10-QPeriod: Q1 FY2021

FTAI Aviation Ltd. Quarterly Report for Q1 Ended Mar 31, 2021

Filed April 30, 2021For Securities:FTAIFTAIMFTAIN

Summary

FTAI Aviation Ltd.'s (FTAI) April 30, 2021, 10-Q filing highlights the ongoing complexities of operating as a public company, particularly concerning internal controls and potential shareholder dilution. As FTAI is no longer an emerging growth company, it is subject to enhanced Sarbanes-Oxley Act (SOX) Section 404 requirements, including an independent auditor's attestation on internal controls. The company acknowledges that identified control deficiencies or material weaknesses could negatively impact its operations, financial condition, liquidity, and share price. Investors should be aware of the significant potential for dilution due to equity awards granted and to be granted to its Manager under the Management Agreement and the Incentive Plan. These awards, tied to future equity issuances and capital raises, can increase the number of outstanding shares, potentially affecting ownership percentages and share value. The company also utilizes leverage for acquisitions, which can reduce returns on assets and available funds for distribution, and its dividend policy is subject to change at the board's discretion. Additionally, anti-takeover provisions and less protective exculpation/indemnification clauses for officers and directors compared to standard Delaware law are noted.

Financial Highlights

43 data points
Beta

Revenue

$77.15M

Net Income

-$34.88M

-45.2% Net Margin

EPS (Diluted)

$-0.40

Total Assets

$3.59B

Cash & Equivalents

$160.25M

Free Cash Flow

-$88.23M

Financial Statements
Beta
Revenue$77.15M
Operating Expenses$114.51M
Operating Income-$34.54M
Interest Expense$32.99M
Net Income-$34.88M
EPS (Basic)$-0.40
EPS (Diluted)$-0.40
Shares Outstanding (Basic)86.03M
Shares Outstanding (Diluted)86.03M

Key Highlights

  • 1FTAI is subject to SOX Section 404 requirements, including independent auditor attestation on internal controls, which could lead to increased costs and potential adverse impacts if material weaknesses are identified.
  • 2Significant potential for shareholder dilution exists due to equity awards granted to the Manager and future grants tied to equity issuances and capital raises.
  • 3The company employs leverage for acquisitions, which can impact asset returns and distributable cash flow.
  • 4FTAI's dividend policy is discretionary and subject to change, with past net cash from operations being less than distributions.
  • 5The company has adopted an Incentive Plan that allows for the grant of various equity-based awards to its Manager and other service providers, with provisions for increasing the share pool upon future equity issuances.
  • 6Anti-takeover provisions are in place within the operating agreement and under Delaware law, which could make a change in control more difficult.
  • 7Exculpation and indemnification provisions for officers and directors may be less protective of shareholder interests compared to standard Delaware General Corporation Law.

Frequently Asked Questions

As FTAI is no longer an emerging growth company (since the end of 2017), it is subject to the full requirements of Section 404 of the Sarbanes-Oxley Act (SOX). This includes an independent auditor's attestation on the effectiveness of internal control over financial reporting, in addition to management's assessment. This can lead to increased compliance costs and potential adverse impacts on operations, financial condition, and liquidity if control deficiencies or material weaknesses are discovered.

Your ownership percentage could be diluted in several ways. FTAI grants equity awards to its Manager, including options, as part of its Management Agreement and Incentive Plan. These grants can increase the number of outstanding shares. Furthermore, future equity issuances (including for acquisitions) will automatically increase the share pool available under the Incentive Plan by 10% of the newly issued shares or capital raised, which will also lead to dilution when such options are exercised or awarded.

FTAI utilizes leverage to finance many of its asset acquisitions, acknowledging that this can reduce the return on assets and the funds available for distribution. While the company currently intends to pay regular quarterly dividends, this policy is at the discretion of the board and can be changed at any time. Their long-term goal is a payout ratio of 50-60% of funds available for distribution, with the remainder used for future acquisitions. However, net cash from operations has historically been less than distributions, and dividend payments are also limited by cash on hand, subsidiary distributions, and restrictions from preferred share terms.

Yes, FTAI's operating agreement and Delaware law contain anti-takeover provisions. These include a staggered board, advance notice requirements for shareholder proposals, limitations on convening shareholder meetings, and the authorization to issue preferred shares that could be used to thwart a takeover. These provisions could make it more difficult and expensive for a third party to acquire control, even if such a change in control might be perceived as beneficial by shareholders.