FTAI Aviation Ltd. (FTAI)

Executive Summary / Key Takeaways

• Transformative Business Model: FTAI Aviation is rapidly solidifying its position as a leader in the CFM56 and V2500 engine aftermarket through its proprietary Maintenance, Repair, and Exchange (MRE) model, leveraging vertical integration and "green time optimization" to offer cost-effective, flexible solutions to airlines.
• Accelerating Growth and Margin Expansion: The Aerospace Products segment is the primary growth engine, with Q3 2025 Adjusted EBITDA up 77% year-over-year. The company targets 1,000 CFM56 modules in 2026 and expects Aerospace Products margins to exceed 40% next year, driven by strategic acquisitions, enhanced repair capabilities, and the anticipated approval of PMA Part #3.
• Strategic Capital Initiative (SCI) as a Force Multiplier: The successful upsizing of SCI I to $2.0 billion in equity commitments, targeting over $6 billion in deployed capital, underpins an asset-light growth model. This initiative secures a multi-year contractual pipeline for the Aerospace Products segment and generates significant servicing and equity income for Aviation Leasing.
• Robust Financial Outlook and Shareholder Returns: FTAI projects total business segment Adjusted EBITDA to reach $1.525 billion in 2026, up from $1.25 billion-$1.3 billion in 2025. Adjusted free cash flow is expected to grow to $1 billion in 2026, a 33% increase over the $750 million targeted for 2025. The company recently increased its quarterly dividend to $0.35 per share.
• Deep Competitive Moats: FTAI's competitive advantages stem from its unique vertically integrated model, exclusive PMA products, significant scale in engine ownership and maintenance, and the institutional asset management capabilities brought by SCI, creating substantial barriers to entry for rivals.

The Ascent of a Specialized Powerhouse

FTAI Aviation Ltd., founded in 2011, has evolved into a specialized powerhouse within the commercial aviation sector, focusing on the acquisition, leasing, repair, and sale of CFM56-5B, CFM56-7B, and V2500 aircraft engines. These engine types power the vast majority of the world's narrowbody aircraft fleet, creating a substantial and fragmented addressable market of approximately 600 small and medium-sized airline operators globally. The company's strategic journey has been marked by a deliberate pivot from a traditional asset-heavy leasing model to a vertically integrated, asset-light approach centered on its Aerospace Products segment and the innovative Strategic Capital Initiative (SCI).

The industry landscape for aviation aftermarket services is characterized by intense competition from established engine manufacturers like GE Aerospace (GE), large aircraft lessors such as AerCap Holdings N.V. (AER) and Air Lease Corporation (AL), and numerous independent Maintenance, Repair, and Overhaul (MRO) providers. FTAI differentiates itself by offering a unique, full-service solution that directly addresses the pain points of engine maintenance for airlines and asset owners. Unlike traditional MROs that service third-party engines, or OEMs with their premium-priced new parts, FTAI owns a large fleet of specific engine types, rebuilds them in-house, and offers them for sale, exchange, or lease. This model, which mirrors the operational efficiencies of major airlines like United (UAL), American (AAL), and Delta (DAL), is a core competitive moat .

Broad industry trends further amplify FTAI's market opportunity. The economic useful life of 737NG and A320ceo aircraft has been extended to 30 years, up from a previous assumption of 25 years . This extension, coupled with multi-year delays in new aircraft deliveries and durability issues with new technology engines (like the GTF, which drives demand for V2500 maintenance ), translates into a significant increase in engine shop visits and maintenance spend. The total addressable market for CFM56 and V2500 engine maintenance is projected to remain relatively constant at $22 billion annually through 2030 , providing a fertile ground for FTAI's market share expansion.

Technological Edge: The Module Factory and Green Time Optimization

At the heart of FTAI's competitive advantage lies its differentiated technological approach to engine maintenance, encapsulated in its "Module Factory" process and "green time optimization." The CFM56 engine, for instance, consists of three modules: the fan, core, and low-pressure turbine (LPT). When one module reaches its life limit, the others often retain significant remaining life. FTAI's strategy involves acquiring unserviceable engines, dismantling them, refurbishing viable modules, and then either selling these modules individually or reassembling them into "right-sized" engines. A "right-sized" engine ensures that all three modules have a similar remaining useful life, maximizing value and efficiency. This process creates significant additional value, as illustrated by management's example where three unserviceable engines with a $6.5 million acquisition cost, after a $3.5 million investment in maintenance, yielded two serviceable engines and parts for future builds with a total value of $16 million . This "one plus one is a lot more than two" dynamic is a core differentiator .

FTAI's technological differentiation extends to its parts strategy, which includes the use of used serviceable material, acquiring Life-Limited Parts (LLPs), and developing proprietary Piece Part Approval (PMA) parts. The company has invested in PMAs for six to seven years, holding an exclusive position for certain engine components . The anticipated approval of PMA Part #3 is expected to be a significant contributor to cost savings and margin expansion, as it addresses one of the most expensive components in a shop visit . This PMA exclusivity is a powerful competitive moat, as many traditional MROs and OEMs have commercial ties that likely prohibit them from utilizing PMA to a significant degree . The company is also expanding its piece part repair capabilities through strategic acquisitions like Pacific Aerodynamic, which specializes in CFM56 compressor blades and vanes and is expected to deliver up to $50,000 in average savings per shop visit .

To support its expanding operations and maintain its technological edge, FTAI has invested in a newly established training academy in Montreal, which utilizes virtual reality and AI technology protocols to accelerate mechanic training and improve productivity. This focus on specialization and operational efficiencies across its facilities in Montreal, Miami, and Rome is crucial for driving throughput and maintaining cost advantages.

Strategic Evolution and Robust Performance

FTAI's recent history is a testament to its strategic agility and operational effectiveness. In September 2024, the acquisition of Lockheed Martin Commercial Engine Solutions (LMCES) for $170 million significantly enhanced its MRE business and established permanent engine and module manufacturing capabilities in Canada. A pivotal moment was the internalization of management in May 2024, which, despite a $300 million payment, eliminated future management fees and incentive distributions, streamlining the company's cost structure. The divestment of its offshore energy business in Q4 2024 further sharpened its focus on aviation.

The Strategic Capital Initiative (SCI), launched in December 2024, represents a transformative step towards an asset-light business model. The inaugural partnership, the 2025 Partnership, focuses on acquiring on-lease 737NG and A320ceo aircraft. FTAI acts as the Servicer, managing airline relationships and contracts, and holds a 19% minority equity interest. The SCI I vehicle successfully completed its fundraising in October 2025, reaching an upsized hard cap of $2.0 billion in equity commitments, enabling over $6 billion in purchasing power for approximately 375 aircraft by mid-2026. This initiative is a "virtuous circle" , securing a multi-year contractual pipeline of fixed-price engine exchanges for the Aerospace Products segment, providing committed volume, and enhancing visibility for production planning. Management views SCI as another competitive barrier, adding institutional quality asset management to its existing moats .

The company's financial performance reflects the success of these strategic shifts. For the nine months ended September 30, 2025, total revenues surged to $1.85 billion, an 85.71% increase year-over-year. This growth was primarily fueled by the Aerospace Products segment, which saw its revenues jump to $1.37 billion, an 85.71% increase, and Adjusted EBITDA reach $476.23 million, an 80.85% increase over the prior year period. The MRE Contract revenue, specifically from sales to the 2025 Partnership, contributed significantly, increasing by $228.90 million for the nine months ended September 30, 2025.

The Aviation Leasing segment, while transitioning to an asset-light model, also demonstrated resilience. For the nine months ended September 30, 2025, its Adjusted EBITDA increased by 35.39% to $495.7 million, benefiting from a $50.1 million gain on sale from the 45 aircraft seed portfolio sold to SCI 1. The segment also saw $54.3 million in insurance settlements related to Russian assets during the nine months ended September 30, 2025, with total expected recoveries exceeding the $88 million written off in 2022 . Consolidated net income for the nine months ended September 30, 2025, was $385.5 million, a substantial increase of $479.3 million year-over-year. Adjusted EBITDA for the consolidated entity reached $913.74 million for the nine months, up $303.7 million from the prior period.

Operational expansion continues at pace. FTAI refurbished 207 CFM56 modules in Q3 2025, a 13% sequential increase, and is on track to produce 750 modules in 2025. The company targets a significant ramp-up to 1,000 CFM56 modules in 2026, a 33% increase. Key acquisitions and joint ventures support this growth: the 50% joint venture in QuickTurn Europe (Rome) adds 200,000 square feet of capacity and a CAAC license for the Chinese market; the acquisition of ATOPS strengthens Miami operations and adds a logistics hub in Portugal; and the Prime Engine Accessories JV with Bauer, Inc. aims to in-source accessory parts repair, potentially saving up to $75,000 per shop visit.

Outlook, Guidance, and Risk Assessment

FTAI's forward-looking guidance underscores its confidence in the ongoing transformation and growth trajectory. The company reiterates its full-year 2025 business segment Adjusted EBITDA estimate of $1.25 billion to $1.3 billion, comprising $650 million to $700 million from Aerospace Products and $600 million from Aviation Leasing. Looking ahead to 2026, total business segment Adjusted EBITDA is projected to reach $1.525 billion, a meaningful increase from previous estimates. This includes an estimated $1 billion in Adjusted EBITDA for Aerospace Products and $525 million for Aviation Leasing. Aerospace Products margins are expected to grow to over 40% in 2026, driven by optimized parts procurement, repair strategies, and the anticipated approval of PMA Part #3.

The company anticipates robust cash flow generation, targeting $750 million in adjusted free cash flow for 2025 and a substantial increase to $1 billion in 2026. This strong cash flow supports its capital allocation priorities: first, high-impact growth initiatives; second, debt management to achieve a strong BB credit rating (targeting approximately 3x debt-to-total EBITDA by year-end) ; and third, capital redistribution to shareholders, as evidenced by the recent dividend increase to $0.35 per share.

Despite the compelling growth story, investors should consider several risks. Macroeconomic uncertainties, geopolitical instability (including the ongoing situation with assets in Russia), and potential industry oversupply could impact demand and asset values. The heavily regulated aviation industry poses risks of increased compliance costs or operational restrictions. Asset obsolescence, particularly with technological advancements, remains a long-term concern. The SCI, while a significant growth driver, introduces risks related to market conditions, liquidity, valuation, key personnel, potential litigation as Servicer, and conflicts of interest in investment allocation. Furthermore, the company's debt covenants could restrict operational flexibility. However, management believes its diversified operations across three geographies and ability to pass on price increases mitigate the impact of external factors like tariffs .

Conclusion

FTAI Aviation is executing a profound transformation, shifting from a traditional lessor to a capital-efficient, technologically advanced leader in the aviation engine aftermarket. Its core investment thesis is built upon the unparalleled value proposition of its Module Factory and green time optimization, which offers airlines a superior, cost-effective alternative to conventional engine maintenance. This proprietary approach, bolstered by exclusive PMA products and a growing global footprint, creates formidable competitive moats that differentiate FTAI from both OEMs and traditional lessors.

The Strategic Capital Initiative (SCI) serves as a powerful accelerant, securing a predictable revenue stream for the Aerospace Products segment while enabling an asset-light growth model for Aviation Leasing. With robust financial guidance, including significant Adjusted EBITDA and free cash flow growth, and a commitment to shareholder returns, FTAI is poised for sustained market share expansion. The company's strategic vision, operational excellence, and technological leadership position it to capitalize on the extended life cycle of current generation aircraft, making FTAI Aviation a compelling investment in the evolving aerospace landscape.