Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2021 Fortress Transportation and Infrastructure Investors LLC Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alan Andreini.

Thank you, April. I would like to welcome you to the Fortress Transportation and Infrastructure second quarter 2021 earnings call. Joining me here today are Joe Adams, our Chief Executive Officer; and Scott Christopher, our Chief Financial Officer.

Thank you, Alan. To start today, I'm pleased to announce our 25th dividend as a public company and our 40th consecutive dividend since inception. The dividend of $0.33 per share will be paid on August 30 based on a shareholder record date of August 16. 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 Q2 2021 was $68 million compared to Q1 2021 of $47.2 million and Q2 of 2020 of $66.5 million. FAD was $68.3 million in Q2 2021 versus $14.4 million in Q1 2021 and $47.3 million in Q2 2020. On a normalized basis, excluding sale proceeds and nonrecurring items, Q2 2021 FAD was $15.7 million compared to $9.8 million in Q1 2021 and $38.2 million in Q2 2020. During the second quarter, the $68.3 million FAD number was comprised of $116.2 million from our aviation leasing portfolio, negative $2.5 million from our infrastructure business and negative $45.4 million from corporate and other. Now starting with aviation. Aviation experienced a meaningful increase in activity in passenger markets in Q2, and our portfolio of engine products and services is picking up momentum. While we achieved our goal of $80 million of EBITDA in Q2, up from $60 million in Q1, we are seeing a slightly slower ramp due to continuing COVID travel restrictions related to the Delta variant, particularly in Europe. As a result, we're now projecting 2021 EBITDA of $400 million as compared to our previous projection of $450 million for the full year. The engine leasing market is particularly strong as airlines look to ramp up flying while continuing to minimize maintenance capital spending.

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

And your first question is from Josh Sullivan with Benchmark.

Hey, good morning.

Good morning.

Just a question on the new 12-plane lease order you have with the major U.S. airline there. Can you give us some color around that contract? There is a new relationship, what's the total opportunity there? Do you think this is going to attract other U.S. major airlines of similar caliber going forward?

Yes. We're very excited about it. It's a – as I mentioned previously, we've – I think given the pandemic, we've been able to access airlines that previously would probably – we would not have had as much access to. And part of it is just the need they have for capital, but also part of it is to focus on the engine side of the business. So we see that as a door opener for more business, but also the ability to integrate our products offering into the mix in terms of the equation. So when we go – when there is shop visits are – we can be talking about module swaps PMA, used serviceable material, and we're already doing it that to some level with this existing airline. So it gives us the opportunity to increase the volume. One of the prohibition is obviously, people has always had – if you have an asset that's owned by a leasing company and you want to put PMA in it, usually the leasing companies have been prohibited that. We actually, if we own the asset, we have the ability to give ourselves permission. So – and that we can resell at a very, very low cost. So I think it is a door opener for us to – as I said, vertically integrate provide a broader range of services than anybody has ever done before and actually save us money. So – and we see very – I think the level of interest in both USM and PMA is very, very high. So I think as this picks up, it's going to give us additional ways to do business with big carriers.

And then maybe just more broadly, if you could just give us color generally on the leasing market or durations extending on leases, how is the lease up marking responding to the uptick here in the double variant?

Yes. I think the engine leasing market is heading up very nicely. I mean, we're not doing any – I think the era when people were doing power by the hour deals is over, lease rates are turning up, terms are extending out. So I think it's – the recent deals we've done in the engine side are virtually as good as what we were doing in 2019. And I think it's going to go higher. It's basically laws of supply and demand, as we know that everybody is deferring maintenance as much as they can. And so they're starting to line up assets and they're lining up engines in particular for longer-terms. So we're getting – and our portfolio is now extended out 18 months and we're signing up. We just signed up deals with a large airline that have a three year term. So I think rates and terms are going up. And maintenance reserve rates, which is also another sort of very important economic part of the lease are – has never really went down. And the manufacturers, – the maintenance reserve rates are set by taking the estimated cost of the shop and dividing it by the number of hours and the OEMs keep raising the parts prices even in this pandemic period. So maintenance reserve rates are still very strong. So all in all, I think the engine lease market is trending up very nicely.

And then if I could just sneak one last one in here. Can you just talk a little bit about the market for GE56 assets on the secondary market, just what you're seeing at this point?

Yes. So most of what we've been trying to do is buy older A318, A319s, 737, 700s, and then get rid of the airframe. So we're buying engines, buying a whole plane and then scrapping the airframe. And the acquisition – that way makes the most sense, we've been acquiring assets at probably the lowest prices we've ever bought them at, sometimes lower than $1 million for an engine. So that's been very fruitful, we added 27 new engines in the second quarter, which is one of the reasons our utilization looks a little bit lower, because we found some really good investments to put on the books. And that reflected about 10 points of utilization, so really it's more like 65, but that's the best way to create an engine today, because there is very – there very few buyers for off least older assets. If you have not – if you don't have revenue stream attached and it's an older asset, we might be the only bid. So we like that dynamics.

Okay. Appreciate the time. Thank you.

Yes.

Your next question is from Guiliano Bologna with Compass Point.

Good morning. I guess, following on a similar topic. You were talking about some lease rates moving higher and there is been some industry discussion around that point. I'd be curious, not necessarily specific dollar wise, but I'd be curious from a magnitude perspective kind of how much lease rates have moved at least on a percentage basis, we kind of where they were and kind of are they out 5%, 10%, 20%? I'm just curious from a magnitude perspective, how much of these rates have been moving for specifically CFM56 engines?

Yes. I would say that probably from the pre-pandemic to the bottom of the pandemic, we’ve probably declined 25%, 30% to the worst. And I think most of that 25% to 30% now has gone. It's in fact very close to pre-pandemic.

That's great. And then thinking about the aviation business, kind of a little bit more holistically. You obviously have the module factory, which seems to be kicking off and cheers things in early success. I'd be curious if there is a sense of kind of the magnitude of the – or how big you could grow the module factory from a kind of a throughput perspective, because you obviously have to have some engines and inventory and kind of what that opportunity could look like over time?

Yes. I mean, you have to have some engines in inventory and we currently owned 200 CFM56 engines. So a lot of the airlines we're talking to right now are looking at – starting with programs that could be 10 or 20 year to talk about 10 or 20 modules. But they have fleets that could be 100s of engines. So they're looking at that as really a starter kit. So we think that basically we can grow, if we get people started doing it, then it has a flywheel effect and you can just grow with them. So our 200 engine fleet might grow to 300, 400, just remember there is 22,000 engines in the world of this type. So going from 200 to 400 to 600 doesn't really move the needle. And so, I think we can scale our inventory along with the needs of the customer, but the upside of, how many could people do is really very significant. Once they integrate this into the way they operate on the maintenance side, it's quite significant. And then, if you put on top of that, you add PMA into it, which will start to happen next year, it could become even much bigger.

That's great. And then just thinking about the kind of the split of the business, you obviously have a few different components that should be a decent contributors starting next Transtar into numbers, you guys have put out so far about $80 million, you have about – $70 million to $80 million is kind of the discussed run rate for Jefferson, which I'm assuming should be scaling up now that all the pipelines are complete there. And you have another call it $60 million from the power plant kind of $15 million from Repauno, that puts you into $200 million, obviously this pricing overhead that would get allocated to that segment, so is it a decent business. Kind of looking beyond that you the Exxon deal, but then, you're making some comments about Repauno and expanding critical $3 million of storage, which kind of sounds like the old Phase 2 that had been discussed. I’m curious if there is anything changed to kind of the Phase 2 project or outlook, because it used to be called at $500 million of CapEx ballpark, and then the expectation was $150 million of EBITDA. Are you still pursuing that similar strategy and is that what you're referring to in 24?

Yes. That was very intensive of the completed Phase 2. And it hasn't changed, we've zeroed in on more, I think we're specifically on exactly what we need to build and when we need to build it. And the capital expectation, I think is less than $500 million at this point, partially because we've invested already some of the infrastructure that's going to be used. So it's – I would think of it's more of a $400 million. And the other thing is changed, as I've listed about eight different products. When we first started this, we were thinking propane, butane, but we've had lots of different ideas from people coming to us and actually suggesting propylene as an example, or some of the natural gas liquids, condensate some refined products. And then we've had further discussions that fairly recent about pipeline connectivity, which would also expand both the capabilities, as well as the product offerings. So I think it's only gotten better in terms of the upside and the capitals is probably a little bit less than what we had forecasted. So it's – if I didn't sound enthusiastic saying it, I am extremely enthusiastic because it's all happening and the conversations are live and real.

That's great. I appreciate all the insights and I'll turn back in the queue. Thank you.

Yes.

Your next question is from Chris Wetherbee with Citi.

Thanks, good morning guys. Maybe just touching on Jefferson here, obviously getting the Exxon deal done was a great step in the right direction. It seems like there is probably a decent amount of storage opportunity or space to fill up the facility. And I guess it's probably building interest in coming to you guys. I don't know, Joe, if you can maybe deal with a little bit of color in terms of what sort of the deal prospect pipeline looks like at Jefferson right now? I'm guessing there is probably a couple of deals in the hopper that maybe could be coming through fruition. And then maybe if you could talk about what the timing of that might look like? I don't want you to trump around what you have here, but I'm just kind of trying to get a sense of what the ramp up might look like.

Yes. I think we've – we continually, every time we do a deal or we have a meeting, we end up with a longer list than when we started, so that's the fun part. And so we've got multiple projects, sort of a handful of projects with each of Exxon and Motiva that are real. I would say that they always were these large entity sales take longer than we would like. But we do get there, that's one of our sort of – we seem to have staying power in these negotiations. So we – but the number of opportunities there are significant and it's on both refined products and crude. And if you think about from a macro point of view, these are the two – in 2023, Exxon will be the largest refinery in North America. So it's 600,000 barrels a day in and 600,000 barrels a day out and the same for Motiva. So you're trucking over 1 million barrels a day right in our backyard. So we have lots of things that happen in and things that we don't even anticipate, like importing fuel oil, for example, we would never have guessed that that's something on the radar, but that becomes a topic or storing an intermediate. So a lot of these things come about, because you just have regular conversations. But there are many, many different projects once you get connected and once you're in a regular dialogue. Timing wise, the building of this storage takes about a year, so it's – we have probably the lead time on a lot of these projects to do that. Now that we have the pipes though, it's a lot easier, because you can go and say, we have a connection already, so we don't have to worry about that part of it. And so – it's mostly these discussions I would say that the typical lead time would be nine months to a year.

Okay. That's helpful. I appreciate that. And then just making sure I understand here, I'm going to go back to the aviation guide, the 50 million there. Can you – what are sort of the variables that sort of – could drive that to 400 that maybe leave that a little bit higher than 400 or maybe create some risk to it? I guess, I just want to make sure I understand for the most important dynamics of that guide or as we think about hitting that for the rest of the year.

Yes. The two biggest movers would be the number of flying hours. So as airlines ramp up flying, our revenues increase on the maintenance reserve side. And so, if you look back to the – I think it was third quarter of 2019, was our best quarter, because it was 85% utilization and every airline was flying 300 to 400 hours a month, so – or every aircraft. So that's probably the biggest one, and that's where the ramp up of services, particularly U.S., we've seen a lot, South America, we've seen a lot, Europe has just lagged, it's just been slower with the cross-border. I mean, United States is great because 50 States you can always travel more, not always, I should say. But historically, you could travel between one State and another without showing a passport, but in Europe, it's different, so – and I think that is slower. But Europe, Europe will follow and I indicated it, I think that'll happen later this year where you'll start to see more flying, but the activity – flying activity is number one, and then the second is acquisitions. And so we've got the one deal I mentioned is closing this week or next week. And then we have one other large deal with European carrier that should close by the fourth quarter. So those I think are the two utilization of flying hours and acquisitions.

Okay, got it. That's super helpful. I appreciate the time this morning, guys. Thank you.

Thanks.

Your next question is from Justin Long with Stephens Inc.

Hey, good morning. This is George Sellers on for Justin. I guess to start, could you talk about the EBITDA you expect to be generated from the maintenance and parts pieces within aviation. And any update you can provide around the ramp of that number into the second half of this year and into 2022, it'd be great.

I assume you're talking about the three JV, the USM and – what's the third, the Lockheed Martin, the Module Factory. So those three…

Exactly.

We believe that 50 million for the year is still a good number for those three. The decrease from 450 to 400 was largely on leasing revenues. So those three will produce about 50 this year, we haven't forecast yet for next year, what we think those will be, but safe to assume that it's going to be higher.

Got it. Okay. That's helpful. And then turning to Jefferson, could you walk through your latest thoughts on how you expect EBITDA to ramp at Jefferson through this year and then into 2022 as well. And as you think about that expectation, maybe you could also speak to the level of visibility you have around that based on contracts that you already have in hand.

We believe that the run rates for the fourth quarter, that the end of 2021 for Jefferson will be 70 million to 80 million, so that next year again, we haven't really put an official forecast out there, but I would assume 100 million or north.

Okay, great. Thank you so much. I'll leave it there.

Thanks.

Your next question is from Rob Salmon with Wolfe Research.

Hey, good morning, guys. And thanks for taking the question. I guess, Joe, to start off with just a bigger picture question. Could you discuss how you expect the two companies to look following the split from a capital structure perspective as we look forward?

Sure. I mean, we're targeting to maintain, the level of debt on each company maintain a DD rating for each one. So part of the next few months, the process of going through that with our own financial modeling and then also rating agencies to work through the details, but that's our objective. But it will be – the infrastructure business would be in U.S. domestic seaport and we'll have most of the projects financed, like the Jefferson bonds we've talked about, our Long Ridge are all financed at the entity level. And then the corporate debt would be an aviation, which will be a non-U.S. corporation. And we would be targeting that to maintain the BB rating.

That's helpful. I mean, historically, the FTAI Company more broadly has kind of targeted both growth as well as kind of a return of capital to shareholders. How do you see kind of the dividend playing out across the two companies, have you guys kind of thought through those dynamics at this point or is that that's still a work in progress?

We don't anticipate a change in that. I think it's still going to be the investment objective is going to be income plus growth. So I don't expect that to change.

Got it. And that would be true for both of the companies looking for?

Yes.

Perfect. And then a couple of quick – sorry, go ahead.

Historically, I think you would see higher dividends on aviation than you would see on infrastructure.

Yes. That makes sense, given the investments. And then just a couple of quick follow-ups with the aviation segment. Can you give us a sense of the capital investments that you guys are planning in the back half of the year that's underpinned in the 400 million of EBITDA you're expecting that company to generate?

Right now, we're looking at about $300 million additional investments that are all under LOI and we haven't added anything beyond that.

Perfect. And is that pretty evenly weighted between the two quarters or is it more fourth quarter? I know you had mentioned there was a big deal you're expecting to close in the fourth quarter. And obviously, you just closed a large one with an American airline.

We weren't supposed to say that, but yes, I would say evenly weighted.

Yes. Got it. Helpful. And then that's really – and if we look at the June – just June in terms of the utilization rate, can you give us a sense how that exited the quarter relative to the 65% utilization ex the adjustments that you had noted within the transaction that – new transactions you guys completed during the quarter?

It was – I think the exit rate was up from the beginning of the quarter about 10 percentage points.

Okay. Helpful. Appreciate the time, guys.

I think we put 23 engines on leases, I think were added during the quarter, it’s a pretty big quarter. And we expect probably – potentially put 30 on and 53.

Appreciate it. Thanks for the color.

Thanks.

Your next question is from Frank Galanti with Stifel.

Great. Thank you for taking my questions. I wanted to follow up on, I guess, the three horsemen or whatever you want to call it, the JV, the Module Factory, the USM, you said 50 million was your expectations for this year. Can you kind of talk about how – I guess, what does that assume has been done already specifically in the second quarter?

Probably about five of the 50.

Okay. That's helpful. And kind of staying on the aviation side, can you talk about the second PMA part, I guess the PMA parts generally how is the first one been kind of give us an update on how the penetration has been from an interest level from third-parties. And then how the – if there's an update on the timeline for the second and three, four or five parts?

Yes. So on the first part, the interest level is very high. We have a couple of airlines that have ordered it, mainly lot of feedback on the phone, frankly feedback on the phone. We have a lot of interest in, a couple of big airlines have ordered it and one airline is actually flying it and installed it. And I think the further penetration is a bit delayed because there's not a lot of shoppers it's going on. So it is most airlines, as I mentioned, are burning off green time. So they're not doing a lot of major overhauls. So a lot of airlines are waiting until that builds up. And they're also waiting to be able to pair it with the second part which we expect. As I said to have that final submission with the FAA in September which would hopefully imply year-end approval and that's the first. The second batch of parts is expected for late 2022 or early 2023, those additional three parts.

Okay. That is helpful. And then I think the last question I wanted to walk through kind of CapEx needs. So in your prepared remarks, you'd mentioned part of that financing at Jefferson 175 million is going to be upstream to the parent. You've got 150 million left in the undrawn revolver. But you'd mentioned about 300 million CapEx needed for the aviation. And it could be off on this, but the Transtar purchase was closed. But I guess just want to walk through what level of equity contribution is needed from FTAI, kind of across the various businesses. And then add onto that 100 plus million at Jefferson needed for the expansion where – what are the CapEx needs in the next few quarters?

So the Jefferson and CapEx needs will all be financed by this bond offering. So there's zero need for Jefferson. Zero needed for Long Ridge, zero needed for Repauno. So those are easy. Transtar is fully financed, which closed yesterday. And then as you mentioned, we do 300 million of acquisitions, we've got 175 million plus the undrawn revolver to fund that. So there are no additional capital – unfunded capital requirements for this year, everything's funded.

Okay, great. That's very helpful. Thanks very much.

Thanks.

And your next question is from Robert Dodd with Raymond James.

Hi guys. A question on the dividend, this feels like a flashback. Previously Joe, you said, when FAD covers the dividend by a factor of two, you consider taking up the dividend, obviously by my math, certainly by the fourth quarter, maybe the third, you'd be in excess of that, obviously that also be right before the spin or its separation. So can you give us any thoughts on – is that still a good rule of thumb and does that apply to maybe the separated businesses as well?

Yes, it is a good rule of thumb and yes, your math is pretty good and we will factor that in, if and when it's sort of coincident with a spin, we'll build that in.

Okay. Got it. Thank you. One more if I can unrelated to that. You talked about that leasing nature basically back to pre-pandemic levels, but at the same time, the airlines are burning down all that green time. Which – lack of a better term, do you think there's meaningful upside to lease rates? I mean, we can see what happened in the rental car market. If you run – your portfolio down eventually pricing moves significantly, do you think there's a risk in your favor of a material uptick in lease pricing? If airlines continue to run green time down while you've got available engines.

Yes, we have been saying that all along. And so we think by the fourth quarter of this year, first quarter of next year, that there's demand will outstrip supply. Now unlike rental car companies, we can't go from charging $80 a day. So we will most likely, what we've done historically is just get better, longer terms and higher maintenance reserves and just better all around deals. The rent – airlines get very, very sensitive to rent. So you try to find other ways to make more money because that becomes a relationship, and you don't want to, if you're going to do continuing business, and you're doing parts on the maintenance side and a building program, you don't want to take full advantage of your position or you'll pay for it later. So it's rented a little bit, but there is – you're not going to be flexible on it, if everyone else is paying $60,000 a month, you're not going to go and give them a deal at 30. So you'll get – you might get 50, but instead of a 12 month deal, you get a three-year deal and you may be tweak to maintenance reserves and make them higher.

Got it. I appreciate that. Thank you.

There are no further questions at this time. I will now turn it back to Alan Andreini for closing remarks.

Thank you, April. And thank you all for participating in today's conference call. We look forward to updating you after Q3.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.