FTAI Aviation Ltd.

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Good day and thank you for standing by. Welcome to the Q4 2022 FTAI Aviation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press Star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press Star 1-1 again. 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, Head of Investor Relations. Please go ahead.

Thank you, Michelle. I would like to welcome you all to the FTI fourth quarter and full year 2022 earnings call. Joining me here today are Joe Adams, our chief executive officer, and Angela Nam, our chief financial 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. To start today, I'm pleased to announce our 31st dividend as a public company and our 46th consecutive dividend since inception. The dividend of $0.30 per share will be paid on March 22 based on the shareholder record date of March 10. Now let's turn to the numbers. The key metric for us is adjusted EBITDA. We ended the year strongly with adjusted EBITDA of $123.5 million in Q4 2022, which is up 13% compared to $108.9 million in Q3 2022. and up 22% compared to $101.4 million in Q4 2021. During the fourth quarter, the $123.5 million EBITDA number was comprised of $110 million from our leasing segment, $21.7 million from our aerospace product segment, and negative $8.5 million from corporate and other. Now let's look at all of 2022 versus all of 2021. Adjusted EBITDA was $428.1 million in 2022, up 33% versus $322.8 million in 2021. Now turning to leasing, leasing had a good quarter, posting approximately $110 million of EBITDA. The pure leasing component of $110 million of EBITDA came in at $85 million for Q4, up from $75 million in Q3. With strong demand for assets, and the addition of new acquisitions in late 2022, we expect Q1 2023 will continue to grow. We're very confident in leasing EBITDA of 350 million to 400 million for the year, excluding gains on asset sales. Part of the 110 million EBITDA for leasing came from gains on asset sales, which also performed well. We sold 102.6 million book value of assets for a gain of 25.7 million. And we remain comfortable assuming gains on asset sales continuing at approximately $25 million per quarter or $100 million for all of 2023. Aerospace products had another good quarter with $22 million of EBITDA. We started these activities a little over a year ago and in the last five quarters have booked approximately $91 million of EBITDA without any contribution from PMA. We see tremendous potential and continue to feel good about generating 20 to 30 million in quarterly EBITDA and think 100 million plus in 2023 EBITDA remains very doable. We feel confident about this number because we're seeing a rapidly expanding backlog of aerospace products business with other leasing companies, MROs or maintenance and repair organizations and airlines. With that, let me turn the call back over to Alan.

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

As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while I'll compile the Q&A roster. Our first question comes from Josh Sullivan with Benchmark. Your line is now open.

Hey, good morning. Thanks for taking the questions here.

Good morning. Good morning. Just a question on engine availability. You picked me on a GE56. I think you sold 19 engines in the quarter, purchased 19. What was the mix there, and what does the GE56 market look like here?

Yeah, it looks very good. The mix on the buy is mostly what we're buying is CFM56, and a lot of what we're selling is Pratt 4000s, CF680s, and RB211s. So we've really been consciously shifting the mix towards CFM56 engines over the last couple of years, and We have a little chart in the supplement, which I think shows how much we've grown that to over three. We have about 330 CFM56 engines between standalone engines and aircraft engines. And we continue, I think, going forward to see very good activity on being able to buy engines, even in a pretty strong and hot market for aircraft and aircraft engines. We now have a portfolio or we have negotiations ongoing for various acquisitions that total over 50 engines. Some of them are coming from aircraft that were parked or had been, you know, with an airline that went bankrupt. Some are coming out of an airline that just had surplus spare engines. So it's a wide mix, and as I've always said, you have the largest fleet of engines in the world. You have over 20,000 of these engines. We continue to believe we'll see numerous good opportunities to grow that number. Certainly, I think we'll definitely grow that number this year pretty materially.

Please stand by for our next question.

Our next question comes from Christine Lewig with Morgan Stanley. Your line is now open.

Hey, good morning. Joe, I just want to follow up on PMA parts. Can you give us an update regarding certification progress and any feedback from the FAA you've received so far?

Sure. So nothing really new since the last time we spoke, but the first part that was approved is we've installed it in over 10 engines now, and there's another airline that's put it in their fleet and operating, so it's performing extremely well. So we'll continue to do that and grow that. The next four parts are made substantial progress in terms of finalization of manufacturing, design, production, and testing. And so we expect all four of those parts will be submitted for final approval this year, around the middle of the year. So they've all sort of are progressing along individual timelines, but they're all targeting that same goal. And so if If history is a guide, we should have a full portfolio of products available for 2024, which is very exciting.

That is. And then, Joe, can you just remind us, once you get all these five CMA parts fully certified, how much in dollar savings do you think you could extract from doing that versus buying from the OEM catalogs and aftermarket?

It's over $2 million per shop visit. our cost for those parts versus OEM lists. And, you know, OEM list prices, as you're probably aware, went up significantly last year on November 1. And that's today without, you know, further increases. If you look forward over the next few years, you know, you could very well, if OEM list prices go up, continue to go up, you know, high single digits, our, our inflation, our escalator is capped at 3%. So the gap will get bigger and bigger. And if you look out, you know, four or five years, it's over 3 million per shop visit.

Great. Thanks for the update, Joe. And looking forward to see the announcements when you get them certified.

We are too.

Please stand by for our next question. Our next question comes from Juliano Balagna with CompassPoint. Your line is now open.

Good morning, and thanks for taking my questions. As I said, it's great to see some great performance on the operating side. One thing I was curious about, moving to the module factory, I was curious if there's a rough sense of how many modules you're able to sell in 2022 and then to get a rough sense of how much that could grow in 2023.

Yes, that's a great question. So last year, all of 2022, we sold 100 modules approximately, and it was it was divided amongst 25 different customers, unique customers. It was a mix of asset owners and airlines and MROs. So it's a nice balance and sort of it touches the entire ecosystem of users of that engine, which is what we've always liked. So if you think about it, it's four modules per customer. It's not a big number, and it really represents a lot of these users were basically testing the product and trying it out and see if they like it. And so everyone that's been a customer of the module factory is becoming a repeat customer. So we haven't lost any customers and we're picking up new ones all the time. So if you think we can grow 25, you know, just rough math, if we could grow 25 customers to 50 and we can increase the number of modules per customer, the growth opportunity is, you know, right in line with what we've been talking about and that You know, you could see, you know, upwards of, you know, 200, 400 modules in a year coming in the next few years. For 2023, I would expect to see, you know, meaningful percentage growth. What that exactly is, I would, you know, speculate, you know, somewhere in the probably 150 plus range of modules this year. And it could go higher than that. We're seeing, you know, very strong volumes and activity, you know, right now.

That's great. Then, you know, I guess looking at some of the numbers, it's not broken up perfectly, but, you know, based on the aerospace product segment, it kind of implies that we're generating somewhere in the range of, you know, say 500,000 per module in EBITDA. And it seems like that could probably double to a closer million with PMAs. I'd be curious, you know, obviously thinking about 150 plus, you know, that can imply that you guys could easily get to 75 million on the current run rate and PMA could, you know, help you double that number essentially the following year without any volume improvements from a number of modules. Is that a good way of thinking about, you know, the economics and how that could contribute in 2023 and then beyond?

Yes. Yes. No, it's a good way of thinking about it without, even without, you know, meaningful growth in volume, we'll see, you know, big growth in income and EBITDA.

That's great. And then one last question around just kind of the core leasing EBITDA and the run rate. You have obviously, you know, closed on a lot of acquisitions during the quarter. And I'm assuming you can get, you know, a lot of contributions on those assets. I think in the past, the way you described it was, you know, trying to get to a run rate of 90 to 100 million per quarter for the kind of core leasing EBITDA. I'm curious, you know, kind of where you were actually in the quarter with the acquisitions or where the run rate was, including the new acquisitions.

Well, we're continuing. Some of the assets we bought were off-lease, so they don't necessarily contribute immediately. And we'll continue to do that because we see the best value in terms of purchase prices in off-lease assets. So you have to build in a little bit of time to get those up and running. I would say the market in general is really good for leasing. So airlines are announcing every day they're looking for additional old generation or not new generation assets, the 737 classes. NGs and the A320CO fleets are in tremendous demand because of delays with new manufacturing. So we're seeing very strong demand that is really targeting second and third quarters of this year. I think that's when you'll see the biggest growth is people will be lining up assets now to be able to put in their fleet in the second quarter and run very significant schedules in the third quarter. So I think it's shaping up very nicely.

That's great. And thank you for answering my question. I appreciate it. And I'll jump back in the queue. Thanks.

Please stand by for our next question. Our next question comes from Hillary Cacanando with Deutsche Bank. Your line is now open.

Hi, thanks, Joe. Thank you for the call. Your acquisition of IRO through us seems really well-timed, just given the current environment of high supply and MRL supply constraints. Could you just go over how the integration process is going and some of the longer-term strategic benefits of the acquisition that you're expecting? Thank you.

Yes, so it's going great. It was very timely. We were fortunate to find the facility in Miami that had maintenance capability for hospital shop visits and a test cell. And the test cell, as I've mentioned, there's only four of them that are independent test cells in North American markets. And one of them is at Lockheed Martin, which we also have a little bit of knowledge of as well. So the test cell is a tremendous asset for us and the business is there's probably one major customer in that facility that has you know over 30 engines there so that's a big opportunity for the business to ramp that up and grow that and also for us to do additional module swaps which we are you know fully engaged on as we speak we've also made some management changes and hires that are terrific. We've got some great people. And I think having a physical location for us that we can showcase our ability to store, do quick repairs, and module swaps is a terrific marketing tool. So we couldn't be any more excited about it.

Great. Thank you. And then just, I guess, just regarding the supply chain issues, you know, when you listen to conference calls, you know, from Boeing, Airbus, they're all talking about it. Just wanted to get like a high level view, like your view as well of, you know, what is the problem and how long is this going to last? I mean, do you see the supply chain issues lasting like well into next year or is this something that could be resolved, you know, this year? I know, you know, I know there's labor shortages, there's, you know, there's a whole bunch of a whole bunch of issues that are contributing to it, but kind of your take on when do you think this could end, and if that does, when it does end, what's FTI's strategy, kind of? I mean, this, obviously, this is a fantastic environment, but once things start to be better for the other guys, is there kind of a, will there be kind of a strategic change for FTI?

Yeah, I mean, it's a great question, and it's, something we think about and talk about all the time, and it has some tremendous benefits for us. But it's a complex problem, and I don't think it's going to be solved very quickly. And every week we seem to hear about a new problem that no one thought about the prior week. So it's not slowing down. It's actually increasing. And the potential, many people are looking out to the summer when you have a lot of activity, that there could be some significant changes challenges with people to get airplanes in the air because they're waiting on, you know, one or two parts, and that's a real issue. So I think it's, and you hear about it, you know, from every participant in the spaces, and we've seen it also in our used serviceable material business where we sell used parts, and there's particular parts that people just can't get or the lead time is eight weeks. And so that one single part could keep an engine, you know, in the shop for eight weeks or could keep it from flying. So in that event, you know, part prices have doubled in some cases or tripled just in a matter of weeks because it doesn't matter. The price, if you have an engine tied up for two months, the price of a part is irrelevant. You know, you have to pay whatever it takes. So I think it's getting... potentially worse and it could be a critical, it could be a meaningful challenge for people this summer. But with us, I mean, that's our whole pitch really is we can get engines up, you know, quickly repaired. The quick turn concept is instead of sending a whole engine in and waiting for repairs and parts, we could actually swap out a module and have that engine back in service in two weeks. And so having repaired inventory on the shelf is part of our whole strategy, and I think it's perfect timing for that. I think the longer-term consequence of this is that we hear a lot of airlines realizing that they cannot rely on a single supplier and be dependent upon a single supplier for anything. So again, our business model is you don't have to. We'll back you up. We're actually offering, in some cases, where we have perpetual power deals where we lease aircraft and engines, we'll put a spare on the ground in the airline's hangar so they can have access to a spare in case anything goes wrong and have it immediately. So all these challenges and all these things that are popping up, we have solutions, and it is... It's, you know, really we've gone from an environment where it felt like everything was, you know, working against us to where it feels now like everything is working for us.

Great. Thanks, Joe. That was pretty insightful.

Please stand by for our next question. Our next question comes from Frank Galante with CIFL. Your line is now open.

Yeah, great. Hi, Joe. I wanted to start on the leasing side. So when I look just sort of on a macro level, based on IATA data, right, domestic available seat kilometers are down still 16% from 2019 levels. And so to that point, There's still a large area under the curve of engines or cycles that just weren't used due to the pandemic. Doesn't that imply that there's a significant number of engines sitting on the sidelines that can sort of be used as incremental planes start flying again? And shouldn't that ultimately push utilization down and yields down, at least in the near term?

No, I mean, first of all, I think that domestic narrowbody flying is globally at or above 2019 levels right now. So I think that with China reopening, China was a big negative on that number globally. But now that they've reopened, they're back to 2019 levels. And actually, I saw something that said February schedules in China were like up 10% from 2019. So So that market has snapped back, and globally the U.S. is above. I think United just said this week that they're planning to be above. Their domestic business is up 30%, and leisure business is up 30%, and corporate is 100% of what it was pre-COVID. So that's the first thing. There is still surplus aircraft that have been – out of service. And I think that the number of, I always look at the number of parked airplanes by type. And so if you look at the 737 and A320, it's still a little bit above 10%. So it's probably, and that's always been a key level. When you go below 10%, and I think the lowest it's ever been is probably three or 4%, it starts to get very tight. So we're still working through some of that. And most of that has been A320s, which was caused by Europe, I think being a little bit slower to recover in the travel market and being a heavy A320 fleet user. On the engine side, it's a very different dynamic because when COVID started, people stopped putting engines through shop visits. And so when you have engines, that have green time, the airline grabs those, puts them on an airplane, and flies them until they need a shop visit, and then they park it. So you don't have, in particular, if you look at the CFM56-7B market, which is the engine that flies on the 737 fleet, there's virtually no availability right now for that engine. So all the green time, you know, was used up. So even though there's engines parked, those engines or the aircraft parked, those engines those parked aircraft might have had their engines removed months ago and flown. So it's a very – that's one of the things I like about the engine market is it's self-correcting on supply very quickly and that people, once you stop doing shop visits, you stop – you use up a lot of capacity and the supply drops, you know, roughly 15%, 20% a year.

Okay. That's really helpful. Shifting over to aerospace. You've been out there talking about a two- to four-year plan on the aerospace business reaching $500 million of EBITDA. I think, first, can you sort of lay that out, what that plan is? But sort of to my question is, let's say we get to the end of that four-year plan, we get to 2027, why wouldn't you hit that $500 million target? Why wouldn't you get there?

I think it's just execution. You know, we have to execute. Otherwise, the market is there, and the market environment is very helpful for what we, as I mentioned, what our products are and what we can do for airlines to save them money. We basically provide airlines with cost savings and flexibility. And so that, to me, is a good product. It's a differentiated product. No one else can offer it. So really, it's just can we execute. In terms of the composition of the $500 million of EBITDA, what I've you know, we talked about recently with you is that, you know, if we had 25 module factory users last year, each doing four modules per customer, and we're able to double the number of customers to 50 and double the number of modules per customer to eight, that's 400 modules per year. and we're currently at 100. We expect substantial growth this year. So we're on a path that would sort of get there if we continue that. And then profitability, currently we're at about a half a million dollars per module, and we expect that to double with PMA availability next year. So that gets you 400 million of EBITDA from the module factory. We expect 50 or so teardowns a year with through the AR, and we generate about a million dollars of profit per aircraft. So that's 50, and then we expect the JV with Chromaloy to generate 50. So that would be the, you know, that's an aspiration. It's not a forecast, but it's something, you know, we think about a lot, and we keep refining, and, you know, we feel good about the ability to get there.

Great. Thanks very much. Thanks.

Please stand by for our next question. Our next question comes from Brian McKenna with JMP Securities. Your line is now open.

Thanks. Good morning, everyone. So it's great to see the strong quarter of asset purchases within leasing. But can you give us an update on where LOIs stand today? And then related, how should we think about the baseline level of gross asset purchases annually within this segment moving forward?

Yes. So on the second, I think we acquired over $600 million last year of new assets. Is that right, Angela? That's right. And we sold $250 million, $300 million? About $250 million. So that's in line with what we've been doing. The asset sales are a little bit higher, and as we've talked, we intend to recycle capital more than we probably did years ago. But I think 500 to 600 million of new acquisitions and two to three, call it 300 million of asset sales is a reasonable expectation. And we're starting off the year pretty strong. We have a number of deals right now that we have verbal awards and handshakes that are not fully documented, but that number totals a couple hundred million, and it's very much CFM 56 focused. As a matter of fact, I think in total that's over 50 CFM 56 engines. So we could see meaningful growth in CFM. the CFM 56 engine count, you know, in the first half of this year, which is great.

Got it. Helpful. And then congrats on the quick turn acquisition. I know it's small in the absolute, but there seems to be some pretty meaningful strategic benefits there. I'm curious though, how are you thinking about incremental strategic M&A from here? You know, is there any white space across your business that you would look to fill via acquisitions or any M&A from here would really just be to expand into other adjacent businesses?

You know, we look at the whole ecosystem of the engine, and I think that the one area where we are currently focused is repairs. So when we tear down an engine, a lot of the parts, before they can be put on a new airplane, have to be repaired. And our spend last year was roughly $50 million, so it's a pretty good amount of money. And so we're looking at the repair space and what repairs we do, what repairs other people do, and what opportunities there might be for either M&A or organic development or just using our buying power to get better deals. So I'd say that's the current focus, but we are trying to be vertically integrated in every way we can on this engine. And there's, you know, I think the size of the engine, the fact that it's a modular engine, the fact that the OEMs keep raising prices so, you know, so nicely gives us, it's just a huge opportunity.

Got it. Thanks, Joe. Please stand by for our next question. Our next question comes from David Zizula with Barclays. Your line is now open.

Good morning, and thanks for taking my question. To start off with quick, I was hoping you could provide an update on where you are with insurance recovery, what you've recovered so far, and what claims are still expanding.

Yes. So a couple of things. The assets we had in Ukraine For aircraft and an engine, we're starting to move the engines out by truck. So we've begun the recovery on those assets, and I expect that roughly we'll get about $30 million of assets out this year. And we haven't decided fully whether we're going to lease those or sell those. So I think that's a partial solution. I think our book value on those was about $30 million. Our insured value is $70 million. And on that front, the insurers have, as you probably are aware of, continue to be very uncooperative. So virtually everybody, every asset owner has filed lawsuits, and we are not going to be different in that way. We have filed one suit already, and we're preparing the papers on the second. So we'll see what the judges say. It's been a bit frustrating that there was a lack of engagement by the insurers, but But we believe that the assets were wrongfully taken and that that's what insurance is meant to cover and will ultimately collect a meaningful amount of that. I think the total claim we filed is $270 million.

That's helpful. And then, Joe, I mean, earlier you talked, I think, about – yeah. increased velocity of capital through there hoping you know post the quick term facility you could unpack that a little bit and talk about how you know that acquisition might uh impact in a little more detail uh your intended capital velocity and intensity

Well, there's two areas for that. One is in the leasing segment. We've talked about selling more assets and recycling the capital. In particular, we've got two deals, one of which is fully closed, another which is in the process of closing, where we're selling the asset, the leased asset, at a gain in retaining the engine management services contract, where we'll make about a million dollars per aircraft per year for the maintenance of those engines. And so that's something we want to do more of, and we have some other deals in the pipeline. So in terms of the leasing portfolio, as I said, we've typically bought 500 to 600 million of new assets a year, and we expect to sell 200 to 300 of those each year. So that generates gains and it also allows us in those some cases to keep the maintenance contract which is a great outcome is to keep the best part of the deal and make a gain. So that's on the leasing side and that will continue and I think we've got a good sense of how to create value, how to buy things off lease, put them on lease and then sell them. On the module factory, I think we currently operate with about $150 million of inventory, and as we grow that business, I was doing 100 modules last year, we expect that that will turn significantly faster. So as we grow from 100 to 400, it's not going to go up four times. It should go up very modestly because we expect we can turn inventory as we get as we get larger and create more options, we'll turn that inventory a lot faster. So I expect that, you know, if we were to do 400 modules a year, our expectation is that we would need 200 to 250 million of inventory to do that, to support that. And it is facilitated by QuickTurn. Having the ability to deliver a swap, a low-pressure turbine or swap a fan in under two weeks is a product that no one has in the market today. No one can do that.

Great. Thanks, Joe. That's a very helpful caller.

Please stand by for our next question. Our next question comes from Sharif Al-Maghrabi with BTIG. Your line is now open.

Hi, good morning. Thanks for taking my question. Could you talk a little bit about the different nature of shop visits at Quickturn compared to the Montreal facility? And more broadly, could you talk about why are hospital visits becoming more popular?

Sure. Good question. So what we do in Montreal is, at Lockheed Martin, is performance restoration. And so if you think about an engine, That engine is taken to rebuild that engine if it has, say, only a few, you know, 1,000 cycles left to fly or 100 cycles left or hours to fly. You need to rebuild that to north of 10,000 cycles. In order to do that, you literally have to take the entire engine apart, and every piece is inspected either visually or by machine, and some are replaced, some are repaired. And then the whole engine gets reassembled. And it takes months, and it costs millions of dollars. The current OEM estimate on the CFM56 is $6 million for that engine, which is, in many cases, more than we paid for it in the first place. And that goes up every year because they raise the parts prices 10%. Last year, they raised all the life-limited part prices 13%. So that's what you do in Montreal, and it has to be done every so often because you have regulations and limits on how long an engine can go before it needs that to be done to it. The second shop is, and I recommend you go to our website, quickturnengines.com, and it lays out the a hospital shop visit some of the things we do and that's often case just something needs to be repaired a fan blade needs to be repaired bearings need to be replaced the low pressure turbine gearbox has to be replaced and those repairs can be done very quickly and you can you can also do it with a module swap if you had to replace just the fan you could swap a new fan on and take the old fan off and do that in five to 10 days. So that's, and a lot of airlines have, you know, if they have a large fleet of CFM 56 engines, they are expressly trying to avoid that first shop visit that I described that takes millions, takes months and costs millions of dollars. And in many cases, you can do that with hospital shop visits only repairing one section of the engine or bringing one section of the engine up to a higher number of hours and cycles available and keep that engine flying longer. And so the hospital shop visit market today is about 40% of all shop visits, and it's projected over the next six years to become about 60% of all shop visits. It's partially, you know, happens as you get, as the fleet ages, people, you know, are more cannibalizing what they have and less, doing full restorations in any event. So that's really the difference and that's what QuickTurn is focused on is that hospital shop visit market. The other reason why it's helpful to have it in a separate facility is that if you run a big MRO shop and an engine comes in, your motivation or your inclination is to find lots of things to fix. So If you have an engine that goes into an MRO, oftentimes you'll end up with a bill that's multiples of what you thought it was going to be because people find things. It's like if you took your car and you didn't tell the mechanic to inspect the brakes, but they did anyway, and then they'll call you and say, you need a new pair of brakes. And who could say no? So it's... It's better to have a hospital shop in a separate facility where the orientation and motivation is to do what the customer wanted to have done and get it back in service quickly, obviously safely, but quickly.

That's helpful and great analogy. Thank you.

Please stand by for our next question.

Our next question comes from Robert Dodd with Raymond James. Your line is now open.

Morning, everyone. On leverage, if I can, obviously in the presentation, I mean, you point out that net debt to adjusted EBITDA is about 4.3. You want to get it to 3.4. It might be into that range by maybe Q1. Could be at the lower end of that range towards the end of the year, even. As you've said, you don't need a lot of extra capacity for modules, and you've got a lot of cash flow even after the dividend and after maintenance, capex, et cetera. So what are the other options for you? I mean, are you explicitly going to pay down debt, invest even more in assets? But you already gave us some guidance on what you plan to do on that front. So what's the... What's the thoughts on utilization of the cash flow that you're going to be generating this year, given leverage is coming down on it?

Yeah, so we've talked. We do want to get the leverage to the point where we're a strong BB, and I think if we achieve those numbers this year, we will achieve that goal. So that would accomplish that, which I think is great. We are always looking for good assets to buy, and CFM 56 is our, as you can tell, our passion, so that could present opportunities for additional capital. Beyond that, I think we would look to dividends, share repurchases, and they're all in the mix.

Thanks on that front. I mean, on the prospect to say dividend versus buyback, how would you allocate, what would your thoughts be on the relative value of each of those to more of an allocation priority if it gets to having that much excess capital?

Well, obviously, it would be a function of the share price and what we think the prospects are for the business going forward. I think that that will drive the dividend. You know what you get. The share buyback is a function of the price.

Got it. Thank you.

Yeah.

At this time, I show no further questions. I would now like to turn the conference back over to Alan Andrini for closing remarks.

Thank you, Michelle, and thank you all for participating in today's conference call. We look forward to updating you after Q1.

This concludes today's conference call. Thank you for participating.

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