10-QPeriod: Q2 FY2018

FTAI Aviation Ltd. Quarterly Report for Q2 Ended Jun 30, 2018

Filed August 3, 2018For Securities:FTAIFTAIMFTAIN

Summary

FTAI Aviation Ltd. (FTAI) has transitioned from an emerging growth company to a fully reporting public company, necessitating compliance with enhanced SEC regulations including Sarbanes-Oxley Section 404. This transition may lead to increased costs and potential identification of material weaknesses in internal controls, which could impact operations and financial condition. Investors should note that the company's management and directors have broader exculpation and indemnification provisions than typically found under Delaware law, potentially offering less protection to shareholders. The company has also amended its revolving credit facility, increasing commitments by $50 million to $125 million and extending the maturity date by one year. This provides increased financial flexibility. However, FTAI continues to utilize leverage for acquisitions, which may reduce returns and funds available for distribution. Furthermore, the company has a significant equity incentive plan, with a substantial number of common shares reserved, and the Manager is entitled to options and incentive allocations, which could lead to future dilution for existing shareholders.

Financial Highlights

44 data points
Beta

Revenue

$63.19M

Net Income

$839K

1.3% Net Margin

EPS (Diluted)

$0.01

Total Assets

$2.21B

Cash & Equivalents

$73.84M

Free Cash Flow

-$52.72M

Financial Statements
Beta
Revenue$63.19M
Operating Expenses$75.34M
Interest Expense$12.86M
Net Income$839K
EPS (Basic)$0.01
EPS (Diluted)$0.01
Shares Outstanding (Basic)83.16M
Shares Outstanding (Diluted)83.16M

Key Highlights

  • 1FTAI is now subject to full Sarbanes-Oxley Section 404 compliance, requiring independent auditor attestation on internal controls, which may incur significant costs and reveal control deficiencies.
  • 2The company has amended its revolving credit facility, increasing commitments from $75 million to $125 million and extending the maturity date to June 16, 2021, enhancing liquidity.
  • 3FTAI's management and directors benefit from broader exculpation and indemnification provisions in their operating agreement compared to standard Delaware law, potentially reducing shareholder protections.
  • 4The company actively uses leverage to finance acquisitions, which could impact asset returns and available funds for shareholder distributions.
  • 5A substantial equity incentive plan is in place, with provisions for granting options to the Manager and reserving shares, creating potential for future shareholder dilution.
  • 6FTAI's net cash from operations has been less than distributions, and dividend policy is discretionary, subject to various financial factors and managerial discretion.
  • 7The company appointed a new Chief Accounting Officer, Eun Nam, effective August 6, 2018, with extensive experience in accounting and M&A.

Frequently Asked Questions

As FTAI is no longer an emerging growth company, it must comply with full Sarbanes-Oxley Section 404 requirements, including an independent auditor's attestation on internal controls. This will likely increase compliance costs and may reveal control deficiencies that could impact the company's financial health and stock price. Additionally, FTAI faces enhanced disclosure obligations for executive compensation and will lose exemptions related to shareholder votes on executive pay and golden parachute payments.

FTAI amended its revolving credit facility to increase the aggregate revolving commitments by $50 million, bringing the total to $125 million. The maturity date for the revolving loans and commitments has also been extended by one year, from June 16, 2020, to June 16, 2021. This provides the company with greater financial flexibility and access to capital.

FTAI has a significant equity incentive plan that reserves 30 million common shares for awards. The plan includes provisions for granting options to the Manager, often tied to equity offerings or capital raised, which can amount to 10% of new shares issued or capital raised. These grants and potential exercises can lead to dilution of existing shareholders' ownership percentage and may affect the market price of the common shares.

While FTAI currently intends to pay regular quarterly dividends, this policy is discretionary and can be changed by the board of directors at any time. The company's net cash from operating activities has historically been less than distributions, and dividend payments depend on liquidity, financial condition, taxable income, and other factors. Furthermore, as a holding company, dividend payments rely on cash received from subsidiaries, which may be limited by their financing agreements. There's also a potential for incentive allocations to the General Partner before distributions to common shareholders.