Good day, and thank you for standing by. Welcome to the Q1 2021 Fortress Transportation and Infrastructure Investors LLC Earnings Conference Call. . As a reminder, this conference call may be recorded. I would now like to turn the conference over to your host, Mr. Alan Andreini. Please go ahead, sir..

Thank you, Patricia. I would like to welcome you to the Fortress Transportation and Infrastructure First Quarter 2021 Earnings Call. Joining me here today are Joe Adams, our Chief Executive Officer; Scott Christopher, our Chief Financial Officer; and Bo Wholey, the CEO of our Long Ridge Energy Terminal.

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..

Thanks, Alan. To start, I'm pleased to announce our 24th dividend as a public company and our 39th consecutive dividend since inception. The dividend of $0.33 per share will be paid on May 25 based on a shareholder record date of May 14. Now let's turn to the numbers.

The key metrics for us are adjusted EBITDA and FAD, or funds available for distribution. Adjusted EBITDA for Q1 2021 was $47.2 million compared to Q4 2020 of $46.2 million and Q1 2020 of $72 million. FAD was $14.4 million in Q1 2021 versus $54.2 million in Q4 2020 and $96 million in Q1 2020.

On a normalized basis, excluding sales proceeds and nonrecurring items, Q1 2021 FAD was $9.8 million compared to $35.7 million in Q4 2020 and $67.4 million in Q1 2020.

During the first quarter, the $14.1 million FAD number was comprised of $60.6 million from our aviation leasing portfolio, negative $3.8 million from our infrastructure businesses and negative $42.4 million from corporate and other. Now turning first to Aviation. Q1 EBITDA for Aviation of $61 million was a slight improvement from Q4, as we expected.

But also as we expected, we are seeing a meaningful uptick in activity in April and expect Q2 Aviation EBITDA to exceed $80 million. As an example, we have signed 20 new leases for CFM56 engines, of which 8 have already been delivered in the last few weeks.

75% of our fleet is 737NG and A320 CO aircraft and engines, which are flown mostly in domestic shorter-haul markets, which are poised for strong rebound by Q3 of this year with many airlines planning flight schedules that are equal to or greater than Q3 of 2019.

And 20% of our fleet is operating in the cargo markets, which continue to experience record high demand. Thus, our fleet is extremely well positioned for the recovery..

Thank you, Joe. Operator, you may now open the call to Q&A..

. Your first question comes from the line of Josh Sullivan from Benchmark Company..

Nice quarter here. Sounds like you guys have a lot of irons in the fire here. But maybe if we could start with the Lockheed joint venture on the new module store, you mentioned strong initial demand in the remarks.

Can you just elaborate or maybe quantify what that initial response looks like? Any common thread among early adopters as far as customer profile or assets they're registering here?.

Yes. We have a lot of information. We timed the launch on Monday to sort of which the big Orlando maintenance and repair conference started on Tuesday. So that was intentional. And so as part of a marketing -- initial marketing effort, we were with all of -- a lot of the right people to be in front of and a very good response from the target group.

And the target group is primarily going to be 3 different categories. It will be aviation maintenance procurement folks who buy and manage the parts supply and the engine things that are bought from outside for their maintenance businesses. And the modules simplifies their life in a lot of ways. So a very positive response from some very big airlines.

So big airlines who, in some cases, have their own maintenance shops. So it illustrates the degree they're looking at cost savings as well as capital efficiency. So that was positive. .

No, got it. That's all very helpful. And then maybe just a second question. The demand you're seeing on the aviation side, the step-up you're pointing to here in 2Q, it implies some strong sequential activity.

What are you seeing that gives you that confidence? And then maybe what is your domestic versus international travel profile breakdown?.

So we -- when you talk about domestic, are you talking about U.S.? Or are you talking about domestic markets around the world?.

Domestic markets around the world..

So we're about, as I mentioned, at 70% -- 75% of our fleet is A320 COs and 737 NGs, which are really domestic airplanes. So 75%. And we've been consciously targeting that market, and we're going to -- that's likely to keep growing. The rest of our fleet is in the cargo market.

So it's really between -- those are our primary focus, and those are 2 of the best markets in aviation right now. So we're heavily concentrated on domestic, which we like. And what we're seeing is what we thought is there's still a fair amount of inventory and green time available out there that airlines can continue to use before they do shop visits.

So shop visits are being deferred. But airlines are looking ahead and saying, "Look, if I'm going to fly my fleet all out in Q3 of this year and maybe Q4 and Q1 next year because there's a lot of pent-up demand. They're going to run out of capacity fairly soon in terms of engines available. And airlines are notoriously not good at planning.

So they're starting to -- so as I mentioned, we've put out a number of engines on lease, and I think some of those are to carriers that were coming out of restructuring and were coming out of bankruptcy in some cases who need lift and don't have a lot of options.

And then the next group is going to be airlines that realize that pretty soon they're going to run out of engines. And what they're doing now is lining up, we're negotiating lease agreements, WE'RE negotiating -- they're going through inventory, they want availability, they would like engines on their facility available.

So they're starting to get ready for the one they're going to need to lease engines. And there are some RFPs coming out with some airlines looking to specify they want 10 or 15 engines. These are bigger airlines available. So they're seeing it, and we're starting to plan. And so that's kind of the second wave.

And then the third wave is really when you use up all the green time. And that, I think, will be Q4, Q1 of, call it, Q1 of 2022, where people have to start doing shop visits again in good number. And that is -- there's a fair amount of lead time because if you want to get into a shop, you have to order parts, you have to get a slot.

And so that takes advanced planning. And that's, I think, where our module factory really fits in extremely well because if you only need to shop -- if an engine only needs work on the LPT, you don't want to put the entire engine in the shop and wait for the LPT to be fixed. So doing a swap is really very, very efficient.

And as I say, it's disruptive to the way it's done now because people don't do it that way. They think if everything is that's my engine, so don't give me a different module, but it's changed. Airlines themselves do it. And I think the rest of the industry is going to get there very quickly..

Your next question comes from the line of Giuliano Anderes Bologna from Compass Point..

I guess a quick question, kind of going back to what you were mentioning last quarter on the aviation segment. You said roughly kind of there are 3 different components from -- contribution from existing engines, then there is contribution from new investments and then from the kind of parts and maintenance JV initiatives.

Then we got to a $450 million of aviation EBITDA for '21, and there was roughly, call it $50 million or $60 million for infrastructure in '21 is what you're kind of calling for and leaving out the corporate segment.

Kind of curious how those pieces still come together and how you're thinking about that for '21 given kind of the early results in the year..

Yes. Well, we didn't really expect much out of Q1, as I mentioned in the last call, and that has proved to be true because it just restrictions were heavily in place in Q1, as you know, but they're now opening up and everybody's planning for refining. So we're still of the view that the $450 million for 2021 is achievable.

And the components were roughly, I think, it was $320 million from the existing portfolio, $80 million from new investments and $50 million from the 3 JV, the partnerships with Chromalloy, Lockheed Martin and AAR. And so it's obviously going to be heavily back-end loaded.

So a big jump in Q3 and Q4, which makes sense given what I was just talking about. So we believe that that is -- that still our view is for the year. And then on infrastructure, also I think the $50 million is very achievable.

We've got -- as I mentioned, we've got good initiatives now at Repauno with lots of activity around natural gas liquids, and we're sold out for the summer.

And I think that's just going to build, the momentum is going to build there, and we'll come up with new ways to make money on the fact that we're now doing business with lots of different counterparties. Long Ridge starts firing, first fire this month or May and turns on in August. So that will start contributing.

And Jefferson, very helpful about the volumes picking up as well as landing one or more big contracts here in the next couple of months..

That's great. And then moving a little bit kind of to the comments you're making about potentially starting kind of bitcoin mining venture initiative at Long Ridge. One of the most important components of bitcoin mining is usually power cost. And I guess I have a couple of questions there.

I'm kind of curious what your cost per megawatt hour is at the power plant. And then from there, there are kind of 2 follow-ons. One was that you have 2 existing contracts or supply agreements. And I think those -- you have the ability to cancel those because you've been talking about some of the data centers that may have involved canceling those.

I'm kind of curious if it's possible to cancel or partially cancel any of those if it were, the venture were to be successful, I think kind of a. I'm kind of curious if you selected any specific type of bitcoin mining equipment because there are a few different providers out there.

I'm kind of curious if you've made the decision where you have like a specific mining equipment in mind..

Yes. Well, I'll take the first, and then I'll let Bo talk about the equipment. But the -- in terms of the cost of power, I mean, we've looked at a lot of these companies that are starting up and converting coal power plants and other older assets that are being repositioned, and we think we have, by far, we the lowest cost.

And it's several different categories, but the -- and we are already vertically integrated. So years ago, we decided to go develop our own gas. So we're actually vertically integrated back to the gas in the ground and no one has that capability, which means we think our cost of power on the first 20 megawatts is about $12 a megawatt hour.

So that is far lower than we may have seen, and I think far lower in reality than most people because a lot of people are ignoring costs that they just -- are convenient to ignore. So I think we've got 12.

And one of the reasons why the first 20 megawatts is interesting to us and sort of got us thinking is that our power plant is going to be rated 485 megawatts by the manufacturer. So initially, that's the most amount of power you can sell under the capacity auction. So you can get paid for capacity without ever using it.

And it's only the rated amount we can get paid for. Until there's a couple of years of operating data, you can't really upsize that 485, but we can actually produce 505 megawatts. So the first 20 megawatts is the cheapest electricity. Now it's just marginally only -- the only thing we pay for is the cost of fuel.

So that's what got us thinking and gives us sort of the lowest cost of power. But beyond that, we had another -- was it 40 megawatts that we never contracted..

Yes. We have about 457 contracted today..

Yes. So 457 is under these long-term contracts, which is like 94% of production. And so we have another 40 megawatts or 30 megawatts that we could use without terminating any of our existing contracts. That -- the plan was just to sell that into the merchant market.

And then thirdly, if we wanted to go beyond that, we have the right under our long-term offtake agreements to terminate those contracts under make-whole provisions. So think of it like an interest rate swap that if the market moves, you just have to be able to replace.

The counterparty has to go out in the market and replace what they had with us with someone else. And right now, because of the way the power markets have moved, they actually would -- if we elected to terminate those contracts and under the provisions, the counterparty would owe us money. So quite an interesting dynamic. And it's a one-way op.

So we have the right to terminate, but the counterparty does not have right to terminate. So -- and we structured it that way deliberately so we could find other off-takers and then immediately replace those with higher behind-the-meter users.

So really lots of -- I mean, we have tremendous amount of flexibility to grow at very, very attractive prices. We have the most efficient turbine in the world, the highest heat rate is the 7HA.02, which is what we're using. So I don't think anybody in the world has got that sort of firepower against what we can.

So as obviously, the markets become more competitive and people are putting more resources towards it, it's going to be the lowest cost provider is going to win. So that's where I think we have a -- and we're more vertically integrated than anybody in the business that we know of.

Bo, do you want to talk about the machines?.

Yes. So the machines that will start running Monday are the S19 PROs. And then for the next batch that we're looking at most likely the S19 J Pro, which is the newest model and one of the most efficient in terms of energy usage..

And there are 100 terahash per second or 110 for the , right..

That's great. That's very helpful. I just had one very quick one and then I'll jump right back in the queue after that. I really appreciate all the help. I'd be curious kind of what the other -- the power cost is kind of -- you kind of identified the roughly, call it, $12 per megawatt hour for the kind of access component.

I'd be curious how as you go further down the structure kind of what the average is if you -- with kind of the core production capacity and kind of where that cost might shake out..

Probably $16, $17..

Yes..

Yes..

I think order of magnitude of $16, $17, and that would be represented for the entire remaining capacity..

Congrats on all the new initiatives..

We have the line of Chris Wetherbee from Citi..

Joe, maybe if we could start on the aviation side. I mean, you mentioned obviously the ramp-up that you're expecting in the second quarter from what you did in the first quarter. If I look back over the last couple of years, and obviously last year was a significant under-earning year.

But I wanted to kind of get a better sense of what the portfolio looks like today and what the potential initiatives that you're working on look like in terms of a walk from where we were last year.

Could you sort of help sort of build the pieces back up so we can get maybe more of a clean run rate of what aviation is capable of on an adjusted EBITDA basis when some of these new initiatives are in place?.

Yes. So I think what we've done is we've moved more towards the CFM56 engine, which I think now is about 50% of our total investment. So that's probably up from maybe 30% prior to this period. And we have a couple of other deals that we're still working on that we think will add to that and grow that. And then we've also increased our cargo business.

So I think that where you've seen the decrease has been in 767 passenger business we had, and some 757 passenger. And so I would say those 2 have gone down in the CFM56 and cargo have gone up. And so that's strategically, I think, where we've been -- we decided really 2 years ago to start doing that and then accelerate it with the pandemic.

And then on top of that, what we've expressed is that we want -- not only do we want to earn 25% EBITDA on invested aviation capital, but we want to develop revenue and EBITDA from other services that are not tied to owning assets. Think of the Chromalloy, Lockheed Martin and AAR, which we say we think we can earn $50 million this year.

And that number on the upper bound is somewhat unlimited in that. And I think the -- we talked the last time about how do you accelerate that and you get airlines to basically let us outsource the maintenance of their CFM56 fleet. And I think that the module factory is one of those moments where you say, that's how we do it.

That's exactly, that's the mechanism. And it isn't that complicated. And it allows airlines to sort of use that service on an ad hoc basis as they want without going through some major RFP process that involves the OEM and 10 other people. So you can deal with solutions that save the maintenance department a lot of money.

And it's very accessible, easy to use, allows them to be flexible in how they use PMA, for example, that's not sort of in the face of anybody. So it's the solution to what we were looking for. So I think that number is unbounded. I really do..

Okay. Okay. That's helpful. And then I guess maybe a question on Jefferson. So I'm kind of curious your take here. So obviously, some rail M&A news has been sort of building over the course of the last couple of weeks, in particular the last 2 weeks. And so I was curious what your perspective is if you have one.

There's 2 potential competing carriers for the KCS assets. You guys obviously get served by KCS at the facility.

And as that business continues to sort of develop as you've gotten access to incremental refinery production, do you have any take there? Is there any sort of view on where you'd like to see that transaction go? Or do you think there is any impact at all on Jefferson as a result of the transaction? Any thoughts you have there would be helpful.

I'm curious sort of how this plays out for a critical rail shipper..

Yes. We have a point of view, and we've been engaged with both the Canadians who are looking for support. So I think it is an interesting dynamic. And never some -- it changes too. So as you think about the different permutations and options. But I think that it's going to work out better for us. I think we've gotten a very good dialogue.

I mean it's amazing how quickly how they return your calls and things like that. So it is -- we are focused on sort of developing a long-term flow of products from the Canadian market by rail. And that probably involves the DRU. There's one that's being built, that's about to be finished. And then there's a couple more that are being planned.

And so we're having good dialogue with both of them. And I ultimately think if they have a -- if there's a Canadian carrier that has a through rate all the way to Beaumont, that that's good for us and good for the customers. And also, it might enable us to make sure that there is no -- there's no way that we get cut out either.

And so you get most favored nations no matter what happens. So I think we have our thoughts together. I think it's going to be good for us. I think the dialogue around the plans are much accelerated and much more open maybe than they were before.

And it's a multiparty dialogue too, because not only are we talking to the K and railroads, where we're talking to the Exxons and Motiva who are impacted and also thinking about it. So it's fun, I think..

Yes, I can imagine that they're being fairly responsive. Seems like an interesting opportunity for you guys potentially to maybe benefit from all this, but that's ample perspective..

And we also -- Exxon has a big move. We do a lot of -- we're doing like 30,000, 35,000 barrels a day to Mexico for Exxon, and that KCS is the carrier. So that's going to be impacted. So there's a lot of things going on, but I do think it's -- ultimately, it's usually good for the shippers..

Next we have the line of Robert Salmon from Wolfe Research..

I guess kind of another topical, IM has been the President's kind of infrastructure plans.

Could you discuss some thoughts about potential government grants to help reduce FTAI capital for both in terms of the magnitude and timing just given how many project-ready investments you have across the entire portfolio?.

Yes. So it's -- that's another area of a lot of focus and interest because, for instance, last week, we were talking about Repauno in New Jersey. And I think there's 4 government grant programs that we're looking at right now that potentially we could apply for and could involve grant money. So that's a good example.

There is one at Long Ridge, which we already have, and I think we can supplement that as well. And yes, there's going to be a lot of -- I mean, as the plan starts to take shape, there's obviously some key elements to. A lot of it is green-focused. So that's going to be something we're thinking about.

We've got a number of initiatives on new projects around that, around ammonia, around hydrogen, around plastics recycling. So yes, I think it's great because you do have to have projects that are semi-ready. They're not all going to be shovel ready.

But if you have something with semi-ready, it's so much easier to get money than if you're in the permitting phase and you have to do an. That's like 4 years. So I think it's -- I think we're going to figure out. There's going to be some good things we're going to be able to tap into..

Got it.

But probably a little bit too early in terms of figuring out what that can mean from a capital investment avoidance or the time line?.

Yes. But I'm pretty sure we're going to get some -- I mean, I remember at Rail America, we got, I think like $300 million of government grant money over a 7-year period. So it was huge. And there are projects that come up that you never expect. So it's going to have an impact.

There's, I mean, trillions of dollars invested, and I think we're going to -- it's going to be beneficial..

That's helpful.

And then I think -- if I think bigger picture about some of the proposed changes in taxes, including kind of capitalized -- capital gains and carried interest, will that have any impact in terms of your bigger picture plans to kind of unlock some value by spinning off kind of aviation and infrastructure or how the manager is compensated or even how you guys monetize assets more broadly across the portfolio?.

I don't think so. I mean we've started thinking about that. Obviously there's very little to look at yet in terms of specifics. It's mostly concepts. But so far, setting up the U.S. C-Corp is not anything that -- it might be that instead of a 21% rate, you pay 28%, but everybody is going to be in the same boat.

And if there's a minimum tax, maybe you don't get to shelter as much income. So -- but it still makes it -- it's still a better structure for us to get rid of K-1s, and that's something that we are looking at, and it's on the target list of things to do.

And hopefully, we'll be able to do something at the end of -- by the end of this year, but that's -- we're working on it. And I don't see any impediments..

Next we have the line of Justin Long from Stephens..

So Joe, you gave the guidance for the aviation business to do over $80 million of EBITDA in the second quarter.

But could you talk a little bit more about what you're expecting for aviation EBITDA in the third and fourth quarter just as we think about the exit rate this year and how that sets the stage for 2022?.

Sure. Well, if you do the math, it's going to be over $100 million for each of the Q3 and Q4. So that's -- it's pretty simple. How much, we're thinking, obviously Q3 historically has been one of the biggest quarters and that's where you can high utilization, and we can get -- everything is moving.

But I also think that this year I expect to be somewhat different in that you can't -- I mean, people have a lot of trips that they haven't taken for the last 15 months, and you can't take 10 trips in a week. So I think there's going to be a rollover.

And the seasonality I think in this year will probably be less than it has been historically and that people will be traveling in Q4 and Q1 to see their relatives or their customers, their friends or just to get out of wherever they have been.

So I think that the flying levels are going to -- should be sustained, I think more so than they have been in the past. So that's kind of the rough guidance. So we're expecting a good fourth quarter as well..

Okay. Got it. So 3Q and 4Q, it sounds like maybe pretty similar. I know the other element that I was thinking about was just the parts and service business and some of the partnerships you've announced and how that could ramp. But it sounds like a pretty even split in the back half between the 2 quarters..

Yes. I think that some of the initiatives could -- there's a little bit of a flywheel effect that you get bigger as you go. And you might do more part out and more trading in the fourth quarter than we have in the third quarter. Because in Q3, you want to use everything you've got. People will be hoarding.

And Q4 will probably be more trading opportunities. But I think it will be better than any other year, but it's -- they're comparable, I think..

Okay. Great. And then just a bigger picture strategic question. I know there have been discussions on prior calls about splitting up the company at some point.

Any updated thoughts around the probability of that materializing and the potential timing of that decision?.

Yes. We have -- it is on the list of priorities, things to do. And I think we have a couple of other items we need ahead of that. But then, I believe it will be a fairly top of the list, and hopefully we get something done by the end of this year. That would be my personal goal.

Not a stake in the ground yet, but it's a goal that I think is something we all agree we want to do it..

Next we have the line of Robert Dodd from Raymond James..

And congratulations on the outlook. If I can go to. You said -- I mean, basically, you sold out through the third quarter. Can you give us any color on, there's congestion in other areas of shipping, et cetera, et cetera.

How is the competition to get slots at La Pano and our basic -- are the customers, potential customers starting to try and talk to you about longer-term deals to kind of lock up either dock slots or storage shots or anything like that longer term rather than an as-needed basis?.

Yes, they are. Quite a good commercial response. And I think it gets to the -- what we always felt was that before you are in operation, people are inherently skeptical and not willing to commit because they've seen too many projects that didn't complete. So the big step for us was in January, loading that first vessel, being in service.

And now we're basically, we've got 30 ships. We're going to be very, very busy for Q2 and Q3, which is seasonally the very, the strong market for propane and butane. But the number of PDH plants being built around the world and the volume of export of natural gas liquids continues to grow.

And we are really the only other terminal, the Marcus Hook, on the East Coast of the United States. So I think the commercial response has been great. So now it's about how do we grow -- how do we expand our capacity because as you point out, we will be -- our slots, our dock will be occupied pretty much fully in second and third quarter.

So then the next expansion is going to be a dock 2 and additional underground storage. And we're in the process of getting both of those permitted. So that's the sequence.

I think once we have -- this summer's over, I think our plan is to go to offtakers and try to get multiyear commitments from them by the end of this year for that additional capacity. And also the other thing we're looking at, right now we're primarily going to be rail served. And so we're also looking at other options for connectivity, meaning pipes.

So that would be another big jump up in terms of capacity and efficiency..

I appreciate it. But one quick one on the aviation side. Can you give us -- a full shop visit obviously it takes a month, I mean not just the booking time but the actual time in the shop. What's the time differential between a full shop visit, a module swap because obviously we can save people $50 million on the cost plus 3 months, right, that's it.

It's not just the cost, it's the time versus, say, and then an on-wing module swap, how fast, is that a fly in, fly out like 2 days later kind of thing?.

Yes. But you can't -- you couldn't do a module swap on wing, but you can do certain repairs on wing. I mean we're looking at -- and doing more of them is sort of very efficient. So there are partnerships we're talking about now to do -- to provide that on-wing service.

That would give us really a more -- it just expands our portfolio of things we can do to save everyone's money. In terms of a module swap in a full shop is that you're talking about the difference in time is probably between 6 months for a full shop visit versus under 30 days for a module swap.

So you can go -- you can show an airline, and we've done this in million dollars of cost savings just from that, the time savings. So there's a huge amount of money involved in savings through people figuring out how to use this service. And we today have 43 modules in inventory.

So it's not like you're going to a store that's about to open and say, do you have anything or can I preorder. It's like we have it. So the savings are going to be -- people are going to learn and then they experiment and they say, "Well, I could do that." And it's -- we think it's going to be quite a big thing..

Next we have a question from the line of Ariel Rosa from Bank of America..

So I want to start on the aviation side. Obviously, last year, thinking about acquiring aviation assets was kind of toxic in some spaces. And increasingly, as the market improves, it seems like basically consensus that demand for air travel is going to continue.

I'm wondering, has that changed the availability of assets as you look to build the portfolio? And do you think the pace of asset acquisitions potentially slows because of that? Or how do you see that kind of playing out? And how has the market evolved for aviation assets over the last couple of months?.

It's a good question. The -- I mean, typically, when you have these severe downturns, I mean, the answer is we think there will be a very good market for investing in additional assets and particularly assets that are off-lease because that is something that's very tough for -- anybody with a portfolio doesn't want to have more assets off lease.

That's really where I think our primary opportunity will -- has arisen and will arise. And typically, when you get a severe downturn at the bottom and everybody knows here in the worst times, no one wants to sell. And so there are some great deals, and we've picked up a few, and we've bought some.

But generally, the volume is not very significant because nobody's -- people are not that stupid. They know it's -- this is not a good time to sell. But as markets start to recover and prices have moved up, and they already have, I think, a little bit. So if they were down 40%, now they're down 30%, then I think you start to see a lot more volume.

And so I think we'll see a number of cleanup trades where people are saying I've got 10 aircraft off lease, I just want to get rid of them. And that is starting. So I think we're going to -- and you also still have airlines looking at fund going to phase out of my older assets and buy newer assets, then I'll do a sale leaseback.

So I think the market opportunity is going to be good because of that. It's not the rock-bottom steals that we might have seen in 2020, but it will be good prices that have a lot of upside, and I think it will be more volume..

So within that, Joe, any expectation on kind of what the portfolio looks like in terms of assets by the end of the year?.

Well, we've -- historically, we've invested between $300 million and $500 million in assets a year. I would suspect we'll be in that range, potentially higher, but that's more episodic. It's harder to project. And maybe by the end of this year people will be doing more of these cleanup trades, as I said.

So I think that that's still a good number to plan with..

Okay. Great. That's really helpful. And then just turning to Jefferson. Congratulations on completing pipeline construction with Motiva. Just obviously, building a pipeline implies a long-term commitment.

I just wanted to get a better understanding of how you're thinking about structuring those contracts with Exxon and Motiva and how you guys are thinking about that long-term commitment and maybe how you're kind of anticipating the short-term benefits balanced against kind of those -- the longer-term outlook for the pipeline?.

Yes. The goal is to get 5- to 10-year contracts. And the first few deals we did were shorter because we wanted to get -- the first deal we did with Exxon was a 3-year deal on refined products. Then we built 6 pipelines, and we didn't really have much of a commitment.

Now we're talking about extending those terms, as I said, between 5 and 10 years and adding a lot of volume to it for contracts between 5 and 10 years. Motiva, we did -- the first deal we did on the storage thing. They contracted for 1 million barrels of storage.

And the deal is structured so that if we never built the pipeline, the term on the storage was 3 years, but when we complete the pipeline, those storage contracts changed from 3 years to 5 years. So that's exactly what they wanted. They wanted the pipe be built because that's more efficient for them to save them money.

So I think that's the goal, is 5- to 10-year contracts. There's obviously -- sometimes you'll do a shorter deal to get to get in and get started and then look for growth, which usually happens. I mean that's -- the beauty of this business is usually people go -- they add things. They don't take things away once you're wired in and once you're set up.

The other market that we're still -- Canadian market has been an on and off market, and it's sort of not ideal because you don't want to just be moving barrels when the ARB is open. So the key to that I think is the DRU. The DRU makes it a ratable flow. And if people invest in hundreds of millions of dollars in the DRU, it can only move by rail.

So there I think you can get 10-year contracts. And there is one that's been built that had a 10-year contract, and we think more will be built. So ideally, I'd like to transform that Canadian move into a 10-year fixed contract which I think is doable. And I think we're closer to that than ever before..

Your next question comes from the line of Brandon Oglenski from Barclays..

Joe, I just want to come back to the quarter's $50 million guidance for aviation EBITDA this year. Because I think in the back half of the year, it would actually imply something closer to like $150 million run rate for 3Q and 4Q.

Do we have our math off there? And maybe what are we missing?.

No. It's obviously -- yes, if we have -- we had $60 million in Q1, let's call it, more than $80 million in Q2 as you're close to $150 million, you get to $450 million, that's $300 million. So you've got to come up to $300 million in the back half of the year. That is correct..

I guess, is it utilization in the fleet? Or can you speak more to how you're going to get paid on this module idea with Lockheed because we do understand it's a partnership. So where do you generate the revenue and the EBITDA opportunity from that? So every module swap or exchange or sale, we're estimating $0.5 million or more in EBITDA.

So we think that there's potential for that. We have 43 modules in inventory right now, and we expect that we would hope to turn those frequently. So it is -- some of the income obviously comes from that, but we also have the Chromalloy joint venture, and we have the AAR part-out business as well.

So that -- the USM, the AAR deal on the part-out has been very well received and is actually fully operational now, and we have torn down, I believe, like 7 engines. So it is -- and AAR is very happy with it, and there's large -- there's a lot of demand for USM. So really it's all of those things.

It will be increased flying, which generates a lot more maintenance reserves from the portfolio, it will be Chromalloy, it will be AAR, it will be the module factory, and it will be the part-out business all combined..

Okay.

So still confident that the full year will be $450 million? It's not like an exit rate of $450 million?.

No, no. Yes..

Okay. Understood. And then I guess just last one for me, Joe. Strategically, infrastructure has obviously been the one that we've been waiting to get pretty solid contribution from over the years.

Just wondering if the cryptocurrency opportunity, obviously, it could be very lucrative for you, but I think that would involve another capital outlay and introduce volatility.

So is that the right step forward, especially as you think about potentially separating the company in the future? Well, I do think when you think about that business, the integration with low-cot energy is, it's very compelling.

And so that's kind of what drove us to think about that is when you think about the highest and best use for electricity, it's $150 a megawatt hour today versus $30 million for industrial activities.

So really it's -- I don't know exactly where that will go, but it felt like worth exploring and figuring it out so that we can -- because we do have an asset. We have so many people coming to us saying they want to use our asset and they wanted to make all the money.

So I think well, it's not that hard to buy the machines we did in the business, so why don't we make the money and then see where that leads us. Whether that's a separate activity or where it evolves or how it turns into, it just felt like a good -- we have one of the best assets in the world for that activity right now.

And it happened to be, we got lucky that it's actually coming online in August with bitcoin at $50,000. So it was really -- it's a little opportunistic in that sense and how it evolves into infrastructure and how people think about it as TBD. It's not that much of a capital outlay. And paybacks are under 2 years.

So I think the breakeven on getting your money back on bitcoin is like $20,000, so. And you can stop the activity, you don't have to keep doing it.

And some people say, it's really volatile, volatility is a negative, and it's like, well, I don't know, if bitcoin goes to $100,000, we'll have all of our money back in a couple of months, so why is that bad?.

. Your next question comes from Devin Ryan from JMP Securities..

Okay. Great. Most questions have been asked, but I want to ask one just about the dividend. I think before the pandemic there was a lot of talk about progressing the dividend or at least moving towards an increase.

And obviously the past year I think was a good reminder around capital and potentially over-capitalization and the ability to be opportunistic as that you guys clearly have been.

And so, just maybe to talk briefly about how you guys are thinking about the trajectory of the dividend, just kind of taking that in consideration, also just the fact that there's so many compelling opportunities to deploy capital back into the business for growth right now. So just if kind of thoughts have changed or evolved around that..

Yes, it hasn't really changed. Obviously, we're looking to maintain a 2:1 coverage. And towards the back half of this year with the numbers we're looking at, we would be greater than that. So we would potentially -- that would put us in a position where we'd be looking for a dividend increase. So we haven't changed our philosophy on the dividend..

Okay. Great. And then just one last follow-up here on Long Ridge. Really interesting conversation on crypto, especially kind of given your clean energy angle. So I think it makes a lot of sense.

Do you have -- I guess it's early, but is the intention to hold kind of bitcoin beyond kind of operating costs? Or have you guys kind of thought that through if you're comfortable? You're holding it on the balance sheet or you just want to sell it as you mine, if there's kind of a consideration there.

And then I'm assuming that with this kind of increased opportunity, this probably pushes off the thoughts around selling the remaining stake in Long Ridge or potentially, maybe doesn't make sense to do it all to the extent there's this terrific kind of newer opportunity. So just maybe a little bit more flavor for that as well..

Well, there's a lot there. As you can imagine, we've -- I mean our base case right now is to sell the coins that we mine as we mine them. But it obviously is something that we should think about in terms of buy, sell, hold. And we have -- but our base case plan is to sell as we mine them, that's the way we looked at the model to date.

But obviously there's flexibility there. In terms of whether it accelerates or not, the disposition, it's really a valuation issue. I mean when you look at some of the other public comps that don't stack up, I think, as well as we do, the valuations are astounding. So I don't know whether it -- what it does to our timeline on holding.

It really is -- it's hard to know..

Your next question comes from the line of Frank Galanti from Stifel..

I wanted to dig into the P&A business a little bit. And kind of ask about the -- if there's been any progress on acceptance of the part from the broader community.

I guess specifically, how many parts have been sold and how many have been put into your engines so far? And then, how many engines have you repaired in the Montreal facility and what percentage of that has been yours?.

So I don't have actual specifics on every one of those questions. But we have -- in the Montreal facility, everything that we've inducted is ours. So it's not for third parties. So we're using that for our own. Our own assets are in there. And I believe there have been like 30 engines inducted, something like that.

I can get -- we can get you an exact number on that. But those are all our engines. The PMA, we have ordered sets, I think we ordered 10 sets of the vein. So -- and those -- I don't know if any of those have yet been installed.

I mean we have the -- we received them, say, a month ago, and we're planning the installation of those as we have outlook for the rest of the year in terms of shop visits. So I don't know, there are a couple of other airlines that have also ordered those parts from Chromalloy.

And I don't have the exact status as to where -- I know one of them has been installed, but I don't know the status of all of the deliveries so far.

And what was the other?.

No, I think you got most of it. I guess just following up on that, the Montreal facility, you said roughly 30, directionally is fine.

But the intention for that is over time to have third-party engines in there, correct? In addition to your own?.

Well, when you say third party, I mean we would be -- so the inventory at modules that we have are all in Montreal, they're all 43 our engines. So those are -- so we're not managing shop visits for other people at that facility. Those are our engines that we own..

Okay. That's helpful. And then kind of switching gears a little bit to the Jefferson facility.

With the pipeline completed and a little bit of progress potentially up north and with the DRU, do you have like a base case long-term profitability outlook for that asset, right, with several hundred million dollars invested, I guess, what do you look at as like a base and upside case for what those assets could realistically earn?.

Well, I think we've indicated in the past, we believe based on the assets we have today, we could generate $150 million of EBITDA out in the future. And this year obviously we projected a ramp such that we would be exiting the year at 80. So then it's a question of how you layer in that incremental business and when does it kick in, in 2022 or 2023.

How do you -- what's the ramp on that? We don't -- we haven't given a specific quarter-by-quarter estimate on that..

Okay. No, those general numbers are fine. And one last question, if I could.

Can you give us an update on CapEx needs for the company outside of additional engine purchases, right, that $170 million LOI, what CapEx is needed to kind of keep the aviation business operating? And how does that compare? So like how does this year, kind of a weird year, compared to a more normalized environment? And then what additional CapEx is needed at the other 3 infrastructure projects?.

Yes. So one way we've talked about maintenance CapEx is if you were to do the shop visits for every engine that we own, when it's due to be done, which is not something you necessarily have to do. We estimate that to keep that fleet running permanently would be about $50 million per annum of investment per year.

So think of maintenance CapEx on the existing aviation assets as roughly $50 million. The second part of it is the capital expenditure programs we had for Long Ridge, La Pano and Jefferson are really behind us. So other than new contracts that we would get, we don't really have significant CapEx at those investments today.

But we're hoping we will have CapEx. That's not a bad thing. It's just we would only do it to expand and grow at this point.

And obviously, the biggest one would be if we expand Repauno with additional, say, for instance, 3 million barrels of storage, which is what we're sort of our target number of underground granite storage caverns, that would be another $300 million of capital. But we believe that we could generate $150 million of EBITDA from that.

So that's the biggest one that is out there remaining, but it's not committed at this point..

And I guess just on Long Ridge, on the bitcoin investment, what's the CapEx requirements for the various projects, like the 20 million -- sorry, 20 megawatt power. How much do you need to put in mining equipment to….

About $70 million, I think. So the first 2 million -- first 2 megawatts represents about, I think, 630 machines, and they're about 11,000, 12,000 today, they're a elevated price. So if it's roughly about $7 million for this investment that we're making in August. And it would be 10x that if we wanted to go to $20 million.

And we also have a -- we have a 50-50 partner at Long Ridge, so we'd expect that to be halved..

We have a question coming from the line of Robert Salmon from Wolfe Research..

So just to piggyback on the discussion in terms of Bitcoin.

Can you give us a sense of what the sensitivity is to changing in bitcoin prices to what kind of FTAI's annualized EBITDA would be if you're thinking whether you want to talk about the two or talk about the 20, just so we can get a sense of how that would impact our models if we see prices gyrate either upwards or downwards..

Yes. So I could speak to that. Yes. So just if we want to take a sensitivity of, let's call it, 10% a year price -- whether this is an increase or decrease, it's about call it $12 million of impact, EBITDA impact in either direction on the 20 megawatts.

So I think Joe touched on the -- at today's bitcoin prices, it's about a $45 million per year EBITDA increase of 20 megawatts. And so if you move bitcon price up or down, let's call it $12 million a year of EBITDA impact..

That's really helpful. And I guess the other kind of real quick follow-up that I had is with regard to the aviation expectations for the second quarter, can you give us a sense of what you have built into the model from a maintenance revenue perspective? That's obviously been really depressed the past couple of -- the past two quarters.

As well as kind of the other revenue contributions from the JV just so we -- if we're seeing a better underlying demand environment just so we can kind of better sensitize our models for either upside or downside there..

Yes. So the maintenance activity, we're seeing a big uptick in maintenance in flying hours in April. So call it, what, probably 30%, 40% increase in maintenance revenue from Q1 to Q2. And that's just April, which we don't know obviously the rest of the quarter yet. And then what was the second question? The JV contribution..

I was just curious how much, the contribution from maintenance versus other revenue. But that kind of gives me enough of a sensitivity there. I really appreciate the time and follow-up, guys..

Yes. It's probably order of magnitude $10 million or so from that in Q2. Up from negligible in Q1..

I am showing no further questions at this time. I would like to turn it back to Mr. Alan Andreini for any further comments. EQAA.

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

Thanks..

And this concludes today's conference call. Thank you all for joining. You may now disconnect..