Fortress Transportation and Infrastructure Investors LLC

NASDAQ:FTAI

Earnings Call Transcript 2018-Q1

[Operator]

Good day, ladies and gentlemen and welcome to the Fortress Transportation and Infrastructure’s First Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today’s conference maybe recorded. I would now like to turn the call over to Mr. Alan Andreini. Sir, you may begin.

[Alan Andreini, Investor Relations]

Thank you. I would like to welcome you to the Fortress Transportation and Infrastructure first quarter 2018 earnings call. Joining me here today are Joe Adams, our Chief Executive Officer and Scott Christopher, our Chief Financial Officer.

We have posted an investor presentation in our press release on our website, which we encourage you to download if you have not already done so. Also, please note that this call is open to the public in listen-only mode and is being webcast. In addition, we will be discussing some non-GAAP financial measures during the call today, including FAD. The reconciliations of those measures to the most directly comparable GAAP measures can be found in the earnings supplement.

Before I turn the call over to Joe, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements by their nature are uncertain and may differ materially from actual results. We encourage you to review the disclaimers on our press release and investor presentation regarding GAAP financial measures and forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC.

Now, I would like to turn the call over to Joe.

[Joe Adams, Chief Executive Officer]

Thank you, Alan. To start the call, I am pleased to announce our 12th dividend as a public company and our 27th consecutive dividend since inception. The dividend of $0.33 per share will be paid on May 29 based on a shareholder record date of May 17.

Before going over the numbers for each operating entity, I would like to highlight a few of them: first, adjusted EBITDA of $48.1 million our highest ever; second, normalized Aviation FAD run-rate $230 million, our highest ever; third, projected Aviation FAD considering our current LOIs now $265 million; throughput at Jefferson Energy terminal, 3 million barrels, our highest ever; and finally, total company normalized FAD $28.2 million, which is greater than the dividend.

Now, let me review the numbers in more detail. The key metrics for us are adjusted EBITDA and FAD or funds available for distribution. Adjusted EBITDA for Q1 2018 was $48.1 million compared to Q4 of 2017 of $47.8 million and Q1 of 2017 of $22.1 million. FAD was $34.4 million in Q1 versus $47.2 million in Q4 of 2017 and $21.7 million in Q1 of 2017. During the first quarter, the $34.4 million FAD number was comprised of $62 million from our equipment leasing portfolio, negative $12.3 million from our infrastructure business and negative $15.3 million from corporate. The overall infrastructure number improved due largely to strong results at the Central Maine & Quebec Railway or CMQR. Corporate FAD improved from Q4 2017 primarily due to lower corporate G&A and lower acquisition and transaction transition costs. Once we normalize the Q1 numbers, we again see as we did at the end of Q4 continuing strength in our ability to generate adjusted EBITDA and FAD on a run-rate basis. More importantly, we see that trend both continuing and accelerating.

Let me now turn to Aviation by first setting a backdrop for the business. The macros for the industry overall continue to be impressive. Global passenger traffic growth for Q1 of 2018 was 7.6% increase and is projected to continue growing at 5% to 6% per annum. Freighter demand due to rapidly growing e-commerce continues also to be very strong. Here are the Aviation numbers to our Q1. Aviation had another terrific quarter, which I never get tired of saying. Aviation normalized FAD in Q1 was approximately $57.5 million or $230 million annualized, up from $184 million annualized number in Q4. The portfolio is performing very well and the outlook is outstanding. As of this call, we have closed on $135 million of new investments year-to-date and expect to close $65 million more in Q2 or more than the $180 million we had in signed letters of intent at year end plus an additional $20 million from new deals. In addition to that, we have added another $30 million of signed LOIs that should close in Q3 and Q4 of this year bringing our new expected run rate Aviation FAD to approximately $265 million per annum.

With our core portfolio today of 110 engines and 61 aircraft which on those aircraft we also have 126 engines and our talented and dedicated team we have established FTAI aviation as a major part of the global commercial engine business, which is a great space the be in with above average growth rates and very high barriers to entry. And because of the size of the aftermarket opportunity with the CFM 56-5B and 7B engine that I have been talking about, the best is still yet to come. 100% of all 737 next gen aircraft are powered by CFM 56-7B engines and 60% of the large A320 family are powered by CFM 56-5B engines. So in total there are over 22,000 of these engines flying every day, the largest commercial engine market by multiples.

Today about half of these engines are covered by power by our service agreements provided by CFM and half are served by the independent maintenance and repair organizations otherwise called MROs and operators which is our target market. Over time as those aircraft transition from the original operator to the second, third or fourth airline operator that percentage that is served by the aftermarket or our market goes up. So today 11,000 aftermarket engines on average go through a major shop visit every 5 years or approximately 20% of those per annum, which means every year there are over 2,000 annual shop visits for CFM 56 engines. The average shop visit cost today is nearly $5 million and has been increasing every year and is projected to increase going forward at rates well above inflation, so the market opportunity in this sector is huge and growing.

Our suite of products that we have been developing for the last 3 years, we believe can save between $1 million and $1.5 million per shop visit. Those products are; one, our advanced engine repair through our joint venture, two, module swaps, three, partnerships – partnership with the parts distributor for sourcing lower cost used material and four, coordinating and concentrating our shop visits with our preferred MROs. We expect to be offering unique cost saving products and services to airlines who operate CFM engines, which we believe can add material earnings to our business beginning this year and very much accelerating in 2019 and 2020.

Turning now to offshore, the offshore market remains oversupplied, but is definitely improving. All three of our vessels run lease for all of Q4 and for most of Q1. Two of the three vessels will likely be on a hire for the balance of 2018, while the Pride will have a few shorter jobs this year. Additionally, we are also exploring the possibility of converting the Pride to a dedicated well intervention asset. The vessel is well suited for this highly specialized well intervention market which is much less oversupplied and significantly more profitable than the construction market. We hope to have the vessel actively trading in that market by year end 2018.

Turning now to infrastructure and starting with Jefferson, Jefferson continues to grow in terms of both throughput and construction to support new business demands. The macros for refining and storage needs in the Gulf are the best they have been for decades and continue to strengthen. Jefferson had an excellent quarter and that one we handled record volume of product through the terminal including 2 million barrels of ethanol, 400,000 barrels of refined products and 650,000 barrels of crude. All 2 million barrels of storage currently built is under contract and we are presently constructing an additional 800,000 barrels for crude. Third, we expect additional contracted volume of refined products by rail to Mexico. We secured additional contracted volume of refined products to rail – by rail to Mexico and are doubling the capacity of the system from 20,000 barrels per day to 40,000 barrels per day by early Q4 of this year and believe there is additional demand and capacity for us to go to 60,000 barrels per day early in 2019. And fourth, we advanced our commercial, technical and engineering plans around pipeline connectivity and additional storage and have mapped out our development program for the next 2 years.

So in 2018, with the additional refined products business and the 800,000 barrels of storage online, we will be investing approximately $80 million this year in the terminal and expect to be at an EBITDA run-rate at year end of approximately $40 million to $50 million per annum. In 2019, our plan is to invest approximately $400 million in the terminal in one, an additional deepwater dock; two, the Market Link and Zydeco pipeline connections for inbound and outbound crude; and three, an additional 3 million barrels of storage. Prior to making this investment decision, we expect to have customer commitments for use of a substantial portion of the new capacity that I just mentioned. We expect this expansion to add approximately $50 million to $70 million of incremental annual EBITDA bringing the total run-rate EBITDA at the end of 2019 to approximately $90 million to $120 million per annum. For a terminal which will have 6 million barrels of storage, two deepwater docks, one barge dock and inbound and outbound pipeline connectivity. In addition to all of this, we will continue to have the exceptional rail capability that we have being served by three Class 1 railroads, BN, UP and KCS. Beyond 2019, we expect to begin planning for two additional deepwater docks, 14 million additional barrels of storage and additional pipeline connectivity. For this phase, with approximately $700 million in capital invested should generate approximately $200 million to $300 million of additional EBITDA annually.

Turning briefly to the Canadian crude by rail market, we do expect a very favorable market opportunity and wide WCS WTI spreads for this year and most likely through at least 2020 before new pipeline capacity can be added to the Canadian market. We have 8 trains lined up for Q2 and 5 trains per month committed beginning September 2018 running through November 2019.

Now, let’s turn to CMQR, revenue for Q1 was $11 million and adjusted EBITDA was $3.4 million. While these numbers are the highest ever, it’s important to note that we had two events which had a positive effect in the quarter. First, we booked a 45G tax credit for 2017 of $1.3 million. Second, we benefited from short-term detour traffic, which lasted most of Q1, but is now ended. While we are obviously pleased that these events took place, it would be unfair to annualize the quarter for all of 2018. Having said that, Q1 was an excellent quarter for a regular way business and traffic and pricing are good. As to new business, we expect the car cleaning operation to commence this quarter and the bottom line is that Ryan Ratledge and the team at CMQR are doing a terrific job.

Now, let’s turn to Repauno. Repauno has taken significant steps forward in developing the full potential of the natural gas liquids or NGL opportunity. Firstly, we are currently filling the existing 200,000 barrel cavern with butane as we did last year, which we expect will generate approximately $3 million in EBITDA this year. Second, we are reconstructing the dock which will be operational by year end 2018. Third, we are mostly done with the core sampling, which was needed to determine the size of the granite formation available for new cavern development and the results of that are very positive. On the commercial front, we are in active discussions with numerous potential buyers of propane and butane mostly international which we would source from the Marcellus, most likely from our Long Ridge facility and moved by rail to Repauno and then load into ships for export.

Fully built out, we expect that 3 million barrels of storage and a dock would require approximately $450 million of capital and would generate approximately $150 million in annual EBITDA beginning in 2020. Prior to full completion of the caverns, we are working to be able to load ships direct from rail and generate meaningful EBITDA in 2019 and 2020 and we hope to have more detail on those numbers by our next call. Long Ridge Energy terminal formerly known as Hannibal has made great strides forward this year. In addition to the power plant, we have now started up a frac sand trans-loading business. We have one customer signed for a 3-year minimum volume commitment deal and many others actively looking.

We invested in this year $2 million in the unit train loading and unloading system and that coupled with the significant barge stocks and good road access we have make our site uniquely desirable for the growing frack sand usage in this area. We expect frack sand to generate a minimum of $2 million in EBITDA this year and a minimum of $5 million in 2019. We can also use this unit train loading capability for propane and butane and we are in discussions with local fractionators to secure volume for that potentially by pipeline, which is very cost effective to our terminal direct pipeline connection. One ideal destination for these trains would be obviously Repauno, which I just discussed.

On the power plant, we have secured the gas supply through a joint venture with a local gas E&P company and we are in active negotiations now with offtakers for the power under fixed price 10-year contracts. Our goal is to sell half the output of the power plant to industrial users and the other half to datacenter users who additionally be new tenants on our property. By securing power offtake contracts, we believe a substantial amount of capital needed for this project will be available from attractive long-term non-recourse project debt financing. Based on our current negotiations and we have one signed LOI, we believe the power plant will require $600 million in total capital and generate a minimum of $100 million in EBITDA per annum beginning 2020.

Let me conclude. Aviation continues to outperform with our profitability metrics remaining strong even as we had new assets. And for the first time since the inception of FTAI, we believe infrastructure is going to be a positive contributor to EBITDA in 2018 and more importantly we currently see that number growing every year and in fact growing significantly in 2020. As a result of the infrastructure turning positive this year, 2018 is going to be a cash generation year for FTAI and every quarter we have had stronger cash flow and every quarter we get closer to our objective of 2-to-1 dividend coverage.

With that, let me turn the call back over to Alan.

[Alan Andreini, Investor Relations]

Thank you, Joe. Operator, you may now open the call to Q&A.

[Operator]

[Operator Instructions] And our first question comes from the line of Justin Long from Stephens. You may begin.

[Justin Long, Stephens]

Thanks. Good morning and congrats on the quarter. Maybe to start with the question on Long Ridge Energy, Joe, you gave some numbers on the capital you can put towards the power plant there and what kind of EBITDA that can generate. I was wondering if you could give a little bit more clarity on how you expect to finance the investment in that facility and clarify what the actual EBITDA impact to FTAI would be under this structure you anticipate?

[Joe Adams, Chief Executive Officer]

Well, I think we are looking at it as sort of three steps. The first step that we are in right now is engaged with offtake purchasers of the power, which we expect hopefully to conclude that in the next few months. And then we have also started discussions on financing against that and there we would be doing non-recourse project finance debt, which is available to a large degree at a high level of leverage because of those fixed price off-take purchase agreements. So, that’s a significant differentiator from other deals that are in the market and I think we have had feedback from investors and investment banks already that, that they believe that’s doable, which allows us to be able to go forward with the project with unusually low amount of equity from FTAI to do that project. So, that’s our goal. I think once we complete that, we would be contemplating bringing in an outside part – sometime between completing – beginning construction and turning on the power plant we would look probably to bring in an equity partner for up to 49%. And based on multiples of EBITDA, if we lock in $100 million of EBITDA, that should be worth substantially more than our cost basis. And so we think that would enable us to take out some equity and still own half the power plants. So, that’s the goal. The timing of the last step is a little less certain, because we got to get the first two steps done.

[Justin Long, Stephens]

Okay, that’s helpful. And maybe shifting to Jefferson you mentioned the $400 million investment that could take place in 2019 and the FAD potential of $50 million to $70 million, a couple of questions on that front. First, what’s your visibility at this point to that incremental FAD, how much of that is contractually committed? And then also curious about the timing of when you expect that FAD or EBITDA to start rolling on?

[Joe Adams, Chief Executive Officer]

So, we are out in the market now talking to potential users and primarily it would be in the form of storage agreement. So we have got term sheets and proposals out and people actively engaged on that. So, I feel reasonably good. The market in the Gulf is very strong. As soon as you have storage build, you can lease it today and everyone wants the optionality of being on the water. So, with the pipeline connectivity, I think we will have event and the rail capability, I think the pipeline and rail married together with the water gives us a very attractive site and so we have a number of counterparties engaged in. And I mentioned the 3 million barrels of storage, so I think the visibility is better than it’s ever been. So that’s good and we hope to wrap that up. If we do start that project, it will not kick in until probably the end of 2019. So, you have seen most of the effect of that in 2020.

[Justin Long, Stephens]

Okay. And just to clarify on the EBITDA run-rate, you gave from Jefferson at the end of this year and the incremental amount that’s coming in next year. Does that include any additional crude by rail contracts or is that just based on some of these other opportunities and that one contract that kicks in, in September you mentioned?

[Joe Adams, Chief Executive Officer]

It speaks mostly on what we have today, because it is still – we are still working on acquiring additional rail, but what we have today is what we have used is the assumption going forward.

[Justin Long, Stephens]

Okay, great. I will leave it at that. Thanks for the time.

[Joe Adams, Chief Executive Officer]

Thanks.

[Operator]

And our next question comes from the line of Chris Wetherbee from Citi. You may begin.

[Chris Wetherbee, Citi]

Yes, hey, thanks. Good morning, guys. Joe, I wanted to come back to the engine market opportunity as you talked about 20% of the fleet kind of getting service on an annual basis, you have talked about this in the past in terms of potentially some value add that you can create for carriers through this business. I mean, can you give us a little bit more color in terms of maybe timings or the magnitude of the potential opportunity, just want to get a sense of where you are in the process of maybe rolling that out, you need to join the JV partner from a service perspective. How are, some of the sort of processes like, how might they look as we see this rollout over the course of the future?

[Joe Adams, Chief Executive Officer]

We are actually doing some of it right now. So, we have done I mentioned the four parts to it. The JV is probably – is the long pole in the tent. That’s the one that probably doesn’t – you don’t see an impact on that until 2020, but this year and in 2019, we are starting to do – we have done a number of module swaps which have worked out very well. And sometimes you will see that in revenue and sometimes what actually happens is we just end up lowering our cost basis in our engines, so you won’t see that necessarily until we sell the engine or you will see a higher return on equity. But those are happening today and then also just this quarter we acquired a number of parts from at a discounted. There was one of the participants in the OEM market had an inventory of parts and we acquired them and that will save us a significant amount of money per a shop visit, because we can use those parts in our own – with our own inventory. So and then the fourth part of what I mentioned was using our buying power with to negotiate better deals with MROs, we are in the thick of that right, now trying to figure out what that means and how we deal with that, so I would expect that that will have some concrete answer on that this year. So if you go back on the four parts, the first was the JV, it was 2020, modules swaps and two and three which was model swaps and lower cost parts are happening now and I expect that to be a bigger factor in 2019 and on. And then the fourth one is the MRO partnership which I hope to have something on this year.

[Chris Wetherbee, Citi]

Okay. And when you think about potential market share opportunities, any thoughts on sort of what you might think you could get to you as much as put the four parts together I think 2020 and beyond, what do you think the opportunity is from a share perspective?

[Joe Adams, Chief Executive Officer]

Sure. So if I think about the ultimate goal and you think about if we can capture 5% to 10% of the market, which is I don’t think a crazy assumption. That market is 2,000 shop visits and if we can save $1 million or $1.5 million for an operator or an owner of an engine per shop visit, if we can capture half of that, that’s between $75 million and $200 million to us.

[Chris Wetherbee, Citi]

Okay.

[Joe Adams, Chief Executive Officer]

And hopefully – some of that hopefully we can achieve as a fee or a service fee, so it’s not tied to asset ownership, that’s sort of the ultimate the Holy Grail.

[Chris Wetherbee, Citi]

Yes. Okay, that’s helpful. And then you ran through a lot of interesting investments and development in multiple sort of parts of the portfolio, I am not quick enough to keep up with how you are rattling through them as you take a step back and think about maybe sort of fiscal ‘19 year end sort of run rate whether it would from be from an adjusted EBITDA perspective or maybe a FAD perspective, can you sort of tally them up and give us a sense of maybe where you see that sort of what is the obvious line of slight growth to at that point?

[Joe Adams, Chief Executive Officer]

Probably not in this call, I would be happy to help you and go through it more slowly, but probably we shouldn’t do that.

[Chris Wetherbee, Citi]

Okay, fair enough, I appreciate that. I will try to following that up offline. Thank you, guys.

[Operator]

And our next question comes from the line of Rob Salmon from Wolfe Research. You may begin.

[Rob Salmon, Wolfe Research]

Hey, good morning guys.

[Joe Adams, Chief Executive Officer]

Good morning.

[Rob Salmon, Wolfe Research]

I guess following up with regard to kind of the engines if I am thinking about the just the overall market opportunity from this service, from the servicing of these engines, are there any kind of incremental fixed costs that you guys would be needing to add to your network in the aviation leasing business?

[Joe Adams, Chief Executive Officer]

Not much, we have got a very scalable team of people and we have already increased this. We are up to I think how many engines we already have 120 or something engines. And we have added a few people, but there is no – there isn’t any like office building or a plant or any manufacturing thing or anything we needed. It’s just a few people and they are highly productive people at this point since we have got a lot of systems in place.

[Rob Salmon, Wolfe Research]

Got it. And then you can also leverage and I would imagine for this to be the engine leasing business in general as well, so there is probably some kind of overlap that you get from the synergy perspective?

[Joe Adams, Chief Executive Officer]

Absolutely, I mean when we look at our portfolio and I have – I think I have mentioned this is it – we have 60 odd airplanes, but really those airplanes are mostly engine value 126, 61 aircrafts have 126 engines and 80% of the value of that portfolio is the engine. So overall, our portfolio is really about 85% engine value and that’s what we feel has always been the best part of the market, because engines tend to go up in value as opposed to airframes just go down in value.

[Rob Salmon, Wolfe Research]

That makes a ton of sense. Over the last few quarters, we actually have been seeing your engine utilization rate creep higher and now it’s kind of at the highest since I have been tracking the portfolio in the low 80s. Is this an anomaly because of just some timing of having engines coming off lease or being extended? Historically, I thought it was kind of you only want to max out around kind of the mid 70s that you can optimize what you charge customers?

[Joe Adams, Chief Executive Officer]

Again, I wouldn’t – I would still keep our assumptions the same at 50% to 75%. I think it’s a combination of a good market and good management. So, knock on wood, it’s a strong market now, there is a number of engines that are in very high demand as soon as you get Pratt & Whitney 2000 engine for 757, you have got numerous people, they wanted things like that. So, it’s a very strong market globally because of the macros which I mentioned is traffic. Traffic demand is up on both passenger and freight and hopefully that continues, but still we are fine if we don’t operate this at such high utilization.

[Rob Salmon, Wolfe Research]

Got it. And I guess the final one and I will hop back in the queue is there is obviously a high profile engine issue. Can you kind of talk to your exposure with that airline? I don’t think there is much there if any as well as what that could mean from an aftermarket perspective for your business if there is some sort of ruling by the FAA?

[Joe Adams, Chief Executive Officer]

Sure. And the FAA has already come out with what they call an AGA, but no, we don’t have any exposure to the airline, but what happened is the fan blade that broke off was in the front section of the engine, it’s the fan that moves the air most of the – most of what we focused on and most – the highest cost of repairs in that engine are more in the hot section which is more in the center section. So, that fan blade has typically not been a high maintenance item. But what they did is the FAA has come out and said they want more inspections and I think they mandated inspections for every engine that has over 30,000 cycles, which is one takeoff and one landing. And I think there is some 600 odd engines in that category flying today and I believe they have inspected like 400 of them and found no defects. But what they will do and what they always do in these is they mandate more inspection and more repairs. So, that’s generally how they deal with that, which typically is good for – if you own engines and engines are offering more you do better. So there is more demand for spares. So, I don’t think it’s a direct correlation on this event, but in general that’s been the trend line anyway.

[Rob Salmon, Wolfe Research]

Got it. Appreciate the color, guys.

[Joe Adams, Chief Executive Officer]

Yes.

[Operator]

Thank you. And our next question comes from the line of Ariel Rosa from Bank of America/Merrill Lynch. You may begin.

[Ariel Rosa, Bank of America/Merrill Lynch]

Hey, good morning guys. So, I wanted to start just looking at the cash balance, maybe Joe, if you could address what the need looks like for raising additional capital in 2018 and how you would look to do that?

[Joe Adams, Chief Executive Officer]

Yes. As we mentioned the last time the next financing we will do, will be a debt financing and so we have pretty good access to both long-term and short-term debt opportunities. And that will really be driven I think primarily by the additions for Aviation over the next few months. And as I mentioned we added about $200 million of – we will close about $200 million of new investments in Aviation through the second quarter, which is pretty similar to the run-rate we had last year and then I expect if it continues, we will be able to finance all of that with debt for the balance of this year. The only other direct capital need right now as I mentioned was Long Ridge and we are going to go into the market and shortly I think and look to finance almost all of that power plant with the debt financing or a significant amount. So, we feel like we are in pretty good shape today.

[Ariel Rosa, Bank of America/Merrill Lynch]

Okay, great. And then obviously the quarter saw a step up in operating expense at Jefferson, do you expect that to continue throughout the year or kind of maybe you can give us a little bit of a guide on where that trends as you see it through the year?

[Joe Adams, Chief Executive Officer]

Well, Q1 was higher than normal. We changed operators in the terminal. So, we had $2.3 million of one-time costs related to that, so it should step down after that.

[Ariel Rosa, Bank of America/Merrill Lynch]

Okay. And the amount that you expect to step down is about $2.3 million?

[Joe Adams, Chief Executive Officer]

Yes.

[Ariel Rosa, Bank of America/Merrill Lynch]

Okay, that’s helpful. And then just last one for me, maybe if you could talk about the Mexican election do you see that is posing a risk to the refine product opportunity, could that – is that kind of a binary type of outcome or do you still think that the opportunity continues to be robust with regard to just the outcome there?

[Joe Adams, Chief Executive Officer]

Well, I think it is still robust for quite a while and it’s at least 5 years to 10 years. And the reason why [indiscernible] has come out and said that he is not going to change Mexico today imports, I think roughly 800,000 barrels a day of refined products, so it’s enormous, one of the biggest importers in the world. And so they can’t just shut that off and have people to have gasoline for driving around Mexico City. So that’s not going to happen, what he has said publicly is that his goal would be to invest in Mexican refiners to build up their own refinery capability. But if you look back over history they have been saying that for 20 years and it hasn’t really happened yet and so there is a lot of structural impediments for that to happen, but let’s assume he is successful and he is going to build refined capacity. It will likely take 5 years to 10 years before that comes online. And probably whatever amount of refined product capacity they have build will probably be equal to whatever their growth rate is over the next few years. So the net short that they have I don’t think – I don’t know and really sees that going down substantially.

[Ariel Rosa, Bank of America/Merrill Lynch]

Okay, that makes a lot of sense. Thanks for the time.

[Operator]

And our next question comes from the line of Devin Ryan from JMP Securities. You may begin.

[Devin Ryan, JMP Securities]

Great. Good morning Joe and congrats on the strong quarter. First question here, I guess I heard all the commentary around kind of infrastructure and I appreciate all of the additional disclosure that you provided and without pinning you down to come at exact number here, I am trying to think about the EBITDA trajectory and the endpoint sounds great and even this year kind of become a positive contributor I think is a positive achievement, but as we think about kind of from where we are today, going to the end of next year, as we are thinking about the Repauno and Long Ridge activity and kind of project spending picking up, should we think that Jefferson and the contribution will be offsetting that along the way, so will be kind of incremental growth or should we think about maybe as we get into maybe heavier spending area next year that you will see a step back to then take a step forward, I am just trying to think about kind of how this progresses especially as Jefferson is starting to contribute more as some of the other areas are maybe earlier in their development?

[Joe Adams, Chief Executive Officer]

No, I think the EBITDA from Repauno and Long Ridge will be positive. And I think it represents the biggest upside for ‘19 and ‘20. And that we have as I mentioned the natural gas liquids opportunity of moving natural gas liquids from Long Ridge to Repauno, we found very, very strong commercial demand for that product if we can get it to the water. And so we are working very hard right now to figure out long-term as you mentioned if we build caverns and we have build a big business that’s easy to – there is a short-term move where I think we could move and load direct from rail to ship. And so the biggest upside I think the EBITDA for 2019 and ‘20 is going to be a contribution from that activity which I don’t have exact numbers on yet. But based on what we are hearing from the market, it’s meaningful, it’s probably could be significant. So I think that’s incremental. And everything we are doing is we are trying to add incremental EBITDA everywhere we can and we have got a lot of irons in the fire. So I don’t see anything that’s like going away.

[Devin Ryan, JMP Securities]

Got it, that’s very helpful. I appreciate the perspective there. And then a follow-up here just more on the smaller businesses, but I am curious kind of where you guys are in the process of evaluating the position in offshore markets or are asset sales potentially just to create liquidity to putting there some of the higher return opportunities like aviation infrastructure especially now this business is becoming a smaller driver relative to the overall portfolio just by the nature of everything else positive going on?

[Joe Adams, Chief Executive Officer]

Yes. It’s still on our minds about saying about how and when to do that. And I think that the big what I mentioned in this – in the transcript is moving the Pride into the well intervention market I think would be a significant development along realizing the right upside for that asset. It’s a great asset. The construction market is still somewhat oversupplied and obviously it’s getting better as oil prices go up, people are going to start drilling offshore again, but it’s still much more oversupplied. The highest return that a driller and an E&P company gets, is from enhancing the production from an existing well. So, I think that activity you will see pickup very quickly and the price is very well-positioned to do that in the earnings capability for that, asset will go up dramatically once we get in into that market. So, that’s one thing that I think would trigger that possibility.

[Devin Ryan, JMP Securities]

Got it. Appreciate the color.

[Joe Adams, Chief Executive Officer]

Thanks.

[Operator]

And our next question comes from the line of Robert Dodd from Raymond James. You may begin.

[Robert Dodd, Raymond James]

Hi, guys. Question on kind of capacity obviously last couple of quarters you told us about the limits for getting crude from Canada to Jefferson, because of the capacity constraints on airlines. Any additional color there on the prospect of maybe picking up more train availability or is that still blocked out just because of overall limits?

[Joe Adams, Chief Executive Officer]

We are still working on it. I don’t know the move, but yes, the move we have starting – we have trains in Q2 lined up and then we have our trains, 5 trains a month starting in September, that’s with CN. We are still working on getting capacity from CP and we have got a couple of customers that we think are impressed in that. So, I think it’s getting better. It’s clearly was worst probably, it will be in Q1 and it will start to free up and I think the Canadian government and Canadian, everybody is pressuring the railroads to sort of figure it out, because that crude is stranded. So, it’s costing the Canadian government a lot of money. So, I’d say it’s getting better, but nothing in railroad land ever happens fast.

[Robert Dodd, Raymond James]

Right. And to that point, I mean, obviously, you are talking about the potential to get and you also long wished to partner obviously a very different rail path, but are there any capacity constraints that could become an issue along those kind of routes?

[Joe Adams, Chief Executive Officer]

Actually, that’s probably because what when Mariner East comes online, we expect and most people think it will, Mariner East 2, actually the railroads will have excess capacity. Some of the volumes will be diverted to the pipeline. Ad so they are very eager to replace that volume. So, we think that, that quarter from Eastern Ohio to New Jersey has actually got very good capacity we could see volumes there. And actually, the transportation costs of moving it by rail from that market to New Jersey is right on top of the pipeline cost, there is no differential.

[Robert Dodd, Raymond James]

Okay, I appreciate it. Thank you.

[Joe Adams, Chief Executive Officer]

Thanks.

[Operator]

[Operator Instructions] Our next question comes from the line of Rob Salmon from Wolf Research. You may begin.

[Rob Salmon, Wolfe Research]

Hey, Joe. Thanks for the follow-up. You guys obviously have grown the infrastructure EBITDA where it’s going to be turning positive in the second half of the year. I am curious if that changes at all your philosophy in terms of the timing of a potential dividend increase given in my model I have got you guys moving very, very close to that 2-to-1 coverage ratio later this year even if you guys increased the dividend. So I’d be curious to get your perspective on dividend increases and timings in the context of the potential investments you have as well as the improving cash flows?

[Joe Adams, Chief Executive Officer]

Yes. We have not changed our policy. We are still targeting the 2-to-1 coverage FAD to dividend and when we hit that, we will raise the dividend.

[Rob Solomon]

Alright. This is very helpful there. And in terms of I guess switching gears a little bit here with the pride, is there any cost that we should be thinking about of conversion to a dedicated well intervention unit?

[Joe Adams, Chief Executive Officer]

Yes, it’s about an $8 million capital investment and from our math it looks like a 1 year payback.

[Rob Solomon]

And how long and what’s the timing in terms of the conversion how long does it take?

[Joe Adams, Chief Executive Officer]

So it’s only out of service for 4 to 6 weeks, but right now you have to order equipment, so we are in the process of ordering the equipment. So, it would be done in probably the end of Q3.

[Rob Solomon]

Perfect. And the final one is with the Aviation pipeline, what’s the timing on those deliveries, I think you may have mentioned it, but I missed it in your prepared remarks?

[Joe Adams, Chief Executive Officer]

So, we will have – we have closed $135 million year-to-date. We expect to close $65 million more in Q2 so that will bring $200 million for the first half of the year. We have an additional $30 million in LOIs that will close over Q3 and Q4.

[Rob Solomon]

Perfect. Very helpful.

[Joe Adams, Chief Executive Officer]

Yes.

[Operator]

And I am showing no further questions at this time. I would now like to turn the call back to Mr. Alan Andreini for closing remarks.

[Alan Andreini, Investor Relations]

Thank you all for participating in today’s conference call. We look forward to updating you again after Q2.

[Operator]

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. You may all disconnect. Everyone have a great day.