Carriage House's Will Cleary on $FTAI

Episode Summary

Executive Summary: The episode argues that FTAI Aviation’s core advantage is its vertically integrated module-swap model for CFM56 engines, which cuts airline maintenance time and cost while creating a scalable, high-margin ecosystem. The conversation also covers FTAI’s asset-light financing strategy, the response to Muddy Waters’ short thesis, valuation upside, and the new FTAI Power/data-center turbine opportunity.

Main Topics: FTAI’s core module-swap engine model (Priority: 5/5): FTAI acquires run-out engines, repairs modules in-house, and exchanges refurbished modules quickly for customer downtime reduction. This model is portrayed as the company’s central competitive advantage versus traditional MROs. Why the model lowers airline cost and time (Priority: 5/5): The discussion explains how FTAI avoids full-engine tear downs, reduces shop visit scope creep, and can overnight replacement modules, cutting both turnaround time and total maintenance expense. Competitive moats and network effects (Priority: 4/5): The hosts explore whether FTAI has built a network effect through inventory depth, feedstock access, and ecosystem control that would be hard for new entrants or traditional MROs to replicate. Strategic Capital Initiatives and asset-light growth (Priority: 5/5): FTAI’s off-balance-sheet financing vehicles are described as a way to scale aircraft ownership and feed its high-margin products business, while improving returns on capital and reducing balance-sheet intensity. Response to Muddy Waters short thesis (Priority: 4/5): The episode reviews the January 2025 short report, focusing on allegations of margin manipulation and whether FTAI is really selling modules or full engines. The guest rejects the thesis as weak and supported by audit and forensic review outcomes. Valuation and upside potential (Priority: 4/5): Will argues the market still underappreciates FTAI’s growth runway, margin expansion, and asset-management-like characteristics, suggesting the stock could warrant a much higher multiple than its current pricing. FTAI Power / aero derivatives (Priority: 5/5): The new business converts end-of-life engines into gas turbines for data centers, targeting a major power shortage and extending the monetization life of FTAI’s asset base.

Key Arguments: FTAI’s differentiation is not just owning engines, but vertically integrating maintenance and repair to offer faster, cheaper module swaps than traditional MROs. The CFM56 installed base is large and persistent, with many engines still before first shop visit, supporting a long runway for demand. FTAI’s model can save customers roughly 30-40% on a shop visit and cut downtime from months to weeks. The company’s scale creates barriers to entry because it already owns feedstock, inventory, and repair capabilities, while competitors would need to replicate a costly ecosystem. Strategic Capital Initiatives allow FTAI to use third-party capital to expand the engine ecosystem and create captive feedstock for its higher-margin products business. The Muddy Waters report was viewed as failing to undermine the business model because audit firms, forensic review, and operational realities did not support the allegations. FTAI could justify a higher valuation if its aerospace products business, asset-management-like leasing business, and future power business continue scaling. FTAI Power could unlock a new, high-margin growth avenue by repurposing end-of-life engines into data-center turbines amid a large power-supply shortage.

Data Points: Module swap business revenue: $1.1 billion in 2024 - Described as the scale achieved from zero module swaps previously, showing rapid adoption Module swap business revenue: $2 billion today - Indicates continued growth in the module swap platform Module swap market share: 5% in 2024; 10% today - Used to illustrate adoption and scaling of FTAI’s platform CFM56 engines in operation: 20,000 - Approximate number of engines in the global installed base Owners of CFM56 engines: 600 different owners - Shows fragmentation of the customer base Owners with internal MRO capability: 5 - Highlights why third-party solutions are needed for most operators Typical traditional shop visit time: 4 to 6 months - Compared with FTAI’s faster module-swap turnaround Typical traditional shop visit cost: $7 million - Compared with FTAI’s lower-cost approach FTAI module-swap cost: $4.5 million - Estimated cost after using FTAI’s model Time savings with FTAI: 2 to 3 weeks - Typical turnaround time for the module swap approach Cost savings vs traditional MRO: 30-40% - Described as the savings from FTAI’s model relative to traditional maintenance CFM56 fleet not yet through first shop visit: About 40% - Used to support the long runway for the engine platform Current module swaps per year: 750 - Indicates FTAI’s operating scale Strategic Capital Initiative fund size: Raised from $3 billion to $6 billion - Describes the upsized financing vehicle SCI-2 aircraft deployment: 350 aircraft - Implied asset base dedicated to the module business SCI-2 engine count: 700 engines - Two engines per aircraft, used to estimate feedstock Expected additional 2027 growth from SCI deployment: ~25% - Guest’s estimate based on the new vehicle and module demand 2026 module production growth guidance: 39-40% - Referenced as current guidance for production growth Expected 2026 module output: 1,000+ modules - Approximate scale mentioned for 2026 Consensus EBITDA margin expectation: High 30% range - Analysts’ current implied margin assumptions Potential future EBITDA margin: 45% to 50% - Guest’s view of upside from cost reductions and initiatives Muddy Waters stock move: About 100 to 70 - Approximate drop after the January 2025 short report EV: $30 billion - Referenced from Bloomberg during valuation discussion EBITDA: $1.5 billion - Referenced from Bloomberg during valuation discussion EPS (2026): $7 - Bloomberg-based valuation context Current stock price: $275 - Referenced during valuation discussion CEO ownership: About $150 million - Illustrates insider alignment COO ownership: About $80 million - Illustrates insider alignment CEO trust funding: $14 million lifetime gift exemption - Used to transfer FTAI shares into a dynasty trust End-of-life turbine output target: 100 units by 2027 - FTAI Power production expectation Power unit size: 25 MW - Each data-center turbine unit Approximate cost per MW: $1 million per MW - Rule of thumb used to estimate turbine pricing Estimated unit sale price: $25 million - Derived from 25 MW at roughly $1 million per MW

Pivotal Quotes: "FTAI is a leading provider of aftermarket jet engine power for the commercial aviation industry." — Will Cleary: Defines the company’s core business and value proposition "It collapses the turnaround times to basically zero." — Will Cleary: Explaining why module swaps are attractive versus traditional MRO shop visits "This is a company that in 2026 is going to grow the modules it produced by 39 or 40 percent based off of their current guidance." — Will Cleary: Valuation and growth discussion showing near-term operating expansion

Implications: The episode frames FTAI as more than a leasing company: it is becoming a high-margin aerospace and asset-management platform with multiple growth engines. If execution holds, the business could merit a materially higher valuation and reshape how investors view aftermarket aviation and power infrastructure.