FTAI Aviation (FTAI)

Aircraft leasing company FTAI Aviation (NASDAQ:FTAI) fell short of the market’s revenue expectations in Q1 CY2025, but sales rose 53.7% year on year to $502.1 million. Its GAAP profit of $0.87 per share was 8.8% below analysts’ consensus estimates.

Company Overview

With a focus on the CFM56 engine that powers Boeing and Airbus’s planes, FTAI Aviation (NASDAQ:FTAI) sells, leases, maintains, and repairs aircraft engines.

Supply chain and inventory management are themes that grew in focus after COVID wreaked havoc on the global movement of raw materials and components. Transportation parts distributors that boast reliable selection in sometimes specialized areas combined and quickly deliver products to customers can benefit from this theme. Additionally, distributors who earn meaningful revenue streams from aftermarket products can enjoy more steady top-line trends and higher margins. But like the broader industrials sector, transportation parts distributors are also at the whim of economic cycles that impact capital spending, transportation volumes, and demand for discretionary parts and components.

Competitors in the aircraft leasing industry include AerCap (NYSE:AER), Air Lease Corporation (NYSE:AL), and GATX Corporation (NYSE:GATX).

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, FTAI Aviation’s sales grew at an incredible 27.1% compounded annual growth rate over the last five years. Its growth surpassed the average industrials company and shows its offerings resonate with customers, a great starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. FTAI Aviation’s annualized revenue growth of 44.9% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

This quarter, FTAI Aviation achieved a magnificent 53.7% year-on-year revenue growth rate, but its $502.1 million of revenue fell short of Wall Street’s lofty estimates.

Looking ahead, sell-side analysts expect revenue to grow 33.2% over the next 12 months, a deceleration versus the last two years. Still, this projection is commendable and suggests the market is forecasting success for its products and services.

FTAI Aviation has best-in-class unit economics for an industrials company, enabling it to invest in areas such as research and development. Its margin also signals it sells differentiated products, not commodities. As you can see below, it averaged an elite 50.1% gross margin over the last five years. That means FTAI Aviation only paid its suppliers $49.93 for every $100 in revenue.

This quarter, FTAI Aviation’s gross profit margin was 50.5%, up 1.9 percentage points year on year. On a wider time horizon, however, FTAI Aviation’s full-year margin has been trending down over the past 12 months, decreasing by 2.7 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

FTAI Aviation has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 17%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, FTAI Aviation’s operating margin rose by 25.5 percentage points over the last five years, as its sales growth gave it immense operating leverage.

In Q1, FTAI Aviation generated an operating profit margin of 43.4%, up 14.9 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for FTAI Aviation, its EPS declined by 45.2% annually over the last five years while its revenue grew by 27.1%. However, its operating margin actually expanded during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.

Diving into the nuances of FTAI Aviation’s earnings can give us a better understanding of its performance. A five-year view shows FTAI Aviation has diluted its shareholders, growing its share count by 19.9%. This dilution overshadowed its increased operating efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For FTAI Aviation, its two-year annual EPS growth of 85.3% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.

In Q1, FTAI Aviation reported EPS at $0.87, up from $0.23 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates. Over the next 12 months, Wall Street expects FTAI Aviation’s full-year EPS of $0.13 to grow 4,401%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

FTAI Aviation’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 113%, meaning it lit $113.21 of cash on fire for every $100 in revenue. This is a stark contrast from its operating margin, and its investments in working capital/capital expenditures are the primary culprit.

Taking a step back, an encouraging sign is that FTAI Aviation’s margin expanded by 72.3 percentage points during that time. In light of its glaring cash burn, however, this improvement is a bucket of hot water in a cold ocean.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although FTAI Aviation has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.2%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, FTAI Aviation’s ROIC has increased. This is a good sign, but we recognize its lack of profitable growth during the COVID era was the primary reason for the change.

FTAI Aviation reported $112.1 million of cash and $3.64 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $966.5 million of EBITDA over the last 12 months, we view FTAI Aviation’s 3.7× net-debt-to-EBITDA ratio as safe. We also see its $112 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly FTAI Aviation handily beat analysts’ EBITDA expectations this quarter. On the other hand, its revenue missed. Overall, this was a mixed quarter. The stock traded down 2.3% to $104.55 immediately following the results.

Updated: June 23, 2025 at 11:18 PM EDT

Are you wondering whether to buy FTAI Aviation or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

FTAI Aviation is an amazing business ranking highly on our list. For starters, its revenue growth was exceptional over the last five years. And while its relatively low ROIC suggests management has struggled to find compelling investment opportunities, its admirable gross margins indicate the mission-critical nature of its offerings. On top of that, FTAI Aviation’s rising cash profitability gives it more optionality.

FTAI Aviation’s P/E ratio based on the next 12 months is 22.6x. Looking at the industrials landscape today, FTAI Aviation’s fundamentals really stand out, and we like it at this price.