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Fortress Transportation and Infrastructure Investors LLC Common Shares
Q3 2022 Earnings Conference Call
10/28/2022
spk04: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Fortress Transportation and Infrastructure Investors LLC third quarter 2022 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 keypad. At this time, I would like to turn the conference over to your host, Mr. Alan Andrini. Sir, please begin.
spk02: Thank you, Howard. I would like to welcome you all to the Fortress Transportation Infrastructure third quarter 2022 earnings call. Joining me here today are Joe Adams, the CEO of FTI, and Angela Knob, the CFO of FTI. 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.
spk08: Thanks, Alan. And I'm pleased to announce our 30th dividend as a public company and our 45th consecutive dividend since inception. The dividend of 30 cents per share will be paid on November 28th, based on a shareholder record date of November 14th. Also, please note FTI successfully completed the spinoff of its infrastructure business on the 1st of August of this year. Historical financial condition and the results of operations related to the infrastructure business prior to this spinoff date have been disclosed under discontinued operations within the consolidated financial statements. Now let's turn to the numbers. The key metric for us is adjusted EBITDA. Adjusted EBITDA was $108.9 million, down 24% compared to $143.7 million in Q2 2022, and up 25% compared to $87.2 million in Q3 2021. The above numbers are for consolidated FTI, which includes both leasing and aerospace products. Starting this quarter, we will be presenting leasing and aerospace products as separate segments going forward. Let's start with leasing. Leasing had a good quarter, posting approximately 96 million of EBITDA. The pure leasing component of the 96 million of EBITDA came in at 75 million for Q3, down from 87 million in Q2 as expected. The principal reason for the decline was due to the sale of approximately 145 million of book value of assets in Q2 and Q3 attributed to our cargo campaign sales, in which we sold five aircraft and 30 engines. With very strong demand for assets, and the addition of some new acquisitions, which we'll talk about later, we expect Q4 will rebound. And next year, 2023, we're very confident in leasing EBITDA of 350 to 400 million for the year, excluding gains on asset sales. Part of the 96 million in EBITDA for leasing came from gains on asset sales, which also performed as expected. We sold 64.9 million book value of assets for a gain of 20.6 million. We have more asset sales coming in Q4 to recycle capital invested in some of 2021's larger acquisitions. In addition, we'll continue to make freighter sales to capitalize on the continuing robust freighter market. We're very comfortable assuming gains on asset sales continuing at approximately 25 million per quarter or 100 million for all of 2023. Aerospace products had another solid quarter with 19 million of EBITDA. We started these activities only a little over a year ago, and in the last four quarters have booked approximately 70 million in EBITDA without any contribution from PMA. We see tremendous potential and feel good about generating 20 to 30 million in quarterly EBITDA and think 100 million plus in 2023 EBITDA to be 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 repair organizations and airlines. With respect to Q4, we have begun closing the sale of 200 million in assets and have signed letters of intent to purchase $300 million in new assets also in Q4. The net pickup and leasing EBITDA from the new investments minus the give up from the sales, we estimate to be $40 million per annum or $10 million per quarter. Importantly, two of these asset sales involve FTIE retaining the engine services contract on behalf of the buyer. which should generate $1 million per annum per aircraft or 10 million total per annum of aerospace EBITDA over the remaining lease term of approximately eight years. After three years of macro trade headwinds, we now have macro factors that are greatly helping us. First, OEMs have instituted mostly double-digit percentage price increases for parts effective this quarter, and parts price increases creates more opportunity for our cost-saving products to increase market share for us. And since service shop visits costs are predominantly parts, the replacement value of our engines goes up correspondingly. Second, many airlines are trying to reduce expensive full engine restorations and instead increase module swaps and light shop visits that do not require disassembly, which plays right to our strength and into our products. Thirdly, delays in new aircraft deliveries are creating scarcity of 737 NGs and A320 COs, which will drive strong demand for 737 NGs, A320 COs, and importantly, CFM 56 engines for many years to come. And fourth, industry demand for travel has returned to almost pre-COVID levels. Regarding PMA or parts manufacturing authorization, there is no change in our planning, which includes a full complement of airfoil parts becoming available throughout next year. In summary, it feels like we're finally operating in an environment with strong tailwinds. We managed through the COVID disruptions, followed by Russia, Ukraine, and we'll have our portfolio optimized by this year end. And with demand for air travel surging globally, combined with proprietary cost savings aerospace products, 2023 is shaping up to be an outstanding year. With that, let me turn the call back to Ellen.
spk02: Thank you, Joe. Howard, you may now open the call to Q&A.
spk04: Ladies and gentlemen, if you have a question or comment at this time, please press star 1 1 on your telephone keypad. Again, if you have a question or comment at this time, please press star 1 1 on your telephone keypad. Please stand by while we compile the Q&A rosters. Our first question or comment comes from the line of Guillermo Bologna from Compass Point. Mr. Bologna, your line is open.
spk01: Good morning, and congrats on another quarter, a great quarter. I'd be curious, when I'm looking at some of the numbers that you just mapped out around asset sales and redeployment of new assets that are happening during 4Q, You're selling a fair amount more assets than you sold the last two quarters, and you've been able to recognize pretty impressive gains on sale that were above the range during one of those quarters of the $20 million to $30 million range. Is it fair to assume that the combination of the large asset sales could move you towards the higher end of that $20 million to $30 million range in 4Q? And then kind of as an add-on to that, with the EBITDA picked up and probably some lease-up demand in the portfolio, is it also fair to assume that you can get back within the, call it, $90 to $100 million run rate during Q2 for core leasing?
spk08: Yes, I would say on the gains, yes, it's fair to assume that some of the asset sales we were targeting for Q2 got delayed and have been pushed into, or the current target for Q3 got delayed and are pushed into Q4. I do think there's upside over the sort of guided range we have in Q4 just because of that, you know, the sequencing and the timing. So it's shaping up to be, you know, a pretty good quarter from the asset sales point of view. On the leasing side, as I indicated, we're very comfortable next year hitting the, you know, sort of 90 to 100 million per quarter. The Q4 will really be a function of the timing of closings and when those occur, So I think it's possible that we can get there. But in today's world, it seems like there's more delays than accelerations. And every time you turn around, there's something about a part not available or a maintenance shop can't get something delivered. And so I'm a little hesitant to promise on that just because we're a world.
spk03: And I think Next, Joe.
spk01: Hopefully it wasn't on my side, but if the others are still there and it's still working. I'd be curious. I realize it's in perfect science, but with the vote coming up on the merger, that would effectively convert and remove the K1. One of the topics that's come up in some discussions is, you know, index inclusion and how that could, you know, impact, you know, your shareholder base. I'm curious if you've done any analysis around kind of the low end and the high end of the range of what, you know, index buying, you know, may need to happen, you know, on the back of converting into a PPIC.
spk03: Joe, are you there?
spk08: Hi, it's Joe. Can you hear me?
spk02: Yeah, we can hear you now. Sorry. Did you hear Juliano's question?
spk08: I did, yes. And I gave a long answer, which unfortunately it sounds like you didn't hear it. So in terms of asset sales, we have pushed some of the deals we expected to close in Q3. got delayed and we'll end up closing in Q4. So we think there is upside to the sort of typical run rate of what we've been expecting on gain on sales. So I think that you're right. We should be at the high end of that number or potentially even above it, just given that the sequence and closing deals is taking a little bit longer than we expect. In terms of the leasing, I said we're very comfortable with next year being in that $90 to $100 million per quarter range, but it's really a function of the timing of the closing of some of these new acquisitions. And in today's world, everything seems to take a little bit longer than expected. It's either a delay in a part or a delay in a maintenance shop, so I'm a little hesitant to be able to predict Q4 yet, given that item. Now, ultimately these supply chain disruptions are good for us because we have available equipment and engines. Other people don't, but it is a reality of today's world that everything seems to be taking a little bit longer to get done. So I feel good about the total, run rate once we get all the assets deployed. Q4 is a little bit variable. Definitely will be up. The question is whether we get to the $90 million or not for the quarter.
spk02: Joe, did you happen to hear Juliano's second question relating the indexes? If Joe didn't hear that, can you repeat it, please?
spk01: I think it was when we lost you, so I'll just re-ask the question real quick. One of the questions that I was curious about was With the vote approaching on November 9th for, you know, the reverse merger that will effectively change the corporate structure and remove the K1 and convert ESG to a BVIC, I realize, you know, it's imperfect science, but one of the topics that's come up is index inclusion and what that could mean just from, you know, from an index ownership perspective over time. And I'm curious if you've done any analysis or you have any sense of what kind of the low-end or high-end range is for kind of the impact of potential index buying from kind of a need-to-buy perspectives as a percentage of the upcoming shares?
spk08: Yes. We have done some analysis, and we have a list of some potential funds that we might get included in. And I think historically, I was involved with Aircastle, which Aircastle was very successful at getting included and has a very similar corporate structure to the one we're adopting. So So that would bode well, but it is, there is a qualitative element in all these applications. So we're not totally sure, but I would say the range is probably between 10% and 30% of our total stock market capitalization should end up in passive funds.
spk01: That's great. Thank you. And I'll jump back in again.
spk04: Thank you. Our next question or comment comes from the line of Hillary Cacconato from Deutsche Bank.
spk05: Thank you for taking my questions. So in terms of the insurance recovery, you had mentioned that you are expecting partial recovery from your insurance claims this year. I just wanted to understand how much of the Is that still the case? And if so, how much of the recovery relates to assets in Ukraine that actually may have been destroyed versus how much of the recovery would be for planes that are still operational and still operating in Russia?
spk08: Yes. Just to recap, we have about $290 million of insurance claims on our $125 million of book value of assets that we've filed. It really, as I mentioned before, we've broken it into three buckets of, you know, the different strategies with each one. The first one is sort of, I think it would be the most, the first to pay is the contingent insurance coverage that we have. And that's about 90 million. And it's covered mostly engines. The second is Ukraine, which is about 75 million. And the third is Russian assets, airplanes, mostly airplanes that are lost in Russia about 125 million. I would say we've made progress on two of those three categories, namely the contingent coverage and the Ukraine assets. And progress means that we've had a good dialogue and we have a framework of a plan, but we don't have a sort of definitive enough of a definition of plan for me to give you a definitive timeline. although I am optimistic that those two buckets could resolve in the next three to six months is my hope. The Ukrainian assets that we were thinking were destroyed may not be, and they may be in good shape as far as we can tell. We now have people on the ground, and so we're working on various strategies with respect to those assets is either, you know, with insurance or without insurance that we can, you know, monetize. But clearly those are, you know, that's a priority for us to focus and work on those. And then the Russian assets is a bit frustrating. It's frustrating for the whole industry in that the insurance companies just refuse to engage. And I think you saw AirCap and DAE have filed lawsuits Ultimately, the good news is that none of the, none of the participants are talking again about, you know, well, we canceled the policy and we don't have coverage or it's not a loss. It's all about, you know, sanctions and obfuscation that I think ultimately will, they'll run out of excuses and room and litigation forces the issue. So, I think that will pay, as I've said from the very beginning, but I think it may take the longest of the three. Okay. Got it.
spk05: Got it. And then my second question is, you know, obviously we're seeing all these supply chain issues affecting the OEMs and you, you know, you also mentioned the, you know, the cost, the increase in, I guess, price and cost escalation. So I was wondering if you could talk a little bit about the cost escalation that you're seeing on the engine side and if we could actually see an impact, maybe like a benefit from the maintenance side of the business that you could actually like point to in terms of quantifying the benefit?
spk08: Yes, so all of our engine maintenance reserve payments are indexed to shop visit costs. And shop visit costs are 90% parts. And so if the parts prices just went up 10%, effectively you're getting a 10% increase in our maintenance reserve payments. And so that for the CFM GE Safran fleet, that goes into effect November 1. And we had a feeling that was coming, so we've been looking to acquire more engines this summer and add as much as we can. So I think we're well-positioned to that, and then that will translate into additional EBITDA for us starting then, starting November.
spk05: Got it. Okay, great. Thank you so much.
spk08: Thank you.
spk04: Thank you. Our next question or comment comes from the line of Josh Sullivan from Benchmark Company. Mr. Sullivan, your line is open.
spk11: Joe, Angela, Ellen. You know, just kind of following up on that question, you know, as far as the process where FDI retains the maintenance streams in some of these aircraft sales, you know, which aircraft or customer types are most drawn to that arrangement, or where should we see, you know, that you know, that process really gained some traction.
spk08: It's all older CFM 56 engines. And the way we're positioning ourselves in the market is, you know, our view is for CFM 56 engines, the first 10 to 12 years is covered by the OEM under power by the hour maintenance agreements for the most part. And so we're not going after that business. It's not really available. But once the engine is past maybe the second shop visit or looking at the second shop visit about year 12, 14, a lot of those maintenance contracts are up for bid and us to acquire. And so what we want to do is use our products and our services to be effectively the OEM for the second half of the life of that engine. And so that's the way we position ourselves with airlines and MRO shops is that we can take over your maintenance activity, much like GE does on the front end. We can save you money, and we can totally de-risk it for you because you won't have any negative surprise events. You won't have any overruns or surprise expenses to deal with. And in the case of airlines that are looking to phase out the fleet, we can buy the fleet and then provide you a new engine whenever you want it. So we'll provide you liquidity, flexibility, and cost savings. So we're finding a very broad appeal for that pitch. It resonates with people, particularly accelerated by the fact that the prices just went up or going up 10%. And airlines are experiencing a lot of cost inflation, and they are looking for every, you know, potential way to do it. So I think it is resonating, and I think all of that we're able to do before any incremental savings that might come from PMA, which we expect next year will.
spk03: Got it. No, that's helpful.
spk11: And then maybe could you just give us some, you know, general thoughts on the current leasing environment, you know, maybe by geography, you know, what are you seeing as far as duration or some of the other features on leases that might be changing in this environment?
spk08: Yeah, so a lot of airlines are now coming saying that they have new orders. They've built their fleet plan around receiving NEOs and, you know, max aircraft over the next couple of years and they they they're seeing those delayed so we're seeing airlines come saying you know show me anything you have that in the in the ng and the ceo range where i could add capacity and meaningful numbers so it's a very very strong environment and they're willing to typically those leases are five to six years in duration you do from one d check to another so the terms um The term of the agreement is attractive, and the quantity that people are looking to get is a very broad base. I'd say, obviously, the only market that is still relatively closed or constrained is China, but they're an outlier. Every other region in the world is very robust. Latin America, as I mentioned previously, we've done a lot of business in Latin America. It's above average growth rates. Middle East, Southeast Asia, very strong. Um, and then, uh, Western Europe is, uh, was probably the latest to recover because of, uh, Omicron, but it's, um, capacity is coming back and being added there now again as well. So, so I think it's a, it's a very, very strong market environment. Obviously, you know, Russia's gone, uh, forever, which is about 5% of the market. So it's not that material, but, uh, about very good, uh, Very good global dynamic.
spk11: Great. Appreciate the time. Thank you.
spk08: Yep.
spk04: Thank you. Our next question or comment comes from the line of Brandon Oglinski from Barclays. Mr. Oglinski, your line is open.
spk07: Hey. Good morning, Joe, Angela, and Alan. Thanks for taking the question. Joe, appreciate the outlook here. Could you just run us through the expected asset sales and net additions to the portfolio, you know, closing out the year? And then I guess the bigger question we're having, I mean, the outlook here is pretty good, but your cash balance is a little bit low. So how do you expect to manage through liquidity here the next few quarters?
spk08: Yeah, so I think we had about $70 million of cash at the end of Q3. When you look at the various asset sales and asset purchases, I think we should end up the year potentially with sort of $50-ish million drawn on the revolver. And so we have a $225 million revolver that is undrawn at the moment. It's fully available. So that's how we're going to manage the liquidity as we have done in the past. So very, you know, mostly the pluses and minuses with adding three animated assets and effectively cash flows will receive from the operations as well as the asset sales. It's pretty much pretty close to a wash. So we expect to end the year, you know, with very little, with most of the revolver, if not all of it available going into next year.
spk07: And I guess longer term, where do you want to see leverage on the portfolio? Especially, you know, has that changed at all with higher interest rates as well?
spk08: Not so much the higher interest rates. What we've communicated to the rating agencies is that A, we want to be double D, and B, we want to manage debt to EBITDA under five times. And if you look at our pro forma, you know, if we do 550 to 600 million EBITDA next year, we'll be under four times. And I think both agencies, Moody's, S&P, and Fitch have all indicated if we do that, we would be either upgraded or sort of we'd be in the double B range. And that's kind of consistent with where we want to be. So I don't think it's necessarily interest rate driven. We do have some opportunities now. And I think next year we would look to as a priority to repay some debt with excess cash flows to bring that net debt balance down and get even lower in terms of the debt to EBITDA and higher in terms of rating. So I think that's where we're leaning at the moment. And I think part of the program of selling assets and buying assets is to manage so that we're not We're not necessarily adding a lot of capital at this point. We're recycling and picking up EBITDA.
spk07: Okay, I appreciate that. And then on the greater than the half a billion in EBITDA targets for next year, which I think you've reiterated here, what type of portfolio utilization level do you think you need to achieve to get there?
spk08: Well, the aircraft, I think generally – We've been over 90%, which I think we will be. We still have some assets that we've repositioned from Russia and Ukraine that are either to be sold or to be leased. And we added some aircraft like 737-800s this summer, which we bought at a very attractive price off lease. All of those are going on lease this month in October 2 and October 1 in November. So those types of, when I say the portfolio will be optimized by the end of the year, everything we're doing is to get assets redeployed from russia ukraine or cargo assets that we were targeting for sale get those sold so i think by the end of the year utilization should be for aircraft should be 90 plus uh engines is always you know we've always targeted 50 to 75 and effectively utilization isn't really what drives it it's the number of hours flown and and the uh and the um total amount of the portfolio so we've been For instance, this last two quarters we've acquired quite a lot of CFM 56 engines that are off lease. So utilization hasn't really gone up in spite of a strong market environment because we've been adding to the denominator and we will keep doing that because we could see there was a price increase coming. And we also think the economics of those engines are extremely attractive. So we would add as many of those as we can. So I think that, you know, the target range is still the same, 50% to 75% on engine utilization. And that's not what we don't really manage to that. We manage to sort of having the total EBITDA of the portfolio optimized.
spk07: Okay. Appreciate you. Thank you.
spk08: Yep.
spk04: Thank you. Our next question or comment comes from the line of Brian McKenna from JMP Securities. Mr. McKenna, your line is now open.
spk10: Great, thanks. Good morning, everyone. So the business has clearly navigated some unexpected headwinds over the past couple of years. I'm curious, though, the backdrop today seems like it couldn't be better, but with the potential for recession next year and maybe some pullback in related activity, would you think about accelerating asset sales in the near term or slowing the pace of new investments in order to de-lever the business even more? That way you have more liquidity and excess capital to be more offensive in any slowdown.
spk08: Well, we've been doing that this year. I mean, with the cargo sales, we consciously decided early this year that we felt like the cargo market is maybe as good as it gets. And we decided that it was better to be early than late. So I think that was a good decision. And, you know, we've sold probably 400 million of cargo assets to generate capital. But on the flip side, just sitting with cash, given the attractive environment and the CFM 56 engine and the substantial competitive advantage we have, that didn't seem like a good idea either. And I think from our point of view, it feels like we already had recessions. You know, we had two of them. And the economic, potential economic recession will have less impact on CFM 56, you know, demand than COVID did, for example. So we feel that even if there is an economic slowdown globally, the demand for those assets and the travel recovery is sort of a bigger driver than the global economy.
spk10: Helpful. Thanks. And then I appreciate the color on the insurance claims. But if you were to see some windfall from these claims over the next couple of quarters, I guess, what's your number one priority for that capital? Is it paying down some incremental debt? And if so, which maturities would you look to pay down first? Would you even maybe dividend some of it back to shareholders? Or would you put some of it into incremental asset purchases? Just curious how you're thinking about that.
spk08: I think probably repayment of debt. And we'll look at all the various issues. I mean, we've debated as part of the The dividend from the infrastructure, we paid the 2025s, which is the next maturity due. So we brought that down to 650. We could do more of that. The other, you know, attractive investment would be the more expensive debt, which you can also, you know, that has more, it's more accretive when you pay down the highest cost debt. So that, I think those would be the two choices, but I think our focus would be the repaid debt.
spk10: Yep. Great. Thanks, Joe.
spk08: Thanks.
spk04: Thank you. Our next question or comment comes from the line of Frank Galante from Stiefel. Stand by. Mr. Stiefel, your line is now open.
spk09: Yeah. Hi. This is Frank. Can you hear me?
spk04: Yep.
spk09: Great. Thanks for taking my questions. I wanted to start on the module factory and around the competitive landscape there. I guess first, can you just sort of talk high level what the business provides from a customer's perspective? Like does it actually, is it sort of a two-year kick down the road from a maintenance visit? And sort of how does that compare to a quick engine change? Just trying to think through where people find value in the module factory. And then I guess secondarily, who does this? Who do you see as your big competitors? that you're going up against. Obviously, with the PMA parts and the used service materials, there's going to be a cost advantage, but that's only minimal at this point with the PMA approval progress so far. So I just sort of wanted to dig in on that business specifically.
spk08: Sure. So the customers to the module factory, I think you would sort of divide them into two different categories of how they see the benefit. One would be optimizing. So you might have an LTT that needs a shop visit, but the rest of the engine doesn't. And so if you can do a module swap and optimize the numbers of hours and cycles and match up that with the other parts of that engine, you can significantly reduce your maintenance cost because you don't have to put the whole engine through for a shop visit. And that was similar. There's a cost savings and a benefit for for that, and that was illustrated in the WestJet deal that we won with Lufthansa. So that's one customer to be optimizing. The second is avoiding that shop visit by doing module exchanges totally. So lots of airlines today, particularly as they look at their CFM56 fleet, are saying, what can I do to avoid a full restoration? meaning you have to induct the whole engine into an mro shop disassemble it and then every part in that engine gets looked at and it often ends up in a you know significant increase in total cost so a module swap would allow you to exchange you know the fan or the lpt and put a new core in and keep the fan in the lpt and not have to touch those so that's um uh that's the target market for that product. And it's substantial. I mean, it's, we've met with many airlines over the last three to six months, and it's their stated goal was to try to reduce the number of, you know, full restorations they do and modules fit perfectly into being able for them to, to sort of achieve that objective. So, uh, and so the question is who does that? And so if you look at, um, in the industry today, The big airlines that have their own MRO shop do this internally. So it could be a Delta United, American. They manage module exchanges right now in terms of their own fleet because they have enough airplanes and they have an MRO shop. The market that doesn't have the access to that is all other airlines, of which there are hundreds. And if you went out today and said, who can I buy a fan or who can I buy an LPT from? It's no one but us. So we're the first to sort of create this storefront where people can do that. And it's very powerful for a lot of these airlines. They're just learning about the opportunity. And so we're seeing airlines start with one or two modules, leasing companies that are trying to do it to minimize return compensation. and maintenance shops who are trying to win business. So the entire ecosystem is open to this. And today there's no one else offering this product. So we think it's very beneficial to the airlines, very beneficial to the maintenance shops, beneficial to the whole industry, and it opens everybody up to have that capability.
spk09: Okay, great. Yeah, that's super helpful. Appreciate that. For my second question, I wanted to dig in on the PMA part. And I apologize, you may have gone through this in the beginning of the call. I've got sick kids, so I was a little bit late getting on. But can you sort of reiterate the timeline on the remaining parts approval? And then specifically around the second part, obviously that's been delayed. What's changed from when you first kind of contemplated getting approval on that part relative today? Sort of walk us through why that's been so delayed.
spk08: Yeah, I think, as I mentioned previously, there's two things going on. There's the natural process of design change.
spk03: Go ahead, Mr. Adams. Hi. Can you hear me again? Yes, sir.
spk08: All right. Sorry. So, where did I drop off?
spk09: Just sort of the beginning of the PMA question.
spk08: Okay. There's a natural process in all of these where designs are tweaked and test results come in and there's modifications made. So that's part of the process that occurs in every one of these. So that's part of the delay. The second is FAA responsiveness and turnaround time. And the FAA has been unusually slow in terms of getting back to people with answers, responding, having the right people in the meeting. They have personnel vacancies that have not been filled. So that part of it is out of our control and unusual. It's never happened that way before. So all of those, you know, so those are the two reasons for delays. As I mentioned, all the parts in process are proceeding. They're doing very well. And it's expected that all the remaining parts that are under development will be submitted for approval next year in 2023. Okay.
spk09: That's helpful. And I got another question, if I could, around chromoly. Veritas is looking or is going to be buying that company. I just wanted to confirm that's got no effect on FTI from a operations perspective and then sort of second around that and this is maybe a bit premature but given where we stand or you guys stand in the PMA approval process but can you sort of talk about sort of the duration of the competitive advantage with the PMA business, right? Because if the PMA business only is for the CSM56 7B, 5B engine, what can FTI do from a competitive advantage perspective kind of in the out years?
spk08: Yes. So I can confirm that there's no effect on the Chromoly joint venture. There is no change of control provision, no termination right in the agreement. And we look forward to working with Veritas. I think it's a very significant positive for Chromoly. It was a quite robust auction and price, which I think reflects very well on the quality of the management team and the future opportunities. So I think it's a positive from our point of view that the transaction happens and we look forward to that. In terms of duration, you know, there is a, you know, we are focused on the CFM56 engine, really exclusively. We started working with Cromwell on the CF680 engine. We've had a great partnership on that and we've been reducing our exposure in the CF680 engine. that is becoming more mature. So the sweet spot of the CFM56 engine from a number of shop visits point of view really runs from probably 2023 to a minimum of 2030. And it might have been extended, I think, by these new delivery days as well that are coming out. And also by the total maintenance cost of some of this new technology is still an unknown. So we feel very good about at least the next six to seven years, you know, having 3,000 plus shop visits a year, which is a huge, huge market opportunity. After 2030, I'm not quite sure yet, but I feel like we have a lot of time to come up with some new ideas. We already have some ideas on the drawing board for next year in terms.
spk03: Did I lose you? Oh, you're there, sir. Go ahead.
spk09: Yeah, not sure if you had any additional, you said you had something on the drawing board, but that sort of answers my question enough. I appreciate taking the questions. Thanks very much.
spk08: Hi, I'm back. Can you hear me?
spk09: Yeah, we can hear you. You had said something about we have things on the drawing board.
spk08: Yes. We have some ideas about other maintenance-related products that we're developing for next year. So I think it's not going to be static. We're not going to sit and wait until 2030 and do nothing.
spk09: Great. That's all I had. Really appreciate it. Thank you. Thanks.
spk04: Thank you. We have time for one more question. Our last question for today will come from the line of Mr. Greg Lewis from BTIG. Mr. Lewis, your line is now open.
spk06: Joe, I just had one question. Realizing that it's still early days, we've got to get the C-Corp conversion, but I guess as we think about this bigger picture, right now FTI is clearly trading at a nice discount to its peers. I heard a lot about
spk08: um you know continuing to deploy cash for assets you know you did touch on the dividend i mean at a certain point do we need to start thinking about buying back to stock sure i think uh you know when we have the decision you know with excess cash flow i think we're going to look at all three alternatives which is pay down debt increase the dividend or buy back stock so I don't have any, you know, preset answer to that. It'll be a function of, you know, what the outlook is, what the opportunities are, where the various securities are trading. So we'll take a look at all of that.
spk06: Okay. So super helpful. Thank you very much.
spk08: Thanks.
spk04: Thank you. At this time, I'd like to turn the conference back over to Mr. Andrini for any closing remarks.
spk02: Thank you, Howard. Thank you all for participating in today's conference call. We look forward to updating you after Q4.
spk04: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.
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