Core Insights - FTAI Aviation's stock price has surged due to strategic partnerships and new business initiatives, with a 38.3% increase in January and a 173% rise over the past year [1] Group 1: Strategic Partnerships - FTAI announced a multi-year strategic partnership with Palantir, allowing the use of Palantir's AI Platform for improved productivity in inventory management and maintenance scheduling [2] - The partnership with Palantir provides FTAI with digital infrastructure to manage the transition to converting engines and to optimize supply chain operations [4] Group 2: New Business Initiatives - FTAI launched FTAI Power, pivoting towards providing critical infrastructure equipment for data centers by converting CFM56 engines into power turbines [3] - The creation of FTAI Power is expected to secure FTAI's core business while also mitigating risks associated with the new venture [7] Group 3: Agreements and Validation - FTAI signed a multi-year agreement with CFM International for components and support for CFM56 engines, ensuring the stability of its core business and supporting the FTAI Power initiative [7] - The agreement with CFM International is beneficial for GE Aerospace as it ensures sales of CFM56 components and allows a focus on developing services for newer engine models [8]

Core Viewpoint - RBC Capital has raised the price target for FTAI Aviation (FTAI) to $350 from $270 while maintaining an Outperform rating on the shares, indicating strong confidence in the company's future performance [1]. Group 1: Price Target and Rating - The price target for FTAI has been increased to $350 from $270 [1]. - RBC Capital continues to hold an Outperform rating on FTAI shares, suggesting a positive outlook for the stock [1]. Group 2: Strategic Developments - The recent partnership with CFM International is highlighted as the most strategically significant announcement from FTAI [1]. - FTAI is now positioned to exceed previous expectations for CFM56 in terms of both revenues and margins, indicating a strong competitive position [1]. - The company is viewed as the leading non-OEM player in the CFM56 aftermarket, which could enhance its market share and profitability [1].

Core Insights - FTAI Aviation's recent partnerships with Palantir and GE Aerospace are enhancing its growth prospects significantly [1][4][6] Company Overview - FTAI Aviation specializes in owning and maintaining aircraft engines for airlines, cargo companies, and leasing companies, providing a cost-effective solution for engine maintenance [2] - The company has a market capitalization of $30 billion and has seen its stock price increase by 219% over the past year [3][1] Strategic Partnerships - FTAI has established a multiyear strategic partnership with GE Aerospace, securing OEM replacement parts, thrust performance upgrades, and component repair services [4] - The partnership with Palantir focuses on utilizing AI technology to enhance production turnaround times and improve unit economics, aiming for cost savings for customers globally [6][8] Market Dynamics - GE Aerospace has extended the timeline for expected declines in CFM56 shop visits from 2025 to 2027 due to strong airline demand, benefiting FTAI [5] - FTAI Power, a new business unit, aims to convert CFM56 engines into power turbines for data centers, with a target of producing over 100 units annually [6][7] Financial Metrics - FTAI Aviation is currently trading at 43 times forward earnings, indicating a premium valuation, but the growth potential in both aircraft engine servicing and FTAI Power is substantial [8]

Financial Data and Key Metrics Changes - In Q4 2025, orders increased by 74%, revenue grew by 20%, and EPS rose by 19% to $1.57, with free cash flow up 15% [5][17] - For the full year, orders were up 32%, revenue increased by 21%, operating profit grew by $1.8 billion, and free cash flow rose by $1.5 billion [5][18] - Operating profit for the year was $9.1 billion, with margins expanding by 70 basis points to 21.4% [18] Business Line Data and Key Metrics Changes - In the Commercial Engine Services (CES) segment, orders were up 35% and revenue grew by 24%, with services orders up 27% and revenue up 26% [5][20] - In the Defense and Power Technologies (DPT) segment, orders increased by 19% and revenue was up 11%, with profit rising by 22% to $1.3 billion [5][21] Market Data and Key Metrics Changes - The company reported a backlog of approximately $190 billion, up nearly $20 billion from the previous year [7] - The installed base of engines is 80,000, with over 2.3 billion flight hours accumulated [27][28] Company Strategy and Development Direction - The company aims for substantial revenue, EPS, and cash growth in 2026, with expectations for revenue to increase in low double digits and operating profit to reach $9.85 billion to $10.25 billion [7][8] - Investments are being made in U.S. manufacturing to support both commercial and defense customers, with a focus on improving time on wing and reducing cost of ownership [7][8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand environment, citing robust orders and a strong backlog as indicators of future performance [32][33] - The company is focused on continuous improvement and leveraging technology to enhance customer value and operational efficiency [28][29] Other Important Information - The company is transitioning its segment reporting to reflect organizational changes, with aeroderivative engines moving from CES to DPT [22][23] - The company plans to invest approximately $500 million in MRO to support LEAP engine capacity expansion [11] Q&A Session Summary Question: Can you elaborate on the commercial aftermarket backdrop? - Management noted strong momentum in services growth and expressed confidence in achieving mid-teens growth in 2026, driven by increased work scopes and pricing [31][32] Question: What is the profitability outlook for LEAP engines? - Management confirmed that LEAP original equipment is expected to be profitable in 2026, with improvements in supply chain visibility and readiness [40][44] Question: How are turnaround times improving for mature engines? - Management indicated that improvements in turnaround times are driven by better material availability and efficient execution on the shop floor, which enhances productivity [48][50] Question: What are the implications of the agreement with FTAI? - The agreement is aimed at enhancing third-party aftermarket options, which supports asset values and lowers costs of ownership for customers [93] Question: What is the expected cash flow outlook for 2026? - Management indicated that there are no abnormal cash flow expectations for 2026, with a focus on managing inventory growth and contract assets [94][95]

Financial Data and Key Metrics Changes - In Q4 2025, orders increased by 74%, revenue grew by 20%, and EPS rose by 19% to $1.57, with free cash flow up 15% [5][17] - For the full year, orders were up 32%, revenue increased by 21%, operating profit grew by $1.8 billion, and free cash flow rose by $1.5 billion [5][18] - Operating profit for the year was $9.1 billion, with margins expanding by 70 basis points to 21.4% [18] Business Line Data and Key Metrics Changes - In the Commercial Engine Services (CES) segment, orders were up 35%, revenue grew by 24%, and profit increased by 26% to $8.9 billion [5][19] - In the Defense and Power Technologies (DPT) segment, orders increased by 19%, revenue grew by 11%, and profit rose by 22% to $1.3 billion [5][20] Market Data and Key Metrics Changes - The backlog reached approximately $190 billion, up nearly $20 billion from the previous year [6] - The installed base of LEAP engines is expected to triple between 2024 and 2030, with significant capacity expansions planned across the global MRO network [10][11] Company Strategy and Development Direction - The company aims for substantial revenue, EPS, and cash growth in 2026, with expectations for revenue to increase in the low double digits [6][24] - Investments are being made in U.S. manufacturing to support both commercial and defense customers, with a focus on improving time on wing and reducing cost of ownership [7][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand environment, citing robust orders and a strong backlog as indicators of future growth [30][31] - The company is focused on leveraging its extensive installed base and R&D investments to drive continuous improvement and customer value [26][72] Other Important Information - The company is transitioning its segment reporting to reflect organizational changes, with no impact on total company metrics [22] - A significant portion of R&D spending is directed towards improving customer experience and developing next-generation technologies [71] Q&A Session Summary Question: Can you elaborate on the commercial aftermarket backdrop? - Management noted that there are no concerns about demand momentum continuing into 2026, supported by a strong backlog and expected growth in shop visits and spare parts [30][31] Question: What is the status of LEAP profitability? - Management confirmed that LEAP original equipment is expected to be profitable in 2026, aligning with previous plans [41] Question: How are turnaround times improving for mature engines? - Improvements in turnaround times are driven by better material availability and efficient execution on the shop floor, leading to increased productivity [44] Question: What are the expected losses from the GE9X program? - Losses for the GE9X program were around a couple of hundred million in 2025, with expectations for these losses to double in 2026 [48] Question: How is R&D spending allocated? - R&D spending focuses on enhancing customer experience, developing new technologies, and supporting next-generation defense programs [71]

Summary of Key Points from the Conference Call Transcript Industry Overview - **Industry**: Aerospace & Defense Electronics, specifically focusing on the Commercial Aftermarket (AM) pricing dynamics [1][2] Core Insights 1. **Maintenance Cost Increases**: Maintenance costs have risen by 30-35% since 2021/2022, with expectations for continued momentum in the high single digits (MSD+) moving forward [1][4][21] 2. **Turnaround Times (TAT)**: TATs remain elevated at approximately 100-125 days, although some relief is being found through engine exchange programs [1][16][31] 3. **PMA and USM Advantages**: Parts Manufacturer Approval (PMA) and Used Serviceable Material (USM) are gaining traction due to their pricing advantages, with PMA parts sold at a 20-25% discount to Original Equipment (OE) list prices [3][5][10] 4. **Workscope Expansion**: Workscope expansions can lead to significant increases in service costs, with second shop visits (SVs) for GE90 engines being 60-70% heavier than first visits [4][22] 5. **Parts Inflation**: Parts inflation is shifting the market mix towards USM, with certain parts seeing price increases from ~$20K to ~$30-35K, representing a 63% rise [5][21] 6. **Contract Structures**: New contract structures are reallocating risk and unlocking savings, with OEMs absorbing non-maturity risks in early program Pay-By-Hour (PBH) contracts [6][21] 7. **Lease Rates and Scarcity**: Lease rates have increased by approximately 5-10% over the past year, driven by system-wide scarcity and elongating TATs [7][16][28] Additional Important Insights 1. **Market Growth**: The aftermarket is projected to grow by 8% in 2026, outpacing the International Air Transport Association (IATA) Revenue Passenger Kilometers (RPKs) growth of 6% [8] 2. **Expert Commentary**: PMA parts are noted to have gross margins of 50-70% for suppliers, indicating a lucrative market despite historical reluctance from lessors to adopt PMA due to lease return conditions [3][10][19] 3. **MRO Capacity Constraints**: The MRO (Maintenance, Repair, and Overhaul) capacity remains constrained, with shortages in USM and spare engines pushing costs higher and extending turnaround times [28][33] 4. **Platform-Specific Dynamics**: Different engine platforms such as CFM56, LEAP, and GTF are experiencing unique challenges, including durability issues and rising maintenance demands [41][42][43] 5. **Future Projections**: LEAP services revenues are expected to reach approximately $6.5 billion by 2028, up from around $3.2 billion in 2025, indicating strong growth potential in this segment [11][12] This summary encapsulates the key points discussed in the conference call, highlighting the current state and future outlook of the aerospace and defense aftermarket industry.

Core Viewpoint - The market initially misjudged the performance of GE Aerospace and GE Vernova, both of which reported strong earnings but experienced stock sell-offs before rebounding significantly. Group 1: GE Aerospace - GE Aerospace reported a remarkable 26% organic revenue growth, driven by strong performance in commercial engines, services, and defense sectors [3][6] - The commercial engines and services segment saw a 22% increase in equipment revenue and a 28% rise in services revenue, leading to a 35% growth in earnings for this division [6][7] - Management raised their full-year revenue growth forecast for commercial engines services from high teens to low 20s, indicating positive momentum [8] - Supply chain improvements were noted, with priority suppliers achieving over 95% of committed volumes for three consecutive quarters, contributing to a 40% year-over-year increase in Leap engine deliveries [9][11] - GE Aerospace is positioned to benefit from increased aircraft purchases due to trade dynamics, as evidenced by Korean Air's order for 103 aircraft that will include GE engines [13][14] Group 2: GE Vernova - GE Vernova reported strong organic revenue growth and a 15% year-over-year increase in backlog, reaching over $135 billion [15][16] - The company secured nearly $15 billion in new orders, reflecting robust demand for its products [15][16] - Management's acquisition of the remaining 50% of Prolle aims to enhance exposure to the electrification segment, which is expected to grow significantly [18][20] - The combined serviceable addressable market for GE Vernova is projected to expand at a 10% compound annual growth rate, potentially doubling by 2030 [20] - The company has repurchased $2.2 billion worth of its own stock this year and plans to continue buybacks, indicating confidence in its stock value [23]

Financial Data and Key Metrics Changes - Revenue grew 26% to $11.3 billion, with operating profit also up 26% to $2.3 billion, driven by strong deliveries across aftermarket, original equipment (OE), and defense [6][19] - Earnings per share (EPS) increased 44% to $1.66, supported by higher operating profit, a lower tax rate, and a reduced share count [20][30] - Free cash flow reached $2.4 billion, up 30% with over 130% conversion [20][30] Business Line Data and Key Metrics Changes - In Commercial Engines and Services (CES), orders were up 5%, with services orders up 32% and equipment orders down 42% due to timing [22] - CES revenue grew 27%, with services revenue up 28% and internal shop visit revenue up 33% [22][24] - In Defense and Propulsion Technologies (DPT), revenue grew 26%, with engines volume up 83% year over year [25][26] Market Data and Key Metrics Changes - Total orders increased 2% in the third quarter, with year-to-date orders up 13% and services orders up 31% [5] - The total DPT backlog reached $19 billion, up $1.5 billion year over year [25] Company Strategy and Development Direction - The company is focused on enhancing its operational model, Flight Deck, to improve delivery and meet robust customer demand [4][7] - Investments in LEAP durability and next-generation technologies are prioritized to deliver value to customers [6][15] - The company is raising its full-year guidance across the board, expecting revenue growth in the high teens and CES growth in the low 20s [28][30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong demand for services and products, with a significant backlog of approximately $175 billion [7][8] - The company is optimistic about its trajectory entering 2026, with expectations for continued growth and improved operational performance [30][32] Other Important Information - The company is investing nearly $1 billion in its supply chain to expand capacity [12] - The LEAP third-party maintenance, repair, and overhaul (MRO) network is growing rapidly, with external shop visits up roughly twofold [12] Q&A Session Summary Question: Services outperformance and sequential step down in Q4 - Management noted strong services growth driven by improved material availability and increased work scopes, with expectations for a seasonal step down in Q4 due to typical demand patterns [37][41] Question: LEAP services margin outlook - Confidence in achieving LEAP services margin targets by 2028 is based on ongoing improvements in supply chain performance and operational efficiencies [46][50] Question: Capital deployment and M&A considerations - The company maintains a balanced capital allocation approach, prioritizing reinvestment in the business and returning capital to shareholders while remaining open to strategic M&A opportunities [53][57] Question: Spare parts performance and drivers - Spare parts growth is attributed to pent-up demand, increased work scopes, and improved material availability, with expectations for continued growth in 2026 [61][66] Question: 2026 revenue growth and margin expectations - The environment for 2026 appears better than previously expected, with projected revenue growth and profit growth, although not at the same levels as 2025 [69][72] Question: Defense business and R&D insights - The defense business is leveraging commercial experience to enhance development cycles and sustainment models, with significant investments in next-generation platforms [79][82] Question: Durability of LEAP-1A blade - Initial performance of the LEAP-1A durability kit is promising, with expectations for a multi-year rollout across the installed base [86][88] Question: Supply chain material availability improvements - Improvements in supply chain material availability are the result of cumulative efforts and collaboration with suppliers, focusing on problem-solving and operational efficiency [92][95]

Financial Data and Key Metrics Changes - Revenue for the third quarter was $11.3 billion, up 26% year-over-year, with operating profit also increasing by 26% to $2.3 billion [15][19] - Earnings per share (EPS) grew 44% to $1.66, driven by increased operating profit, a lower tax rate, and a reduced share count [15][19] - Free cash flow reached $2.4 billion, up 30%, with over 130% conversion from earnings [15][19] Business Line Data and Key Metrics Changes - In Commercial Engines and Services (CES), orders were up 5%, with services orders increasing by 32% and equipment orders down 42% due to timing [17][19] - CES revenue grew 27%, with services revenue up 28% and internal shop visit revenue up 33% [17][19] - In Defense and Propulsion Technologies (DPT), revenue grew 26%, with engine volume up 83% year-over-year [19][19] Market Data and Key Metrics Changes - Year-to-date, orders increased by 13%, with services orders up 31% [4] - The total DPT backlog is at $19 billion, up $1.5 billion year-over-year [19] - The company expects to grow LEAP deliveries more than 20% for the full year, up from a prior outlook of 15% to 20% [7][19] Company Strategy and Development Direction - The company is focused on enhancing its FlightDeck operating model to improve delivery and meet customer demand [3][5] - Investments in LEAP durability and next-generation technologies are prioritized to deliver value to customers [10][12] - The company is committed to expanding its supply chain capacity, investing nearly $1 billion to support growth [9][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong demand for services and products, raising full-year guidance across the board [5][19] - The company anticipates continued growth in commercial services and engine deliveries, with a positive outlook for 2026 [20][56] - Management highlighted the importance of addressing supply chain challenges and improving material availability [78] Other Important Information - The company has secured significant commitments from major airlines, including Korean Air and Cathay Pacific, for its engines [12][13] - The company is actively working on next-generation engine technologies, including the GE9X and RISE program [11][12] Q&A Session Summary Question: Can you elaborate on the services performance and factors driving it? - Management noted that improved material availability and increased work scopes contributed to strong services growth, with expectations for continued demand [28][30] Question: What gives confidence in the LEAP services margin outlook? - Management highlighted ongoing improvements in supply chain performance and operational efficiencies as key factors supporting the margin outlook [34][36] Question: How does the company balance capital deployment and share repurchase? - Management stated that the capital allocation approach remains balanced, focusing on reinvestment in the business while returning capital to shareholders [41][42] Question: What is the outlook for 2026, particularly regarding CES revenue growth? - Management indicated a positive outlook for 2026, expecting solid revenue growth driven by an increasing installed base and higher shop visit demand [55][56]

Financial Performance Highlights - GE Aerospace's adjusted revenue increased by 26% year-over-year in Q3 2025, driven by strong services and engine output[9] - Adjusted EPS grew by 44% year-over-year in Q3 2025[9] - Free cash flow increased by 30% year-over-year in Q3 2025[9] - Commercial Engines & Services (CES) saw a 28% increase in revenue and a 35% increase in total profit year-over-year[9] - Defense & Propulsion Technologies (DPT) experienced a 26% increase in revenue and a 75% increase in profit[9] Operational Performance - Commercial services revenue increased by 28% year-over-year[13] - Engine deliveries increased by 41% year-over-year[13] - Defense engine deliveries increased significantly by 83% year-over-year[14] Guidance and Outlook - The company is raising its full-year 2025 guidance across the board[9] - Adjusted revenue growth is now expected to be in the high-teens percentage range[31] - Adjusted EPS is projected to be between $600 and $620[31] - Free cash flow is expected to be between $71 billion and $73 billion[31]