Good day, and thank you for standing by. Welcome to the Q1 2022 Fortress Transportation and Infrastructure Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Mr. Alan Andreini. Please go ahead.

Thank you, Tanya. I would like to welcome you to the Fortress Transportation and Infrastructure First Quarter 2022 Earnings Call. Joining me here today are Joe Adams, our Chief Executive Officer; Ken Nicholson, our newly appointed CEO of FTAI Infrastructure; Scott Christopher, the Chief Financial Officer of FTAI, who will become the CFO of FTAI Infrastructure; and Angela Nam, the Chief Accounting Officer of FTAI, who will become the CFO of FTAI Aviation, which will be the new name of FTAI. We have posted an investor presentation and our press release on our website, which we encourage you to download if you have not already done so. Also, please note that this call is open to the public in listen-only mode and is being webcast. In addition, we will be discussing some non-GAAP financial measures during the call today, including FAD. The reconciliations of those measures to the most directly comparable GAAP measures can be found in the earnings supplement. Before I turn the call over to Joe and Ken, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements by their nature are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC. Now I would like to turn the call over to Joe.

Thank you, Alan. To start the call, I'm pleased to announce our 28th dividend as a public company and our 43rd consecutive dividend since inception. The dividend of $0.33 per share will be paid on May 24 based on a shareholder record date of May 13. First, a couple of highlights. Yesterday, our Board formally approved the spin-off of FTAI Infrastructure from FTAI, and we expect the spin to be completed in the next 4 to 8 weeks. Secondly, as to the Russia-Ukraine war and our assets lost in that conflict, we are writing off $195 million in Q1 for impairments, bad debt, and lost revenue, but we expect to recapture all of that $195 million over the coming year. Now let's turn to the numbers. The key metrics for us are adjusted EBITDA and FAD or funds available for distribution. Absent the impact to our assets in the Russia-Ukraine war, which we estimate to be approximately $70 million in Q1, adjusted EBITDA would have been approximately $122 million, down 2% compared to $124.8 million in Q4 of 2021, and up 158% compared to $47.2 million in Q1 2021. Including one-time charges, actual adjusted EBITDA was $51.6 million in Q1 '22, which is down 60% compared to Q4 2021 and down 9% compared to Q1 2021. FAD was $71.4 million in Q1 2022, down 41% compared to $120.1 million in Q4 2021 and up 396% compared to $14.4 million in Q1 of 2021. During the first quarter, the $71.4 million FAD number was comprised of $117.1 million from our Aviation leasing portfolio, $7.1 million from our infrastructure businesses, and negative $52.8 million from corporate and other. Turning now to Aviation. Let's start with the impact of the Russia-Ukraine war. We reported Q1 2022 Aviation EBITDA of $48 million. The write-off of uncollectible debt or canceled leases with customers that ceased operations reduced EBITDA in the quarter by about $70 million. So we estimate EBITDA without the war effect would have been approximately $120 million, or an improvement from Q4 2021 of $104 million. In addition, we are writing off 100% of the book value of $125 million of the 12 aircraft and 20 engines that remain today in Russia or Ukraine. For those aircraft and engines, we have filed insurance claims totaling $290 million, which we ultimately expect to recover most, if not all, of this amount. So when we do recover, all proceeds will be booked as income when received. We also took back 9 aircraft from Russian and Ukrainian operators and are under LOI to sell 4 of these aircraft to cargo operators at a gain of approximately $30 million, while the remaining 5 aircraft are all 737 NGs, for which there is very strong demand for both the aircraft and the engines. So we expect all 9 of those aircraft to be on lease or sold by the end of Q2. We'll be taking further advantage of the strong cargo market and expect to sell other 747 and 767 aircraft and engines for significant additional gains in Q2. Turning to our aerospace products, we posted Q1 '22 EBITDA of $16 million, comprised mostly of income from CFM56 module sales again this quarter. And looking ahead, given the very visible and robust recovery in air travel demand worldwide, we're seeing a significant ramp in activity and backlog for our aerospace products. We currently have a backlog of approximately 180 modules contracted or on order and over $100 million of used serviceable material sales on order through multiple programs with maintenance and repair organizations and airlines. We continue to see growing market acceptance of our CFM56 product offerings with today over 20 active customers, including many of the world's largest airlines and independent maintenance shops and are importantly seeing a very high level of repeat usage. We expect demand to accelerate as heavy volumes of CFM56 shop visits are being scheduled now for the second half of this year. Let me now turn the call over to Ken to discuss infrastructure.

Thank you, Joe. We're enthusiastic about the opportunities within our infrastructure business. In the next three slides, I will share our recent results for each of our assets and outline several growth projects and plans for the upcoming months and the rest of the year. It’s a dynamic time in the transportation and energy sectors with elevated commodity prices, a strong emphasis on energy security, and the increasing pressures driving energy transition. We are well-positioned to take advantage of these opportunities across our businesses. Starting with Transtar, we generated $34.1 million in revenue and $14.6 million in EBITDA for the quarter. Revenue increased by $1.1 million or 3.5% from the previous quarter as a slight decrease in carloads was more than compensated by higher average pricing. Notably, cold-rolled steel shipments from U.S. Steel saw a rebound in March, indicating potential for further improvements next quarter, while hot-rolled coil shipments remained stable. Shipment cycle times that experienced delays for unloading have now improved, allowing Transtar's railcar fleets to operate more efficiently. The EBITDA for the quarter was negatively impacted by $2 million in nonrecurring items and lagging fuel surcharge revenue. We incurred higher fuel costs in the first quarter but will be reimbursed in the second quarter under our fuel surcharge program with U.S. Steel. Importantly, cash flow from operations for the quarter was $16.6 million above adjusted EBITDA, with $3 million realized from optimizing the Transtar railcar fleet, which more than covered capital expenditures of $1.1 million. We are excited about Transtar's future, ramping up our commercial efforts on third-party business, expanding our commercial team, and pursuing multiple revenue enhancement initiatives. We project an opportunity for approximately $30 million in incremental EBITDA over the next 12 to 24 months with minimal capital investment needed. Transtar also provides a strong platform for acquisitions, and we see a growing pipeline of potential opportunities that we believe would significantly enhance the business. Next, turning to Jefferson, first-quarter EBITDA was $3.8 million, up 35% compared to $2.8 million in Q1 of 2021 and up 66% relative to $2.3 million in Q4 of 2021. This growth was primarily driven by high dock utilization for crude oil shipments and the initiation of yellow wax crude transportation via rail from the Uinta basin. Given recent global trade disruptions, Jefferson's multimodal infrastructure offers our customers valuable flexibility to manage volumes through marine, pipeline, and rail options. For the first quarter, crude oil and refinery intermediate revenues increased 15% compared to Q4 and 50% year-over-year. Terminal volumes have more than tripled from Q1 of 2021 and risen 32% compared to the last quarter. From a project perspective, Jefferson remains on track for the end of the year and is within budget for the previously announced ten-year agreement with ExxonMobil. This project will significantly enhance throughput volume and revenue for the terminal through our cross-channel pipeline system and set the stage for volume increases. With ongoing changes in the energy markets and our refineries’ demand for reliable supply sources, we are seeing heightened activity at Jefferson. Notably, the Uinta Basin in Utah is emerging as a source for crude supplies, where volumes of yellow wax crude have been rapidly increasing to substitute imported barrels. In Q1, we moved an average of three trains per month through the terminal. In the second quarter, we anticipate increasing this to eight trains per month, with a capacity to handle up to 24 trains monthly, which is our target for the latter half of the year. Jefferson is the only terminal in the Beaumont area equipped for large-scale transloading of yellow wax crude, a process that involves significant handling, heating railcars to unload the product, and blending it with lighter crude, making it a particularly lucrative business for us. Now, regarding Long Ridge, we are pleased to announce that our new 485-megawatt power plant is operating continuously and we expect to generate strong cash flows from our power sales agreements for the foreseeable future. Additionally, we are leveraging our natural gas assets to produce excess gas beyond our power plant's needs for sale in the merchant market, where gas prices remain very favorable. As reflected in our first-quarter financials, we had an unplanned maintenance outage to repair and finalize the commissioning of one of our steam turbines. This six-week outage had an approximate $8 million negative impact on EBITDA due to lost revenues. However, warranty coverage fully covered repair costs. Although the outage was not ideal, it yielded two positive outcomes. First, maintenance was completed that was originally planned for April, allowing us to avoid a future outage and set the stage for an upgrade to 505 megawatts at little to no cost. Second, we successfully completed our hydrogen blending project, making us the first utility-scale power plant in the US to operate on hydrogen starting with a 5% blend. This is a significant milestone, especially since the national infrastructure bill passed last year includes $8 billion for developing hydrogen hubs, and we have applied for funding as a recipient. As an early mover in this space with distinct advantages, Long Ridge is well-positioned to secure funding from this initiative. With the power plant now operating effectively, we are focusing on driving additional growth by attracting new business from power-intensive sectors looking to establish facilities at Long Ridge. We have a strong pipeline of prospects and expect to announce our first major counterparty in the upcoming months. Lastly, concerning Repauno, after a successful first year in 2021, we are beginning the 2022 season on a solid footing. Our business is somewhat seasonal, typically gaining momentum in April and continuing through the fourth quarter, so we anticipate strong performance in the second and third quarters. The expanded LPG truck rack has seen high usage, supplying propane and butane to local heating and blending markets during a time of considerable market volatility. Our newly completed cavern chiller allows for fully refrigerated butane exports, and we have established a base agreement with an international buyer for multiple cargoes starting this month. We project to handle over 175 million gallons of LPG in 2022, up from 130 million gallons in 2021, with potential to exceed 250 million gallons driven by increasing spot shipments. We are also advancing our plans for additional product storage, increased rail access through the construction of a double-unit train loop, 600,000 barrels of new storage, and pipeline links in major production areas. We are finalizing the necessary permitting and construction contracts for the new storage facility, which will more than double our throughput capacity and triple cash flow potential once operational. We aim to finance this expansion entirely through low-cost, tax-exempt debt, making it highly beneficial. With that, I will turn it back to Joe.

Thanks, Ken. It's hard to imagine a 2-year period that's been more difficult and volatile than the last 2, between COVID and the war in Ukraine. Our business models have been stress-tested in ways that we would never have expected. The good news is FTAI has come through this period in good shape and in fact, very good shape. The aviation industry is once again in growth mode and our aerospace products are more in demand now than we had ever thought. And with the world's rediscovered desire for more energy independence, our infrastructure assets are more critical today and more valuable than they were just 2 months ago. Putting it all together, it's a perfect time to separate the companies. To that end, we filed this morning our public Form 10, which means that we should have 2 separate trading companies in the next 4 to 8 weeks. Heading FTAI Infrastructure will be Ken Nicholson, who you just heard from. Ken has been my partner for over 20 years, including the last 10 since we started FTAI, and I'm very excited to be working with him in this new role. To sum it up, after years of preparation, the separation of FTAI Aviation and FTAI Infrastructure is now at hand, and we're very excited by the prospects for both companies. Turning back to Alan now.

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

And our first question comes from Justin Long of Stephens.

I wanted to start with aviation. Last quarter, you talked about the run rate for EBITDA from aviation being around $550 million, and that included $50 million to $100 million from aerospace services. So at the midpoint, if you strip that out, aviation leasing was expected to do about $475 million of EBITDA. If you set Russia and Ukraine aside and take that out of numbers, what does that pro forma number look like going forward?

Yes, I'll start with the answer and then explain how I reached it. For the year, I estimate $475 million of EBITDA for both leasing and aerospace products, with $375 million coming from leasing and $100 million from aerospace. I'm more confident in achieving the higher end of that range due to strong market acceptance and a growing backlog. If we consider the $475 million, the leasing piece would be $375 million. In Q1, we generated about $35 million of leasing EBITDA, and the war in Ukraine resulted in a loss of approximately $70 million, making it around $105 million if the war hadn't occurred for leasing. Using that as a starting point, the assets that are off-lease or affected by the situation in Russia and Ukraine contribute about a $20 million negative impact to Q2. However, we also gained business from the Avianca deal. Overall, I anticipate about $95 million from leasing in Q2. Additionally, we expect a $30 million gain from the sale of 4 cargo claims we recovered. Therefore, Q2 is projected to be approximately $125 million. To reach the $375 million to $380 million target, we need about $220 million for Q3 and Q4. That's my summary, and I appreciate your understanding of the fluctuations, as we've faced some disruptions.

That's extremely helpful. I know there's a lot going on. So on that last point about the $220 million in the back half of the year, does that assume any gains?

No.

Okay. And I guess, secondly, on Jefferson, any update on what you're expecting in terms of EBITDA over the remainder of the year and how things could ramp, and it was helpful to get some color on the trends per month that you're expecting in the back half. But curious if you could put a sensitivity around that in terms of what one train per month means to EBITDA?

Yes, Justin. I'm glad to provide that information. To address your question directly, one train of yellow wax crude per month can generate up to $100,000 of EBITDA, depending on various factors. This potential is one reason we are very optimistic about it. Unloading one train can yield significant margins due to the heating, blending, and other processes involved. Therefore, it could be quite beneficial for Jefferson, and we are enthusiastic about the trends we are observing in the second quarter. Looking at the bigger picture for Jefferson, we have a lot of activities in progress, including major Exxon contracts starting early next year. Our ultimate aim is to achieve $80 million to $100 million of EBITDA for Jefferson. While I can't provide a specific quarter-over-quarter trajectory, our goal is to be close to that number on a run rate basis by the end of the year, especially as we begin the new Exxon business in January.

And our next question comes from Chris Wetherbee of Citi.

Could you clarify the leasing side? Joe, you mentioned that you would recover the $195 million you're writing down. Can you help me understand if you're specifically referring to the leasing business? Is it mainly due to new business opportunities, or is it a mix of that and insurance recoveries? I want to ensure I correctly grasp your thoughts on this.

The recovery of the $195 million will primarily come from insurance and the recovery of that debt, not from any additional activities. We filed $290 million in insurance claims, with $75 million related to assets in Ukraine that we believe are destroyed based on aerial photos, although we haven't inspected them firsthand. The situation with our assets in Russia requires us to demonstrate that recovery is impossible, but it seems to be becoming easier to prove this over time. Therefore, a significant portion of the $195 million we're discussing is expected to come from the insurance recovery for those assets.

Okay. Okay. That's helpful. I appreciate that. And then just on Jefferson, I just want to make sure I understood the point there on the slide about the ramp-up. When you think about the 8 trains. I know we have 24, I think, monthly trains of capacity. We're thinking about 8 trains. I just want to make sure, is that the April run rate that we're on right now? Or are you expecting sort of a run rate to accelerate as you go into May and June to be able to hit that for the second quarter?

No, that is the run rate we are on currently.

And our next question comes from Giuliano Bologna of Compass Point.

I guess to start off, continuing along a similar topic on the Jefferson terminal. The details around the trains and the capacity are very helpful. But the first thing I was interested in thinking of your plan about is that there’s actually an increased focus on importing from Canada, and a large part of that would most likely be coming via rail. And you guys obviously have a rail terminal. I realize that a big part of what you're mapping out here is not necessarily from Canada on the train side initially, but I'm curious if there are opportunities on the Canadian side to get long-term agreements in place for multiyear supplies or it might be the potential to get the built Canadian side putting that forward. And then the kind of add-on to that is, I'm curious if the capacity is any different if you're bringing in crude from Canada versus yellow wax and if the EBITDA contribution would be any different between the two.

Yes. Look, the general tone and atmospherics around Canadian crude by rail are very positive. The White House making statements weeks ago regarding increased imports from Canada by any mode other than pipe. So that's a very good thing for crude by rail. I would tell you the activity today is still relatively light compared to where the activity was pre-COVID, about 2 to 3 trains a day get loaded in Canada, in Alberta and Saskatchewan regions, and that number was between 10 and 12 trains pre-COVID. So we're still at relatively reduced levels but it is growing. And with the White House sentiment, we are bullish that we're going to start seeing some crude trains coming in from Canada in the short term. Hard to specifically quantify that, but I do think we'll start to see a good uptick. Specifically on your point, the economics I described on the Uinta Basin, yellow wax crude, they're roughly the same for Canadian crude. It's also a very heavy barrel that requires heating when it comes in and tankers and generally requires blending. And so the economics are typically the same. We'd love to see more Canadian crude coming in. We have the capacity to handle it. We've got plenty of storage. We have blending capabilities. So we're eager to see that market pick up.

That's great. Moving on to a different topic, specifically regarding aviation and aerospace services. I understand you have received approval for the first PMA part. Can you share any updates on the timing for the second PMA part? Additionally, do you have many orders for the first two parts combined, and how does your order book look for parts shipping?

Yes, there are several parts in development, and they are all progressing well. We are engaged in an active dialogue with the regulators, and we expect to see various approvals over the next year. While we have conditional orders, they cannot be fulfilled until we receive the necessary approvals. I am confident there is a demand for these parts from us and our engines, as well as from the market.

And our next question comes from Greg Lewis of BTIG.

I just had a question on aviation. Clearly, a couple of factors have driven the ability for the team to start monetizing or selling off some aircraft into the cargo. You mentioned that. It doesn't sound like we're going to see much more of that as the year plays out. But just kind of curious, how should we think about the monetization of those assets and the recycling of that cash here as we look out over the next couple of quarters?

Well, there is potential for more of that. I was just commenting that, in the base numbers, it's not built in. So I think that we are thinking that the cargo market is at a really, really robust demand level, which maybe doesn't last forever. Historically, that's been true. And so we'll probably take more opportunity to monetize some of the cargo aircraft and engines in Q2 and Q3. And then the other potential monetization, as I talked about last quarter, some of the newer airplanes that we acquired on the Avianca deal and some of the other ones with long-term leases can be easily sold to other leasing companies today at very good prices, and we're close to doing a couple of deals where we would sell those at a gain and then retain the engine services contract for the next 7 to 8 years. So from our point of view, it's the ultimate best of all worlds: you acquire something, you sell it again, take all your capital out, and you retain the part of the business that we love, which is servicing the engines. And so that is a model that I think can be replicated. So we believe we can do more of that, and that will allow us to recycle capital and then also build the backlog for our aerospace services products and lock that in. So very excited about that. I think the first couple of deals could happen in the next quarter or 2, and we think we'll be doing more of that. And overall, from a portfolio point of view, we're headed, as we mentioned, towards increasing the percentage of CFM56 product in our portfolio. It's today probably about up from 50% to about 60%. And I would expect, over time, to see that grow even to 70% or 80%, given the significant competitive advantage and the huge market opportunity that we have in that space.

That's great to hear, Joe. Congratulations, Ken, on taking over the Infrastructure side. It's been noted that there is a significant amount of capital available for investment in infrastructure. The company has demonstrated a capability and willingness to collaborate with other investors to expand the business and even engage in asset monetization. I'm curious to know what the current situation looks like. Can you provide any updates on the potential to bring in additional partners for the infrastructure business, either before or after the spin?

Yes. It's a strong environment out there. There is plenty of capital available, but also many assets and infrastructure needs. We are consistently looking for projects. Generally, we tend to partner with strategic players, including some of our customers. This is particularly beneficial for terminal build-outs where we invest in customers to enhance their supply chains. There is a significant opportunity in the market. In the rail sector, we are currently considering three or four different acquisitions. While these may not require partnerships, we do see the potential for joint ventures and partnerships, especially in the ports and terminal area where we are expanding capacity.

And our next question comes from David Zazula of Barclays.

Joe. I guess first one is on used serviceable material. Airlines in general have been really ramping up and placing a premium on capacity and trying to use more aircraft. I guess I'm wondering whether you think that will have a positive or negative effect on the used serviceable material market and your business going forward? It seems like you're counting on some significant ramp going on this year?

Yes, it's a good point. And we've mentioned that there hadn't been a lot of transacting in the used serviceable material market until the shop visits start to really pick up, which they are now. And so we're looking at meaningful growth. I mentioned a $100 million backlog of used serviceable material. And it's one of the reasons I think we're comfortable with the high end of the range for $100 million for aerospace products as that business will start to meaningfully contribute starting in Q2 and for the rest of the year. So the demand is very real. It's actually getting to be harder to find the parts now than it is to sell them. So that's a very good sign. And we have been building inventory. One of the constraints on the new service material is getting the parts repaired because you take them out of an old engine; many of them have to be repaired. The repair shops are short-staffed; they don't have the supply chain constraints. So we have built a fair amount of inventory that we have repaired. So we're actually a pretty attractive partner for many of these airlines and also particularly the maintenance shops. And what we're trying to do with the used serviceable material now is use that as a lever to get more module transactions as well. So in other words, we can decide who to give our valuable used serviceable material to if they, in turn, do more business with us on the module side.

That's helpful. And then just a follow-up for Ken or Scott, maybe. I guess you put out a potential number for increased spot market activity at Repauno. I guess, should we think about that as being kind of proportional run rate as far as how much it flows down to the bottom line? Or is that something that maybe you'd see a higher margin on that incremental activity?

Yes, you're correct. The incremental activity has a higher margin. We presented Phase 1 and Phase 2 in that slide. Phase 1 is currently operational and reflects the total margin while running at about 90% capacity. Phase 2 requires the construction of additional storage in a loop track, which is in progress, and we are finalizing the permitting process. This will take over 12 months to complete, but it demonstrates the additional margin we can expect. The business will have higher margins due to greater scale, resulting in a higher contribution per gallon or barrel once Phase II is implemented. Construction for Phase II is expected to begin in the next month or two, and as mentioned, it will take more than a year to fully implement, but we aimed to communicate its potential benefits clearly. Additionally, we have applied for authorization to issue tax-exempt debt to fund the entire project, which we believe could be very beneficial for Repauno.

And our next question comes from Brian McKenna of JMP Securities.

I know the big focus in the near term is getting the spin completed and deleveraging the business. But for the stand-alone aviation company, how should we think about the capital management strategy longer term given what will be a healthy cash flowing business? And then can you just remind us what are the expected CapEx needs on a recurring go-forward basis for the business?

Yes. We included a slide on the capital structure in the presentation, which I believe is very informative. The spin-off will yield $800 million in capital for aviation or FTAI aviation, reducing the debt to approximately $1.9 billion after the spin. Additionally, we anticipate potential asset sales of $300 million and $200 million from insurance proceeds, which could lower the debt to about $1.2 billion and increase equity to around $1.3 billion. This would result in a nearly 1:1 ratio of debt to total equity and less than 3 times debt to EBITDA, creating a very solid financial profile post-spin. This positions us to be proactive, especially as we expect some market volatility that could present opportunities for us to leverage our resources. We are focused on getting ready to take advantage of these circumstances while the aviation sector is experiencing significant growth and recovery.

Got it. And then just a bigger picture question. Given the geopolitical events that have taken place this year, does it make you rethink at all your global strategy and footprint within aviation? And then can you just remind us how much of the leasing portfolio is tied to the U.S., Europe, and then the rest of the world?

Europe is our largest market, accounting for 60%, while the U.S. represents about 25%. I believe Russia is unique in that there isn’t another country that has managed to do what they did. People generally understand that such a situation is unlikely to occur elsewhere. Therefore, I don’t view it as a significant risk. Although it was a surprise, I anticipate the insurance market will respond and adjust rates accordingly. Nevertheless, I expect leasing of airplanes to continue globally, with the exception of Russia, which will likely remain off-limits for an extended period.

Our next question comes from Josh Sullivan of Benchmark Corporation.

Just as far as follow-up on that financing question, what are your thoughts on the time-in-year approach to the $800 million?

It's Ken. We're very close. I would say it's very well advanced, and it is next few weeks. I think things are pretty well organized, and we should be having that financing all complete and committed literally in a few weeks. Feeling good about it.

Okay. And then just one on aerospace. What's the appetite by airlines for additional sale leasebacks? With air traffic picking up, airlines still having eon capacity here, interest rates moving, your aero parts offerings maturing, a lot of moving parts here, but just curious on the signals you're getting from the sale-leaseback market.

It's good. Airlines all lost money in Q1, but they're very positive despite that. They need capital and capital partners. Leasing now accounts for 60% of the total fleet, and that percentage is increasing. This indicates that airlines are more volatile than people realize. Leasing is a critical part of their business model, and sale leasebacks are definitely being considered. We have engaged with airlines on sale leasebacks while managing their engines, which helps them avoid the complexities of shop visits. This approach reduces their capital needs, which they appreciate, and it benefits us as well. We've successfully converted several airlines to this model since they prefer not to manage shop visits any longer. Our goal is to become the leading aftermarket engine shop provider in the industry, and we believe we have a differentiated model that offers a valuable product to them.

So would those be kind of like power by the hour type relationships?

No, we’re not going to implement a power by the hour model, but there will be a minimum rent. When an engine is due for a major overhaul, we perform an exchange. Typically, under a 10-year or 8-year lease, when a shop visit is required, the airline must manage that visit, source a spare engine, which can take 6 to 9 months and cost around $1 million due to spare acquisition, transportation, and downtime. By offering an exchange, we provide a new engine instead of having them manage the shop visit. They return the used engine to us, eliminating their downtime and saving them money, while we handle the shop visits. Additionally, we collect maintenance reserves throughout the process, which compensates us for maintenance at a lower cost. This solution creates a win-win situation.

And our last question comes from Robert Dodd of Raymond James.

Just back to the aviation and kind of related business spend. I mean, what can you tell us about the expected dividend policy/mix, aviation versus infrastructure going forward? And particularly on the aviation side, I mean how should we think about it beyond just what it's going to be post-spin, but what conceptually could be the driver of whether that increases stays flat, et cetera?

The aviation business is expected to generate significant free cash flow in the future. As I mentioned, we will maintain a strong balance sheet, allowing us to manage capital efficiently and grow our earnings. This creates an ideal situation for increasing dividends, which has been our goal from the start. We have successfully maintained the dividend even during challenging times, and we believe that future prospects will enable us to increase it for the aviation business.

Perfect. As a follow-up, do you have a target return on equity for the aviation sector after the restructuring and balance sheet changes? Prior to the issues in Russia and COVID, the aviation leasing business consistently achieved mid-teens returns on equity. Do you see that level as feasible moving forward with the reduced leverage in the balance sheet, or will previous challenges affect this? What achievable target do you envision for the leasing and combined leasing plus maintenance business?

I think it could be substantially higher than that, into the 20s, even 30s in terms of ROE. So I believe that's very doable.

I would now like to turn the conference back over to Mr. Andreini for closing remarks.

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

This concludes today's conference call. Thank you for participating. You may now disconnect.