Thank you, Sidney. I would like to welcome you to the Fortress Transportation and Infrastructure's Second Quarter 2020 Earnings Call. Joining me here today are Joe Adams, our Chief Executive Officer; and Scott Christopher, our Chief Financial Officer. We've posted an investor presentation and our press release on our website, which we encourage you to download if you've 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.

Thank you, Alan, and welcome, everybody, to today's call for the second quarter 2020 results. To start, I'm pleased to announce our 21st dividend as a public company and our 36th consecutive dividend since inception. The dividend of $0.33 per share will be paid on August 31, based on a shareholder record date of August 17. Now let's start with the numbers. The key metrics for us are adjusted EBITDA and FAD, or funds available for distribution. Adjusted EBITDA for Q2 2020 was $66.5 million compared to Q1 2020 of $72 million and Q2 of 2019 of $92.7 million. On a normalized basis, excluding the gains or losses from the sales, Q2 2020 adjusted EBITDA was $65.7 million compared to $73.8 million in Q1 2020 and $70.1 million in Q2 of 2019. FAD was $47.3 million in Q2 2020 versus $96 million in Q1 of 2020 and $86.9 million in Q2 2019. On a normalized basis, excluding sale proceeds and nonrecurring items, Q2 2020 FAD was $38.2 million compared to $50.1 million in Q1 of 2020 and $42.7 million in Q2 of 2019. During the second quarter, the $47.3 million FAD number was comprised of $82.1 million from our aviation leasing portfolio, negative $6.7 million from our infrastructure businesses, and negative $28.1 million from corporate and other. Now let's turn to aviation. Aviation had a pretty decent quarter given the circumstances, $77.5 million in Q2 EBITDA after an estimated $20 million negative impact in Q2 from COVID-19. And further, more than half of the impact resulted from fewer hours and cycles flown, which means the hours and cycles are still available and have significant value. Somewhat offsetting the negative, we recognized $8 million in income from early lease terminations, where we proactively took back 7 aircraft and separated the engines as we believe engine demand is and will return faster than airframe demand. During Q2, we negotiated rent deferrals on approximately 20% of the portfolio, averaging 3 months of deferral in return for 3 months of lease term extension. Overall, we collected approximately $75 million in cash from customers, which is approximately 85% of a more normalized run rate without the effect of a pandemic.

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

Joe, you mentioned that during the quarter, you had a 20% deferral rate on some of your leases. But it does sound like your prospects are much more, I guess, relatively bullish looking ahead. Can you just remind us again the utilization estimates that you're running in 3Q? And any deferral or default rates that you're expecting going forward?

As I mentioned, on the engine side, we expect third quarter utilization to be about 65% to 70%, which aligns with our target range of 50% to 75%. We believe this will show strong improvement. Also, with fewer airlines conducting shop visits, we anticipate that the engine market will strengthen over the rest of the year, and we foresee a potential shortage sometime next year. Therefore, the outlook for that segment is very positive. On the airframe side, we took back seven aircraft early because we believed either the credits were insufficient, or the lease terms were expiring soon, making it beneficial to reclaim those assets. We have scrapped the airframes of those seven narrow bodies and repurposed the engines for our engine lease business. Overall, we believe the supply of airframes will be depleted more slowly compared to engines. Consequently, we think that being engaged in the engine market will allow us to deploy those assets more quickly compared to the competitive airframe market. Regarding deferrals, we noted that we granted deferrals on 20% of our portfolio, primarily affecting the 757 and 767 markets, as many operators are not currently flying. Although this represents the highest stress area, it only accounts for about 15% of our portfolio. Ultimately, we expect the values of 757s and 767s to remain stable, as cargo demand continues to be strong, and many of those planes are likely to be converted for cargo use.

Thank you for your response. You mentioned that you're nearing the launch of your engine products, with one expected to be available sooner than another later in the year. Could you provide an update on the approval process? Additionally, how does this relate to your comments about a potential joint venture partner or maintenance, repair, and overhaul structure? Is this intended solely for your own fleet, or are you also looking to offer this as a service externally?

I will begin with that. On the MRO side, it primarily pertains to our own fleet as we are developing several products. We previously mentioned two that are in development, and we will have another three by 2022, allowing us to cover about 80% of the airfoil portion of shop visits in this joint venture. Additionally, we expect to achieve a substantial cost advantage of approximately $2 million. We aimed to establish a shop that is specifically dedicated to us, ensuring no interruptions and giving us priority in the queue. This is not an ownership position but a partnership. Given the significant changes in the MRO business, we have been exploring this for over a year. Currently, MRO shops have a surplus capacity, and we secured a much better deal with a major company. This arrangement should meet all our needs for our fleet concerning the CFM engine over the next decade and will facilitate the management of our parts. One opportunity is that when we take our engines into the shop and install these new joint venture parts, we can sell some of the used serviceable materials that we extract from those engines, specifically the OEM parts. We want to have oversight and control over this process as it could generate a significant stream of income and profits, considering the volume of business we anticipate. Regarding the approval process, we have been working closely with the FAA throughout this period. There has been considerable back-and-forth and information sharing, along with many adjustments as needed. As for the parts, they have been manufactured, reviewed, and are currently being produced, with tests completed. The first part is largely done; it just requires final review of the package. Everything submitted has been previously reviewed, so we are optimistic and confident that this will proceed smoothly, as it has so far.

Okay. I appreciate that. Then last one, can you just talk about your current liquidity position? And how that compares to, I think, the 30 aircraft you mentioned in the pipeline that you're looking to acquire? And any commitments on the infrastructure side?

We recently completed a $400 million bond deal, which allowed us to fully pay down the revolver. We currently have between $150 million and $170 million in cash. For the two aircraft deals I mentioned, with 30 aircraft at an estimated value of $8 million to $10 million each, we have sufficient liquidity to finalize those transactions. Regarding infrastructure, our remaining commitment to Repauno is approximately $10 million for completing the rail-to-ship loading system, which we expect to be finished in the third quarter. For the Jefferson pipeline project, we plan to finance everything in the third and fourth quarters using non-recourse debt financing in the tax-exempt market, similar to what we did in the first quarter of this year. Therefore, we do not have any significant infrastructure funding needs at this time.

Maybe to follow-up on that last question. Joe, could you just talk about how the recent bond deal was received? And going forward, as you think about the different areas you could deploy capital, what's the update on where you would feel comfortable taking leverage going forward?

Yes. The bond deal we executed came with a higher cost, approximately 300 basis points above our usual rate in the high-yield market due to our involvement in the aviation sector and our energy exposure. Nonetheless, the market response was exceptionally strong, with over $900 million in orders for the $400 million bond deal. We initially launched for $300 million and later increased it to $400 million, which indicates remarkable demand. The bonds have appreciated, and we are pleased to access capital at this pricing. On the return side, returns have improved more than 300 basis points; I would estimate that returns in aviation are now around 1,000 basis points higher, representing a 10 percentage point increase compared to historical performance, given the industry's current distress. Our current deals are solely with government-owned airlines utilizing CFM engines that have substantial backing, creating an advantageous situation. Notably, when I mention yield return, I'm not accounting for the upside from our joint venture parts starting next year. This scenario is excellent for acquiring these assets at competitive prices from government-backed airlines. The appealing aspect of this market is twofold: first, there is minimal competition for us in purchasing older airplanes; second, government-owned airlines have limited options. They can engage with us, which allows them to negotiate for less government funding, or they must approach the government for additional funds, which is typically unpopular. Regarding leverage, our target has always been around 50%. Currently, on a non-recourse debt basis, we are at about 50.6%, aligned with our goals. In this environment, maintaining lower leverage is preferable. We may consider issuing preferred stock to reduce leverage and explore monetizing asset sales, similar to our previous transactions with Long Ridge and CMQR last year. Additionally, we might explore selling minority interests in some infrastructure projects or pursuing other strategies to raise capital, but we do not plan to increase leverage significantly from this point onward.

Okay. That's really helpful. And going back to what you said on the COVID headwind. I guess, now you're expecting it to be $50 million or less. As we think about these aviation deals that are in the pipeline, if you just get 1 of these 2 deals done, do you think that's enough to kind of fill the COVID hole this year?

Yes. The first deal with Air France, I would estimate it's approximately $20 million of additional EBITDA. And the second deal we're working on right now is probably $40 million, and the third deal is about $25 million. So if you add all that up, you get well above the $50 million.

So Joe, I was hoping you could address the variability in demand patterns for aviation assets across regions and just offer some thoughts on what you think the lingering effects of COVID could be in terms of the types of negotiations that you have and not necessarily specific to FTAI, but also just kind of across the industry. How the experience of COVID kind of changes those negotiations and the overall market for aviation leasing?

Yes, sure. Several points to make. Regionally, our perspective is similar to others. Asia has recovered the quickest, with countries like China, Vietnam, and Korea performing well domestically. Long-haul international travel will face challenges for a few years, so I wouldn't want to hold too many 777s and A330s, and we don't have any. Europe is now starting to improve as many countries have better control over the virus and flights are resuming. Domestic flights by airlines such as Air France, Alitalia, THY, and Lufthansa are increasing, which is what matters most to us. Long term, I wouldn’t want to deal with a lot of new aircraft deliveries in the coming years, as it will be difficult with an excess of equipment available. Introducing new assets to the market will be challenging. Our focus is on engines. Historically, during crises like this one, airlines tend to postpone major engine overhauls, which we’ve confirmed in discussions with major airlines. Maintenance and repair shops are seeing a decline in activity. Meanwhile, airlines are operating their planes and using up available green time. Therefore, we anticipate increased demand for leased engines in early 2021 once airlines deplete their green time, likely leading to a shortage. This aligns well with the timing of our product developments, which we expect to get approved this year, as well as our maintenance joint venture, which we aim to announce soon. We're also actively acquiring CFM engines at favorable prices, as demonstrated by our recent deal with Air France and the other two deals we're pursuing, which also involve CFM 56 engines. This is where we're concentrating our efforts, and while we wouldn't want to benefit from this situation, we believe being positioned for this demand is crucial.

Got it. Understood. It sounds very promising for FTAI, and congratulations on successfully navigating a challenging market. Now, regarding the FAD, it remains comfortably above the dividend, even during what is likely one of the most difficult quarters for your type of business. Do you have any thoughts on possibly increasing the dividend or how to utilize the capital from the difference between the FAD and the current dividend?

We have excellent investment opportunities in aviation. With these returns, our priority is to invest in CFM engines, as we are currently doing. The airlines will not recover from their challenges quickly, and I believe there will be more opportunities for deals. We have good uses for our capital. Regarding the dividend, it has always been a crucial part of our strategy for shareholder investment, and we have successfully maintained it this quarter. Given the circumstances, it's significant that we have managed to not reduce the dividend while also securing great investment opportunities. Overall, I feel we are in a strong position.

Congrats on the quarter. Just a question on the PMA part opportunity in commercial production. Can you give us a flavor of how deep in discussions you are with airline customers at this point? Do you have any LOIs or orders from airlines or other customers? And then how do you see the go-to-market strategy unfolding with the joint venture?

Yes, there are several significant orders that were placed before COVID-19 impacted operations. We do have customers who made preproduction orders, which is encouraging. However, once COVID-19 struck, it became challenging to get airlines focused on this. We experienced a slowdown in marketing efforts, but every airline we speak to is concerned with two main issues: reducing costs and minimizing capital investment. Therefore, our opportunity lies in providing a complete solution to airlines by managing their shop visits and integrating our proprietary products into their engines, offering them on a power-by-the-hour leasing model. I believe this approach will be well-received once we navigate through the current situation and as the environment stabilizes, which I anticipate will occur by the end of this year, specifically Q4.

Got it. And then just turning over to the cargo market. What's the timing calculus between returning passenger value capacity, freighter conversions? We have seen some cargo rates come back to Earth. But if IAD and others are looking at, say, kind of a 2023 return of global passenger traffic. How should we think about the tightness in the cargo market between now and then?

I believe the situation will be challenging. It's quite difficult to significantly increase the supply of cargo airplanes. Given the current excess demand, which is driven by two main factors: first, passenger planes are not operating as frequently on international routes, which represent a significant portion of the capacity, and second, e-commerce is expanding rapidly. We are noticing a particular interest in the 737-800 aircraft, as there are discussions about converting them for use in the domestic market in China, which has considerable potential for growth. Therefore, I am optimistic about the cargo outlook over the next two to three years. Anyone making long-term forecasts in aviation beyond that timeframe might be unrealistic. However, the two primary drivers of demand appear to be quite strong, and increasing cargo aircraft capacity quickly is a challenge.

Congrats on successfully navigating a pretty tough environment here. I guess jumping in on the aviation side. Obviously, as you built out the portfolio of CFM56s, you become an increasingly relevant player in that market. I'd be curious where you are in terms of the number of CFM56 engines that you have in the portfolio with Air France? And then where you could go with the other transactions?

Do you have that number, Scott?

Yes, I just don't have it right off the top of my head here. I can get it a second though.

In the interim, I'd like to switch over to the Engine Repair JV topic. I'm curious, since you have some orders for parts, how quickly can you ramp up production and ship those products to start recognizing your 25% share of the economics?

So our partner has been preparing for production all along and is in very good shape to produce products quite quickly, and there's not a significant bottleneck in the production. The only thing when you do start up production, what typically happens is your yield starts out a little bit low and that increases as you make more of the parts. So in the beginning, there'll be more scrapping and then the production will ramp up very quickly. So the facilities, the capability, the castings, the machining and the coatings are all readied and available for a very quick ramp-up.

That makes sense. And kind of switching gears a little bit here. I realize that asset values on the infrastructure side are probably not back yet, and will probably take some time to recover. But if you're able to get some deals done with Long Ridge and potentially start scaling Jefferson, would you consider selling the remaining 50% stake in Long Ridge or selling a partial stake in Jefferson in the near term, call it, a year or 2 years and redeploy some of that capital either into aviation assets or related investments like an MRO type of platform that would help scale the leasing business?

I believe we can achieve a solid MRO deal without the need to acquire one, which is my preferred approach. However, we are open to that possibility. I think it would be ideal to consider selling Long Ridge when it is operational. The target now is potentially September, having been initially promised for November 2021, with an earlier possible date in August. If we can be operational in just over a year, it would be beneficial, as that’s when we will have the most extensive contract coverage. This addresses a key concern of some buyers who prefer not to acquire non-operating assets. With an operational and fully contracted setup, we could access some of the lowest-cost capital available in the infrastructure sector. Additionally, the pipeline projects at Jefferson significantly enhance the terminal's capabilities, allowing us to engage in larger projects beyond just crude by rail or refined products to Mexico, including serving refineries and exporting refined products to the two largest refineries in North America. I wouldn’t want to sell without reaping the benefits of all our efforts to bring us to this stage. This is certainly something we would contemplate, as we did last year. The market is starting to recover; there have been various sale processes that were paused when attempts were made in April and May. While it hasn't been a favorable M&A market, we are seeing signs of resurgence now, with renewed confidence in valuations. The M&A landscape should start to strengthen, especially with a significant amount of infrastructure capital still being raised, particularly in Europe, where companies are looking to invest in North America. So I believe the infrastructure sector from an M&A perspective will remain robust, especially with interest rates being low for the foreseeable future.

That's great, and that makes a lot of sense. Pivoting to the dividend payout, I recognize there are many attractive opportunities on the investment side. There will likely be a balance, at least in the near term, when discussing the distribution and recovering as you invest more into other aviation assets and gain additional value. As the impact of deferrals diminishes, we should expect a notable increase in both EBITDA and FAD, likely toward the end of the year and into 2021. I would be interested in hearing what levers you are considering to potentially drive an increase in the distribution.

We have always aimed for a 2:1 coverage. Once we surpass that threshold, we would consider increasing the dividend. There is a possibility that this could increase significantly late this year or early next year.

Yes, and just for the follow-up with respect to the CFM engines. Currently, we have 145 CFM engines and then pro forma for the 2 new deals, we'd have over 200 plus.

There are 22,000 CFM56 engines worldwide, highlighting the vastness of the total market. While we are one of the larger players, we are still not significant enough to be considered a market mover.

Congrats on the strong quarter. I wanted to follow-up on the engine business. I was actually pretty surprised that you guys expect to get back to utilization above 65% in 3Q. So to that end, good job on that. But those 40 new leases that you signed in the quarter, can you give us a sense for who those lessees were kind of geographically, end market? And then what those rates were comparable to a year ago or, I guess, the end of last year?

The biggest uptake is Europe. And the rates are comparable. I mean, there's not a lot of rate pressure on engine leasing right now. And I don't foresee it happening. I just see it going the other way potentially.

Okay. To follow up on the aviation leasing market, the main factor influencing investments in FTAI and aviation assets is expectations around aircraft utilization and how that affects the current burn rate of green time. Can you provide any details on the amount of green time that is available for the engines you focus on?

Yes. We conducted our own analysis and also enlisted an independent appraiser for an objective assessment. We examined both the CFM56-5B engines used on A320 aircraft and the 7B engines on the 737NG. Our findings, along with those of the expert, indicate that by the end of Q1 2021, the supply of engines will drop below demand. By the end of this year, it is anticipated that around 75% to 80% of A320 and 737 aircraft will be operating worldwide. If this projection holds, with a limited number of maintenance visits, we will effectively run out of engines by the conclusion of Q1. We can provide you with this information, which should be included in our presentation materials.

That would be great. I'll follow up off-line.

Yes.

Most questions have been asked here. But I want to just come back to the sale-leaseback transactions and the opportunity. So Joe, you walked through what's driving them right now, which makes sense. There's not a lot of competition, which is a pretty good position to be in. Do you see the window of opportunities like these closing just as economies reopen and flying increases? Or is this kind of a several-year opportunity? And then I'm assuming that you guys are probably getting a fair amount of attention in the market for these deals, especially if these other couple come together. So I suspect that could actually drive more to you to the extent, there's going to be more activity like this in the market?

Yes, I believe there will be more opportunities as airlines are likely to remain under stress for some time. They will be focused on generating cash, and selling and leasing back some of their older equipment that they intend to retire is appealing. Many airlines are already doing this, and I expect that more will follow suit. I don't anticipate this trend ending soon, but market conditions can be unpredictable. When markets become distressed, capital tends to flow in, and it's important not to assume this will not happen. Therefore, I believe these deals are happening now, which is why we are taking action. Furthermore, our strategy allows us two ways to monetize those assets: we can either keep them as an airplane and lease them to someone else or scrap the airframe, which is our primary approach, and just lease the engines. I see several airlines on the horizon for which we could create leasing programs for the CFM56 engine, allowing them to avoid the hassle of maintaining or acquiring engines. We can manage the shop visit for $3 million, significantly less than the $6 million average industry cost, which provides us a competitive advantage. This discrepancy is something we will highlight and leverage to grow our business and deliver strong returns.

Okay. I have a follow-up question. At the current price of $15, it seems that the valuation isn't reflecting the potential future opportunities, and I'm assuming you see it that way too. I understand there are many factors at play, which can make it complex to assess from an outside perspective. As the company evolves into a more vertically integrated aviation firm, it appears we have significant opportunities and need to allocate capital effectively. If you plan to exit some of the infrastructure assets, how do you anticipate that will impact the overall valuation of the firm? I assume there must be some calculations involved in deciding how to allocate capital among the various opportunities.

Yes, that's a good question. We recognize that our story can sometimes be too complex, and simplifying it would be beneficial as we grow the joint venture and the engine business, which could operate as a separate company and might be better as an independent asset. That’s our goal. We didn't anticipate the disruption that affected us, as we had our best quarter in Q1, but then everything changed in April. We aim to progress toward that goal. The stock performance is better now than it was in May, but it still doesn't fully reflect our expectations. However, we are committed to working hard to improve it.

And our next question comes from Chris Wetherbee with Citi.

It's James Monigan speaking on behalf of Chris. I wanted to follow up on the previous question regarding the transactions you mentioned. You talked about sale leasebacks, and I would like to clarify if you are still responsible for the maintenance of those engines and assets, or if these transactions are primarily financially motivated. I'm interested in understanding how these upcoming transactions might differ from your usual approach and how they align with your long-term strategy. I'd appreciate your insights on this.

The transactions are quite similar to our previous activities, with two notable differences. First, they are larger in scale as we are acquiring more assets simultaneously, such as a 15-aircraft deal rather than just one or two. Second, these transactions involve government-owned airlines, which previously were hesitant to engage in such deals. However, the current financial environment has prompted them to explore all options, creating a new market opportunity for us. Despite these differences, the core of the deal remains the same; we will end up owning an airplane. When a leased aircraft returns to us, it will come with engines. Typically, this gives us the option to either lease the entire aircraft with engines or sell the airframes while leasing the engines. We've found that we can generate nearly the same cash flow from the two engines as we would from a complete airplane, plus we benefit financially from selling the airframe. This approach provides us with significant financial flexibility.

Got it. And then also turning to infrastructure. I just wanted to get your updated take on crude by rail and sort of interest you're kind of seeing there, if any? And maybe so to get your view on if there will be and when there would be a rebound?

Yes. So I think ignoring the shutdown of the DAPL, which we don't know if that'll happen. But if it did happen, there'd be a lot of crude by rail, all of a sudden, moving. That's out of the Bakken. But that's in the courts. And so we don't know the answer to that. The other market opportunity is Canada, and that is coming back, and we see the spreads widening now back out to normal or showing in the forward market looking normal in Q4 of this year. And in talking with some of the producers and refiners, people are anticipating that crude by rail will still be in the mix. And people are making commitments and looking at investments.

And our next question comes from Rob Salmon with Wolfe Research.

I have a quick question that may have been addressed in the prepared remarks. Was the asset impairment charge taken in the second quarter related to the seven aircraft that you proactively returned, or was it for another reason?

Scott, do you want to answer that?

Yes, that was related to the early return of some aircraft. We returned six aircraft as part of an early lease release, and there was one engine included in that overall impairment.

That's helpful. I have another clarification question and then a longer-term one. Regarding the percentage of your book that's off lease, I believe you mentioned it was 20%. Is that 20% referring to the 15% that is exposed to the 757 and 767 market, or does it mean that 20% is off-lease and that entire market is currently off-lease?

Well, the 20%, I think you're referring to was the amount of rent deferral we gave to lessees in the quarter. And that was what was in the prepared remarks, if that's what you're referring to. And that’s for the entire portfolio.

Yes, that was, Joe. Yes. And then I think you'd mentioned that the majority of that was in 757, 67s.

Yes, I think two-thirds of that was in the 757 and 767 markets, which represent 15% of our portfolio. The largest portion of the deferral applied to those aircraft because they are currently the most difficult to fly and lease. However, our narrow-body fleet is performing well, and the engines are in good condition. The cargo segment is also doing well. The 757 and 767 are facing the most challenges, but they are expected to recover as the freighter market remains strong and leisure markets reopen. The development is just slower, and that's where most of the deferrals were concentrated.

Got it. That's helpful. Joe, looking at the bigger picture in light of COVID, could you share your updated thoughts on the engine repair market opportunity for FTAI? How should we consider your potential share opportunities, especially with the possibility of some things being delayed, but maybe a larger end market now? What should we keep in mind regarding those factors?

Yes. I actually believe this is a larger market. For example, Air France has engaged in a deal with us and is discussing engine leasing opportunities. Delta has also indicated they would consider engine leasing. These carriers typically managed everything internally, but due to the financial crisis and cash constraints, they are now more willing to outsource capital-intensive functions, such as engine shop visits. With our upcoming products from the joint venture, we can overhaul a CFM56 engine for under $3 million, compared to an industry average cost of $6 million. My goal is to reach a point where we can approach larger airlines and offer to handle all their CFM56 engines for an hourly rate. They would not need to invest capital or manage it, and they would benefit from a cost-saving rate without the need for capital expenditure on shop visits. I believe this opportunity is emerging much more rapidly than it otherwise would have due to the crisis. Additionally, the CFM engine, with 22,000 units in service, will remain relevant for the next 15 to 30 years. They are still producing aircraft, and many 737-800s will be converted into cargo planes to replace the 757, ensuring demand for years to come. Thus, I see a fantastic opportunity ahead. I also want to note that we aim to partner with a maintenance MRO and are close to finalizing that deal, which will enable us to move forward effectively.

Congratulations on the quarter. I wanted to follow up on aviation. Joe, in your prepared remarks, you mentioned that the deal with the MRO could provide a preferential position in the queue at the shop. You've highlighted before that these processes can take a significant amount of time if capacity is limited. Considering a potential squeeze on availability for shop visits when green time runs out next year, how much do you think that preferential position in the queue could contribute to overall value? Alternatively, if we factor in that alongside your cost advantage for shop visits and potentially that preferential position, what impact could that have on the yield of engine assets, whether measured by return on equity, EBITDA yield, or another metric, say, a year from now?

That's a great question. There are a few aspects to consider. One is the preferential treatment we are seeking, along with working on advantageous pricing under the deal on a fixed, predictable basis. Additionally, we aim to reduce the time an engine spends in the shop. Currently, when an engine goes in for maintenance, the process is often sequential, leading to months of waiting for a specific part before the complete engine can be serviced. Our design focuses on creating module inventory. For instance, the CFM56 engine has four modules, and if work is primarily needed on just one module, we could switch it out and complete the process in 15 days rather than six months. This approach offers significant benefits. Another advantage is the ability to monetize parts. Having our own MRO shop partner will enhance our management of the components removed from the engine. When we combine these factors, we could see a return of 25% to 30% unlevered on an engine today. If the average shop cost is $6 million and we can reduce our costs to $3 million, we should achieve an unlevered return of 50%. Those figures may seem high, but realistically, I believe it will likely fall between 25% and 50%. The potential for increased returns is especially promising in a tight market where we can turn inventory more quickly.

I appreciate that. Regarding the aviation business, it seems that establishing it as a stand-alone entity might be more beneficial as a C-corp instead of an LLC. If you were to divest certain stakes or separate other segments, that could be advantageous. So, have we discussed the possibility of converting to a C-corp? Is that still a consideration? Do you have any insights on the timeline for that? Would it be better to proceed while the infrastructure assets are still under our ownership? Any thoughts you could share would be helpful.

Yes. The goal is to eliminate K-1s because we understand they aren't beneficial. Converting to a C-corp is certainly being considered. While I don't have a specific timeline for this, it is becoming more of a priority for us. We are actively working on it and believe it has multiple benefits, but I still can't provide a precise timeline.

And our next question comes from Scott Buck with B. Riley.

Assuming you're able to close in the 2 aviation asset transactions. Does that change the way you think about additional asset acquisitions for 2021? Or do you continue to be fairly active in the market next year?

I think we continue to be active. Because as I mentioned, the CFM56 market is enormous. And our advantage is huge. And so I think we would continue to capitalize on that to the extent it advances the business, and you can generate those types of returns.

Have you noticed any significant changes in asset pricing in July compared to the Air France deal from April and May?

No.

And I'm not showing any further questions at this time. I'd now like to turn the conference back to your speaker, Alan Andreini for any further remarks.

Thank you, Sidney. And thank you all for participating in today's conference call. We look forward to updating you after Q3.

Thanks, everyone.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a good day.