FTAI Aviation Ltd (FTAI) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 and Full Year Fortress Transportation and Infrastructure Investors LLC Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions) I would now like to hand the conference over to your speaker today, Mr. Alan Andreini. Thank you. Please go ahead, sir.

Thank you, Cindy. I would like to welcome you all to the Fortress Transportation and Infrastructure Fourth Quarter and Full Year 2020 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 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 FAD. The reconciliations of those numbers to the most directly comparable GAAP numbers can be found in the earnings supplement.

Before I turn the call over to Joe, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements, by their nature, are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC.

Now I would like to turn the call over to Joe.

Thank you, Alan. To start, today, I'm pleased to announce our 23rd dividend as a public company and our 38th consecutive dividend since inception. The dividend of $0.33 per share will be paid on March 23 based on a shareholder record date of March 12.

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 Q4 2020 was $46.2 million compared to Q3 2020 of $58.6 million and Q4 2019 of $234 million. On a normalized basis, excluding the gains or losses from the sales, Q4 2020 adjusted EBITDA was $44.3 million compared to $59.7 million in Q3 2020 and $92.1 million in Q4 2019. FAD was $54.2 million in Q4 2020 versus $39.9 million in Q3 2020 and $288.6 million in Q4 2019.

On a normalized basis, excluding sale proceeds and nonrecurring items, Q4 2020 FAD was $35.7 million compared to $23.9 million in Q3 2020 and $58.1 million in Q4 2019. During the fourth quarter, the $54.2 million FAD number was comprised of $89.9 million from our aviation leasing business, negative $1.8 million from our infrastructure business and negative $33.9 million from corporate and other.

Now let's look at all of 2020 versus all of 2019. Adjusted EBITDA in 2020 was $243.3 million versus $503.4 million in 2019. Normalized FAD in 2020 was $147.9 million versus $192.4 million in 2019. And by far, the dramatic reductions in passenger air travel due to COVID-19 drove the negative financial impact to 2020.

Turning now to Aviation. This extremely challenging operating environment for passenger operations continued into Q4 2020 and will extend into Q1 2021. New travel restrictions in most geographies pushed down flying activity to very low levels, but the outlook for a strong snapback in 2021 is more evident today than ever before. In Q4, results were negatively affected by: one, passenger aircraft maintenance reserve collections, which has driven off hours and cycles flown by our customers, decreased approximately $6 million in Q4 from Q3; two, $2 million of income was lost from a lease end of 2 767 passenger aircraft that are now under a letter of intent to be sold to a cargo operator; and three, the failure of 3 airlines increased bad debt expense by approximately $2 million.

Cargo business remains strong, representing approximately 30% of our revenues and 2021 levels are robust due to surging global trade and vaccine distributions. While we expect Q1 2021 to be very similar to Q4 2020 or modestly better, we expect aviation EBITDA for 2021 to total approximately $450 million compared to $290 million in 2020. We also went through the entire portfolio of equipment and took a $20 million impairment over 31 individual aircraft and engines. While the aggregate appraised portfolio value completed by third-party appraisers as of 12/31/2020 exceeds book value by greater than 20%, specific individual values have declined due to the limited market for sale and purchase. And so we elected to write down these specific assets to levels which we expect to be the lowest value in the cycle and position our fleet for a strong 2021, '22 rebound.

The assumptions underpinning the $450 million in EBITDA in 2021 are: number one, $320 million contribution from the existing portfolio with strong recovery in Q3 and Q4; two, $80 million in EBITDA from new investments of approximately $300 million starting in Q2 and growing; three, engine leasing utilization of 60% to 70% in the first half of 2021, increasing to 70% to 80% in the second half; and four, $50 million in EBITDA contributions from our parts and maintenance joint ventures and partnerships with Chromalloy, Lockheed Martin and AAR, starting in Q2 and growing in Q3 and Q4.

We see substantial evidence of passengers increasingly booking travel and airlines starting to add capacity while still avoiding spending capital on expensive engine shop visits in numerous markets globally. Importantly, for us, the demand for narrow-body engines is materially better than any time in the last 12 months and is forecast to exceed supply this year and into 2022. With our ability to deliver the lowest cost per flight cycle for CFM56 engines and to offer capital-efficient leasing to airlines, we are extremely well positioned to grow EBITDA and earnings from the largest engine market in the world through our proprietary products and exclusive partnerships with some of the leading aviation companies in the world for the next decade.

Let's turn to infrastructure now. Starting with Repauno. Our state-of-the-art natural gas liquids rail transloading system is now complete and in operation. The system allows for flexibility to load products directly to marine vessel or into our underground cavern for storage, creating unique opportunities for our customers. We loaded our first marine vessel directly from rail in early January. And during the fourth quarter, we saw continued utilization of our truck rack meeting local demand with direct access to the premium New York harbor blending market. Negotiations have gone well with producers and off-takers, and we are finalizing firm commitments for natural gas liquids throughput beginning in the second quarter of 2021. And we expect to commit a large portion of the facility's capacity to ratable term business this year while maintaining the flexibility to capitalize on unique spot opportunities.

Now that the facility is open for business, discussions with off-takers for multiyear commitments for Phase 2 storage caverns and VLGC shipments are underway. We hope to have identified counterparties and commenced construction this year for delivery of that system in 2024.

Long Ridge. The Long Ridge power plant construction is more than 80% complete and is tracking significantly ahead of schedule relative to the November 2021 completion date guaranteed by our construction firm. At this point, we expect that the plant will be generating cash flow from test operations by early summer and will be fully operational in August. We continue to see a high level of interest from power-intensive industries looking to cite new facilities in Long Ridge. We have been advancing our discussions with data centers and cryptocurrency miners whose interest is driven in part by our recently announced initiative to blend hydrogen into our power plant by the end of this year.

2020 was a good year for our frac sand business despite the industry-wide slowdown in natural gas drilling activity. We transloaded over 900,000 tons of frac sand, which was higher than budget and up more than 15% year-over-year, so all in all, a good quarter for Long Ridge.

Jefferson. The Jefferson terminal continues to make good progress in providing increased logistics optionality for its customers and consistent and profitable business revenues. Jefferson posted its fourth consecutive positive quarter with EBITDA of $4.2 million. The macro picture at Jefferson for Q4 was very similar to Q3, with positive EBITDA accomplished through the continued rationalization of costs during the pandemic-driven downturn and high occupancy in the term loan. This was accomplished with only 3 trains of heavy Utah crude in December and no heavy Canadian crude trains during the quarter. There were no heavy Canadian -- heavy train moves due to the compression in the WCS/WTI spread and the reluctance of refineries to increase refinery run rates due to uncertain consumer demand.

With a higher and more stable WTI price environment, crude price environment, higher-end market demand and higher pipeline apportioning from pipelines out of Western Canada, we expect to see crude-by-rail economics improve for both Canada and Utah. As such, we and our customers are planning for increased crude-by-rail volumes starting in Q2 of this year, 2021.

The all-important pipeline construction projects are nearing completion, and the first pipeline project connecting the Jefferson Terminal with the Exxon Beaumont Refinery has been completed and put into service. Nearly 1 million barrels will move through the pipeline in the first month of service in January, and we expect refined product volumes to steadily increase as the result of a more economic and ratable logistical solution.

Additionally, with product moving via pipeline instead of barge, the barge stock has new opportunities for future marine movements. The 2 additional pipeline projects connecting the Jefferson Terminal with Motiva owned by Saudi Aramco and the Jefferson Terminal with the Cushing, Oklahoma market via the pay line pipeline remain on track to be operational in the second quarter. As we look down the road, we continue to develop several other large-scale projects with our major customers.

Turning now to the topic of sustainability. We have been and will continue to look across existing businesses and at new investment opportunities to promote a more environmentally friendly approach while at the same time, driving long-term growth, profitability and value creation. We believe sustainability to be both good business and the right thing to do for everyone. Everyone in our companies is involved and responsible for advancing FTAI to become a leader in sustainable investing and operations. As such, we will, on a regular basis, update investors on our progress, and we'll deliver our first annual sustainability report to our Board and shareholders by the end of Q1 2022.

FTAI's ownership of 3 North American port and rail terminals with Jefferson Energy in Beaumont, Texas; Long Ridge Energy in Eastern Ohio; and Repauno in the Philadelphia area affords us a somewhat unique ability to incubate and explore new technologies and approaches utilizing these properties. All have great logistics connectivity, rail, water, road, ample industrial land and low-cost energy resources.

The first example of this and an exciting one for the industry is the introduction of hydrogen as a fuel for the Long Ridge Energy power plant. We have recently signed an agreement with GE to install blending equipment for the power plant to be operational by the end of 2021 this year. In addition, we signed a 5-year hydrogen purchase agreement with a company that will deliver hydrogen from a nearby industrial facility that makes hydrogen as a byproduct of their industrial process. And by year-end, Long Ridge will be the first hydrogen burning large-frame gas turbine in the United States and the first worldwide to blend hydrogen in a GE H-class turbine.

In addition to this project, we are also actively engaged with several additional investment opportunities, including: one, partnering to build a biorefinery and gas-to-liquids plant to produce renewable diesel and lubricants and green hydrogen; two, building a plant to convert agricultural waste to produce biogas and green hydrogen; three, building a plant to convert animal waste to produce organic fertilizer and biogas; four, building a facility to convert nonrecyclable plastics to produce sustainable jet fuel; and five, invest in a company with patented air sterilization and filtration technology to commercialize products that create a safer environment and save fuel costs with ready applicability for aviation and marine industries. So lots of progress and terrific opportunities with a lot more to come.

So in conclusion, 2020 will be a year remembered and discussed for a long time to come, a year when we all learned that we have a lot less control over our environment than we had come to believe, a year of stresses beyond any worst-case scenario we have ever contemplated. But on the bright side, we're all better managers today, more empathetic, more flexible, more resilient, more appreciative. Our businesses are in much better shape today, and our team of employees is a tremendous strength. And for that, we are proud and grateful.

So with that, I'll turn the call back to Alan.

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

(Operator Instructions) And your first question comes from Josh Sullivan with Benchmark Company.

Wondering if we could start off just with some color on how airline customers are responding to the FAA certification of the PMA engine parts. Has it been as you expected? What is the inbound inquiries like since the approval? And I guess have you seen any customers you didn't think maybe you might see?

Yes. I think the response has been even better than we expected. And we've known -- PMA has been in use for a long time by many airlines, but I think the combination of this being one of the largest engine markets -- the largest engine market in the world and also the emphasis that all the airlines have now on cost savings, maintenance expense is the third largest P&L category for an airline after fuel and labor, so there's tremendous focus. And the OEMs continue to raise parts prices every year, including this year when you had a tremendous downturn. So the airlines are very, very focused on that, and PMA is a solution that we haven't -- I don't think we've found anybody that wasn't interested in hearing about it, so -- and there has been a lot of inbound inquiry.

I think getting the approval is a big step just because it's now real products shipped this week, one to an airline and one to -- one set's to us. So they're out there now, and there'll be more to come. So I think that it's been a great reception, and couldn't ask for sort of a better backdrop.

Got it. And then just as you mentioned, kind of more to come, what do you think the time line looks like for any additional parts to make it through the FAA? Do you think getting this first one over the line improves the time line to maybe get those approved? Or just what are you thinking about on those other parts?

I think it will -- it should pave the way, and I think it should get easier. The second part, we expect to have approval in the second quarter, so right behind it. And then there were 3 additional parts that we didn't start work on until 2019, so we're expecting 2022. But there's potential for that to move up a little bit given that there will be a sort of a more paved path to getting there.

Got it. Great. And then just one last one on the air sterilization product you just mentioned for the aviation market. Can you just expand on that opportunity? Is that an original part? Is that a PMA part? Just some color on that would be great.

It's an original part. And it's been -- it's actually been installed in some business jets and some commercial jets but not very widely. And it has been proven to be extremely effective and save as much as 2% on fuel. So it's something that could have wide application, but it hasn't -- I think that what has been missing is the commercial development around that. And so that's, I think, where we can add value, and that's what we're hoping to do.

One thing about HEPA filters, are effective, but HEPA filters effectively trap germs and viruses, and then they have to be removed. And that's sort of dangerous, hazardous waste when it comes off the airplane. This product actually destroys them, so they're no longer viable. And there's a tremendous savings there as well in terms of the handling.

Your next question comes from Giuliano Bologna with Compass Point.

I guess starting out on the infrastructure side to pivot a little bit. You obviously have Repauno going live, and you also have Jefferson with the new pipelines that are going into service on to the river to Exxon and you also have the power plant coming online. Is there a sense of kind of what EBITDA of the infrastructure segment as a whole could generate in 2021 and how that could ramp throughout the year?

Yes. I would say $50 million, $60 million of EBITDA this year from the 3 you mentioned and the largest being Jefferson followed by Repauno and then Long Ridge just because longer, we will not have a lot of -- it's not a lot of time once it comes on, and we own 50% of that, so in that order. And obviously, it's more back-end loaded, so -- but I think that's a reasonable goal. And obviously then next year, they'll all be in service full year, which would be better. And then we've got expansion projects, numerous ones that could add substantially to that.

That makes sense. And thinking about Jefferson more specifically, I think the prior discussion was that you might get that into a range of about $70 million to $80 million of annualized EBITDA. Going from there, what kind of other projects like could you explore for Jefferson? And kind of what -- can you tell us about what the magnitude could be?

Yes. There's a long list of projects. And I think the goal is always, once you get the pipeline connectivity, then you have many opportunities to add business. And that's evident with Exxon, 6 pipelines, only 1 of which today is being used. And so there's 5 other ones that could include crude, could include refined products export, could include intermediates, vacuum gas oils. We sorted jet fuel for them at 1 point before the COVID crisis. So there's a long list of opportunities that we're in discussions on and pursuing just with them.

And then there's -- I mentioned, the Canadian market is picking up. And the Utah markets for crude by rail, there's a DRU that's going to come online this summer, which is the recovery unit, which means that, that crude will always move by rail. And so we've seen more DRUs on the horizon, and that's very good for the Motiva crude movement opportunities. And then we have some Canadian producers that are also in the terminal and have looked at expansion.

So those are probably the big 3 customer groups -- groupings. And there's an active list with all of them, and it keeps -- usually, every time you need it, it ends up -- you end up adding to the list instead of subtracting.

That's great. And just making sure from like an EBITDA range perspective, the power plant is supposed to generate roughly $120 million a year before any data centers. And you own half of that, so about $60 million, then Jefferson at $70 million to $80 million, and then Repauno is kind of in the $10 million to $15 million range if I remember correctly.

Yes, $15 million.

Your next question comes from Chris Wetherbee with Citi.

James on for Chris. I wanted to ask about the EBITDA walk that you went through, and the $50 million to $80 million you called out from the JV, acknowledging that. But like looking a bit further out, what does that growth look like in 2022 and beyond, frankly? Like essentially, how -- what can that grow to? Like how do you think about market share and the ability to sort of pick it up over time essentially year-on-year? I know, recognizing you might not have the most clarity to it, but just kind of wanted to understand how you think about the growth of that business.

Sure. So I think the -- if you take -- if you look ahead to 2022 and your starting point is, say, roughly $1.8 billion of invested in equipment, that should generate $450 million of EBITDA. And then on top of that, I think the last time we discussed the sort of the opportunity from both the parts business as well as managing third-party fleets, adding an incremental $100 million to that number. And so I would say $550 million to $600 million for 2022 is -- it may sound a little aspirational, but I do think it's a reasonable goal.

Got it. And within that -- in the walk within that $50 million to $80 million, what sort of puts you at the higher end of that range versus the lower end? Is it just a faster recovery? Or is it some uncertainty about how much growth you can get initially? Just kind of wanted to understand what, like, we should be watching for across the year to understand the number around that.

I'm sorry, I wasn't sure -- what's the $50 million to $80 million?

So I believe in your walk, you had -- at the bottom, there was essentially -- the last item was essentially a range in the EBITDA walk if I'm not mistaken. I think just -- and what was the- I might be -- that might not have been the case, but I just want to know what would be putting you at the low end versus the high end of it.

Yes. So it wasn't actually a range. It was a buildup of -- starting with the existing portfolio producing $320 million this year and then adding $80 million to that from new investments of approximately $300 million of new investments, generating $80 million this year. And that -- obviously that's only 3 quarters of the year because most of us haven't yet closed or we should be closing soon. And then on top of that, $50 million from the joint ventures and partnerships that we have of -- so that's the $320 million plus $80 million plus $50 million is the $450 million.

Got it. And then one other question. You've done a great job about sort of like addressing or making FTAI basically better investment over time, removing some of the, like, headwinds to it building out of services business. If you look forward, are there any specific maybe structural issues the FTAI as a unit that you think might make sense to address that could unlock any value? Or is it -- like how are you thinking about sort of the company structure longer term if at all?

Yes. We have talked about it, and we do realize that being a publicly traded partnership and having K-1 is a negative, and some investors just won't look at the -- won't look at -- take you out of the universe, and in particular, some of the index funds do that. So the solution to that is for us to separate -- have -- create 2 companies, potentially spin off infrastructure. And in addition to getting rid of K-1s, you create more of a pure play for 2 stocks as opposed to combining them.

So we think that, that's an objective that we have that is sort of moving up the priority list. We don't have a specific time line on that, but it's something we believe will add value, create value and make the story simpler.

Yes. Joe, it's Chris Wetherbee. I just jumped on. I apologize for hopping on here, but I was able to join us here. As a follow-up to that, do you think that the businesses are at size? Or is there size, fees or scale in the infrastructure that you would need to get to be able to do that?

We think it's very close. We had always sort of said arbitrarily we'd like each company to have at least $1 billion market cap. We don't want to be too small, and today, we can achieve that. And we think that there's some interesting things on the horizon that will add on the infrastructure side that will add to that. So yes, I think we're very close, if not, there.

Your next question comes from Justin Long with Stephens.

Wanted to start with the question on the power plant at Long Ridge. Just wanted to clarify, in August, when it's up and running, will it be generating $120 million of EBITDA kind of day 1 when we start? And then secondly, I know you've talked about potentially divesting your 50% ownership in the power plant. Where are you in terms of that thought process? And what are the big swing factors that you have in mind as you contemplate what to do?

Yes. So part of the income from the power plant is a payment for capacity, which PJM has a capacity payment, and I believe it's about $20 million, $25 million a year. And I don't think that we would be booking that right away. Very likely that comes in the auction -- first auction, which I think will be in this 2022 period. So there will be a little bit of a lag on the -- getting to $120 million right away.

In terms of selling it, I would say not much is transparent since the last time we spoke. I think we're still thinking about it. We do -- it does feel like we have more upside with that than we would have said previously in that this hydrogen initiative and the data center opportunities are both very real and would provide, I think, substantial upside. And so we wouldn't do anything until we felt like we've at least gotten those to a point where we can -- the value is obvious.

Okay. That's helpful. And secondly, the breakdown on your expectations for aviation EBITDA was helpful. Going back to one of your answers to the 2022 question a moment ago. I think you said you expect around $100 million from the parts and service and partnership pieces. Any way you could kind of break that down a little bit more for us and provide some more color around the components of that $100 million as we get into 2022?

Yes. I would say it's probably equally divided between the part out business with AAR, the Chromalloy joint venture and the Lockheed Martin. If you take 1/3, 1/3, 1/3 of that, you would be pretty close.

Your next question comes from Devin Ryan with JMP Securities.

Most questions have been asked. I want to follow up just on kind of the last conversation on aviation and the outlook and love to maybe just dig in a little bit around expectations for maybe some additional large-scale asset purchases and kind of what the market conditions are right now. Obviously, you had a big benefit in 2020 given the backdrop. To the extent the backdrop is improving in the coming quarters, how is that shaping kind of the airline level kind of appetite to do deals? And what are you guys seeing the market or expecting over the next few quarters in terms of just larger kind of maybe idiosyncratic opportunities?

Yes. So great question. And I think the deals are there. I think there are some larger transactions that we have been working on and that we see coming that I think are right down the sweet spot for us. So we're really focused, laser focused on buying CFM56 engines and doing that by buying either A320s or 737s and then having the ability to either keep the airframe or scrap the airframe. And so I think that's our sweet spot.

And I think the difficulty -- we've talked about this before, and the deals are taking longer for 2 reasons. I think one is a lot of airlines have been getting money from governments. And so you get financial assistance in the government, but that comes with a cost, which is now you have a government partner. So this -- the velocity of transacting slows down dramatically when you get a government in the mix. So that's been a bit of a delay.

And then the second thing we've heard from people is no one really wants to sell right now if you can avoid it. It's -- everyone knows, this is probably the worst market timing. So people are kind of a little bit dragging their feet saying, "Well, it's going to get better. So I should slow down a little bit, and I won't look like the biggest fool." So I think that there's some of both of those things there. But I do think the macros, the airlines need money, and they're going to need money, be negative cash flow this year in 2021, and they're tapping every source of capital. And so one of the sources of capital is selling some of your fleet. So I do think the deals are there, but the reason I mentioned, it just -- it's a little frustratingly slow, but I think we're getting there.

Appreciate that, Joe. And I guess just a follow-up within that. I mean as the events enter repair ramps, can you kind of change your bid in the market if you will? I mean, obviously, your return profile goes up quite a bit with kind of the new capabilities in the vertical integration. So does that -- is that something that you're looking to do? Or is it more that you just will now be seeking for higher returns with the additional capabilities?

Well, we'll be competitive for deals that we want to win. So we're not fixed on a specific price because if the market moves -- as you said, the market moves, the market moves, and we have a lot of savings that other people can't generate. So we'll be competitive. And I haven't -- we haven't felt like we've lost anything because we were rigid on our price. So I think it's really just more of the other factors that have caused deals to just languish a little.

Yes. Okay. Terrific. If I can just, a quick follow-up here. First off, congratulations on the completion of the cross-channel pipeline with Exxon. Just a lot of activity right now at Jefferson, so great to get the outlook there and hear about some of the additional developments. How are you guys thinking about financing at the asset level? I guess there's a lot of additional projects coming on and so just love to think about the capacity for those and also just how you're structuring those with partners in terms of just as we're thinking about modeling and cost outlay, et cetera.

Yes. So it's a great question. And I mean we did our tax-exempt financing at Jefferson, I guess it was 2 years ago now. Time flies. But those bonds are trading in the mid-2s in terms of interest rate yield. So we're looking at doing another tax incent bond offering at Jefferson, and it would -- for 2 things: one would be to expand the storage capacity for about -- if we do a $250 million deal, roughly half would be for expansion. And then the other half would be -- come back up to FTAI. So we take some investment out of Jefferson and have it as liquidity for FTAI. So very low-cost financing availability and 2 good uses of proceeds in my minds.

Your next question comes from Ari Rosa with Bank of America.

So I wanted to ask -- just stepping back and looking at the aviation market. Maybe you could talk about kind of where the supply/demand picture looks like in terms of the amount of idle equipment that's still sitting on the sidelines for the market as a whole. And thinking about -- and I know you kind of touched on this in one of the earlier questions. But just thinking about how the aviation leasing business maybe changes kind of a post-COVID world, obviously, a lot of people have been scarred. Do you think there are structural changes that have come down the pipeline in terms of how airlines think about leasing assets and maybe how FTAI is positioned to capitalize on that?

Yes. I mean great question. I think 2 interesting statistics, and I heard 1 is that there's now more airlines that are start-ups, more new airlines in the last 12 months than airlines that have gone out of business. So it's kind of interesting to think about that, even in this market, there's no shortage of people that are willing to invest in airlines, which is somewhat amazing given what's happened, and you could argue that that's a horrible use of money. But I've never seen a period in my career when there weren't people that wanted to invest in airlines. So it's incredible. And maybe this is a great time to start an airline because you can get everything cheaper.

So I think there's that. And then quite a few airlines have been -- recently, I've been hearing them saying that they expect third quarter flying activity to be equal to or higher than 2019. So another sort of -- as a matter of a rebound, that's a pretty stunning fact too, but there is tremendous pent-up demand. I think in Europe, when Boris Johnson announced the reopening plan in the U.K., the bookings went up 300% to 500% and people were grabbing their flights to Spain and Greece for the summer. So I think there's -- I think you'll see the airlines come back pretty quickly, and there won't be -- I don't know how long. People have short memories, but this one feels like that could happen again.

In terms of structural, the airline business is incredibly risky. So capital is expensive, and I think everybody is expecting leasing to be more of capital providers. I think some of the big leasing companies have said is clearly north of 50% now and going up because if you're trying to start an airline, why buy equipment. Just lease it. So -- and you have a lower cost of capital by the leasing companies. So I think that benefits.

And then our pitch really is let us manage your engines. You don't need to manage an engine shop visit when we can do it more efficiently, cheaper, and we could save an airline capital. So you don't have to put $5 million into a shop visit, or even worse, you send your engine in for a shop visit and you get a shock bill where you thought it was going to cost $4 million and ends up costing $8 million. So we have a good pitch that I think will resonate as well in terms of capital efficiency and cost savings.

That's a great answer, Joe. And thank you for color on that. So I wanted to turn to Jefferson quickly. Obviously, there are a lot of balls in the air at Jefferson. And as we think about the different revenue sources, obviously, it looks like the narrative around crude by rail is maybe picking up some steam. Obviously now pipeline connectivity has a lot of potential. Obviously storage has been always an interesting piece of the story. Maybe you can think about the total revenue at Jefferson as a percent of revenue, how you think each of those buckets end up materializing?

And then additionally, if you could give maybe a little bit of color to the extent possible around what the economics look like for that pipeline arrangement with Exxon. How exactly is it that FTAI is getting paid? And what do the economics around that look like in terms of EBITDA margins or something of that sort?

So on the first question, I wouldn't -- I mean I would envision that we would have probably more -- about 2/3 of our revenue at Jefferson from crude and about 1/3 from refined products. And then another goal we have is to also add sustainable fuel to the mix at some point. So we have a number of projects looking at that but figure that 2/3 crude and 1/3 refined products.

In terms of the pipeline economics, it's good because short pipelines don't cost a lot of money. And if you move a lot of volume through it, it's incredibly high return. So that's why we put -- when we were deciding how many pipes to build and the cost of building 6 is not much more than the cost of building 1, I mean, realistically, it's like if you build a house, you would -- you definitely want to put more conduit in the wall because you don't want to reopen it. So we built 6, and we're only using 1 right now, and it's enough. We're getting a good return off of one. So you can imagine what the return would be if we have product flowing on all of them.

And there's just a tariff. You get paid cents per barrel tariff for the move. That's all. It's very simple.

Got it. And can you give any color around what the EBITDA margin looks like for that move to FTAI?

Well, you've got -- I mean, on a pipe, you have almost no cost. I mean it's -- once you've built it, the operating costs are de minimis.

Your next question comes from Brandon Oglenski with Barclays.

So Joe, I just want to clarify, the $450 million of EBITDA expectation, aviation and $50 million to $60 million for infrastructure, that's full year 2021? Or is that like an exit run rate expectation?

No, that's 2021, full year.

Okay. I appreciate that. And all the way back at the beginning of the call, you did talk about utilization assumptions. Could we come back to that, the engine and the fleet portfolio?

Yes. So for the first half of this 2021 for engine utilization, I said 60% to 70%. We're probably beginning the year around 60%, and I expect that to trend up in the second quarter. And then for the second half of the year, we believe it will be 70% to 80% utilization. We sort of -- I think the highest utilization we ever had was about 85%. And it's usually in the third quarter. That's when everyone's flat out. So that's what's underpinning that as the return assumption. And for the aircraft fleet, it should be in the low 90s utilization or even maybe higher if that market picks up. But it's easier to lease an engine than an airframe today.

Okay. I appreciate that. And then when you provided the $50 million from the PMA and the Lockheed Martin AAR partnerships, does that include savings that you're expecting on the current lease book? Or is that incremental EBITDA from third-party sales and activities within these ventures?

Incremental EBITDA. That's not -- does not include any savings for our own fleet. And as I mentioned, we've already started buying PMA this week.

Okay. Appreciate that. And then last one for me. It does look like, based on this potential aircraft deal for $300 million, that you'll need incremental funding this year of about $200 million to $300 million. I think you talked a little bit about some potential bond offerings at Jefferson. But is that what you're looking at this year?

Yes. I think we did -- if we had Jefferson as a source of capital of $125 million, we have an undrawn revolver of $250 million, so we have adequate funds to -- today to cover all of that. And we could also access the preferred markets that are open again. The preferreds have come back to 25. So that's where they were issued. So that's another possibility as we look at the balance sheet. So lots of -- and that's without doing anything else that would be cash generative or selling anything.

Your next question comes from Rob Salmon with Wolfe Research.

I guess to piggyback on the last line of questions. Clearly, the module factories is going to be very transformative for FTAI. Can you remind us, just as I think about your engine portfolio, what percentage of engines the CFM56 represents today?

Yes. I think I have that.

I guess, Joe, as you're digging that number, when we think about kind of the Lockheed Martin module factory, is this something you're just going to use with the CFM56 engine? Or can you use it with the entire FTAI portfolio?

Yes. So it's really -- the Lockheed Martin is really focused on the CFM engine, CFM56. There's a number of maintenance shops. They tend to specialize by engine type. And so for the CF6-80 and the Pratt 4000, we probably will use other shops. That's not a strength in Lockheed Martin. So I think it's really going to be focused on the CFM56 market.

In terms of narrow-body engines, it's about half of the fleet. There's 160 engines right now, CFM. And it's roughly half of our portfolio value. As I mentioned, the $300 million of new investments, almost all of that is substantial. Now that is going to be CFM engines adding to that. So I expect to be over 200 engines by the end of this year for CFM56. And then 200 engines is 1% of the total world fleet of 22,000. So it's really still quite small. So we could see growth beyond that for many years in terms of adding to that if we decide to.

Absolutely. And if I'm using the 160, that would imply, assuming engines going in for a shop visit every 5 years, about 32 visits. As you get to 200, that would be 40. It's still well below the facility's throughput potential, which I believe is around 70 aircraft, so -- or engines. Can you give us a sense of how you expect...

It's actually a lot bigger than that. It's about 300 engines a year. And we're assuming our needs are going to be probably in the 50 to 60 range in the near term.

And how quickly do you think you can build up to getting to that 300 engines? And as you get to that MAX throughput, how should we think about the sensitivity for FTAI from an earnings perspective?

Well, the -- I think that we could be at 300 engines next year, so that feels doable. And that's 60 shop visits a year. And if we save $2 million per shop visit, that's $120 million of savings for our own fleet just on shop visits. And that should show up -- if you assume that, that $120 million is amortized over 3 or 4 years, that's $30 million to $40 million a year there.

Yes. And clearly, you wouldn't have to give much of it back to the customer, which just means you're also going to be able to buy additional engine and improve the returns.

Right. I mean that was one of the revelations when we talk about -- when we talk about PMA, the manufacturers always say, well, it's not going to be widely used. It's not a big factor because the residual value is affected. But if you're leasing engines, which is what we do, nobody that leases an engine cares that there's PMA in the engine. They care if it's reliable and it's got hours and cycles on it. So there's no discount given on the lease rate. So we have the ability to effectively keep that savings for ourselves.

Got it. I guess before I turn it over to someone else here, can you give us -- clearly, there's a lot of opportunities at Jefferson. You've announced 6 pipelines, 1 you're already using to move. There's another that's going to be -- that you'd kind of put kind of some throughput around on a barrel per day. How should I think about the remaining 4? And how quickly are you expecting those to be consumed to Exxon as we're thinking about the Jefferson EBITDA that you had quoted for the year?

Well, I think that the opportunities are multiple. As I mentioned, we have a discussion ongoing about using a couple of those pipes for crude. So inbound crude into the Exxon refinery is an opportunity that we're talking about and then refined products as well. So for the balance I would hope that we would be utilizing probably 2 or 3 of those this year.

Your next question comes from Greg Lewis with BTIG.

I guess I just had a couple of quick ones, one, as we think about the pipeline in aviation, as you talked about it, as I think about those LOIs. And then I guess I can kind of back into it as I think about earnings guide ramp. But like is there any way to kind of think about -- is it kind of like parceling out at maybe in the first half versus second half versus longer, like how we should think about the -- some of that turning into investment?

Yes. I expect very little in Q1. So it's really going to be over the balance of the year, and I would say Q3 and Q4 will be higher than Q2.

Perfect. Okay. And then just real quick, on the -- you touched a lot about potential opportunities on the infrastructure side. It seems like you're looking a lot at renewable gas, and you mentioned biodiesel. As we think about that, are these projects something that are realizing that they're in development stage? Are these more like smaller scale pile projects where we're proving out concepts, (technical difficulty) establish concepts that, hey, there's -- once we decide to FID, we can move forward with these things maybe later this year or even next year?

Yes. So I would -- I mean, there's one that's potentially larger than the rest, but I think most of them are relatively small-scale initially to develop the products. And the economics are pretty attractive, so it's not really doing something that's below market in terms of returns. But I think, initially, the scale of most of these is pretty small with the goal that if you prove it out, then you can expand it.

Okay. And I'm assuming that there's going to be partners in all of these.

Yes. I would think that's a good example.

Your next question comes from Frank Galanti with Stifel.

So I wanted to ask about the -- managing other airline engines. First, does that $50 million EBITDA contribution from Chromalloy or Lockheed include managing other people's engines? And then, I guess, you'd mentioned, when somebody leases an engine, right, they don't care if PMA parts are in there, but airlines will have to own those parts. So I guess the question is around how does a transaction like that actually work. Do you make -- will they care of the PMA part's in it if they own it? And then what are the economics around that from an FTAI perspective?

So no. I mean airlines will be putting PMA and have been for years, PMA into their own engines. It's sort of a misnomer that there's some residual value effect because There isn't. But the -- but airlines buy PMA directly today. They've got a lot of PMA from HEICO. They buy from Chromalloy. So there's PMA -- all the major airlines, particularly ones that operate their own shop, use PMA. So there's already an airline that's purchased the first product. So there's no concern there with most airlines. If you stick with a OEM program, then you won't be using PMA, but that's sort of a decision that each airline makes. But you don't need a lot of market share in PMA to make the math work. And so it can be peaceful coexistence in that if your goal is to have 10% market share, the OEM, by definition, still has 90%, and it's not material.

There is some assumption in the $50 million that we have an airline that we can manage their fleets, and we have several proposals out right now. It's -- I would say, for this year, it should be a small contributor to that number. But the goal is to make that a big contributor. And when we have any particular win on that, we'll sort of communicate that. But I think that the -- we have a framework, and we have initiatives, and we have a good dialogue going on that front. So I'm hopeful.

Okay. That's super helpful. And then I guess the second question I have, and this might be a little bit of an inside baseball. But you -- around the engine utilization assumptions, you said you start the year, hopefully, at 60% and then ramp gradually 60%, 70% in the first half; 70%, 80% in the second half. But I guess, like, you mentioned in the prepared remarks that maintenance revenue was going to remain relatively flat, maybe a little up as airlines aren't buying as much as they had been. How does that utilization turn into maintenance revenue? So is that 70%, 80%, assuming that people actually use the engines when they lease them?

Yes, yes. So it's not an assumption that it's on lease but sitting in a warehouse. It's actually flying.

Okay. That makes a lot of sense. And then, I guess, a small question. On the Jefferson pipelines, do you have the -- can you give us like the capacities of those pipes? So I think in the press release, it said 168,000 for 1, for diesel, 150,000 for another -- for gasoline. And there should be 4 additional pipes going to Exxon, 1 to Motiva, 1 to Cushing. What are those capacities?

Yes. So the 1 to Motiva is the largest. That will be almost 300,000 barrel a day total capacity, so it's a big pipe. The inbound from pay line initially is 40,000 barrels a day, but it can be expanded up to 60,000. And then the 6 pipes to Exxon are varying capacities, but if you assumed 150,000 barrels a day for each 1 of them, that was -- it's pretty close. So some are a little bit less, and some are a little bit more, but 150,000 is a good number for each 1 of those, which is a lot of capacity.

I'm showing no further questions at this time. I would now like to turn the call back to Mr. Alan Andreini.

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

Ladies and gentlemen, this does conclude today's conference call. Thank you so much for participating. You may now disconnect.