FTAI Aviation Ltd (FTAI) 2020 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2020 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, sir. Please go ahead.

Thank you, operator. I would like to welcome you all to the Fortress Transportation and Infrastructure Third Quarter 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 reconciliation of those measures to the most directly comparable GAAP measures can be found in the earnings supplement.

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

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

Thank you, Alan. To start, I'm pleased to announce our 22nd dividend as a public company and our 37th consecutive dividend since inception. The dividend of $0.33 per share will be paid on November 30 based on a shareholder record date of November 16.

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 2020 was $58.6 million compared to Q2 2020 of $66.5 million and Q3 2019 of $112 million.

On a normalized basis, excluding the gains or losses from the sales, Q3 2020 adjusted EBITDA was $59.7 million compared to $65.7 million in Q2 2020 and $74.9 million in Q3 2019. FAD was $39.9 million in Q3 2020 versus $47.3 million in Q2 2020 and $120.7 million in Q3 2019.

On a normalized basis, excluding sale proceeds and nonrecurring items, Q3 2020 FAD was $23.9 million compared to $38.2 million in Q2 2020 and $48.7 million in Q3 2019.

During the third quarter, the $39.9 million FAD number was comprised of $74.5 million from our aviation leasing portfolio, negative $300,000 from our infrastructure business and negative $34.3 million from corporate and other.

Now let's turn to aviation. Q3 for aviation was a pretty good quarter. Financially, the cargo business continued to shine, but passenger recovery flattened out, so we came up a little short of our expectations. Passenger flight hours on our fleet have improved every month since April, and we expect that trend to continue as countries and economies continue to battle the virus and work towards an effective vaccine.

As we expected, demand for engine leasing is picking up for all engine types as airlines dramatically cut optional maintenance restoration shop visits until available green time is consumed. We ended the quarter with approximately 60% engine utilization on our fleet and are engaging now with several airlines to set up leasing programs for 2021.

Looking to 2021, our total existing fleet of approximately $1.5 billion of invested capital should generate approximately $375 million of EBITDA per annum or our target of 25%. We are also targeting new investments in CFM56 engines and related aircraft and have approximately 70 engines, 7-0, under LOI, totaling approximately $200 million of capital. We would expect that incremental investment to generate a higher EBITDA return of approximately 35% per annum or $70 million in 2021, bringing total aviation EBITDA to over -- to approximately $450 million of EBITDA per annum. And with $120 million of cash at September 30, and a $250 million undrawn revolver, we have ample liquidity to capitalize on these extremely attractive investment opportunities.

We also, last week, entered into an exciting maintenance partnership with Lockheed Martin, which will provide FTAI with numerous benefits and advantages in managing and growing our CFM56 owned fleet and providing third-party services to airlines, while giving Lockheed Martin a steady supply of shop visits for their impressive Montreal facility.

Financially, the benefits of this partnership to FTAI should materialize soon in early 2021. Firstly, we expect to save approximately $500,000 per shop visit in 2021 and with our owned fleet in excess of 200 engines or 40 shop visits per annum, represents a $20 million savings in 2021.

Secondly, by setting up The Module Factory, we can optimize the part out of engines, and our goal is to monetize the equivalent of 20 engines for a gain of approximately $1 million per engine or an additional $20 million in 2021.

Lastly, we plan to establish CFM56 programs with airlines, many of which we've already begun discussions and negotiations. With cash conservation programs for airlines at an all-time high and available spares with green time running down, our timing is optimal. Our goal for 2021 is to enter into programs with 2 to 3 airlines covering 250 engines or 50 annual shop visits. With our current set of practices and contracts, we are targeting a profit of $1 million per shop visit for FTAI with the savings in excess of that for the airline, while also providing the airline with significantly quicker turn times due to our new, innovative Module Factory approach. So in total, our goal is to generate an incremental $100 million per annum starting in 2021.

Also, very exciting is our advanced engine repair joint venture. As a reminder, if and when we have approval for all 5 parts, the savings to us will be over $2 million per shop visit and will give us proprietary position to perform a $6 million average shop visit for approximately $2.5 million. And the first of these products is in the final stage and should be commercially available very soon.

Now turning to Jefferson and infrastructure. The big news at Jefferson continues to be the significant progress made on the 3 major pipeline connection projects, both from a construction management perspective and from negotiations around commercial deals with Motiva, owned by Saudi Aramco; Exxon; and other creditworthy third parties. As a reminder, these 3 major projects, which are now 2 to 3 months from completion and operation, will connect or hardwire the Jefferson Terminal with the 2 largest refineries in North America. As such, we have been and are actively engaged with both refineries regarding numerous opportunities to receive, blend, store and export a wide variety of crudes and refined products. And as the projects get closer to actual operation, the number of options and combinations keep expanding. And we are also looking at adding additional pipeline connections to further solidify our market position and competitive advantages.

In Q3, Jefferson was able to post its third consecutive quarter with positive EBITDA of $4.3 million, up from $3 million in Q2. And the improvement was driven by rationalization of costs during the pandemic-driven downturn, increased refined product volumes, and 100% utilization of our storage. Of note, this was achieved in spite of having no crude-by-rail moves into the terminal in Q3 due to compression in WCS versus WTI spreads and less refinery demand. We are now starting to see increased demand with spreads widening and have trains scheduled again for waxy crude from Utah in Q4 of this year. And the Canadian market is showing activity again, both near term and long term.

At least 1 diluent recovery unit, or DRU project, is moving forward with planned movements to the Gulf Coast in the second half of 2021, which we are well positioned to handle. DRUs will provide a steady, regular flow of heavy crude-by-rail, which Jefferson is fully capable today of receiving, storing, blending and shipping.

So in all, not a bad result in Q3 in an extremely challenging demand environment with major advances in connectivity and optionality just about here, and we can't wait for 2021.

Turning to Repauno. Construction of our Phase 1 NGL, natural gas liquids train to ship loading, transloading operation is now complete. The work took longer than originally scheduled due to COVID-related issues, but with construction complete, we are in the process of testing and commissioning the system. And as we communicated last quarter, our 186,000 barrel cavern has been successfully pressure tested, confirming our ability to store propane in it. This is important to us because the size of the propane market is much larger than the butane market.

We are currently in negotiations with both producers and offtakers for propane delivery beginning in early Q2 2021. The negotiations are going well, and we expect to have firm commitments either late Q4 of 2020 or early Q1 of 2021. We expect to be shipping our first cargoes of propane early Q2 of 2021.

As to other opportunities at Repauno, we continue discussions with the wind farm component manufacturer and alternatively biofuel manufacturers. And finally, the road construction of the bypass into Repauno is progressing well and is expected to be completed in Q2 of 2021. The bottom line on this is COVID-19 has caused some additional challenges at Repauno, but as to the commercial discussions, we are seeing parties reengaging and the discussions are going well.

On Long Ridge, Q3 was a good quarter for our frac sand business, particularly when considering the industry-wide slowdown in natural gas drilling activity. We transloaded over 200,000 tons of frac sand, which was in line with budget. And for the first 3 quarters of 2020, we transloaded over 700,000 tons of frac sand, which is approximately 14% ahead of budget.

As a result of Long Ridge's strategic location in the core of the Marcellus and Utica shale regions, one of our largest customers has indicated interest in extending our existing contract for a 5-year term. And in addition, in the third quarter, Long Ridge signed a second 2-year contract with a commodities trading company to transload and store road salt. The power plant construction continues to be on budget and is tracking to an earlier completion date than November 2021, which is guaranteed by our construction firm. Furthermore, we continue to see a high level of interest from power-intensive industries looking to site new facilities at Long Ridge.

In addition, we have numerous ongoing discussions with data centers, whose interest is driven in part by our recently announced initiative with GE and New Fortress Energy's Zero division to blend carbon-free hydrogen as fuel for our power plant as early as next year. We're very excited about this initiative as Long Ridge will be the first purpose-built hydrogen burning power plant in the United States and worldwide to blend hydrogen in a GE H-class gas turbine.

In conclusion, like most companies, we continue to see pressure on our businesses in Q3. Decision times have been moved to the right, for sure, but we continue to make good progress on all of our long-term plans. We looked for 2 years to find the right MRO partner; and in Lockheed Martin, we believe we have found that partner.

Together, we're going to be able to change the landscape of the CFM56-5B, 7B maintenance market for the next 20 years. This relationship, combined with our PMA initiative, will put us in position of having offerings to the airline industry which no one will be able to match. This has taken years of hard work, focus and dedication from a lot of talented people, but the vision that we had and initiated 4 years ago is close to becoming reality.

As to Long Ridge, the hydrogen initiative that we announced with GE and the Zero division of New Fortress Energy is already being felt in the market. The conversations that we are having with major data center users have accelerated and are more serious. The financial impact to our remaining 50% interest in Long Ridge will be meaningful.

Of equal importance, in our mind, is the fact that this first-of-its-kind initiative in hydrogen power will be an important step in the world's goal of 0 emissions. For sure, the financial gains from this initiative are not lost, but of equal importance is the fact that we are now playing an important role in the aspirational goal of 0 worldwide carbon emissions. And we are confident that our experience with this project will lead us to more carbon-free power project investments.

For Jefferson, our goal has been to build a core business that generates a fair return but opens up, once that infrastructure in place, multiple additional high-margin expansion opportunities. Right now, we are engaged with several major projects with our neighbors, which could and will lead to such an outcome.

As I look back on Q3 and compare it to all our quarters since we went public, I think we remember it as one of our most important from a strategic initiative standpoint. From the MRO deal with Lockheed Martin to the PMA deal hopefully days away to the hydrogen initiative at Long Ridge and to the aviation growth opportunity I mentioned earlier, FTAI will come out the other side of this pandemic a better, stronger company.

With that, let me turn the call back to Alan.

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

(Operator Instructions) Your first question comes from the line of Giuliano Bologna of Compass Point.

I think, I guess, kind of starting on the 2 kind of related topics here. When we think about the Lockheed transaction and the roughly $500,000 per shop visit of savings, is that going to -- is that included in the, call it, $375 million EBITDA that you're discussing for fiscal '21 for aviation?

No. No, it was meant to be the incremental -- total of the 3 parts of the Lockheed totaled $100 million, that's incremental to the $375 million.

That makes a lot of sense. So I think when I think about the kind of accretion discussion that you brought up, so that would all flow through the aviation segment and that would be accretive to the guidance of kind of $375 million and then the $450 million if we included the additional engines that you're planning on purchasing?

Yes.

That is great. Then taking a little bit -- a step further, just thinking about it from a timing perspective for a few different initiatives and central catalysts out there. You mentioned hopefully, the PMA approval is days away. If you could just get a quick update around where you are in the process. I think you have the application in for the first part and you're awaiting approval on the first part. And I would be curious around the second part if the application is in, and if you have a sense of timing for the second part.

That's correct. The first part -- there's -- 2 parts that we started 3 years ago are essentially fully engineered, built and developed. The first part, the application is complete. And as I mentioned, we're waiting and the FAA has been with us all the way along the way. So we don't anticipate significant delays from here. So that, we're very hopeful will be days away.

The second part is -- will be finalized in the fourth quarter. The final application should be made by the end of this year. And same thing is the FAA has been involved all the way, along the way. So we don't anticipate major delays beyond that. So those are the first 2. And then as you remember, we started work on 3 additional parts in last year. So that would be -- we would expect to be done in 2022.

That makes a lot of sense. And then kind of a little bit of a different topic. When you think about LREG and the remaining 50.1% interest, obviously, as you get closer to completing that, the incentive to potentially sell that stake probably increases dramatically. And so what I was kind of curious on that side was how you'd think about that asset from a monetization perspective? And obviously, we can think about completed projects and having much higher multiples, obviously, than the first kind of early 49.9% stake that was sold. But just thinking about monetization opportunities and what you might potentially target there. And obviously, Jefferson is a little bit of a different situation because you probably need to have a little bit more progress before that becomes salable in part. But just thinking about monetizations of assets on the infrastructure side.

That -- you're right. I mean that's -- definitely would be something we would look at and think about. It should be operational in Q3 of next year, a year from now or even earlier than a year from now. So -- and at that point, that's when you have the maximum amount of contracted revenue. So there are a lot of people that we've talked to over the prior years that expressed interest, but they only want to invest when something was up and running and operating, not under construction. So the market widens out. And I also think, as I mentioned, that if we have a carbon-free path to power generation through hydrogen, that's also going to be significantly higher value than a carbon power plant, of which there are many. So I think the combination of those 2 things would make it something that we will consider earlier than probably the other 2 that you mentioned.

Your next question comes from Josh Sullivan of The Benchmark.

Just with regard to the tightness in the aerospace engine market that you're looking at over the next couple of quarters. What is your sense of the overall industry green time remaining? Are there any metrics that give you confidence that we're -- other than air traffic -- that we're chewing into that? And are shop visit schedules tightening, or are the prices on parts in the secondary market? Just curious what gives you confidence that this dynamic is playing out.

Well, we look at all the data, and we have the same information, and we had previously indicated we -- our numbers would indicate by Q2 of 2021, you'd be out of spare engine capacity. That's if engines are -- can be moved efficiently from one airline to another, but they can't. And so I think the most recent indicator that we have is real customers with airlines or conversations with airlines that are happening now, where airlines are looking at their own planning and seeing that they're going to need engines maybe earlier than that, and that's why we're having conversations now regarding programs that would start in 2021 because I think they're going to -- they're quickly going to see that they may not have as much available capacity as they would like.

So I think they're looking at starting programs now because there is a lead time to getting these things in position. And that's why I think our timing with the Lockheed Martin program is optimal because we've started moving modules and engines into that facility now and can begin supplying engines to airlines pretty quickly in 2021. So we feel like the timing of that as well as the using up of green time is really optimal. And airlines are looking, as you know, to maximize cash and save cash. And so going to that with a program to say that we can supply it with engines without you having to invest in older engines is really attractive.

So we're hopeful, as I mentioned, that we can -- our goal is to sign up 250 engines, which isn't really that much with a -- we have over 20,000 engines in the world. It's not that much to get. And the contribution would be meaningful, also position us to be a service provider as well as a leasing provider, which I think is quite valuable.

Got it. I mean, do you see other partnerships with other parts or distribution coming into play here as you kind of expand the capabilities there, the Lockheed MRO relationship?

Yes. So there's one more part, I think, that is -- the used serviceable material is an important component, and that's something that we're working on, which would give us really a comprehensive solution across the whole engine. So that's something that given our -- we know all the players, and we've had meaningful discussions. We have quite a -- we're an attractive partner because we have 200 engines, and we're going to be adding to that. So I think that that is something that we can -- we've done a lot of work on, and I think it's something that is sort of the last piece of the puzzle.

Got it. And then just one on the sale leaseback market. Has it remained active? Do you think we'll see another wave of interest just as global airlines kind of settle into the new reality here?

Yes. I think it's going to be a very tough winter for airlines. So cash -- they're doing everything they can to survive and sale leasebacks is a source of cash that they're going to tap. I think that earlier this summer, there was a lot of activity. Some of the deals got done and then some of the deals, I think they've just been pushed back because you've got a lot of government money coming into the airlines and when you get government money coming to the airlines, then everything takes longer because you have another party to negotiate and look at everything. So -- but I think that those deals are not dead, and they're actually -- we'll be very -- there's going to be an active sale leaseback market, I think, for at least the next year.

Your next question comes from Chris Wetherbee of Citi.

I wanted to touch on the aviation EBITDA outlook for next year. If you could unpack that a little bit and kind of walk through what exactly is included in terms of assumptions around that? I know you talked about 70 incremental engines kind of going into that as well. But can you talk a little bit about sort of underlying market conditions that support that? And then obviously, the last question around sale leasebacks kind of, if anything is included in that. I just want to kind of make sure I understand what the walk-up is from where we are today to what -- that $450 million and kind of what you need to see happen to make that number?

Yes. So what -- so if you look at our current fleet, it's about $1.5 billion, and we should do probably about $290 million, $300 million off of EBITDA this year, which is below our target. And I mentioned the impact of COVID on that is sort of right in that range of $50 million to $60 million impact this year. So we see that returning to more normal. We actually had an EBITDA pre-COVID that was going up in the high 20%, 28%, 29%, 30%, but we're saying, okay, next year, we think with the airlines that we've backed, they're survivors and we will see a return to a 25% EBITDA margin based on analysis of our portfolio. And we do have a good chunk of assets in the freight market, which is doing really well and will continue to do well. And we've added customers like Air France and a couple of other sovereign airlines. So we feel pretty good about 25% on $1.5 billion, so that's the $375 million.

Then turning to this -- the incremental investment, we have $200 million of capital under LOI to invest in about 70 engines of all CFM56 engines. So that's what we've been talking about, what we've been targeting. And the attractive -- the pricing on it is very attractive because there are a few competitors with capital that are looking to buy assets right now. So we're able to get very good pricing. It's about $3 million per engine on average. We have some engines that we're buying is actually as cheap as $1 million. So there's a bit of a range, but on $3 million of average for CFM56, we believe we will generate with -- and our assumption on utilization for that is approximately 75%. And I think that could end up -- I think that's a reasonable assumption. There could be some upside there because I think, as I mentioned, there's likely to be a tight market. But 75% utilization generates a 35% EBITDA margin on that $200 million. So that's an incremental $70 million.

So if you take $375 million and add $70 million, you're at the $450 million number or approximately $450 million per annum EBITDA for us for 2021. That's without adding any incremental benefits from the Lockheed Martin partnership, which I mentioned, which we believe will approximate $100 million.

Okay. And there's nothing incremental from a national carrier sale leaseback or anything like that involved as well?

No. No. I think we'll see other good investment opportunities, I really do. I think the market is stressed, it's -- as you know, and it's likely to present other opportunities, but we're not factoring that in at this point.

Okay. Okay. That's very helpful. I appreciate that. And then I guess I just wanted to touch base on Jefferson to try to understand maybe the trajectory of that business coming out, obviously. I think as you mentioned, crude-by-rail opportunities have kind of decelerated and slowed pretty meaningfully. Can you talk about sort of pipeline connections and maybe other potential opportunities at Jefferson as we roll into 2021?

Yes. So the 3 projects will provide meaningful connectivity and upside for us. And it's -- we'll have 6 pipes that should be completed in December that will connect us to the Exxon refinery. And initially, the plan is really -- we've only got one of those that's being utilized today. So that would be the refined products to Mexico.

So we have, obviously, lots of conversations going about utilizing those other pipes, and that's what I mentioned. The opportunities and the -- there's a definite effect you have when you actually are building something and are about to complete it, you get a much more serious focus and conversation than when you're in the early stages of planning things. So we're hopeful that there'll be a lot higher utilization on those. The timing of that is difficult to predict and definitely the slowdown in demand that the refineries are seeing, the demand destruction has been pretty significant. So the timing is probably the challenge. But once the pipes are done, the leverage is significant. That's one part of it.

The other parts are the crude part where we have an inbound crude pipeline connection from Cushing, so that will connect our refinery for crude, which is very important for us to be able to blend because as you bring crude-by-rail in, you need to blend it with another type of crude. So the crude connection to -- the pay line connection from Cushing will give us a very competitive and cheap blend stock for crude-by-rail. Then crude-by-rail, as I mentioned, is showing signs of activity again. We've got trains booked from Utah into the terminal for Motiva, and Motiva is the other part of the outbound -- is the other pipeline connection. So we're building the pipe from Jefferson to Motiva. So we can blend, bring in crude-by-rail blend and then ship by pipe. So it's very efficient supply chain.

And then lastly, as I mentioned, I alluded to, we've got other pipeline connections that the more options you give these refineries, the more interested they become. And so we now will have multiple connections, but we can -- if we can add additional options, then we provide a really high-value service because they can switch sources as prices move around. So we're expecting significant upside opportunity again on the crude side as well as on the refined product side. It's just, again, the timing of predicting that is hard. But once the pipes are there, we're going to use them.

Your next question comes from Justin Long of Stephens.

Just wanted to circle back on aviation and some of the 2021 commentary, Joe, I think you said on the LOIs that you're expecting to close, the assumption is that utilization will be 75%. I wanted to clarify, is your assumption that utilization will be at a similar level for the existing assets when you gave that guidance for 2021? And is there anything you can share on the trend in utilization in October?

Yes. Yes, the assumption is the same for the existing portfolio, approximately 75%. And we're seeing very high utilization on the freighter fleet. And as I mentioned, we exited the quarter in September with 60% overall utilization on the existing engine portfolio. So it's been coming up every quarter. The average for the quarter is in the low 40s. So it started out lower and it's been building. And as I mentioned, part of the reason that Q3 was challenging is it didn't -- July and August, it didn't pick up until later in the quarter, closer to September.

So we're expecting that trend in -- we have engines that we delivered. It also took longer to get engines delivered during Q3, given the travel restrictions and just getting things moved around. But in the fourth quarter, we're expecting that 60% to be trending, staying there or going up. And then as I mentioned, we expect, as we deploy the new engines and we see an increased tightening market, we expect that 2021 will be at 75%.

Okay. And in October, have you seen that 60% exit rate hold steady? Or has there been any improvement?

I would say steady.

Okay. And then this quarter, you mentioned that you harvested some noncore assets in aviation. I was curious if that's something we should expect to continue going forward? Or if this was just something isolated in the third quarter? And maybe you could provide an update on how your assets in aviation break down by customer today?

Sure. So the -- we did harvest some engines and mostly those -- it was CF6-80 and Pratt 4000s, which are engines that fly on 747s primarily or 767s in the freighter market. And the reason we sold some of those is rather than invest -- as most of those were unserviceable engines. So you either have to invest in another shop visit or you can sell them into the part market. The part market is pretty strong, given the demand for freight flying. So from an investment point of view, it made more sense for us to sell them into the part-out market than it did to put them through a full restoration and invest for another 4- to 5-year cycle. So it was really just sort of a timing issue in terms of taking a better bid from the parts market than making an investment and putting them in for another 4- or 5-year shop visit, which may or may not be -- the outlook for 12 to 24 months for those engines is pretty good. The outlook for 60 months is a little less hard to -- is a little cloudier.

In terms of the portfolio, we have about 20% of the portfolio in the freighter market and that is doing pretty well. So as -- obviously, that's a bigger portion of our revenues. We have about 60% in the narrow-body market, which is A320s and 737s and CFM engines; and about 20% in 757 and 76 market, which is underpinned -- most of those that we own in that 75 and 76 are not cargo planes today, but there's a strong bid from cargo companies buying those planes to convert them to cargo.

So total portfolio is similar to what it was in Q3. I'd say on the customer concentration, now our largest customer is Air France. And we've added a couple of state-owned sovereign credit. So I'd say there's been a little bit of a shift towards that way on the narrow-body side. And there's another deal that we're fairly far along on that's close that would even push that number even higher. So I think that's the trend line is you'll have -- we'll have more state-owned sovereign credits in the narrow-body side.

Your next question comes from Devin Ryan of JMP Securities.

Just really one question for me, and I want to come back to aviation here. One element of the combination of a Lockheed program, it's at least very interesting to us is the vertical integration of the business. I think that gives the platform a number of competitive advantages over other lessors. I think it could also potentially change the valuation framework relative to others over time.

So I'm curious whether you guys would consider separating aviation from the infrastructure business, especially if you're getting to the types of FAD numbers next year that are projected, just given that that's quite a level of scale in the industry. And so just thinking about the potential to separate the platforms to clean up the corporate structure and obviously simplify the story and whether you can actually do this based on the current debt structure or if it's even something you're open to exploring.

Yes. We've talked about that before, and we are open to looking at it. I think we expressed the goal that we would like -- if we did separate them, they have -- each aviation and the infrastructure have a $1 billion market cap connected to them. So there's enough liquidity in both. And so that's one goal. And I think it is something that we could manage with the debt structure, and we've got ideas, but we don't have a specific time line or action plan at this moment. I think it would -- it's something that we believe longer term would make a lot of sense, and it's something that we're going to continue to think about and try to figure out the best timing.

Your next question comes from David Zazula of Barclays.

Just on the aviation side, I guess my question is, given the harvesting of engines you did this quarter and the Air France deal you did last quarter, has that given you a shift in your geographic end markets and what do you feel are kind of the benefits and risks of having your current shift in geographic end markets from here?

Well, we've -- we haven't -- I mean we've shifted slightly to Europe with Air France adding but we still have a fairly diversified between Asia, Europe and U.S., U.S. being the smallest, North America being the smallest. But the assets are very, very fungible. So I think that's the beauty of aviation is you can move them around. And we don't see -- right now, the global market is moving pretty much in lockstep. There are times where certain regions do better than others and assets move in that direction.

But right now, there's a relatively -- it's not extremely significant in terms of being in 1 market versus another. So I think that we're happy with the mix we have. And I think as I said, I think we will see a bigger shift to state-owned or sovereign airlines just because those are the airlines that are getting the funding from governments, and that's where the assets are going to be the most stable and the most solid. So I think we're trying -- we're targeting those carriers specifically. So as I'm sure everybody would -- so it would make sense. So we'll see a shift to sovereign credits as opposed to any region in particular.

And then on the maintenance side, as the FAA approval time line appears to be stepping up, have you gotten orders in? And if so, how quickly could you ramp up to start processing your orders?

Yes. The production is in the works, so there's a pretty quick inventory availability. And there are orders for parts already. So once the part is approved, it can be made very quickly. And we've indicated our interest in orders as well, given our orders for our owned aircraft -- or owned engines for next year. So there's not a big lag. This has been -- it's been a long process of getting approval. So there's been plenty of time to plan production.

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

So it sounds like you have a lot of confidence in that -- in the $450 million EBITDA figure for next year. Similar to kind of Chris' question, to what extent is that kind of contingent on a recovery in passenger traffic or something of that sort?

And kind of in line with that, do you see this quarter as kind of being a trough for what we should be able to expect in terms of EBITDA and FAD going forward? Because obviously, you're still covering the dividend, which is great. But I think as you mentioned in your prepared remarks, this was probably a little bit softer than what some of us were looking for. So in terms of looking at 2021, just maybe if you could give some parameters around how much confidence you have in that $450 million number and what that implies for kind of FAD across the business?

Well, obviously, we feel pretty good about it, but obviously, COVID is still out there, and you see Europe and Germany and France taking steps to shut down again.

On the other hand, you have countries in Asia where they've had no infections in Taiwan. And China is back to pre-COVID flying levels. So it's quite varied around the world. But people are figuring out how to manage it and people are flying. The U.S. had 1 million passengers in September. So I think people are getting there without a vaccine. Obviously, many airlines are pushing, hoping for vaccine and therapeutics. And the sounds around that from people that know better than I know is that people are pretty optimistic that there'll be something available pretty soon, now how quickly that is effective or not.

And then you also see airlines starting to do rapid testing, British Airways that flying to London, you can get a rapid test now, 3 days a week for everybody on the plane. So the airlines are working and countries are trying to figure out, people want to be back flying and traveling. So it's not without some risk that there is a snapback, but it feels like it's going to keep moving up and getting better. And what happened, I think, a little bit in the third quarter is it just took longer. People were not rushing to get there as quickly as it seemed like they were.

So that the risk, I think, is more on the timing side, but we feel pretty good that something -- people are getting better and people are improving how they manage. And there's a lot of good signs out there, although this week doesn't feel -- hard to feel great about it. But it does feel like we can -- people will get a handle on it and 2021 should be much better, we hope.

Got it. Understood. And then just in terms of the MRO deal, Lockheed is, obviously, very reputable in this space. Maybe you could talk a little bit about kind of the nature of the discussions that you had with them. And if I could ask you to speculate, why do you think from their perspective, they chose FTAI as a partner?

Well, the -- we've been talking about this for 2 years. We've been looking at trying to find the right partner for us, for our business. And what we were looking for is someone who valued our flow of business. And we have, as I mentioned, 200 engines, which is 40 shop visits a year already. And they see and we see the opportunity that that's going to grow. And so that's what's very attractive. That's what we brought to the table. And lots of people were interested. I mean we had conversations with -- all over the world with many, many different parties. But Lockheed is very reputable; as you point out, they have a fantastic facility. It's probably the best facility we -- of any of them that we saw with 300 shop visits a year. It's the old Air Canada engine shop. And their timing is they needed -- they don't have a lot of flow there. And then post-COVID, the outlook has got even further pushed out. So I think that's what they liked.

What we wanted to get the ability to have -- to be an important customer and to create this Module Factory is something we've also been talking about before because if you can have modules available, you can avoid -- a full restoration shop visit pre-COVID was taking, in some cases, 9 months. So if you actually only need to work on the low-pressure turbine and you need one -- you need a module, you can pull that off and you can have an engine out within 30 days. So you can dramatically reduce the time that an engine needs to be idle. So that was not easy for us to be able to get from a lot of different MROs that they wouldn't accommodate that or they didn't have the space or the availability.

So that was a big part of the discussion and they did have the room. They have the capability, and they're actually very excited about that capability and what it will do for their business and ability to attract other business.

And we did that deal without having to invest in their shop. They weren't looking for us to buy an interest. Some of the other deals we were looking at, we would have had to invest capital. We would have had to buy tooling. We would have had to buy an equity interest and we were able to avoid all that. So I think that what we got was what we -- everything we needed without having to really do something that we didn't want to do.

Your next question comes from the line of Frank Galanti of Stifel.

Yes. I wanted to follow up actually on the last question on the Lockheed partnership. So I get that you guys are able to bring in volume to the MRO business, which is a need of shop visits. But why isn't Lockheed doing this directly? You guys had said that you're targeting 250 engines, 50 visits a year and you're able to save $1 million or, I guess, more than $1 million on the proprietary -- or I guess on the module part. But it feels like Lockheed is giving up too much. Maybe I'm reading into that too much. Are they that desperate for shop visits or -- yes.

Well, I think it is a difficult time for an MRO, so I don't think that -- I mean I don't -- I wouldn't characterize them as desperate, but I do think it helps them at a critical time. But if you look at the maintenance MRO business, we've talked a lot of these airlines that they -- very few of them are owners of engines. And so in order to create a Module Factory, you need inventory and you need to own engines and you have to have a critical mass. And I'm not saying the MRO shops couldn't do it, but they don't do it. Very few go to their Board and say, I want to be in the engine leasing business and I want to go invest several hundred million dollars and build a business when they have no history or capability or leasing team or whatever. So it's a vertical integration.

So we came at it, and we do a fair amount of business with other MRO shops as a private label provider of engines. So an MRO will go out and pitch their shop visit services to an airline, and the airline says, can you get me an engine while my engine is in the shop, and a lot of the times the MROs will come to us and say, do you have an engine for us. And so we're like a private label leasing provider of spares.

So we've been -- and we serve the aftermarket. So we don't -- we're not the OEM. So you also have to find an MRO who is aftermarket-oriented as opposed to OEM-oriented, and those further limit the number of people that have -- that are in that market. So it was a long hunt, but it worked out great for us timing-wise. And I do think it's a good deal for Lockheed as well because there's going to be a lot of flow and this hopefully gets them started on bringing other customers and other business in. And if we start doing PMA and we develop a program with an airline, that could end up flowing to them as well. So I think they see upside as an addition; this is not just a deal they had to do.

Okay. That's actually really great color. I appreciate that. So effectively, the -- you guys are bringing to bear CapEx in the form of engines and you're sort of leasing out space. So how much is that going to cost you guys? And then how much are the minimum volumes? And is there any economic share with Lockheed in this deal?

We don't rent space. So -- but we do have some minimum volume commitments into the 7 year, and I would characterize that as modest and very manageable from our point of view. But that's something that was very important to them, and we are committed to that, but we don't pay rent. So we're just going to be using the shop for shop visits, and we'll also have the ability to store modules and keep modules there. So that's very attractive in terms of that.

And we are -- if you think about the industry, airlines don't have capital, maintenance shops don't have capital, and we are one of the few places that actually are willing to invest in engines. So that gives us a huge kick -- a boost to the business right now that we didn't anticipate or we didn't see a year ago, but the timing on that, if we can go to airlines and partner and say, we can provide all of your needs and do it for a lower cost and save you capital, that's a pretty compelling proposition and I think it's going to be very significant for us going forward.

Yes. It sounds like a great deal. And just one last question for me. Just kind of following up on the 75% utilization you guys expect for your engines in 2021. Most of the question is around pricing power. Are you having to get -- are you having to reduce pricing in that scenario where utilization kind of bounces back next year?

No, we've -- the engine leasing business has never been really a price-sensitive business from that point of view of it. It is -- the prices tend to be set by the OEMs and they set prices very high because they're always charging a lot for their parts and raising prices. So we fall under that umbrella. And it -- usually when someone needs an engine, they don't go out with an RFP, they actually call a handful of people and they get engine, and it's typically not the CFO who's negotiating with you, it's somebody that has to get an engine because they need to fly a plane in the maintenance side.

So it's very difficult to move engines by cutting the price is what I'm saying. It's much more of a demand-driven need-based decision, and it's not really -- we haven't seen pressure on rents, and maintenance reserves also keep going up every year because the OEMs keep raising prices.

Your next question comes from Randy Binner of B. Riley.

So shifting back away from aviation. I appreciate the comments on Jefferson Terminal and the pipes come to completion in December. Yes, I apologize if I missed it, but was there -- did you give any kind of quantification of financial impact for that, looking longer term? I know it's not as defined as everything we talked about in aviation. But some parameters there and then possibly also on the Long Ridge data center saving opportunity. Just kind of maybe digging into timing and the longer-term financial impact, if you could.

Yes. So we've said that Jefferson, when the pipelines are built and operating, will be at approximately an $80 million EBITDA run rate. What is a little harder, given the COVID delays for the refineries is predicting the timing exactly of that, but we will have the pipes done in the next 2 to 3 months, and we're hopeful that we'll have commercial deals in place shortly thereafter to get us to those -- to that number or even higher.

In terms of Long Ridge, we have engaged a number of data centers and talked to them about providing them the site and the power. And so we have multiple proposals out and I think the hydrogen play is one that's actually very helpful because it's not just any data site at that point, it's a data center with a hydrogen story or hydrogen play, which is very helpful. So we turn on the power plant in the third quarter of next year. And so we're hopeful that before we turn it on, we'll have actually signed for a tenant and a construction project by then. And hopefully, early in 2021 is our goal.

Okay. But at this point, there's no numbers -- broad numbers you can give as you're still in negotiations?

Right. We did say that if we were able to sign up, I mean, because if we sign up a tenant on our site, we will generate closer to sort of mid-40s in terms of dollars per megawatt hour versus high 20s today. So significantly higher power revenue. And if we're able to contract half of the power output that the EBITDA for the total power plant would increase from $120 million up to $140 million to $150 million. And obviously, if there's a hydrogen play or component to that, we think that the multiple, the valuation multiple would also be much higher.

Your next question comes from Rob Salmon of Wolfe Research.

As we think about the utilization outlook for 2021 at 75%, can you help us bridge kind of the improvement from roughly 60% from September up to that 75%? Is it -- were we at kind of a better run rate exiting September than the overall average? Is this related to the timing of some recent deals? Or is there something related to a vaccine that that's embedded in your forecast?

Sure. So we exited the quarter at about a 60% average. And so it's been steadily trending up. If you look at every month over the last -- since April, it's been trending up. And we also have a number of programs that have been taken up by some airlines over the next few months. And we talk about early 2021, we're seeing demand for engines now that we have. So we've taken the numbers, and prior to COVID, we were -- our engine utilization was as high as 80%. So we basically mapped out, and we continue to see high utilization on the freighter fleets, and it's really the recovery of the passenger markets that is taking the numbers up to back to levels where they historically were.

And part of that, as I mentioned, is the fact that shop visits are way down. So if you have excess available engines and you stop doing all shop visits, you quickly use up available engines, and you'll see engine utilizations increase well before aircraft utilization because aircraft last a very long time, engines have to go into shop every 5 years.

Actually, Joe, that's a nice segue into my follow-up question on the MRO deal with Lockheed. You guys have got capacity kind of increased up to 300 units annually. Can you give us a sense of where that minimum is? I realize you probably can't speak to exactly the level, but clearly, you're going to have a need for 40 shop visits a year, kind of how many visits above that or above that amount are you guys kind of required to have throughput at the facility for the module factory?

The minimum would be well below that amount, not above it. So it's not something that I think is a significant commitment or worry about us being able to meet that minimum.

But I mean the number which I was referring to is like your -- you're basically required 40 shop visits annually. I'm assuming it's above the 40, but obviously significantly below the 300.

You mean what our fleet would be?

Correct, yes. Like what your required throughput is going to be anyway on an annual basis? Or let's say required minimum?

Well, when you say required, the minimum is going to be very low of what a minimum committed amount we have to give as part of the deal, well below what our current requirements are. So you can approximate how many shop visits you'll have by just taking 20% of the total number of CFM engines we own, which as I said, if we had 200 engines, 20% is about 40 shop visits a year today, and we expect that to grow. But the minimum that we've committed is well below that number.

Okay. That's really helpful, just so we can understand kind of the risk return parameter there. And my final question is with regard to the $200 million of LOIs, can you give us a sense of when you expect that capital to be deployed, just so we're kind of incorporating the right level of EBITDA from the LOIs for kind of 2021. Is it some (inaudible) you want in the first half?

Well, I think it will be late Q4 and early Q1.

Your final question comes from Robert Dodd of Raymond James.

Just a follow-up on that one first, and then one other, it should be quick. On the MROs, Joe, on the minimums, does that minimum have an escalator over time? Or is there, a, building in the assumption of growth? Or is the minimum, the minimum...

No, no.

Okay, got it.

And it has -- it's like a -- it has rollover points, too. So if you don't use it, you can roll it. So it's very flexible. I don't think that will be a significant -- I have very little concern about that minimum that we ever get anywhere near it.

Okay, perfect. On the other part, on the various elements you talked about, obviously, $450 million in EBITDA from the equipment, the Lockheed various components of that that you spelled out that could add up to eventually like an incremental $100 million a year. You mentioned when you said that based on existing contracts, approvals, et cetera. So did that include any benefit from the parts approval or not? And to put it in another perspective, if that -- if your first part got approved by the FDA -- FAA say tomorrow, what -- would the impact from that already be included in what you've discussed? Or would that be incremental on top of that? And could you give us a ballpark if it would be incremental?

Well, I think when you go through the pieces to it, the element that I think that will be facilitated but not necessarily required to get that is being able to manage shop visits for other airlines. I mentioned the partnering of 250 engines or 50 shop visits a year. The approval of those parts will be helpful for us to make that $1 million and save the airline $1 million. So it's not entirely impossible you can't -- we couldn't do that without it, but it will be facilitated by that. So I would say a portion of the $100 million is really a function of us having these first 2 parts available next year.

There are no further questions at this time. I would like to turn the conference back over to Mr. Andreini for closing remarks.

Thank you, operator, and thank you all for participating in today's conference call. We look forward to updating you after Q4. Thank you.

This concludes today's conference. You may disconnect at this time.