FTAI Aviation Ltd.

Thank you for standing by and welcome to FT AI Aviation's first quarter 2025 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. To ask a question during the session you will need to press star 1 1 on your telephone. To remove yourself from the queue you may press star 1 1 again. I would now like to hand the call over to Alan Andrini, Investor Relations. Please go ahead.

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

Thank you, Alan. I'm pleased to announce our 40th dividend as a public company and our 55th consecutive dividend since inception. The dividend of 30 cents per share will be paid on May 23rd based on a shareholder record date of May 16. Angela is going to take you through the numbers in more detail, but before that I wanted to highlight a few things. We started the year with momentum, recording another strong quarter in aerospace products with 131 million in adjusted EBITDA at a margin of 36%. With a consistently growing backlog of purchase orders for 2025 and beyond, demand for our aerospace products and services continues to accelerate, strengthening our position as a leader in the engine maintenance aftermarket. Turning to production, we refurbished 138 CFM56 modules this quarter between our two facilities in Montreal and Miami. We anticipate a significant ramp to occur in Q2, particularly in Montreal, as we execute on our growth initiatives and operational throughput to enhance efficiency. As we expand production of refurbished modules and engines, our core focus is to increase our market share of restorations beyond the current 5% to 25%. Now let's talk about adjusted free cash flow. In the first quarter, we closed on approximately 234 million of aviation equipment at attractive prices as replacement CAPEX for the seed portfolio of aircraft which are being sold to Strategic Capital Initiative or SCI. The transition of these aircraft started in Q1, where we sold four aircraft for 59 million, and we are proceeding on plan to have completed the sale of the remaining assets by the end of Q2, generating a significant inflow of approximately 440 million. We expect adjusted free cash flow to be in the range of 300 to 350 million for the first half of the year, which is in line with our target to achieve 650 million in adjusted free cash flow for all of 2025. For the Strategic Capital Initiative or SCI, it was great to announce one investment management as an equity investor to the partnership. Since then, we have secured an additional equity partner and expect further closings in Q3 of this year. We remain on track to deploy 4 billion plus in capital by the end of the year through a combination of these commitments in our 2.5 billion secured asset level financing facility with Atlas, a wholly owned subsidiary of Apollo and Deutsche Bank. Finally, we've been working extensively on operational plans with our partner IAG Engine Center Europe and Rome, and are confident we can ramp up production immediately following the acquisition to support our regional customer base in Europe and the Middle East. We already have five engines in the facility and expect to close the new joint venture very soon. Therefore, overall, we feel increasingly confident in our business segment EBITDA 2025 goal of between 1.1 to 1.15 billion, excluding corporate and other, rising to approximately 1.4 billion in 2026. While tariffs create some challenges and opportunities, we do not currently see tariffs having any material negative effect on our business, and we are reiterating our guidance for both 2025 and 2026 as we continue to see growing and accelerating demand for our proprietary set of aerospace products. With that, I'll hand it over to Angela to talk through the numbers.

Thanks, Joe. The key metric for us is adjusted EBITDA. We began the year strongly with the adjusted EBITDA of 268.6 million in Q1 2025, which is up 7% compared to 252 million in Q4 2024, and up 64% compared to 164.1 million in Q1 2024. During the first quarter, the 268.6 million EBITDA number was comprised of 162 million from our leasing segment, 130.9 million from our aerospace product segment, and negative 17.4 million from corporate and other, excluding intra-entity eliminations. Turning now to leasing. Leasing continued to deliver strong results, posting approximately 162 million of EBITDA. The pure leasing component of the 162 million came in at 152 million for Q1 versus 128 million in Q4 2024. Included in the 152 million was a $30 million settlement related to Russian assets written off in 2022, which is an additional settlement to the 11 million we announced we received last quarter. For gains on sales, we began the year of 68 million in book value of assets being sold for a 13% margin gain of 9.8 million, which will significantly increase next quarter as we close out the transition of the seed assets to the SCI. Looking ahead, we remain comfortable assuming leasing EBITDA will be 500 million in 2025 as we pivot our focus towards an asset-like business model. Aerospace products had yet another good quarter with 130.9 million of EBITDA at an overall EBITDA margin of 36%, which is up 12% compared to 117.3 million in Q4 of last year and up 86% compared to 70.3 million in Q1 2024. We continue to see accelerating growth and adoption and usage of our aerospace products and remain focused on ramping up production in both of our facilities in Montreal and Miami, as well as commencing operations in Rome. In 2025, we continue to expect to generate a 600 to 650 million in EBITDA, up from 381 million in 2024 and 160 million in 2023. With that, let me turn the call back over to Alan.

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

Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone. To remove yourself from the queue, you may press star 1-1 again. Please stand by while we compile the Q&A roster. Our

first question

comes from the line of Giuliano Bologna of Compass Point. Please go ahead, Giuliano.

Good morning. Congratulations on another great, successful quarter. The first question I had, and it's something I wanted to dig into, is that we've had a few products in the 2020-2025 partnership. You had roughly $100 million of revenue related to the 2025 partnership or the SCI program. I'm curious when you think about that. My assumption is that the selective thing where you're seeding a portfolio to help the SCI program launch the program and acquire a lot of assets. As it relates to the SCI program, it would be good to understand the rationale there. It would be good if you could provide any perspective around the third party or non-SCI business because it seems like this is an opportunistic thing to do and that there's actually a tremendous amount of demand from third parties, if not growing pretty materially. The limitation, as you highlighted before, is capacity at Montreal. That's expected to increase materially in too few and beyond too few. You should have a lot of demand, is the assumption. But it would be great to get your perspective around all of that.

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

That is extremely helpful. Maybe a quick follow up just to make sure I have everything exactly right. Just looking at that 20% number and what that implies, that implies somewhere in the range of 130 million EBITDAs growing around the EBITDA target basis of 650 for the year. That implies that the non-SCI would be on the rise. It seems to me and hopefully you see it the same way, this is additive and there's no cannibalization happening and it's just that you're filling based on your order book or your ability to produce the modules. As that goes up, you'll fill the orders as fast as you can and you have to continue doing that. This is really additive and the core business, pre-SCI is actually still growing pretty materially at a great pace.

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

That's very helpful. I really appreciate it and I

will thank you. Our next question comes from the line of Sheila K. of Jeffreys. Your line is open, Sheila.

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

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

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

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

Great. Thank you.

Thanks.

Thank you. Our next question comes from the line of Christine. Please go ahead, Christine.

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

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

As we mentioned, we want to provision parts ahead of shop visits.

So generally

speaking, working capital as far as what we have today, we'd like to maintain that and we provisioned ahead for the remainder of the year. So we don't see that growing materially quarter over quarter.

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

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

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

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

Great, thank you.

Thanks. Thank

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

Hey, good morning.

Can you just update, you know, just following up on the PMA conversation there, can you update us on the approval progress for the remaining PMAs at this point?

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

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

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

and the parts perform well.

Great, thank you for the time. Thanks.

Thank

you.

Our next question

comes

from the line of Andre Madrid of BTIG. Please go ahead Andre.

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

Sure,

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

Got

it, got it. I'll keep it in one actually.

Thanks.

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

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

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

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

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

Okay, and Angela, does that give you any opportunity maybe to think about refining things in the future and get your cost out? I think that's

definitely possible. Yeah, currently our three and a half billion debt, which isn't maturing until 2028, we're at average interest rate of about six and a half. So that's something that we can definitely look at, but not something that's a priority given our rates.

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

Oh, yes, we've put quite a few engines through their network and, you know, we're very happy with the relationship and how it's developed. The margins, as I said, you know, would not be dilutive to our aerospace products business, and that's been true, the actual results. And, you know, we see that as a very important part of our product offering because, as I mentioned, we are offering to airlines and owners full coverage of 737 NGs and A320 COs, no matter what engine they have. So it's a very positive marketing customer relations development for us that we think is, you know, is going to be in place for many years. And we don't see, you know, anybody with the market position that we have, you know, coming in at this stage. So we feel very good about, you know, that market for the next 10 years really being the dominant, you know, provider for engines in the aftermarket.

Thank

you. Thanks.

Thank you. Our next question comes from the line of Hilary Kakanango of Deutsche Bank. Your question, please, Hilary.

Thank you. So, Joe, I know you're excited to, you know, about 100 modules to be sold per quarter, but, you know, not that you're significantly ramping up production, you know, through the remainder of the year and, you know, you have over 100 customers worldwide. You know, what would you be looking for in order to revise that guidance of, you know, 100 modules per quarter?

Well, the original 100 modules per quarter was only Montreal. So when you add in Miami and then to be Rome, that total capacity will be, what do you think? 200 plus. 200 modules per quarter. Yes. Yep. Capacity. Now, that doesn't mean that we have enough mechanics to, you know, produce 200 yet, but we are moving, you know, as fast as we can to fill out that capacity. And if you look across, you know, when I talk about a 25% market share, if you think, you know, roughly 3000 engines a year, that's about 700, 800 engines. I'm shifting now to engines for modules, so, excuse my convention change, but that's about 750. We currently have capacity, you know, physical capacity across the network of about 600. So we're pretty, you know, we're pretty well, you know, equipped to have the physical capacity. We need to build up the, you know, the manpower and all of the related assets, but we're doing that, you know, as fast as we can. And David can talk about Montreal more.

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

So the 90 to 100 module produced, right? That's the production number?

Correct, this is production, yeah, 90 to 100, and that's just in Montreal. Just Montreal. Only Montreal, yeah.

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

Yes, we'll have another, yeah, thanks. We did have 30 million recovery in Q1. We have agreements, I don't know if we've actually closed, but $24 million in Q2 is committed. And then remaining claims are roughly $100 million. And we don't have necessarily clear visibility on the timing of that. So we will have collected in excess of what we wrote off without that $100 million. So we're in pretty good position net-net, but that $100 million is still to be settled, recovered, litigated. But we'll

have $54 million in this year.

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

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

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

Well,

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

Okay, great. That's helpful. And then you're still the chairman of the board of FTi infrastructure. So do you plan on being the chairman of FIP longer term? Or should we expect that role to transition to someone like Ken over time?

We haven't really discussed any changes. So I mean, Ken and I have worked together for 20 years, and we have a great relationship. And we don't have any intention of changing that, to my knowledge at this point.

I

mean, it's controlled by Fortress, so I don't just Fortress is the manager, so they could change, you know, that equation, but I don't, I don't intend to.

Yep, got it. That's helpful. I'll leave it there. And congrats on another great quarter. Thanks.

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

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

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

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

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

Great. So thanks, Joe. I'll pass it back there.

Yep.

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

Thanks. Good morning. Joe, I was wondering if you could comment on the SCI ownership assets. And of the 98 you have either now owned or under MOUs, about what percentage is powered by these versus CFM 56? And is that similar to the 30 aircraft you had in the first quarter?

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

Yep.

The vast majority is CFM. Okay. And in terms of your target customer base to acquire the assets from in the 250 for the year, can you give us some colors to airlines, less sores, other financial sponsors or buyers or owners? What's the target audience and where are you seeing the most activity?

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

Okay, got it. And maybe one for Angela, the seven million of profit elims, is that simply your 20% stake on the hundred million of sales to the SCI or about 35% margins? And then what should we expect from the full year corporate and elim sort of contract count to total reported EBITDA?

Yeah, I'm sure. Yeah, that's correct. The seven million elim is the intra-entity profit on the hundred million on aerospace products for eliminating. On the corporate, another I think included in that is are these elims also included are about a little over three million in costs that we've incurred this quarter related to the short sell report. So that is also not included in the run rate. So I would incorporate both of those items.

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

73.

Okay, got it. Understood. Thanks so much. Yep.

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

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

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

That's super helpful, Joe. Appreciate that. And maybe just a quick sort of accounting follow-up for Angela, maybe. You know, when we think about the partnership you guys have, the SCI, from an accounting perspective, longer term, should we think about eventual equity method inclusion of those earnings? Or am I thinking about that indirectly? Thank you.

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

Yes, yes. And if I have anything further, I'll maybe follow up you guys offline. But that's very helpful. Thanks very much.

I would just add on that as that business grows, the asset side of the business, the management fees from that will grow. And we will break that out as a separate line item. It wants to, you know, is there's a certain level of materiality, but it could become a significant source of income for us.

Yeah. Very helpful. Thank you very much. Thanks.

Thank you. I would now like to turn the conference back to Alan and Dreamy for closing remarks, sir.

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

This concludes today's conference call. Thank you for participating. You may now disconnect.