Good day, and thank you for standing by. Welcome to the FTAI Aviation Third Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Alan Andreini, Head of Investor Relations. Please go ahead.

Thank you, Marvin. I would like to welcome you all to the FTAI Aviation third quarter 2025 earnings call. Joining me here today are Joe Adams, our Chief Executive Officer; Angela Nam, our Chief Financial Officer; and David Moreno, our Chief Operating Officer. 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 EBITDA. The reconciliation of those measures to the most directly comparable GAAP measures can be found in the earnings supplement. Before I turn the call over to Joe, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements, by their nature, are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding 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. Angela will provide a detailed overview of the numbers. But first, I'd like to highlight a few key updates. First, we passed a significant milestone this month with the successful close on the final round of equity commitments for SCI, which is Strategic Capital Initiative #1. We've had tremendous interest from institutional investors in the partnership throughout the year. And given this high level of demand, we have upsized the total equity capital of the 2025 partnership to $2 billion. FTAI will co-invest up to approximately $380 million including the $152 million we have invested year-to-date for a 19% minority equity interest compared to our original expectation of 20%. With the $500 million increase in equity capital, our new target is now to deploy over $6 billion in capital through the 2025 partnership, up from our previous target of $4 billion and double the original goal of $3 billion we announced in December of last year when we launched SCI. This expanded partnership corresponds to a larger total portfolio size of approximately 375 aircraft with full deployment of capital now anticipated by mid-2026. Today, we now have over 190 aircraft either closed or under LOI commitment and continue to have confidence and visibility from the SCI investments team on sourcing the remaining aircraft through a combination of lessor counterparties and direct sale-leaseback transactions with airlines. The successful $6 billion launch of this partnership creates significant value and positions FTAI for sustained long-term earnings growth. The MRA agreement, which provides fixed price exchanges for all engines in the SCI portfolio establishes a multiyear contractual pipeline of demand for rebuilt engines within our Aerospace Products segment. Additionally, our role as servicer and 19% minority equity investment is expected to generate attractive returns within our Aviation Leasing segment. For our equity partners, SCI represents a compelling opportunity of enhanced returns relative to the traditional leasing business model. Through the MRE or Maintenance Repair Exchange agreement, LPs benefit from higher, more predictable cash flows combined with lower residual risk across a highly diversified lessee pool. For our airline counterparties, engine exchanges also provide clear meaningful value by eliminating the financial and operational risk and burden of managing engine shop visits. With this significant value proposition to all parties, FTAI, our equity LP partners and airlines, we see strong opportunities to launch additional SCI partnerships each year going forward. Turning now to Q3 results. Aerospace Products delivered another strong performance, generating $180 million in adjusted EBITDA at a 35% margin, up approximately 77% year-over-year. This positive momentum underscores the strong and accelerating global demand for prebuilt engines and modules in the CFM56 and V2500 aftermarket. We continue to see adoption of our aerospace products expanding across both new and existing customers, supplemented by our MRE agreement with the SCI. Airline operators and asset owners increasingly recognize FTAI as the most flexible, cost-efficient alternative to traditional shop visits, which are more expensive, more complex and more time-consuming than a simple and cost-effective exchange with FTAI. A recent example of this is Finnair, with whom we announced a multiyear perpetual power program. Through our scale, asset ownership and extensive in-house maintenance capabilities, FTAI's engine exchanges help Finnair manage their maintenance costs, improve reliability and ultimately deliver a better service to their passengers. The trend toward longer-term partnerships like Finnair is increasing, and we expect to announce additional new airline perpetual power programs in the future. Overall, we're confident our differentiated business model and competitive advantage places FTAI to be the long-term leader in engine aftermarket maintenance for these engine types. We're well positioned to achieve our goal of reaching 25% market share in the years ahead. Moving over to production. We refurbished 207 CFM56 modules this quarter between our 3 facilities in Montreal, Miami and Rome, an increase of 13% versus the last quarter, and we remain on track for our goal of producing 750 modules in 2025. In Montreal, our recently established training academy has also already enrolled over 100 trainees who are graduating significantly faster than traditional methods, thanks to our technology-driven approach using virtual reality and AI technology protocols. Combined with our emphasis on specialization and operational efficiencies, these initiatives are delivering measurable improvements in throughput and productivity. We remain confident in the trajectory of substantial production growth ahead as we scale the Montreal facility to capacity. In Rome, our operations continue to develop at an impressive pace. We have successfully integrated FTAI's MRE operations with the facility, and technicians from Rome have conducted extensive training seminars at our Montreal Training Academy to improve skill development and optimize production efficiency. We're also actively investing in upgrading Rome's infrastructure and component repair capability, enabling heavier and more complex module repairs, which will position us to ramp production next year to double our 2025 target. We're also pleased to announce agreement to acquire ATOPS for approximately $15 million, an MRO with extensive CFM56 engine operations, strengthening our presence in Miami. This acquisition will transform our Miami MRE operations by complementing our nearby module and test cell facilities, adding expansion space and adding experienced technical staff to support increased production next year once the integration into our operation is complete. Additionally, the purchase includes an ATOPS facility in Portugal, which will serve as a logistics and field service hub in coordination with our European operations in Rome. We've also made good progress in expanding our component repair capabilities through the launch of a 50-50 joint venture called Prime Engine Accessories with Bauer, Inc. out of Bristol, Connecticut. The Bauer team brings tremendous experience and expertise in accessory test equipment. And together, we're building an industry-leading MRE repair facility for accessory parts. Once operational, which we expect by the end of this year, this facility is expected to deliver up to $75,000 in average savings per shop visit. Our initial $10 million working capital investment will enable us to redirect FTAI volumes to this facility rather than to outside vendors, driving meaningful cost efficiencies and time savings. This investment, like Pacific Aero, which we did last quarter, further differentiates our offering and aids us in both expanding productivity and expanding margins. With a substantial activity in enhancing our facilities and the broader MRE ecosystem, we are now targeting growth in production next year to 1,000 CFM56 modules, an increase of 33% compared to this year's production. We also continue to expect Aerospace Products margins to grow to 40% plus next year as we optimize our parts procurement and repair strategies, including the approval of PMA Part #3, which we continue to expect approval of in the very near term. Next, let's talk about adjusted free cash flow. In the third quarter, we generated $268 million, which includes $88 million from the sale of the final 8 aircraft from the 45 aircraft seed portfolio, which were sold to SCI 1. Year-to-date, we have now generated $638 million in positive free cash flow, positioning us on track to our revised goal of $750 million for all of 2025 prior to our expanded contribution to SCI 1. As FTAI pivots to an asset-light model focused on aerospace products and strategic capital, we continue to expect substantial growth in free cash flow in the years ahead. Our primary use for available cash is to pursue investments in high-impact growth initiatives, and we're seeing today a significant number of these opportunities and possibilities. FTAI's targeted disciplined approach is to identify opportunities complementary to our MRE operations in areas where we can accelerate production, expand margins, and further differentiate our product offerings to customers worldwide. We do expect surplus cash balance above these investment opportunities, and therefore, we are announcing an increase to the dividend this quarter from $0.30 per quarter to $0.35 per share. The dividend of $0.35 per share will be paid on November 19 based on a shareholder record date of November 10. This marks our 42nd dividend as a public company and our 57th consecutive dividend since inception. Additionally, we will also continue to evaluate future opportunities for capital redistribution to shareholders. And finally, we remain confident in our full year 2025 estimates of $1.25 billion to $1.3 billion business segment EBITDA for all of 2025, comprised of Aerospace Products EBITDA ranging from $650 million to $700 million and Aviation Leasing EBITDA of $600 million. Looking ahead to 2026, for Aerospace Products, we're estimating $1 billion in EBITDA for next year, which represents significant further growth versus the $650 million to $700 million this year and approximately $380 million, which we generated just recently in 2024. For Aviation Leasing, we're estimating $525 million in EBITDA in 2026, which is in line with our expected results for 2025, excluding insurance recoveries and gains on sale. Within the Leasing segment, we estimate the growth in servicing fees and our 19% minority equity investment will offset the decline in on-balance sheet leasing revenues from the seed portfolio sold to the SCI as we continue to pivot to an asset-light growth model. Overall, we now anticipate total business segment EBITDA in 2026 of $1.525 billion, up from our original estimate of $1.4 billion. Based on these projections, we expect to generate $1 billion in adjusted free cash flow next year, representing a 33% increase over the $750 million we are targeting in 2025 prior to our expanded contribution to SCI 1. With that, I'll hand it over to Angela to talk through the numbers in more detail.

Thank you, Joe. The key metric for us is adjusted EBITDA. We maintained our strong momentum this quarter with adjusted EBITDA of $297.4 million in Q3 2025, which is up 28% compared to $232 million in Q3 of 2024 and in line with Q2 2025 results after excluding the one-time benefits from insurance recoveries and seed portfolio gains on sale we recorded last quarter. During the third quarter, the $297.4 million EBITDA number was comprised of $180.4 million from our Aerospace Products segment, $134.4 million from our Leasing segment and a negative $17.4 million from Corporate and Other, including intersegment eliminations. As we have predicted, Aerospace EBITDA is now exceeding leasing's EBITDA. Aerospace Products had yet another great quarter with $180.4 million of EBITDA and an overall EBITDA margin of 35%, which is up 9% compared to $164.9 million in Q2 of 2025 and up 77% compared to $101.8 million in Q3 2024. We continue to see accelerated growth in adoption and usage of our aerospace products and remain focused on ramping up production in each of our facilities in Montreal, Miami, and Rome as well as expanding component repair operations at our recent acquisition in California and our new joint venture launched in Connecticut. Turning now to leasing. Leasing continued to deliver strong results, posting approximately $134 million of adjusted EBITDA. For gains on sale, we continue the year with $126.8 million of asset sales proceeds, generating a 7% margin gain of $8.3 million as we closed on the final 8 aircraft of the seed portfolio to SCI 1 and divested several non-core assets, including several Pratt & Whitney 4000 and CF680 engines. Overall, the total 45 aircraft seed portfolio contributed an aggregate gains on sale of $50.1 million to 2025 leasing EBITDA at a margin of 10%. The pure leasing component of the $134 million of EBITDA came in at $122 million for Q3 versus $152 million in Q2 of 2025. But included in the $152 million last quarter was a $24 million settlement related to Russian assets written off in 2022 as well as leasing revenue generated from the seed portfolio, which we have now sold to the SCI. With that, let me turn the call back over to Alan.

Thank you, Angela. Marvin, you may now open the call to Q&A.

Our first question comes from Sheila Kahyaoglu of Jefferies.

Congratulations on upsizing of SCI. It looks like great traction from the investor base and sourcing these aircraft, and I think you have now a 375 aircraft target or the size of United Airlines CFM fleet. So can you maybe walk us through the financial implications of the upsizing, both from a segment EBITDA and free cash flow perspective?

Sure. I think we're increasing the number of aircraft in SCI by 33%, going from 250 to 375. We will likely achieve this faster than we initially anticipated due to the level of investment activity. Our plan has always been to add more SCIs each year, so the main effect is accelerating growth in SCI. We initially projected that the SCI business for FTAI would account for about 20% of the Aerospace products volume, but with this increased pace of SCI fundraising, that figure could rise to 25%. This means we expect 20% to 25% moving forward. Importantly, all engines in these partnerships are fully committed to FTAI Aviation for five to six years, locking in volume and providing us with all necessary information about the engines we have access to. This allows us to plan production efficiently. We can prepare engines in advance, which brings numerous advantages to managing these capital pools. It also enhances our image to airline customers. When we visit an airline and own a significant portion of their fleet as a lessor, we have a greater chance of securing business for other engine products we provide. This creates cross-selling opportunities that will also benefit FTAI. Overall, what we're aiming for is faster market share growth in the MRE business and aerospace products.

Got it. And then maybe, if I could ask one on the ATOPS acquisition, if you could give any color on how that came about, how it adds 150 modules worth of capacity? And similar to Pacific Dynamic, if you could give color on EBITDA contribution as we think about the savings from that?

This is David, and I'll address that, Sheila. Regarding our M&A strategy, there are two main themes emerging. We are making investments to either boost margins or expand our capacity ahead of our production needs. Specifically, ATOPS is focused on the latter, as we are increasing production in advance of our requirements. As Joe mentioned earlier, ATOPS has two facilities, with the primary one located in Medley, Florida, which is conveniently situated near our test cell, creating immediate synergy between the two. This facility has 60 employees and the capacity to process 150 modules, effectively raising our overall production from 1,800 modules to 1,950. The second facility is in Lisbon, Portugal, which currently has a small team that we plan to grow. The aim for this location is to manage our field service, with employees responsible for delivering module exchanges to customers in Europe. We anticipate expanding this facility as we see a lot of local talent available for recruitment. The ATOPS transaction primarily focuses on capacity expansion. Additionally, we have announced the Bauer transaction, which aligns with our strategy to boost margins and pursue vertical integration. This entails establishing a 50-50 joint venture called Prime Engine Accessories, based in Bristol, for engine accessories including fuel pumps, HMUs, actuators, and valves, which manage the flow of air, fuel, and oil between the engine and the aircraft. This acquisition allows us to in-source a repair service that we previously lacked, and we are pleased to partner with Bauer, a top manufacturer of testing and bench equipment. For this investment, we expect to realize approximately $75,000 in savings per shop visit, with plans to handle around 350 engines annually once we ramp up in 2026.

And our next question comes from Kristine Liwag of Morgan Stanley.

I just want to follow up on SCI. I mean you guys are significant buyers of aircraft engine assets now in a time where there still seems to be a shortage of assets out there. Can you talk about the availability of assets that you're able to buy, pricing, expected returns? I mean, ultimately, what were your conversations with investors like? What do they like about SCI? And where are areas of potential concern?

Sure. I’ll start on that. In the market, there are two main sellers of narrow-body current technology aircraft. One group consists of lessors who own about half of the global fleet. Out of roughly 14,000 aircraft, around 7,000 are owned by lessors. As these lessors take delivery of new aircraft, they need to sell off older equipment to maintain their ratings, as rating agencies and investors closely monitor the average age of their portfolio. During COVID, many lessors held onto their assets longer, extending the average life of their portfolio from around 12 years to 14 years. However, there's now pressure to sell older aircraft, which likely results in over 1,000 aircraft sold annually by lessors. We buy from this group, and we have a significant competitive advantage because we can perform engine exchanges, positioning us as an advantageous buyer with substantial capital focused on NGs and CEOs. The second source of deals is airlines. Many airlines have deferred engine maintenance as much as possible during COVID, but now they face upcoming shop visits and are looking for sale leasebacks to avoid immediate capital expenditures and shop visits. Our engine exchange offers them a solution: no downtime, no shop visit, and they can avoid that capital investment. This is an ideal product for them. The industry has noted an increasing focus on heavier shop visits, and since core restoration is the most expensive part of maintenance, there will be more demand for that in the coming years, which aligns perfectly with our expertise in rebuilding. On the investor side, we demonstrate to them that our Maintenance Repair and Exchange model is a more effective approach to engine maintenance. By solving problems and reducing costs, we offer higher returns and lower risk for investors, which is immediately understood. Who in the credit world wouldn’t want higher returns with lower risk? We are seeing a strong positive response to this model. With predictable cash flows, relatively short durations, and an asset-backed structure that is uncorrelated to public markets, our offering fits well into today’s investment environment. We have a fantastic group of investors, and if we deliver the returns we promise, we’ll be able to raise even more capital.

That's super helpful color, Joe. And maybe a follow-up question, it could be for Angela. When we look at your 19% equity portion of SCI, I mean, with the upsized amount, this is a pretty sizable leasing income. How do we think about that portion? Is that going to be reflected in the adjusted EBITDA in the leasing segment? Will this be reported in the other line? I mean, ultimately, what's the treatment of SCI in your financials?

Yes. On that 19% specifically, as you mentioned, yes, so it will show up in our equity pickup line. So you'll see that as the equity income line pick up for the 19% that we own from SCI's leasing returns. But in addition to that, as Joe mentioned, as we are the servicer, we'll also pick up servicing revenue, which is currently in other revenue in the Leasing segment. So that will grow with the asset base also growing. And then we'll also see in our aerospace products business, the engine exchanges that are coming through for all the engines that are coming up for exchanges with the SCI at the fixed price that we've already committed to.

We will include that in adjusted EBITDA. 19% will be included in adjusted EBITDA in Leasing.

Good. Super helpful. And look, sorry, there's just so many things going on. So if I could ask a third question here. Look, I want to take a step back on the module facility. I mean, I think sometimes we kind of gloss over the success you've had in the past few years, but ultimately, you're targeting 750 modules by year-end, and you've already gotten 9% of the market share for CFM56 and V2500. I mean, five years ago, you guys were at 0. And so this has been a fairly astronomical growth and penetration, especially for what was a financing company to really enter into the wrench-turning MRO business. I wanted to ask you, can you share with us some of the secret sauce and how you were able to execute, I mean, fairly seamlessly with this kind of volume that we've never really seen others be able to accomplish?

Thank you. I would like to highlight two key aspects of our strategy. Firstly, our focus has been crucial. Many businesses tend to diversify, mistakenly believing that it reduces risk. However, we made a deliberate choice to concentrate on the CFM56 and, ultimately, the V2500 engines, viewing this as the best opportunity in the industry. This decision to shift away from other engine types has been significant for us. Secondly, attracting and retaining great people is essential. We are fortunate to have a fantastic team across the organization. Ultimately, it revolves around the people. To achieve this, we need to communicate a clear vision that everyone can buy into, and I believe we have succeeded in that. When we engage with customers, their feedback reinforces our approach, as many express a desire to avoid shop visits due to past negative experiences. When we present solutions to their problems, it truly energizes people because they feel they are contributing to something meaningful.

Our next question comes from the line of Josh Sullivan of JonesTrading.

Congratulations on the quarter. Following up on ATOPS, securing $15 million in equity for 150 modules is an impressive deal. How can we understand the potential for module capacity here? If we consider FTAI USA as an example, what are the key factors that affect finding these smaller investments that yield significant increases in module capacity? Is there ample opportunity for these smaller investments, or will we eventually need to make larger investments to achieve substantial growth in module capacity?

No, I think there are a surprising number of what I call empty buildings that once housed businesses which have since left their equipment behind. These buildings are now vacant, and we have the unique opportunity to step in and say that we can deliver engines immediately. Such opportunities do exist, and because there isn't a thriving business operating in these locations right now, we can acquire them at very low costs and utilize them. The main challenge we face is finding the right people. This is why we've emphasized the training facility in Montreal as a significant initiative; we've learned that while we can hire individuals, helping them become productive quickly is more challenging than we'd like. There are even cases where some never become productive. Therefore, our focus has been on improving our efficiency in getting people to contribute effectively. I believe there are plenty of facilities out there for us to discover, as there doesn't appear to be a shortage. We consistently receive offers for deals, so it’s essential to find those that can integrate easily and have a large pool of mechanics available in the vicinity.

Got it. And then I guess similarly, just on the JV of Power, $75,000 cost saving per visit. Is the capability more about improving turnaround times for your customers or margin in-sourcing at FTAI? And I guess, were customers pushing you to add this capability, which might lead to additional new MRE customers? Or is it just a good asset to have in-source to drive margin?

If I had to choose, I would select all of the above. It's truly impressive. The engine is complex in some ways and straightforward in others, but the accessories are very intricate, and the expertise that Bauer possesses is remarkable. They produce all the test equipment commonly used, and we are collaborating with them. Our engineers and their engineers have already exchanged ideas and experiences. We believe this partnership will enhance our capabilities, and we hope to provide value to them as well. This collaboration expands our network with individuals who have specialized knowledge and intellectual property in areas that are costly to address. Each aspect we examine involves high costs and unique expertise. We feel fortunate to have found a strong partner, and the collaboration is beneficial for both sides. We believe it will continue to improve our margins, enhance our team's skills, and reduce turnaround times. When we send an accessory to a third party, we're dependent on them for timely returns to maintain our production. With this new approach, we have greater control over the entire process.

Our next question comes from the line of Giuliano Bologna of Compass Point.

Congratulations on the continued strong performance. For the first question, you mentioned various conferences and noted that we should consider FTAI as being involved in the spread business. Could you elaborate on that, particularly in relation to both weak and strong markets?

Yes. We consider our business to operate in two main areas. One is manufacturing, where we acquire engines, rehabilitate them, and sell them. The other is asset management, where we raise capital to purchase aircraft, which provides committed volume to FTAI aviation. In manufacturing, we buy an engine at market price, rebuild it, adding hours and cycles, and then sell it based on the demand for those hours and cycles. This creates a spread between buying, building, and selling, with the ability to control building costs. Our core business resembles Apple's approach to making an iPhone, where they source components, assemble them, and sell the final product. In a soft market, we can buy engines at a lower price and possibly sell them cheaper, but typically not for long. The market remains strong, with rebuilt engine prices influenced primarily by OEM list prices, as that's the alternative for customers needing to replace hours and cycles. If we were to enter a period with an excess of engines, like what occurred during COVID with some engine types, I would see this as an opportunity to gain market share over a 3- to 6-month window, since the market tends to rebound. This allows us to acquire inventory at reduced prices or expand our capacity, positioning us better for when the market recovers, which we have consistently achieved throughout our careers.

That's very helpful. And I appreciate that. Maybe the next question for Angela. I see the new slide on Slide 39 of the supplement data details the way that the cash flow statement would change and the reporting would change using industrial accounting versus lease accounting. Is the right way to think about it that effectively all of the gains on sale or economics that were flowing through cash spread by investing activities would effectively move into operating cash flow when you change the industrial accounting because of a more streamlined methodology there?

Yes. No, that's the right way to think about it. So as you mentioned, we did include the pro forma cash flow statement on Slide 39 of our supplement. And what you will see is that for 9 months ended 9/30, we would essentially be moving about $722 million in cash proceeds from our sales assets from investing to operating activities. And we've outlined the line items that were specifically changed, but you've hit on them where it would include the gain of assets and the proceeds from asset sales. And starting in third quarter, we have classified all of our inventory purchases going through operating. So you will see a transition of that aligning with our GAAP cash flow statement going forward.

Our next question comes from the line of Hillary Cacanando of Deutsche Bank.

Could you unpack the guidance for 2026? What's the upside driven by new customers, repeat customers, new contacts from Finnair or the acquisition of ATOPS and the launch of JV, et cetera? I'm assuming it's a combination of all of those, but if there's anything that stands out, if you take this kind of a detail.

If we break it down into two parts, it involves volume and margin. On the volume side, the MRE product continues to grow, with production expected to increase by 33% next year. This growth stems from both new and existing customers, with larger orders coming from those we've already established relationships with. Once customers try our product, they realize its effectiveness, leading to repeat business with increased orders for their engines. This is exactly the outcome we anticipated from initial orders. We're also continuing to add new customers; for instance, we mentioned Finnair last quarter, and we're seeing existing customers increase their orders. Regarding margins, we project 40% margins for next year, primarily due to our parts acquisition strategy and repair initiatives. We're expecting imminent approval for the third part related to PMA, and we've also been acquiring used serviceable material. In terms of repairs, we've enhanced our capabilities in Montreal and added Pacific Aerodynamic and Bauer to our operations.

Great. That's really helpful. And then just on Finnair, how should we think about the margin impact or EBITDA contribution from that contract? I mean are they market rate? Or how should we think about that?

Hi Hillary, this is David. Yes, they align with a large program we have with customers. I would say they are mostly in agreement. Regarding the Finnair program, we are covering their entire fleet, which includes 36 engines, and we are prepositioning engines ahead of their shop visits. We provide them with a serviceable engine and then take back the unserviceable one. This arrangement helps the airline save costs, reduce maintenance expenses, and most importantly, increases their flexibility. As Joe mentioned earlier, we are focused on securing large programs with airlines that encompass their entire maintenance, and this is an example of one we have successfully won, with the expectation of others following soon.

Our next question comes from the line of Brian McKenna of Citizens.

Just one more here on SCI. Have you disclosed what FTAI will be earning in terms of management and performance fees for managing the SCI vehicles? I asked this because Leasing assets have declined 30% year-to-date. And that's really just from 1 SCI vehicle that's not even fully deployed yet. So with a couple more vehicles, most or all of these assets will likely move into third-party asset management vehicles that you're managing. Maybe I spend too much time covering alternative asset managers and private credit more broadly, but it would seem like Leasing ultimately turns into an asset management business over time. And if that's the case, you have 2 high multiple earnings streams not 1. So any thoughts here would be appreciated?

Yes, Brian, we are on the same page. This aligns with how we have been repositioning the business. First, the fees are based on market rates. The asset management fee that FTAI earns is tied to total assets, which includes the $6 million. Typically, market rates for that structure are around 1% or higher. The incentive compensation will be in the low double digits, provided that returns surpass a hurdle, but it is significant. We always aim high, having initially considered managing $20 billion at some point. We started with $3 billion and have now reached $6 billion, so it’s not far-fetched that we could achieve that goal. Managing assets through a private capital structure like this partnership is much more advantageous than doing so in a public company. As I mentioned, we operate two businesses: one is a factory that produces engines, and the other is an asset manager that oversees the funding for the aircraft equipped with those engines.

Got it. That's super helpful. And then maybe just a related follow-up. So it's pretty minor, but FTAI's ownership in the first vehicle, SCI vehicle came down to 19% from 20%. I mean if demand remains elevated, and it feels like it's pretty robust here, just given the upsized commitments, et cetera, I mean, is there an opportunity for your ownership or essentially the GP stake to decline to something lower than that? And then essentially, it creates an even more capital-light model. Like I'm just trying to think through that a little bit more moving forward.

Yes, it's possible. We wanted to ensure that there's alignment with our investors. One of the main concerns investors typically have is whether our interests as managers are aligned with theirs. Our equity commitment goes a significant way in addressing this concern. However, as we build a track record and consistently deliver strong results, we can negotiate more flexibility in the future.

And our next question comes from the line of Andre Madrid of BTIG.

This is Ned Morgan asking how we should view the speed at which long-term partnerships will develop in terms of scale. Will future deals be more similar to the major U.S. carrier deal or the Finnair deal? Additionally, can you comment on the margin impact of these partnerships and what that might look like?

We began our first partnership at the start of this year and have either closed or put under letter of intent approximately $3.5 billion. Since next week marks November, our initial expectation was to invest $4 billion in the first year. I believe this amount will increase because we currently have a greater backlog than when we initiated the first partnership. I am quite optimistic about the pace of investment. This is a $300 billion market, and we should be able to deploy that level of capital consistently. The margins from the SCI business are treated similarly to those from other third-party customers in terms of pricing, with the key difference being that it is contracted and fully committed. Therefore, the margins and profitability for the SCI business are comparable to those with other third-party customers. Additionally, we anticipate an improvement in margins to 40% next year and are already observing larger orders from our existing customers. We expect this trend to continue, resulting in more engines being sourced from third-party customers as they realize the benefits of our product.

Our next question comes from the line of Brandon Oglenski of Barclays.

Joe, I guess, can we come back to the $1 billion cash flow outlook for next year? That's pretty impressive just given where this business has been. How much should M&A factor into your outlook for capital deployment looking forward? I think you got asked the question a little bit previously, but do you see like long-term needs for build-out of incremental capacity here?

We expect to keep expanding our capacity, but we're doing it in a cost-effective manner. For example, in our projects in Rome and Miami, we are significantly increasing our capacity with total investments of around $20 million to $30 million. I apologize if that seems smaller, but we are not aiming to invest more capital; our goal is to increase capacity at the best possible price. We will continue this approach. Likewise, in terms of mergers and acquisitions, the deals we've completed have been highly beneficial without requiring substantial investments. When we assess repair activities, we explore all potential avenues, including companies for sale, organic growth in places like Montreal or Rome, and partnerships. We have utilized all these methods to determine the most effective and beneficial way to enter the market. So far, the opportunities we've identified have been very appealing in terms of returns and have not demanded significant capital.

Yes. As mentioned, as you can see, our maintenance CapEx this year is targeted to about $125 million. And going forward, we expect that it will maintain similar levels. And the replacement CapEx, we don't expect that to increase as well. As we've mentioned, most of all of our SCI work that we'll do with the engines are structured as exchanges, where we will give a serviceable engine and get an unserviceable engine back. So the replacement CapEx, we don't expect to be expensive going forward either.

Our next question comes from the line of Ken Herbert of RBC CM.

Joe, maybe to start, can you just provide an update on the V2500 program? I know you'd initially committed to or procured access to, I think, 100 full performance restoration shop visits? How is that going? And where are you on that pipeline?

Yes. We're about halfway through our 5-year deal, and we have completed about two years in terms of volume. It's going very well. This engine requires a more costly performance restoration, as we know, but the demand is very strong due to the ongoing issues with the GTF grounding. There has been significant life extension. Many operators are eager to avoid shop visits, and that's exactly what we have provided. We anticipate this demand will continue, and in the next couple of years, we will discuss an extension or other options, but we will remain focused on this engine.

Okay. That's helpful. And I know the percentage of work that has flown through or the revenues within Aerospace products dedicated to the SCI has bounced around, and I can appreciate timing is a piece of that. But as you think out a couple of years and SCI subsequent versions continue to attract capital how much of the Aerospace Products segment or revenue do you think eventually is SCI related? And how do you view sort of a natural cap on that?

Well, the way you have a natural cap is to continue to grow third-party business because the SCI business will grow, but we're also expanding the third-party business at really a very similar clip. So I expect it to be roughly 20% to 25% of FTAI Aviation's business for the foreseeable future. And the answer is we grow both of them.

This concludes the question-and-answer session. I'll now turn it back to Alan Andreini for closing remarks.

Thank you, Marvin, and thank you all for participating in today's conference call. We look forward to updating you after Q4.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.