Fortress Transportation and Infrastructure Investors LLC

NASDAQ:FTAI

Earnings Call Transcript 2021-Q2

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2021 Fortress Transportation and Infrastructure Investors LLC Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Alan Andreini.

[Alan Andreini, Investor Relations]

Thank you, April. I would like to welcome you to the Fortress Transportation and Infrastructure second quarter 2021 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 and our press release on our website, which we encourage you to download if you have not already done so. And 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, regarding future earnings. These statements, by their nature, are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding non-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 today, I'm pleased to announce our 25th dividend as a public company and our 40th consecutive dividend since inception. The dividend of $0.33 per share will be paid on August 30 based on a shareholder record date of August 16. Now let's turn to the numbers. The key metrics for us are adjusted EBITDA and FAD or funds available for distribution. Adjusted EBITDA for Q2 2021 was $68 million compared to Q1 2021 of $47.2 million and Q2 of 2020 of $66.5 million.

FAD was $68.3 million in Q2 2021 versus $14.4 million in Q1 2021 and $47.3 million in Q2 2020. On a normalized basis, excluding sale proceeds and nonrecurring items, Q2 2021 FAD was $15.7 million compared to $9.8 million in Q1 2021 and $38.2 million in Q2 2020. During the second quarter, the $68.3 million FAD number was comprised of $116.2 million from our aviation leasing portfolio, negative $2.5 million from our infrastructure business and negative $45.4 million from corporate and other.

Now starting with aviation. Aviation experienced a meaningful increase in activity in passenger markets in Q2, and our portfolio of engine products and services is picking up momentum. While we achieved our goal of $80 million of EBITDA in Q2, up from $60 million in Q1, we are seeing a slightly slower ramp due to continuing COVID travel restrictions related to the Delta variant, particularly in Europe. As a result, we're now projecting 2021 EBITDA of $400 million as compared to our previous projection of $450 million for the full year. The engine leasing market is particularly strong as airlines look to ramp up flying while continuing to minimize maintenance capital spending.

Q2 was our second most active quarter for engine leasing with 23 new leases delivered, bringing engine utilization to 65%, excluding new engine acquisitions. We recently started new programs with two to five engines each with major airlines in the Americas that we could see growing to over 20 engines each over the next year. While a little bit behind the Americas, we expect the same phenomenon to occur in Europe later this year. Also new investment opportunities are increasing as illustrated by our agreement to purchase 12 A319s on four-year lease to one of the U.S. majors.

Our three CFM56 maintenance product programs are all gaining momentum and broad market acceptance. The USM or used serviceable material program in Q2 with AAR was very active with approximately 15 million in orders booked or closed. This strong and growing demand gives us confidence in hitting our targeted 20 engine tear downs this year with $1 million per engine profit or $20 million total profits for 2021. Our Module Factory has also been busy with 125 active users on the website and a handful of sales or exchanges consummated. We have big aspirations for growth in the Module Factory in the next 12 to 18 months with several sizable active campaigns now being negotiated.

Thirdly, PMA with Chromalloy has made big strides with the second part in production, preparing for final submission to the FAA in September. All-in-all, the market is shaping up better than we had hoped for our unique and proprietary approach to the commercial jet engine market.

Now let's turn to infrastructure, starting with Repauno. At Repauno, the high levels of activity this quarter are bringing the long-term vision into sharp focus. We started in 2016 with a vacant property of 1,600 acres on the Delaware River with Conrail rail service in a small underground unused storage cavern. By 2024, we expect to complete with a fully capable world-class natural gas liquids hub comprising three plus million barrels of highly efficient, underground storage, capable of handling butane, propane, ethane, condensate propylene, and other refined products for export via all size ships, including the VLGCs and for import opportunities as market dictates.

Product movements will be available by rail, both inbound and outbound via Norfolk Southern or CSX. By water across multiple new high capacity deep water docks, by type from all major North American producing regions and by truck via a new state funded highway access road and all of this in one of the most desirable East Coast locations. In addition, we have 250 plus developable acres, which are ideally suited and likely to be utilized for staging and manufacturing of offshore wind farm components and new plastics recycling facilities.

And the reason we were highly confident that this vision will become reality is we're doing much of this today. In Q2, we brought in 1.1 million barrels of LPG by rail and safely and efficiently loaded 17 marine vessels in our dock. We moved butane to local markets by truck, and have expanded our capabilities to handle propane. And importantly, we're on the map with global LPG players throughout the value chain.

Turning the Long Ridge, I'm pleased to report that the 2.5 years, $600 million plus power plant construction project is nearly complete two months early and on budget. Thanks to the more than 500 skilled and hardworking men and women involved in designing and building the state-of-the-art highly efficient power plant. We expect full scale 24/7 operations to start in early September. As a reminder, we've entered into seven to 10 year fixed price power to sale contracts that start in early 2022 with investment grade counterparties for 94% of the plant’s output. And we have secured 100% of the natural gas requirements at an effective low cost fixed price through our ownership of local gas wells, thus locking in the spread for eight and a half years.

Importantly, we are on track by the end of this year to become one of the first hydrogen fuel power plants in North America and the first worldwide in a GE H-class turbine. Having multiple pathways to generating carbon free energy is a high priority and we believe extremely valuable. Like Repauno, we're fortunate to also have 200 plus acres of attractive well-connected developable industrial property to add to the site's upside value.

We are in active negotiations with three different crypto mining companies to host their operations and provide low costs 24/7 power with the options to confer to carbon neutral power as well. With lots of interests in different approaches available, we've been focusing on minimizing our investment in crypto specific assets while maximizing the upside through fixed price power contracts and profit sharing. We believe that investment of $20 million or less in transformers, which have multiple uses for us will have a one year payback. We're also in the final stages of negotiations to host a facility that uses a new technology to make biodegradable plastics using natural gas and electricity as the primary inputs. Finally, our frac sand and road salt transloading operation achieve record volume in Q2 of nearly 300,000 tons, up from 230,000 tons last year.

Now Jefferson. The big development of Jefferson is obviously the new 10 contract with ExxonMobil. The new operation will utilize the recently built pipelines connecting Jefferson with the ExxonMobil Beaumont refinery, which is undergoing a major expansion and Jefferson's marine docks. Jefferson will construct 1.9 million barrels of new storage to be utilized by ExxonMobil for refined product storage and export beginning in January, 2023. In addition to the significant ExxonMobil base volumes, this infrastructure will enable us to attract additional customers to further optimize this new domestic and international refined products hub. Combined with the existing growing refined products, rail to Mexico business, this new strategic Jefferson, ExxonMobil tie-in further enhances the logistics capability of the Beaumont refinery complex.

Our crude business with Motiva is also poised to grow again, following reduced refinery throughput due to the COVID-related demand destruction. But with volumes picking up, we're seeing Motiva utilizing the existence storage and pipeline collectively for pipes, barrels from Cushing via our Paline connection, imported fuel oil by water, wax crude railed from Utah and renewed focus on Canadian heavy crude by rail. So with our growing array of connectivity options in prime location next to the two largest refineries in North America, we're extremely excited about the list of commercial opportunities ahead that will leverage and optimize our investment in Jefferson's infrastructure.

Turning now to Transtar, we're pleased to report that the acquisition of Transtar from U. S. Steel closed yesterday, so next quarter we will be discussing financial results for this new segment. We're excited to add a significant rail business, which performs critical functions at two major North American integrated steel complexes under exclusive long-term contracts. And while we're just getting started, we have identified several opportunities for near-term operating improvements and long-term growth, including developing the four additional railroads included in the deal. Transtar has a strong management team in place, who are all very excited to grow and expand the business and we are very much looking forward to getting at it.

Turning now to a couple of corporate items. First, we launched this week a $425 million municipal bond offering at Jefferson. The proceeds will finance expansion CapEx including assets related to the 10 year Exxon deal and approximately $175 million to the upstream to FTAI and available for general corporate purposes. Rates and terms for these long-term non-recourse financings continue to be extremely attractive. And this cash infusion of $175 million at the parent level, along with approximately $150 million in revolver capacity puts FTAI in a very strong liquidity position.

Second, with the two infrastructure enhancements now done, we will be progressing the plan and accelerating the timeline to split aerospace and infrastructure into two companies and eliminate K-1s for shareholders. We hope we have the timeline defined in Q3 with a goal of executing the spend before year end. To sum up both infrastructure and aerospace are in great shape. In infrastructure, with the addition of Transtar, which has a 15 year initial term and the new 10 year contract with ExxonMobil at Jefferson, we have substantially increased the amount and tenure of contracted revenue and EBITDA as was always our plan.

Having Long Ridge, which is already over 90% contracted and having strong indications at Repauno from suppliers and off-takers in executing long-term contracts, infrastructure is more than ready to become a standalone company. With aviation, the transition to a vertically integrated aerospace company targeting the largest engine market in the world is well underway. And the recovery while not in a straight line is definitely happening.

With that, I will turn the call back to Alan.

[Alan Andreini, Investor Relations]

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

[Operator]

[Operator Instructions] And your first question is from Josh Sullivan with Benchmark.

[Josh Sullivan, Benchmark]

Hey, good morning.

[Joe Adams, Chief Executive Officer]

Good morning.

[Josh Sullivan, Benchmark]

Just a question on the new 12-plane lease order you have with the major U.S. airline there. Can you give us some color around that contract? There is a new relationship, what's the total opportunity there? Do you think this is going to attract other U.S. major airlines of similar caliber going forward?

[Joe Adams, Chief Executive Officer]

Yes. We're very excited about it. It's a – as I mentioned previously, we've – I think given the pandemic, we've been able to access airlines that previously would probably – we would not have had as much access to. And part of it is just the need they have for capital, but also part of it is to focus on the engine side of the business. So we see that as a door opener for more business, but also the ability to integrate our products offering into the mix in terms of the equation.

So when we go – when there is shop visits are – we can be talking about module swaps PMA, used serviceable material, and we're already doing it that to some level with this existing airline. So it gives us the opportunity to increase the volume. One of the prohibition is obviously, people has always had – if you have an asset that's owned by a leasing company and you want to put PMA in it, usually the leasing companies have been prohibited that. We actually, if we own the asset, we have the ability to give ourselves permission. So – and that we can resell at a very, very low cost. So I think it is a door opener for us to – as I said, vertically integrate provide a broader range of services than anybody has ever done before and actually save us money. So – and we see very – I think the level of interest in both USM and PMA is very, very high. So I think as this picks up, it's going to give us additional ways to do business with big carriers.

[Josh Sullivan, Benchmark]

And then maybe just more broadly, if you could just give us color generally on the leasing market or durations extending on leases, how is the lease up marking responding to the uptick here in the double variant?

[Joe Adams, Chief Executive Officer]

Yes. I think the engine leasing market is heading up very nicely. I mean, we're not doing any – I think the era when people were doing power by the hour deals is over, lease rates are turning up, terms are extending out. So I think it's – the recent deals we've done in the engine side are virtually as good as what we were doing in 2019. And I think it's going to go higher. It's basically laws of supply and demand, as we know that everybody is deferring maintenance as much as they can. And so they're starting to line up assets and they're lining up engines in particular for longer-terms.

So we're getting – and our portfolio is now extended out 18 months and we're signing up. We just signed up deals with a large airline that have a three year term. So I think rates and terms are going up. And maintenance reserve rates, which is also another sort of very important economic part of the lease are – has never really went down. And the manufacturers, – the maintenance reserve rates are set by taking the estimated cost of the shop and dividing it by the number of hours and the OEMs keep raising the parts prices even in this pandemic period. So maintenance reserve rates are still very strong. So all in all, I think the engine lease market is trending up very nicely.

[Josh Sullivan, Benchmark]

And then if I could just sneak one last one in here. Can you just talk a little bit about the market for GE56 assets on the secondary market, just what you're seeing at this point?

[Joe Adams, Chief Executive Officer]

Yes. So most of what we've been trying to do is buy older A318, A319s, 737, 700s, and then get rid of the airframe. So we're buying engines, buying a whole plane and then scrapping the airframe. And the acquisition – that way makes the most sense, we've been acquiring assets at probably the lowest prices we've ever bought them at, sometimes lower than $1 million for an engine. So that's been very fruitful, we added 27 new engines in the second quarter, which is one of the reasons our utilization looks a little bit lower, because we found some really good investments to put on the books.

And that reflected about 10 points of utilization, so really it's more like 65, but that's the best way to create an engine today, because there is very – there very few buyers for off least older assets. If you have not – if you don't have revenue stream attached and it's an older asset, we might be the only bid. So we like that dynamics.

[Josh Sullivan, Benchmark]

Okay. Appreciate the time. Thank you.

[Joe Adams, Chief Executive Officer]

Yes.

[Operator]

Your next question is from Guiliano Bologna with Compass Point.

[Guiliano Bologna, Compass Point]

Good morning. I guess, following on a similar topic. You were talking about some lease rates moving higher and there is been some industry discussion around that point. I'd be curious, not necessarily specific dollar wise, but I'd be curious from a magnitude perspective kind of how much lease rates have moved at least on a percentage basis, we kind of where they were and kind of are they out 5%, 10%, 20%? I'm just curious from a magnitude perspective, how much of these rates have been moving for specifically CFM56 engines?

[Joe Adams, Chief Executive Officer]

Yes. I would say that probably from the pre-pandemic to the bottom of the pandemic, we’ve probably declined 25%, 30% to the worst. And I think most of that 25% to 30% now has gone. It's in fact very close to pre-pandemic.

[Guiliano Bologna, Compass Point]

That's great. And then thinking about the aviation business, kind of a little bit more holistically. You obviously have the module factory, which seems to be kicking off and cheers things in early success. I'd be curious if there is a sense of kind of the magnitude of the – or how big you could grow the module factory from a kind of a throughput perspective, because you obviously have to have some engines and inventory and kind of what that opportunity could look like over time?

[Joe Adams, Chief Executive Officer]

Yes. I mean, you have to have some engines in inventory and we currently owned 200 CFM56 engines. So a lot of the airlines we're talking to right now are looking at – starting with programs that could be 10 or 20 year to talk about 10 or 20 modules. But they have fleets that could be 100s of engines. So they're looking at that as really a starter kit. So we think that basically we can grow, if we get people started doing it, then it has a flywheel effect and you can just grow with them. So our 200 engine fleet might grow to 300, 400, just remember there is 22,000 engines in the world of this type. So going from 200 to 400 to 600 doesn't really move the needle.

And so, I think we can scale our inventory along with the needs of the customer, but the upside of, how many could people do is really very significant. Once they integrate this into the way they operate on the maintenance side, it's quite significant. And then, if you put on top of that, you add PMA into it, which will start to happen next year, it could become even much bigger.

[Guiliano Bologna, Compass Point]

That's great. And then just thinking about the kind of the split of the business, you obviously have a few different components that should be a decent contributors starting next Transtar into numbers, you guys have put out so far about $80 million, you have about – $70 million to $80 million is kind of the discussed run rate for Jefferson, which I'm assuming should be scaling up now that all the pipelines are complete there. And you have another call it $60 million from the power plant kind of $15 million from Repauno, that puts you into $200 million, obviously this pricing overhead that would get allocated to that segment, so is it a decent business.

Kind of looking beyond that you the Exxon deal, but then, you're making some comments about Repauno and expanding critical $3 million of storage, which kind of sounds like the old Phase 2 that had been discussed. I’m curious if there is anything changed to kind of the Phase 2 project or outlook, because it used to be called at $500 million of CapEx ballpark, and then the expectation was $150 million of EBITDA. Are you still pursuing that similar strategy and is that what you're referring to in 24?

[Joe Adams, Chief Executive Officer]

Yes. That was very intensive of the completed Phase 2. And it hasn't changed, we've zeroed in on more, I think we're specifically on exactly what we need to build and when we need to build it. And the capital expectation, I think is less than $500 million at this point, partially because we've invested already some of the infrastructure that's going to be used. So it's – I would think of it's more of a $400 million. And the other thing is changed, as I've listed about eight different products. When we first started this, we were thinking propane, butane, but we've had lots of different ideas from people coming to us and actually suggesting propylene as an example, or some of the natural gas liquids, condensate some refined products.

And then we've had further discussions that fairly recent about pipeline connectivity, which would also expand both the capabilities, as well as the product offerings. So I think it's only gotten better in terms of the upside and the capitals is probably a little bit less than what we had forecasted. So it's – if I didn't sound enthusiastic saying it, I am extremely enthusiastic because it's all happening and the conversations are live and real.

[Guiliano Bologna, Compass Point]

That's great. I appreciate all the insights and I'll turn back in the queue. Thank you.

[Joe Adams, Chief Executive Officer]

Yes.

[Operator]

Your next question is from Chris Wetherbee with Citi.

[Chris Wetherbee, Citi]

Thanks, good morning guys. Maybe just touching on Jefferson here, obviously getting the Exxon deal done was a great step in the right direction. It seems like there is probably a decent amount of storage opportunity or space to fill up the facility. And I guess it's probably building interest in coming to you guys. I don't know, Joe, if you can maybe deal with a little bit of color in terms of what sort of the deal prospect pipeline looks like at Jefferson right now? I'm guessing there is probably a couple of deals in the hopper that maybe could be coming through fruition. And then maybe if you could talk about what the timing of that might look like? I don't want you to trump around what you have here, but I'm just kind of trying to get a sense of what the ramp up might look like.

[Joe Adams, Chief Executive Officer]

Yes. I think we've – we continually, every time we do a deal or we have a meeting, we end up with a longer list than when we started, so that's the fun part. And so we've got multiple projects, sort of a handful of projects with each of Exxon and Motiva that are real. I would say that they always were these large entity sales take longer than we would like. But we do get there, that's one of our sort of – we seem to have staying power in these negotiations. So we – but the number of opportunities there are significant and it's on both refined products and crude. And if you think about from a macro point of view, these are the two – in 2023, Exxon will be the largest refinery in North America.

So it's 600,000 barrels a day in and 600,000 barrels a day out and the same for Motiva. So you're trucking over 1 million barrels a day right in our backyard. So we have lots of things that happen in and things that we don't even anticipate, like importing fuel oil, for example, we would never have guessed that that's something on the radar, but that becomes a topic or storing an intermediate. So a lot of these things come about, because you just have regular conversations. But there are many, many different projects once you get connected and once you're in a regular dialogue.

Timing wise, the building of this storage takes about a year, so it's – we have probably the lead time on a lot of these projects to do that. Now that we have the pipes though, it's a lot easier, because you can go and say, we have a connection already, so we don't have to worry about that part of it. And so – it's mostly these discussions I would say that the typical lead time would be nine months to a year.

[Chris Wetherbee, Citi]

Okay. That's helpful. I appreciate that. And then just making sure I understand here, I'm going to go back to the aviation guide, the 50 million there. Can you – what are sort of the variables that sort of – could drive that to 400 that maybe leave that a little bit higher than 400 or maybe create some risk to it? I guess, I just want to make sure I understand for the most important dynamics of that guide or as we think about hitting that for the rest of the year.

[Joe Adams, Chief Executive Officer]

Yes. The two biggest movers would be the number of flying hours. So as airlines ramp up flying, our revenues increase on the maintenance reserve side. And so, if you look back to the – I think it was third quarter of 2019, was our best quarter, because it was 85% utilization and every airline was flying 300 to 400 hours a month, so – or every aircraft. So that's probably the biggest one, and that's where the ramp up of services, particularly U.S., we've seen a lot, South America, we've seen a lot, Europe has just lagged, it's just been slower with the cross-border. I mean, United States is great because 50 States you can always travel more, not always, I should say. But historically, you could travel between one State and another without showing a passport, but in Europe, it's different, so – and I think that is slower.

But Europe, Europe will follow and I indicated it, I think that'll happen later this year where you'll start to see more flying, but the activity – flying activity is number one, and then the second is acquisitions. And so we've got the one deal I mentioned is closing this week or next week. And then we have one other large deal with European carrier that should close by the fourth quarter. So those I think are the two utilization of flying hours and acquisitions.

[Chris Wetherbee, Citi]

Okay, got it. That's super helpful. I appreciate the time this morning, guys. Thank you.

[Joe Adams, Chief Executive Officer]

Thanks.

[Operator]

Your next question is from Justin Long with Stephens Inc.

[George Sellers, Stephens Inc]

Hey, good morning. This is George Sellers on for Justin. I guess to start, could you talk about the EBITDA you expect to be generated from the maintenance and parts pieces within aviation. And any update you can provide around the ramp of that number into the second half of this year and into 2022, it'd be great.

[Joe Adams, Chief Executive Officer]

I assume you're talking about the three JV, the USM and – what's the third, the Lockheed Martin, the Module Factory. So those three…

[George Sellers, Stephens Inc]

Exactly.

[Joe Adams, Chief Executive Officer]

We believe that 50 million for the year is still a good number for those three. The decrease from 450 to 400 was largely on leasing revenues. So those three will produce about 50 this year, we haven't forecast yet for next year, what we think those will be, but safe to assume that it's going to be higher.

[George Sellers, Stephens Inc]

Got it. Okay. That's helpful. And then turning to Jefferson, could you walk through your latest thoughts on how you expect EBITDA to ramp at Jefferson through this year and then into 2022 as well. And as you think about that expectation, maybe you could also speak to the level of visibility you have around that based on contracts that you already have in hand.

[Joe Adams, Chief Executive Officer]

We believe that the run rates for the fourth quarter, that the end of 2021 for Jefferson will be 70 million to 80 million, so that next year again, we haven't really put an official forecast out there, but I would assume 100 million or north.

[George Sellers, Stephens Inc]

Okay, great. Thank you so much. I'll leave it there.

[Joe Adams, Chief Executive Officer]

Thanks.

[Operator]

Your next question is from Rob Salmon with Wolfe Research.

[Rob Salmon, Wolfe Research]

Hey, good morning, guys. And thanks for taking the question. I guess, Joe, to start off with just a bigger picture question. Could you discuss how you expect the two companies to look following the split from a capital structure perspective as we look forward?

[Joe Adams, Chief Executive Officer]

Sure. I mean, we're targeting to maintain, the level of debt on each company maintain a DD rating for each one. So part of the next few months, the process of going through that with our own financial modeling and then also rating agencies to work through the details, but that's our objective. But it will be – the infrastructure business would be in U.S. domestic seaport and we'll have most of the projects financed, like the Jefferson bonds we've talked about, our Long Ridge are all financed at the entity level. And then the corporate debt would be an aviation, which will be a non-U.S. corporation. And we would be targeting that to maintain the BB rating.

[Rob Salmon, Wolfe Research]

That's helpful. I mean, historically, the FTAI Company more broadly has kind of targeted both growth as well as kind of a return of capital to shareholders. How do you see kind of the dividend playing out across the two companies, have you guys kind of thought through those dynamics at this point or is that that's still a work in progress?

[Scott Christopher, Chief Financial Officer]

We don't anticipate a change in that. I think it's still going to be the investment objective is going to be income plus growth. So I don't expect that to change.

[Rob Salmon, Wolfe Research]

Got it. And that would be true for both of the companies looking for?

[Scott Christopher, Chief Financial Officer]

Yes.

[Rob Salmon, Wolfe Research]

Perfect. And then a couple of quick – sorry, go ahead.

[Joe Adams, Chief Executive Officer]

Historically, I think you would see higher dividends on aviation than you would see on infrastructure.

[Rob Salmon, Wolfe Research]

Yes. That makes sense, given the investments. And then just a couple of quick follow-ups with the aviation segment. Can you give us a sense of the capital investments that you guys are planning in the back half of the year that's underpinned in the 400 million of EBITDA you're expecting that company to generate?

[Joe Adams, Chief Executive Officer]

Right now, we're looking at about $300 million additional investments that are all under LOI and we haven't added anything beyond that.

[Rob Salmon, Wolfe Research]

Perfect. And is that pretty evenly weighted between the two quarters or is it more fourth quarter? I know you had mentioned there was a big deal you're expecting to close in the fourth quarter. And obviously, you just closed a large one with an American airline.

[Joe Adams, Chief Executive Officer]

We weren't supposed to say that, but yes, I would say evenly weighted.

[Rob Salmon, Wolfe Research]

Yes. Got it. Helpful. And then that's really – and if we look at the June – just June in terms of the utilization rate, can you give us a sense how that exited the quarter relative to the 65% utilization ex the adjustments that you had noted within the transaction that – new transactions you guys completed during the quarter?

[Scott Christopher, Chief Financial Officer]

It was – I think the exit rate was up from the beginning of the quarter about 10 percentage points.

[Rob Salmon, Wolfe Research]

Okay. Helpful. Appreciate the time, guys.

[Scott Christopher, Chief Financial Officer]

I think we put 23 engines on leases, I think were added during the quarter, it’s a pretty big quarter. And we expect probably – potentially put 30 on and 53.

[Rob Salmon, Wolfe Research]

Appreciate it. Thanks for the color.

[Scott Christopher, Chief Financial Officer]

Thanks.

[Operator]

Your next question is from Frank Galanti with Stifel.

[Frank Galanti, Stifel]

Great. Thank you for taking my questions. I wanted to follow up on, I guess, the three horsemen or whatever you want to call it, the JV, the Module Factory, the USM, you said 50 million was your expectations for this year. Can you kind of talk about how – I guess, what does that assume has been done already specifically in the second quarter?

[Joe Adams, Chief Executive Officer]

Probably about five of the 50.

[Frank Galanti, Stifel]

Okay. That's helpful. And kind of staying on the aviation side, can you talk about the second PMA part, I guess the PMA parts generally how is the first one been kind of give us an update on how the penetration has been from an interest level from third-parties. And then how the – if there's an update on the timeline for the second and three, four or five parts?

[Joe Adams, Chief Executive Officer]

Yes. So on the first part, the interest level is very high. We have a couple of airlines that have ordered it, mainly lot of feedback on the phone, frankly feedback on the phone. We have a lot of interest in, a couple of big airlines have ordered it and one airline is actually flying it and installed it. And I think the further penetration is a bit delayed because there's not a lot of shoppers it's going on. So it is most airlines, as I mentioned, are burning off green time. So they're not doing a lot of major overhauls. So a lot of airlines are waiting until that builds up. And they're also waiting to be able to pair it with the second part which we expect. As I said to have that final submission with the FAA in September which would hopefully imply year-end approval and that's the first. The second batch of parts is expected for late 2022 or early 2023, those additional three parts.

[Frank Galanti, Stifel]

Okay. That is helpful. And then I think the last question I wanted to walk through kind of CapEx needs. So in your prepared remarks, you'd mentioned part of that financing at Jefferson 175 million is going to be upstream to the parent. You've got 150 million left in the undrawn revolver. But you'd mentioned about 300 million CapEx needed for the aviation. And it could be off on this, but the Transtar purchase was closed. But I guess just want to walk through what level of equity contribution is needed from FTAI, kind of across the various businesses. And then add onto that 100 plus million at Jefferson needed for the expansion where – what are the CapEx needs in the next few quarters?

[Joe Adams, Chief Executive Officer]

So the Jefferson and CapEx needs will all be financed by this bond offering. So there's zero need for Jefferson. Zero needed for Long Ridge, zero needed for Repauno. So those are easy. Transtar is fully financed, which closed yesterday. And then as you mentioned, we do 300 million of acquisitions, we've got 175 million plus the undrawn revolver to fund that. So there are no additional capital – unfunded capital requirements for this year, everything's funded.

[Frank Galanti, Stifel]

Okay, great. That's very helpful. Thanks very much.

[Joe Adams, Chief Executive Officer]

Thanks.

[Operator]

[Operator Instructions] And your next question is from Robert Dodd with Raymond James.

[Robert Dodd, Raymond James]

Hi guys. A question on the dividend, this feels like a flashback. Previously Joe, you said, when FAD covers the dividend by a factor of two, you consider taking up the dividend, obviously by my math, certainly by the fourth quarter, maybe the third, you'd be in excess of that, obviously that also be right before the spin or its separation. So can you give us any thoughts on – is that still a good rule of thumb and does that apply to maybe the separated businesses as well?

[Joe Adams, Chief Executive Officer]

Yes, it is a good rule of thumb and yes, your math is pretty good and we will factor that in, if and when it's sort of coincident with a spin, we'll build that in.

[Robert Dodd, Raymond James]

Okay. Got it. Thank you. One more if I can unrelated to that. You talked about that leasing nature basically back to pre-pandemic levels, but at the same time, the airlines are burning down all that green time. Which – lack of a better term, do you think there's meaningful upside to lease rates? I mean, we can see what happened in the rental car market. If you run – your portfolio down eventually pricing moves significantly, do you think there's a risk in your favor of a material uptick in lease pricing? If airlines continue to run green time down while you've got available engines.

[Joe Adams, Chief Executive Officer]

Yes, we have been saying that all along. And so we think by the fourth quarter of this year, first quarter of next year, that there's demand will outstrip supply. Now unlike rental car companies, we can't go from charging $80 a day. So we will most likely, what we've done historically is just get better, longer terms and higher maintenance reserves and just better all around deals. The rent – airlines get very, very sensitive to rent.

So you try to find other ways to make more money because that becomes a relationship, and you don't want to, if you're going to do continuing business, and you're doing parts on the maintenance side and a building program, you don't want to take full advantage of your position or you'll pay for it later. So it's rented a little bit, but there is – you're not going to be flexible on it, if everyone else is paying $60,000 a month, you're not going to go and give them a deal at 30. So you'll get – you might get 50, but instead of a 12 month deal, you get a three-year deal and you may be tweak to maintenance reserves and make them higher.

[Robert Dodd, Raymond James]

Got it. I appreciate that. Thank you.

[Operator]

There are no further questions at this time. I will now turn it back to Alan Andreini for closing remarks.

[Alan Andreini, Investor Relations]

Thank you, April. And thank you all for participating in today's conference call. We look forward to updating you after Q3.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.