very happy of all the process with the team and where we're at right now.

So, the 90 to 100 module produced, right ? As a production number?

Correct. This is production Yes, 90 to 100 and that's just in Montreal.

Just Montreal.

Only Montreal. Yes.

Got it. Great. That's helpful. Thank you very much. And then just on insurance. You recovered $30 million this quarter, $11 million last quarter. Could you just remind us how much more you expect recover this year versus how much was written originally and where you are in the settlement process?

Yes. We'll have another -- yes, thanks. We did have $30 million recovery in Q1. We have agreements -- I don't know, if we've actually closed but $24 million in Q2 is committed. And then remaining claims are roughly $100 million. And we don't have necessarily clear visibility on the timing of that. So, we will have collected in excess of what we wrote off with that $100 million. So, we're in a pretty good position net-net. But that $100 million is still to be settled, recovered, litigated, but we'll have 54 in this year.

That's great. Great. Thank you very much.

Thanks.

Thank you. Our next question comes from the line of Brian McKenna of Citizens. Please go ahead, Brian.

Thanks. Good morning, all. It's great to see that the module factory now has over 100 customers globally. I'm curious though, is there a way to think about the usage or consumption per third-party customer on average at the module factory today and then where this ultimately goes over the next couple of years?

Well, we originally -- you go way back, we were doing about four modules per customer and then that increased to about 6%, and we think it's probably closer to eight now, which was our original number. And it's what we've always expected and hoped is that you get somebody to try it. Our pitch is always just try it once. And if you don't like it, don't do it again. And we find that people like it. So they do it again. And then they do it for more of their fleet, and that's our goal. So we have some customers who've done 25, 30 modules in a year. And we ultimately would love to get 100% of their business, but we're only shooting for 25% market share. So we won't -- we're not going to get that. But we do see usage per customer going up and numbers of customers continuing to go up, which is a great multiplier. And then as we have more cost savings from PMA, we'll see margins per module go up. So that's how you get to the -- the original algorithm was if you double the modules per customer, you double the customers and you double the margin, that's a factor of two cubed is eight. So it's a great multiplier effect, and that's why we think this is just such a great business.

Okay. Great. That's helpful. And then maybe just a governance question for you, Joe. You're still the Chairman of the Board of FTAI Infrastructure. So do you plan on being the Chairman of FIP longer term? Or should we expect that role to transition to someone like Ken over time?

We haven't really discussed any changes. So I mean, Ken and I have worked together for 20 years, and we have a great relationship. And I don't -- we don't have any intention of changing that to my knowledge at this point. it's controlled by Fortress. So I don't -- just Fortress is the manager, so they could change that equation, but I don't intend to.

Yeah. Got it. That’s helpful. I'll live it there and congrats on another great quarter.

Thanks.

Our next question comes from the line of Ken Herbert of RBC Capital Markets. Please go ahead, Ken.

Yeah. Hi. Good morning. Joe and team. Thanks for the time. I wanted to maybe first ask, Joe, with all the uncertainty just not only from tariffs, but the macro backdrop, -- can you comment on what you've seen in lease rates on either aircraft or engines in the first quarter around either sort of absolute lease rates year-over-year and what you're seeing there? And I guess also as part of that lease extensions, which had been running incredibly high for the last few years, have you seen any softening in either of these metrics? And can you level set us on just what you're seeing there in terms of the underlying demand?

Sure. So no, we haven't seen any softening. I think rates are pretty relatively stable, no deterioration and modest increases. We do see tremendous demand for extensions. When you go talk to airlines, virtually every airline in the world is -- would take a 15-year-old 737 NG, if you could find it for them. So the demand is very high. The number that I always watch in terms of market strength or weakness is the percentage of fleet that's in storage. And so I track how many narrowbodies are stored, and a very strong market is 5% and a weaker market is 10%. And it kind of tends to move between those two numbers. And I think today, the last summer, I saw were a little bit under 5%. So it's a very, very strong market. And you can see traffic weakness in the United States, which tends to get a disproportionate amount of headlines and United might retire some A319s, but those assets are probably going to go to Indonesia or Philippines or the Middle East or 20 other places they could go. So that ultimately is good for us, if they go out of the hands of the majors into the second, third tier operators, which is what usually happens. So I think there's a very strong bid globally for assets, and that's kind of what we look at as the most important indicator of strength. These are the most easily repositioned assets in the world. So that's the beauty of it. It's a global market.

That's helpful. And coming out of the first quarter, can you just remind us, either in terms of aerospace products, any discrepancies or any underlying geographic exposures, we should think about; I know, obviously, now with the geographic footprint, it helps offset tariff risk from a delivery standpoint. But are you over-indexed to any part of the world as we think about the Aerospace Products segment?

No. I think we've been indicating over the last few quarters, we see probably the biggest growth in our portfolio will be Southeast Asia, but that's just because we were underrepresented there previously. So we don't see any weakness or change significantly. We have talked about China because originally, we thought of China as zero for us. But increasingly, we see that as potentially a big upside in that China has significantly under ordered for the last four years, really and which means to keep their flying levels, you're going to have to maintain and keep assets -- older assets longer and older assets longer flying in China need engines, and so we have the ability to do engine exchanges into China. We have the Rome facility that we just are acquiring has a CAAC, which is the Chinese equivalent of the FAA for China license. So we see China as a potential wildcard on the upside. We have virtually no exposure at all or very little, but it's all upside from our point of view, and it could be significant.

Great. Thanks, Joe. I’ll pass the floor.

Thank you. Our next question comes from the line of Myles Walton of Wolfe Research. Please go ahead, Myles.

Thanks. Good morning. Joe, I was wondering if you could comment on the SCI ownership assets. And of the 98, you have either now owned or under MOUs, about what percentage is powered by these versus CFM56? And is that similar to the 30 aircraft you had in the first quarter?

So we currently own in the partnership like 30 aircraft, 98 under OI. It's probably 90% CFM, right?

Yes. The vast majority is CFM.

Okay. And in terms of your target customer base to acquire the assets from in the $250 million for the year, can you give us some color as to airlines, lessors, other financial sponsors or buyers or owners what's the target audience and where you're seeing the most activity?

Yes. We're sourcing from two avenues. The first are from lessors, where there are large lessors looking to keep their fleet young, they're motivated by maintaining rating agency, by maintaining investment grade. So as part of that, they have mandates to sell older equipment. So we're a fantastic buyer, and we're buying quite a bit. So we have the ability to do bilaterals. So over the last few months, we've been executing on bilaterals with large lessors. We expect that to continue for the remainder of the year. The second avenue is direct from airlines. So airlines -- many airlines had expected, let's say, receiving new orders. So now, let's say, Tier 1 airline, you have engines that are tired, and they need to continue to operate these aircraft for longer. So here, we're really a source for them to offload maintenance. So we've entered into numerous sale leasebacks with airlines, where we take on the maintenance. So effectively, we power everything through engine exchanges. In those type of transactions, we're really one of one, because the airline really is focused on the counterparty's ability to execute on engine exchanges. And based on our capabilities and our assets, we're the only folks that can deliver that service. So we've seen tremendous opportunities from the sale-leaseback side, and we expect that to continue. So quite a bit of that 98 aircraft related to sale leaseback as well.

Okay. Got it. And maybe one for Angela. The $7 million of profit elims is that simply your 20% stake on the $100 million of sales to the SCI or about 35% margins? And then what should we expect from the full year corporate and elims sort of contra account to total reported EBITDA?

Yes, sure. Yes, that's correct. The $7 million elims is the intra entity profit on the $100 million on aerospace products that we're eliminating. On the corporate and other, I think Included in that is, are these elims also included about a little over $3 million in costs that we've incurred this quarter related to the report, so that is also not included in the run rate, so I would incorporate both of those items.

Okay. Got it. And last one, Joe, just to square it for me. Sorry, for the question on cash flow again. Slide 9, you have sort of two different cash flows. You've got one adjusted cash flow on one cash flow from operations less investing. When you talk about the $350 million for the first half, is that comparable to the $54 million of cash flow or the $73 million of cash flow listed on the slide 9.

$73 million.

Okay. Got it. Understood. Thanks so much.

Thank you. Our next question comes from the line of Stephen Trent of Citi. Please go ahead, Stephen.

Good morning, everybody, and thanks for taking my question. The first one from me, just sort of keen to follow-up on the geographic color you mentioned Southeast Asia, and I believe in the past, you may have even been considering potential acquisitions in that region. And I'm kind of curious whether the noise from tariffs has accelerated or decelerated the extent to which you might still be looking for targets in that market. Thank you.

Sure. So I think long-term, that is an option, and it's something we'll look at. Short-term, though, we're in the process of acquiring Rome. We want to make sure we get that set up embedded down and manage that. So I would say, in the near term, I wouldn't -- that's not a corporate priority for us. And we will be able to serve that market pretty efficiently from Rome. And as I mentioned just a few minutes ago, it also has a CAC license, so we could serve Rome into China as well. So for the near term, I would say we're good on what we've got. Longer-term, if you look out a few years and you said, where would you think you might end up with a facility, I would say it's probably likely it would be Southeast Asia. What we've done in acquiring these facilities, though is interesting in that we -- if you think about our facilities, they're all former airline engine shops. So in Montreal, it was an ex-Air Canada shop, in Miami, it was the ex Pan-Am engine shop and in Rome it's an ex-Alitalia engine shop. And the characteristics they all had is they had tremendous physical capacity and no business. And so we're able to acquire these facilities at less than replacement cost and then fill them with our own engines. And that's a unique capability that we bring. No other party can come in and say, I am going to deliver engines to this facility immediately because most people are relying on getting third-party customers to give them business and then move the engines in, we bring our own business. So we're a great buyer for assets at very low cost, low price because we bring our own business to the table.

Okay. That's super helpful, Joe. I appreciate that. And maybe just a quick sort of accounting follow-up for Angela maybe. When we think about the partnership you guys have the SCI from an iconic perspective longer-term, should we think about eventual equity method and inclusion of those earnings or am I thinking about that incorrectly. Thank you.

I think you're asking, currently, we do pick up our equity income related to the SCI partnership now. So, if you asking will we include earnings of that going forward, it depends on materiality that we'll do every quarter and if it meets the materiality threshold for that equity investment then, yes, you're required to include the earnings and assets related to that equity investment, if that's your question.

Yes. Yes. And if I have anything for both, maybe follow-up you guys offline, but that's very helpful. Thanks very much.

I would just add on that as that business grows, the asset side of the business, the management fees from that will grow, and we will break that out as a separate line item and once a -- certain level of materiality, but that could become a significant source of income for us.

Very helpful color. Thank you very much.

Thanks.

Thank you. I would now turn the conference back to Alan Andreini for closing remarks. Sir?

Thank you, Latif, and thank you all for participating in today's conference call. We look forward to updating you after Q2.