spk05: Good day and thank you for standing by. Welcome to the 3rd Quarter 2021 Fortress Transportation and Infrastructure Investors LLC Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question, you will need to press star 1 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. And now I would like to turn the conference over to Mr. Alan Andre. You may begin, sir.
spk11: Thank you, Operator. I would like to welcome you to the Fortress Transportation and Infrastructure Third Quarter 2021 Earnings Call. Joining me here today are Joe Adams, our Chief Executive Officer, and Scott Christopher, our Chief Financial Officer. We have posted an investor presentation in 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 FAS. The reconciliations 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.
spk09: Thank you, Alan. To start today, I'm pleased to announce our 26th dividend as a public company and our 41st consecutive dividend since inception. The dividend of 33 cents per share will be paid on November 29th based on a shareholder record date of November 15th. 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 Q3 2021 was 96.4 million compared to Q2 of 2021 of 68 million and Q3 2020 of 58.6 million. FAD was 39.4 million in Q3 2021 versus 68.3 million in Q2 2021 and 39.9 million in Q3 2020. During the third quarter, the 39.4 million FAD number was comprised of 90.5 million from our aviation leasing business, negative 0.2 million from our infrastructure business, and negative 50.9 million from corporate and other. Turning now to aviation, the aviation recovery continues as our EBITDA for Q3 was approximately 100 million, up from 80 million in Q2 and 60 million in Q1. We see broad improvement in demand across narrow-body markets with some delays resulting from the Delta variant. As an example, we signed leases for approximately 30 engines in the quarter, but airlines took actual delivery of approximately 15, as several regions had continuing travel restrictions, but for the most part now have been reopened in Q4. We have a strong backlog of engine demand and expect to start new leases on over 40 engines in Q4, of which 30 are signed today and 10 have already been delivered. We're also closing new sale leaseback transactions on 16 aircraft with Alitalia and ETA, and 19 aircraft with Avianca, and funding those in November for an aggregate new investment of $340 million. The term of the leasebacks range from 6 months to 10 years, with an average of 50 months, and three-fourths of these 319s and 320 aircraft are CFM-56 powered aircraft, which is an excellent addition and brings our total CFM-56 engine count to approximately 300 engines. Our three CFM56 aerospace activities all made great strides forward. On PMA, the next part has completed production and documentation is being assembled to make the final FAA application complete in the next few weeks. As such, we expect to be able to use both parts for our own engines in Q1 2022 and are seeing strong third-party interest from multiple airlines and MROs or maintenance and repair organizations for shop visits beginning in 2022. On the module factory, we have completed a number of module sales and swaps and are progressing with a few airlines in negotiating long-term programmatic supply agreements. As for our used serviceable material business or USM business with AAR, We are targeting approximately 10 million in sales in Q4, with momentum growing into 2022. All combined, 2022 is shaping up really well, with leasing EBITDA expected to be $500 million for the year and the three CFM56 aerospace activities expected to contribute between 50 and 100 million of total EBITDA for the year, total EBITDA for aviation for 2022 is expected to be 550 to 600 million. Let's now turn to infrastructure. Starting with Jefferson, on the heels of the previously announced 10-year deal with Exxon in mid-July, the Jefferson terminal continues to reshape and transform the logistics options in the U.S. Gulf Coast and in the Beaumont, Port Arthur, Texas refinery region. This region remains one of the largest refinery footprints in North America, and the Jefferson Terminal has become an essential extension of the two largest refineries in North America. Looking specifically at Q3, near-term headwinds continue to impact the economics of crude by rail from Western Canada to the U.S. Gulf Coast. However, due to the improved logistics associated with the ExxonMobil cross-channel pipeline system, Jefferson has seen an increase of 44% in 2021 compared to 2020, in the refined products by rail to Mexico business, resulting in Jefferson posting another positive quarter with EBITDA of $1.9 million. The enhanced terminal infrastructure and the in-service pipeline projects connecting Jefferson to Exxon and to Motiva have been completed, and baseline business continues to steadily increase as these business partners ramp up refinery activity. As we look towards 2022, high oil prices and demand for refined products is good for Jefferson. Local refiners are lining up new sources of discounted crude from markets in western Canada and Uinta Basin and looking for terminals like Jefferson to optimize blends and lower logistics costs. Additionally, international oil flows are increasing and Jefferson will be receiving its first ever inbound Afromax marine cargo from the North Sea this month. We have high expectations for additional inbound marine volumes from overseas, and have line of sight on several other significant opportunities in the near future. Specifically, we're making progress on DRU, delirium recovery unit discussions, as well as discussions relating to the movement of heavy wax barrels which cannot move by pipeline. These two projects are important because they would lead to a radical flow of trains which are not dependent upon crude spreads. Finally, we're moving forward several interesting opportunities regarding the movement of natural gas liquids and other products which would involve the integration of Rapano, Longridge, and Jefferson into a seamless, flexible, and unique supply chain. Turning to Rapano, Rapano continued its strong pace in the third quarter, loading 14 marine vessels with over 900,000 barrels of butane bound for international markets. This activity was complemented by increased truck movements to local premium markets to signal the beginning of the fall gasoline blending season. Rounding out the first export season, the highly flexible multimodal port and rail terminal firmly established itself as a premier distribution hub on the east coast of the United States. And we're excited to enter the local propane distribution market this winter. By increasing the suite of products handled simultaneously at the terminal and providing security of supply for local markets in the Northeast, we're meeting the customer's needs not only in New Jersey, but also in the entire Northeast region. Pushing towards further development outlined in FTIE's long-term vision, the newest port on the Delaware River plans to see expanded capacity with three-plus million barrels of highly efficient underground storage capable of handling a wide variety of LPG and refined products to be ready for export via all-size ships, including VLGCs. Rapano is also looking at import opportunities as they rise in various markets and under various market conditions. Product movements will be available by rail, inbound and outbound, by water across multiple new high-capacity deepwater docks, and eventually by pipe from all major North American producing regions. With 250 plus acres available for development, we also continue to move forward with several renewable opportunities. Rapano is primed for staging and manufacturing of wind farm components and for waste plastic recycling projects. These discussions are in advanced stages and we hope to have one or more concluded by year end. Together with the Jefferson facility in Beaumont, Texas, FTI is well-positioned with multimodal distribution and export terminals on both the Gulf Coast and the Mid-Atlantic seaboard, providing unparalleled levels of service, flexibility, and optionality for our customers. Turning now to Longridge, Longridge has successfully transitioned from a development project into a cash-flowing operating business, as evidenced by the 15.5 million EBITDA on a 100% basis generated in Q3. Most of the Q3 EBITDA was attributable to our natural gas production, which was sold into the market. And now that the power plant is operating, our natural gas is being utilized to generate electricity. While natural gas prices have rallied recently, and we benefited from that in Q3, the economics of generating electricity are even better. We anticipate Longridge to generate EBITDA of approximately $50 million in Q4 and $37 million in Q1 2022, which taken together is more than $40 million higher than we expected when we initially underwrote the project. This incremental cash flow is a result of completing construction nearly a month ahead of schedule and higher power and natural gas prices in the market today. Our fixed price power sales agreement commenced in February, blocking in an attractive margin for the next 7 to 10 years and generating approximately $120 million per year of EBITDA. We've also recently seen lots of interest from power-intensive industries that want to locate and build new facilities at properties like Longridge. Importantly, we remain on track to be the first large-frame power plant in the U.S. to blend hydrogen into our natural gas streams. We will start with a 5% hydrogen blend in December and hope to increase this percentage over time. Turning now to Transtar, our newest addition. Transtar is off to a great start. John Carnes and his team are already meeting or exceeding expectations. I'll start with an important metric in the short-line rail business, which is safety. Transtar continues to lead the short-line railroad industry in safety. and is well positioned to win another President's Award for Safety from the American Short Line and Regional Railroad Association. All of the Transar Railroads are FRA and Ocean Recordable Injury Free in 2021. Since July 28th, the date the Transar acquisition closed, the company is tracking to the 80 million annual EBITDA number that we had projected. Transition expenses are tapering off and expected to be de minimis in 2022. As to the core business, strong steel markets continue to support shipment of both finished steel and raw material. And we believe that improving chip availability will drive robust steel shipments for auto, which is a high profit margin business for us. And we could see increased shipments to that sector in Q4 of this year and Q1 of next year. Other steel segments are holding steady and strong. Mon Valley is running full, while Gary, Indiana has a planned maintenance outage at the number six furnace, which is expected to be completed in November. As we look to 2022, we expect multiple and new third-party opportunities to grow the $80 million EBITDA number. We are in discussions with third parties regarding car storage opportunities and rail car repair opportunities, just to name two. In short, everything we had hoped to see happen post the acquisition is happening. Turning now to corporate items on the spin-out of infrastructure, we have made considerable progress on the spin-off of infrastructure and conversion to C-Corps. In Q3, we completed the refinancing of the Transar acquisition financing and are now focused on completing the documentation and agreements which we hope to be finalized in December of this year for an SEC filing before year end, which would set us up for having two separate trading entities in Q1 of 2022. The existing FTI entity will retain the aviation business and assets and all existing corporate debt totaling approximately 2.3 billion pre-acquisition of the Alitalia and Avianca fleets. Infrastructure to be spun out as a new C-Corp entity comprised of Jefferson, Lepano, Longridge, and Transtar will retain all related project level debt of those entities and intends to remit approximately $800 million in cash or obligations as part of the separation. While we intend to monetize this obligation to the maximum amount, The SPIN will not be subject to raising additional financing at completion. So in conclusion, the ramp back up in aviation to 2019 levels is progressing. Our revenue past your kilometers continue to rise, and as a result, we're seeing engine lease rates and demand for sale leasebacks rise as well. And with the industry still straining from the shock of COVID-19, we're seeing demand for our ChromoLoy Lockheed Martin AR suite of products growing as well. As the infrastructure projects that we started three to five years ago are now in full ramp-up mode, these projects, along with Transar, now give us the ability to spin infrastructure into a robust, standalone company. That vision, which we've been planning for years, is about to become reality. So we're at an exciting time in FTI's history. We're at that point because of the hard work of a lot of outstanding employees and directors and the cooperation and partnership of some great customers. And I want to thank everyone for helping bring us to this exciting inflection point. With that, I will turn the call back to Alan.
spk11: Thank you, Joe. Operator, you may now open the call to Q&A.
spk05: Thank you, Alan. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To draw your question, press the pound key. Again, that's star, then the number 1 on your telephone keypad to ask a question. Please stand by. We'll compile a Q&A roster. Our first question comes from the line of Justin Long with Stephens. Your line is open.
spk06: Thanks, and good morning. Joe, I wanted to start with the question around the pricing on the bridge financing for the two aviation deals that you announced and the plans for repayment there. And maybe you could just talk about the expectations for the balance sheet and leverage more broadly going forward as well.
spk09: Yes. So that financing, we wanted to keep it short, cheap, and flexible. So we I've structured a one-year facility, which I believe the rate will be less than 300, LIBOR plus 300 or a little less than that, like LIBOR plus 275, and prepayable at any time. And our goal with that is to prepay that from the $800 million of infrastructure funding that's going to come back to aviation. So we'll essentially be reducing debt on a net basis when the spin happens at aviation. And so that's where we wanted to have that immediately or prepayable immediately. In terms of the leverage for the companies, I mean, we stated as part of the spin we wanted to maintain a BB rating for the aviation aerospace business. And we've been given very good feedback on that. I think we're in good shape given the outline of what I just said. And both companies would then have access to capital going forward. So I think it all sort of fits together with the parameters and the requirements that we set out to do as part of the SPIN.
spk06: Great. And on aviation, could you also talk about the level of utilization that you're assuming into the fourth quarter and into 2022 as well as you think about the guidance you provided? Would also love to get a little bit more color on the quarterly cadence of the non-leasing aviation EBITDA. I know you said that's still expected to be 50 to 100 million next year, but just wanted to understand how that's going to ramp over the next couple of quarters or so.
spk09: Yeah, so the utilization, I think our engine utilization is a little over 60% in Q3, which is less than what we had hoped it would be. And I think it's really primarily or almost exclusively driven by the Delta variant and the COVID. And we saw a lot of airlines who were gearing up to take additional equipment. And as I mentioned, we had a lot of engine lease deals signed. But then when the restrictions started being reimposed, the airlines started to slow down the ramp-up in activity. And that sort of impacted the third quarter. We're seeing a lot of activity, though, now in the market in October and November. And as I said, we expect to put 40 engines on lease. I think that would bring our engine utilization up to about 70% or a little bit higher. And we expect next year to operate in the 75% to 80% utilization range throughout the year. And really, every airline we're talking to today is is looking for additional equipment and a lot of engines. And I think importantly, you know, the deals with Avianca, Alitalia, American Airlines, we did all come with our ability to expand those relationships and provide engines and engine management services. So it's an integrated package, and we see the – You know, we see the market for 2022 developing very nicely, and all signs are that people are now going to be adding and growing their businesses again next year. In terms of the free products, we also expect a very strong year. We've had good momentum on all of those businesses, with the exception of PMA, because the second part is not yet approved, but But USM has developed nicely. We have 20 engines in teardown, and we are one of the largest providers of USM. I think the ramp-up in shop visit activity has not picked up yet, but that's not surprising. We expect to see that in 2022. And when that does, we expect strong levels of sales for USM. So I think that there will be growth throughout the year each quarter, but I think it's going to start 2022 fairly strong. So it's not a steep ramp. In terms of the PMA, our indications from airlines is that they're very interested in those products once they're available, and we ourselves will be putting those PMA into our own engines, and we have a number of shop visits scheduled But we also expect a number of airlines to step up and start using the TMA, probably beginning in Q2 of next year. And that could ramp significantly. And Chromoly has said they're going to begin production of parts as soon as the application has filed, so they will have inventory available. And then the big upside, as I've said before, I think is really on the module factory because that's our storefront, that's our cash register, that's where all three products can be combined and provide real value and real savings to airlines by either selling individual modules or engines that we've overhauled. And we see a number of airlines today as airlines are coming out of, distress or restructuring that have postponed shop visits and are now looking at returning engines to lessors and others in a run-out condition, they're preferring to buy engines or exchange them with us as opposed to putting it through the shop. So we see a lot of upside on the module factory as we bring all those products together integrated. And I think that will be the biggest revenue contributor of the three next year by a good margin.
spk06: Very helpful. Thanks, Joe. Appreciate the time.
spk05: Our next question is from Josh Sullivan with Benchmark Company. Your line is open.
spk01: Good morning. Good morning. Just on the current PMA submission, how is that tracking relative to the first part and what the FAA has requested just as kind of a guide path? And then just curious how the following three parts are moving forward as well.
spk09: Yeah, it's tracking very similarly in that the FAA is being provided information along the way so there's a lot of back and forth and review of test data and engineering information. So it's been very similar the way the first part went and that's the way Cromwell has been approaching these products and it's worked well because then there should be no surprises at the end. The second part is technically more complex than the first part, so there's probably a little bit more engineering and manufacturing data that's needed, but it's all been reviewed and signed off as we go, so I think that the final submission and the approval should track similarly to what happened with the first part, and Chromoly is very confident. They've never had a They never had a part that didn't get approved. So it's, I would say, very similar in terms of process to the first part. And then the third, fourth, and fifth are in design and engineering and are on track to be submitted in late 2022 or early 2023. So those are less complex parts. Obviously, we started with the the more expensive ones and the higher difficulty ones first.
spk01: Got it. And then maybe one on the infrastructure side. With Transstar, the $80 million in EBITDA you're looking at, those multiple opportunities that you mentioned in the remarks, I think auto and elsewhere, what do you think the timing on those projects are? And then does the global supply crunch here allow those opportunities maybe to speed up?
spk09: Some of them are sort of grinded out by adding storage and repair services and right-of-way income that occur just gradually and over every quarter. And then some of them can be really project-driven. If you get a new customer or you have a new service that you can provide, it could be a step function up. And the rail market obviously is strong. The core industries that rail serves are all doing pretty well. We see development opportunities in many different spots and locations. We had a good dialogue with U.S. Steel about additional opportunities we could provide them. So the playbook is really to try to come up with 10 ideas that that you can pursue and hopefully three or four of them hit. And that's exactly what happened at Rail America when we did that. And those tend to be, you know, sizable and they tend to be sticky. So it feels, you know, like deja vu, but we're in a very good macro environment with U.S. industry being strong and an infrastructure bill coming, which, you know, who knows what that's going to provide, but it's going to be good in some circumstances. in different areas. And we also see it in Longridge. We see a lot of companies have announced they're going to expand and build factories in the Midwest, and that's good for railroads because that means a lot of stuff is going to be moving around. So I think the environment is good, and we've got the playbook, and I think we're going to hit on a few of them.
spk01: Thank you for the time.
spk10: Thanks.
spk05: Next is from Guiliano Bollner with CompassPoint. Your line is open.
spk04: Good morning. I guess jumping in on a quick question on the PMA side, then I have a follow-up question on a different topic. But one of the things I was curious about was you have to have the first part approved, second part is coming, and hopefully the relatively near term. And I think one of the discussion points that's come up in the past is that A lot of airlines order the first and second part that you're going after in sets. And that probably may create a little bit of a slow rollout at first. I'm curious if you have a lot of orders for sets or you have a lot of orders that are contingent on both parts being approved to sell to third parties. And then from there, just to get a general sense of contribution of those two parts from a savings perspective and what you can do with those savings in the near term.
spk09: Yes. So there are orders for sets. And I think you correctly point out if an engine, if an airline is going to put an engine through the shop, they want to put enough PMA in it to make it worthwhile. And so having two parts, particularly, you know, the high value parts that were the second part that we're making is pretty important to, you know, the program. So So I think that they are sort of joined together for many airlines, particularly because they know it's coming. If they had a decision to make and they put in the first part without knowing the second part is coming, it's easy to say, well, I'm not doing a lot of shop visits today, so why don't I just wait for the second one and then I'll decide. So I think that's the dynamic, but every airline knows it's coming. It's a big deal in the industry and and they are very eager to get it. So I think that that backdrop is quite positive, and we expect, you know, as do most of the industry as third-party shop visits are starting to grow, and we think will increase significantly in 2022. So that will also drive, because if if you can't get parts or your shop visit is delayed, that'll also, you know, facilitate looking at, you know, PMA as an alternative. And the other thing you have is you have some significant potential inflation in metals out there. So you could see bigger price increases from OEMs than people have experienced previously. So that's another dynamic that I think could help, help, help the effort. So I think it's, that's all shaping up, you know, pretty nicely. And in terms of the percentage, I think the first two parts are 60% of the savings that we can provide. So if the five parts in total are 80% of the Air Force shop visit, then this is 60% of the 80% or half of it. So 50% of the total airfoil cost is represented in these first two parts. That's great.
spk04: I'm switching to a little bit of a different topic. I may have missed it, but one of the things I was curious about when thinking about the split of the company into two entities is If the preferred chairs, you know, if you intend to move the preferred chairs one way or the other, I'm assuming they stay with aviation, but would it be good to confirm that? Yes, that's correct. They stay in aviation. And then the only other question was, I think you referred to the infrastructure business being spun off of the C-Corp. I'm assuming you're using some sort of ultra-limited structure that would not have a K-1 for aviation.
spk09: I didn't quite understand the question.
spk04: On the aviation side, you mentioned what kind of legal structure you're planning on using. I'm assuming any legal structure you're planning is going to remove the K-1.
spk09: Yes, it'll be a corporation, a corporate structure, but it'll be a non-U.S. corporation.
spk04: That's great. That's perfect. Thank you very much, and I'll jump back in the queue. It eliminates K-1s, just to draw a line under that. That's perfect. I'll jump back in with you. Thank you so much. Yeah, thanks.
spk05: Next question is from Chris Verby with Siri. Your line is open.
spk12: Hey, thanks. Good morning, guys. Maybe I wanted to touch on Jefferson for a moment. So, Joe, you mentioned the DRU opportunity. I also wanted to kind of get a sense of how we think about the pipelines and when we might see opportunities ramp up there. I'm sure there's probably some WCS, WCI type of spread dynamics that we need to consider here. But as you think about 4Q and then maybe the first half of next year, kind of give us some sense of what you think the outlook is in terms of EBITDA or FAD from that business.
spk09: Yes, we, so that, I mean, the pipelines are operating, which is great. And, you know, that was a big part of getting them into service, getting them operating, getting them functioning. And now, obviously, we're all over, you know, everybody to try to use them. So that's the game. And we have multiple pathways to sort of getting to our numbers and increasing the utilization. We just need, you know, one or two of them to hit. And obviously, with the markets improving, from an oil price point of view, refined product demand point of view, from refineries looking to bring in crudes from, you know, discounted crudes from all over the world, that helps because we're positioned to try to provide all those options and optionality and services that they need, whether it's, you know, by water, from the North Sea, as we mentioned, or it's blended with, you know, Permian, or it comes, you know, from Utah and the, you know, heavy wax train that we blend. So we have all of that in front of everybody, and it's just a question of getting a couple or two of those to hit. And that's really what all of our focus and attention is on that. And, you know, as I said, I think we have multiple pathways to get there, so I'm confident we'll We'll get there, and the environment is going to help. We just need to do it. We just need to execute on it.
spk12: Okay. All right. That's helpful. And then maybe a bigger picture question. When we think about aviation post-split, can you give us a sense of maybe what you think the sort of I guess the question is the capital that has the potential to be deployed on an annual basis, given the size that you guys will be at the split. I just want to get a rough sense of kind of what you think the opportunity set is ahead of aviation as a standalone, and maybe what kind of capital you'd be deploying on an annual basis.
spk09: Yeah, so we've historically, if you look back, we've tended to invest between $300 million and $500 million a year. pretty consistently, although I always say we don't budget CapEx. We don't tell anybody that that's what we want to do at the beginning of the year because that's not the right way to think about investing. But it's been $300 million to $500 million, and now what we're doing is really, I think, focused on the CFM56, obviously, and we're focused on some of these transactions that we think we can add value engine business, you know, as part of the transaction. So as I mentioned, Avianca, Alitalia, American, we believe, you know, we're going to have follow-on opportunities above and beyond the sale-leaseback that will enhance the value of the relationship, enhance our profitability, and not require additional capital. So the goal is to try to... leverage the capital to the maximum degree possible not to invest the most capital so we'd rather keep you know the number and be strategic in the best you know three four hundred million a year and get additional service and fee business to bring that to grow that business if it doesn't require capital I'd rather do that than invest a billion dollars of capital and not get any other business so so that's that's the way we're thinking that so I think that the The goal is to grow the non-asset-based service businesses as to the maximum degree possible and to use the capital in the most efficient way to do that.
spk12: Okay. That's helpful. Thanks for the call. I appreciate it, guys.
spk05: Yep. Next question is from Devin Ryan with J&B Securities. Your line is open.
spk03: Hey, good morning, Joe. Thanks for taking the question. I guess the first one, just coming back to some of the earlier comments on Longridge, great to hear about kind of the increased contribution there over the intermediate term here. If I missed it, you know, the $40 million, where is that? Are you going to reinvest that back in the business that get dividend to the parent? How should we think about kind of the increased profitability there? And then, With electricity costs, their prices where they are now, is there a way to kind of lock that in for longer? Just obviously there's been volatility, but to kind of sustain kind of a higher level of contribution from that segment.
spk09: Yes. The $40 million is incremental cash that will come into Longridge above and beyond what we projected. And initially the view would be to pay down debt. I think we're going to look at a refinance, and we always expected that once the plant went live and was operational, we would look to refinance the debt. At that level, we'll get a better rate, and we may get more debt. So there might be a recap opportunity that is helped and facilitated by having additional income and profitability. So it's good, and it's played out. We always expected that right around the time we went live, we would we would look seriously at refinancing the debt at Longridge. And rates are lower and profitability is higher, so those are good things. In terms of locking in, we are looking at everything we could do to, first of all, we only, we contracted, I think, 94% of capacity of the plant, so we have 6% that's available. We also could potentially increase the capacity from 485 megawatts up to 505. We believe it will run at that level, so there's another 20 megawatts. And then, you know, we're looking at how to increase gas production as well from what we have so that we could also, you know, monetize some of that. So we're looking at everything to try to take advantage of what's, you know, an amazing, incredible market opportunity that, you know, we kind of got lucky with the timing because we didn't Our hedges don't start until February, and we completed the project a little bit early, so we got lucky with the market environment. Clearly, the forward markets are strong through the winter, and there are a lot of people that are pretty positive beyond that because the switch over to renewables is not as easy as maybe people were thinking initially. So it's a good dynamic. I think we'll look to refinance, take advantage of that opportunity, and then look to add EBITDA from power and gas in any way we can to squeeze out more.
spk03: Okay, terrific. Obviously good to see. And then just another follow-up here on the split of the businesses and just procedurally, I know you guys are – working closely with the audience, the auditors. I know it's also kind of a complicated process here. So, you know, from the outside, it seems like, you know, you gave a lot more detail and things seem to be moving smoothly. You know, are there any potential sticking points as we're kind of following from the outside that could kind of push the timeline out or that, you know, the auditors or others are having issues with, or is it more just kind of rolling up your sleeves and just getting it done? I guess that's the first one. And then, Connected to that, is it going to be the same management team, Joe? Are you going to run both businesses, or has that been decided yet, just kind of to think about some of the infrastructure related to both of the businesses?
spk09: Yeah, so in terms of the first question, we are more confident. Probably the biggest issue that we had to address first was refinance the Transtar acquisition debt, which we did in Q3, so So that removes any transactional impediment to getting the spin done. And so now, as you mentioned, it's process, and I'm looking at Scott because he's doing the audits, and the lawyers are doing the documents. But we've done, you know, Fortress has done a number of spins, and nobody has raised an issue yet, or otherwise I wouldn't be giving a lot more detail on this. So I think it feels like it's on a pretty good, path to getting execution. And there's no third party or any outside process that would get in the way of it. So that's good. In terms of management, I mean, what I've indicated is that I will be chairman of FTI and chairman of infrastructure and likely will, at the time around the spin, have a CEO that is not me, which is somebody that we know, but we haven't disclosed and discussed in much more detail yet. But that would be the management. Otherwise, you know, there's a few spots that we'll look for some outside hires, but it's primarily just dividing up the team.
spk03: Yep. Okay. Terrific. Thanks so much for the update.
spk00: Yep.
spk05: We have a question from Brandon Ogwenski with Barclays. Your line is open.
spk07: This is David on for Brandon. You talked a little bit about the acceleration you expected to see in non-serviceable material. I was just wondering if you could provide some more color onto any early orders you're seeing or what you think that acceleration could look like beyond the early 2022? And do you think this would ultimately be untethered to the capital required to put into that business?
spk09: Yes. So our ability to generate used service materials is purely a function of how many engines we want to tear down. And I think our initial goal was 20, and I think we have 20 that are positioned that are either in teardown or in the process. So that side of it we totally control. On the sales side, we have, I would say, two to three large airlines that have been buying USM and have done so for quite a while. And then we have probably... three or four programs that we are working on bidding. So where airlines go out and they work with a maintenance shop and they say, will you provide my shop visits for the next five to 10 years and give me a price? And then we team up with the MRO and say, we'll provide you with used serviceable material and we'll provide you with modules. So we have three, that's what I was referring to in sort of the programmatic nature of what we're shooting for. And Those are progressing nicely. I would say that the ramp up in shop visits is starting, but you're probably not going to see too much activity until Q1 of 2022, and then we expect Q2 and Q3 of next year to be pretty busy, which I think is consistent with what the big independent MROs and even the OEMs have been saying about shop visit activity. So it's starting, and we think the flywheel is moving, and it will pick up momentum next Q2 and Q3 of next year.
spk07: Awesome. Thanks for that one. And then on the funding on the split, I know you talked about it, but could you talk specifically about where you think the $800 million in funding is coming from and how the puts and takes are going there?
spk09: Yeah, so that would all be financing from infrastructure. The infrastructure company, the vast majority of that will just be corporate debt. We have Transtar, which we acquired, which is unleveraged. So that's 80 million of EBITDA and then the rest of the infrastructure businesses as well. So most of it will be debt. We'll also look at potentially asset sales to provide some of that, which is obviously a very good market for infrastructure. and infrastructure funds that are looking to invest capital in the space. There's a lot of capital raised. So we'll run a process and look at preferreds and, you know, other things to coincide sometime in Q1 of next year. But we don't have to do all of it at the spin either, so we can stage it. But, you know, we'll run a full process and – be very deliberate and look to sort of optimize that over the next six months.
spk07: Great. Thanks, Joe. Appreciate the question.
spk05: Next question is from Greg Lewis with BDIG. Your line is open.
spk02: Yes, thank you, and good morning. Joe, I was hoping you could touch a little bit more on infrastructure. As we think about what's going on at Jefferson, clearly you guys have invested a lot of money there, built out the infrastructure there. It seems like the market's finally starting to go the right way with a little bit of inflection in oil demand. Is there any way to kind of think about, and I don't know if the right word is utilization or efficiency, as we think about the facility right now, is there any way to kind of quantify how much spare capacity is there in terms of driving incremental volumes and revenues out of Jefferson without actually spending any more money?
spk09: Yes, I think that storage utilization is about 75% right now, so there's 25% availability there. Rail is also, I would say, probably rail utilization is probably 25% right now, so there's an additional 75% availability. And pipeline utilization is probably 10% of what it is, so there's 90% availability. And that's really exactly what we're focused on is getting near-term volumes to fill that infrastructure that exists, that's been built. And so that is the goal, is to fill that up without any additional capital.
spk02: And really, I mean, just based on what, you know, you kind of kicked around throughout the call is that's really just going to be a driver of what various crude spreads are, you know, whether it's in the North Sea, you mentioned the Afromax incoming tanker and WCS. Is that kind of the right way to just feel that potential growth? Or you mentioned, yeah, thanks.
spk09: So that's part of it. And the other part, as we mentioned, would be, For instance, the DRU, or Billion Recovery Unit, volumes coming from Canada on a steady basis. So if you could bring one train a day from the DRU into the terminal, that's 50,000 barrels of rail in, and you blend that with additional pipe volumes, probably two or three to one, so that's potentially like 200,000 barrels a day from just that one move. And that's the leverage. And those... Those are the deals that we're trying to, you know, to hammer out, particularly to get a ratable flow to cover a lot of the existing capacity. And then you can, you know, be opportunistic with the Afromex volumes and the spread business.
spk02: Okay, great. Thank you very much.
spk09: Thanks.
spk05: Our last question is from Robert Dutt with Raymond James. Your line is open.
spk08: Hi, guys, and congratulations on getting those aviation deals. I'm going to ask about the dividend. When we look at funds available for distribution, when we put on Transtar, put on the new aviation deals, et cetera, you're going to be, by my math, above the two-to-one coverage of the dividend. At the same time, we're obviously heading into a spinoff and a change in corporate structure. next year. So could you give us an outline if you've gotten that far on what the plans would be for the dividends from one or both different pieces and what, given where FAT is, you'd expect the relative scale of those dividends to be maybe compared to what it is for the pure play, the single FTI right now?
spk09: Yes, so the best sort of guidance we can give right now is that we believe that roughly the existing dividend of $1.32, roughly 75% of that will come from FTI aviation, and then the balance, 25%, will be from infrastructure. That's kind of a, you know, it's not precise, but I think order of magnitude, that's our thinking. And then each entity is going to look at, you know, the extent to which FAD and funds available for distributions are, you know, exceed the two-to-one. And as you point out, our goal has always been to maintain that so we would increase the dividend at each entity to the extent we have more than two-to-one coverage. So it's a continuation of the, you know, existing policy, split the dividend roughly 75-25, between aviation and infrastructure, and then each entity will obviously then grow, you know, differently. Instead of being, you know, attached, they'll have different trajectories at that point.
spk08: Got it. I really appreciate that. Thanks a lot. Yeah, thanks.
spk05: And now let's turn the call back to Mr. Allen.
spk11: Thank you all for participating in today's conference call. We look forward to updating you after Q4.
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