Core Pitch: FTAI Aviation (FTAI) is a vertically integrated provider of aftermarket jet engine power, differentiated by a high-velocity module swap model that saves airlines time and money while enhancing margins.
Competitive Moat: Scale, inventory depth, in-house MRO, and network effects create barriers to entry; traditional MROs face longer turn times and costlier work scopes, making FTAI’s solution compelling.
Asset-Light Transition: Strategic Capital Initiative (SCI) uses off-balance-sheet vehicles to acquire aircraft with captive service agreements, driving recurring, higher-ROIC growth in the aerospace products segment.
Short-Seller Rebuttal: Concerns about inflated margins were addressed by independent audits; profitability stems from low-cost runout/part-out engines and shorter lease terms, not accounting games.
Valuation and Comps: Compared with Heico (HEI), FTAI shows faster growth, higher margins, and superior returns, suggesting potential multiple expansion as margins rise toward 45–50% and SCI-backed volumes grow through 2027.
New Growth Vector: FTAI Power repurposes end-of-life engines into aeroderivative turbines for data centers, targeting rapid deployment, million-per-megawatt economics, and high-margin service revenues amid grid constraints.
Catalysts and Alignment: Possible GICS reclassification and future S&P 500 inclusion, alongside strong insider ownership and buying, reinforce confidence in sustained growth and shareholder alignment.
Transcript
Hello and welcome to the yet another value podcast. I'm your host Andrew Walker. Today we've got a great episode. I've got Will Clarion from uh Carriage House Fund. He Will is a I say this about everyone, but Will is a real guy and you're going to hear this really quickly when we start diving into it. He does he runs a concentrated value book. Just the type of guy I don't like to talk to. Uh we're going to talk about FTA today. It's uh got a cult following I'd say and also a little bit of a short interest there. But Will has done great work on there. And I think what's really gonna jump out to you when you listen to this is I ask a question, he instantly knows the answer. And this is what I love when someone's already they've thought about something so much that they already know the answer to things and he's just pulling stats, you know, left and right, like really impressive stats because he knows the space cold and knows the company called. You're really going to enjoy it. Uh you're going to learn a lot from it. I think it's awesome and I can't wait to have Will on for the second time. So we'll get there in one second, but first word from our sponsor. This podcast is sponsored by me. Okay. Okay. It's sponsored by AlphaSense, but it's also sponsored by me. I'm going to be doing a live webinar with AlphaSense's director of TMT research, Michelle Brophie, on March 10th at 1 p.m. Eastern. Uh we're going to be talking about all things media. You know, if you're a long time follower of this podcast, if you're a longtime follower of the blog, you know I love media. I love telecom. I love uh communication. I love it all. So, we're going to be talking about all things media. I am recording this advertisement on February 27th. We just had within the past 24 hours, Paramount outbid Netflix for Warner Brothers. Netflix backs off. I bet you we're going to be talking about how that reshapes the media landscape a little bit. Disney's got a new CEO. Sports rights are always in the news. Video games, remember them? Those are pretty interesting. That's evolving quickly. What about AI content? We're going to be talking about all of it. And the best part is it's a live webinar. So, if you come join, and I'd love for you to come join and listen live. We're going to be taking questions live for listeners. So, you can hear me ramble like a madman in real time if you ask the right question. So, if you're interested, there'll be a link in the show notes or you know what, go to get anothervalblog.com. You can find it there. Go to alpha-sense.comyavp. That's alpha-sense.comyavp. I did that off the cuff of my head. That's how much I know the referral link. So, go there. You can sign up. All that sort of stuff. Would love to have you. March 10th, 1 p.m. Eastern. And of course, there'll be a replay if you want to catch it on replay instead. See you soon. All right. Hello and welcome to the Yet Another Value Podcast. I'm your host, Andrew Walker, and with me today, I'm happy to have on for the first time, Will Clary. Will, how's it going? >> It's going great, Andrew. Thanks again for having me. Excited to be here. >> Well, you got to tell the guest. Just get it out the way. You got to tell the guest. What are you drinking? And >> Andrew saw me drinking a a a cherry coke. And so, he's making fun of me about >> I'm not making fun of you. This is It's all I mean, you just got to let the people know that is value bonafids when you drink the drink of the literal investing god. So, >> yeah. channeling my my my inner Buffett. I I hope I I hope uh you know the returns are as as commensurate. >> Yeah. Right. Uh Will is from Carriage House. I'm super excited to talk to him about it. He does great work on stuff. So, we're going to get there in one second. But first, just a reminder, nothing on this podcast investing advice. There's a full disclaimer at the end of the podcast, so you can see that legal disclaimer in the show notes. All sort of that. So, please remember, not investing advice. Do your own work. Well, the company we're going to talk about here is FTI, FTA aviation. This is uh Jacob Rubin did such a pressing call. I I wish everyone had held on forever when he did the call because even before the spin-off, he he did the call on FTA a long time, but you know that was a long time ago, a lot of podcasts ago, and the company has evolved a lot. So, I I'm just going to pause here and ask what is FTI and why are they so interesting? >> Yeah, look, uh Jacob did, by the way, do a fantastic job. The story has changed, uh you know, a lot. And by the way, it's a complicated story, Andrew. When you when you you look at it on the surface, there's a lot of moving pieces. It gets more complicated by the day. You know, there's this new aerodyiv I started prepping for this podcast yesterday afternoon. I had four hours blocked out and then I was like, "Oh boy, there's a lot more pieces and you know, the pieces just keep moving." But that's what I've gotten you here on to explain it all for. >> Exactly. [clears throat] And look, so you know, I want to focus first on like the core of FTI's business, which is really what, you know, got us excited about it um in the first place, right? So, look, from a high level, at its core, um FTI is a leading provider of of aftermarket jet engine power for the commercial aviation industry. And it it has a differentiated model, right, for delivering that power uh that that saves its customers time and money and also generates outsized profitability for for FTI itself. A and all of this stems from a decision the company made, you know, really only a couple of years ago, right? Where it was in essence this, you know, sort of run-of-the-mill jet engine less or an owner of those assets and it made the decision to vertically integrate into engine maintenance and repair. And and that decision, right, that vertical integration, combining the the ownership of the assets with the maintenance of the assets all under one roof created this this powerful platform, right? That platform uh sources and acquires runout engines. It then repairs those engines inhouse and then it it offers those engines to to airline customers either for for an outright sale for lease or for exchange for a customer's runout engine, right? and and that that exchange right which the company calls a module swap is really what differentiates FTI's platform and that platform is uh it's growing rapidly and it's getting more powerful as it scales it's it's continuing to vertically integrate right so it's getting more profitable and it's also pursuing an asset like transition such that returns on capital are inflecting in the right ction. >> That That's perfect. Now, let me ask there's a lot to dive into, a lot to talk about here, but I I just want to ask I know a little bit about the uh aircraft space and jets and all that, and it's not lost on me that over the past two to three years, there's been this huge engine shortage, right? Largely caused by uh I can't remember who was having the tainted pow what specific engine was having the tainted powder metal issues, but >> the GTF. >> Yes. Yes. So, it's not lost to me like this goes on this, you know, parabolic run and returns great and the company says and probably rightly so. They made a great decision to vertically integrate. But I do have to wonder like how much of what they're experiencing is company brilliance versus how much is industry factors because I kind of I've always worried in the back of my head like hey at some point the powder metal issues probably get resolved and do you all of a sudden switch from oh my god we're super short engines to I don't think we'd be in a glut but all of a sudden it neutralizes and then this company that looked brilliant it turns out oh it was more industry wave than actual that their brilliance if that makes sense. Look, I I think that's all very fair and I'll touch on some of the dynamics around the the supply demand imbalance, but look at at its core like I think it's the value proposition that this module swap um you know offering of FTI brings compared to like the traditional MRO model, right? That's what's really driving the growth here. And you can you can see it in the numbers. I mean, this company went from doing uh zero module swaps in 2020 to, you know, that business being a $ 1.1 billion business for them in 2024 with 5% market share. Today, it's a $2 billion business. They have 10% market share. It's really the cost and time savings for the airline customers that are driving the adoption of this model. There is no question a component of, you know, obviously their core leasing business, right? uh that that that that's sort of propped up by, you know, demand for these uh these midlife assets. Um you know, I think there's been a lot of things that have been pretty well publicized about problems with the the next generation of aircraft that are coming through. Um you know, we have the the issues with the 737 Max, right? Um you know, that's that's been impacting the Leap engine that's on that that that aircraft. We've got the GTF issues. But um I think there's a really long runway for this CFM56 which is the core engine that that FTI's focused on um to continue to be in circulation for quite some time. This is a prolific engine. There's 20,000 of these things out there. And although it's not a brand new platform, right? Most of these engines haven't even gone through their first shop visit yet. About 40% of them haven't. The interesting thing is as FTI continues to iterate on its model and lower the cost of ownership for this asset itself, it actually elongates the life cycle of the CFM56 in utilization, right? If you can save 30 or 40% of the cost of a shop visit, right, by doing this work with FTI as opposed to doing it through a traditional MRO and and and engine maintenance is the third largest expense for an airline behind fuel and labor, right? you can uh you can own those engines uh for a longer period of time. It's not technological disruption that puts these things on the sidelines. It's the economics of running them. And the economics of doing this engine maintenance and repair work through FTI make owning that very, you know, uh efficient and reliable engine all the more compelling. >> Now, so why does working with FTI lower the cost of engine maintenance? I I think it's best to sort of give you like the textbook example that kind of bring this together. >> I love it. Yes, please. >> Yeah. So, like imagine Well, maybe I'll go on on a quick tangent because I think it's important >> to understand sort of the the the engineering behind this this specific engine that FTI's focused on, the CFM56. Right. I >> What planes is this on, by the way, just so people know what types of planes is the CFM5600? Yeah, >> the CFM56 is uh it it powers all of the 737 NGS uh in the entire world. It powers uh probably 60% of the 8320 CEOs in the world. These are narrow body aircraft like very prolific like ubiquitous engine platform maybe that's ever existed in commercial aviation history. There's 20,000 of these things in operation. >> 600 different owners of these things. But what's most important about the CFM engine, it's a module engine. And what I mean by that is there are three distinct modules, the core, the fan, and the the turbine that combine to create the engine itself. And each one of those things has, you know, life limited parts in it, only a certain number of cycles. So if you're uh you own this engine and and one of those uh modules runs out of cycle time, green time, needs to go in for a shop visit. So imagine you're like a smaller midsize airline, Andrew. That's like the core customer for for FTI's modular swath. You own this engine. You know, one of those uh modules runs out of Green Tai needs to go in for a shop is you cannot do this work yourself. Okay. Uh of the 600 people that uh own this engine, uh you know, airlines less or there are five that actually have internal MRO capabilities, right? It's like Delta, Lufansza, uh, American, the big guys, the big operator. >> Yeah. >> So, your alliance is a small or mid-sized airline on this network of of third party MRO shops. You send that engine out to the shop, it'll take like a month and a half or two months just for that engine to get inducted into the shop in the first place, right? And then it makes its way to the shop floor. You know, the typical MRO model is to instruct that uh that technician to tear the entire engine down to like the piece part level, right? Remember, only one of my modules had to be repaired on it. The typical MRO model will tear that down to the nuts and bolts, the entire engine, looking for ways to expand the scope scope of work, right? That's how these guys make their margin. So, I get my engine inducted, two months, turnaround times, another two months, four to six months for me as that small or medium-sized airline to get my engine back. It's going to cost me $7 million per shop visit. Okay, compare that to the FTI model. FTI has engines that have already been refurbished and modules that are have already been refurbished sitting in their inventory. Okay, they can send that smaller midsized airline the module that they need like overnight, right? It collapses the turnaround times to basically zero. I send you the new model module, you take the old one off, put the new one on, you're back up and running in the course of a couple of weeks versus months. But most importantly, it cuts down the cost of this maintenance materially because first, we're addressing the problem, the module that needs repair as opposed to allowing the work scope to creep, right? But secondly, because FTI is able to uh maintain uh to repair these modules in house, right? They can allow that smaller mid-sized airline as part of the consideration paid to them for that new module they're sending to send them their old runout module, which they'll they'll then repair and remarket to somebody else, right? And so, you know, four to six months goes to 2 to 3 weeks and $7 million goes to 4.5 million bucks. So the last point I want to make here Andrew this was not a novel concept this module swap business that FTI established right the those larger operators with their own internal MRO capabilities have been for a long time themselves but >> for the first time right this model this module swap model was available to everybody right and you know cheaper and quicker is a pretty compelling value proposition hence the the explosive growth they've seen >> that was a And I I I want to push on. So would I be right in thinking, hey, you do kind of get a network effect business here, right? Because you and I, my my first question was going to be why can't everybody do the the same MRO module replacement. You and I could start it up, but we don't have a we don't have people working with us to swap the modules quickly, and that's probably important. And B, we don't have the inventory. And then once you've kind of got everybody in there, if we came and we came along, we said, "Hey, we've got a hundred modules. Come trade with Like I'm sure people would be interested but our inventory would be move a lot slower. Am I thinking about it correctly that there's probably a little bit of a network effect dynamic going on now that they've kind of got it and kind of sucked up all the smaller players or is that incorrect? >> No, I I I think it's it's it's absolutely the case. Right. And by the way, these guys have been at this a long time now and so like have sort of this commanding control over the the the CFM ecosystem, right? I think it'd be very difficult for somebody else to come in and do this. But you're you're hitting on something very important, right? Think about all the different advantages this company has, right? If if you were a traditional like we'll call it airline less. I I like to think of these these companies and you know this business very well as you know these are asset management businesses, right? They're they're leasing but they're also buying and selling and swapping and trading, right? What value am I going to have from a runout like you know singular engine module? I don't know the other two like right ft does because they can pick up you know they pick up a turbine from one person but they've also picked up a core from another person and they've picked up a fan from another person they can combine those into an engine right and then market that into you know into the eos >> they really I mean they had I guess they had the turbine so yeah okay I was gonna say it'd be a little weird to me if they were just like kind of a Star Wars style like hey we're the Tuskan Raiders we got a bunch of things and now WE'VE GOT A WHOLE NEW A WHOLE NEW airplane or something you No, I hear exactly what you're saying. It it's look, they they did spend at the onset a lot of money to make sure they had the feed stock to be able to do this. I that's that's a big, you know, competitive barrier here is, okay, somebody wants to come in to this market. They're going to have to spend like the $2 billion of capital FTI has already spent on, you know, setting up this this this sort of this this module ecosystem buying that feed stock, right? So, if you're a lesser, you want to come into this business, right? Well, you also have to buy MRO, right? You have to go and find a shop that's going to be able to do this. It's hard to find labor. You're adding sort of this operational complexity to an essence of financing business. If you're a traditional MRO, you know, to adopt this model FTI has, you know, uh established where they don't like work scope creep, right? They want to just focus on what the core problem is. You got to throw your old model out, right? This work scope creep model. Then, you know, you've got to figure out how to set up an asset management arm. You've got to go and buy all this feed stock. And when you're buying that feed stock in the market, guess who's bidding against that feed stock, right? It's FTI, you know, and they already have this sort of structural cost advantage to uh, you know, to out bid you and make a whole lot more money on that engine component. >> You mentioned that the larger players, the the Delta Airlines, the American Airlines already have their kind of own internal repair. So they do not use FTI. >> You know what's really funny is early in the life cycle of the story, people thought this was just um you know something for the small and midsized airlines. But as FTI has gotten bigger and by the way they are they're very they're very scaled now, right? They're doing you know 750 of these module swaps a year >> as we're talking they're going to power the data centers now >> I think we're going to get to that too. Um, yeah. Yeah. I mean, they're actually starting to do a lot more work with some of the with the larger airlines now. They're becoming a, you know, a better counterparty, a a much more reputable counterparty for the large airlines. Um, they've talked about this, I think on the second quarter earnings call this year. They announced, you know, for the first time, hey, we just did a big deal uh with one of the major uh carriers. So I think that you know cost and time savings uh is a a a pretty uh universal compelling value proposition and if it fits in with with the plans of the larger operators FTI's there as a as a significant counterparty. >> I think we've done a nice job framing the core business at this point. Uh I I I have a lot of questions I want to follow up on and build off that framing, but I just want to pause here to make sure. Do you is there anything on kind of the core business that you want listeners to know about before I kind of dive into different aspects of the story? >> Well, I I don't know if you're going to touch on this. I think we may touch on it, but maybe this this sort of this strategic capital initiative. Uh >> that that would be a great one. I think they launched at the beginning of 2025 and that's what's really taking them asset light. So, why don't you start there and we can kind of build off that. you know, as I I sort of talked about, right? It's this this this explosive growth, but you know, to get more modules, what do you need to do is you need to go and buy more modules using your balance sheet, you know, debt capacity to do that. Um, FTI then made this very important sort of strategic decision to begin to utilize in essence other people's balance sheets to fuel the growth of this high margin aerospace products module swap business. Right? So what they did initially they went out uh with the expectation of raising you know $3 billion of of private debt right um and then they were going to uh acquire uh on lease uh aircraft. those on these aircraft would be owned like offbalance sheet non-reourse to the company but then contractually they would have all their services done um by the module factory by the module swap business you know saving those investors you know a lot of time on on the maintenance of those assets right so a compelling offering there and then combining this capability these guys had to um you know uh to to purpose fit these engines you know 5,000 cycles here if you need 10,000 cycles over there. Uh it actually derisked this this this game of aircraft uh financing, right? You know this from your experience in the the the aircraft leasing business. A lot of your equity returns are embedded in in that in monetizing, you know, the residual value. >> Not just air, every rental, every leasing business. It's like you look at them, they're like, "We're so good at rent. We're so good at renting. We've got such great customers." like, "Hey guys, I think like uh all all of the embedded gains and losses are in how you can sell this thing." So, uh it's a it's a big assumption. These guys do not have easy jobs when it comes to this. >> No, it's super hard. You have no idea what the market's going to look like when you go out to market and try and, you know, sell these things, right? So if you kind of just think about this like imagine uh you know there there's a um there's an airplane is a fiveyear uh you know lease term and uh you know two and a half years into it there's a major uh engine event what would typically happen is that airline would be responsible for putting you know uh 5 years of cycles on that engine right what FIA can do is basically say okay instead of putting five years of of of cycles on that engine so at the end of it you're left with a 2 and a half year engine we'll we'll we'll module swap and give you a 2 and 1/2 year purpose-built engine, right? So that's less money that you know you need to put up which you know obviously increases your returns and by the time that uh engine runs out of cycles at the end of that lease you know the residual value will be all like it'll be part out value right so you're in essence sort of lower capital contribution which maximizes returns and then lower risk I think the company always says like look if you're a private debt investor that's the quadrant you want to get into so um as a result of that they started marketing this Um, and they upsized it from, you know, $3 billion to six, right? They've almost, you know, deployed all of that that that capital. They just announced, you know, an SCI, you know, two partnerships. So, what's happening here is the leasing component of this business is getting super asset light. This is this is this is captive business for the high margin aerospace products segment, right? They don't have to go and try and win this market share in the marketplace. They are buying it and guaranteeing it. And then uh you know the thing begins to you know you have $6 billion of assets under management then 12 you know 350 airlines airplanes become seven. You're one of the largest owners of narrowbody uh you know uh airplanes in the world. So there a lot of other benefits acrew to you. So I think you know one worry and I think this will nicely dive into some of the other things I'm talk about that does it sounds wonderful and I I do think to some extent and this can be the answer the proof is in the returns right if fund one is 6 billion and then fund two is 9 or 12 billion and all the people from fund one are definitely are desperate to get into fund two like that says a lot but I do think there's a worry like hey you know when you start saying hey we're going to raise third party offbalance sheet money to buy these assets that are going to be uh dedicated that are going to have guaranteed service and you know business from our high margin our high margin products like I think you start running into hey like this is what short sell anytime you see a company that does this there's going to be a short seller here and that's why I was saying we we'll probably talk short seller in a second but you know offbalance sheet captive sort of things you start saying how are you managing those conflicts of interest you start saying hey like at at some point do you start having the urge to pull returns into one bucket or another you know hey maybe we sell these at a little bit of a lower our margin a little bit so that we can raise some more money over here or hey those private equity investors seem happy with the returns maybe shift a little more more air and then you start saying hey I mean going from zero to 700 as you said all of a sudden they're one of the biggest uh leasing firms aircraft owners in the world that seems to have some interesting knock-on effect so I just want to say like how do you think about kind of the risks and the murkiness associated with that >> look you know it's it's hard For me, I I first I I I trust the management team. I I think they're above board more broadly. Um you know, the second thing is, you know, obviously they they they are a uh they're an investor in the equity of these vehicles too. So, you know, their interests are sort of aligned with the the success of those those vehicles. And then I think it's just like, okay, you know, if the returns are commensurate with what they've been marketing and they're able to continue to upsize it, it sort of speaks to, you know, what's really kind of going on beneath the surface here. But could they, you know, move assets, monetize assets too quickly? I don't really see, you know, that being much different than what, you know, a a traditional aircraft leasing vehicle might be doing, you know, on the books of an air cab or an air lease, for example. I think, you know, if everybody's aligned and, you know, we're trying to maximize returns, we're making the best decisions, you know, for the collective whole. >> Completely fair. Uh, speaking of, you know, again, one of the first questions I always like to ask is what is the market seeing that what is the market missing that you're seeing? I think we've already addressed a lot of that, but I do want to ask there was a high-profile short report from Muddy Waters in January of 2025, which, you know, I think sent the stock down from memory from like 100 to 70. And I know a lot of my friends who are are pretty thankful for that report because I I I think they thought it was but I I think they thought it was quite the opportunity and hindsight has perhaps revealed it was quite the opportunity given the stock price today. But I want to ask you know Muddy Waters is probably the name in shorting. Uh they they released a detailed report. It's got a lot of concerns. It mentions hiring a former to do a lot of work on this. What did you think of about the the muddy water short report there? And I guess there there is still short interest in general in FTI. So what do you think kind of the shorts are looking at here? >> Yeah. Um look, I I wish you hadn't even thrown the name out because I think you're giving him like, you know, free press. I'm just kidding. No, I mean, look, it was it was a um when I first saw the short report, I mean, it was a very pretty presentation, but like when you actually get underneath the surface, it I think there was it was it it was a little bit intellectually lazy, you know, when you when when you break the analysis uh down to its core. What were the the the two core claims that that Muddy Waters was making? The first claim was okay the margins in the aerospace products business are fake. Okay, typical MRO businesses make 15% margins. Uh FTI makes you know right now you know 35% margins in its aerospace products business. Why? Well, it's because they're playing games with depreciation. Okay. What they're doing is they're taking these assets that they're purchasing through their leasing business and they're hyperdepreciating them and then transferring those assets over to the aerospace products business to inflate the margins of the aerospace products business which is a higher m multiple business, right? If you're doing some of the parts than uh the leasing business. Okay, fine. Well, for everybody that that's out there, like this claim, if if you believe this claim still on the back of Ernston Young signing off in the company's 10K in 20124, then KPMG signing off in the company's 10K in 2025, then the company on its own accord at the risk of delaying its own 10K filing, hiring a forensic accounting firm to do a full investigation of these claims and coming back with nothing. If you still believe these claims, like okay, like more power to you. I think gives me a a lot of comfort that those things happened. But in essence, the the short report was kind of talking up the competitive advantage of FTI itself. FTI can go with its leasing arm and buy these these runout engines that nobody wants that are in essence fully. What what's the depre depreciable life of a 1517y old engine that needs to go through a $7 million shop visit before it can be attached to an engine, right? To a to to the wing of a of an airline of an airplane. It's pretty low, right? This is the this is the the strength of this you know vertically integrated model where you can take this asset management arm go and buy those very you know low input cost components that nobody else wants in the market and then turn them around and sub them for a tidy profit through the MRO business right that's the crux of it plus from a depreciation perspective you know the lease terms are a whole lot shorter at f-top than they are at some place like an aircap four five six years versus what we're talking about at air cap like 8 9 10 12 types of years. So all of these things explain that sort of that depreciation difference. >> The second thing that they were claiming was okay well you know they're not really selling modules they're selling full engines. >> Yes. >> I I I'm flipping through I'm flipping through that exa exact piece right now. Yeah. >> It's like okay like who who cares, right? Like you want one module, you want two modules, you want three modules. like you know it's dependent upon the airline. Okay. The other explanation for that is uh when you get a fully cycled engine back to you like it's fully refurbished. There are 20,000 cycles on the core. There are 25,000 cycles on the turbine and there are 30,000 cycles on the fan. Okay. The core is the most expensive thing to repair. Okay. And obviously, you know, you have to repair that more frequently because it only has 20,000 cycles on it. >> That's super interesting. When those engines come in with no core on it, most of the time the airlines like, "All right, fine. Do the rest of the work." Right? If FTI, if one of the customers wants FTI to sell them a core, they'll sell them a core, but most people decide, "No, we're going to do like a full restor." So, FTI will just give them a full engine and then take those three modules in, right? The other angle too, this is just a one-off, is FTI also does do work on this, the the V2500, which is an engine model that is uh again a Pratt Whitney like the it's the predecessor to the GTF. That's not a module engine. So, anytime you swap that engine with FTI, it is a full engine swap as opposed to a module swap. But the point is like, okay, you know, you want one module, you want two modules, you want three modules, like who cares? So, that was the muddy water short report. Per perhaps I am biased by the results and I've got a lot of respect for money buyers. Perhaps I'm hindsight biased by you know stock price bro but the thing that jumps out to me is they have they say hey we have a consultant a former FTI executive and the the consultant they has basically says hey yeah we did the MRO thing because we thought we would get a better multiple if we switched to MRO versus engine leasing and then the and that's it like the FTI executive doesn't really at any point question any of the business model like you have a former and Most time when I see a short seller report, they're like, "We have a former. He was there for four months. He left to be a whistleblower, right?" Like red flags. There's no cash in the balance sheet. Uh the executives have like go bags packed and houses in non-extradition countries. And here it was just like, "Hey, we thought we could improve our multiple." And and I I I was just always I was just again, it might be hindsight bias, but I was surprised by that. >> Yeah. >> Let me ask you the second uh thing that I think would be interesting. you you're talking and you're describing FTI as a great business at this point, right? And I think the market kind of agrees with you. If I'm just looking at Bloomberg, I don't have my full model built out or anything here, but Bloomberg says EV right now $30 billion. Ebida $ 1.5 billion. Yes, they are switching to much more asset light, but there is still a real DNA component here. But, you know, EPS $7 stock price two EPS in 2026 $7 stock price right now 275. So I might say, hey, this is great, but like how much greater is the market already seeing this as a great business. Like how much greater can be the business be that this is kind of a riskadjusted alpha opportunity? Look, I mean, unequivocally, I would have loved to have been here a year or two years ago pitching the stock or back when Jake, you know, Jacob was here pitching the stock. But look, I still think that there's a ton of of of upside in this business. the quality of this business like if you compare it you know a lot of people will say okay and they'll use this as you know a comp it's a different business you know this business very well but but haiko right like look the these these highquality aerospace businesses like this can trade at very very lofty multiples haiko is a business that trades at 30 times forward evad today even though it's kind of come off a little bit over the past couple of of of months this is a company that's I mean you know compared to what fai is doing from a growth perspective from a margin perspective from From a return on capital perspective, I mean today the returns on capital are twice that of Haikos. The the growth is I don't know more than double that of of Haikos on a forward basis. Ebot margins are you know uh at least you know 30% higher than Hikos. Um and then returns on capital are poised to improve very significantly. There's a ton of runway for continued growth here when we think about what 2027 looks like versus 2026. Even setting aside the contribution that this new uh aerodyivatives business is going to make. I mean this is a company that in 2026 is going to grow the modules it produced by 39 or 40% based off of their current guidance. Okay, call it a,000 plus modules in 2026. Let's think about this SCI just this is you know this is captive growth that they are going to be able to deploy. If they raise $6 billion in SCI2, okay, they can then go and buy 350 aircraft that are dedicated to the modular business. 350 aircraft, that's 700 engines. An engine comes in for, you know, a a heavy shop visit once every 5 years. You know, there's probably one to two modules that get swapped out. you know, every time that happens, you're basically guaranteeing just with the SCI you deployment another 25% growth in 2027 on off of what they're going to do in 2026. That sets aside any, you know, uh, contribution from organic growth from outside of the SEI. So, there's a long runway here for growth. And then what people aren't understanding is that the margins are poised to increase materially from here. If you look at consensus estimates, they're kind of they're building in, you know, uh, call it high 30% EBITDO margins. These guys have PMA coming in that's going to take, I mean, millions of dollars worth of of of of cost savings and and just pump it to the bottom line. They have um, you know, all of these uh, initiatives they're doing with Palunteer in terms of like inventory optimization, maintenance scheduling. they have um you know a bunch of of of agreements for used serviceable materials just constantly taking down the cost of maintaining these engines. I can envision this company in a couple of years not doing 35% margins but 45% margins maybe 50% margins. So you combine all these things explosive growth margin expansion by the way their balance sheet is starting to get really really clean. So there's going to be return on capital to shareholders, right? >> Returns on invested capital >> are going to go like through the roof over the next couple of years. They begin to uh you know do these these SCI and they're going to do one of these every year. $6 billion of capital growing this asset base on somebody else's balance sheet and using that as feed stock for their high margin aerospace products business. It's a pretty amazing thing that I think deserves to trade at a much higher multiple than call it 20 times forward. That's all on the core business. And I I know we're going to talk about error derivatives. >> We're going to go there in one second. Just I I wanted to make one comment. I as you know, one thing I'm struck by is to prep. I was reading some there's some old notes on valueclubs.com. I'm sure most listeners fold it heard it. The most recent write up, I believe, was from 2024, late 2024. The stock was 169. Somebody added the tag again, but the person said, "Look, this has been read written up previously twice. Once at $20 and the analyst had a $94 stock price target, once at $37 and I had, you know, an $80 stock price. It's blown through both of our targets. It looks expensive on the surface, but it always looks expensive on the surface. The stock's a tremendous value. this thing's growing like crazy and I think it's going to be worth 550 to 700 in about three years. So, uh I just think it's interesting like you know sometimes you find a great business that's got great tailwinds and a great setup and the numbers just higher higher higher higher higher like think about Nvidia. I I I always think a friend had told me 5 years ago, the moment you know you will know AI is here is when Nvidia has a quarter that's a massive beat and all your friends are all your smartest tech friends are just buying call options on it because GPU demands going through the roof. And like here it it kind of it's got a rhyme to me I guess. Look it feels that way to us. I mean, look, the way that we think about, you know, valuation, we call it a discounted price, but it's not necessarily that the stock is trading at an optically low multiple, right, in the marketplace. This is this is not I'm not here to say that it is. It's just if you extrapolate what this business is going to most likely look like in a couple of years time and discount that probabilistically back to present, is that reflected in the price of the stock on a per share basis? And I personally think, we think internally that the answer to that question is no. What do you think a fair value would be? I can I I can put you know look I think I I want to tackle sort of like the valuation component here because I think a lot of people do this thing where it's like okay let's sum of the parts this business right we've got this aerospace products business which is you know deserves a high multiple um you know uh like aerospace multiple like a haiko or like a you know helmet hexl woodward any of these types of businesses that that traded you know high 20s I mean some of them you know low30s types of forward multiples And then they look at the leasing business. Let's set the error derivatives business aside for a second. Then they look at the leasing business and they apply uh you know like a leasing multiple to it. You know 8 n 10 you know times you know forward evad um two things that you're missing when you do that right the first is look the leasing business is becoming an asset management business. Okay, a lowasset intensity recurring revenue stream alternative asset manager. Up until a couple of weeks ago before we had this like you know private credit debacle, all of which is by the way focused on you know like tech stocks not on aerospace assets the these these businesses traded at 20 to 25 times forward. Okay, I can make a very good argument as to why the the consolidated core business, this high quality aerospace business plus this, you know, in essence alternative asset manager should collectively trade at a high multiple of of of forward earnings to the tune of 25 20 25%. >> And unless you're and I don't think FDI has any uh private software credit exposure, so you know, probably they still deserve that Mars. Yeah, >> they don't. So look, then you can start putting numbers on that, right? And I kind of talked about what I think about people are valuing this business off of 2027 because the the what we're going to talk about this aerodyivatives business, but um look, 2027 is going to be another explosive year of growth and most of that growth is if they're able to raise what they're expected to raise from this new vehicle, it's it's captive and guaranteed, >> right? And so you can start to extrapolate. I can see, you know, at least, you know, potentially $2 billion worth of core EVA from this business. And then what type of a multiple do you want to ascribe to that? I'd prefer to do it not in the sum of the parts way. I think those never work, by the way, Andrew. That's my take is that some of the parts. >> Oh, yeah. I've kind of come around to that point of view as well. I've had my head beaten one too many times. >> So, so, so put it like put it, you know, put it on uh, you know, put a 20 times multiple on it. 20 times time, you know, 20 times. There's $3 billion worth of debt on the balance sheet, right? Um, you know, they're going to uh generate a billion dollars of free cash flow, which I hope doesn't acrew to the balance sheet, but theoretically it could. There's 103 million shares outstanding. That's a $385 stock price. Slap a 25 times multiple on that, right? And this is this is by you know by the end of 2026 this is what we're going to be looking at is that you know a company that has the potential the core of the business to earn you know close to $2 billion worth of worth of evida. >> We're going to have to end by I we've alluded to it a few times but we have to end by talking about they you know Christmas came a little late for FTI shareholders. They end right at the end of 2025. They announced that they're announcing uh FTI power where they're gonna it I I I well I'll let you just describe what they're going to do and kind of what what you think about the upside because I I think it's really fascinating and you go from one area of shortage engines to what an even bigger and more important shortage. But I'll let you describe it and stop rambling. >> Look, this is I I I want to like full disclaimer is this is a new thing for me as an investor in this stock. So I'm like I'm still getting smart on it myself. But >> in essence, what the company's going to do, we know that there's a massive shortage of of power for all these data centers that are coming online, but there's whatever $6 trillion of capital that's going to be spent on building these things out in the United States. >> And uh it's very difficult to get these things plugged into the grid. >> Plus, there's, you know, arguments as to whether or not they should be plugged into the grid in the first place and, you know, drive up the cost of energy for, you know, all the consumers uh out there. uh what FTI is doing is they're taking these end of life engines, you know, either from their own feed stock, they have owned assets on the balance sheet or or they can go and buy these things. And it's different than runout engines. It's like it's part out engines, right? A lot of people talk about, okay, well, if you're taking these these engines out of circulation or you're not cannibalizing existing business, FTI is not buying typically part out engines. They're buying runout engines. The difference there is this engine is is so old and it's not it's not fit for the wing anymore. So, we're going to just take it down to the piece part level, see what we can salvage, and the rest of it's basically scrap. They're going to take these engines um and they're going to turn them into to turbines for data centers, gas powered turbines for data centers. They've been working on this for, you know, call it a year and a half. And um the expectation is that uh by 2027 they'll be able to produce about a hundred of these units. These units are you 25 megawatt units. They're like stackable. They're portable. Typical rule of thumb is um you know, as I've learned over the past couple of months since this announcement is like it's like a million dollar per megawatt. So we're talking like purchasing this is like you know $25 million purchase price. Um they expect this new aerodyivatives uh business, the power business to be able to generate the same type of EBID margin that their high margin aerospace products business does. Why? >> So, are they are they going to be renting it out? They're going to rent it out. >> No. Uh they are going to sell the engine to a a data center and then they're going to use the same service model that they currently have, the module swap model um to service that through the the use the life of of of that uh that turbine, right? But it's high margin again for the same reason that Muddy Waters was missing, right? for the same reason uh that the aerospace products business margins are so high is because you're taking you know this basically trash right this stuff would be scrapped and you're adding 10 to 20 years of useful life on it and so your input cost right the turbine itself is about as low as it can get in the industry there are people like GE Vernova that you know offer similar products into the market but their backlogs are full right you can't get delivery of one of these units until I mean at least 2030 the beauty of FTI having the input, right, the turbine already on their balance sheet and being able to, you know, procure these things in the market as well is they can deliver this, you know, by 2027. >> It's why it's so fascinating, right? You've got this company that owns all these engines and at the end of their life, I mean, as you're saying, they're basically scrap and all of a sudden it's like, oh, they don't need to be in the air. We can just go put them into some data center in, you know, probably Northern Virginia. Put them in some data center. Uh, I bet they're going to make a pretty penny on selling them because as you said, I think a million a mega is about right. I I have no, but their cost of goods there has to be extremely low. I have no clue. And then they've got a natural ability to service these things. So, it's just like I it's just, as I was saying earlier, sometimes you've got these great companies and they just keep stumbling and stumbling and stumbling into the these great businesses. Uh, somebody had a quote, you know, I find buying great businesses easy because they just keep finding great opportunities. You know, uh, one of the great things about owning sports teams is just when you think there's not another thing that they can get sponsored by, it's, oh, it's the crypto arena now or hey, we need a prediction market sponsor or hey, there's a new energy drinks are our big sponsors now. Like there's always something new that wants to get sponsored and here it's just like there's always some some new demand for power for power from old gen engines. I suppose >> absolutely look this management team is like very very smart and they're constantly thinking of ways to continue to monetize this platform. I mean um this is just another way it also extends you know the the longevity of the platform you know um uh monetizing yeah as you said sort of these endof life uh assets and and adding you know a lot of of years to their utility. Well, uh, look, I think we've done a really nice job covering and breaking down a lot of different aspects of, uh, FI. I I would be remiss if I didn't ask, you know, is there anything else that we should have hit or anything else that people should be thinking about before we kind of wrap this up? >> Um, look, I think we've hit, Andrew, like most of the stuff here. Um, I >> I had a list of notes. It looks like I had uh 17 different bullet points and we hit them all. So, yeah. >> [laughter] >> Hope we didn't Yeah. Hope I didn't go too fast. Overall, >> I say like >> the only thing that I can think of is um I kind of interestingly you know this is this is becoming very quickly and a real aerospace products business right and um you know they are changing their their GICS classification in in March which I don't know if it ever makes any difference but sometimes when I screen I'll I'll screen for like industries and all those sorts of things. Everybody always thinks there are people that are missing this that are screening in the aerospace products business because when I tell this story to folks it's a big business, right? $30 billion market cap type of a business. Uh no one's ever heard of it before. It it you know I I will say I always people always get really excited for the G GICS and I'm always like I don't know man. And I I I had trouble, believe me. But on the other hand, I would have told you four years ago that the European market to US market relistings, I would have said, "Hey, like investors, if they want, hey, there's plenty of investors over in Europe and US investors can go buy buy the stock or a lot of these had ADRs." And man, every single relisting to my knowledge basically works swimmingly and all of them got huge multiple ratings. So maybe I'm being too cavalier with dismissing like, "Hey, this matters." You know what else, FDI? They're $30 billion. They're going to be in the S&P 500 soon. >> That was the second uh thing I was going to mention is look, I don't know if it's going to happen or not. And it's like I'm not a, you know, that type of a prognosticator. So, but just look, just watch out for it because I think I think it's a distinct possibility. But I guess the last thing that I would say is like the alignment of the management team here, right? I mean, this guy's the CEO, Joe Adams, who I think is is spectacular and and uh really knows more about after aftermarket engine maintenance than pretty much anybody I've come across. Um, look, this guy owns a lot of stock. He owns like about $150 million worth of stuff. >> When the stock goes up literally 100x, it turns out that all of a sudden you're like, "Oh, I'm I'm a big equity owner now." >> We were talking about alignment of incentives. I think that's a pretty good alignment of incentives. the COO owns like, you know, he's I don't know, 40 years old. He owns, you know, a good $80 million worth of stock. Actually, funny about the the CEO. I think this was back in May. He used his in, you know, he he was a Fortress Investment Group, you know, managing partner for years. I presume he has other assets outside of his ownership in FTI, but he used his I think this is true. Don't quote me on it, but he used his like his $14 million lifetime like gift exemption in his uh dynasty trust to put shares of FTI into. Didn't put a single share of anything else into it. So, he's got like he believes in the story here. Um and he's certainly aligned with investors. You know, I would also when I was prepping for this, it wasn't I love insider buying obviously and there wasn't enough where I was like screaming like here, but if you go look at the list of insider buying buying I mean again this is after the stocks had a huge run May 2025 all up and down the seauite people are buying you know it's just a just quote unquote a couple hundred thousand shares but people are buying uh November 2025 all up and down the seauite with the stock at 150 people are buying stock you know you go back to 2024 the CEO you mentioned buying 5 million of stocks at 82, but like it it I guess more than the insider buys, it's actually that generally when you see a stock going up like this, you'd expect expect to see like a bunch of in my thing, cells are red. You'd expect to see a bunch of red and there's basically no red. It's all green or nothing, you know? So, I I think that speaks to kind of the conviction and the insider alignment here, too. >> Absolutely. >> Cool. Well, Will, this has been great. Uh, people can find I'll give you a quick plug. People can find carriageouslp.com. There's nothing on the website though. The front page is very pretty and it has uh the way to reach out to Well, any other way people should reach out to you if they want to uh chat or anything? >> Yeah, info@carageouselp.com. Um, I don't have much of a of of a of a Twitter presence, but uh, you know, uh, maybe you'll find me out there someplace. >> Well, Will obviously does great work and this has been a lot of fun. So, Will, thank you so much for coming on and I can't wait to have you on again. >> Thanks again, Andrew. I really appreciate it. >> A quick disclaimer, nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial adviser. Thanks.
Carriage House's Will Cleary on $FTAI
Summary
Transcript
Hello and welcome to the yet another value podcast. I'm your host Andrew Walker. Today we've got a great episode. I've got Will Clarion from uh Carriage House Fund. He Will is a I say this about everyone, but Will is a real guy and you're going to hear this really quickly when we start diving into it. He does he runs a concentrated value book. Just the type of guy I don't like to talk to. Uh we're going to talk about FTA today. It's uh got a cult following I'd say and also a little bit of a short interest there. But Will has done great work on there. And I think what's really gonna jump out to you when you listen to this is I ask a question, he instantly knows the answer. And this is what I love when someone's already they've thought about something so much that they already know the answer to things and he's just pulling stats, you know, left and right, like really impressive stats because he knows the space cold and knows the company called. You're really going to enjoy it. Uh you're going to learn a lot from it. I think it's awesome and I can't wait to have Will on for the second time. So we'll get there in one second, but first word from our sponsor. This podcast is sponsored by me. Okay. Okay. It's sponsored by AlphaSense, but it's also sponsored by me. I'm going to be doing a live webinar with AlphaSense's director of TMT research, Michelle Brophie, on March 10th at 1 p.m. Eastern. Uh we're going to be talking about all things media. You know, if you're a long time follower of this podcast, if you're a longtime follower of the blog, you know I love media. I love telecom. I love uh communication. I love it all. So, we're going to be talking about all things media. I am recording this advertisement on February 27th. We just had within the past 24 hours, Paramount outbid Netflix for Warner Brothers. Netflix backs off. I bet you we're going to be talking about how that reshapes the media landscape a little bit. Disney's got a new CEO. Sports rights are always in the news. Video games, remember them? Those are pretty interesting. That's evolving quickly. What about AI content? We're going to be talking about all of it. And the best part is it's a live webinar. So, if you come join, and I'd love for you to come join and listen live. We're going to be taking questions live for listeners. So, you can hear me ramble like a madman in real time if you ask the right question. So, if you're interested, there'll be a link in the show notes or you know what, go to get anothervalblog.com. You can find it there. Go to alpha-sense.comyavp. That's alpha-sense.comyavp. I did that off the cuff of my head. That's how much I know the referral link. So, go there. You can sign up. All that sort of stuff. Would love to have you. March 10th, 1 p.m. Eastern. And of course, there'll be a replay if you want to catch it on replay instead. See you soon. All right. Hello and welcome to the Yet Another Value Podcast. I'm your host, Andrew Walker, and with me today, I'm happy to have on for the first time, Will Clary. Will, how's it going? >> It's going great, Andrew. Thanks again for having me. Excited to be here. >> Well, you got to tell the guest. Just get it out the way. You got to tell the guest. What are you drinking? And >> Andrew saw me drinking a a a cherry coke. And so, he's making fun of me about >> I'm not making fun of you. This is It's all I mean, you just got to let the people know that is value bonafids when you drink the drink of the literal investing god. So, >> yeah. channeling my my my inner Buffett. I I hope I I hope uh you know the returns are as as commensurate. >> Yeah. Right. Uh Will is from Carriage House. I'm super excited to talk to him about it. He does great work on stuff. So, we're going to get there in one second. But first, just a reminder, nothing on this podcast investing advice. There's a full disclaimer at the end of the podcast, so you can see that legal disclaimer in the show notes. All sort of that. So, please remember, not investing advice. Do your own work. Well, the company we're going to talk about here is FTI, FTA aviation. This is uh Jacob Rubin did such a pressing call. I I wish everyone had held on forever when he did the call because even before the spin-off, he he did the call on FTA a long time, but you know that was a long time ago, a lot of podcasts ago, and the company has evolved a lot. So, I I'm just going to pause here and ask what is FTI and why are they so interesting? >> Yeah, look, uh Jacob did, by the way, do a fantastic job. The story has changed, uh you know, a lot. And by the way, it's a complicated story, Andrew. When you when you you look at it on the surface, there's a lot of moving pieces. It gets more complicated by the day. You know, there's this new aerodyiv I started prepping for this podcast yesterday afternoon. I had four hours blocked out and then I was like, "Oh boy, there's a lot more pieces and you know, the pieces just keep moving." But that's what I've gotten you here on to explain it all for. >> Exactly. [clears throat] And look, so you know, I want to focus first on like the core of FTI's business, which is really what, you know, got us excited about it um in the first place, right? So, look, from a high level, at its core, um FTI is a leading provider of of aftermarket jet engine power for the commercial aviation industry. And it it has a differentiated model, right, for delivering that power uh that that saves its customers time and money and also generates outsized profitability for for FTI itself. A and all of this stems from a decision the company made, you know, really only a couple of years ago, right? Where it was in essence this, you know, sort of run-of-the-mill jet engine less or an owner of those assets and it made the decision to vertically integrate into engine maintenance and repair. And and that decision, right, that vertical integration, combining the the ownership of the assets with the maintenance of the assets all under one roof created this this powerful platform, right? That platform uh sources and acquires runout engines. It then repairs those engines inhouse and then it it offers those engines to to airline customers either for for an outright sale for lease or for exchange for a customer's runout engine, right? and and that that exchange right which the company calls a module swap is really what differentiates FTI's platform and that platform is uh it's growing rapidly and it's getting more powerful as it scales it's it's continuing to vertically integrate right so it's getting more profitable and it's also pursuing an asset like transition such that returns on capital are inflecting in the right ction. >> That That's perfect. Now, let me ask there's a lot to dive into, a lot to talk about here, but I I just want to ask I know a little bit about the uh aircraft space and jets and all that, and it's not lost on me that over the past two to three years, there's been this huge engine shortage, right? Largely caused by uh I can't remember who was having the tainted pow what specific engine was having the tainted powder metal issues, but >> the GTF. >> Yes. Yes. So, it's not lost to me like this goes on this, you know, parabolic run and returns great and the company says and probably rightly so. They made a great decision to vertically integrate. But I do have to wonder like how much of what they're experiencing is company brilliance versus how much is industry factors because I kind of I've always worried in the back of my head like hey at some point the powder metal issues probably get resolved and do you all of a sudden switch from oh my god we're super short engines to I don't think we'd be in a glut but all of a sudden it neutralizes and then this company that looked brilliant it turns out oh it was more industry wave than actual that their brilliance if that makes sense. Look, I I think that's all very fair and I'll touch on some of the dynamics around the the supply demand imbalance, but look at at its core like I think it's the value proposition that this module swap um you know offering of FTI brings compared to like the traditional MRO model, right? That's what's really driving the growth here. And you can you can see it in the numbers. I mean, this company went from doing uh zero module swaps in 2020 to, you know, that business being a $ 1.1 billion business for them in 2024 with 5% market share. Today, it's a $2 billion business. They have 10% market share. It's really the cost and time savings for the airline customers that are driving the adoption of this model. There is no question a component of, you know, obviously their core leasing business, right? uh that that that that's sort of propped up by, you know, demand for these uh these midlife assets. Um you know, I think there's been a lot of things that have been pretty well publicized about problems with the the next generation of aircraft that are coming through. Um you know, we have the the issues with the 737 Max, right? Um you know, that's that's been impacting the Leap engine that's on that that that aircraft. We've got the GTF issues. But um I think there's a really long runway for this CFM56 which is the core engine that that FTI's focused on um to continue to be in circulation for quite some time. This is a prolific engine. There's 20,000 of these things out there. And although it's not a brand new platform, right? Most of these engines haven't even gone through their first shop visit yet. About 40% of them haven't. The interesting thing is as FTI continues to iterate on its model and lower the cost of ownership for this asset itself, it actually elongates the life cycle of the CFM56 in utilization, right? If you can save 30 or 40% of the cost of a shop visit, right, by doing this work with FTI as opposed to doing it through a traditional MRO and and and engine maintenance is the third largest expense for an airline behind fuel and labor, right? you can uh you can own those engines uh for a longer period of time. It's not technological disruption that puts these things on the sidelines. It's the economics of running them. And the economics of doing this engine maintenance and repair work through FTI make owning that very, you know, uh efficient and reliable engine all the more compelling. >> Now, so why does working with FTI lower the cost of engine maintenance? I I think it's best to sort of give you like the textbook example that kind of bring this together. >> I love it. Yes, please. >> Yeah. So, like imagine Well, maybe I'll go on on a quick tangent because I think it's important >> to understand sort of the the the engineering behind this this specific engine that FTI's focused on, the CFM56. Right. I >> What planes is this on, by the way, just so people know what types of planes is the CFM5600? Yeah, >> the CFM56 is uh it it powers all of the 737 NGS uh in the entire world. It powers uh probably 60% of the 8320 CEOs in the world. These are narrow body aircraft like very prolific like ubiquitous engine platform maybe that's ever existed in commercial aviation history. There's 20,000 of these things in operation. >> 600 different owners of these things. But what's most important about the CFM engine, it's a module engine. And what I mean by that is there are three distinct modules, the core, the fan, and the the turbine that combine to create the engine itself. And each one of those things has, you know, life limited parts in it, only a certain number of cycles. So if you're uh you own this engine and and one of those uh modules runs out of cycle time, green time, needs to go in for a shop visit. So imagine you're like a smaller midsize airline, Andrew. That's like the core customer for for FTI's modular swath. You own this engine. You know, one of those uh modules runs out of Green Tai needs to go in for a shop is you cannot do this work yourself. Okay. Uh of the 600 people that uh own this engine, uh you know, airlines less or there are five that actually have internal MRO capabilities, right? It's like Delta, Lufansza, uh, American, the big guys, the big operator. >> Yeah. >> So, your alliance is a small or mid-sized airline on this network of of third party MRO shops. You send that engine out to the shop, it'll take like a month and a half or two months just for that engine to get inducted into the shop in the first place, right? And then it makes its way to the shop floor. You know, the typical MRO model is to instruct that uh that technician to tear the entire engine down to like the piece part level, right? Remember, only one of my modules had to be repaired on it. The typical MRO model will tear that down to the nuts and bolts, the entire engine, looking for ways to expand the scope scope of work, right? That's how these guys make their margin. So, I get my engine inducted, two months, turnaround times, another two months, four to six months for me as that small or medium-sized airline to get my engine back. It's going to cost me $7 million per shop visit. Okay, compare that to the FTI model. FTI has engines that have already been refurbished and modules that are have already been refurbished sitting in their inventory. Okay, they can send that smaller midsized airline the module that they need like overnight, right? It collapses the turnaround times to basically zero. I send you the new model module, you take the old one off, put the new one on, you're back up and running in the course of a couple of weeks versus months. But most importantly, it cuts down the cost of this maintenance materially because first, we're addressing the problem, the module that needs repair as opposed to allowing the work scope to creep, right? But secondly, because FTI is able to uh maintain uh to repair these modules in house, right? They can allow that smaller mid-sized airline as part of the consideration paid to them for that new module they're sending to send them their old runout module, which they'll they'll then repair and remarket to somebody else, right? And so, you know, four to six months goes to 2 to 3 weeks and $7 million goes to 4.5 million bucks. So the last point I want to make here Andrew this was not a novel concept this module swap business that FTI established right the those larger operators with their own internal MRO capabilities have been for a long time themselves but >> for the first time right this model this module swap model was available to everybody right and you know cheaper and quicker is a pretty compelling value proposition hence the the explosive growth they've seen >> that was a And I I I want to push on. So would I be right in thinking, hey, you do kind of get a network effect business here, right? Because you and I, my my first question was going to be why can't everybody do the the same MRO module replacement. You and I could start it up, but we don't have a we don't have people working with us to swap the modules quickly, and that's probably important. And B, we don't have the inventory. And then once you've kind of got everybody in there, if we came and we came along, we said, "Hey, we've got a hundred modules. Come trade with Like I'm sure people would be interested but our inventory would be move a lot slower. Am I thinking about it correctly that there's probably a little bit of a network effect dynamic going on now that they've kind of got it and kind of sucked up all the smaller players or is that incorrect? >> No, I I I think it's it's it's absolutely the case. Right. And by the way, these guys have been at this a long time now and so like have sort of this commanding control over the the the CFM ecosystem, right? I think it'd be very difficult for somebody else to come in and do this. But you're you're hitting on something very important, right? Think about all the different advantages this company has, right? If if you were a traditional like we'll call it airline less. I I like to think of these these companies and you know this business very well as you know these are asset management businesses, right? They're they're leasing but they're also buying and selling and swapping and trading, right? What value am I going to have from a runout like you know singular engine module? I don't know the other two like right ft does because they can pick up you know they pick up a turbine from one person but they've also picked up a core from another person and they've picked up a fan from another person they can combine those into an engine right and then market that into you know into the eos >> they really I mean they had I guess they had the turbine so yeah okay I was gonna say it'd be a little weird to me if they were just like kind of a Star Wars style like hey we're the Tuskan Raiders we got a bunch of things and now WE'VE GOT A WHOLE NEW A WHOLE NEW airplane or something you No, I hear exactly what you're saying. It it's look, they they did spend at the onset a lot of money to make sure they had the feed stock to be able to do this. I that's that's a big, you know, competitive barrier here is, okay, somebody wants to come in to this market. They're going to have to spend like the $2 billion of capital FTI has already spent on, you know, setting up this this this sort of this this module ecosystem buying that feed stock, right? So, if you're a lesser, you want to come into this business, right? Well, you also have to buy MRO, right? You have to go and find a shop that's going to be able to do this. It's hard to find labor. You're adding sort of this operational complexity to an essence of financing business. If you're a traditional MRO, you know, to adopt this model FTI has, you know, uh established where they don't like work scope creep, right? They want to just focus on what the core problem is. You got to throw your old model out, right? This work scope creep model. Then, you know, you've got to figure out how to set up an asset management arm. You've got to go and buy all this feed stock. And when you're buying that feed stock in the market, guess who's bidding against that feed stock, right? It's FTI, you know, and they already have this sort of structural cost advantage to uh, you know, to out bid you and make a whole lot more money on that engine component. >> You mentioned that the larger players, the the Delta Airlines, the American Airlines already have their kind of own internal repair. So they do not use FTI. >> You know what's really funny is early in the life cycle of the story, people thought this was just um you know something for the small and midsized airlines. But as FTI has gotten bigger and by the way they are they're very they're very scaled now, right? They're doing you know 750 of these module swaps a year >> as we're talking they're going to power the data centers now >> I think we're going to get to that too. Um, yeah. Yeah. I mean, they're actually starting to do a lot more work with some of the with the larger airlines now. They're becoming a, you know, a better counterparty, a a much more reputable counterparty for the large airlines. Um, they've talked about this, I think on the second quarter earnings call this year. They announced, you know, for the first time, hey, we just did a big deal uh with one of the major uh carriers. So I think that you know cost and time savings uh is a a a pretty uh universal compelling value proposition and if it fits in with with the plans of the larger operators FTI's there as a as a significant counterparty. >> I think we've done a nice job framing the core business at this point. Uh I I I have a lot of questions I want to follow up on and build off that framing, but I just want to pause here to make sure. Do you is there anything on kind of the core business that you want listeners to know about before I kind of dive into different aspects of the story? >> Well, I I don't know if you're going to touch on this. I think we may touch on it, but maybe this this sort of this strategic capital initiative. Uh >> that that would be a great one. I think they launched at the beginning of 2025 and that's what's really taking them asset light. So, why don't you start there and we can kind of build off that. you know, as I I sort of talked about, right? It's this this this explosive growth, but you know, to get more modules, what do you need to do is you need to go and buy more modules using your balance sheet, you know, debt capacity to do that. Um, FTI then made this very important sort of strategic decision to begin to utilize in essence other people's balance sheets to fuel the growth of this high margin aerospace products module swap business. Right? So what they did initially they went out uh with the expectation of raising you know $3 billion of of private debt right um and then they were going to uh acquire uh on lease uh aircraft. those on these aircraft would be owned like offbalance sheet non-reourse to the company but then contractually they would have all their services done um by the module factory by the module swap business you know saving those investors you know a lot of time on on the maintenance of those assets right so a compelling offering there and then combining this capability these guys had to um you know uh to to purpose fit these engines you know 5,000 cycles here if you need 10,000 cycles over there. Uh it actually derisked this this this game of aircraft uh financing, right? You know this from your experience in the the the aircraft leasing business. A lot of your equity returns are embedded in in that in monetizing, you know, the residual value. >> Not just air, every rental, every leasing business. It's like you look at them, they're like, "We're so good at rent. We're so good at renting. We've got such great customers." like, "Hey guys, I think like uh all all of the embedded gains and losses are in how you can sell this thing." So, uh it's a it's a big assumption. These guys do not have easy jobs when it comes to this. >> No, it's super hard. You have no idea what the market's going to look like when you go out to market and try and, you know, sell these things, right? So if you kind of just think about this like imagine uh you know there there's a um there's an airplane is a fiveyear uh you know lease term and uh you know two and a half years into it there's a major uh engine event what would typically happen is that airline would be responsible for putting you know uh 5 years of cycles on that engine right what FIA can do is basically say okay instead of putting five years of of of cycles on that engine so at the end of it you're left with a 2 and a half year engine we'll we'll we'll module swap and give you a 2 and 1/2 year purpose-built engine, right? So that's less money that you know you need to put up which you know obviously increases your returns and by the time that uh engine runs out of cycles at the end of that lease you know the residual value will be all like it'll be part out value right so you're in essence sort of lower capital contribution which maximizes returns and then lower risk I think the company always says like look if you're a private debt investor that's the quadrant you want to get into so um as a result of that they started marketing this Um, and they upsized it from, you know, $3 billion to six, right? They've almost, you know, deployed all of that that that capital. They just announced, you know, an SCI, you know, two partnerships. So, what's happening here is the leasing component of this business is getting super asset light. This is this is this is captive business for the high margin aerospace products segment, right? They don't have to go and try and win this market share in the marketplace. They are buying it and guaranteeing it. And then uh you know the thing begins to you know you have $6 billion of assets under management then 12 you know 350 airlines airplanes become seven. You're one of the largest owners of narrowbody uh you know uh airplanes in the world. So there a lot of other benefits acrew to you. So I think you know one worry and I think this will nicely dive into some of the other things I'm talk about that does it sounds wonderful and I I do think to some extent and this can be the answer the proof is in the returns right if fund one is 6 billion and then fund two is 9 or 12 billion and all the people from fund one are definitely are desperate to get into fund two like that says a lot but I do think there's a worry like hey you know when you start saying hey we're going to raise third party offbalance sheet money to buy these assets that are going to be uh dedicated that are going to have guaranteed service and you know business from our high margin our high margin products like I think you start running into hey like this is what short sell anytime you see a company that does this there's going to be a short seller here and that's why I was saying we we'll probably talk short seller in a second but you know offbalance sheet captive sort of things you start saying how are you managing those conflicts of interest you start saying hey like at at some point do you start having the urge to pull returns into one bucket or another you know hey maybe we sell these at a little bit of a lower our margin a little bit so that we can raise some more money over here or hey those private equity investors seem happy with the returns maybe shift a little more more air and then you start saying hey I mean going from zero to 700 as you said all of a sudden they're one of the biggest uh leasing firms aircraft owners in the world that seems to have some interesting knock-on effect so I just want to say like how do you think about kind of the risks and the murkiness associated with that >> look you know it's it's hard For me, I I first I I I trust the management team. I I think they're above board more broadly. Um you know, the second thing is, you know, obviously they they they are a uh they're an investor in the equity of these vehicles too. So, you know, their interests are sort of aligned with the the success of those those vehicles. And then I think it's just like, okay, you know, if the returns are commensurate with what they've been marketing and they're able to continue to upsize it, it sort of speaks to, you know, what's really kind of going on beneath the surface here. But could they, you know, move assets, monetize assets too quickly? I don't really see, you know, that being much different than what, you know, a a traditional aircraft leasing vehicle might be doing, you know, on the books of an air cab or an air lease, for example. I think, you know, if everybody's aligned and, you know, we're trying to maximize returns, we're making the best decisions, you know, for the collective whole. >> Completely fair. Uh, speaking of, you know, again, one of the first questions I always like to ask is what is the market seeing that what is the market missing that you're seeing? I think we've already addressed a lot of that, but I do want to ask there was a high-profile short report from Muddy Waters in January of 2025, which, you know, I think sent the stock down from memory from like 100 to 70. And I know a lot of my friends who are are pretty thankful for that report because I I I think they thought it was but I I think they thought it was quite the opportunity and hindsight has perhaps revealed it was quite the opportunity given the stock price today. But I want to ask you know Muddy Waters is probably the name in shorting. Uh they they released a detailed report. It's got a lot of concerns. It mentions hiring a former to do a lot of work on this. What did you think of about the the muddy water short report there? And I guess there there is still short interest in general in FTI. So what do you think kind of the shorts are looking at here? >> Yeah. Um look, I I wish you hadn't even thrown the name out because I think you're giving him like, you know, free press. I'm just kidding. No, I mean, look, it was it was a um when I first saw the short report, I mean, it was a very pretty presentation, but like when you actually get underneath the surface, it I think there was it was it it was a little bit intellectually lazy, you know, when you when when you break the analysis uh down to its core. What were the the the two core claims that that Muddy Waters was making? The first claim was okay the margins in the aerospace products business are fake. Okay, typical MRO businesses make 15% margins. Uh FTI makes you know right now you know 35% margins in its aerospace products business. Why? Well, it's because they're playing games with depreciation. Okay. What they're doing is they're taking these assets that they're purchasing through their leasing business and they're hyperdepreciating them and then transferring those assets over to the aerospace products business to inflate the margins of the aerospace products business which is a higher m multiple business, right? If you're doing some of the parts than uh the leasing business. Okay, fine. Well, for everybody that that's out there, like this claim, if if you believe this claim still on the back of Ernston Young signing off in the company's 10K in 20124, then KPMG signing off in the company's 10K in 2025, then the company on its own accord at the risk of delaying its own 10K filing, hiring a forensic accounting firm to do a full investigation of these claims and coming back with nothing. If you still believe these claims, like okay, like more power to you. I think gives me a a lot of comfort that those things happened. But in essence, the the short report was kind of talking up the competitive advantage of FTI itself. FTI can go with its leasing arm and buy these these runout engines that nobody wants that are in essence fully. What what's the depre depreciable life of a 1517y old engine that needs to go through a $7 million shop visit before it can be attached to an engine, right? To a to to the wing of a of an airline of an airplane. It's pretty low, right? This is the this is the the strength of this you know vertically integrated model where you can take this asset management arm go and buy those very you know low input cost components that nobody else wants in the market and then turn them around and sub them for a tidy profit through the MRO business right that's the crux of it plus from a depreciation perspective you know the lease terms are a whole lot shorter at f-top than they are at some place like an aircap four five six years versus what we're talking about at air cap like 8 9 10 12 types of years. So all of these things explain that sort of that depreciation difference. >> The second thing that they were claiming was okay well you know they're not really selling modules they're selling full engines. >> Yes. >> I I I'm flipping through I'm flipping through that exa exact piece right now. Yeah. >> It's like okay like who who cares, right? Like you want one module, you want two modules, you want three modules. like you know it's dependent upon the airline. Okay. The other explanation for that is uh when you get a fully cycled engine back to you like it's fully refurbished. There are 20,000 cycles on the core. There are 25,000 cycles on the turbine and there are 30,000 cycles on the fan. Okay. The core is the most expensive thing to repair. Okay. And obviously, you know, you have to repair that more frequently because it only has 20,000 cycles on it. >> That's super interesting. When those engines come in with no core on it, most of the time the airlines like, "All right, fine. Do the rest of the work." Right? If FTI, if one of the customers wants FTI to sell them a core, they'll sell them a core, but most people decide, "No, we're going to do like a full restor." So, FTI will just give them a full engine and then take those three modules in, right? The other angle too, this is just a one-off, is FTI also does do work on this, the the V2500, which is an engine model that is uh again a Pratt Whitney like the it's the predecessor to the GTF. That's not a module engine. So, anytime you swap that engine with FTI, it is a full engine swap as opposed to a module swap. But the point is like, okay, you know, you want one module, you want two modules, you want three modules, like who cares? So, that was the muddy water short report. Per perhaps I am biased by the results and I've got a lot of respect for money buyers. Perhaps I'm hindsight biased by you know stock price bro but the thing that jumps out to me is they have they say hey we have a consultant a former FTI executive and the the consultant they has basically says hey yeah we did the MRO thing because we thought we would get a better multiple if we switched to MRO versus engine leasing and then the and that's it like the FTI executive doesn't really at any point question any of the business model like you have a former and Most time when I see a short seller report, they're like, "We have a former. He was there for four months. He left to be a whistleblower, right?" Like red flags. There's no cash in the balance sheet. Uh the executives have like go bags packed and houses in non-extradition countries. And here it was just like, "Hey, we thought we could improve our multiple." And and I I I was just always I was just again, it might be hindsight bias, but I was surprised by that. >> Yeah. >> Let me ask you the second uh thing that I think would be interesting. you you're talking and you're describing FTI as a great business at this point, right? And I think the market kind of agrees with you. If I'm just looking at Bloomberg, I don't have my full model built out or anything here, but Bloomberg says EV right now $30 billion. Ebida $ 1.5 billion. Yes, they are switching to much more asset light, but there is still a real DNA component here. But, you know, EPS $7 stock price two EPS in 2026 $7 stock price right now 275. So I might say, hey, this is great, but like how much greater is the market already seeing this as a great business. Like how much greater can be the business be that this is kind of a riskadjusted alpha opportunity? Look, I mean, unequivocally, I would have loved to have been here a year or two years ago pitching the stock or back when Jake, you know, Jacob was here pitching the stock. But look, I still think that there's a ton of of of upside in this business. the quality of this business like if you compare it you know a lot of people will say okay and they'll use this as you know a comp it's a different business you know this business very well but but haiko right like look the these these highquality aerospace businesses like this can trade at very very lofty multiples haiko is a business that trades at 30 times forward evad today even though it's kind of come off a little bit over the past couple of of of months this is a company that's I mean you know compared to what fai is doing from a growth perspective from a margin perspective from From a return on capital perspective, I mean today the returns on capital are twice that of Haikos. The the growth is I don't know more than double that of of Haikos on a forward basis. Ebot margins are you know uh at least you know 30% higher than Hikos. Um and then returns on capital are poised to improve very significantly. There's a ton of runway for continued growth here when we think about what 2027 looks like versus 2026. Even setting aside the contribution that this new uh aerodyivatives business is going to make. I mean this is a company that in 2026 is going to grow the modules it produced by 39 or 40% based off of their current guidance. Okay, call it a,000 plus modules in 2026. Let's think about this SCI just this is you know this is captive growth that they are going to be able to deploy. If they raise $6 billion in SCI2, okay, they can then go and buy 350 aircraft that are dedicated to the modular business. 350 aircraft, that's 700 engines. An engine comes in for, you know, a a heavy shop visit once every 5 years. You know, there's probably one to two modules that get swapped out. you know, every time that happens, you're basically guaranteeing just with the SCI you deployment another 25% growth in 2027 on off of what they're going to do in 2026. That sets aside any, you know, uh, contribution from organic growth from outside of the SEI. So, there's a long runway here for growth. And then what people aren't understanding is that the margins are poised to increase materially from here. If you look at consensus estimates, they're kind of they're building in, you know, uh, call it high 30% EBITDO margins. These guys have PMA coming in that's going to take, I mean, millions of dollars worth of of of of cost savings and and just pump it to the bottom line. They have um, you know, all of these uh, initiatives they're doing with Palunteer in terms of like inventory optimization, maintenance scheduling. they have um you know a bunch of of of agreements for used serviceable materials just constantly taking down the cost of maintaining these engines. I can envision this company in a couple of years not doing 35% margins but 45% margins maybe 50% margins. So you combine all these things explosive growth margin expansion by the way their balance sheet is starting to get really really clean. So there's going to be return on capital to shareholders, right? >> Returns on invested capital >> are going to go like through the roof over the next couple of years. They begin to uh you know do these these SCI and they're going to do one of these every year. $6 billion of capital growing this asset base on somebody else's balance sheet and using that as feed stock for their high margin aerospace products business. It's a pretty amazing thing that I think deserves to trade at a much higher multiple than call it 20 times forward. That's all on the core business. And I I know we're going to talk about error derivatives. >> We're going to go there in one second. Just I I wanted to make one comment. I as you know, one thing I'm struck by is to prep. I was reading some there's some old notes on valueclubs.com. I'm sure most listeners fold it heard it. The most recent write up, I believe, was from 2024, late 2024. The stock was 169. Somebody added the tag again, but the person said, "Look, this has been read written up previously twice. Once at $20 and the analyst had a $94 stock price target, once at $37 and I had, you know, an $80 stock price. It's blown through both of our targets. It looks expensive on the surface, but it always looks expensive on the surface. The stock's a tremendous value. this thing's growing like crazy and I think it's going to be worth 550 to 700 in about three years. So, uh I just think it's interesting like you know sometimes you find a great business that's got great tailwinds and a great setup and the numbers just higher higher higher higher higher like think about Nvidia. I I I always think a friend had told me 5 years ago, the moment you know you will know AI is here is when Nvidia has a quarter that's a massive beat and all your friends are all your smartest tech friends are just buying call options on it because GPU demands going through the roof. And like here it it kind of it's got a rhyme to me I guess. Look it feels that way to us. I mean, look, the way that we think about, you know, valuation, we call it a discounted price, but it's not necessarily that the stock is trading at an optically low multiple, right, in the marketplace. This is this is not I'm not here to say that it is. It's just if you extrapolate what this business is going to most likely look like in a couple of years time and discount that probabilistically back to present, is that reflected in the price of the stock on a per share basis? And I personally think, we think internally that the answer to that question is no. What do you think a fair value would be? I can I I can put you know look I think I I want to tackle sort of like the valuation component here because I think a lot of people do this thing where it's like okay let's sum of the parts this business right we've got this aerospace products business which is you know deserves a high multiple um you know uh like aerospace multiple like a haiko or like a you know helmet hexl woodward any of these types of businesses that that traded you know high 20s I mean some of them you know low30s types of forward multiples And then they look at the leasing business. Let's set the error derivatives business aside for a second. Then they look at the leasing business and they apply uh you know like a leasing multiple to it. You know 8 n 10 you know times you know forward evad um two things that you're missing when you do that right the first is look the leasing business is becoming an asset management business. Okay, a lowasset intensity recurring revenue stream alternative asset manager. Up until a couple of weeks ago before we had this like you know private credit debacle, all of which is by the way focused on you know like tech stocks not on aerospace assets the these these businesses traded at 20 to 25 times forward. Okay, I can make a very good argument as to why the the consolidated core business, this high quality aerospace business plus this, you know, in essence alternative asset manager should collectively trade at a high multiple of of of forward earnings to the tune of 25 20 25%. >> And unless you're and I don't think FDI has any uh private software credit exposure, so you know, probably they still deserve that Mars. Yeah, >> they don't. So look, then you can start putting numbers on that, right? And I kind of talked about what I think about people are valuing this business off of 2027 because the the what we're going to talk about this aerodyivatives business, but um look, 2027 is going to be another explosive year of growth and most of that growth is if they're able to raise what they're expected to raise from this new vehicle, it's it's captive and guaranteed, >> right? And so you can start to extrapolate. I can see, you know, at least, you know, potentially $2 billion worth of core EVA from this business. And then what type of a multiple do you want to ascribe to that? I'd prefer to do it not in the sum of the parts way. I think those never work, by the way, Andrew. That's my take is that some of the parts. >> Oh, yeah. I've kind of come around to that point of view as well. I've had my head beaten one too many times. >> So, so, so put it like put it, you know, put it on uh, you know, put a 20 times multiple on it. 20 times time, you know, 20 times. There's $3 billion worth of debt on the balance sheet, right? Um, you know, they're going to uh generate a billion dollars of free cash flow, which I hope doesn't acrew to the balance sheet, but theoretically it could. There's 103 million shares outstanding. That's a $385 stock price. Slap a 25 times multiple on that, right? And this is this is by you know by the end of 2026 this is what we're going to be looking at is that you know a company that has the potential the core of the business to earn you know close to $2 billion worth of worth of evida. >> We're going to have to end by I we've alluded to it a few times but we have to end by talking about they you know Christmas came a little late for FTI shareholders. They end right at the end of 2025. They announced that they're announcing uh FTI power where they're gonna it I I I well I'll let you just describe what they're going to do and kind of what what you think about the upside because I I think it's really fascinating and you go from one area of shortage engines to what an even bigger and more important shortage. But I'll let you describe it and stop rambling. >> Look, this is I I I want to like full disclaimer is this is a new thing for me as an investor in this stock. So I'm like I'm still getting smart on it myself. But >> in essence, what the company's going to do, we know that there's a massive shortage of of power for all these data centers that are coming online, but there's whatever $6 trillion of capital that's going to be spent on building these things out in the United States. >> And uh it's very difficult to get these things plugged into the grid. >> Plus, there's, you know, arguments as to whether or not they should be plugged into the grid in the first place and, you know, drive up the cost of energy for, you know, all the consumers uh out there. uh what FTI is doing is they're taking these end of life engines, you know, either from their own feed stock, they have owned assets on the balance sheet or or they can go and buy these things. And it's different than runout engines. It's like it's part out engines, right? A lot of people talk about, okay, well, if you're taking these these engines out of circulation or you're not cannibalizing existing business, FTI is not buying typically part out engines. They're buying runout engines. The difference there is this engine is is so old and it's not it's not fit for the wing anymore. So, we're going to just take it down to the piece part level, see what we can salvage, and the rest of it's basically scrap. They're going to take these engines um and they're going to turn them into to turbines for data centers, gas powered turbines for data centers. They've been working on this for, you know, call it a year and a half. And um the expectation is that uh by 2027 they'll be able to produce about a hundred of these units. These units are you 25 megawatt units. They're like stackable. They're portable. Typical rule of thumb is um you know, as I've learned over the past couple of months since this announcement is like it's like a million dollar per megawatt. So we're talking like purchasing this is like you know $25 million purchase price. Um they expect this new aerodyivatives uh business, the power business to be able to generate the same type of EBID margin that their high margin aerospace products business does. Why? >> So, are they are they going to be renting it out? They're going to rent it out. >> No. Uh they are going to sell the engine to a a data center and then they're going to use the same service model that they currently have, the module swap model um to service that through the the use the life of of of that uh that turbine, right? But it's high margin again for the same reason that Muddy Waters was missing, right? for the same reason uh that the aerospace products business margins are so high is because you're taking you know this basically trash right this stuff would be scrapped and you're adding 10 to 20 years of useful life on it and so your input cost right the turbine itself is about as low as it can get in the industry there are people like GE Vernova that you know offer similar products into the market but their backlogs are full right you can't get delivery of one of these units until I mean at least 2030 the beauty of FTI having the input, right, the turbine already on their balance sheet and being able to, you know, procure these things in the market as well is they can deliver this, you know, by 2027. >> It's why it's so fascinating, right? You've got this company that owns all these engines and at the end of their life, I mean, as you're saying, they're basically scrap and all of a sudden it's like, oh, they don't need to be in the air. We can just go put them into some data center in, you know, probably Northern Virginia. Put them in some data center. Uh, I bet they're going to make a pretty penny on selling them because as you said, I think a million a mega is about right. I I have no, but their cost of goods there has to be extremely low. I have no clue. And then they've got a natural ability to service these things. So, it's just like I it's just, as I was saying earlier, sometimes you've got these great companies and they just keep stumbling and stumbling and stumbling into the these great businesses. Uh, somebody had a quote, you know, I find buying great businesses easy because they just keep finding great opportunities. You know, uh, one of the great things about owning sports teams is just when you think there's not another thing that they can get sponsored by, it's, oh, it's the crypto arena now or hey, we need a prediction market sponsor or hey, there's a new energy drinks are our big sponsors now. Like there's always something new that wants to get sponsored and here it's just like there's always some some new demand for power for power from old gen engines. I suppose >> absolutely look this management team is like very very smart and they're constantly thinking of ways to continue to monetize this platform. I mean um this is just another way it also extends you know the the longevity of the platform you know um uh monetizing yeah as you said sort of these endof life uh assets and and adding you know a lot of of years to their utility. Well, uh, look, I think we've done a really nice job covering and breaking down a lot of different aspects of, uh, FI. I I would be remiss if I didn't ask, you know, is there anything else that we should have hit or anything else that people should be thinking about before we kind of wrap this up? >> Um, look, I think we've hit, Andrew, like most of the stuff here. Um, I >> I had a list of notes. It looks like I had uh 17 different bullet points and we hit them all. So, yeah. >> [laughter] >> Hope we didn't Yeah. Hope I didn't go too fast. Overall, >> I say like >> the only thing that I can think of is um I kind of interestingly you know this is this is becoming very quickly and a real aerospace products business right and um you know they are changing their their GICS classification in in March which I don't know if it ever makes any difference but sometimes when I screen I'll I'll screen for like industries and all those sorts of things. Everybody always thinks there are people that are missing this that are screening in the aerospace products business because when I tell this story to folks it's a big business, right? $30 billion market cap type of a business. Uh no one's ever heard of it before. It it you know I I will say I always people always get really excited for the G GICS and I'm always like I don't know man. And I I I had trouble, believe me. But on the other hand, I would have told you four years ago that the European market to US market relistings, I would have said, "Hey, like investors, if they want, hey, there's plenty of investors over in Europe and US investors can go buy buy the stock or a lot of these had ADRs." And man, every single relisting to my knowledge basically works swimmingly and all of them got huge multiple ratings. So maybe I'm being too cavalier with dismissing like, "Hey, this matters." You know what else, FDI? They're $30 billion. They're going to be in the S&P 500 soon. >> That was the second uh thing I was going to mention is look, I don't know if it's going to happen or not. And it's like I'm not a, you know, that type of a prognosticator. So, but just look, just watch out for it because I think I think it's a distinct possibility. But I guess the last thing that I would say is like the alignment of the management team here, right? I mean, this guy's the CEO, Joe Adams, who I think is is spectacular and and uh really knows more about after aftermarket engine maintenance than pretty much anybody I've come across. Um, look, this guy owns a lot of stock. He owns like about $150 million worth of stuff. >> When the stock goes up literally 100x, it turns out that all of a sudden you're like, "Oh, I'm I'm a big equity owner now." >> We were talking about alignment of incentives. I think that's a pretty good alignment of incentives. the COO owns like, you know, he's I don't know, 40 years old. He owns, you know, a good $80 million worth of stock. Actually, funny about the the CEO. I think this was back in May. He used his in, you know, he he was a Fortress Investment Group, you know, managing partner for years. I presume he has other assets outside of his ownership in FTI, but he used his I think this is true. Don't quote me on it, but he used his like his $14 million lifetime like gift exemption in his uh dynasty trust to put shares of FTI into. Didn't put a single share of anything else into it. So, he's got like he believes in the story here. Um and he's certainly aligned with investors. You know, I would also when I was prepping for this, it wasn't I love insider buying obviously and there wasn't enough where I was like screaming like here, but if you go look at the list of insider buying buying I mean again this is after the stocks had a huge run May 2025 all up and down the seauite people are buying you know it's just a just quote unquote a couple hundred thousand shares but people are buying uh November 2025 all up and down the seauite with the stock at 150 people are buying stock you know you go back to 2024 the CEO you mentioned buying 5 million of stocks at 82, but like it it I guess more than the insider buys, it's actually that generally when you see a stock going up like this, you'd expect expect to see like a bunch of in my thing, cells are red. You'd expect to see a bunch of red and there's basically no red. It's all green or nothing, you know? So, I I think that speaks to kind of the conviction and the insider alignment here, too. >> Absolutely. >> Cool. Well, Will, this has been great. Uh, people can find I'll give you a quick plug. People can find carriageouslp.com. There's nothing on the website though. The front page is very pretty and it has uh the way to reach out to Well, any other way people should reach out to you if they want to uh chat or anything? >> Yeah, info@carageouselp.com. Um, I don't have much of a of of a of a Twitter presence, but uh, you know, uh, maybe you'll find me out there someplace. >> Well, Will obviously does great work and this has been a lot of fun. So, Will, thank you so much for coming on and I can't wait to have you on again. >> Thanks again, Andrew. I really appreciate it. >> A quick disclaimer, nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial adviser. Thanks.