Fortress Transportation and Infrastructure Investors LLC

NASDAQ:FTAI

Earnings Call Transcript 2021-Q3

[Operator]

Good day and thank you for standing by. Welcome to the Third Quarter 2021 Fortress Transportation and Infrastructure Investors LLC Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question-and-answer session. [Operator Instructions]

And now I would now like to turn the conference over to Mr. Alan Andreini. You may begin sir.

[Alan Andreini, Investor Relations]

Thank you, Operator. I would like to welcome you to the Fortress Transportation and Infrastructure third 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 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 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 26th dividend as a public company and our 41st consecutive dividend since inception. The dividend of $0.33 per share will be paid on November 29 based on a shareholder record date of November 15.

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 Q3 2021 was $96.4 million compared to Q2 2021 of $68 million and Q3 of 2020 of $58.6 million.

FAD was $39.4 million in Q3 2021 versus $68.3 million in Q2 2021 and $39.9 million in Q3 2020. During the third quarter, the $39.4 million FAD number was comprised of $90.5 million from our aviation leasing portfolio, negative $0.2 million from our infrastructure business and negative $50.9 million from corporate and other.

Turning now to Aviation. The aviation recovery continues as our EBITDA for Q3 was approximately $100 million, up from $80 million in Q2, and $60 million in Q1. We see broad improvement in demand across narrowbody markets, with some delays resulting from the Delta variant.

As an example, we signed leases for approximately 30 engines in the quarter that airlines took actual delivery of approximately 15 as several regions had continuing travel restrictions, but for the most part now have been reopened in Q4. We have a strong backlog of engine demand and expect to start new leases on over 40 engines in Q4, of which 30 are signed today and 10 have already been delivered.

We're also closing new sale leaseback transactions on 16 aircraft with Alitalia and ITA and 19 aircraft with Avianca and funding those in November for an aggregate new investment of $340 million. The term of the lease backs range from six months to 10 years, with an average of 15 months, and three fourths of these 319s and 320 aircraft are CFM56 powered aircraft, which is an excellent addition when brings our total CFM56 engine count to approximately 300 engines.

Our three CFM56 Aerospace activities all made great strides forward. On PMA the next part has completed production and documentation is being assembled to make the final FAA application complete in the next few weeks. As such, we expect to be able to use both parts for our own engines in Q1 2022 and are seeing strong third party interest for multiple airlines and MROS or maintenance repair organizations for shock visits beginning in 2022.

On the module factory we have completed a number of module sales and swaps and are progressing with a few airlines in negotiating long term programmatic supply agreements. Elsewhere our used serviceable material business or USM Business with AAR we are targeting approximately $10 million in sales in Q4 with momentum growing into 2022. All combined 2022 is shaping up really well with leasing EBITDA expected to be $500 million for the year and the three CFM 56 Aerospace activity is expected to contribute between $50 million and $100 million of total EBITDA for the year total EBITDA for aviation for 2022 is expected to be $550 million to $600 million.

Let’s now turn to infrastructure, starting with Jefferson, on the heels of the previously announced 10-year deal with Exxon in mid-July, the Jefferson Terminal continues to reshape and transform logistics options in the U.S. Gulf Coast, and in the Beaumont Port Arthur Texas refinery region. This region remains one of the largest refinery footprints in North America, and the Jefferson terminal has become an essential extension of the two largest refineries in North America.

Looking specifically at Q3, near term headwinds continue to impact the economics of crude by rail from Western Canada to the U.S. Gulf Coast. However, due to the improved logistics associated with the Exxon Mobil cross channel pipeline system, Jefferson has seen an increase of 44% in 2021, compared to 2020 in the refined products by rail to Mexico business, resulting in Jefferson posting another positive quarter with EBITDA of $1.9 million.

Enhanced terminal infrastructure and the in-service pipeline projects connecting Jefferson to Exxon and to Motiva have been completed, and baseline business continues to steadily increase as these business partners ramp up refinery activity.

As we look towards 2022, high oil prices and demand for refined products is good for Jefferson. Local refiners are lining up new sources of discounted crude from markets in Western Canada and New interbasin [ph] and looking for terminals like Jefferson to optimize blends and lower logistics costs.

Additionally, international oil flows are increasing and Jefferson will be receiving its first ever inbound Aframax marine cargo from the North Sea this month. We have high expectations for additional inbound marine volumes from overseas and have line of sight on several other significant opportunities in the near future.

Specifically, are we making progress on DRU, delivery recovery unit discussions as well as discussions relating to the movement of heavy wax barrels, which cannot move by pipeline. These two projects are important because they would lead to a radical flow of trains, which are not dependent upon crude spreads.

Finally, we're moving forward with several interesting opportunities regarding the movement of natural gas liquids and other products which would involve the integration of Repauno, Long Ridge and Jefferson into a seamless flexible and unique supply chain.

Turning the Repauno , Repauno continued its strong phase in the third quarter, loading 14 marine vessels with over 900,000 barrels of butane down for international markets. This activity was complemented by increased truck movements to local premium markets to signal the beginning of the fall of gasoline blending season.

Rounding out the first export seas in the highly flexible multimodal port and rail terminal firmly established itself as a premier distribution hub on the east coast of the United States. And we're excited to enter the local propane distribution market this winter. By increasing the suite of products handled simultaneously at the terminal and providing security of supply for local markets in the Northeast, we're meeting the customer's needs not only in New Jersey, but also in the entire Northeast Region.

Pushing towards further development outlined in FTAIs long term vision, the newest port on the Delaware River plans to see expanded capacity, with three plus million barrels of highly efficient underground storage capable of handling a wide variety of LPG and refined products to be ready for export via all size ships, including VLGCs. Repauno is also looking at import opportunities as they rise in various markets and under various market conditions.

Product movements will be available by rail, inbound and outbound by water across multiple new high capacity deep water docks, and eventually buy type from all major North American producing regions.

And with 250 plus acres available for development we also continue to move forward with several renewable opportunities. Repauno is prime for staging and manufacturing of wind farm components and for waste plastic recycling projects. These discussions are at advanced stages and we hope to have one or more concluded by the year end.

Together with a Jefferson facility in Beaumont Texas, FTAI is well positioned with multimode of distribution and export terminals on both the Gulf Coast and the Mid-Atlantic seaboard, providing unparalleled levels of service flexibility and optionality for our customers.

Turning now to Long Ridge, Long Ridge has successfully transitioned from a development project into a cash flowing operating business, as evidenced by the 15.5 million of EBITDA on 100% basis generated in Q3. Most of the Q3 EBITDA was attributable to our natural gas production, which was sold into the market. And now that the power plant is operating, our natural gas is being utilized to generate electricity.

While natural gas prices have rallied recently, and we benefited from that in Q3, the economics of generating electricity are even better. We anticipate Long Ridge to generate EBITDA of approximately $15 million in Q4 and $37 million in Q1 2022, which taken together is more than $40 million higher than we expected when we initially underwrote the project. This incremental cash flow is a result of completing construction nearly a month ahead of schedule and higher power natural gas prices in the market today.

Our fixed price power sales agreement commenced in February, locking in an attractive margin for the next seven years to 10 years, and generating approximately $120 million per year of EBITDA.

We’ve also recently seen lots of interests from power intensive industries that want to locate and build new facilities at properties like Long Ridge. Importantly, we remain on track to be the first large frame power plant in the U.S. to blend hydrogen into our natural gas stream. We will start with a 5% Hydrogen blend in December and hope to increase this percentage over time.

Turning now to Transtar, our newest addition Transtar is off to a great start. John Karns and his team are already meeting or exceeding expectations. But I'll start with an important metric in the short line rail business which is safety and that Transtar continues to lead the short line railroad industry and safety and is well positioned to win another President's Award for safety from the American short line and Regional Railroad Association. All of the Transtar railroads are FRA and Ocean recordable injury free in 2021.

Since July 28 to date, the Transtar acquisition closed, the company is tracking to the $80 million annual EBITDA number that we have projected. Transition expenses are tapering off and expected to be deminimis in 2022. As to the core, there the strong steel markets continue to support shipment of both finished steel and raw material. And we believe that improving ship availability will drive robust steel shipments for auto, which is a high profit margin business for us. And we could see increased shipments to that sector in Q4 of this year in Q1 of next year.

Other steel segments are holding steady and strong. Mon Valley is running full while Gary Indiana has a plan maintenance outage at the number six furnace which is expected to be completed in November. As we look to 2022, we expect multiple and new third party opportunities to grow the $80 million EBITDA number. We are in discussions with third parties regarding car storage opportunities, and railcar repair opportunities just to name two. In short, everything we had hoped to see happen post the acquisition is happening.

Turning down corporate items on the spin out of infrastructure, we have made considerable progress on the spin-off of infrastructure and conversion to sea corps. In Q3, we completed the refinancing of the Transtar acquisition financing, and are now focused on completing the documentation and agreements which we hope to be finalized in December of this year for an SEC filing before year-end, which would set us up for having two separate trading entities in Q1 of 2022.

The existing FTAI entity will retain aviation business and assets and all existing corporate debt totaling approximately $2.3 billion pre-acquisition of the Alitalia and Avianca fleets.

Infrastructure to be spun out as a new C Corp entity comprised of Jefferson, Repauno, Long Ridge and Transtar will retain all related project level debt of those entities and intends to remit approximately $800 million in cash or obligations as part of the separation. While we intend to monetize this obligation to the maximum amount, the spin will not be subject to raising additional financing at completion.

So in conclusion, the ramp back up in aviation to 2019 levels is progressing. Our revenue pass the kilometers continue to rise. And as a result, we're seeing engine lease rates and demand for sale leasebacks rise as well. And with the industry still straining from the shock of COVID-19, we're seeing demand for our Chromalloy, Lockheed Martin AAR suite of products growing as well.

As the infrastructure projects have restarted three to five years ago are now in full ramp up mode, these projects along with Transtar now give us the ability to spin infrastructure into a robust standalone company. That vision which we've been planning for years is about to become reality. So we're at an exciting time in FTAI’s history, we're at that point because of the hard work of a lot of outstanding employees, and directors and the cooperation and partnership with some great customers. And I want to thank everyone for helping bring us to this exciting inflection point.

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

[Alan Andreini, Investor Relations]

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

[Operator]

Thank you, Alan. [Operator Instructions] Our first question comes from the line of Justin Long with Stephens. Your line is open.

[Justin Long, Stephens]

Thanks and good morning. Joe, I wanted to start with a question around the pricing on the bridge financing for the two aviation deals that you announced and the plans for repayment there, and maybe you could just talk about the expectation for the balance sheet and leverage more broadly going forward as well.

[Joe Adams, Chief Executive Officer]

Yes, so. So that's financing, we wanted to keep it short, cheap and flexible. So we have structured a one year facility, which I believe the rate will be less LIBOR less than 300 LIBOR plus 300, a little less than that, like LIBOR plus 275. And, and pre payable at any time. And our goal over that is to prepay that from the 800 million of infrastructure funding, that's going to come back to aviation. So essentially be reducing debt net on a on a net basis when the spin happens at Aviation.

And so that's what we wanted to have that immediately or pre payable immediately. In terms of the leverage for the companies and then we stated as part of the spin, we wanted to maintain BB rating for the aviation aerospace business. And we've been given very good feedback on that. I think we're in good shape, given the outline of what I just said. And, and both companies would then have access to capital going forward. So, I think it all sort of fits together with the parameters and the requirements that we set out to do as part of the spin.

[Justin Long, Stephens]

Great. And on aviation. Could you also talk about the level of utilization that you're assuming into the fourth quarter and into 2022, as well as you think about the guidance you provided? And would also love to get a little bit more color on the quarterly cadence of the non-leasing aviation EBITDA. I know you said that it's still expected to be 50 million to 100 million next year, but just wanted to understand how that's going to ramp over the next couple of quarters or so.

[Joe Adams, Chief Executive Officer]

Yes, so the utilization. I think our engine utilization is a little over 60% in Q3, which was less than what we had hoped it would be. And I think it's really primarily or almost exclusively driven by the Delta variant and the COVID. And we saw a lot of airlines who are gearing up to take additional equipment and, and we as I mentioned, we had a lot of engine lease deals signed, but then when the restrictions started being re-imposed and airlines started, they started to slow down the ramp up and activity. And that sort of impacted the third quarter.

We're seeing a lot of activity though, now in the market in October, November, and they said we've got -- we expect to put 40 engines on lease. I think that would bring our engine utilization up to about 70% or a little bit higher and we expect next year to operate in the 75% to 80% utilization range throughout the year and really, every airline we're talking to today and is looking for additional equipment and a lot of engines. And I think importantly the deals with Avianca, Alitalia, American Airlines, we did all come with our ability to expand those relationships and provide engines and engine management services.

So it's an integrated package. And we see the market for 2022 developing very nicely. And all signs are that people are now going to be adding and growing their businesses again next year. In terms of the crude products, we also expect a very strong year. We've had good momentum and all of our businesses with the exception of TMA because the second part is not yet approved. But USM has developed nicely. We have 20 year engines and tear down. And we are one of the largest providers of USM. I think the ramp up and shop visit activity has not picked up yet. But that's not surprising; we expect to see that in 2022. And when that does, we expect strong levels of sales for USM.

So I think that there'll be growth throughout the quarter, but I think throughout the year, each quarter, but I think it's going to start 2022 fairly strong. So it's not it's not a it's not a steep ramp.

In terms of the PMA, our indications from Airlines is that they're very interested in those products, once they're available, and we ourselves are will be putting the PMA into our own engine. So we have a number of shop is scheduled. But we also expect a number of airlines to step up and start using the PMA, probably beginning in Q2 of next year. And then that could ramp significantly and Chromalloy has said they're going to begin production of parts as soon as the application has filed, so they will have inventory available.

And then the big upside, as I've said before, I think is really on the module factory because that's our storefront, that's our cash register. That's where we all three products can be combined, and providing real value and real savings to airlines by their selling individual modules or engines that we've overhauled and we see a number of airlines today as airlines are coming out of distress or restructuring that have postponed shop visits or we're in are now looking at returning engines to lessors and others in a run out condition. They are preferring to buy engines or exchange them with us as opposed to putting it through the shop.

So we see a lot of upside on the module factory as we bring all those products together integrated. And I think that will be the biggest revenue contributor of the three next year by a good margin.

[Justin Long, Stephens]

Very helpful. Thanks, Joe. Appreciate the time.

[Operator]

Our next question is from Josh Sullivan with Benchmark Company. Your line is open.

[Josh Sullivan, Benchmark Company]

Hey good morning.

[Joe Adams, Chief Executive Officer]

Good morning.

[Josh Sullivan, Benchmark Company]

Just on the on the current PMA submission, how's that tracking relative to the first part and what the FAA has requested just as kind of a guide path? And then just curious how these the following pretty parts are moving forward as well?

[Joe Adams, Chief Executive Officer]

Yes, it's tracking very similarly, in that the FAA is being provided information along the way. So there's a lot of back and forth and review of test data and engineering information. So it's been very similar way, the first part of that and that's, that's the way Chromalloy has been approaching these products and it's worked well because then there's no, there should be no surprises at the end.

The second part is technically more complex than the first part. So there's probably a little bit more engineering and manufacturing data that's needed. But it's all, it's all been reviewed and signed off as we go. So I think that the final submission should and the approval should track, similar to what happened with the first part and Chromalloy is very confident, they've never had never had a part that didn't get approved. So, so it's, I would say very similar in terms of process to the first part.

And then this, the, the third, fourth and fifth are in design and engineering and are on track to be submitted in late 2022 or early 2023. So those, those are less complex parts. Obviously, we started with the more expensive ones and the higher difficulty ones first.

[Josh Sullivan, Benchmark Company]

Got it. And then maybe one on the infrastructure side. With Transtar, the $80 million in EBITDA you're looking at those multiple opportunities that you mentioned in the remarks, I think auto and elsewhere, what do you think the timing on those projects are? And then does the global supply crunch here allow those opportunities maybe to speed up?

[Joe Adams, Chief Executive Officer]

Some of them are sort of, grind it out by adding storage and repair services and right away income that occurred just gradually and over every quarter. And then some of them can be really project driven if you get a new customer or you have a new service that you can provide it could be, a step function up. And the rail market obviously, is, is strong, the core industries that rail serves are all doing pretty well. We see development opportunities, many in many different spots and locations. We had a good dialogue with U.S. Steel about additional opportunities we can provide them. So that, the playbook is really to try to, come up with 10 ideas that you can pursue, and hopefully three or four of them head. And that's, that's exactly what happened at rail America when we did that, and those tend to be sizable, and they tend to be sticky.

So it feels like, it feels like deja vu and but we're in a very good macro environment with U.S. industry being strong and an infrastructure bill coming which, who knows what that's going to provide, but it's going to be good in some in different areas. And we also see it in Long Ridge. We see a lot of companies have announced they're going to expand and build factories in the Midwest, and that's good for railroads, because that means a lot of stuff is going to be moving around. So I think the environment is good. And we're, we've got the playbook and we're, I think we're going to hit on a few of them.

[Josh Sullivan, Benchmark Company]

Thank you for the time.

[Joe Adams, Chief Executive Officer]

Thanks.

[Operator]

Next, from Guiliano Bologna with Compass Point. Your line is open.

[Guiliano Bologna, Compass Point]

Good morning, I guess jumping in on, I had a quick question on the PMA side, then I have a kind of a follow up question on a different topic. But one thing I was curious about was, you have to have the first part approved. Second part is coming in, hopefully the relatively near term. And I think one of the discussion point that’s come up in the past is that a lot of airlines order, the first and second part that you're going after in sets. And that's probably create a little bit of slow rollout at first, I'm curious if you have a lot of orders for sets or you have a lot of orders that are contingent on have both parts being approved to sell to third parties.

And then from there just to get a general sense of contribution of those two parts from a savings perspective and what you can do with those savings in the near term?

[Joe Adams, Chief Executive Officer]

Yes, so there are orders for sets. And I think you correctly point out if an engine, if an airline's going to put an engine through the shop, they want to put enough PMA in it to make it worthwhile. And so having two parts, particularly, the high value parts that were the second part that we're making, is pretty important to the program. So, so I think that they are sort of joined together for many airlines that particularly because they know what's coming.

And so if they had a decision to make, and rather than putting the first part without knowing the second part is coming in, it's easier to say, well I'm not doing a lot of shopping today so why don't I just wait for the second one, and then I'll decide.

So I think that's the dynamic. But every airline knows it's coming. It's a big, it's a big deal in the industry and, and they're very eager to, to get it. So I think that backdrop is quite positive. And we expect as do most of the industry is third party shop as it are starting to grow and we think will increase significantly in 2022. So that will also drive because if you can't get parts or your shop is delayed, that'll also facilitate looking at PMA as an alternative.

And the other thing we have is you have some significant potential inflation and metals out there. So you could see bigger price increases from OEMs when people have experienced previously. So that's another dynamic that I think could help the effort.

So I think it's, that's all, that's all shaping up pretty nicely. And then in terms of the percentage, I think the first two parts are 60% of the savings that we can provide. So if the, if the five parts in total are 80% of this aircraft cost then this is 60% of the 80%, or half of it. So 50% of the total aircraft cost is represented in these first two parts.

[Guiliano Bologna, Compass Point]

Got it. That's great. That's great. And surging to a different topic. I'm invested [Indiscernible], so I was curious about one thing about the split of the company to judges is where if the preferred shares, if you intend to move to purchase one way or the other, I'm assuming they stay with aviation, but we get to confirm that.

[Joe Adams, Chief Executive Officer]

Yes, that's correct. It’s Data Aviation.

[Guiliano Bologna, Compass Point]

And then the only other question was, I think you referred to the infrastructure business being -- off as a C Corp. I'm assuming using some sort of offer limited structure that would not have a long [Indiscernible]

[Joe Adams, Chief Executive Officer]

I didn't quite understand the question.

[Guiliano Bologna, Compass Point]

And on the aviation side, you mentioned what kind of legal structure you're planning on using? I'm assuming any legal structure you're planning is going to remove the K-ones?

[Joe Adams, Chief Executive Officer]

Yes, it'll be a it'll be a corporation, a corporate structure. That would be a non-U.S. Corporation.

[Guiliano Bologna, Compass Point]

That's great. That's perfect. Thank you very much. And I'll jump back in the queue.

[Joe Adams, Chief Executive Officer]

So it does, it eliminates K-ones. Just to draw a line under that.

[Guiliano Bologna, Compass Point]

Perfect. I'll jump back in the queue. Thank you so much.

[Joe Adams, Chief Executive Officer]

Yes. Thanks.

[Operator]

Next question is from Chris Wetherbee with Citi. Your line is open.

[Chris Wetherbee, Citi]

Hey, thanks. Good morning, guys. Maybe want to touch on Jefferson for a moment. So Joe, you mentioned the DRU opportunity. I also wanted to kind of get a sense of how we think about the pipelines. And when we might see opportunities ramped up there. I'm sure there's probably some WCS, WTI spread dynamics that we need to consider here. But as you think about 4Q, and then maybe the first half of next year, kind of give us some sense of what the outlook is, in terms of EBITDA or FAD in that business?

[Joe Adams, Chief Executive Officer]

Yes, we so that, I mean, the pipelines are operating, which is great. And that was a big part of getting them into service getting operating and function. And now obviously, we're, we're all over, everybody to try to use them. So that's, that's the game and we have multiple pathways to sort of getting to our numbers and increasing the utilization. We just need one or two of them to hit. And obviously with the markets improving from an oral price point of view, refined product demand point of view, from refineries looking to bring in crudes from discount groups from all over the world. That helps because we're positioned to try to provide all those options and optionality and the services that they need, whether it's by water from the North Sea, as we mentioned, or it's blended with Permian, or it comes from Utah, and heavy wax train, and we blend.

So we have all of that in front of everybody. And it's this question of, of getting a couple or two of those to hit. And that's, that's really what all of our focus and attention is on that. And we have multiple pathways to get there. So I'm confident we'll, we'll get there and the environment is going to help when we need to do we just need to execute on it?

[Chris Wetherbee, Citi]

Okay. Alright, that's helpful. And then maybe a bigger picture question. When we think about aviation post-split can you give us a sense of maybe what you think this sort of, I guess the question is the capital that has the potential to be deployed on an annual basis, given the size that you guys will be at the split, I just want to get a rough sense of kind of what you think the opportunity set is ahead of aviation as a standalone, maybe what kind of capital you'd be deploying on an annual basis?

[Joe Adams, Chief Executive Officer]

Yes, so we've historically, if you look back, we've we've tended to invest between 300 and 500 million a year, pretty consistently, although I always say we don't budget CapEx, we don't tell anybody that that's what we want to do the beginning of the year, because that's not the right way to think about investing. But it's been $300 million to $500 million and now what we're doing is really I think focused on, we're focused on the CFM 56, obviously. And we're focused on some of these transactions that we think we can add engine business as part of the as part of the transaction.

So, as I mentioned Avianca, Alitalia, American, we believe we're going to have follow on opportunities above and beyond the sale leaseback that will be enhanced design relationship enhance our profitability and not requiring additional capital. So the goal is to try to leverage the capital to the maximum degree possible not to invest the most capital. So we'd rather keep the number and be strategic and invest, $300 million $400 million a year and get additional service and fee business to bring that to grow that business is it doesn't require capital. I'd rather do that than invest a billion dollars of capital, I'm not getting any other business. So that's that's the way we were thinking about. And so I think that the, the goal is to grow the non-asset based service businesses as to the maximum degree possible and use the capital in the most efficient way to do that.

[Chris Wetherbee, Citi]

Okay, that's helpful. Thanks for the call. Appreciate it, guys.

[Operator]

Next question is from Devin Ryan with JMP Securities. Your line is open.

[Devin Ryan, JMP Securities]

Hey, good morning, Joe. Thanks for taking the question. I guess the first one is coming back to some of the earlier comments on Long Ridge. Great to hear about kind of the increased contribution there was intermediate term here. If I missed it, the $40 million where is that or you can reinvest that back in the business that get dividend to the parent, how should we think about kind of increased profitability there? And then with electricity costs, their prices where they are now? Is there a way to kind of lock that in for longer, just obviously, there's been volatility but to kind of sustain kind of a higher level of contribution from that segment?

[Joe Adams, Chief Executive Officer]

Yes. So the $40 million is incremental cash that will come into Long Ridge above and beyond what we projected. And initially, the view would be to pay down debt. I think we're going to look at a refinance. And we always expected that once the plant went live and was operational, we would look to refinance the debt. At that level, we'll get better rates and we may get more debt. So there might be a recap opportunity. That is that is helped and facilitated by having additional income and profitability.

So it's, it's good and it's played out. We always expected that right around the time we went live, and we would, we would look seriously at refinancing the debt at Long Ridge. And rates are lower and profitability is higher. So it's, that's those are good things.

In terms of locking in, we are looking at everything we could do to first of all, we only we contracted I think 94% of capacity of plants, so we have 6% of that's available. We also could potentially increase the capacity from 485 megawatts up to 505 and we believe it'll run at that level. So there's another 20 megawatts. And then we're looking at how to increase gas production as well from what we have, so that we can also monetize some of that. So we're looking at everything to try to take advantage of what's an amazing, incredible market opportunity there -- we kind of we got lucky with the timing, because we didn't, our hedges don't start until February, and we completed the project a little bit early.

So we got lucky with the market environment. And clearly it's the power forward markets are strong through the winter. And there are a lot of people that are pretty positive beyond that because the switchover to renewables is not as easy as maybe people were thinking initially so. So it's a good dynamic. I think we'll look to refinance, take advantage of that opportunity and then look to add either from power and gas in any way we can to squeeze out more.

[Devin Ryan, JMP Securities]

Okay, terrific. Obviously good to see. And then, just another follow up here on the split of the businesses and you just procedurally I know you guys are working closely with the with the audience auditors. I know it's also kind of a complicated process here. So from the outside, it seems like gave a lot more detail and things seem to be moving smoothly. Are there any potential sticking points as we're kind of following from the outside that, that could can push the timeline out? Or that the auditors or others are having issues with or is it more just kind of rolling up your sleeves and just getting it done? I guess that's the first one. And then connected to that, just or is it going to be the same management team? Joe, are you going to run both businesses, or have you has that been decided yet? And just kind of think about some of the infrastructure related to both of the businesses?

[Joe Adams, Chief Executive Officer]

Yes, so the certainly the first question, we are more confident we the, probably the biggest issue that we had to address first was refinance the Transtar acquisition debt which we did in Q3. So, so that removes any, transactional impediment to getting the spin done. And so now, as you mentioned, it's just it's process, and I'm looking at Scott because he's doing the audits. And, and the lawyers during the documents that we've done. Fortress has done a number of scans, and nobody has raised an issue yet, or otherwise I wouldn't be getting a lot more detail on.

So I think it's, it feels like it's on a pretty good path to getting to getting execution. And there's no, there's no third party or any outside process that would get in the way of it. So that's good.

In terms of management I mean, the what I’ve indicated is that I will be Chairman. I was Chairman and CEO of FTAI and chairman of Infrastructure and likely will that define around the spin have a CEO that is not me, which is somebody that we know, we haven't disclosed in discussion in much more detail yet. But that would be the management otherwise. There's a few spots that will look for some outside hires, but it's primarily just dividing up the team.

[Devin Ryan, JMP Securities]

Yes. Okay. Terrific. Thanks so much for the update.

[Joe Adams, Chief Executive Officer]

Yes.

[Operator]

We have a question from Brandon Oglenski with Barclays. Your line is open.

[Unidentified Analyst]

This is David on for Brandon. You talked a little bit about the acceleration you expected to see a non-service for material. Just wondering if you could provide some more color onto any earlier orders you're seeing or what do you think that acceleration could look like beyond the early 2022? And do you think this would ultimately be untethered to the capital required to put into that business?

[Joe Adams, Chief Executive Officer]

Yes, our ability to generate new services material is purely a function of how many engines we want to tear down. And I think our initial goal was 20. And I think we have 20 better positions that are either in teardown or in the process. So that side of that we totally control. On the sales side, we have, I would say, two to three large airlines that have been buying USM and have done so for quite a while. And then we have probably three or four programs that we are working on bidding. So where airlines go out and they work with a maintenance shop and they say will you provide my shop is for the next five to 10 years and give me a price. And then we team up with the MRO and say, we'll provide you with used serviceable material and we'll provide you with modules.

So we have three, that's what I was referring to and sort of the programmatic nature of what we're shooting for. And those are progressing nicely. I would say that the ramp up and shop visits is it's starting, but you are probably not going to see too much activity until Q1 of 2022. And then we expect Q2 and Q3 of next year to be to be pretty, pretty busy, which I think is consistent with what the big, independent MROS and even OEMs have been saying about shop visit activity. So it's starting and we think the flywheel is moving and it will pick up momentum next, Q2 and Q3 of next year.

[Unidentified Analyst]

Awesome. Thanks for that one. And then on the funding on the split, I know you talked about it. Could you talk specifically about where you think the 800 million in funding is coming from and how the puts and takes are going there?

[Joe Adams, Chief Executive Officer]

Yes and that would all be financing from infrastructure, the infrastructure company, the vast majority of that will be corporate debt. We have Transtar, which we acquired, which is unleveraged. So that's $80 million of EBITDA and then the rest of the infrastructure businesses as well.

So most of it will be debt, we also look at potentially asset sales, to provide some of that, which is obviously a very good market for infrastructure, and infrastructure funds that are looking to invest capital in the space, there's a lot of capital raise so. So we'll run a process and look at preferreds and other things to coincide in sometime in Q1 of next year. But it's, we don't have to do all of it, had to spend either so we can we can stage it. But we'll run a full process and be delivered and look to sort of optimize that over the next six months.

[Unidentified Analyst]

Great. Thanks, Joe. I appreciate the answers.

[Operator]

Next question is from Greg Lewis with BTIG. Your line is open.

[Gregory Lewis, BTIG]

Yes, thank you. And good morning. Joe, I was hoping you could you could touch a little bit more on infrastructure. As we think about what's going on at Jefferson. Clearly, you guys have invested a lot of money there, built out the infrastructure there. It seems like the markets finally, starting to go the right way with a little bit inflection in oil demand. Is there any way to kind of think about and I don't know if the right word is utilization or efficiency, like as we think about the facility right now. Like, like, is there any way to kind of quantify how much spare capacity is there in terms of driving incremental volumes and revenues out of Jefferson without actually spending any more money?

[Joe Adams, Chief Executive Officer]

Yes, I think that storage utilization is about 75%, right? There’s 45% availability there. Rail, it’s also, I would say probably rail utilization is probably like 25% [ph] right now. So there's, there's an additional 75% availability. And pipeline utilization is probably 10% of what it is. So there's 90% availability. And that's, that's really exactly what we're focused on, is getting near term volumes, to fill that infrastructure that's already that exists, that's been built. And so that is the goal is to is to fill that up without any additional capital.

[Gregory Lewis, BTIG]

And really, I mean, just based on what you kind of kicked around throughout the call is, that's really just going to be a driver of what various crude spreads are whether it's in the North sea. So you mentioned the Aframax, incoming tanker and WCS? Is that kind of the right way to just feel that at that potential growth or that you mentioned, thanks?

[Joe Adams, Chief Executive Officer]

So that, so that's part of it. And the other part is you mentioned would be, for instance, a DRU or diluent recovery unit in volumes is coming from Canada on a steady basis. So if you can, if you could bring one train today, from DRU in the terminal, that's 50,000 barrels of rail in and you blend that with additional pipelines, probably two or three to one. So that's potentially like 200,000 barrels a day from just that one, one move, and that's the leverage. And that those, those are the deals that we're trying to hammer out, particularly to get a ratable flow to cover a lot of the existing capacity. And then you can, be opportunistic with the Aframax volumes and the spread business.

[Gregory Lewis, BTIG]

Okay, great. Thank you very much.

[Joe Adams, Chief Executive Officer]

Thanks.

[Operator]

Our last question is from Robert Dodd with Raymond James. Your line is open.

[Robert Dodd, Raymond James]

Hi, guys, and congratulations on getting this aviation deals. On I'm going to ask about the development. When we look at funds available for distribution when we put on Transtar put on these new deal, the new aviation deals, etcetera. You're going to be by my math, you know about the two to one coverage of the dividend. At the same time, we're obviously heading into to a spin off and then changing corporate structure next year. So could you give us an outline if you you've gotten that on what the plan would be for the dividends from one or both different pieces and what given where that is you'd expect the relative scale of those dividends to be maybe compared to what it is for the pure play the single appetite right?

[Joe Adams, Chief Executive Officer]

Yes so the -- so the best guidance we can give right now is, we believe that roughly of the existing dividend of $1.32, roughly 75% of that will come from FTAI Aviation and then the balance 25% will be from infrastructure that's kind of a, it's not precise, but I think order of magnitude that's, that's our thinking. And then each entity is going to look at the extent to which FAD and funds available for distributions or exceed the two to one and as you point out our goal has always been to maintain that so we would increase the dividend each entity to the extent we have more than two to one coverage.

So it's a continuation of the existing policy, split the dividend roughly 75:25 between Aviation and Infrastructure and then each entity will obviously then grow differently instead of being attached they'll have different trajectories at that point.

[Robert Dodd, Raymond James]

Got it. I really appreciate that. Thanks a lot.

[Joe Adams, Chief Executive Officer]

Thanks.

[Operator]

And now I would like to turn the call back to Alan Andreini.

[Alan Andreini, Investor Relations]

Thank you all for participating in today's conference call. We look forward to updating you after Q4.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.