Reliance On Legacy Engines Will Reduce Margins As Decarbonization Accelerates

Key Takeaways

• Heavy dependence on legacy engine platforms and aftermarket demand exposes FTAI Aviation to structural risks from new technology and industry shifts.
  
• Aggressive expansion and global integration introduce operational challenges that may compress margins and undermine future earnings stability.
  
• Expanding proprietary services, growing demand for aftermarket engine solutions, and asset-light business model are driving improved efficiency, market share, and long-term profitability.

Catalysts

Owns, acquires, and sells aviation equipment for the transportation of goods and people worldwide.

• FTAI Aviation's heavy reliance on the CFM56 platform, despite market share gains and production ramp, exposes it to significant concentration risk, as accelerating airline adoption of next-generation and more fuel-efficient engines may drastically reduce aftermarket demand for its core products, leading to a structural decline in future revenues and gross margins as the installed base erodes.
  
• Rapid expansion initiatives-including aggressive acquisitions, global facility integration, and a push into new regions such as China-pose heightened operational execution risks. Failure to efficiently scale production, secure qualified technicians, or smoothly integrate diverse repair capabilities could drive up inefficiencies and costs, compressing operating margins and reducing overall earnings stability.
  
• Global initiatives toward decarbonization and rising pressure for airlines to adopt low-emission technologies may catalyze an industry-wide shift away from legacy engines, leaving FTAI's asset base with materially lower long-term value and stifling lease rate growth, which in turn threatens future cash flow and asset write-down risks.
  
• Strategic moves by OEMs to increase control over engine aftermarket and maintenance services, combined with airline consolidation and mounting cost pressures, are likely to erode FTAI's pricing power and compress net margins, as customers increasingly demand lower-cost solutions or in-house maintenance, undercutting FTAI's business model.
  
• Despite recent cash flow outperformance and projected near-term free cash growth, significant ongoing capital requirements for acquisitions, refurbishments, and MRO operations-especially if secular headwinds materialize-may force FTAI to take on higher leverage or reduce shareholder returns, placing sustained pressure on net margins and return on equity over the long term.

FTAI Aviation Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on FTAI Aviation compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming FTAI Aviation's revenue will grow by 13.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 19.4% today to 29.7% in 3 years time.
• The bearish analysts expect earnings to reach $940.7 million (and earnings per share of $9.46) by about August 2028, up from $416.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 20.3x on those 2028 earnings, down from 36.4x today. This future PE is lower than the current PE for the US Trade Distributors industry at 23.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.43%, as per the Simply Wall St company report.

FTAI Aviation Future Earnings Per Share Growth

Risks

• Growing global air travel, especially in emerging markets and China, continues to support rising demand for aircraft and aviation services, reinforcing long-term revenue and free cash flow growth for FTAI Aviation.
  
• Airlines are extending the economic life of narrowbody aircraft like the 737NG and A320ceo by up to five years, driving more engine maintenance cycles and boosting demand for FTAI's MRO and engine exchange solutions, which strengthens revenue and earnings potential.
  
• FTAI Aviation's expanding proprietary in-house maintenance, repair, and overhaul capabilities (including recent acquisitions and new facility rollouts) are expected to improve operational efficiency and margins, increasing EBITDA and long-term profitability.
  
• The shift to an asset-light business model, success with the SCI partnership, and growing recurring management and servicing fee streams are structurally improving capital efficiency and could enable higher sustainable returns on equity and robust adjusted free cash flow.
  
• Tight supply from OEMs, strong adoption of FTAI's MRE product, and opportunities to supply aging global fleets with prebuilt engines and modules are likely to drive increasing market share and pricing power, resulting in resilient or expanding profit margins in the coming years.

Valuation

• The assumed bearish price target for FTAI Aviation is $147.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of FTAI Aviation's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $300.0, and the most bearish reporting a price target of just $147.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $3.2 billion, earnings will come to $940.7 million, and it would be trading on a PE ratio of 20.3x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $147.71, the bearish analyst price target of $147.0 is 0.5% lower. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.