FORTRESS TRSP(FTAIN) - 2025 Q2 - Quarterly Report

FORM 10-Q Cover Page This section presents the cover page details for the Quarterly Report on Form 10-Q Filing Information This section details the company's filing status, reporting period, and outstanding ordinary shares as of July 29, 2025 - FTAI Aviation Ltd. is a large accelerated filer and not a shell company[2][3][4] Filing Information | Metric | Value | | :----- | :---- | | Quarterly Period Ended | June 30, 2025 | | Commission File Number | 001-37386 | | Ordinary Shares Outstanding (July 29, 2025) | 102,570,598 | Forward-Looking Statements and Risk Factors Summary This section outlines forward-looking statements and summarizes key risk factors affecting the company's operations and financial performance Forward-Looking Statements This section clarifies that the report contains forward-looking statements subject to risks and uncertainties - The report contains forward-looking statements based on current beliefs and assumptions, which are subject to risks and uncertainties[6][7] Risk Factors Summary This section summarizes principal risk factors, including economic conditions, operational challenges, and regulatory changes - Key risks include economic conditions, cash flow reductions, acquisition and financing challenges, customer defaults, competition, asset obsolescence, and regulatory changes[7] - Risks related to the Internalization Agreement with FIG LLC and volatility in share price are also highlighted[10] PART I - FINANCIAL INFORMATION This part presents the unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Unaudited Consolidated Financial Statements of FTAI Aviation Ltd. This section provides the unaudited consolidated financial statements and comprehensive notes for FTAI Aviation Ltd Consolidated Balance Sheets The consolidated balance sheets show increased total assets and shareholders' equity, with key changes in cash, inventory, and leasing equipment Consolidated Balance Sheets (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Cash and cash equivalents | $301,911 | $115,116 | +$186,795 | | Inventory, net | $752,866 | $551,156 | +$201,710 | | Leasing equipment, net | $1,849,116 | $2,373,730 | -$524,614 | | Investments | $125,713 | $19,048 | +$106,665 | | Total assets | $4,101,075 | $4,037,952 | +$63,123 | | Total liabilities | $3,936,131 | $3,956,584 | -$20,453 | | Shareholders' equity | $164,944 | $81,368 | +$83,576 | Consolidated Statements of Operations Total revenues and net income significantly increased for the six months ended June 30, 2025, driven by aerospace products and MRE contract revenue Consolidated Statements of Operations (in thousands, except EPS) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $676,237 | $443,594 | $1,178,317 | $770,288 | | Net income (loss) | $165,398 | $(219,870) | $267,784 | $(180,248) | | Diluted EPS | $1.57 | $(2.26) | $2.44 | $(1.96) | - Aerospace products revenue increased by $175.5 million for the three months and $250.9 million for the six months ended June 30, 2025, compared to the prior year[16] - MRE Contract revenue, which was zero in 2024, reached $69.6 million for the three months and $170.2 million for the six months ended June 30, 2025[16] Consolidated Statements of Changes in Equity Total equity significantly increased due to net income, partially offset by dividends and preferred share redemption losses Consolidated Statements of Changes in Equity (in thousands) | Metric | December 31, 2024 | June 30, 2025 | | :-------------------- | :---------------- | :------------ | | Total Equity | $81,368 | $164,944 | | Net income (six months) | N/A | $267,784 | | Dividends declared - ordinary shares (six months) | N/A | $(61,534) | | Dividends declared - preferred shares (six months) | N/A | $(9,824) | | Loss on redemption of preferred shares (six months) | N/A | $(6,327) | Consolidated Statements of Cash Flows Operating cash outflow decreased, investing cash inflow significantly increased, and financing cash shifted to outflow due to asset sales and debt repayments Cash Flow Activity (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(136,284) | $(187,636) | | Net cash provided by (used in) investing activities | $496,148 | $(219,383) | | Net cash (used in) provided by financing activities | $(173,069) | $485,748 | | Net increase in cash and cash equivalents | $186,795 | $78,729 | - Proceeds from sale of assets to the 2025 Partnership contributed $397.1 million to investing activities in 2025, compared to zero in 2024[22] - Redemption of preferred shares amounted to $124.2 million in 2025, impacting financing activities[24] Note 1: Organization FTAI Aviation Ltd. provides full-service aircraft engine solutions through two segments and internalized management in May 2024 - FTAI Aviation Ltd. specializes in CFM56-5B, CFM56-7B, and V2500 aircraft engines, serving small and medium-sized airlines globally[27][29] - The company operates two reportable segments: Aviation Leasing and Aerospace Products[29] - Effective May 28, 2024, FTAI Aviation Ltd. internalized its management functions, terminating the Management Agreement with FIG LLC and Fortress Worldwide Transportation and Infrastructure Master GP LLC[31] Note 2: Summary of Significant Accounting Policies This note details significant accounting policies, including revenue recognition, inventory, credit risk, and assets held for sale - Revenues are recognized under ASC 842 (Leases) and ASC 606 (Revenue from contracts with customers)[40] - The company launched a Strategic Capital Initiative in partnership with third-party institutional investors, forming the 2025 Partnership to acquire 737NG and A320ceo aircraft[47][48] - Sales to this partnership are non-recurring and accounted for under ASC 610-20[47][48] Other Current Assets (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :------------ | :---------------- | | Notes receivable | $182,720 | $165,338 | | Financing receivable from failed sale-leaseback | $39,606 | $32,486 | | Prepaid expenses | $30,605 | $87,323 | | Purchase deposits | $22,120 | $83,229 | | Maintenance right assets | $20,844 | — | | Tax assets | $19,776 | $31,622 | | Contract asset from the 2025 Partnership | $15,184 | — | | Other | $12,370 | $8,925 | | Total Other Current Assets | $343,225 | $408,923 | Assets and Liabilities Held for Sale (in thousands) | Category | June 30, 2025 | | :-------------------------- | :------------ | | Assets held for sale: | | | Leasing equipment, net | $120,773 | | Intangible assets, net | $158 | | Other non-current assets | $917 | | Total Assets held for sale | $121,848 | | Liabilities held for sale: | | | Current maintenance deposits | $19,322 | | Non-current maintenance deposits | $3,456 | | Non-current security deposits | $2,738 | | Other non-current liabilities | $5,367 | | Total Liabilities held for sale | $30,883 | Note 3: Acquisition of Lockheed Martin Commercial Engine Solutions FTAI Aviation acquired LMCES for $170.0 million to enhance MRE business and manufacturing, resulting in $71.04 million goodwill - FTAI Aviation acquired Lockheed Martin Commercial Engine Solutions (LMCES) on September 9, 2024, for $170.0 million[66] - The acquisition enhances the MRE business and establishes permanent engine and module manufacturing capabilities in Canada[66] Allocation of Net Assets Acquired (September 9, 2024, in thousands) | Category | Fair Value | | :-------------------------- | :--------- | | Total assets acquired | $131,510 | | Total liabilities assumed | $28,838 | | Goodwill | $71,040 | | Net assets acquired | $173,712 | Note 4: Leasing Equipment, net Net leasing equipment decreased to $1.85 billion, with depreciation expense totaling $107.1 million for the six months ended June 30, 2025 Leasing Equipment, net (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Leasing equipment | $2,342,123 | $2,963,452 | | Less: Accumulated depreciation | $(493,007) | $(589,722) | | Leasing equipment, net | $1,849,116 | $2,373,730 | Depreciation Expense for Leasing Equipment (in thousands) | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30, | $51,249 | $55,658 | | Six Months Ended June 30, | $107,135 | $104,560 | Note 5: Investments Investments significantly increased to $125.7 million, driven by new partnerships, resulting in $12.6 million equity in losses Ownership Interests and Carrying Values of Investments (in thousands) | Investment | Ownership Percentage | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------------- | :------------ | :---------------- | | Advanced Engine Repair JV | 25% | $19,956 | $19,048 | | 2025 Partnership | 20% | $95,306 | — | | QuickTurn Europe | 50% | $10,451 | — | | Total | | $125,713 | $19,048 | Proportionate Share of Equity in (Losses) Earnings (in thousands) | Investment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Advanced Engine Repair JV | $795 | $(633) | $908 | $(1,154) | | 2025 Partnership | $(5,717) | — | $(13,444) | — | | QuickTurn Europe | $(81) | — | $(81) | — | | Total | $(5,003) | $(694) | $(12,617) | $(1,361) | - The 2025 Partnership investment of $108.8 million focuses on acquiring 737NG and A320ceo aircraft, with FTAI Aviation as the Servicer and a 20% limited partner owner[79] - A $10.5 million investment was made in QuickTurn Europe for a 50% interest to expand global engine maintenance capabilities[80] Note 6: Intangible Assets and Liabilities, net Net intangible assets decreased to $14.4 million due to amortization, with total amortization expense of $5.6 million Intangible Assets and Liabilities, net (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Acquired favorable lease intangibles, net | $13,174 | $40,711 | | Acquired customer relationships, net | $1,275 | $1,494 | | Total intangible assets, net | $14,449 | $42,205 | | Acquired unfavorable lease intangibles, net | $8,438 | $12,508 | Amortization of Intangible Assets and Liabilities (in thousands) | Classification | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Lease intangibles | $2,153 | $3,786 | $5,359 | $7,762 | | Customer relationships | $124 | $95 | $219 | $212 | | Total | $2,277 | $3,881 | $5,578 | $7,974 | Note 7: Debt, net Total debt remained stable at $3.44 billion, primarily Senior Notes, with the company in compliance with all debt covenants Debt, net (in thousands) | Category | June 30, 2025 (Outstanding Borrowings) | December 31, 2024 (Outstanding Borrowings) | | :-------------------- | :------------------------------------- | :----------------------------------------- | | Revolving Credit Facility | $0 | $0 | | Senior Notes due 2028 | $1,001,191 | $1,001,382 | | Senior Notes due 2030 | $497,266 | $497,071 | | Senior Notes due 2031 | $700,000 | $700,000 | | Senior Notes due 2032 | $800,000 | $800,000 | | Senior Notes due 2033 | $497,665 | $497,551 | | Total debt, net | $3,444,612 | $3,440,478 | - The company was in compliance with all debt covenants as of June 30, 2025[85] Note 8: Fair Value Measurements Fair value measurements categorize assets and liabilities, with contingent obligations valued at $11.0 million - Fair value measurements use a hierarchy of Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[87] Fair Values of Bonds Payable (in thousands) | Bond Type | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Senior Notes due 2028 | $995,240 | $980,140 | | Senior Notes due 2030 | $530,645 | $526,380 | | Senior Notes due 2031 | $725,613 | $713,923 | | Senior Notes due 2032 | $826,984 | $816,904 | | Senior Notes due 2033 | $493,790 | $483,100 | - Contingent obligations under ASC 460, Guarantees, are valued at $11.0 million as of June 30, 2025, with a maximum potential undiscounted future payment of $43.0 million[89][90] Note 9: Equity-Based Compensation Equity-based compensation expense significantly increased to $10.4 million due to new performance and restricted share awards Equity-Based Compensation Expense (in thousands) | Award Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Stock Options | $127 | $42 | $254 | $42 | | Performance shares | $3,501 | — | $6,763 | — | | Restricted Shares | $1,887 | $596 | $3,387 | $1,106 | | Total | $5,515 | $638 | $10,404 | $1,148 | - During the six months ended June 30, 2025, performance shares with a grant date fair value of $4.4 million and restricted shares with a grant date fair value of $5.5 million were issued to select officers and employees[96][97] Note 10: Income Taxes Income tax provision significantly increased to $60.7 million due to higher income in taxable jurisdictions Provision for (Benefit from) Income Taxes (in thousands) | Component | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total current provision | $10,762 | $1,238 | $12,938 | $2,262 | | Total deferred provision (benefit) | $27,116 | $(14,271) | $47,799 | $(9,723) | | Total provision for (benefit from) income taxes | $37,878 | $(13,033) | $60,737 | $(7,461) | - The effective tax rate differs from the Cayman Islands statutory rate of 0% due to income being subject to tax in other jurisdictions where the company operates[104] Note 11: Affiliate Transactions and Former Management Agreement The Strategic Capital Initiative generated $170.2 million in MRE Contract revenue, and the Management Agreement was terminated in May 2024 - The 2025 Partnership, part of the Strategic Capital Initiative, committed to acquire 45 on-lease narrowbody aircraft[106] - MRE Contract revenue from sales to the 2025 Partnership was $69.6 million for the three months and $170.2 million for the six months ended June 30, 2025[109] - The Management Agreement with the Former Manager was terminated on May 28, 2024, and the company internalized its management functions[110] Management Fees and Income Incentive Allocation (in thousands) | Category | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | | :----------------------- | :------------------------------- | :----------------------------- | | Management fees | $405 | $992 | | Income incentive allocation | $3,148 | $7,456 | | Total | $3,553 | $8,448 | Note 12: Segment Information The company operates Aviation Leasing and Aerospace Products segments, with Aerospace Products generating higher revenue and net income - The two reportable segments are Aviation Leasing and Aerospace Products, with Corporate and Other including unallocated expenses and offshore energy business results[121][122] Segment Revenues and Net Income Attributable to Shareholders (Six Months Ended June 30, 2025, in thousands) | Segment | Total Revenues | Net Income Attributable to Shareholders | | :----------------- | :------------- | :-------------------------------------- | | Aviation Leasing | $322,979 | $183,457 | | Aerospace Products | $855,334 | $240,225 | | Corporate and Other | $4 | $(160,164) | | Total | $1,178,317 | $251,633 | Geographic Sources of Revenue (Six Months Ended June 30, 2025, in thousands) | Region | Aviation Leasing | Aerospace Products | Corporate and Other | Total Revenues | | :------------- | :--------------- | :----------------- | :------------------ | :------------- | | Africa | $10,794 | $26,482 | $0 | $37,276 | | Asia | $86,352 | $82,286 | $4 | $168,642 | | Europe | $157,301 | $223,316 | $0 | $380,617 | | North America | $49,865 | $505,471 | $0 | $555,336 | | South America | $18,667 | $17,779 | $0 | $36,446 | | Total | $322,979 | $855,334 | $4 | $1,178,317 | - The United States (North America) and Ireland (Europe) represent 33% and 16% of total revenues, respectively, for the six months ended June 30, 2025[130] Note 13: Earnings per Share and Equity Basic and diluted EPS significantly improved to $2.45 and $2.44 respectively, driven by $251.6 million net income Earnings (Loss) per Share (in thousands, except share and per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) attributable to shareholders | $161,689 | $(228,205) | $251,633 | $(196,918) | | Weighted Average Ordinary Shares Outstanding - Basic | 102,558,777 | 100,958,524 | 102,555,644 | 100,602,214 | | Weighted Average Ordinary Shares Outstanding - Diluted | 103,147,860 | 100,958,524 | 103,144,727 | 100,602,214 | | Basic EPS | $1.58 | $(2.26) | $2.45 | $(1.96) | | Diluted EPS | $1.57 | $(2.26) | $2.44 | $(1.96) | Note 14: Commitments and Contingencies The company faces ordinary legal proceedings, with no material adverse effect expected, but a $0.0-$3.3 million potential loss noted - The company is involved in ordinary course legal proceedings, but management does not expect a material adverse effect[138] - A potential loss of $0.0 million to $3.3 million is associated with an unfulfilled charter obligation in the offshore energy business[138] Note 15: Restructuring Charges A $300.0 million restructuring charge was incurred in 2024 for internalization, with no charges in 2025 - A $300.0 million restructuring charge was incurred in 2024 for the internalization and termination of the Management Agreement[140] - The charge was paid with $150.0 million in ordinary shares and the remaining balance in cash[140] - No restructuring charges were recorded for the three and six months ended June 30, 2025[140] Note 16: Subsequent Events Cash dividends of $0.30 per ordinary share and $0.52/$0.59 per preferred share were declared on July 29, 2025 - On July 29, 2025, a cash dividend of $0.30 per ordinary share was declared[141] - Cash dividends of $0.52 per Series C Preferred Share and $0.59 per Series D Preferred Share were also declared[142] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of financial condition, operations, strategic initiatives, and segment performance Overview FTAI Aviation specializes in aircraft engine services, reporting $4.1 billion in assets and $164.9 million in equity - FTAI Aviation specializes in CFM56-5B, CFM56-7B, and V2500 aircraft engines, focusing on proprietary Module Factory repair processes[145][146] Overview | Metric | Value (in billions) | | :------------- | :------------------ | | Total Assets | $4.1 | | Total Equity | $0.1649 | Internalization of Management The company internalized management on May 28, 2024, involving cash, share issuance, and a transition services agreement - The company internalized its management functions on May 28, 2024, ending the Management Agreement[148] - Compensation included a cash payment, 1,866,949 ordinary shares, and purchase of partnership interests[148] - A Transition Services Agreement ensured continued services from the Former Manager until May 31, 2025[149] Impact of Russia's Invasion of Ukraine Sanctions led to a $120.0 million impairment charge, with $210.7 million in assets remaining in Russia and uncertain recovery - Lease agreements with Russian airlines were terminated due to sanctions, leading to a $120.0 million impairment charge in 2022[150] - As of June 30, 2025, eight aircraft and seventeen engines are still located in Russia[150] - The insured value of assets remaining in Russia is $210.7 million, but recovery is uncertain[151] Strategic Capital Initiative The Strategic Capital Initiative, launched in December 2024, aims for an asset-light model through partnerships to acquire aircraft - The Strategic Capital Initiative, launched on December 30, 2024, focuses on acquiring 737NG and A320ceo aircraft through partnerships with third-party institutional investors[153] - This initiative allows the company to maintain an asset-light business model and serve as the primary buyer of on-lease narrowbody aircraft for the partnerships[153] - FTAI Aviation manages the aircraft for the 2025 Partnership as the Servicer, receiving customary, market-based compensation, and also makes minority investments[153][154] Operating Segments The company operates Aviation Leasing and Aerospace Products segments, with a Corporate and Other category for unallocated items - Aviation Leasing segment owns and manages aircraft and engines, leasing and selling them to lessees[155] - Aerospace Products segment develops, manufactures, repairs, and sells aircraft engines and aftermarket components, primarily for CFM56-5B, CFM56-7B, and V2500 engines[155] - Corporate and Other includes debt, unallocated corporate expenses, and results from the offshore energy business (which sold its vessels in Q4 2024)[156] Results of Operations Total revenues, net income, and Adjusted EBITDA significantly increased due to revenue growth and the absence of internalization fees Consolidated Results of Operations (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $676,237 | $443,594 | $1,178,317 | $770,288 | | Total expenses | $465,753 | $606,189 | $816,875 | $839,949 | | Net income (loss) attributable to shareholders | $161,689 | $(228,205) | $251,633 | $(196,918) | | Adjusted EBITDA (non-GAAP) | $347,805 | $213,904 | $616,363 | $378,005 | - Total revenues increased by $232.6 million for the three months and $408.0 million for the six months ended June 30, 2025, compared to the prior year[160] - Net income (loss) attributable to shareholders improved by $389.9 million for the three months and $448.6 million for the six months ended June 30, 2025, compared to the prior year[160] Revenues Total revenues increased significantly, driven by aerospace products and new MRE Contract revenue, partially offset by lower asset sales Revenue Changes (in thousands) | Revenue Category | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (3M) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (6M) | | :----------------------- | :--------------------------- | :--------------------------- | :---------- | :--------------------------- | :--------------------------- | :---------- | | Aerospace products revenue | $420,686 | $245,200 | +$175,486 | $685,111 | $434,257 | +$250,854 | | MRE Contract revenue | $69,585 | — | +$69,585 | $170,223 | — | +$170,223 | | Lease income | $62,439 | $70,754 | -$8,315 | $130,879 | $123,915 | +$6,964 | | Maintenance revenue | $73,104 | $51,187 | +$21,917 | $122,711 | $96,977 | +$25,734 | | Asset sales revenue | $47,915 | $72,433 | -$24,518 | $66,854 | $111,040 | -$44,186 | | Other revenue | $2,508 | $4,020 | -$1,512 | $2,539 | $4,099 | -$1,560 | | Total revenues | $676,237 | $443,594 | +$232,643 | $1,178,317 | $770,288 | +$408,029 | - Aerospace products revenue increased due to higher CFM56-5B, CFM56-7B, and V2500 engine and module sales[164][166] - MRE Contract revenue is a new revenue stream in 2025, primarily from sales to the 2025 Partnership[164][166] Expenses Total expenses decreased due to the absence of the internalization fee, despite increased cost of sales and operating expenses Expense Changes (in thousands) | Expense Category | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (3M) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (6M) | | :--------------------------------------- | :--------------------------- | :--------------------------- | :---------- | :--------------------------- | :--------------------------- | :---------- | | Cost of sales | $369,258 | $205,857 | +$163,401 | $617,972 | $348,661 | +$269,311 | | Operating expenses | $34,328 | $29,099 | +$5,229 | $66,766 | $54,416 | +$12,350 | | Management fees and incentive allocation to affiliate | — | $3,554 | -$3,554 | — | $8,449 | -$8,449 | | Internalization fee to affiliate | — | $300,000 | -$300,000 | — | $300,000 | -$300,000 | | Depreciation and amortization | $55,236 | $56,691 | -$1,455 | $114,798 | $106,611 | +$8,187 | | Total expenses | $465,753 | $606,189 | -$140,436 | $816,875 | $839,949 | -$23,074 | - The $300.0 million decrease in internalization fee to affiliate is a primary driver of the overall expense reduction, as this was a one-time charge in 2024[166] - Cost of sales increased significantly, corresponding to the rise in Aerospace products revenue[166] Other (expense) income Other expense decreased due to gains on asset sales and insurance settlements, partially offset by increased interest expense Other (Expense) Income Changes (in thousands) | Category | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (3M) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (6M) | | :-------------------------------- | :--------------------------- | :--------------------------- | :---------- | :--------------------------- | :--------------------------- | :---------- | | Interest expense | $(63,965) | $(55,196) | -$8,769 | $(126,005) | $(102,903) | -$23,102 | | Equity in losses of unconsolidated entities | $(5,003) | $(694) | -$4,309 | $(12,617) | $(1,361) | -$11,256 | | Loss on extinguishment of debt | — | $(13,920) | +$13,920 | — | $(13,920) | +$13,920 | | Gain on sale to the 2025 Partnership | $34,604 | — | +$34,604 | $45,474 | — | +$45,474 | | Other income (expense) | $27,156 | $(498) | +$27,654 | $60,227 | $136 | +$60,091 | | Total other expense | $(7,208) | $(70,308) | +$63,100 | $(32,921) | $(118,048) | +$85,127 | - Other income increased significantly due to a $24.2 million (three months) and $54.3 million (six months) insurance settlement[170] - Interest expense increased due to higher average debt outstanding, primarily from new Senior Notes issued in 2024[170] Provision for (benefit from) income taxes Income tax provision increased significantly due to higher taxable income in both Aircraft Leasing and Aerospace Products segments - Income tax provision increased by $50.9 million (three months) and $68.2 million (six months) due to higher taxable income[167] Net income (loss) Net income significantly increased due to higher revenues, reduced internalization fees, and increased other income - Net income increased by $385.3 million (three months) and $448.0 million (six months) year-over-year[168] Adjusted EBITDA (Non-GAAP) Adjusted EBITDA increased significantly, reflecting improved operational performance and the absence of the internalization fee - Adjusted EBITDA increased by $133.9 million (three months) and $238.4 million (six months) year-over-year[169] Aviation Leasing Segment Aviation Leasing managed 375 assets with 70% utilization, reporting increased revenues and net income driven by maintenance and other income - As of June 30, 2025, the Aviation Leasing segment owned and managed 375 aviation assets (63 commercial aircraft and 312 engines)[171] - Aviation equipment utilization was approximately 70% for the three months ended June 30, 2025[172] Aviation Leasing Segment Results (in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total revenues | $185,966 | $184,437 | $322,979 | $319,747 | | Net income attributable to shareholders | $106,431 | $52,780 | $183,457 | $95,377 | | Adjusted EBITDA (non-GAAP) | $199,303 | $124,981 | $361,292 | $229,788 | Revenues (Aviation Leasing) Aviation Leasing revenues increased due to higher maintenance and servicing fees, despite a decrease in asset sales revenue - Maintenance revenue increased by $21.9 million (three months) and $25.7 million (six months) due to increased aircraft utilization and higher maintenance reserves[174] - Other revenue increased by $2.5 million (three months) and $2.4 million (six months) from servicing fees for the 2025 Partnership[174] - Asset sales revenue decreased by $24.5 million (three months) and $44.2 million (six months) due to fewer commercial aircraft and engine sales[174] Expenses (Aviation Leasing) Aviation Leasing expenses decreased due to lower cost of sales, aligning with reduced asset sales, and decreased depreciation - Cost of sales decreased by $7.2 million (three months) and $19.1 million (six months), consistent with lower asset sales revenue[179] - Depreciation and amortization expense decreased by $2.2 million (three months) due to assets held-for-sale and sales to the 2025 Partnership[179] Other income (expense) (Aviation Leasing) Aviation Leasing other income significantly increased due to insurance settlements and gains from sales to the 2025 Partnership - Other income increased due to a $24.2 million (three months) and $54.3 million (six months) insurance settlement[175] - Gains on sale to the 2025 Partnership contributed $34.6 million (three months) and $45.5 million (six months)[175] Provision for income taxes (Aviation Leasing) Aviation Leasing income tax provision increased due to higher taxable income from leasing activities - Income tax provision increased by $18.2 million (three months) and $32.5 million (six months) due to higher taxable income from leasing activities[176] Net income (Aviation Leasing) Aviation Leasing net income increased significantly, driven by positive revenue and other income trends - Net income increased by $53.7 million (three months) and $88.1 million (six months) year-over-year[177] Adjusted EBITDA (Non-GAAP) (Aviation Leasing) Aviation Leasing Adjusted EBITDA increased significantly, reflecting strong operational performance - Adjusted EBITDA increased by $74.3 million (three months) and $131.5 million (six months) year-over-year[178] Aerospace Products Segment Aerospace Products revenues and net income significantly increased due to strong engine sales, MRE Contract revenue, and acquisitions - The Aerospace Products segment focuses on CFM56-5B, CFM56-7B, and V2500 commercial aircraft engines and aftermarket components[180] - The segment acquired Lockheed Martin Commercial Engine Solutions (LMCES) and a 50% equity interest in QuickTurn Europe to expand MRE capabilities[181][183] Aerospace Products Segment Results (in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total revenues | $490,271 | $245,200 | $855,334 | $434,257 | | Net income attributable to shareholders | $133,582 | $84,875 | $240,225 | $151,308 | | Adjusted EBITDA (non-GAAP) | $164,864 | $91,240 | $295,809 | $161,517 | Revenues (Aerospace Products) Aerospace Products revenues increased significantly, driven by higher engine sales and new MRE Contract revenue from partnerships - Aerospace Products revenue increased by $175.5 million (three months) and $250.9 million (six months) due to higher engine and module sales[185] - MRE Contract revenue from the 2025 Partnership contributed $69.6 million (three months) and $170.2 million (six months)[185] Expenses (Aerospace Products) Aerospace Products expenses increased due to higher cost of sales, aligning with increased product sales, and higher operating expenses - Cost of sales increased by $170.6 million (three months) and $288.4 million (six months), aligning with increased aerospace product sales[185][190] - Operating expenses increased due to higher compensation and benefits, partly from the LMCES acquisition[185][190] Provision for income taxes (Aerospace Products) Aerospace Products income tax provision increased due to higher taxable income from product activities - Income tax provision increased by $20.9 million (three months) and $37.7 million (six months) due to higher taxable income[186] Net income (Aerospace Products) Aerospace Products net income increased significantly, driven by strong revenue growth - Net income increased by $48.7 million (three months) and $88.9 million (six months) year-over-year[187] Adjusted EBITDA (Non-GAAP) (Aerospace Products) Aerospace Products Adjusted EBITDA increased significantly, reflecting strong operational performance - Adjusted EBITDA increased by $73.6 million (three months) and $134.3 million (six months) year-over-year[188] Corporate and Other Corporate and Other revenues decreased due to asset sales, while expenses and net loss significantly decreased due to the absence of internalization fees Corporate and Other Segment Results (in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total revenues | — | $13,957 | $4 | $16,284 | | Total expenses | $20,299 | $329,023 | $46,912 | $353,316 | | Net loss attributable to shareholders | $(73,389) | $(365,860) | $(160,164) | $(443,603) | | Adjusted EBITDA (non-GAAP) | $(11,427) | $(2,317) | $(28,853) | $(13,300) | Revenues (Corporate and Other) Corporate and Other revenues decreased due to the sale of offshore energy vessels in Q4 2024 - Total revenues decreased due to the sale of offshore energy vessels in Q4 2024[192] Expenses (Corporate and Other) Corporate and Other expenses significantly decreased due to the absence of the internalization fee and reduced management fees - Internalization fee to affiliate decreased by $300.0 million (three months and six months) as it was a 2024 charge[193] - Management fees and incentive allocation to affiliate decreased by $3.6 million (three months) and $8.4 million (six months) due to internalization[193] - Depreciation and amortization decreased by $2.0 million (three months) and $4.0 million (six months) due to the sale of offshore energy vessels[193] Other income (expense) (Corporate and Other) Corporate and Other's other expense decreased for three months but increased for six months, influenced by debt extinguishment and interest expense - Loss on extinguishment of debt decreased by $13.9 million (three and six months) due to 2024 redemptions[199] - Interest expense increased by $8.8 million (three months) and $23.1 million (six months) due to higher average debt outstanding from new Senior Notes[199] Benefit from income taxes (Corporate and Other) Corporate and Other's tax benefit decreased for three months due to prior year's internalization fee, but increased for six months - Three-month tax benefit decreased by $11.8 million due to prior year's tax benefit from internalization fee[194] - Six-month tax benefit increased by $2.0 million due to higher deductible corporate overhead expenses[194] Net loss (Corporate and Other) Corporate and Other net loss significantly decreased due to the substantial reduction in internalization fees - Net loss decreased by $287.8 million (three months) and $282.9 million (six months) year-over-year[195] Adjusted EBITDA (Non-GAAP) (Corporate and Other) Corporate and Other Adjusted EBITDA decreased due to reduced revenues and increased interest expense - Adjusted EBITDA decreased by $9.1 million (three months) and $15.6 million (six months) year-over-year[196] Liquidity and Capital Resources The company maintains sufficient liquidity, utilizing the Strategic Capital Initiative for asset-light growth and managing capital for operations and debt - The company believes it has sufficient liquidity and is evaluating potential transactions and financings[197][202] - The Strategic Capital Initiative and its partnerships are key to maintaining an asset-light business model and acquiring on-lease narrowbody aircraft[197] - Principal uses of liquidity include acquisitions, dividends, operating expenses, and debt service; principal sources are revenues, borrowings, and asset sales[198][201] Historical Cash Flow Operating cash outflow decreased, investing cash inflow significantly increased, and financing cash outflow increased due to asset sales and debt changes Historical Cash Flow (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :------------------------------------ | :----------------------------- | :----------------------------- | :----- | | Net cash used in operating activities | $(136,284) | $(187,636) | +$51,352 | | Net cash provided by (used in) investing activities | $496,148 | $(219,383) | +$715,531 | | Net cash (used in) provided by financing activities | $(173,069) | $485,748 | -$658,817 | - Net cash provided by investing activities increased significantly due to proceeds from asset sales to the 2025 Partnership ($397.1 million) and other asset sales ($255.7 million)[204] - Net cash used in financing activities increased due to a $1.4 billion decrease in proceeds from debt and a $124.2 million increase in preferred share redemptions[205] Contractual Obligations The company has $3.5 billion in debt and $1.3 billion in interest obligations, plus $37.0 million in lease obligations - Outstanding principal debt obligations were $3.5 billion, with $1.3 billion in interest payments[206] - Interest payments of $228.8 million are due in the next twelve months[206] - Operating and finance lease obligations totaled $37.0 million, with $3.6 million due in the next twelve months[207] Other Cash Requirements The company pays quarterly dividends and plans to meet short-term liquidity needs through cash, borrowing, and operations - Declared cash dividends of $123.0 million on ordinary shares and $25.9 million on preferred shares in the last twelve months[209] - Future short-term liquidity will be met through cash on hand, unused borrowing capacity, and net cash from operations[210] Critical Accounting Estimates and Policies No material changes occurred in critical accounting estimates since the December 31, 2024, Annual Report on Form 10-K - No material changes to critical accounting estimates since the Annual Report on Form 10-K for December 31, 2024[211] Recent Accounting Pronouncements The company is evaluating ASU2023-05 and monitoring other recent accounting pronouncements for future adoption - Evaluating ASU2023-05 (Joint Venture Formations), effective January 1, 2025, for its impact[64] - Monitoring ASU2023-09 (Income Taxes) and ASU2024-03 (Segment Expense Disclosures) for future adoption[65] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk, but a 100-basis point change would not impact interest expense over 12 months - Primary market risk exposure is to interest rate fluctuations, particularly on the Revolving Credit Facility[214] - A hypothetical 100-basis point change in variable interest rates would not have increased or decreased interest expense over the next 12 months, assuming no hedging[217] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control - Disclosure controls and procedures were effective as of June 30, 2025[218] - No material changes to internal control over financial reporting occurred during the fiscal quarter[219] PART II - OTHER INFORMATION This part includes legal proceedings, risk factors, equity security sales, defaults, mine safety disclosures, other information, and exhibits Item 1. Legal Proceedings The company is involved in ordinary legal proceedings, with no material adverse effect expected by management - The company is involved in ordinary course legal proceedings, including regulatory investigations[221] - Management does not expect current or threatened legal proceedings to have a material adverse effect[221] Item 1A. Risk Factors This section details various business, taxation, and share-related risks, including macroeconomic, operational, and regulatory factors Risks Related to Our Business Business risks encompass macroeconomic conditions, industry oversupply, regulatory compliance, operational disruptions, and Strategic Capital Initiative uncertainties - Uncertain macroeconomic conditions, including the Russia-Ukraine conflict, may reduce demand, cause non-performance of contracts, and limit capital access[223][225] - Oversupply in the aviation industry can depress lease rates and asset values, while heavy regulation (e.g., FAA, Transport Canada) requires strict compliance, with potential for new, more stringent rules[226][228][230] - The Strategic Capital Initiative, including the 2025 Partnership, involves risks such as market, liquidity, valuation, key personnel, litigation, allocation, leverage, and regulatory uncertainties[248][251] Risks Related to Taxation Taxation risks include potential PFIC/CFC status, loss of Section 883 exemption, and increased liabilities from evolving international tax standards - The company may be treated as a PFIC or CFC for U.S. federal income tax purposes, potentially leading to adverse tax consequences for U.S. shareholders, including 'phantom income' if a QEF election is not made[296][297] - Loss of the Section 883 exemption for rental income from aircraft in 'international traffic' could subject the company to U.S. federal income taxation on a gross or net income basis, including branch profits tax[301] - Increased and unanticipated tax liabilities may arise from evolving international tax standards (e.g., OECD's BEPS 2.0, Bermuda's 15% corporate tax regime effective January 1, 2025)[302][303] Risks Related to Our Shares Share-related risks include market price volatility, short selling, interest rate effects, dilution, and changes in dividend policy - The market price and trading volume of ordinary and preferred shares may be highly volatile, leading to rapid and substantial losses[305] - Short selling activities, including reports published in January 2025, can cause increased volatility and potential governmental/regulatory scrutiny[307] - An increase in market interest rates may adversely affect the market price of shares by making the distribution rate less attractive and increasing interest expense on debt[308][310] - Future equity awards (e.g., under the 2025 Omnibus Incentive Plan) and debt/equity issuances could dilute existing ordinary shareholders and negatively affect share price[312][313][315] - The company's dividend policy may change at any time, and there is no assurance of continued dividend payments[318] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities and no use of proceeds to report[321] Item 3. Defaults Upon Senior Securities No defaults upon senior securities to report - No defaults upon senior securities to report[321] Item 4. Mine Safety Disclosures Mine Safety Disclosures are not applicable to the company - Mine Safety Disclosures are not applicable[321] Item 5. Other Information No other information to report - No other information to report[321] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including various agreements and documents - The exhibits include various agreements, organizational documents, and financial instruments[323][324] SIGNATURES This section contains the signatures of the Chairman, CEO, CFO, and CAO, certifying the report's submission Signatures The report was signed by the Chairman, CEO, CFO, and CAO on July 31, 2025, certifying its submission - The report was signed by Joseph P. Adams, Jr. (Chairman and CEO) and Eun (Angela) Nam (CFO and CAO) on July 31, 2025[327]