Good afternoon, and welcome to Standard Aero's second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the form of presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. I would now like to turn the call over to Rama Bandhata, Senior Vice President of Invested Relations. Please proceed.

Thank you, and good afternoon, everyone. Welcome to Standard Aero's second quarter 2026 earnings call. I'm joined today by Russell Ford, our Chairman and Chief Executive Officer, Dan Satterfield, our Chief Financial Officer, and Alex Trapp, our Chief Strategy Officer. Alongside today's call, you can find our earnings release as well as the accompanying presentation on our website at IRstandardAero.com. An audio replay of this call will also be made available, which you can access on our website or by phone. The phone number for the audio replay is included in the press release announcing this call. Before we begin, as always, I would like to remind everyone that today's earnings release and statements made during this call include forward-looking statements under federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factors set forth in the earnings release and in our filings with the Securities and Exchange Commission, including in the risk factors section of our annual report on Form 10-K for the year ended December 31, 2025. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Additionally, during today's call, we will discuss certain non-GAAP financial measures, such as adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share, free cash flow, adjusted free cash flow, and net debt to adjusted EBITDA leverage ratio. In definition and reconciliation of these measures, the most directly comparable GAAP measures can be found in our earnings release and in the appendix to the earnings slide presentation on our website at irstandardaro.com. Non-GAAP financial measures should be considered in addition to and not as a substitute for GAAP measures. And with that out of the way, I would now like to turn the call over to Russ.

Thank you, Rama, and thank you to everyone for joining our call today. I'll begin on slide three of our earnings presentation. Standard Aero delivered a strong second quarter marked by double-digit earnings growth, record margins, significant progress on our strategic priorities and continued strength in customer demand. Revenue was up 4.6% year-over-year. Adjusted EBITDA grew 12.3% year-over-year to $230 million. Adjusted EBITDA margin expanded 100 basis points to a record level of 14.4%, and free cash flow was an inflow of $50 million in the quarter. These results mark the earnings and margin inflection we outlined last quarter and demonstrate the operating leverage embedded in our business. Three things drove the quarter. First, continued strong demand, productivity improvements, and pricing across our commercial aerospace and business aviation platforms. Second, learning curve progress on our LEAP and CFN 56 DFW programs, which reached profitability in the quarter. And third, the margin uplift from the previously announced elimination of low to no margin material pass-through revenue on the contracts we restructured last year. Partially offsetting those was mixed from delays on certain military platforms. Let's move now to each of our end markets. Commercial aerospace revenue grew 6% year-over-year. Excluding the impact of the elimination of pass-through revenue, commercial aerospace growth would have been mid-teens year-over-year growth. Demand remains at historically strong levels across the platforms we support, and we have not experienced any reduction in demand from higher jet fuel prices. MRO capacity across the industry remains tight, and our commercial backlog continued to grow in the quarter. Business aviation revenue increased 6% year over year, supported by continued strong activity on our key midsize and super midsize platforms. Global business jet flight activity was up, and fleet utilization continues to translate into engine MRO demand at our facilities. The growth in the commercial and business aviation end markets was partially offset by military and helicopter, where revenue declined 3 percent due to input delays on select military platforms. That said, we remain confident in the long-term military demand outlook. Operating tempo and flight hours are up, defense budgets in the U.S. and across our NATO customers continue to grow, and MRO capacity remains constrained. We are seeing that in our order book. Helicopter volumes are running well ahead of last year, and our volumes on fighter and transport platforms are ramping into the second half. We remain confident in our full-year military growth outlook, and as Dan will cover, our full-year guidance continues to expect military and helicopter growth in the low double digits, with growth weighted to the back half of the year. Before getting into the strategic updates, I want to provide a brief word on the broader environment. Jet fuel prices remain elevated, and the geopolitical backdrop remains complex. To date, we have not seen a reduction in demand as a result. We track shop visit bookings, inductions, part orders, and asset trading activity closely, and all of them remain consistent with the strength we enter the year. We think that there are structural reasons for this. The MRO market remains constrained, aircraft retirements remain very low, and our customers are reluctant to give up induction slots that are difficult to get back. We're positioned on the most fuel-efficient engine platforms, and nearly 40% of our business sits in in-markets that are not sensitive to jet fuel prices. We will continue to monitor the environment closely, and we remain confident in the resilience of our portfolio and our position in engine MRO. Turning to slide four and our strategic priorities. Our priorities remain unchanged, and we made meaningful progress across each of them in the quarter. Starting with LEAF, we achieved profitability in the second quarter while continuing to ramp the program and win new awards. This is an important milestone. It is evidence we're moving down the learning curve, improving throughput, expanding repair capabilities, and scaling the program as promised. We continue to expect LEAP to reach $1 billion in annual revenue by the end of the decade and several billion in annual revenue by the middle of the next decade. We also added new customers in the quarter, and our shop visit slots continue to fill out into the next decade. On CFM56 and CF34, demand on both platforms remains strong. Our CFM56 Center of Excellence in Dallas-Fort Worth reached profitability in the quarter, also as promised, and we continue to add new customers and are growing its backlog. On CF34, our Winnipeg expansion remains on track for completion in the third quarter of this year. This additional capacity is effectively sold out and further solidifies our leadership in the CF34 market. We expect the expansion to begin to scale throughout 2027. While on the topic of growth, we have an exciting update for you. We recently signed a significant $180 million license expansion with one of our key OEM partners, spanning multiple turbofan and turboprop platforms. This agreement broadens our authorizations, adds new engine variants at several of our locations, improves economics on existing work, and adds component repair authorizations that benefit both of our segments. In total, we expect it to ramp to approximately $25 million of incremental annual adjusted EBITDA over the next few years at margins that are accretive to the company average. This is exactly the type of investment we like. Strategically aligned, high return, and concentrated on platforms where we already have deep technical capability and a leading position. Dan will take you through more details on the license expansion in a few minutes. In component repair services, commercial aerospace, as well as land and marine volumes are both growing. We continue to industrialize new repairs across the portfolio, and we are migrating work across our network to further expand throughput capacity and capture the strong demand environment. Continuous improvement remains a core focus of how we operate. We remain dedicated to improving shop-level productivity, standardizing best practices, reducing variability, and ensuring our pricing reflects the value we deliver in a capacity-constrained aftermarket environment. On capital deployment, we were active again during the quarter. In addition to the expanded license agreement, we also completed the acquisition of the Unified Turbines Component Repair business, which we announced in May. Unified is a targeted strategic addition to CRS as it enhances our hot section repair capabilities on engines we already support and advances our insourcing strategy across both segments. Importantly, the license expansion increases the strategic and financial benefits of the Unified Turbine's acquisition. Integration is underway and progressing as planned. Finally, we continue to return capital to shareholders, repurchasing $40 million of shares in the second quarter, bringing our year-to-date repurchases to $100 million. We view share repurchases as a valuable tool within our broader capital allocation framework, particularly when our shares trade meaningfully below our assessment of intrinsic value. Overall, we're pleased with the operational progress made in the first half of 2026 and excited by the investments we've made for future growth and shareholder value creation. We're executing on our priorities. Our growth platforms are progressing. Our balance sheet remains strong, and we continue to see robust demand environments across the markets we serve. As a result, we are raising our 2026 guidance for revenue, adjusted EBITDA, and adjusted EPS. With that, I'll turn the call over to Dan to walk through the financial results and our increased guidance in more detail. Thank you, Russ.

I will begin on slide five with highlights from our second quarter results. For the second quarter ended June 30, 2026, we generated revenue of $1.6 billion, an increase of 4.6% compared to the prior year period. Continued strength in commercial aerospace and business aviation was partially offset by lower activity on select military platforms. The results reflect the previously announced elimination of $300 to $400 million of low-to-no-margin material pass-through revenue in 2026. Excluding the impact of the eliminated material pass-through, the commercial aerospace and market grew mid-teens year-over-year. Adjusted EBITDA increased to $230 million, up 12.3% year-over-year, and adjusted EBITDA margin expanded to a record 14.4%, an increase of 100 basis points compared to the prior year period. The improvement was driven by higher volumes, pricing, and productivity, together with a margin accretion from the pass-through revenue elimination. Net income was $97 million, representing 43.7% growth year-over-year, driven by higher operating earnings, lower interest expense, and a lower tax rate. Adjusted EPS was $0.40, up 24% year-over-year, reflecting higher earnings and a lower share count from our share repurchase activity. Pre-cash flow was an inflow of $50 million in the quarter, which I will come back to shortly. Now moving to our segment, starting with engine services on slide 6. Engine services revenue increased 4.0% year-over-year to $1.405 billion, with growth across our three major end markets. As noted, reported revenue growth was impacted by the elimination of low-to-no-margin material pass-through revenues. In other words, the underlying demand across the segment was meaningfully stronger than the headline rate suggests. Engine services segment-adjusted EBITDA increased 14.4% year-over-year to $204 million, and segment-adjusted EBITDA margin expanded 130 basis points to 14.5%. There were three main drivers of this growth and margin expansion. First, volume, productivity improvements, and pricing. Second, coming down the learning curve on our LEAP and CFM P26 DFW programs, both of which reached profitability in the quarter, and third, the margin accretion from the elimination of low-to-no-margin material pass-through revenue. Turning to the component repair services segment on slide seven, component repair services revenue increased 9.2% year-over-year to $195 million. Growth was tied to strong commercial aerospace growth on platforms such as the CFM56, GTF, and CF34, as well as continued growth in our aeroderivative platforms in the land and marine power generation market. Partially offsetting these tailwinds were lower revenues on certain military platforms due to timing, which had a greater effect on CRS van engine services. Whereas segment-adjusted EBITDA was $51 million, down 0.9% year-over-year, as segment-adjusted EBITDA margin was 26.3%, down 270 basis points. The decline in margin was driven by three main items. One, our continued migration of component repair work to the back shop of existing facilities to keep up with strong commercial and market demand. 2. Temporary inefficiency resulting from ramping new employees at existing CRS facilities and 3. Negative mix from input delays on select military platforms. We expect margin pressure from the work migration and labor ramp to dissipate in the second half of this year. The CRS margin pressure was timing-related and does not reflect a change in the underlying earnings profile of the segment. The commercial and land and marine demand backdrop remains strong. New repair development continues at a strong pace, and unified turbines adds capability on engines we already serve. We are reiterating our full-year CRS revenue and adjusted EBITDA guidance, which implies a return to our expected high 20% margin profile in the second half. Now moving to slide eight, free cash flow. pre-cash flow was a positive 50 million dollars in the second quarter a meaningful improvement both sequentially and year-over-year working capital was at 56 million dollars use of cash and we had seven million dollars of major growth capex in the quarter with the winnipeg expansion the largest component of that capex as the elite and cfm 56 dallas fort worth capex and startup costs are winding down despite a continued tight supply chain environment we have made significant progress with our supply chain initiatives, particularly in materials management. These initiatives helped drive a strong positive free cash flow in the second quarter, a period that has seasonably been a use of cash. We will continue to execute on these supply chain initiatives, but given that the industry's supply chain dynamics remain fluid, we think it is prudent at the midpoint of the year to maintain our 2026 adjusted free cash flow guidance of $270 million to $300 million. As a reminder, our businesses typically generate a greater portion of cash flow in the second half of the year, and we expect 2026 to follow that pattern. Turning to slide nine, our balance sheet and liquidity. We ended the quarter with net debt to adjusted EBITDA of 2.6 times, down from 3.0 times a year ago. The year-over-year improvement was driven by adjusted EBITDA growth and cash flow improvement. We remain comfortably within our long-term target range of two to three times with meaningful balance sheet flexibility, and we receive ratings upgrades from both Moody's and S&P during the quarter to BA2 and BBB, respectively. In upgrading our ratings, Moody's and S&P cited our strategic expansion investments, stable margins, consistent revenue and earnings growth, diversified global and market exposure, and an expanding positive cash flow. Our capital deployment framework remains centered on five primary avenues. First, investments in new engine platforms such as LEAP. Second, organic capacity expansion in existing platforms such as CFM56 in DFW, CF34 in Winnipeg, and HTF7000 in Augusta. Third, license expansions such as the CF34 expansion in 2024 and the license expansion we are announcing today. Fourth, M&A, such as the unified turbines acquisition that we closed in Q2. And fifth, share repurchases, as evidenced by the $100 million we have repurchased year-to-date, including $40 million repurchased in the second quarter. Across all five of these capital deployment avenues, we applied a disciplined return framework with expected IRR, ROIC over time, cash generation, and strategic fit serving as key inputs in our decision-making. Although leverage is now well within our target range and with clear visibility and confidence in our ability to deliver sustained double-digit adjusted EBITDA growth, we will remain disciplined allocators of shareholder capital. focused on maximizing long-term value and delivering attractive returns. Before getting to the guidance update, let me spend a moment discussing the expanded license investment. The agreement is expected to generate $25 million in incremental annual adjusted EBITDA at full run rate and at margins accretive to the company average. We expect the license to add $10 million of adjusted EBITDA in 2027, $20 million in 2028, and $25 million annually in 2029 and beyond. About 80% of the incremental adjusted EBITDA will be recognized in engine services. Now turning to our updated 2026 guidance on slide 10. We are raising full-year revenue guidance by $50 million to a range of $6.375 billion to $6.5 billion, with this increase reflected in our updated revenue guidance for the engine services segment. From an end market perspective, we continue to expect commercial aerospace growth in the low double digits to mid-teens range once you normalize for the pass-through material revenue that was eliminated. We expect business aviation growth in the high single-digit to low double-digit range, and military and helicopters growth in the low double-digit range, with this growth back half-loaded. We are also raising our adjusted EBITDA guidance to a range of $885 million to $910 million. This reflects our new adjusted EBITDA guidance for the engine services segment of $770 million to $785 million. We are reiterating our component repair services segment revenue and adjusted EBITDA guidance, as well as our corporate expense guidance of approximately $105 million. We are also raising our adjusted EPS guidance to a range of $1.50 to $1.57, which now excludes the tax-adjusted amortization of all intangible assets and improves comparability with our peers. This increase is supported by higher earnings and a lower tax rate and share count. Our guidance now assumes interest expense of $150 million to $160 million, a lower adjusted an effective tax rate of 23.5% to 25.5% and a lower average diluted shares outstanding of approximately $332.5 million. We are now providing adjusted free cash flow guidance of $270 million to $300 million, which for clarity excludes the acquisition cost of new licensed and tangible assets, which we consider more like M&A from a capital deployment perspective. Our CapEx guidance stays at a range of $100 million to $110 million. With that, I'll turn it back over to Russ to wrap up.

Thank you, Dan. Standard Aero delivered a strong second quarter and exited the first half with increasing operating momentum. We generated double-digit adjusted EBITDA growth, achieved record margins, delivered positive free cash flow, and reached profitability on two of our most important growth programs. Our strategic focus areas are seeing meaningful progress and we continue to find attractive opportunities to invest and deploy capital, evidenced by our license expansion agreement, the unified turbines acquisition, and continued share repurchase activity. Demand remains strong. Our growth investments are delivering positive results and our diversified portfolio continues to provide resilience and predictability. With increased visibility into continued double-digit earnings growth, we are confident in our increased outlook for 2026 and our ability to compound long-term shareholder value. This concludes our prepared remarks for today. I look forward to speaking with you again next quarter when Paul McElhaney will join me for his first earnings call as our new CEO. Operator, we're now ready to move to Q&A.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, please, while we poll for questions. And our first question comes from the line of Seth Seifman with J.P. Morgan. Please proceed with your question.

Thanks very much, and good afternoon, everyone. I guess, Russ, I wonder if you could talk a little bit more. You guys mentioned the kind of fluid supply chain environment, and as much as things are improving, when we listened to the GE call, they talked about their delinquencies being up 20%. So I wonder if you could talk a little bit about, you know, the degree to which things are getting more challenging or less challenging for Standard Era. You've cited depth of delay in the past, I believe, as a metric and maybe how things are trending on that basis. And, you know, the path you see to kind of a more normalized throughput environment.

Sure. Thanks, Seth. relative to supply chain, all of our planning and our guidance assumes that there is no recovery in the supply chain from the OEMs. You know, we have the ability to work around any types of supply chain disruptions through our component repair business. We purposefully invested there. So our assumptions and our guidance include what the supply chain is doing right now. Any improvements in the supply chain would be upside for us and, in fact, provides somewhat of a tailwind for our component repair business as the OEMs would begin to take advantage of our technical ability to develop new repairs. So, at this point, we don't see any deterioration, and, you know, we have ways to keep that in check, and that's why our guidance really is not dependent upon any assumptions about improvements in supply chains.

Okay. Okay. Great. Thanks. And then actually that goes into the follow-up question that I had about CRS. At what point do the LEAP and CFM56 and maybe CF34 have to reach a certain scale of activity before we see the internal sales of the CRS business start to really move off of this level of, you know, 20 million bucks or so per quarter, which we've been seeing for a while?

Yeah, I mean, the LEAP and CFM56 are strong revenue drivers for CRS, and it will ramp in concert with the internal ramp. But remember, of course, we're selling those repairs externally as well and doing a good job at it. So that's providing an extra boost.

Great. Thanks. Thanks very much.

Thanks, Seth.

Thank you. Our next question comes from the line of Gavin Parsons with UBS.

Please proceed with your question. hey good afternoon hey gavin russ i think you said you expect leap revenue to reach several billion mid next decade i think that's a new comment could you expand just a little bit on what assumptions underpin that and what you would need from a capacity standpoint to support that yeah good question uh in the past uh what we've said is that the the ramp on leap you know first First of all, the major milestone was in the first half of this year for the program to cross into profitability, which it's done exactly as planned. Next step is between now and the end of the decade, we expect it to reach $1 billion in annual revenue. We see no reason that that number would be any different. And then as you move into the early 2030s, you start to see a shift of the work scopes moving more from lighter work scopes or CTMs towards heavier work scopes, the full-up performance restoration visits. And that's what's going to start to drive the revenue into several million dollars in the early 2030s.

And when you talk about that program becoming margin accretive, is that specific to ES, or does that also contemplate component repair, to Seth's question?

It includes component repair.

Could you quantify the cost of the license expansion? I don't know if I heard that.

Yeah, 180. 180 million U.S. dollars.

Thank you.

Thanks, Gavin.

Thank you. Our next question comes from the line of Miles Walton with Wolf Research. Please proceed with your question.

Thanks. Good evening. Hoping to touch on where Gavin left off with the license agreement. How do we think about how much of that is sort of a renewal aspect of your current-based business and sort of proportional costs associated with that versus sort of paying to get on to new product line expansion?

The thing is really about the expansion is, you know, what's feeding that $25 million, you know, the license agreement opens up new applications and new platforms we haven't serviced before. Some of them are variants of current platforms that we have. And then along with that comes the additional repairs on those same platforms. All of that is included in the license expansion. Some include improved pricing as well. some reduced costs on some items, but it really is about the expansions, those new licenses, new repairs, and improved pricing.

Maybe this is a bigger business model question. How much of your business does it go through where you're having these license expansions, and what's the average duration between renegotiating your current book with a customer and having one of these events?

Hey, Miles. It's Alex. Alex, you know, our license agreements are longer-term type agreements. They're enablers to our doing business in markets. And, you know, we're always kind of working with our partners to find mutually beneficial routes to improving upon those. And so, you know, those happen when we reach agreement on them. But I wouldn't say it's sort of a constant part of doing business.

Okay. And, Dan, just one question on the EPS raise. Is it fair to think that maybe $0.07 of the raise is from the amortization move?

I think most of it really is on the increased earnings. The amortization move is really small, maybe like 5% of it.

Thanks, Miles.

Thank you. Our next question comes from the line of Doug Harned with Bernstein. Please proceed with your question.

Good afternoon. You know, you talked about CapEx and that CFM 56, the DFW work and the LEAP work, that you're coming down on CapEx there, but going up on CF34. Just how in general do you think about CapEx longer term? Is there a certain level that you want to be at because that will always fund growth? or are we coming out of a period here of heightened CapEx and we should expect less longer term?

That's a great question. You know, we've spoken about it before, and it always holds true for the business. Maintenance CapEx will always be about 1%. This year, it will be about 1.3%, right? So that number you can pencil into your models. As we look at the major platform investments, you know, we are coming off, If you compare it to 2024, at least, in 2025, CapEx is significantly lower. 2025, CapEx was $134 million. It'll be, you know, a couple $20 million or so less than that this year. Of course, now we always have great places to deploy capital. And importantly, you know, we've deployed it this quarter to $180 million of the license expansion, right? That's not CapEx, but it's a deployment of capital. So we've got the liquidity to put our assets to use to the best possible returned outcomes. This quarter, we're very proud of the license expansion that we've done. Unless we do another major platform, there's not going to be a lot of CapEx similar to what we did for LEAP. There's a few dollars of CapEx as related to the license expansion, but not significant. We'll disclose that as we go forward. But going forward, you know, our asset allocation strategy remains the same.

You're in a position now with very strong demand out there. And it seems like right now it's more about your ability to increase capacity, increase the work scope. It seems like those are the real drivers of growth. Is there a growth rate when you're looking forward that you're really targeting? In other words, is there sort of a stable growth to this business that you're going to invest to seek? Should we think of something in the mid to high single digits long term?

No, there's – yeah, thanks for the question, Doug. There's not a kind of long-term basic growth rate that you should think about because, remember, Remember, our company is purposefully designed to be able to attack different segments across the aerospace industry. And each one of those segments, they operate on different maintenance cycles because the flight profiles, which create the maintenance cycle, are very different for commercial aircraft than they are for military aircraft or business aviation. So each one of those subsectors will have normal variability, and then you plow all that together, and it would be, you know, we try to keep that natural hedge position as a condition that helps us damp the normal volatility, but there still is volatility because you're mixing three different subsegments that all have very different maintenance requirements. And I'm not sure that, you know, there's a way to completely dampen that to a, you know, a precise growth rate that you should target. There is from time to time surges that occur. You know, for instance, there could be a pop tempo in military if there's some conflict. There could be something to do with a new aircraft or a new engine being introduced. And so from time to time, you'll get surges and spikes in that normal path. But if you look over the last 40 years, one thing is for sure, if you put a regression line through the growth rate, it's going to have a positive slope, right? It doesn't go down. It always goes up, but it just surges.

And Doug, this is Rama. What we say long term is we target double-digit earnings growth. And then so it's a combination of not just top-line growth but also margin expansion. and return opportunities for the company. So that's really kind of how we think long-term is double-digit earnings growth.

I mean, we've demonstrated that, you know, our CAGR over the last 10 to 15 years has been in that range.

Okay, very good.

Thank you. Thanks, Doug.

Thank you. Our next question comes from the line of Sheila Kayogu with Jeffries. Please proceed with your question.

Hi, guys. This is Kai along for Sheila. If I could ask maybe just a shorter-term one related to the CRS segment in the quarter. I know you guys talked about the EBITDA pressure from three things, labor and efficiency, the migration of work, and then material inputs. And, Russ, I think you said you're not really assuming much material improvement in supply chain as you get into the second half. So maybe just the line of sight you have on the material shortage in the quarter, or whether that's something that's already resolved here in the first couple weeks of Q3 or whether that's something you're keeping an eye on?

Yeah, it's really not a material shortage issue for us. It's a demand capture move on our part. The demand is growing, and as a result, the most efficient capacity that you have is capacity that you already own. So before you start, you know, building buildings and doing things like that to capture additional capacity, what you do is you use your available capacity across your entire network. So that's what we've been doing over the last six to nine months is we look at component repair capability beyond just the dedicated CRS facilities that we have in our company. We also have component repair back shops in many of our engine assembly facilities that have available capacity for us to move work, and that way we're able to handle the increasing demand faster. but there are some costs associated with spinning those other sites up in terms of hiring and training people and getting appropriate authorizations to migrate the work from one site to another. So we are consciously doing that in order to capture the demand increase that we see coming our way over the next couple of years.

Okay, thank you. And then just maybe the confidence level in getting all the way up to that low double-digit growth for military in the second half and whether those kind of, you know, the things you just talked about right there, whether that's affecting military within the engine services segment as well.

Yeah, we feel pretty good about military growth in the second half. You know, certainly it got impacted by some select platforms. But in the second half, there are some real great drivers out there, you know, continued strong demand on the F110 platform. We typically don't talk about platforms, but, you know, being, you know, an attack platform, we've got strong indications of growth there. On some of our helicopter programs, we've got improved positions, contractual positions, and new business. And helicopter is really strong business, had a great second quarter, and we expect that to continue to be a good driver next in the second half.

Remember, when there's a conflict, the demand for new aircraft is immediate. The demand for maintenance is a lagged effect because you've got to put the aircraft out there, they've got to collect flying hours, and then the maintenance appears. So the increased op tempo over the last six months, you know, you don't see the maintenance quite yet, But it's a leading indicator for us when we see the increased flying hours on the F-110 engine, which powers the F-16 and the F-15EX, which are both in service. The T-700 engine, which flies on the Black Hawk and the Apache, which are both collecting flying hours, as well as the Chinook. And then the AE-2100 and the 1107 engines, which power the C-130 air transport, as well as the V-22. Those were all aircraft that are seeing increased flight hours to the up-tempo in military. So we have high confidence that those flying hours will create maintenance events that we start to see in the second half of this year and will continue into next year. Understood. Thank you very much. Thanks, Kyle.

Thank you. Our next question comes from the line of Christine Lee Weg with Morgan Stanley. Please proceed with your question.

Hey, good afternoon, everyone. I wanted to follow up a little bit more on the supply chain dynamics. So, you know, GE had said that they were about 20% delinquent in spare parts that they're delivering to the industry. I was wondering, can you connect that kind of information to your inventory management and your ability to source all the parts that you need to service the engines that you have in backlog for the year?

Yeah, great question, Christine. You know, as Russ has said consistently, you know, supply chain issues in the aerospace industry are not new. They're not new for you either with everyone that you've been following. This company has consistently, you know, avoided the temptation to expect an improvement of the supply chain. Okay, then let's go back to, you know, the second step underneath that. You know, supply chain issues for us are really driven by the constrained parts. When we have constrained parts, and, you know, as you know well, those are typically in castings and forgings. You know, good materials management, you know, aligns, you know, your supply chain to the longest lead time item, which are typically those. And, you know, if you look at our cash flow, in particular this quarter, you know, we actually reduce contract assets. Remember what those are. Contract assets are the nearly complete engines that we have on the shop. Those actually reduce because we're a lot smarter about materials management on those constrained parts. Okay, so, you know, generally the constrained parts, you know, continue to be an issue for, you know, the overall aerospace supply chain ecosphere. We know that, and we're managing it well, and we're keeping our guidance estimates, you know, current with that assumption.

That's super helpful.

And also, when you think about working capital in 2027, does that improve working capital as these inventories improve? which isn't yeah we're not we're not guiding to 2027 yet um but you know i i would be surprised if any of us said you know things are going to break loose great super helpful thank you thanks christine thank you our next question comes from the line of david stross with wells fargo please proceed with your question hi good afternoon this is josh corn on for david I wanted to ask, to what extent do you have a further opportunity to eliminate more pass-through revenue?

Yeah, you know, for now, this was a big effort, right? And to get to $300 million, $400 million, by the way, we're on track for that. It was a contract-by-contract effort that we've been going after. There is a larger pool out there still of low-margin pass-through revenue. So, you know, we'll get to it as we can. Right now, this is where I would size it, and, you know, I wouldn't expect it to be a material impact going forward because of the very contractual nature of it.

Okay, thanks. And then I guess to what extent has working capital benefited from lower pass-through so far?

Oh, yeah, it's a benefit for sure. Listen, you know, I'll do this all day. you know, to reduce revenue on behalf of margins and working capital. You know, the biggest advantage we've had in working capital in the quarter has been the materials management, as I mentioned. Okay, thank you. And, you know, really the benefit to the pass-through material on working capital, you'll see primarily next year.

Okay, thank you.

Thanks, Josh.

Thank you.

Our next question comes from the line of Ken Herbert with RBC Capital Markets. please proceed with your question yeah hi good afternoon nice results um maybe this is a question for alex i wanted to just get a sense as to what you're seeing in terms of m&a opportunities how you're thinking about sort of incremental opportunities into the second half of this year with with what seems to be relatively elevated multiples at least uh with what we're hearing in the marketplace again um so you know as always right we have a very robust pipeline i'd say that pipeline, you know, this year has translated into more opportunities that have, you know,

been coming across, be it through, you know, formal processes or informal interactions with sellers. So, you know, everything has looked great this year. You know, we've studied every opportunity that comes across.

And as always, we will be very disciplined with respect to strategic fit and we'll pounce where there is one then maybe just a follow-up question on the supply chain discussion you know yesterday honeywell in particular we're talking about some significant challenges with some of its mechanical uh components and i'm just curious if you've seen any issues with the hdf 7000 in terms of your ability to ramp that program with with getting material?

No, we have not.

Okay.

Perfect. Thanks, Russ. Thanks, Ken.

Thank you. Our next question comes from the line of Andre Madrid with U.S. Bank Corp. BVIG. Please proceed with your question.

Hey, good afternoon. Thanks for taking my question. Sure. So you mentioned that fuel prices are not impacting demand now. That's clear.

But at what point does that stop being the case you know yeah thanks for the question uh andre um first of all remember uh you know about 40 so nearly half of our uh portfolio of engines that we serve as going to applications that are not sensitive to fuel price like military applications uh it's really just a commercial part of the business that may have some sensitivity there but there is a normal progression that commercial airlines go through whenever there's volatility in fuel price. And we've seen major world events that we've tracked over the last 25 years where this has happened several times. And in each case, there's a pattern that's predictable and consistent. And that pattern is that, you know, during the first 12 months, what you begin to see is airlines will pass along these fuel prices via increased ticket prices and then after some time and that's going on you know right now and the flight loadings eventually you know could be impacted by that but the flight loadings are still the average flight loadings are operating in the mid 80 percent which is very high so ticket prices and fuel price jet fuel price pass-through have not really started to impact flight loading. Eventually, if it continues on long enough, the flight loading starts to drop. Then the airlines will move to optimizing some of their flight routes and some of their aircraft, and they'll rotate different aircraft into different flights. That goes on for a number of months, and if it continues beyond that, then they might start thinking about optimizing some of the work scopes for maintenance but we're a long way away from that and typically you know these fuel price increases don't they don't stick around for several years they're they're typically shorter in nature than that and so it never gets to a point of impacting that the maintenance schedule and the reason for that is because airlines they are they're used to this, they're designed to handle this, and there are many levers that they can pull before they get to the lever of adjusting maintenance schedules, because that is the last lever they want to pull, especially in an environment where maintenance capability is constrained. The last thing they want to do is give up a slot that they've contracted four years in advance, because then they might not be able to get it back if something changes. So we are in a very nice position relative to how that process works, and we're, you know, we're a couple of months into this increased jet fuel price scenario, but we still have a long way to go before we would expect to see any of this coming through all the way to the maintenance side of the business.

That makes sense. Thank you for the really thorough response there. I guess, you know, pivoting maybe to LEAP, I guess looking ahead at the one bill in sales by the end of the decade, are you able to share just kind of what the mix of heavy shop visits that's implied to reach that level? And maybe how do you expect the mix of heavy shop visits to kind of trend there on out?

Hey, Andre, this is Rama. We haven't broken out, you know, what the split is going to be on the mix at the end of the decade. But what we have said is that C-TEMs are obviously heavy last year and heavy this year in terms of volumes. But as we go through the decade, you'll start seeing more of that PRSV. And given that these are bigger revenue events, more of the revenue will be generated for the PRSVs. But we haven't explicitly broken out the volume.

One of the reasons we don't want to give guidance on that is this is a brand-new engine platform. If this was an existing platform that had been around for a while, then, you know, we might have a better forward forecast of that before a brand new engine. We don't know about the long-term durability of the engine and when those light work scopes are going to be shifting to heavy work scopes. I mean, we have a range that we're using for planning purposes, but we don't guide on that.

No, I understand. That's helpful, though. Thank you for the background. I'll leave it there.

Thanks, Andre.

Thank you. And we have reached the end of the question and answer session, and I'll hand it back over to management for closing remarks.

Okay, very good. Thanks, everyone. We appreciate your continued interest and support of Standard Era. We have no further comments for this quarter. We'll look forward to speaking with everyone for third quarter. Thanks again.

Thank you. And this concludes today's conference. You may disconnect your lines at this time. We thank you for your participation.