FTAI Aviation (NASDAQ:FTAI) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
FTAI Aviation reported a strong Q3 2026 with adjusted EBITDA of $348.3 million, up 15% from Q2 2026, driven by a record performance in Aerospace Products and strong Aviation Leasing growth.
Aerospace Products delivered $910 million in revenue, up 76% year-over-year, with a 31% EBITDA margin, aligning with their guidance.
Strategic Capital is expanding, with 410 aircraft under LOI and the successful launch of SC II, which started investing in September.
The Power segment achieved critical milestones with over 100 MOD1 units contracted for 2027 and 2028 and completed testing for peak output performance.
FTAI announced a $500 million accelerated share repurchase program, increasing the overall authorization to $1 billion, supported by strong liquidity and financial performance.
Management expressed confidence in their 2026 and 2027 guidance, highlighting the demand for their modular power solutions and stronger partnerships with airlines.
The company continues to see strategic opportunities in M&A, particularly in maintenance facilities and vertical integration for engine repairs.
Management emphasized the unique value proposition of FTAI Aviation’s integrated solutions for airlines, combining cost-effective maintenance and flexible financing options.
Full Transcript
Michelle (Moderator)
Ladies and gentlemen, thank you for standing by. Welcome to the third quarter 2026 FTAI Aviation earnings conference call. At this time all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised, and to withdraw your question, please press star 11 again.
Please be advised that today’s conference is being recorded. I would now like to turn the conference over to Charlie Arecia, Principal Investor Relations. Please go ahead.
Charlie Arecia (Principal Investor Relations)
Thank you, Michelle. I’d like to welcome you all to the FTAI Aviation third quarter 2026 earnings call, which is open to the public in listen-only mode and is being webcast. Joining me here today are Joe Adams, our Chief Executive Officer, David Moreno, our President, Nicholas Macalise, our Chief Financial Officer, and Stacy Kuperis, our Chief Operating Officer. We posted an investor presentation and our press release on our website, which we encourage you to download if you have not already done so.
We will be discussing some non-GAAP financial measures during the call today, including adjusted EBITDA. The reconciliation of these measures to the most directly comparable GAAP measures can be found in the earnings supplement. In addition, 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.
Joe Adams (Chief Executive Officer)
Thank you, Charlie. We have built FTAI around solving the problems our customers face. Our solutions combine engineering and asset ownership to innovate around the turbine in both aviation and power. Customers want a partner that is flexible and thinks differently and creatively now more than ever, and we are very well positioned to be the go-to partner in both of these markets. Every business we’ve built at FTAI began with a challenge our customers faced. We built our MRO business originally to help airlines avoid costly engine maintenance and streamline their operations. Today, with the challenges facing new-generation engines and new aircraft sold out until 2032, we are helping our customers fly their 737NGs and A320ceo fleets longer by providing efficient ways to support their engine maintenance needs. In addition, with higher oil prices pressuring airline liquidity, predictable engine maintenance cost is more important than ever.
FTAI was built for exactly this environment. We keep midlife fleets flying at lower costs through our Aerospace Products division, and we turn these fleets into liquidity for the airline through Strategic Capital. And we’ve started to offer flexible financing solutions for engines in partnership with institutional investors. I’ll touch on the high-level impacts and David will walk you through how that is benefiting each of our businesses. Aerospace Products had its strongest quarter yet. Adjusted EBITDA was $282.4 million, up 57% year over year, at an EBITDA margin of 31%, in line with our guidance of 30%. We produced a record 311 CFM56 modules and our market share reached approximately 15% this quarter. The Strategic Capital ramp is accelerating with 410 aircraft closed or under LOI across SC I and SC II.
And importantly, the second vehicle, SC II, started investing in September of this year and is off to a great start. For Power, we reached two important milestones this quarter. First, we now have over 100 MOD1 units under contract for 2027 and 2028, with a significant pipeline of customer demand behind that. And second, we have completed all critical testing milestones, and the MOD1 unit has produced 25 megawatts at peak output and 23 megawatts at ISO continuous output.
Finally, capital allocation: This morning we announced a $500 million accelerated share repurchase program that will be complete by the end of this year and was accompanied by an increase in overall authorization from $500 million to $1 billion. In addition, we’ve completed $80 million of share repurchases since our initial announcement in September, and this will leave us with $420 million of authorization available for one year after the ASR accelerated share repurchase program has been completed.
I’ll now hand it over to David.
David Moreno (President)
Thanks, Joe. Expanding on Joe’s comments, three things are shaping the market today. First, midlife aircraft and engines remain supply constrained. New 737 MAX and A320neo orders are unavailable until 2032 and beyond, and the LEAP and GTF still spend far more time in the shop than the CFM56 and the V2500s. Airlines continue to extend leases and add midlife aircraft as a result. Second, airlines are prioritizing liquidity; higher oil prices have made cash a top priority and sale-leaseback interest has grown meaningfully at FTAI.
Sale-leasebacks come with engine maintenance attached, so it’s both a liquidity lever and a cost control tool, which makes these transactions even more attractive. Third, financing solutions make our engine products more compelling. Whether an airline buys the engine outright or takes an operating or finance lease through our capital partners, FTAI builds the engine, sells it, and keeps the customer relationship. WestJet shows what happens when these come together. The airline sold 27 Boeing 737s; 17 on-lease aircraft went to SC II via sale-leaseback, so WestJet keeps operating them, and 10 off-lease aircraft went to Aerospace Products where the engines become modules for the MRO network. WestJet extends the life of a 737NG fleet and created liquidity for its balance sheet.
Now to the quarter, starting with Aerospace Products, which delivered a record on every measure: $910 million of revenue, up 76% year over year, and $282.4 million of adjusted EBITDA, up 57% at a 31% margin. In line with guidance, we produced a record 311 CFM56 modules in the quarter, bringing year-to-date production to 877, and we remain on track for 1,200 in 2026 and 1,700 in 2027. Moving to Aviation Leasing, Strategic Capital is now more than half of the segment’s EBITDA—exactly the asset-light transition we planned—and both SC I vehicles will continue to scale into year end. SC I is fully committed at 301 aircraft. Since quarter end, we closed a landmark $1 billion deal for 30 aircraft, and we expect to close substantially all 301 by December 31st for approximately $6 billion of total capital deployed. The vehicle is returning capital as well.
We have distributed 17.5% of commitment this year and plan another 5% at year end, supported by strong realizations on airframe and engines at redelivery. SC II started investing in September and is deploying quickly, with 109 aircraft committed and the first closings coming from WestJet. Across both vehicles we have raised $5.5 billion of warehouse financing from 13 lenders in under two years. And with sale-leaseback activity rising, the pipeline is robust.
What remains on our balance sheet is a simpler business: 150 to 200 spare engines with a net book value of approximately $1 billion, earning $30 to $50 million of EBITDA per quarter with minimal aircraft. These engines are how we keep customers flying. When an airline needs an engine immediately, they come to us, and that short-term lease often becomes an engine sale once we have built a replacement. Growth in this segment from here comes from our Strategic Capital.
Lastly, Power, where we hit two milestones this quarter. The MOD1 critical testing is complete, meeting its target of 25 megawatts peak power and 23.1 megawatts for continuous base load power, with testing completed on both natural gas and liquid fuels. And now we have more than 100 MOD1 units under contracts across customer types in the U.S. and Canada, extending into 2028. We’ve also received $234 million of customer deposits during the quarter ahead of our future deliveries, partially offsetting our inventory investment for 2027 production.
Production is ramping now and at an expected full run rate of 10 to 15 per month by year-end 2027. We’re well positioned to meet our 100-unit guidance for 2027. Let me spend a moment on why customers are choosing the MOD1. It comes down to three things they care about most: speed, scale, and cost. On speed and scale, that is where the market is heading. Data centers are taking longer to build and require more capital, and the market needs power that installs quickly and can be delivered anywhere in the world. Many GPU providers are moving to containerized compute with the goal of being operational on site in under two weeks.
The MOD1 is a modular unit that ships, installs, and stacks in the same timeline—modular power for modular compute. On cost for behind-the-meter customers, equipment is the most important piece of the equation, and the best way to save on equipment is to need less of it. A smaller, stackable unit means less capital tied up in redundancy because the increment you are protecting is 25 megawatts, not 300 megawatts. It also means less downtime. Taking one unit offline takes a fraction of the site down rather than all of it, and a turbine exchange from our engine pool returns a unit into service in two days, not months.
Combined cycle is the next lever on cost. The joint venture we launched this quarter adds a fully mobile, trailer-mounted unit that will convert excess heat into 9 megawatts of additional output with no additional fuel, emissions, or water, taking efficiency to over 50% and lowering fuel cost per megawatt hour over the life of the asset. First units begin testing in the second half of 2027. I will now hand it to Nicholas.
Nicholas Macalise
Thanks, David. The key metric for us is adjusted EBITDA. Adjusted EBITDA was 348.3 million for the quarter, up 15% from 303.5 million in the second quarter and up 17% from 297.4 million in the third quarter of 2025. The 348.3 million EBITDA number was comprised of 282.4 million from our Aerospace Products segment, 104 million from our Aviation Leasing segment, and minus 38.1 million from Corporate and other, including intersegment eliminations of negative 5.1 million and 4.6 million of F-type power startup expenses associated with the MOD1 buildout.
Aerospace Products delivered a record quarter with 282.4 million of EBITDA at an overall EBITDA margin of 31%. This was up 13% sequentially from 249.7 million in Q2 of 2026 and up 57% year over year compared to 180.4 million in Q3 of 2025. Reflecting production growth, mix, and operating leverage, the segment revenue of 910 million was up 76% year over year. Turning to Aviation Leasing, the segment generated 104 million of adjusted EBITDA in the third quarter, up 18% from 88.2 million in the second quarter. This included $50 million of balance sheet leasing EBITDA, in line with the $30 million to $50 million quarterly run rate David described. Strategic Capital contributed $54 million, comprised of $7.4 million of servicing fees and $46.2 million of returns on our 19% co-investment in the 2025 SPV. Net income attributable to shareholders was 149.1 million, or $1.45 per share, compared to $117.6 million in the second quarter.
Turning to the balance sheet, we ended the quarter with total debt of approximately $3.5 billion, cash of $386 million, and net debt of approximately $3.1 billion. Net debt to run-rate adjusted EBITDA was 2.2 times, down from 2.6 times at the end of the second quarter and below our target range of 2.5 to 3.0 times. Total liquidity was approximately 2.4 billion, including our undrawn revolver, approximately 2 billion. Our senior notes carry a weighted average cost of 6.5%, and we have no corporate bond maturities until May of 2028.
We remain strong double-B rated by all three of the bond rating agencies. On the share repurchase and financing, under the 500 million program authorized on September 15th, we have repurchased to date 80 million of stock, and today we are launching a new 500 million accelerated share repurchase which will be completed by year end. We intend to fund the ASR through a combination of our revolver and opportunistic access to the capital markets, and we expect for net debt to run-rate adjusted EBITDA to remain below 3.0 times.
The remaining 420 million of the increased authorization is available for one year, and we expect to use it opportunistically through open market purchases. Next, free cash flow: in the first nine months of the year we generated $724 million of adjusted free cash flow before $285 million of growth initiatives, much of which is driven by our power business. For the full year we expect to generate $1.1 billion of free cash flow before growth initiatives, revised down by 61 million due to opportunistic engine acquisitions to support our Aerospace Products business. For the year we expect to be at 463 million of growth initiatives, up 173 million from our original target of 290 million, predominantly driven by power, R&D, and spend in our FTAI Aviation facilities.
These investments will allow us to scale at a faster pace as we produce MOD1 turbines going into 2027. We are also reaffirming our segment guidance for both 2026 and 2027 as the business continues to execute on plan. As a reminder, 2026 Aerospace Products Adjusted EBITDA guidance is 1,050, and 2026 Aviation Leasing guidance of 475 million; 2027 Adjusted EBITDA guidance of 2.3 billion, comprised of $1.4 billion from Aerospace Products, 450 to 750 million from FTAI Aviation Power, and 450 million from Aviation Leasing.
With that, I’ll hand it back over to Joe for final remarks.
Joe Adams (Chief Executive Officer)
Thank you, Nicholas. To sum it up, airlines today need solutions providers that help them maintain their fleets at lower cost and provide liquidity through sale-leaseback or leasing. And FTAI Aviation is built around being able to deliver all three of these products. The FTAI Aviation model produced a record quarter in Aerospace Products and an accelerating ramp in Strategic Capital for power. We’re helping to fulfill the extraordinary demand for behind-the-meter solutions, and this unique combination is producing the excess capital that allowed us to raise our repurchase authorization to 1 billion while keeping leverage within our target range.
We’re also maintaining our quarterly dividend of $0.50 per share. The dividend will be paid on November 23rd to shareholders of record as of November 10th. This marks our 45th dividend as a public company and our 61st consecutive dividend since inception. We remain confident in both our 2026 and 2027 outlook, including our free cash flow expectations. And as we close out 2026, our focus remains on building durable, scalable, and differentiated platforms that start with the customer and deliver value over the long term.
The investments we’re making across Aerospace Products, Strategic Capital, and power will continue to strengthen our competitive position, expand our addressable markets, and support sustainable growth for many, many years to come. As a final reminder, we’ll be hosting an investor meeting in New York City on December 10, and we’re very excited and look forward to seeing many of you there. With that, let me turn the call back over to Charlie.
Charlie Arecia (Principal Investor Relations)
Thank you, Joe. Michele, you may now open the call to Q&A.
OPERATOR
Thank you. And as a reminder, to ask a question, please press star-1-1 on your telephone and wait for your name to be announced. And to withdraw your question, please press star-1-1 again. And the first question will come from Sheila Kayala Glue with Jefferies. Your line is now open.
Sheila Kayala Glue (Analyst)
Thank you, and good morning, guys. Great execution during the quarter. Perhaps my first question would be on Aerospace Products. Just really great solid progress with margins at the 31% mark in the quarter. Production is up 50% year on year and you’re run-rating at about 15% market share. Can you maybe update us on the momentum you’re seeing within Aerospace Products? And just given what’s happening on a macro level, whether you’re seeing any changes to customer behaviors, work scopes, or fleet planning, and maybe how that’s showing up in lease rates as well?
David Moreno (President)
Thanks, Sheila. First, on margins, as we indicated previously, we think 30% margins is a good assumption for the next couple of years, that it’s a nice target and it also is a representative mix, I think, across the entire industry. And our ultimate goal is to provide engine exchanges for narrow-body engines to the entire industry, such that hopefully in many years to come, no one ever thinks about doing their own shop visit. They just come to us because we give them immediate availability at a cost that’s as good as or better than they could do on their own.
And so when we think about that, why wouldn’t everyone want to do that? And so nothing that we’ve seen in the current environment has changed our view about the ultimate customer acceptance. As a matter of fact, as we see stress put on airlines, airlines are always looking for ways to raise liquidity, but especially now. And shop visit costs for engines are one of the biggest uses. So we can provide financing for shop visits, we can change a lease structure so that we can swap engines immediately and not have cash outflows, and we can do sale-leasebacks to generate immediate cash. So I would say in general, we’re seeing probably an acceleration of our expectations about how we continue to pick up market share, and nothing has shaken that view.
Sheila Kayala Glue (Analyst)
Okay. No, that’s great to hear. And maybe one on power. David, if you want to take this one, you mentioned you have 100-plus power units under contract. And the slides suggest that the ’27 guide is 450 to 750 million, which I think is some nuance from last quarter, I guess. How do you think about the production schedule? From the slides was super helpful. Maybe if you could just talk through the investment going on in power and how it translated to your ’27 assumptions.
David Moreno (President)
Yep. So we’re very focused on the ramping of this business. So we provided guidance on initial production, which we expect to be roughly zero to five turbines per month, but being able to scale quite quickly to 10 to 15, where we expect to exit the year at. Now, as a reminder, we’re using our existing infrastructure that we have today. We’re starting off with Montreal, but we’re planning to use our other facility as well for power remanufacturing.
So we have the ability to scale that business really entirely. The range, you know, we came into this quarter obviously accomplishing two really large milestones, right, and they kind of go hand in hand. The first is obviously on the testing side. We’ve completed all the testing on the liquid and natural gas side, and on the customer side we’ve achieved over 100 units under contract. But really when you think about the range, it comes out to really the ramp and our ability to execute on that ramp, which we feel good.
We have visibility and we feel good about 100 units for 2027. But of course we’re working through each of the customer’s requirement, and that’s why you have that wide range. As we progress, we will continue to update you, and that range should tighten up as we progress quarter over quarter.
Sheila Kayala Glue (Analyst)
Awesome. Thank you.
OPERATOR
Thank you. And our next question will come from Juliano Bologna with Compass Point. Your line is open.
Juliano Bologna (Analyst)
Thanks for taking my questions, and congrats on a very solid quarter across the board. As a first question, obviously it’s very helpful to have that production ramp outlook for the MOD1 units. What I’d be curious about is when you start looking at the end of ’27, you’re obviously planning on ramping production capacity up to 10 to 15 units a month, which comes out to 120 to 180 annualized. I’m assuming that you wouldn’t be planning for that production ramp unless you expected there to be the potential for orders and demand to fill that type of production requirement.
Is that a good way to think about it?
David Moreno (President)
That’s correct, Juliano. I think our value prop is resonating with the market, really tailored around behind the meter. And you’re seeing that today where folks are really focused on speed and scale. Data center building is taking a very long time. There’s a lot of capital invested, and then there’s a long period before you start generating returns on that, right. So you’re kind of seeing this right now happening with industry where a lot of these GPU providers are offering containerized solutions.
And we think on the power side, our solution is containerized as well, and we can install it in less than two weeks. So that’s really resonating well. On the cost side, we understand—I mean, that’s really the heart of our aviation business—is lowering costs for our customers. We talk about redundancy and how we can be value-add there by the size and the stackability of our units, as well as the uptime with our exchange model on the turbines. But we also introduced, again, our combined cycle, which we think is a big value-add and helps reduce costs for our customer as well. So that’s really resonated well.
Obviously completing the testing and having that all come to place is a great accomplishment, and we expect to be able to add into backlog into the future. Yep, it’s mostly 2027. So that is correct on your first question. And the way we’re thinking about our product is just add-ons. Right. So you’ll see that theme in the modular add-on. So effectively today you get the simple cycle version and then you get the add-on with the combined cycle. And that’s really important when you think about how we can continue to deploy enhancements because we’re always thinking about product enhancements and product development.
Obviously on the power side you have the ability to, let’s say, create more quickly because on the aviation side there is the regulatory piece. So we’re continuously focused on adding value and that’s resonated very well. And that should come across into increasing backlog. But also any unit that’s installed in 2027 could be upgraded with the combined cycle unit retroactively. So you are not giving anything up. It’s just a delay until that unit is available. So the customers are looking at that as a very, very positive long-term development for this product in that you get another 9 megawatts out of it for essentially no additional fuel cost.
OPERATOR
Thank you. And our next question is going to come from Christine Liwag with Morgan Stanley. Your line’s open.
Christine Liwag (Analyst)
Hey, good morning everyone. Maybe starting off on aerospace products. Joe, you mentioned that 30% EBITDA margin seems to be the right place for the next few years for that business. I was wondering, when you look at the scale here, you want to do 1,700 modules next year and the mix of customers, does that 30% assume you’re going to maintain getting market share from tier-one airlines and doing more of those full service restorations, or is that potentially, if you get more of those kinds of businesses, could you see pressure in that 30?
And also, you talked about financing engine shop visits. How do we think about that economically for FTAI Aviation?
Joe Adams (Chief Executive Officer)
Sure. So we think that 30% is representative of the entire market. And the mix that we’re seeing now is large airlines, small airlines, heavy shop business and light shop business. And we don’t see that mix changing. So we feel very good about the 30% for the next couple of years, given that our goal is to do business with the entire industry and we’re doing that now across the board. So we feel very good about the stability of that and the outlook.
In terms of financing shop visits, I mean, when we described the product originally, we said we go to the customer and say we’ll rebuild the engine for you and you can either buy it outright, you can exchange it for a run-out engine, or you could lease it. And the lease is really a financing option for the customer. And we’re seeing probably an increase in leasing activity. As we indicated, airlines are looking for every source of liquidity today.
So if we see increased leasing activity, what we’ve been able to do is to sell those leased assets to financial partners. So in effect, from FTAI Aviation’s point of view, it’s the same as a sale. But from the customer’s point of view, they’re getting an additional value add in that we arrange the financing for that whole engine purchase for them. So it’s a complete product offering that the airlines are very, very receptive to and happy with. As far as we can tell, no one else can offer that product in the market.
Christine Liwag (Analyst)
Super helpful. And you know, you guys talked about the test results for MOD 1 for power. I was wondering, when you look at the results for that turbine as it got converted to an aero-derivative, how does it perform regarding other thermal efficiency—you talked about thermal efficiency, start time, all that stuff—versus existing aero-derivatives? And also I thought it was interesting that you’ve called out that you only need one spare out of 12 in service—one spare—versus if you’re doing a large turbine, you’d have a one-to-one on a spare-to-turbine ratio.
This seems pretty attractive. So are customers paying you the appropriate price that they don’t have to have as much capital equipment in place to have that kind of coverage? And also when you look at the combined cycle that you plan to take on, how does that change your pricing power for this business per megawatt?
David Moreno (President)
Yep. So on the first question—how testing has compared to other aero-derivatives—I would say it’s in line. Right. So obviously with the CFM56, where we expect a lot of value creation, the CFM56 is the most durable engine ever produced for aviation. So we’re expecting that to actually play out on the ground as well. But as far as what you mentioned—start time, efficiency—it’s in line with other aero-derivatives. The next question, as far as what the redundancy looks like. Right. We did put a page 17 out where it’s an illustrative example of what a customer would need if they have N+1. Depending on the customer and their contract with the hyperscaler, they may have different requirements—they may have N+2, N+3. The whole point here is to say that smaller units that are stackable are going to be a lot more cost efficient because you’re going to tie up less capital cost in redundancy versus large units that, in order to back those up, you would need to have very large units backing them up.
And of course you don’t have access to the grid, so the only way to be able to do that is to have backup and be islanded. So that’s an important piece and that’s a big selling point, that we can effectively get you a lower capital cost upfront. And then combined cycle, when you think about that, obviously creates more value. The more value we can create, ultimately that should translate to a higher price. Obviously you’re creating additional megawatts. Typically these things sell on a cost per megawatt, so you could expect that to increase. I would say it’s too early to talk about the exact numbers. We’re still guiding seven to eight. I would think about the potential of combined cycle being upside.
Joe Adams (Chief Executive Officer)
I would also just say our maintenance model for the MOD 1 is to be able to do turbine exchanges in the field on a 48-hour turnaround time. So that’s something that no one else can offer on the aero-derivative side that we’ve been able to replicate from our aviation model, which is basically an engine exchange in the field. So that quick turnaround time on turbines will also facilitate less downtime and less redundancy because you’ll be back in service.
You don’t take that unit out of service for months while the turbine is being overhauled.
Christine Liwag (Analyst)
Sounds good. Thank you very much, guys.
OPERATOR
Thank you. And our next question will come from Andre Madrid with U.S. Bancorp. Your line is open.
Andre Madrid (Analyst)
Yep, thanks. Good morning. Appreciate you taking my question. I want to start out first on the point-of-sale leaseback. You guys are referencing it pretty frequently as a nice alternative option providing flexibility to your customers. Just to provide us with a reference point, can you maybe talk about how the mix of this sale-leaseback work has kind of increased across both SCI and AL?
David Moreno (President)
Yeah, we’re seeing a lot more activity, as you would expect, on sale-leaseback because airlines are looking for liquidity. And as a reminder, it’s really two value adds. It’s the liquidity day one, but it’s also saving costs for the airlines on the shop visits. And we’re really the only party out there that can do both. So I would say on the first vehicle, on SCI1, we’re sourcing about 80% of our aircraft from lessors, 20% via sale-leaseback. I would say on the second vehicle we’re starting to see a significant uptrend take in sale-leaseback.
So today that’s more like 40% from sale-leaseback, 60% from lessors, and I would expect that to continue to rise. Obviously it’s early and we have over 100 aircraft in SCI2, so that’s still to play out. But we’re obviously starting to see a lot of activity and we’re in active discussions with many airlines.
Andre Madrid (Analyst)
That’s really helpful, David, thank you. Maybe pivoting to a broader question. I feel like it’s been a couple of quarters since you announced any acquisitions. Obviously a lot of organic investments have been made across the business, both on the power and for feedstock. But I’m trying to understand how are you prioritizing the two. Are there still attractive opportunities out there, especially in light of the recent decline in valuations, broadly speaking?
Joe Adams (Chief Executive Officer)
Yes. The M&A opportunity market, I think, continues to grow. And, you know, as we’ve said previously, for the last couple of years, our focus has been really on two areas. One is additional maintenance facilities to increase our production of modules, and two, on more vertical integration in terms of repair capability or piece-part manufacturing for engines. And both of those areas, I would say, are pretty active today. We did add additional investments.
We now have six facilities on the CFM56 overhaul side, and we continue to look at adding to that, but we’re also investing in those locations. And we called out some 50, 60 million dollars of investments to increase production for facilities that we bought that needed more tooling and, in the case of Rome, a test cell. So it’s both adding facilities as well as building out what we have. And there are more M&A opportunities out there, so we’ll continue to look at those.
And we’ve always said our priority in terms of capital allocation is number one is growth, and that remains the same. Today we’re able to do the buyback and still keep our debt to total under three times, which gives us a lot of firepower and a lot of capability to take advantage of market dislocations.
Andre Madrid (Analyst)
That’s awesome. I really appreciate the insight. Thanks, Joe. I’ll leave it there. Thanks, everyone.
OPERATOR
Thank you. And our next question comes from Ken Herbert with RBC Capital Markets. Your line is open.
Ken Herbert (Analyst)
Yeah, hi, good morning. Joe and David, appreciate the time. Maybe just to look at a higher level, Joe, there’s just a lot of concern in the marketplace about the impact on airline financials from the higher crude prices and their ability to continue to pass on higher fares and ultimately what it might do in the marketplace to travel. Obviously, you’re sounding very confident on 2027, and I think—I don’t want to put words in your mouth—but I think a lot of the marketplace today plays into, obviously, what FTAI offers.
But can you talk about what you’re seeing from your customers today, how they’re able to manage the elevated crude environment? And are there any risks we should be thinking about in 2027, just from a broader macro perspective as a result of what we’re seeing today?
Joe Adams (Chief Executive Officer)
Sure, I’ll start. I mean, obviously, we’re watching that carefully and talking to the customers all the time. I would say on the positive side, the airline industry has seen an ability to raise fares that they probably were surprised that they had that much pricing power. And the demand has stayed very strong in many parts of the world. All around the world, they’re filling the planes and they’ve raised fares and they’re seeing those fares stick.
And ultimately that is the best answer to how do you manage your business. If your costs go up, you raise your revenues and you continue to grow. So when you think about that, that’s the best answer. From the customer’s point of view, there’s still very, very strong growth. I mean, if you think about most of the concern around traffic growth has been focused on either U.S. or more mature markets, which don’t grow as fast. But there are many parts of the world in Southeast Asia, Middle East, Africa, India that have very, very high traffic demand that’s unsatisfied. And if you think about it, you haven’t been able to get a lot of new aircraft in those markets.
They’re undersupplied for the last three to four years because of the manufacturing and delivery delays. So from the customer’s point of view, they look at it, or from the airline point of view, they look at it and say, well, I can’t get new aircraft quickly. I can raise my fares. There’s tremendous demand out there. And I don’t really want to give back aircraft too fast because I’m going to need those if I want to continue to grow. So across the board, we don’t really see customers saying, I’m going to flip my fleet mix because of the pressure on fuel. We see those airlines continuing to look to add capacity. We see extensions from airlines that we have leases to and the SEI vehicles, which is the most concrete form of confidence, is when an airline says, I’ll extend my lease. So we’re not seeing it. And we hope fuel prices do come down, which would alleviate some of the stress on the airline industry.
But we’re planning for whatever the customer is going to need. We’re able to provide a solution.
Ken Herbert (Analyst)
Have you seen any downward movement on CFM56 or, more broadly, narrow-body lease rates this year that you would call out or you’d point to?
David Moreno (President)
No, Ken, we’re not seeing that. The CFM56 is a very durable engine. It’s the most durable engine ever. And we’re seeing tremendous demand for, as Joe mentioned, extensions, engine leasing. So we’re not seeing that.
Ken Herbert (Analyst)
Thanks, David.
OPERATOR
Thank you. And our next question will come from Brandon Oglinski with Barclays. Your line is open.
Brandon Oglinski (Analyst)
Hi, good morning, and thanks for taking my questions. Joe, maybe we can follow up off that last question there, because I think you guys recently put out an enhanced agreement with United. And I guess my question is, historically we’ve thought about this business as really benefiting smaller airlines with economies of scale on the maintenance side. But maybe you can talk to why you’re seeing some of the larger airlines be core customers here as well.
Sure. No. Basically the pitch to anyone in the industry is that we can deliver the same or lower cost than the airline could do on their own, and we can provide an immediate availability with no downtime. And that removes all the costs of managing a shop visit, having spare engines, and the risk of a negative surprise. So as we’ve said before, if you get airlines to start trying to and use the product and then they realize, hey, it really is a better alternative, then you can convert anybody.
There’s nobody out there that doesn’t benefit. You know, when you say, I’ll give you the same or better costs and I’ll reduce a lot of your expenses, like, what don’t you like about that? And as we get people using it, even airlines that have their own maintenance facilities. So, and there’s also some benefits on the expense side if you capitalize instead of expense costs. So it’s just a really—it’s a pitch that we’ve never had anybody come back and say, oh, I don’t like this about it, I don’t like that about it.
It’s like, there’s nothing not to like. And so we really do see over the next coming years, why shouldn’t we have every airline in the world who owns CFM56 and V2500s do engine exchange with us? It’s only a question of how much of the fleet do they do with us. Thank you, Joe. And then Dave, I just want to clarify two things on the power side. So I think you have two prototypes up and running, is that correct? Because it said you were testing one with natural gas, one with liquid fuels. But then secondly, maybe more importantly, I think there was some concern around your JV partner, Jarrah—obviously a Chinese company—and the recent executive order about on-grid power equipment being non-Chinese source.
So maybe you can speak to those concerns on the JV side too.
David Moreno (President)
Thank you, Brandon. So on the testing, we’ve tested both with liquids—so jet fuel—and with natural gas. Obviously our customers are predominantly wanting this through natural gas. But we’ve tested on multiple fuels, which is very important for us. On the executive order, we do not believe this has a big impact on the Mod 1. Our understanding is the EO is really aimed at bulk power and is not intended to cover behind the meter. The Mod 1, as we mentioned, is really focused on behind the meter and providing electricity where, as you know, it is very political—you have to bring your own power in order to actually build data centers. But specifically, why we’re not concerned is the Mod 1 is at the heart a GE and Safran engine.
And we obviously do maintenance on it in North America. Packaging is not reliant exclusively on China. Our partner, which is a partner in this program, has facilities across the world—UAE, Houston, Canada—and that gives us multiple paths to delivery. And then next is many of the balance-of-plant equipment or components are interchangeable, which Jarrah has the ability to source from a diversified global supplier base rather than a single country. So we think we have the ability to adapt and that’s kind of how we thought about this. Obviously we thought about the impact of China before getting into this joint venture, and we’re very happy to be partnering with JIRA and their ability to adapt should things change.
But we’re monitoring that closely.
Brandon Oglinski (Analyst)
Thank you.
OPERATOR
Thank you. And the next question will come from Jeff Kaufman with Citizens Bank. Your line is open.
Jeff Kaufman (Analyst)
Ben, thank you very much and congratulations. Just terrific to see all this news. Thank you also for the slide and the presentation showing that working capital you’re anticipating in power for 2026. I was wondering if you can give us an idea what that might look like based on your current expectations for 2027 and kind of where does that peak and when does working capital start to come down a little bit.
Nicholas Macalise
Thanks, Jeff. This is Nicholas. I can take that. So we’ve always really grown inventory very strategically in line with our financial and production targets, and we’ve had a strong record on execution on this. So as a reminder, approximately two years ago we had about half a billion of inventory in balance, and that preceded $1.9 billion in aerospace products revenue last year. Similarly, last year we had just under $1 billion in inventory balance, and now we’re on track in aerospace products to generate about $3.5 billion in 2026.
So looking ahead, the two benefits are: one is that there is large optionality now between FTI power and aerospace products. The CFM56 is ultimately the same original unit. And then the fact that we also have economies of scale related to our facilities. As parts come off, go into our MRE network, and are recycled around, we can ultimately drive lower unit cost. So we’re looking ahead at approximately about two times in inventory turnover from a forward-looking basis, but we see upside beyond that.
Jeff Kaufman (Analyst)
Okay, that’s my one. Thank you.
OPERATOR
Thank you. And the next question will come from Shannon Doherty with Deutsche Bank. Your line is open.
Shannon Doherty (Analyst)
Oh, hey there. Congrats on the great results. Just doing the math, the implied ramp in 4Q to about $435 million of consolidated EBITDA is pretty steep. Given the current operating backdrop and strategic capital ramp, what is your level of confidence here and what will be the biggest driver to hitting the full-year target? Is it getting to 323 modules? Is it closing on incremental SEI aircraft? Any thoughts here would be great.
David Moreno (President)
Yes, Shannon. So the growth that is going to take us to those numbers is around the strategic capital. On the aerospace products, if you look at that, you can see that we’re very well positioned, where there’s been some questions around our leasing business and being able to have that big jump in Q4. So as we mentioned, really the story here is strategic capital. And for SEI1, as of 9/30 we had $3.9 billion of invested capital and we’re going to go all the way to $6 billion by year end.
So we have extreme confidence in that. Because as an example, as I talked about earlier, we closed 30 aircraft in October for $1.1 billion. Today we’re sitting at $5.1 billion. So we’re executing on closing aircraft and we have 55 aircraft left to close. So we have really strong visibility on SEI1, and SEI2 is starting to close aircraft as well. And you’re going to see that ramp come across mainly through SEI.
Shannon Doherty (Analyst)
Great. Thanks, David. And maybe, Nicholas, one for you. I think that you mentioned that 2027 adjusted EBITDA guidance includes a $450 to $750 million range for power. Wouldn’t that imply that the new adjusted EBITDA target would be $2.3 to $2.6 billion? I mean, I understand you guys are probably being conservative on power, but I just want to clarify what EBITDA number we should be modeling for 100 units ramping production in 2027. And what is the timing lag from production to delivery?
Thanks for taking my questions.
Nicholas Macalise
Yeah, so I think I’ll take the first half of that question. So that’s correct. The range is $450 to $750. And then on the total, we’re clarifying it on the lower end for conservative purposes, with obviously all related to afterlife power’s deliveries.
David Moreno (President)
Yeah. And as far as the lag between production and delivery, we’re meeting customer requirements. We’re working hand in hand with the customer to be able to deliver it to their site. So that should be rather quick. However, we want to make sure—again, this is the first year of ramping—we want to make sure we have a wide range, so we’re able to execute on that.
OPERATOR
Thank you. And the next question will come from Miles Walton with Wolfe Research. Your line is open.
Loufette (Analyst)
Hey, good morning. You have Loufette on for Miles. Thanks. Hey, Lou. I was hoping you guys could speak a bit more to the WestJet deal and maybe a little bit more broadly on what you’re seeing more on the aircraft transaction market, as opposed to the other side, just given the fuel price and reduced flight hours that we’re seeing. And then also, Nicholas, I think you mentioned the $61 million feedstock investment. Is that the 10 aircraft that you guys bought from WestJet?
David Moreno (President)
Yes, on WestJet, you know, it was two transactions. Right. 17 aircraft went into SEI 2, sale-leaseback. Right. So that allows the airline to continue to operate those aircraft and have flexibility. Ten of those aircraft were acquired by FTAI Aviation for aerospace products. So really that shows how we’re able to work with airlines and buy equipment, you know, outright, or work with them through sale-leasebacks. As we mentioned earlier, sale-leasebacks is really becoming a theme, really, you know, raising liquidity and then saving on shop visits.
Right. Really, as these aircraft, you know, mature, the biggest cost is going to be around shop visits and we provide a solution for these airlines. So we have very strong relationships and we’re expecting to execute on a lot of sale-leasebacks in SEI 2. Yep.
Joe Adams (Chief Executive Officer)
And just to follow on to David’s point, the majority of those aircraft did close in Q3, and that’s reflected in our guidance numbers and cash flow. No. So these were specifically for aerospace products. So those engines are going to be harvested to ultimately be rebuilt and then sold on to customers. And then for the airframes, we plan on recycling capital for those. So this would not be reflective of leasing. Yeah. I mean, ultimately these are unserviceable where we won’t. The initial 10 that David spoke of, we’re not planning on sale-leaseback directly. These are going to be used for aerospace products business, which is the same as what we’ve done previously. If it’s unserviceable, it goes into aerospace products. So it’s never done. We’ve always treated it that way.
OPERATOR
Thank you. And the next question will come from Josh Sullivan with Jones Trading. Your line is open.
Josh Sullivan (Analyst)
Hey, good morning. You have an upcoming Investor Day here in December. You know, in the past you’ve talked about FTAI Aviation reports financials may evolve. SEI is now more than 50% of leasing. How should we think about, you know, the evolution of what accurately communicates your business to the street? You know, at one point you’re a K-1 and obviously the business evolved pretty substantially. But any previews or perspectives you can provide going into the December event would be great.
Joe Adams (Chief Executive Officer)
Well, I think probably there’s a couple of unifying themes. One is, you know, how we partner with customers and that we provide a, you know, comprehensive package of solutions. And that package of solutions, sort of, they all feed off and help each other. And so it’s a very, I think it would be that each of our business activities supports and helps the other business in a unifying way, in an additive way. So we don’t, you know, we really, as I’ve said for many years, we don’t think of ourselves as the sum of the parts where we have businesses that don’t interact with each other, we have businesses that, that are all supporting each other to ultimately provide the customer with a higher value add. And this combination that we’ve built is unique. I mean no one else has really been able to do this. And it’s very, very powerful for the customer to be able to get these products together in a way that addresses their.
Josh Sullivan (Analyst)
And then just on aerospace products, you know, the upper limit on the 3,000 module capacity currently, you know, Joe, you’ve been pretty successful and creative in finding latent capacity globally. What is the gating factor to that 3,000 limit or upwards? Is it the facilities or is it really gated by something else like the ramp SEI parts or engines?
Joe Adams (Chief Executive Officer)
Well, David’s really been, you know, putting a lot of the facilities together. But we’ve, we’ve been surprised on the upside as to how many facilities exist around the world where people built and had a dream of building an engine maintenance facility and they built a nice building with tooling and then they couldn’t get business to put in it. And so we continue to find more locations like that where we have a very critical component which is we can provide engines.
And that solves the biggest problem that many of these locations have. And so we think that there’s more out there. We continue to source other new ideas. We don’t see 3,000 as a cap in any way. We’re going to continue to grow that and in some ways the opportunities get easier because we have a track record of having done this now five times where we’ve delivered and we brought engines in and we’ve increased employment. In Rome, for example, we went from 60 employees when we bought it to over 300 today. And, and all you have to do is say call the head of, you know, call ADR in Rome and ask them about us, you know, and they will say unbelievable. It’s amazing, you know what they did and they actually over-performed. We told them originally we were going to get to 200 employees and we went to 300 in half the time. So this is a, you know, this is a huge value. And if you go to different parts of the world where they’re looking for, you know, higher value, high paying technical jobs, aviation is always very attractive.
If you can generate employment of these types of jobs in communities, you also then get an advantage for the local airline. The airlines are going to support their local production and so that’s another competitive advantage you can develop over others. So it really gets back to your original question is all of these activities support and feed each other in a very, very positive way. And it’s all about helping the customer. Help the customer make their job easier, make their costs lower, make it so they have less capital to invest in things they don’t want to, like engine maintenance.
And they love you. And that’s been our mission and our flywheel.
Josh Sullivan (Analyst)
Great. Thank you for the time.
OPERATOR
Thank you. And the next question will come from Marnie Lysot with McGuire Capital. Your line is open.
Marnie Lysot (Analyst)
Good morning, team. Thanks for taking my question. I just would like a bit more color on the, like adjusted free cash flow further out. Appreciate at your prior print you called out, you know, kind of what your peers had been doing in that 60s to 70% range relative to EBITDA. So, yeah, just some color on that as you continue to execute on your growth and make a requisite investment for that. And if you could potentially provide any color of how analysts in the street should be thinking about it relative to NPAT and also any timing or seasonality nuances you’d like to call out just to help us with our modeling for periods further out.
Thank you.
David Moreno (President)
Sure, I can take that, Marnie. So we’ve yet to provide formal 2027 free cash flow guidance, but we’re very confident in the direction of free cash flow for next year. So our guidance for adjusted EBITDA is a substantial step up from 2026. And this growth is also supported by a large portion of inventory we have on the balance sheet today. We have power units already committed with deposits in hand, and we have an integrated supply chain built for scale.
So this business model has significant operating leverage. So as we continue to grow, revenue will grow faster than our fixed cost base and that will ultimately flow next year and beyond into greater margin and cash. So we’ll continue to benefit from economies of scale. And then the fact of sharing infrastructure between power and aerospace products ultimately means that we will continue to see free cash flow conversion improve year over year.
Marnie Lysot (Analyst)
That’s clear. I’ll jump back in the queue.
OPERATOR
Thank you. I am showing no further questions at this time. I will now turn the call back to Charlie for closing remarks.
Charlie Arecia (Principal Investor Relations)
Thank you all for participating in today’s call. We look forward to updating you again after Q4. Have a nice day.
OPERATOR
This concludes today’s conference call. Thank you for participating and you may now disconnect.
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