FTAI Aviation Ltd. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand FTAI Aviation Ltd. (the “Company,” “we,” “our” or “us”). Our MD&A should be read in conjunction with our unaudited consolidated financial statements and the accompanying notes, and with Part II, Item 1A, “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q. Overview We own, lease and sell aviation equipment. We also develop and manufacture through a joint venture, and repair and sell, through exclusivity arrangements, aftermarket components for aircraft engines. Additionally, we own and lease offshore energy equipment. We target assets that, on a combined basis, generate strong cash flows with potential for earnings growth and asset appreciation. We believe that there is a large number of acquisition opportunities in our markets and that our Manager’s expertise and business and financing relationships, together with our access to capital, will allow us to take advantage of these opportunities. We are externally managed by FIG LLC (the “Manager”), an affiliate of Fortress Investment Group LLC (“Fortress”), which has a dedicated team of experienced professionals focused on the acquisition of transportation assets since 2002. As of September 30, 2023, we had total consolidated assets o f $2.6 billion and total equity of $95.1 million. Impact of Russia’s Invasion of Ukraine Economic sanctions and export controls against Russia and Russia’s aviation industry were imposed due to its invasion of Ukraine during the three months ended March 31, 2022. As a result of the sanctions imposed on Russian airlines, we terminated all lease agreements with Russian airlines. We determined that it is unlikely that we will regain possession of the aircraft and engines that had not yet been recovered from Ukraine and Russia. As a result, during the six months ended June 30, 2022, we recognized an impairment charge totaling $120.0 million, net of maintenance deposits, to write-off the entire carrying value of leasing equipment assets that we did not expect to recover from Ukraine and Russia. As of September 30, 2023, four aircraft were still located in Ukraine and eight aircraft and seventeen engines were still located in Russia. Our lessees are required to provide insurance coverage with respect to leased aircraft and engines, and we are named as insureds under those policies in the event of a total loss of an aircraft or engine. We also purchase insurance which provides us with coverage when our aircraft or engines are not subject to a lease or where a lessee’s policy fails to indemnify us. The insured value of the aircraft and engines that remain in Ukraine and Russia is approximately $243.0 million. We intend to pursue all our claims under these policies. However, the timing and amount of any recoveries under these policies are uncertain. The extent of the impact of Russia’s invasion of Ukraine and the related sanctions on our operational and financial performance, including the ability for us to recover our leasing equipment in the region, will depend on future developments, including the duration of the conflict, sanctions and restrictions imposed by Russian and international governments, all of which remain uncertain. Spin-Off of FTAI Infrastructure Inc. (“FTAI Infrastructure”) On August 1, 2022, we effected a spin-off of our infrastructure business held by FTAI Infrastructure (a wholly-owned subsidiary of the Company) as a distribution of all of the shares owned by the Company of common stock of FTAI Infrastructure to the holders of the Company’s ordinary shares as of July 21, 2022. FTAI Infrastructure is a corporation for U.S. federal income tax purposes and holds, among other things, the Company’s previously held interests in the (i) Jefferson Terminal business, (ii) Repauno business, (iii) Long Ridge investment, and (iv) Transtar business. FTAI Infrastructure retained all related project-level debt of those entities. In connection with the spin-off, FTAI Infrastructure paid a dividend of $730.3 million to the Company. The Company used these proceeds to repay all outstanding borrowings under its 2021 bridge loans, $200.0 million of its 6.50% senior unsecured notes due 2025, and approximately $175.0 million of the outstanding borrowings under its revolving credit facility. Fortress Transportation and Infrastructure Investors LLC (“FTAI LLC”) retained the aviation business and certain other assets, and FTAI LLC’s remaining outstanding corporate indebtedness. In connection with the spin-off, the Company and the Manager assigned the Company’s then-existing management agreement to FTAI Infrastructure, and FTAI Infrastructure and the Manager executed an amended and restated agreement. The Company and certain of its subsidiaries executed a new management agreement with the Manager. The new management agreement has an initial term of six years. The Manager is entitled to a management fee and reimbursement of certain expenses on substantially similar terms as the previous arrangements with the Manager, which were assigned to FTAI Infrastructure. Prior to the Merger described below, our Manager remained entitled to incentive allocations (comprised of income incentive allocation and capital gains incentive allocation) on the same terms as they existed prior to spin-off. Following the Merger, the Company entered into a Services and Profit Sharing Agreement (the “Services and Profit Sharing Agreement”), with a subsidiary of the Company and Fortress Worldwide Transportation and Infrastructure Master GP LLC (“Master GP”), pursuant to which Master GP is entitled to incentive payments on substantially similar terms as the previous arrangements. On November 10, 2022, the Company completed the transactions set forth in the Agreement and Plan of Merger (the “Merger”) between FTAI LLC and FTAI Aviation Ltd. and certain other parties, with FTAI LLC becoming a subsidiary of the company. As a result of the merger, FTAI Aviation Ltd. became a Cayman Islands exempted company. Upon merger completion, FTAI LLC 34 public common shareholders’ shares of the Company were exchanged automatically for shares of FTAI Aviation Ltd. without any further action from the shareholders. Operating Segments The key factors used to identify the reportable segments are the organization and alignment of our internal operations and the nature of our products and services. Our two reportable segments are (i) Aviation Leasing and (ii) Aerospace Products. The Aviation Leasing segment owns and manages aviation assets, including aircraft and aircraft engines, which it leases and sells to customers. The Aerospace Products segment develops and manufactures through a joint venture, and repairs and sells, through exclusivity arrangements, aircraft engines and aftermarket components for aircraft engines. Corporate and Other primarily consists of debt, unallocated corporate general and administrative expenses, shared services costs, and management fees. Additionally, Corporate and Other also includes offshore energy related assets, which consist of vessels and equipment that support offshore oil and gas activities and production which are typically subject to operating leases. Our Manager On May 22, 2023, Fortress and Mubadala Investment Company, through its wholly owned asset management subsidiary Mubadala Capital (“Mubadala”), announced that they have entered into definitive agreements pursuant to which, among other things, certain members of Fortress management and affiliates of Mubadala will acquire 100% of the equity of Fortress that is currently indirectly held by SoftBank Group Corp. (“SoftBank”). After the closing of the transaction, Fortress will continue to operate as an independent investment manager under the Fortress brand, with autonomy over investment processes and decision making, personnel and operations. Results of Operations Adjusted EBITDA (Non-GAAP) The chief operating decision maker (“CODM”) utilizes Adjusted EBITDA as the key performance measure. Adjusted EBITDA is not a financial measure in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). This performance measure provides the CODM with the information necessary to assess operational performance and make resource and allocation decisions. We believe Adjusted EBITDA is a useful metric for investors and analysts for similar purposes of assessing our operational performance. During the third quarter of 2022, the Company updated its measure of segment profit to include the add back of dividends on preferred shares in Adjusted EBITDA. Adjusted EBITDA is defined as net income (loss) attributable to shareholders from continuing operations, adjusted (a) to exclude the impact of provision for (benefit from) income taxes, equity-based compensation expense, acquisition and transaction expenses, losses on the modification or extinguishment of debt and capital lease obligations, changes in fair value of non-hedge derivative instruments, asset impairment charges, incentive allocations, depreciation and amortization expense, dividends on preferred shares and interest expense, (b) to include the impact of our pro-rata share of Adjusted EBITDA from unconsolidated entities and (c) to exclude the impact of equity in earnings (losses) of unconsolidated entities and the non-controlling share of Adjusted EBITDA. 35 Comparison of the three and nine months ended September 30, 2023 and 2022 The following table presents our consolidated results of operations: Three Months Ended September 30, Change Nine Months Ended September 30, Change (in thousands) 2023 2022 2023 2022 Revenues Lease income $ 45,622 $ 50,198 $ (4,576) $ 161,141 $ 129,163 $ 31,978 Maintenance revenue 63,925 35,507 28,418 141,131 112,171 28,960 Asset sales revenue 72,990 85,488 (12,498) 283,167 85,488 197,679 Aerospace products revenue 107,085 53,401 53,684 260,273 94,211 166,062 Other revenue 1,474 5,771 (4,297) 12,447 13,087 (640) Total revenues 291,096 230,365 60,731 858,159 434,120 424,039 Expenses Cost of sales 116,707 95,948 20,759 366,909 120,139 246,770 Operating expenses 33,887 27,393 6,494 81,218 108,197 (26,979) General and administrative 3,015 3,354 (339) 10,270 11,821 (1,551) Acquisition and transaction expenses 4,261 2,848 1,413 10,195 8,340 1,855 Management fees and incentive allocation to affiliate 4,577 4 4,573 13,137 4 13,133 Depreciation and amortization 43,959 34,853 9,106 123,399 115,461 7,938 Asset impairment — 4,495 (4,495) 1,220 128,171 (126,951) Interest expense 40,185 40,171 14 117,976 132,197 (14,221) Total expenses 246,591 209,066 37,525 724,324 624,330 99,994 Other income (expense) Equity in earnings (losses) of unconsolidated entities 46 (358) 404 (1,669) (125) (1,544) Gain on sale of assets, net — — — — 79,933 (79,933) Loss on extinguishment of debt — (19,861) 19,861 — (19,861) 19,861 Other income (expense) 461 (1,038) 1,499 877 208 669 Total other income (expense) 507 (21,257) 21,764 (792) 60,155 (60,947) Income (loss) before income taxes 45,012 42 44,970 133,043 (130,055) 263,098 Provision for income taxes 3,705 4,189 (484) 7,586 7,357 229 Net income (loss) from continued operations 41,307 (4,147) 45,454 125,457 (137,412) 262,869 Net loss from discontinued operations, net of income taxes — (14,782) 14,782 — (101,416) 101,416 Net income (loss) 41,307 (18,929) 60,236 125,457 (238,828) 364,285 Less: Net loss attributable to non-controlling interest in consolidated subsidiaries: Continued operations — — — — — — Discontinued operations — (2,871) 2,871 — (18,817) 18,817 Less: Dividends on preferred shares 8,334 6,791 1,543 23,460 20,373 3,087 Net income (loss) attributable to shareholders from continuing operations $ 32,973 $ (22,849) $ 55,822 $ 101,997 $ (240,384) $ 342,381 36 The following table sets forth a reconciliation of net income (loss) attributable to shareholders from continuing operations to Adjusted EBITDA: Three Months Ended September 30, Change Nine Months Ended September 30, Change (in thousands) 2023 2022 2023 2022 Net income (loss) attributable to shareholders from continuing operations $ 32,973 $ (10,938) $ 43,911 $ 101,997 $ (157,785) $ 259,782 Add: Provision for income taxes 3,705 4,189 (484) 7,586 7,357 229 Add: Equity-based compensation expense 510 — 510 1,128 — 1,128 Add: Acquisition and transaction expenses 4,261 2,848 1,413 10,195 8,340 1,855 Add: Losses on the modification or extinguishment of debt and capital lease obligations — 19,861 (19,861) — 19,861 (19,861) Add: Changes in fair value of non-hedge derivative instruments — — — — — — Add: Asset impairment charges — 4,495 (4,495) 1,220 128,171 (126,951) Add: Incentive allocations 4,274 — 4,274 12,540 — 12,540 Add: Depreciation and amortization expense (1) 59,380 41,329 18,051 157,084 145,754 11,330 Add: Interest expense and dividends on preferred shares 48,519 46,962 1,557 141,436 152,570 (11,134) Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (2) 642 (241) 883 96 165 (69) Less: Equity in (earnings) losses of unconsolidated entities (46) 358 (404) 1,669 125 1,544 Less: Non-controlling share of Adjusted EBITDA — — — — — — Adjusted EBITDA (non-GAAP) $ 154,218 $ 108,863 $ 45,355 $ 434,951 $ 304,558 $ 130,393 ___________________________________________________ ( 1) Includes the following items for the three months ended September 30, 2023 and 2022: (i) depreciation and amortization expense of $43,959 and $34,853, (ii) lease intangible amortization of $3,726 and $3,291 and (iii) amortization for lease incentives of $11,695 and $3,185, respectively. Includes the following items for the nine months ended September 30, 2023 and 2022: (i) depreciation and amortization expense of $123,399 and $115,461, (ii) lease intangible amortization of $11,325 and $10,259 and (iii) amortization for lease incentives of $22,360 and $20,034, respectively. (2) Includes the following items for the three months ended September 30, 2023 and 2022: (i) net income (loss) of $46 and $(358), (ii) depreciation and amortization expense of $367 and $117 and (iii) acquisition and transaction expense of $229 and $0, respectively. Includes the following items for the nine months ended September 30, 2023 and 2022: (i) net loss of $1,669 and $125, (ii) depreciation and amortization expense of $1,202 and $290 and (iii) acquisition and transaction expense of $563 and $0, respectively. Revenues Presentation of assets sales During the third quarter of 2022, we updated our corporate strategy based on the opportunities available in the market such that the sale of aircraft and engines is now an output of our recurring, ordinary activities. As a result of this update, the transaction price allocated to the sale of assets is included in Revenues in the Consolidated Statement of Operations beginning in the third quarter of 2022 and are accounted for in accordance with ASC 606. The corresponding net book values of the assets sold are recorded in Cost of sales in the Consolidated Statement of Operations beginning in the third quarter of 2022. Sales transactions of aircraft and engines prior to the third quarter of 2022 were accounted for in accordance with ASC 610-20, Gains and losses from the derecognition of nonfinancial assets and were included in Gain (loss) on sale of assets, net on the Consolidated Statement of Operations, as we were previously only occasionally selling these assets. Generally, assets sold were included in Leasing equipment, net, on the Consolidated Balance Sheets. Comparison of the three months ended September 30, 2023 and 2022 Total revenues increased $60.7 million primarily due to an increase in Aerospace products revenue and Maintenance revenue, partially offset by a decrease in Asset sales revenue. Aerospace products revenue increased $53.7 million primarily driven by an increase in sales relating to the CFM56-7B and CFM56-5B engines, engine modules, spare parts and used material inventory as operations continued to ramp-up in 2023. Maintenance revenue increased $28.4 million primarily due to the recognition of maintenance deposits due to the early redelivery of four aircraft, an increase in the number of aircraft and engines placed on lease, higher aircraft and engine utilization and higher end-of-lease return compensation. Asset sales revenue decreased $12.5 million primarily due to a decrease in the sale of commercial aircraft and engines. 37 Comparison of the nine months ended September 30, 2023 and 2022 Total revenues increased $424.0 million primarily due to an increase in Asset sales revenue, Aerospace products revenue, Lease income and Maintenance revenue Asset sales reven ue increased $197.7 million primarily due to an increase in the sale of commercial aircraft and engines. See above discussion regarding presentation of asset sales. Aerospace products revenue increased $166.1 million primarily driven by an increase in sales relating to the CFM56-7B and CFM56-5B engines, engine modules, spare parts and used material inventory as operations continued to ramp-up in 2023. Lease income increased $32.0 million primarily due to an increase in the number of aircraft and engines placed on lease and an increase in the Offshore Energy business driven by increased number of days on-hire for one of our vessels. Maintenance revenue increased $29.0 million primarily due to the recognition of maintenance deposits due to the early redelivery of four aircraft, an increase in the number of aircraft and engines placed on lease, higher aircraft and engine utilization and higher end-of-lease return compensation. Comparison of the three months ended September 30, 2023 and 2022 Total expenses increased $37.5 million, primarily due to higher (i) Cost of sales, (ii) Operating expenses and (iii) Depreciation and amortization. Cost of sales increased $20.8 million primarily as a result of an increase in Aerospace product sales, partially offset by a decrease in the sale of commercial aircraft and engines. Operating expenses increased $6.5 million, driven by an increase in commission expenses due to the increase in sales from the used material program and an increase in provision for credit losses, partially offset by a decrease in insurance expense, shipping and storage fees and other operating expenses. Depreciation and amortization increased $9.1 million driven by an increase in the number of assets owned and on lease, partially offset by an increase in the number of aircraft redelivered and parted out into our engine leasing pool. Comparison of the nine months ended September 30, 2023 and 2022 Total expenses increased $100.0 million, primarily due to higher (i) Cost of sales and (ii) Management fees and incentive allocation to affiliate, partially offset by lower (iii) Asset impairment, and (iv) Operating expenses. Cost of sales increased $246.8 million primarily as a result of an increase in asset sales and Aerospace Products sales and the gross presentation of Asset sales revenue and Aerospace products revenue as described above. Management fees and incentive allocation to affiliate increased $13.1 million primarily due to an increase in incentive fee due to the Manager. Asset impairment decreased $127.0 million primarily due to the write down in 2022 of aircraft and engines located in Ukraine and Russia that may not be recoverable. See Note 4 to the consolidated financial statements for additional information. Operating expenses decreased $27.0 million which primarily reflects: • a decrease of $43.5 million in the Aviation Leasing segment primarily as a result of decreases in provision for credit losses and other expenses as a result of the sanctions imposed on Russian airlines in 2022. • an increase of $11.8 million in the Offshore Energy business which reflects increases in offshore crew expenses, project costs and other operating expenses for one of our vessels driven by increased cost of operations based on the operating location of the vessel as well as increased number of days on-hire. • an increase of $4.7 million in the Aerospace Products segment primarily due to an increase in commission expenses due to the increase in sales from the used material program. Other income (expense) Total other expense decreased $21.8 million during the three months ended September 30, 2023 which primarily reflects a Loss on extinguishment of debt of $19.9 million recognized during the three months ended September 30, 2022 related to the pay-down of the 2021 Bridge Loan issued in December 2021 and February 2022 and the partial redemption of the Senior Notes due 2025. Total other income decreased $60.9 million during nine months ended September 30, 2023 which primarily reflects (i) a decrease of $79.9 million in Gain on sale of assets, net in the Aviation Leasing and Aerospace Products segments due to the change in presentation of asset sales as described above and (ii) Loss on extinguishment of debt of $19.9 million recognized during the three months ended September 30, 2022 related to the pay-down of the 2021 Bridge Loan issued in December 2021 and February 2022 and the partial redemption of the Senior Notes due 2025. 38 Net income from continuing operations Net income from continuing operations increased $45.5 million and $262.9 million for the three and nine months ended September 30, 2023, respectively, as compared to prior years primarily due to the changes noted above. Net loss from discontinued operations Net loss from discontinued operations decreased $14.8 million and $101.4 million for the three and nine months ended September 30, 2023, respectively, compared to the prior year as these businesses have spun off and there is no corresponding activity in the current period. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA increased $45.4 million and $130.4 million during the three and nine months ended September 30, 2023, respectively, primarily due to the changes noted above. Aviation Leasing Segment As of September 30, 2023, in our Aviation Leasing segment, we own and manage 351 aviation assets, consisting of 92 commercial aircraft and 259 engines, including four aircraft that were still located in Ukraine and eight aircraft and seventeen engines that were still located in Russia. As of September 30, 2023, 73 of our commercial aircraft and 163 of our engines were leased to operators or other third parties. Aviation assets currently off lease are either undergoing repair and/or maintenance, being prepared to go on lease or held in short term storage awaiting a future lease. Our aviation equipment was approximately 77% utilized during the three months ended September 30, 2023, based on the percent of days on-lease in the quarter weighted by the monthly average equity value of our aviation leasing equipment, excluding airframes. Our aircraft currently have a weighted average remaining lease term of 47 months, and our engines currently on-lease have an average remaining lease term of 14 months. The table below provides additional information on the assets in our Aviation Leasing segment: Aviation Assets Widebody Narrowbody Total Aircraft Assets at January 1, 2023 8 98 106 Purchases — 30 30 Sales (2) (9) (11) Transfers (1) (32) (33) Assets at September 30, 2023 5 87 92 Engines Assets at January 1, 2023 40 184 224 Purchases 4 64 68 Sales (10) (18) (28) Transfers 2 (7) (5) Assets at September 30, 2023 36 223 259 39 The following table presents our results of operations for our Aviation Leasing segment: Three Months Ended September 30, Change Nine Months Ended September 30, Change (in thousands) 2023 2022 2023 2022 Revenues Lease income $ 35,981 $ 40,392 $ (4,411) $ 132,978 $ 111,648 $ 21,330 Maintenance revenue 63,925 35,507 28,418 141,131 112,171 28,960 Asset sales revenue 72,990 85,488 (12,498) 283,167 85,488 197,679 Other revenue 82 3,461 (3,379) 6,773 8,687 (1,914) Total revenues 172,978 164,848 8,130 564,049 317,994 246,055 Expenses Cost of sales 55,398 64,855 (9,457) 217,190 64,855 152,335 Operating expenses 13,944 10,533 3,411 28,610 72,135 (43,525) Acquisition and transaction expenses 2,329 247 2,082 4,960 624 4,336 Depreciation and amortization 41,141 32,728 8,413 114,994 109,147 5,847 Asset impairment — 4,495 (4,495) 1,220 128,171 (126,951) Total expenses 112,812 112,858 (46) 366,974 374,932 (7,958) Other income (expense) Equity in (losses) earnings of unconsolidated entities (108) (45) (63) (242) 753 (995) Gain on sale of assets, net — — — — 61,371 (61,371) Other income 444 42 402 860 245 615 Total other income (expense) 336 (3) 339 618 62,369 (61,751) Income before income taxes 60,502 51,987 8,515 197,693 5,431 192,262 Provision for income taxes 2,332 926 1,406 4,414 2,116 2,298 Net income 58,170 51,061 7,109 193,279 3,315 189,964 Less: Net loss attributable to non-controlling interest in consolidated subsidiaries — — — — — — Net income attributable to shareholders from continuing operations $ 58,170 $ 51,061 $ 7,109 $ 193,279 $ 3,315 $ 189,964 40 The following table sets forth a reconciliation of net income attributable to shareholders from continuing operations to Adjusted EBITDA: Three Months Ended September 30, Change Nine Months Ended September 30, Change (in thousands) 2023 2022 2023 2022 Net income attributable to shareholders from continuing operations $ 58,170 $ 51,061 $ 7,109 $ 193,279 $ 3,315 $ 189,964 Add: Provision for income taxes 2,332 926 1,406 4,414 2,116 2,298 Add: Equity-based compensation expense 105 — 105 232 — 232 Add: Acquisition and transaction expenses 2,329 247 2,082 4,960 624 4,336 Add: Losses on the modification or extinguishment of debt and capital lease obligations — — — — — — Add: Changes in fair value of non-hedge derivative instruments — — — — — — Add: Asset impairment charges — 4,495 (4,495) 1,220 128,171 (126,951) Add: Incentive allocations — — — — — — Add: Depreciation and amortization expense (1) 56,562 39,204 17,358 148,679 139,440 9,239 Add: Interest expense and dividends on preferred shares — — — — — — Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (2) (45) 16 (61) (53) 875 (928) Less: Equity in losses (earnings) of unconsolidated entities 108 45 63 242 (753) 995 Less: Non-controlling share of Adjusted EBITDA — — — — — — Adjusted EBITDA (non-GAAP) $ 119,561 $ 95,994 $ 23,567 $ 352,973 $ 273,788 $ 79,185 ________________________________________________________ (1) Includes the following items for the three months ended September 30, 2023 and 2022: (i) depreciation expense of $41,141 and $32,728, (ii) lease intangible amortization of $3,726 and $3,291 and (iii) amortization for lease incentives of $11,695 and $3,185, respectively. Includes the following items for the nine months ended September 30, 2023 and 2022: (i) depreciation expense of $114,994 and $109,147, (ii) lease intangible amortization of $11,325 and $10,259 and (iii) amortization for lease incentives of $22,360 and $20,034, respectively. (2) Includes the following items for the three months ended September 30, 2023 and 2022: (i) net loss of $108 and $45 and (ii) depreciation and amortization of $63 and $61, respectively. Includes the following items for the nine months ended September 30, 2023 and 2022: (i) net (loss) income of $(242) and $753 and (ii) depreciation and amortization of $189 and $122, respectively. Revenues Comparison of the three months ended September 30, 2023 and 2022 Total revenue increased $8.1 million driven by an increase in Maintenance revenue, partially offset by a decrease in Asset sales revenue, Lease income and Other revenue. • Maintenance revenue increased $28.4 million primarily due to the recognition of maintenance deposits due to the early redelivery of four aircraft, an increase in the number of aircraft and engines placed on lease, higher aircraft and engine utilization and higher end-of-lease return compensation. • Asset sales revenue decreased $12.5 million primarily due to a decrease in the sale of commercial aircraft and engines. • Lease income decreased $4.4 million primarily due to an increase in the number of aircraft and engines redelivered, partially offset by additional aircraft and engines placed on lease. • Other revenue decreased $3.4 million primarily due to lower end-of-lease redelivery compensation. Comparison of the nine months ended September 30, 2023 and 2022 Total revenue increased $246.1 million driven by an increase in Asset sales revenue, Maintenance revenue and Lease income, partially offset by Other revenue. • Asset sales revenue increased $197.7 million primarily due to an increase in the sale of commercial aircraft and e ngines. See above discussion regarding presentation of asset sales. • Lease income increased $21.3 million primarily due to an increase in the number of aircraft and engines placed on lease. • Maintenance revenue increased $29.0 million primarily due to the recognition of maintenance deposits due to the early redelivery of four aircraft, an increase in the number of aircraft and engines placed on lease, higher aircraft and engine utilization and higher end-of-lease return compensation. 41 • Other revenue decreased $1.9 million primarily due to a decrease in end-of-lease redelivery compensation. Expenses Comparison of the three months ended September 30, 2023 and 2022 Total expenses decrea sed $0.1 million primarily driven by a decrease in Cost of sales and Asset impairment, partially offset by an increase in Depreciation and amortization, Operating expenses and Acquisition and transaction expenses. • Cost of sales decreased $9.5 million primarily as a result of a decrease in the sale of commercial aircraft and engines. • Asset impairment decreased $4.5 million primarily due to the adjustment of the carrying value of leasing equipment to fair value in 2022. • Depreciation and amortization expense increased $8.4 million driven by an increase in the number of assets owned and on lease, partially offset by an increase in the number of aircraft redelivered and parted out into our engine leasing pool. • Operating expenses increased $3.4 million driven by an increase in provision for credit losses, partially offset by a decrease in insurance expense, shipping and storage fees and other operating expenses. • Acquisition and transaction expenses increased $2.1 million driven by higher compensation and related costs associated with the acquisition of aviation leasing equipment. Comparison of the nine months ended September 30, 2023 and 2022 Total expenses decreased $8.0 million primarily driven by a decrease in Asset impairment and Operating expenses, partially offset by an increase in Cost of sales. • Asset impairment decreased $127.0 million primarily due to the write down in 2022 of aircraft and engines located in Ukraine and Russia that may not be recoverable. See Note 4 to the consolidated financial statements for additional information. • Operating expenses decreased $43.5 million primarily as a result of decreases in provision for credit losses and other expenses as a result of the sanctions imposed on Russian airlines in 2022. • Cost of sales increased $152.3 million as a result of an increase in assets sales and the gross presentation of Asset sales revenues and related costs of sales as described above. • Depreciation and amortization expense increased $5.8 million driven by an increase in the number of assets owned and on lease, partially offset by an increase in the number of aircraft redelivered and parted out into our engine leasing pool. • Acquisition and transaction expenses increased $4.3 million driven by higher compensation and related costs associated with the acquisition of aviation leasing equipment. Other income (expense) Total other income increased $0.3 million during the three months ended September 30, 2023 primarily due to an increase of $0.4 million in interest income. Total other income decreased $61.8 million during the nine months ended September 30, 2023 primarily due to a decrease of $61.4 million in Gain on sale of assets, net in 2022 due to the change in presentation of asset sales. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA increased $23.6 million and $79.2 million during the three and nine months ended September 30, 2023, respectively, primarily due to the changes noted above. Aerospace Products Segment The Aerospace Products segment develops and manufactures through a joint venture, and repairs and sells, through exclusivity arrangements, aircraft engines and aftermarket components primarily for the CFM56-7B and CFM56-5B commercial aircraft engines. Our engine and module sales are facilitated through The Module Factory, a dedicated commercial maintenance program, designed to focus on modular repair and refurbishment of CFM56-7B and CFM56-5B engines, performed by a third party. Used serviceable material is sold through our exclusive partnership with AAR Corp, who is responsible for the teardown, repair, marketing and sales of spare parts from our CFM56 engine pool. We also hold a 25% interest in the Advanced Engine Repair JV which focuses on developing new cost savings programs for engine repairs and a 50% interest in Quick Turn Engine Center LLC or “Quick Turn” (previously iAero Thrust LLC), a hospital maintenance and testing facility dedicated to the CFM56 engine. 42 The following table presents our results of operations: Three Months Ended September 30, Change Nine Months Ended September 30, Change (in thousands) 2023 2022 2023 2022 Aerospace products revenue $ 107,085 $ 53,401 $ 53,684 $ 260,273 $ 94,211 $ 166,062 Expenses Cost of sales 61,309 31,093 30,216 149,719 55,284 94,435 Operating expenses 5,947 3,491 2,456 12,838 8,094 4,744 Acquisition and transaction expenses 110 15 95 1,137 15 1,122 Depreciation and amortization 115 77 38 298 178 120 Total expenses 67,481 34,676 32,805 163,992 63,571 100,421 Other income (expense) Equity in earnings (losses) of unconsolidated entities 154 (313) 467 (1,427) (878) (549) Gain on sale of assets, net — — — — 18,562 (18,562) Total other income (expense) 154 (313) 467 (1,427) 17,684 (19,111) Income before income taxes 39,758 18,412 21,346 94,854 48,324 46,530 Provision for income taxes 1,131 2,586 (1,455) 2,631 5,055 (2,424) Net income 38,627 15,826 22,801 92,223 43,269 48,954 Less: Net loss attributable to non-controlling interest in consolidated subsidiaries — — — — — — Net income attributable to shareholders from continuing operations $ 38,627 $ 15,826 $ 22,801 $ 92,223 $ 43,269 $ 48,954 43 The following table sets forth a reconciliation of net income attributable to shareholders from continuing operations to Adjusted EBITDA: Three Months Ended September 30, Change Nine Months Ended September 30, Change (in thousands) 2023 2022 2023 2022 Net income attributable to shareholders from continuing operations $ 38,627 $ 15,826 $ 22,801 $ 92,223 $ 43,269 $ 48,954 Add: Provision for income taxes 1,131 2,586 (1,455) 2,631 5,055 (2,424) Add: Equity-based compensation expense 70 — 70 155 — 155 Add: Acquisition and transaction expenses 110 15 95 1,137 15 1,122 Add: Losses on the modification or extinguishment of debt and capital lease obligations — — — — — — Add: Changes in fair value of non-hedge derivative instruments — — — — — — Add: Asset impairment charges — — — — — — Add: Incentive allocations — — — — — — Add: Depreciation and amortization expense 115 77 38 298 178 120 Add: Interest expense and dividends on preferred shares — — — — — — Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (1) 687 (257) 944 149 (710) 859 Less: Equity in (earnings) losses of unconsolidated entities (154) 313 (467) 1,427 878 549 Less: Non-controlling share of Adjusted EBITDA — — — — — — Adjusted EBITDA (non-GAAP) $ 40,586 $ 18,560 $ 22,026 $ 98,020 $ 48,685 $ 49,335 ________________________________________________________ (1) Includes the following items for the three months ended September 30, 2023 and 2022: (i) net income (loss) of $154 and $(313), (ii) depreciation and amortization expense of $304 and $56 and (iii) acquisition and transaction expense of $229 and $0, respectively. Includes the following items for the nine months ended September 30, 2023 and 2022: (i) net losses of $1,427 and $878, (ii) depreciation and amortization expense of $1,013 and $168 and (iii) acquisition and transaction expense of $563 and $0, respectively. Revenues Total Aerospace products revenue increased $53.7 million and $166.1 million during the three and nine months ended September 30, 2023 primarily driven by an increase in sales relating to the CFM56-7B and CFM56-5B engines, engine modules, spare parts and used material inventory as operations continued to ramp-up in 2023. Expenses Total expenses increased $32.8 million primarily due to an increase in Cost of sales and Operating expenses during the three months ended September 30, 2023. • Cost of sales increased $30.2 million as a result of an increase in Aerospace product sales. • Operating expenses increased $2.5 million primarily due to an increase in commission expenses due to the increase in sales from the used material program. Total expenses increased $100.4 million primarily due to an increase in Cost of sales and Operating expenses during the nine months ended September 30, 2023. • Cost of sales increased $94.4 million primarily as a result of an increase in Aerospace products sales and the gross presentation described above. • Operating expenses increased $4.7 million primarily due to an increase in commission expenses due to the increase in sales from the used material program. Other income (expense) Total other income increased $0.5 million primarily due to an increase of in our proportionate share on unconsolidated entities’ net income during the three months ended September 30, 2023. Total other income decreased $19.1 million primarily due to a decrease of $18.6 million in Gain on sale of assets, net and an increase of $0.5 million in our proportionate share of unconsolidated entities’ net loss during the nine months ended September 30, 2023. See above discussion regarding presentation of asset sales. 44 Adjusted EBITDA (Non-GAAP) Adjusted EBITDA increased $22.0 million and $49.3 million during the three and nine months ended September 30, 2023, respectively, primarily due to the changes noted above. Corporate and Other The following table presents our results of operations: Three Months Ended September 30, Change Nine Months Ended September 30, Change (in thousands) 2023 2022 2023 2022 Revenues Lease income $ 9,641 $ 9,806 $ (165) $ 28,163 $ 17,515 $ 10,648 Other revenue 1,392 2,310 (918) 5,674 4,400 1,274 Total revenues 11,033 12,116 (1,083) 33,837 21,915 11,922 Expenses Operating expenses 13,996 13,369 627 39,770 27,968 11,802 General and administrative 3,015 3,354 (339) 10,270 11,821 (1,551) Acquisition and transaction expenses 1,822 2,586 (764) 4,098 7,701 (3,603) Management fees and incentive allocation to affiliate 4,577 4 4,573 13,137 4 13,133 Depreciation and amortization 2,703 2,048 655 8,107 6,136 1,971 Interest expense 40,185 40,171 14 117,976 132,197 (14,221) Total expenses 66,298 61,532 4,766 193,358 185,827 7,531 Other income (expense) Loss on extinguishment of debt — (19,861) 19,861 — (19,861) 19,861 Other income (expense) 17 (1,080) 1,097 17 (37) 54 Total other income (expense) 17 (20,941) 20,958 17 (19,898) 19,915 Loss before income taxes (55,248) (70,357) 15,109 (159,504) (183,810) 24,306 Provision for income taxes 242 677 (435) 541 186 355 Net loss (55,490) (71,034) 15,544 (160,045) (183,996) 23,951 Less: Net loss attributable to non-controlling interest in consolidated subsidiaries — — — — — — Less: Dividends on preferred shares 8,334 6,791 1,543 23,460 20,373 3,087 Net loss attributable to shareholders from continuing operations $ (63,824) $ (77,825) $ 14,001 $ (183,505) $ (204,369) $ 20,864 45 The following table sets forth a reconciliation of net loss attributable to shareholders from continuing operations to Adjusted EBITDA: Three Months Ended September 30, Change Nine Months Ended September 30, Change (in thousands) 2023 2022 2023 2022 Net loss attributable to shareholders from continuing operations $ (63,824) $ (77,825) $ 14,001 $ (183,505) $ (204,369) $ 20,864 Add: Provision for income taxes 242 677 (435) 541 186 355 Add: Equity-based compensation expense 335 — 335 741 — 741 Add: Acquisition and transaction expenses 1,822 2,586 (764) 4,098 7,701 (3,603) Add: Losses on the modification or extinguishment of debt and capital lease obligations — 19,861 (19,861) — 19,861 (19,861) Add: Changes in fair value of non-hedge derivative instruments — — — — — — Add: Asset impairment charges — — — — — — Add: Incentive allocations 4,274 — 4,274 12,540 — 12,540 Add: Depreciation and amortization expense 2,703 2,048 655 8,107 6,136 1,971 Add: Interest expense and dividends on preferred shares 48,519 46,962 1,557 141,436 152,570 (11,134) Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities — — — — — — Less: Equity in (earnings) losses of unconsolidated entities — — — — — — Less: Non-controlling share of Adjusted EBITDA — — — — — — Adjusted EBITDA (non-GAAP) $ (5,929) $ (5,691) $ (238) $ (16,042) $ (17,915) $ 1,873 Revenues Total revenues decreased $1.1 million during the three months ended September 30, 2023 primarily due to a crane repair on one of our vessels. Total revenues increased $11.9 million during the nine months ended September 30, 2023 primarily due to an increase in the Offshore Energy business driven by increased number of days on-hire for one of our vessels. Expenses Comparison of the three months ended September 30, 2023 and 2022 Total expenses increased $4.8 million primarily due to highe r Management fees and incentive allocation to affiliate. • Management fees and incentive allocation to affiliate increased $4.6 million primarily due to an increase in incentive fee due to the Manager. Comparison of the nine months ended September 30, 2023 and 2022 Total expenses increased $7.5 million primarily due to higher Management fees and incentive allocation to affiliate, partially offset by lower Interest expense and Acquisition and transaction expenses. • Management fees and incentive allocation to affiliate increased $13.1 million primarily due to an increase in incentive fee due to the Manager. • Operating expenses increased $11.8 million which reflects increases in offshore crew expenses, project costs and other operating expenses for one of our vessels driven by increased cost of operations based on the operating location of the vessel as well as increased number of days on-hire. • Interest expense decreased $14.2 million, which reflects a decrease in the average outstanding debt of approximately $349.5 million due to decreases in (i) the 2021 Bridge Loans of $237.7 million and (ii) the Senior Notes due 2025 of $155.2 million, which were partially redeemed in August 2022, partially offset by an increase in (iii) the Revolving Credit Facility of $43.8 million. • Acquisition and transaction expense decreased $3.6 million primarily due to lower professional fees related to strategic transactions. 46 Other income (expense) Total other expense decreased $21.0 million and $19.9 million during the three and nine months ended September 30, 2023 which primarily reflects a Loss on extinguishment of debt of $19.9 million recognized during 2022 related to the pay-down of the 2021 Bridge Loan issued in December 2021 and February 2022 and the partial redemption of the Senior Notes due 2025. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA decreased $0.2 million and increased $1.9 million during the three and nine months ended September 30, 2023, respectively, primarily due to the changes noted above. Liquidity and Capital Resources We believe we have sufficient liquidity to satisfy our cash needs, however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times. This includes limiting discretionary spending across the organization and re-prioritizing our investments amid market volatility. Our principal uses of liquidity have been and continue to be (i) acquisitions of aircraft and engines, (ii) dividends to our ordinary and preferred shareholders, (iii) expenses associated with our operating activities, and (iv) debt service obligations associated with our investments. • Cash used for the purpose of making investments was $562.8 million and $545.7 million during the nine months ended September 30, 2023 and 2022, respectively. • Dividends to shareholders and holders of eligible participating securities were $113.2 million and $119.0 million during the nine months ended September 30, 2023 and 2022, respectively. • Uses of liquidity associated with our operating expenses are captured on a net basis in our cash flows from operating activities. Uses of liquidity associated with our debt obligations are captured in our cash flows from financing activities. Our principal sources of liquidity to fund these uses have been and continue to be (i) revenues from our aviation assets (including finance lease collections and maintenance reserve collections) net of operating expenses, (ii) proceeds from borrowings or the issuance of securities and (iii) proceeds from asset sales. • Cash flows provided by operating activities, plus the principal collections on finance leases and maintenance reserve collectio ns were $143.1 million and $18.5 million during the nine months ended September 30, 2023 and 2022, respectively. • During the nine months ended September 30, 2023, additional borrowings and total principal repayments in connection with the Revolving Credit Facility were $430.0 million and $330.0 million, respectively. During the nine months ended September 30, 2022, additional borrowings were obtained in connection with the (i) 2021 Bridge Loans of $239.5 million (ii) Revolving Credit Facility of $255.0 million and (iii) EB-5 Loan Agreement of $9.5 million. We made total principal repayments of (i) $444.5 million relating to the Revolving Credit Facility, (ii) $340.0 million related to the 2021 Bridge Loans and (iii) $200.0 million related to the Senior Notes due 2025. • Proceeds from the sale of assets were $366.1 million and $267.4 million d uring the nine months ended September 30, 2023 and 2022, respectively. • Proceeds from the issuance of preferred shares, net of underwriter’s discount and issuance costs were $61.7 million and $0.0 million during the nine months ended September 30, 2023 and 2022, respectively. We are currently evaluating several potential transactions and related financings, including, but not limited to, certain additional debt and equity financings, which could occur within the next 12 months. None of these potential transactions, negotiations, or financings are definitive or included within our planned liquidity needs. We cannot assure if or when any such transaction will be consummated or the terms of any such transaction or related financing. 47 Historical Cash Flow Comparison of the nine months ended September 30, 2023 and 2022 The following table compares the historical cash flow from continuing and discontinued operations for the nine months ended September 30, 2023 and 2022: Nine Months Ended September 30, (in thousands) 2023 2022 Cash Flow Data: Net cash provided by (used in) operating activities $ 116,766 $ (21,299) Net cash used in investing activities (191,092) (268,367) Net cash provided by (used in) financing activities 74,140 (77,653) Net cash provided by operating activities increased $138.1 million, which primarily reflects (i) an increase in Net income of $364.3 million and (ii) Changes in working capital of $63.9 million, partially offset by certain adjustments to reconcile net income to Cash provided by operating activities including, (iii) Asset impairment of $127.0 million, (iv) Provision for credit losses of $40.6 million, (v) Equity in losses of unconsolidated entities of $45.1 million, (vi) Depreciation and amortization of $32.4 million, (vii) Loss on extinguishment of debt of $19.9 million, and (viii) amortization of deferred financing costs of $10.7 million. Net cash used in investing activities decreased $77.3 million, primarily due to (i) a decrease in Acquisitions of property, plant and equipment of $134.8 million, (ii) higher Proceeds from the sale of leasing equipment of $104.0 million and partially offset by (iii) an increase in Acquisitions of leasing equipment of $146.3 million and (iv) an increase in Investment in unconsolidated entities of $12.2 million. Net cash provided by financing activities increased $151.8 million, primarily due to (i) an decrease in Repayments of debt of $654.5 million partially offset by (ii) a decrease in Dividend from spin-off of FTAI Infrastructure, net of cash transferred of $500.6 million. We also have current availability for borrowing of up to $50.0 million. Cash Flow of Discontinued Operations The cash flows related to discontinued operations have not been segregated and are included in the Consolidated Statements of Cash Flows for all periods presented. The absence of cash flows from discontinued operations is not expected to adversely affect our liquidity or our ability to fund capital expenditures or working capital needs. The discontinued operations historically generated negative operating and investing cash flows. Contractual Obligations Our material cash requirements include the following contractual and other obligations: Debt Obligations — As of September 30, 2023, we had outstanding principal and interest payment obligations of $2.3 billion and $0.5 billion, respectively, of which only interest payments of $164.2 million are due in the next twelve months. See Note 7 to the consolidated financial statements for additional information about our debt obligations. Lease Obligations —As of September 30, 2023, we had outstanding operating and finance lease obligations of $2.3 million, of which $0.9 million is due in the next twelve months. Other Cash Requirements —In addition to our contractual obligations, we pay quarterly cash dividends on our ordinary shares and preferred shares, which are subject to change at the discretion of our Board of Directors. During the last twelve months, we declared cash dividends of $119.7 million and $30.3 million on our ordinary shares and preferred shares, respectively. We expect to meet our future short-term liquidity requirements through cash on hand, unused borrowing capacity or future financings and net cash provided by our current operations. We expect that our operating subsidiaries will generate sufficient cash flow to cover operating expenses and the payment of principal and interest on our indebtedness as they become due. We may elect to meet certain long-term liquidity requirements or to continue to pursue strategic opportunities through utilizing cash on hand, cash generated from our current operations and the issuance of securities in the future. Management believes adequate capital and borrowings are available from various sources to fund our commitments to the extent required. Critical Accounting Estimates and Policies There were no material changes to our critical accounting estimates described in our Annual Report on Form 10-K for the year ended December 31, 2022. Recent Accounting Pronouncements See Note 2 to our Consolidated Financial Statements for recent accounting pronouncements. 48