FTAI Aviation Ltd (FTAI) 2018 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fortress Transportation and Infrastructure's First Quarter 2018 Earnings Call. (Operator Instructions) As a reminder today's conference may be recorded. I'll now like to turn the call over to Mr. Alan Andreini. Sir, you may begin.

Thank you. I would like to welcome you to the Fortress Transportation and Infrastructure First Quarter 2018 Earnings Call. Joining me here today are Joe Adams, our Chief Executive Officer; and Scott Christopher, our Chief Financial Officer.

We have posted an investor presentation in our press release on our website, which we encourage you to download if you have not already done so. Also, please note that this call is open to the public in listen-only mode and is being webcast.

In addition, we will be discussing some non-GAAP financial measures during the call today, including FAD. The reconciliations of those measures to the most directly comparable GAAP measures can be found in the earnings supplement.

Before I turn the call over to Joe, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements by their nature are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding GAAP financial measures and forward-looking statements and to review their 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 the call, I'm pleased to announce our 12th dividend as a public company and our 27th consecutive dividend since inception. The dividend of $0.33 per share will be paid on May 29, based on a shareholder record date of May 17.

Before going over the numbers for each operating entity, I'd like to highlight a few of them: first, adjusted EBITDA $48.1 million, our highest ever; second, normalized aviation FAD run rate $230 million, our highest ever; third, projected aviation FAD considering our current LOIs now $265 million; throughput at Jefferson Energy Terminal 3 million barrels, our highest ever; and finally, total company normalized FAD $28.2 million, which is greater than the dividend.

Now let me review the numbers in more detail. The key metrics for us are adjusted EBITDA and FAD or funds available for distribution. Adjusted EBITDA for Q1 2018 was $48.1 million compared to Q4 of 2017 of $47.8 million, and Q1 of 2017, of $22.1 million. FAD was $34.4 million in Q1 versus $47.2 million in Q4 of 2017 and $21.7 million in Q1 of 2017.

During the first quarter, the $34.4 million FAD number was comprised of $62 million from our equipment leasing portfolio, negative $12.3 million from our infrastructure business and negative $15.3 million from corporate. The overall infrastructure number improved due largely to strong results at the Central Maine & Quebec Railway or the CMQR. Corporate FAD improved from Q4 2017, primarily due to lower corporate G&A, and lower acquisition in transaction -- transition cost.

Once we normalized the Q1 numbers, we again see, as we did at the end of the Q4, continuing strength in our ability to generate adjusted EBITDA and FAD on a run-rate basis. More importantly, we see that trend both continuing and accelerating.

Let me now turn to aviation by first setting a backdrop for the business, the macros for the industry overall continue to be impressive. Global passenger traffic growth for Q1 of 2018 with 7.6% increase that is projected to continue growing at 5% to 6% per annum. Freighter demand, due to rapidly growing e-commerce, continues also to be very strong.

Here are the aviation numbers for Q1. Aviation had another terrific quarter, which I never get tired of saying. Aviation normalized FAD in Q1 was approximately $57.5 million or $230 million annualized, up from $184 million annualized number in Q4. The portfolio is performing very well and the outlook is outstanding. As of this call, we have closed on $135 million of new investments year-to-date, and expect to close $65 million more in Q2, or more than the $180 million we had in signed letters of intent at year-end plus an additional $20 million from new deals.

In addition to that, we've added another $30 million of a signed LOIs that should close in Q3 and Q4 of this year, bringing our new expected run rate aviation FAD to approximately $265 million per annum. With our portfolio today of 110 engines and 61 aircraft, which on those aircraft we also have 126 engines, and our talented and dedicated team, we have established FTAI aviation as a major part of the global commercial engine business, Which is a great space to be in with above-average growth rates and very high barriers to entry. And because of the size of the after-market opportunity with the CFM56-5B and 7B engine that I've been talking about, the best is still yet to come. 100% of all 737 next gen aircraft are powered by CFM56-7B engines, and 60% of the large A320 family are powered by CFM56-5B engines. So in total, there are over 22,000 of these engines flying every day, the largest commercial engine market by multiples.

Today about half of these engines are covered by power-by-the-hour service agreements provided by CFM, and half are served by the independent maintenance and repair organizations, otherwise called MROs and operators, which is our target market. Over time, as those aircraft transition from the original operator to the second, third or fourth airline operator, that percentage that is served by the aftermarket or our market, goes up. So today, 11,000 aftermarket engines, on average, go through a major shop visit every 5 years or approximately 20% of those per annum. Which means, every year, there are over 2,000 annual shop visits for CFM56 engines. The average shop visit cost today is nearly $5 million, and has been increasing every year and is projected to increase going forward at rates well above inflation. So the market opportunity in this sector is huge and growing.

Our suite of products that we have been developing for the last 3 years, we believe, can save between $1 million and $1.5 million per shop visit. Those products are: one, our advanced engine repair through our joint venture; two, module swaps; three, partnerships -- partnership with the parts distributor for sourcing lower-cost used materials; and four, coordinating and concentrating our shop visits with our preferred MROs.

We expect to be offering unique cost-saving products and services to airlines who operate CFM engines, which we believe can add material earnings to our business beginning this year, and very much accelerating in 2019 and 2020.

Turning now to Offshore. The Offshore market remains oversupplied but is definitely improving. All 3 of our vessels were on lease for all of Q4 and for most of Q1. 2 of the 3 vessels will likely be on hire for the balance of 2018, while The Pride will have a few shortage ops this year.

Additionally, we're also exploring the possibility of converting The Pride to a dedicated well intervention asset. The vessel is well-suited for this highly specialized well intervention market, which is much less oversupplied and significantly more profitable than the construction market. We hope to have the vessel actively trading in that market by year-end 2018.

Turning now to infrastructure, and starting with Jefferson. Jefferson continues to grow in terms of both, throughput and construction to support new business demands. The macro for refining and storage needs in the Gulf are the best they've been for decades and continue to strengthen. Jefferson had an excellent quarter, in that: 1, we handled record volume of product through the terminal including 2 million barrels of ethanol, 400,000 barrels of refined products, and 650,000 barrels of crude; All 2 million barrels of storage currently built is under contract, and we are presently constructing an additional 800,000 barrels for crude; third, we expect additional contracted volume of refined products by rail to Mexico. We secure additional contracted volume of refined products to rail -- by rail to Mexico and are doubling the capacity of the system from 20,000 barrels per day to 40,000 barrels per day, by early Q4 of this year, and believe there is additional demand and capacity for us to go to 60,000 barrels per day, early in 2019; and fourth, we advanced our commercial, technical and engineering plans around pipeline connectivity, and additional storage and have mapped out our development program for the next 2 years.

So in 2018, with the additional refined products business and the 800,000 barrels of storage online, we will be investing approximately $80 million this year in the terminal, and expect to be at an EBITDA run rate at year-end of approximately $40 million to $50 million per annum.

In 2019, our plan is to invest approximately $400 million in the terminal in: one, an additional deepwater dock; two, the market link and zydeco pipeline connections for inbound and outbound crude; and three, an additional 3-million barrels of storage.

Prior to making this investment decision, we expect to have customer commitments for use of a substantial portion of the new capacity that I just mentioned.

We expect this expansion to add approximately $50 million to $70 million of incremental annual EBITDA, bringing the total run rate EBITDA, at the end of 2019, to approximately $90 million to $120 million per annum. For a terminal, which will have 6 million barrels of storage, 2 deepwater docks, 1 barge dock, and inbound and outbound pipeline connectivity. In addition to all this, we will continue to have the exceptional rail capability that we have, being served by 3 class-1 railroads, BN, UP and KCS.

Beyond 2019, we expect to begin planning for 2 additional deepwater docks, 14 million additional barrels of storage and additional pipeline connectivity. For this phase, we -- approximately $700 million in capital invested, should generate approximately $200 million to $300 million of additional EBITDA annually.

Turning briefly to the Canadian crude-by-rail market. We do expect a very favorable market opportunity and wide WCS, WTI spreads for this year and most likely through at least 2020 before a new pipeline capacity can be added to the Canadian market. We have 8 trains lined up for Q2 and 5 trains per month, committed, beginning September 2018, running through November of 2019.

Now let's turn to CMQR. Revenue for Q1 was $11 million and adjusted EBITDA was $3.4 million. While these numbers are the highest ever, it's important to note that we have 2 events, which had a positive effect in the quarter: first, we booked a 45G tax credits for 2017, of $1.3 million; second, we benefited from short-term detour traffic, which lasted most of Q1, but has now ended. We're obviously pleased, that these events took place, it would be unfair to annualize the quarter for all of 2018. Having said that, Q1 was an excellent quarter for our regular way business, traffic and pricing are good.

As to new business, we expect the car cleaning operation to commence this quarter. And the bottom line is that Ryan Ratledge and the team at CMQR, are doing a terrific job.

Now let's turn to Repauno. Repauno has taken significant steps forward, in developing the full potential of the natural gas liquids or NGL opportunity: firstly, we're currently filling the existing 200,000 barrel cavern with butane as we did last year, which we expect will generate approximately $3 million in EBITDA this year; second, we're reconstructing the dock, which will be operational by year end 2018; third, we're mostly done with the core sampling, which was needed to determine the size of the granite formation available, for new cavern development and the results of that are very positive. On the commercial front, we're in active discussions with numerous potential buyers of propane and butane, mostly international, which we would source from the Marcellus, most likely, from our Long Ridge facility, and move by rail to Repauno and then load into ships for export. Fully built out, we expect that 3 million barrels of storage and a dock would require approximately $450 million of capital, and would generate approximately $150 million in annual EBITDA beginning in 2020.

Prior to full completion of the caverns, we're working to be able to load ships direct from rail and generate meaningful EBITDA in 2019 and 2020. And we hope to have more detail on those numbers by our next call.

Long Ridge Energy Terminal, formerly known as Hannibal has made great strides forward this year. In addition to the power plant, we have now started up a frac sand transloading business. We have 1 customer signed for a 3-year minimum volume commitment deal and many others, actively looking.

We invested in this year $2 million in a unit train loading and unloading system, and that coupled with the significant barge stocks and good road access we have, make our site uniquely desirable, for the growing frac sand usage in this area. We expect frac sand to generate a minimum of $2 million in EBITDA this year and a minimum of $5 million in 2019.

We can also use this unit train loading capability for propane and butane, and we are in discussions with local fractionators to secure volume for that, potentially by a pipeline, which is very cost effective to our terminal, direct pipeline connection. One ideal destination for these trains would be, obviously, Repauno, which I just discussed.

On the power plant, we've secured the gas supply through a joint venture with a local gas EMP company, and we are in active negotiations now with offtakers for the power under fixed-price 10-year contracts. Our goal is to sell half the output of the power plant to industrial users, and the other half to data center users, who would additionally be new tenants on our property. By securing power offtake contracts, we believe a substantial amount of capital needed for this project will be available from attractive long-term, nonrecourse project debt financing. Based on our current negotiations, and we have 1 signed LOI, we believe the power plant will require $600 million in total capital and generate a minimum of $100 million in EBITDA per annum, beginning 2020.

Let me conclude, aviation continues to outperform with our profitability metrics remaining strong, even as we add new assets. And for the first time since the inception of FTAI, we believe, infrastructure is going to be a positive contributor to EBITDA in 2018. And more importantly, we currently see that, that number growing every year and in fact, growing significantly in 2020. As a result of infrastructure turning positive this year, 2018 is going to be a cash generation year for FTAI, and every quarter we've had stronger cash flow and every quarter, we get closer to our objective of 2 to 1 dividend coverage.

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

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

(Operator Instructions) And our first question comes from the line of Justin Long from Stephens.

Maybe to start with the question on Long Ridge Energy. Joe, you gave some numbers on the capital you could put towards the power plant there, and what kind of EBITDA that can generate? I was wondering if you could give a little bit more clarity on how you expect to finance the investment in that facility, and clarify, what the actual EBITDA impact to FTAI would be, under the structure you anticipate?

Well, I think, we're looking at is, sort of, 3 steps. The first step that we're in right now, is engaged with offtake purchasers of the power, which we expect hopefully to conclude that in the -- in next few months. And that -- and then we've also started discussions on financing against that, and there, we would be doing nonrecourse project finance debt, which is available to a large degree, at a high level of leverage because of those fixed-price offtake purchase agreements. So that's a significant differentiator from other deals that are in the market, and I think, we've had feedback from investors and investment banks already, that that's -- that they believe that's doable. Which allows us to be able to go forward with the project with unusually low amount of equity from FTAI, to do that project. So that's our goal. I think once we complete that, we would be contemplating, bringing in an outside -- sometime between completing -- beginning construction and turning on the power plant, we would look probably to bring in an equity partner for up to 49%. And based on multiples of EBITDA, if we lock in $100 million of EBITDA, that should be worth substantially more than our cost basis. And so, we think that would enable us to take out some equity and still own half of the power plant. So that's the goal. The timing of the last step is a little less certain because we got to get the first 2 steps done.

Okay. That's helpful. And maybe shifting to Jefferson, you mentioned the $400 million investment that could take place in 2019 and the FAD potential of $50 million to $70 million. A couple of questions on that front. First, what's your visibility at this point to that incremental FAD? How much of that is contractually committed? And then also curious about the timing of when you expect that FAD or EBITDA to start rolling on?

So the -- so we're out in the market now and talking to potential users and primarily would be in the form of storage agreements. So we've got term sheets and proposals out, and people actively engaged on that. So I feel reasonably good, the market in the Gulf is very strong, you know as soon as you have storage built, you can lease it today. And everyone wants the optionality of being on the water, so we -- with the pipeline connectivity, I think, we will have a -- and the rail capability. I think the pipeline and rail married together with the water, gives us a very attractive site, and so we have a number of counterparties engaged in -- and I mentioned, you know the 3 million barrels of storage. So I think the visibility is better than it's ever been, so that's good. And we hope to wrap that up, if we do start that project, it will not kick in until probably the end of 2019. So you'd see most of the effect to that in 2020.

Okay. And just to clarify on the EBITDA run rate you gave for Jefferson at the end of this year, and the incremental amount that's coming in next year. Does that include any additional crude-by-rail contracts? Or is that just based on some of these other opportunities in that one contract that kicks in September, you mentioned?

This speaks mostly on what we have today because it is still -- we're still working on acquiring additional rail, but what we have today is what we've used as assumption, going forward.

And our next question comes from the line of Chris Wetherbee from Citi.

Joe, I wanted to come back to the engine market opportunity. As you talked about 20% of the fleet, kind of, getting service on an annual basis. You've talked about this in the past, in terms of potentially some value add that you can create for carriers through this business. Could you give us a little bit more color in terms of maybe timing? Sort of maybe magnitude of the potential opportunity? Just want to get a sense of, where you are in the process of maybe rolling that out, you need a joint -- JV kind of partner from a service perspective. How are some of the sort of your processes might -- how might they look as we see this roll out over the course of the future?

We're actually doing some of that right now. So we've done -- I mentioned the 4 parts to it, the JV is probably the -- is the long pole in tent, that's the one that probably doesn't -- you don't see an impact on that until 2020. But this year, in 2019, we are starting to do -- we've done a number of module swaps, which have worked out very well. And sometimes you'll see that in revenue, and sometimes, what actually happens is we just enter up -- end up lowering our cost basis in our engines. So you won't see that necessarily until we sell the engine or you'll see a higher return on equity. But those are happening today and then also just this quarter we acquired a number of parts from -- at a discounted -- there was one of the participants in the OEM market had an inventory of parts and we acquired them, and that will save us a significant amount of money per shop visit, because we can use those parts in our own -- with our own inventory. So -- and then, the fourth part of what I mentioned was, using our buying power with -- to negotiate better deals with MRO. MROs, we are in the thick of that right now, try to figure out, what that means and how we deal with that? So I would expect that we'll have some concrete answer on that, this year. So if you go back on the 4 parts, the first was the JV, it was 2020. Module swaps and 2 and 3, which is a module swaps in lower cost parts are happening now, and I expect to -- that to be a bigger factor in 2019 and on. And then the fourth one is the MRO partnership, which I hope to have something on this year.

Okay. And when you think about potential market share opportunities, any thoughts on, sort of, what you might think you could get to, as much as put the 4 parts together and think 2020 and beyond, what do you think the opportunity is from a share perspective?

Sure. So if I think about the ultimate goal and you think about if we could capture 5% to 10% of the market, which is, I don't think, a crazy assumption. That market is 2,000 shop visits, and if we can save $1 million or $1.5 million for an operator or an owner of an engine per shop visit, if you could capture half of that, that's between $75 million and $200 million to us. And some of that hopefully, we can achieve as a fee or a service fee, so it's not tied to asset ownership, that is sort of the ultimate -- the Holy Grail.

Okay. That's helpful. And then you ran through a lot of interesting investments and development in multiple parts of the portfolio. I'm not quick enough to keep up with how you're rattling through them. As you take a step back and think about maybe sort of fiscal '19 year-end, sort of, run rate whether it be from an adjusted EBITDA perspective or maybe a FAD perspective. Can you sort of tally them up and give us a sense of maybe where you see that, sort of, what is that the obvious line of site growth to at that point?

Probably not on this call. I'd be happy to help you and go through it more slowly, but probably we shouldn't do that.

And our next call -- next question comes from the line of Rob Salmon from Wolfe Research.

I guess following up with regard to, kind of, the engines. If I'm thinking about the -- just the overall market opportunity from this service -- from the servicing of these engines. Are there any kind of incremental fix cost that you guys would be needing to add to your network in the aviation leasing business?

Not much. We've got a very scalable team of people, and we've already increased this -- we're up to, I think, how many engines we already have? 120-something engines, and we've added a few people but there is no -- there isn't any like office building or plant or any manufacturing thing or anything we need, it's just a few people and they are highly productive people at this point since we've got a lot of systems in place.

Got it. And there you can also leverage some I would imagine for just the engine leasing business in general as well. So there's probably some kind of overlap that you get from the synergies perspective?

Absolutely, I mean, when we look at our portfolio, and I think I've mentioned this, as it -- we have 60 odd airplanes, but really those airplanes are mostly engine value 126 -- 61 aircrafts have 126 engines, and 80% of the value of that portfolio is the engine. So overall, our portfolio is really about 85% engine value. And that's what we feel has always been the best part of the market, because engines tend to go up in value as opposed to airframes, which go down in value.

That's make a ton of sense. Over the last few quarters, we're actually been seeing your engine utilization rate creep higher and now it's kind of at the highest since I've been tracking the portfolio in the low 80s. Is this an anomaly because of just some timing of having engines coming off lease or being extended? Historically, I thought it was, kind of you only want to max out around kind of the mid-70s, so that you can optimize what you charge customers?

I wouldn't -- I would still keep our assumptions the same at 50% to 75%. I think it's a combination of a good market and good management. The -- so knock on wood, it's a strong market now, there is a number of engines that are in very high demand. And as soon as you get a Pratt & Whitney 2,000 engine for a 757, you've got numerous people that want it, things like that. So it's a very strong market globally, because of the macros, which I mentioned is traffic demand is up on both passenger and freight. And hopefully that continues but still, we're fine if we don't operate at such a high utilization.

Got it. And I guess the final one and I'll hop back in the queue. As there is obviously a high-profile engine issue, can you kind of talk to your exposure with that airline, I don't think there is much there, if any, as well as what that could mean from an aftermarket perspective if -- for your business, if there is some sort of ruling by the FAA?

Sure. And the FAA has already come out with what they call an AD, airworthiness directive, but no we don't have any exposure to the airline, but what happened is, that the fan blade that broke off was in the front section of the engine. It's the fan that moves the air, most of the -- most of what we focus on and most of -- the highest cost repairs in an engine are more in the hot section, which is more in the center section. So that fan blade is typically not been a high maintenance item. But what they did, the FAA has come out and said they want more inspections. And I think, they mandated inspections for every engine that has over 30,000 cycles, which is one takeoff and one landing. But I think there is some 600 odd engines in that category flying today. And I believe they've inspected like 400 of them and found no defects. So what they will do and what they always do in these, is they mandate more inspection and more repairs, so that's how they -- that's generally how they deal with that, which typically is good for -- if you own engines and engines are off wing more, you do better. So there is more demand for spare. So I don't think it's a direct correlation on this event, but in general, that's the -- that's been the trend line anyway.

And our next question comes from the line of Ariel Rosa from Bank of America, Merrill Lynch.

So I wanted to start, just looking at the cash balance, maybe Joe, if you could address, what the need looks like for raising additional capital in 2018? And how you would look to do that?

Yes, so as we mentioned the last time, next financing we will do would be a debt financing. And so we have pretty good access to both long-term and short-term debt opportunities. So -- and that we'll really be driven, I think, primarily by the additions for aviation over the next few months. And as I mentioned, we added about $200 million of -- we'll close about $200 million of new investments in aviation through the second quarter, which is pretty similar to the run rate we had last year. And that I expect, if it continues, we will be able to finance all of that with debt for the balance of this year. And then the only other direct capital need right now, as I mentioned, was a Long Ridge and we're in -- we're going to go into the market shortly, I think, and look to finance almost all of that power plant with debt financing or a significant amount. So we feel like we're in pretty good shape today.

Okay. Great. And then obviously the quarter saw a step up in operating expense at Jefferson. Do you expect that to continue throughout the year? Or kind of maybe you can give us a little bit of a guide on where that trend is, as you see it through the year?

Well, Q1 was higher than it normal, we changed operator at the terminal, so we had $2.3 million of one-time cost related to that, so it should step down after that.

And the amount that you expect to step down is by that $2.3 million?

Yes.

Okay. That's helpful. And then just last one for me. Maybe you could talk about the Mexican election. Do you see that as posing a risk to the refined product opportunity? Could that -- is that kind of a binary type of outcome? Or do you still think that opportunity continues to be robust, regardless of the outcome there?

Well, I think it still robust for quite a while and it's at least 5 to 10 years. And the reason why, as Obrador has come out and said that he is not going to change -- Mexico today imports, I think, roughly 800,000 barrels a day of refined product. So it's enormous, one of the biggest importers in the world. And so they can't just shut that off and have people have gasoline for driving around Mexico City. So that's not going to happen and what he has said publicly, is that his goal would be to invest in Mexican refiners, to build up their own refinery capability. But if you look back over history, they've been saying that for 20 years and it hasn't really happened yet. And so, there's a lot of structural impediments for that to happen. But let's assume he is successful, and he says, he is going to build refine capacity, it will likely take 5 to 10 years before that comes online. And probably whatever amount of refined product capacity they build, will probably be equal to whatever their growth rate is over the next few years. So the net short that they have, I don't think -- I don't -- no one really sees that going down substantially.

And our next question comes from the line of Devin Ryan from JMP Securities.

First question here, I guess I heard all the commentary around, kind of infrastructure, and appreciate all of the additional disclosure that you provided. And without pinning you down to come at exact number here, I'm trying to think about the EBITDA trajectory? And the end point sounds great, and even this year, kind of becoming a positive contributor, I think it's a positive achievement. But as we think about kind of the -- from where we are today, going to the end of next year, as we're thinking about the Repauno and Long Ridge activity and kind of project spending picking up. Should we think that Jefferson and the contribution will be offsetting that along the way, so will be incremental growth? Or should we think about maybe as you get into maybe heavier spending area next year, or that you will see a step back, to then take a step forward? I'm just trying to think about, how this progresses, especially as Jefferson is starting to contribute more, as some of these other areas are maybe earlier in their development?

No, I think the EBITDA from Repauno and Long Ridge will be positive, and I think it represents the biggest upside for '19 and '20. In that, we have, as I mentioned, the natural gas liquids, opportunity of moving natural gas liquids from Long Ridge to Repauno, we found very, very strong commercial demand for that product, if we can get it to the water. And so we're working very hard right now to figure out. Long-term as you mentioned, if we build caverns and we build a big business that's easy to -- there is a short-term move where I think we can move and load direct from rail to ship. And so the biggest upside I think to EBITDA for 2019 and '20 is going to be a contribution from that activity, which I don't have exact numbers on yet, but based on what we're hearing from the market, it's meaningful, it's probably -- could be significant. So I think that's incremental and everything we're doing is, we're trying to add incrementally EBITDA everywhere we can and we've got a lot of irons in the fire. So I don't see anything that's going away.

Got it. And then a follow-up here, just one on the smaller businesses, but I'm curious, kind of, where you guys are in the process of evaluating the position in offshore markets or asset sales potentially, just to create liquidity to put into some of the higher return opportunities. Like aviation or infrastructure, especially, now this business is becoming a smaller driver relative to the overall portfolio today, just by the nature of everything else positive going on?

Yes, it's still on our minds, about -- thinking about how and when to do that? And I think that the big -- what I mentioned in this -- in the transcript is moving The Pride into the well intervention market, I think it would be a significant development along -- realizing the right upside for that asset. It's a great asset. The construction market is still somewhat oversupplied and it's -- obviously, it's getting better as oil prices go up, people are going to start drilling offshore again. But it's still more -- much more of a supply, the highest return that a driller at an EMP company gets, is from enhancing the production from an existing well. So I think that activity you'll see pick up very quickly and The Pride is very well-positioned to do that, and the earnings capability for that asset will go up dramatically once we get into that market. So that's one thing that I think would trigger that possibility.

And our next question comes from the line of Robert Dodd from Raymond James.

Question on capacity, obviously, you know last quarter -- last couple of quarters you told us about the limits for getting crude from Canada to Jefferson because of the capacity constraints on the airlines. Any additional color there on the prospect of maybe picking up more train availability or is that still blocked out just because of overall limits.

We are still working on it, I don't know anything new, but the move we have starting in -- we have trains in Q2 lined up and then we have our trains -- 5 trains a month starting in September, that's with CN we're still working on getting capacity from CP and we've got a couple of customers that (inaudible) interest in that. So I think it's getting better. It clearly was worst. Probably it will be in Q1, and it will start to free up. And I think the Canadian government and the Canadian -- everybody is pressuring the railroads to sort of figure it out because that crude is stranded. So it's costing the Canadian government a lot of money. So I'd say it's getting better, but nothing in railroad land ever happens fast.

And to that point, obviously, you talking about the potential to get NGL from Long Ridge to Repauno, obviously a very different rail path, but are there any capacity constraints that could become an issue along those kind of routes? Routes -- the American way?

Actually that a good point, because what -- when Mariner East comes online, we expect, most people think it will Mariner East II, actually the railroads will have excess capacity because some of the volumes that currently move will be diverted to the pipeline. And so they are very eager to replace that volume. So we think that, that corridor from Eastern Ohio to New Jersey has actually got very good capacities. We could see volumes there and actually the transportation cost of moving it by rail from that market to the Jersey is very -- is right on top of the pipeline cost. So there is no differential.

(Operator Instructions) Our next question comes from the line of Rob Salmon from Wolfe Research.

You guys, obviously, have grown the infrastructure, EBITDA what seems to be turning positive in the second half of the year. I'm curious, if that changed at all, your philosophy in terms of the timing of a potential dividend increase, given in my model, I've got you guys moving very, very close to that 2 to 1 coverage ratio, later this year, if -- even if you guys increased the dividend. So I'll be curious to get your perspective on dividend increases and timings in the context of the potential investments you have as well as the improving cash flows?

Yes, no we have not changed our policy, we are still targeting in 2 to 1 coverage on FAD to dividend and when we hit that, we'll raise the dividend.

Very helpful there, and in terms of, I guess switching gears a little bit here. With that -- with The Pride, is there any cost that we should be thinking about of conversion to a dedicated well intervention unit?

Yes. There is -- it's about an $8 million capital investment, and from our math, it looks like a 1-year payback.

And how long -- what's the timing in terms of the conversion, how long does it take?

So it's only out of service for 4 to 6 weeks, but right now, you have to order equipment. So we're in the process of ordering the equipment, so it would be done in probably the end of Q3.

And the final 1 is with the aviation pipeline. What's the timing on those deliveries, I think you may have mentioned it, but I missed it in your prepared remarks.

So we will have -- we've closed $135 million year-to-date, we expect to close $65 million more in Q2, so that will bring $200 million for the first half of the year. We have an additional $30 million in LOIs that will close over Q3 and Q4.

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

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

Ladies and gentleman, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.