10-QPeriod: Q3 FY2020

FTAI Aviation Ltd. Quarterly Report for Q3 Ended Sep 30, 2020

Filed October 30, 2020For Securities:FTAIFTAIMFTAIN

Summary

FTAI Aviation Ltd.'s (FTAI) 10-Q filing for the period ending September 30, 2020, highlights significant risk factors and corporate governance considerations for investors. The company emphasizes its ongoing compliance with Sarbanes-Oxley Act (SOX) Section 404, including mandatory independent auditor attestation on internal controls, which could lead to identified deficiencies and associated costs. Investors should be aware that any material weaknesses found could negatively impact the share price and capital-raising ability. Furthermore, the filing details potential dilution of existing shareholders' ownership through equity awards granted to its Manager and others under the Incentive Plan, as well as future equity issuances for acquisitions or capital needs. The company also outlines its use of leverage for acquisitions, which may impact returns and distributions, and notes that its dividend policy is discretionary and could change. Anti-takeover provisions and specific indemnification clauses in the operating agreement are also noted as factors that could affect control and shareholder protections.

Financial Highlights

43 data points
Beta

Revenue

$83.71M

Net Income

-$25.96M

-31.0% Net Margin

Total Assets

$3.38B

Cash & Equivalents

$163.41M

Free Cash Flow

-$95.85M

Financial Statements
Beta
Revenue$83.71M
Operating Expenses$107.85M
Operating Income-$45.85M
Interest Expense$26.90M
Net Income-$25.96M
Shares Outstanding (Basic)86.02M
Shares Outstanding (Diluted)86.02M

Key Highlights

  • 1FTAI is subject to Sarbanes-Oxley Act (SOX) Section 404 requirements, including independent auditor attestation on internal controls over financial reporting, with potential for identified weaknesses impacting operations and stock price.
  • 2Potential for significant shareholder dilution exists due to equity awards granted to the Manager and future equity issuances under the Incentive Plan, particularly linked to acquisitions or capital raises.
  • 3The company utilizes leverage for asset acquisitions, which can impact returns on assets and reduce funds available for distributions to shareholders.
  • 4FTAI's dividend policy is discretionary and subject to change; the company has previously had net cash from operations less than distributions.
  • 5Anti-takeover provisions in the operating agreement and Delaware law may hinder a change in control, potentially discouraging takeover attempts that could be beneficial to shareholders.
  • 6The company's operating agreement offers exculpation and indemnification to directors and officers that may be less protective of shareholder interests compared to Delaware General Corporation Law.
  • 7As a public company, FTAI faces increased compliance costs and demands on management due to regulations like SOX and NYSE requirements.

Frequently Asked Questions

The primary internal control risk highlighted is the company's ongoing compliance with SOX Section 404. This includes the requirement for management and an independent auditor to assess the effectiveness of internal controls over financial reporting. The company warns that this process might uncover control deficiencies, including 'material weaknesses,' which could lead to significant remediation costs, negatively affect its financial condition and liquidity, and potentially cause its share price to decline or impair its ability to raise capital.

Your ownership percentage could be diluted in several ways. Firstly, equity awards granted to the Manager under the Management Agreement and the Incentive Plan can lead to dilution. Secondly, future equity issuances, whether for acquisitions or capital raising purposes, will grant the Manager options to acquire additional shares, generally equal to 10% of the newly issued shares or capital raised, further diluting existing shareholders. Sales of substantial amounts of common shares or the perception of such sales could also adversely affect the market price.

FTAI utilizes leverage to finance many of its asset acquisitions. While the Manager aims for reasonable leverage, the strategy does not limit the amount that can be incurred for any specific asset. This use of leverage means certain lenders receive cash flows before the company retains a return on its assets. Changes in market conditions could increase financing costs relative to asset income, potentially reducing the return on assets and the funds available for distribution to shareholders.

The company currently intends to pay regular quarterly dividends, with a long-term goal of maintaining a payout ratio between 50-60% of funds available for distribution. However, the declaration and payment of dividends are at the discretion of the board of directors and depend on various factors including financial condition, liquidity, operating results, and legal restrictions. There is no assurance that dividends will continue to be paid in amounts or on a basis consistent with past distributions, or at all. Additionally, certain preferred shares have priority on distributions, which could impact common shareholder dividends.