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Fortress Transportation and Infrastructure Investors LLC (NYSE:FTAI)
Q1 2020 Earnings Call
May 1, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Fortress Transportation and Infrastructure Investors LLC First Quarter 2020 Earnings Conference Call. [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. Please go ahead, sir.

Alan Andreini -- Investor Relations

Thanks, Josh. I would like to welcome you to the Fortress Transportation and Infrastructure First Quarter 2020 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 reconciliation of those measures to the most directly comparable GAAP measures can 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 of the risk factors contained in our quarterly report filed with the SEC.

Now I would like to turn the call over to Joe.

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

Thanks, Alan. Before going into the quarter, I want to take a moment to thank two groups. First, I want to thank our employees for the tremendous effort they've put into keeping FTAI functioning smoothly over the last six weeks. Your safety was our primary concern. And as we implemented procedures to protect you, we made your jobs much more difficult. The way you have responded to this challenge has been nothing short of remarkable. We haven't missed a beat, and that's because of you. And for certain, it's been extremely helpful that a lot of us have worked together in many cases for more than 10 years. That being said, the way that you have taken it to the next level is inspirational. It seems as if the toughest times can bring out the best and talented workforce. And you've all shown those qualities, and I just want to say thank you on behalf of myself, our Board of Directors and our shareholders.

The other group, I want to acknowledge are the healthcare professionals, first responders and all essential employees and their families who are working incredible hours and putting themselves at great risk to make our troubled world a safer place. Your courage and dedication have never been more appreciated or more apparent. Thank you. Now let's turn to the more mundane of Q1. To start, I'm pleased to announce our 20th dividend as a public company and our 35th consecutive dividend since inception. The dividend of $0.33 per share will be paid on May 26, based on a shareholder record date of May 15. The key metrics for us are adjusted EBITDA and FAD, or funds available for distribution. Adjusted EBITDA for Q1 2020 was $72 million compared to Q4 2019 of $234 million and Q1 of 2019 of $64.8 million.

Note that the Q4 2019 figure includes a gain of $116.7 million from the sale of a 49.9% interest in Long Ridge and a gain of $20.6 million from the sale of noncore aviation assets and a gain of $4.6 million from the acquisition of the remaining 50% interest in our ethanol joint venture at Jefferson. On a normalized basis, excluding the gains or losses from these sales, Q1 2020 adjusted EBITDA was $73.8 million compared to $92.1 million in Q4 2019 and $63.1 million in Q1 2019. FAD was $96 million in Q1 2020 versus $288.6 million in Q4 2019 and $70.2 million in Q1 2019. During the first quarter, the $96.0 million FAD number comprised of $121.3 million from our aviation leasing portfolio, $1.7 million from our infrastructure businesses and a negative $27 million from corporate and other. The Q1 2020 FAD number includes $28.6 million of proceeds from the sale of aviation assets, while Q4 2019 FAD includes $266 million of proceeds from the sale of the CMQR rail assets, a 49% interest in Long Ridge and aviation assets. Q1 2019 FAD includes $27.3 million of proceeds from the sale of aviation assets. On a normalized basis, excluding sale proceeds and nonrecurring items, Q1 2020 FAD was $50.1 million compared to $58.1 million in Q4 2019 and $42.9 million in Q1 2019.

Now let's turn to aviation. Before I go into details on FTAI aviation, let me first talk about the overall aviation market. As we sit today, as a result of COVID-19, passenger air traffic globally is down over 90%, an unprecedented and dramatic development. Approximately 15,000 aircraft are parked and out of service. Obviously, this downturn will be longer and deeper than prior industry disruption. But people will travel by air again and some passenger markets are already growing, while cargo flights are in very high demand as a result of significant and long-lasting supply chain disruptions and passenger belly capacity cuts.

On the passenger side, while far from certain, our most likely scenario calls for domestic medium-haul markets to recover over the next six to 12 months, and long-haul international markets to take 12 to 36 months to get back to more normalized levels. When people begin flying again, the first trip is more likely a domestic flight to visit relatives in Austin than a 2-week trip to resort in Thailand. Also, during this recovery period, as a result of having excess equipment and undertaking extreme cash conservation efforts, airlines and aircraft owners will minimize engine shop visits by burning green time of all available engines first and ramp up part out of unserviceable engines to reduce maintenance costs and generate cash. As a result, we expect engine leasing to increase for virtually every airline in the world. So with that backdrop, let's look at FTAI's portfolio composition.

On an overall basis, over 90% of our aviation portfolio is engine value, which we see as a major positive. By aircraft type, approximately 60% is narrow-body 737s and A320 aircraft and engines, 20% is cargo aircraft and engines, and 20% is 757 and 767 aircraft and engines. And let's talk now about each of these market segments. A320s and 737s are the workhorses of domestic airlines and will be first to fully recovery. With a large number of engine shop visits now not likely to occur this year, we expect to see a material increase in engine leasing of CFM56 and V2500 engines in the latter half of 2020, and a potential shortage available engines in early 2021. Also, very low fuel prices and maintenance costs also advantage NGs and COs over newer models. Cargo aircraft are the best-performing segment of aviation fleets today, running very high yield and receive high rate by historical measures. And we expect cargo to stay strong, aided also by low fuel for the next 18 to 24 months at a minimum. The 757 and 76 markets will likely be challenging as many aircraft scheduled for retirement over the next two to four years will be accelerated. However, 90% of our fleet is engine value, which will be strongly supported by the cargo market, and many of these parked passenger aircraft will be converted from passenger to freighter.

Overall, we would not trade our aviation portfolio for any other. Also with all airlines implementing extreme cash conservation practices and in a low fuel price world, we see this new environment accelerating our business plan to be the world-leading engine leasing company by providing value and outsourced maintenance services and flexible lease terms. This crisis will drive additional demand for engine leasing, facilitate new relationships with all airlines, including the largest in the world, and enable us to negotiate favorable terms with an engine MRO shop to implement our proprietary products. Let's turn to the numbers now. For the first quarter 2020, annualized adjusted EBITDA, excluding asset sales, was $341 million compared to $425 million in Q4 of 2019 and $288 million in Q1 of 2019. As mentioned on the Q4 2019 call, Q4 2019 annualized adjusted EBITDA included annualized income from lease return compensation of approximately $55 million. In addition, maintenance revenue than normal in March of this year due to the grounding of several aircraft as a result of COVID-19.

During Q1, we closed $56.1 million in new aviation investments and continue to harvest noncore aviation assets, which generate $28.6 million in sales proceeds. Even with COVID-19 impacting our business in March, we were able to generate EBITDA yield on equity invested and return on equity of 25% and 12%, respectively versus our long-term targets of 25% and 15%. Many airlines are being negatively affected by the coronavirus situation and will need financial assistance. One investment opportunity we're beginning to see, as a result, is with these airlines who have historically avoided leasing are now looking all aircraft on a sale-leaseback basis to raise capital. Our recent announcement regarding the Air France fleet is a perfect example and there are others that will almost certainly happen.

Finally, our strategic goal of becoming the leading market provider of aftermarket power for the CFM56 engine by developing proprietary products and practices made great strides recently. Our joint venture has submitted final application materials to the FAA for approval of a first product, which we hope to have in production very soon. Now on to Jefferson and infrastructure. Jefferson as we predicted during the Q4 2019 call, Jefferson contributed positive EBITDA in Q1 2020. During Q1, Jefferson generated $4.6 million of adjusted EBITDA compared to negative $200,000 in Q4 2019 and negative $1.3 million in Q1 2019.

The positive EBITDA contribution was primarily driven by an increase in overall throughput volumes from our core businesses coupled with a full quarter utilization of the 1.4 million barrel storage that went online in Q4 2019. The throughput volumes at Jefferson increased to 13.2 million barrels, up from 12.8 million barrels in Q4. This was primarily driven by increased volumes from our core crude and refined products businesses, offset by a reduction in volumes in our ethanol and crude marketing businesses, which were discontinued at the end of Q4 2019. Extended lower crude prices as a result of the Saudi-Russia dispute and COVID-19 demand destruction have impacted our volumes, especially from Canada. But we are seeing some instances where customers are shifting modes rather than materially reducing volumes. Our largest customer recently informed us, they intend to take in crude by importing via ship rather than taking volumes from Utah or Canada by rail as an example. Our long-term goal has always been to provide our customers with the maximum optionality to receive or ship products via rail, truck, pipe or water. And within months, this year, as our pipelines come online, we will have all these modes fully operational.

In Q1 of this year, Jefferson refinanced all existing long-term recourse debt of approximately $185 million and raised an additional $80 million of new debt. By doing this, we achieved a significant reduction of interest expense and position the company to access attractive long-term tax-exempt debt to fund future expansion projects. Average interest rate on the retired debt was 7.5% as compared to the new debt average rate of 3.9%, and new debt included 15-year and 30-year tax-exempt bonds priced at 3.625% and 4%, respectively, both of which were substantially oversubscribed and 5-year taxable bonds priced at 6%. Importantly, all this debt is nonrecourse to FTAI, which has reduced our recourse debt to total capital to approximately 43%. The positive EBITDA ramp at Jefferson has begun, and we expect 2020 to be positive, notwithstanding COVID-19 or the current issues in the crude market. Having said that, COVID-19 has created some demand destruction and the Saudi-Russia dispute created another problem, but we view these issues as manageable and more importantly, so do our customers. We continue to build out Jefferson and continue to solve customer problems. Our relationships with our customers have never been better, and the array of projects we are working on with them has never been greater.

Let's turn now to Repauno. Repauno, we completed construction of dock one and are completing Phase I construction of our NGL, natural gas liquids, export operations, which is our rail to ship offering. We're working with both European NGL offtakers and domestic producers on commercial deals, but production cutbacks at the refinery and demand distribution due to COVID-19 are slowing down the process. Hopefully, normalcy will return to the markets in the next quarter or two so that we can conclude these negotiations. And in the meantime, we're hoping to take advantage of other dislocated liquids markets given our unique East Coast combination of storage and truck, rail and deepwater connectivity. Once that program has commitments, we will start the process of putting in place the necessary contracts and permitting to commence Phase II construction of the three million-barrel underground granted storage covenants, which we expect to be operational in 2023.

Finally, we are leveraging Repauno's scale and multimodal capabilities to pursue additional business opportunities. For example, the growth in wind power development offshore is driving the demand for transloading large wind power components and Repauno is uniquely positioned to handle these movements and, we believe, can become a transloading hub.

Turning now to Long Ridge. In Q1 2020, it was a record quarter for our frac sand business in terms of total volume transloaded. During Q1 2020, Long Ridge transloaded approximately 270,000 tons of frac sand or 1.1 million tons on a run rate basis annually. While overall drilling activity in the basin has decreased, Long Ridge has gained market share due to our strategic location and our rapid truck loading capability, which makes Long Ridge the low-cost provider in the region. The power plant construction is on time and on budget, and we expect to be operational not later than November 2021. Furthermore, we continue to see a high level of interest from data centers and other power-intensive industries looking to site new facilities in Long Ridge. The largest of these developments would require between 50% and 100% of Long Ridge power plant's capacity at premium prices. In short, Long Ridge is moving along nicely.

Now in conclusion, after four years of hard work, infrastructure has gone EBITDA positive, and we expect that to continue. The strong cash flow from aviation is now being joined by the ramp of increasing cash flow from infrastructure. Starting over a year ago, we began a program to create maximum financial flexibility at FTAI. Being in the 11th year of an expansion, we felt it prudent to prepare for what has consistently happen to long-term economic expansions. They end. We took recourse debt to total cap from 58% down to 43%, we doubled the size of our revolver from $125 million to $250 million, and we recognized that private markets were more aggressive than ever for infrastructure assets, and we took advantage of that by taking close to $200 million in profits and taking a lot of capital off the table. Sitting here today, we obviously feel good about those decisions. Is this a stressful and difficult environment? Absolutely. But we came into this environment as well prepared, if not better prepared than any firm in the aviation leasing industry or infrastructure space. Capital and financial flexibility are key in any environment, but are especially important now. We've already started to exploit that advantage in the marketplace, and we will continue to do so. But as we do, we will remain vigilant and run FTAI conservatively as we always have, so that we'll be prepared if this setting and industry gets worse.

We have a lot of levers we can pull, which is exactly the position we wanted to put ourselves in when we started the deleveraging and infrastructure sale processes almost a year ago. So we came into this environment well prepared, and we remain so.

With that, let me turn the call back over to Alan.

Alan Andreini -- Investor Relations

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

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Justin Long with Stephens. You may proceed with your question.

Justin Long -- Stephens -- Analyst

Thanks and good morning. So Joe, circling back to the call last quarter, it sounded like there were multiple fleet deals in the works. The deal with Air France was announced this week. But are there other sizable deals that you think can materialize in the near term? And just more generally, how are you thinking about the potential to take advantage of distressed assets in this type of market?

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

Thanks, Justin. Yes, we do see there are more deals out there. Virtually every airlines is in, as I referred to it, an extreme cash generation mode. They're looking to raise cash every way they can. So sale leasebacks, and particularly, like Air France, it's older equipment, which for us is ideal because it's really the engine that we're buying. And I think these are from our point of view, these are extraordinary deals where you're buying at very, very attractive prices and you have cash flow attached to it. So that's kind of what we're looking at. There's at least one deal that is pretty far along that we're working on, that's a little bit bigger than the one we just did and in some ways better, but it's also very they're both very attractive. And then there's others that are probably in an earlier stage of discussion beginning. But I think next six months, airlines are going to be looking at everything.

Justin Long -- Stephens -- Analyst

Makes sense. And secondly, obviously, the energy environment has come under a lot of pressure. I was wondering if this causes you to make any strategic pivots at Jefferson. You've talked about the flexibility there with the different modes of transportation. But can you just kind of level set things and give us your sense of if oil prices don't improve meaningfully from here and crude-by-rail movements go to something close to 0, how should we be thinking about the potential EBITDA range for that asset?

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

Yes. I think the just from a bigger picture point of view, a lot of midstream assets are going to come under pressure, particularly assets that are gathering related in production and gathering related. And it's one of the reasons we really focused on having a terminal next to two big refineries is because, when those refineries they're operating 24/7, and they bring in Motiva brings in 600,000 barrels of crude a day and 600,000 barrels of product a day, and Exxon is going from 360,000 to 625,000. So the beauty of that is that there's always product flowing. That's not always the case if you're next to a well and the well decides they're not going to produce anymore. So from a strategic point of view, that was always our vision, and I think the strength of that is very apparent right now, and we're very pleased that we don't have sort of gathering infrastructure. We have terminals that handle both crude and refined products. And really, what we focused on is diversifying that. Because when we originally started the terminal, as you recall, we were simply crude-by-rail and realized in 2016 that went away. And so we had to plan for the possibility that it happened, and that's when we have developed the refined products relationship with Exxon. We've added jet fuel to that for export, and then we've diversified with Motiva by storing intermediates, some fuel oil and also bringing in crude by water. So it really is about diversifying and serving the needs of those two customers. And with what's going on in the market, there's so much disruption and dislocation that I think that it gives us the opportunity to further strengthen our relationship with those two big players and potentially add another refinery as well. So I feel strangely that this environment could actually help us become more important to those players, and when the market does rebound, be as profitable or more profitable than we ever than in our original plan.

Now clearly, crude-by-rail this year is a contributor. So we're going to that's going to negatively affect Jefferson. And so we had expected to be a run rate of $80 million to $100 million by the end of the year of EBITDA. That's probably not going to happen. It's going to be maybe something like half of that. But as I said, longer term, we're diversifying and adding products. And when the Exxon refinery expands in 2022, we're in a great position to pick up and do more business. So net-net, I think it's near-term negative a little bit, but as I said, manageable, and long term, I think it's positive.

Justin Long -- Stephens -- Analyst

Very helpful. Thanks for the time today.

Operator

Thank you. Our next question comes from Chris Wetherbee with Citi. You may proceed with your question.

Chris Wetherbee -- Citi -- Analyst

Hey, thanks. Good morning, guys. Maybe just picking up on the Jefferson comments for a moment. I guess specifically, one of the opportunities that you guys were seeing was Mexico exports, refined products going down there. Kind of curious to see sort of how that business plays out. I think it's hard to get a sense from a refined products demand perspective, obviously, it's down quite a bit. But I think there's market share opportunities that you guys have talked about in the past. So can you give a bit of an update on how that's playing out?

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

Yes. I think Exxon is pretty positive about where the market is now. I mean there was a bit of a decline down when this started, and Mexico was seeing some demand destruction as well. So there was a little uncertainty. But over the last couple of months, it's stabilized, and I think they're now becoming increasingly positive and optimistic as well. They've been able to pick up market share down there because Exxon is really the only one that's built their own distribution system and doesn't use 10 times barrels. So they're bringing in their own molecule, which the market values more and will pay a premium for it. So the mobile brand is doing well. They're expanding again. And I think when people start opening up and driving, we they and we expect volumes will grow. But they've for the near term, they've stabilized, I think, is the way we see it.

Chris Wetherbee -- Citi -- Analyst

Okay. Okay. That's helpful. And then just sort of pivoting back to aviation, I'm just trying to understand maybe the big picture of all of this. So clearly, there's the potential for some utilization rates to maybe get a take a hit, but that also sounds like there's some interesting new opportunities in the business. So I don't know if you want to take it from sort of a net dollars invested in 2020 versus now versus maybe what it would have been a couple of months ago for your outlook for this year, or it's from a cash flow or EBITDA generation standpoint. But can you give us some of the senses like some of the sensitivity around some of the good stuff that's happening with new deals like we saw yesterday and maybe some of the headwinds that you could face because it is just a challenging market?

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

It is a challenging market. I mean, there's no doubt that when airlines are not flying, they don't have revenue, and you're going to suffer along with them. But we importantly, I think we've structured our leases to collect maintenance reserves, which I have always been a big fan of. So we hold security deposits in the form of cash, which is the best kind of security deposit you can get. And we have over $200 million of that to negotiate with. So I think that and the fact that we have cargo and then we have engines, makes our position better. But net-net, I mean, I think this year, this will cost probably $50 million to $100 million to us for the impact of COVID-19. And that's, I think, relatively less than what other leasing companies will see because of the reasons I just mentioned. But then on the flip side, these deals that we're negotiating are probably the best economics we have ever seen, and maybe we'll ever see again because of this is without precedent that every airline in the world is effectively grounded. And they're all scrambling for cash. So the terms of these deals are really phenomenal, if you believe that people will fly again, which, as I said, we do, and I think we also believe that the 737 and A320 markets will ultimately be the best markets to be in.

And I think they will recover first, and then because people are not doing shop visits to save cash, there actually, in our mind, very likely could be a shortage next year. And then if you couple that with the fact that airlines, historically, they didn't lease engines very frequently. If you were one of the largest or quote one of the best airlines in the world, you wouldn't have talked about leasing engines. Now I think everybody will lease engines to avoid a shop visit. So it's sort of a perfect confluence, if it plays out that way that we could end up our targeted EBITDA 25% EBITDA to invested capital and unlevered returns of 15%. I think the deals we're doing now are above those numbers meaningfully. So if we can add as I mentioned, I think we have one other deal that's pretty far along in addition to what we just did. And I think there'll be other opportunities later in the year. So this, ironically, could be our biggest year for investment ever than we've typically done for around $400 million to $500 million of new investments per year. So I believe that this could be bigger and better economics.

Chris Wetherbee -- Citi -- Analyst

Okay, OK, that that's very helpful. Caller appreciate the time.

Operator

Our question comes from Devin Ryan with JMP Securities. You may proceed with your question.

Devin Ryan -- JMP Securities -- Analyst

Good morning, Joe. So just maybe want to pick up where that question ended and some great color here. Clearly, a historic moment and a tough moment for the aviation industry, but you guys put yourself in a position really to take advantage with the steps taken over the past few quarters, especially around capital. And so just trying to think about kind of where you left off there, the capacity to potentially take advantage of some of these deals that you've already executed on and some better in the pipeline, and I suspect others will come together as people see the firm involved here. And so the capacity and maybe other options to create more capacity, whether it be selling off other firm assets or accessing capital through other means. Just trying to think about how you can kind of maximize your position here to take advantage of the situation.

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

Yes. Good question. I mean, we're obviously looking hard at that. And the markets the last month were pretty choppy. So we are having moments of like pause and like how are we going to finance this, or how do we manage it? But we did go into this with multiple options. We have an undrawn revolver, which we can use. We have a fleet. We opted to finance our aircraft in the unsecured market as opposed to the ABS secured market starting many, many years ago. And I think that was a great decision. We now have $1.5 billion of unencumbered assets. So that's flexibility. And then we also can sell assets, and we have some aviation assets on the cargo side that we potentially could sell here. And then as you mentioned, infrastructure, it's, obviously, the next this month is not really an ideal time to put anything on the market.

But I could definitely see, as we go forward, that there's other monetization options in the infrastructure space. There's still billions of billions that have been raised by private funds for infrastructure. And then you have potentially you have Washington coming out with their $2 trillion infrastructure bill. They're going to be looking for projects that are shovel ready. And we have three sites that have opportunities to build lots of stuff on it. I mentioned data centers and Long Ridge. We've had inquiries one as big as one gigawatt. Our power plant is 485 megawatts and the data center build-out is a huge opportunity. So the answer is we're looking at everything, and we're not wedded to any one thing. And I think every week, we have more visibility and more options than we had the week before. So I feel like we feel like we've got many different ways to fund deals that we think are very attractive, so we'll figure it out.

Devin Ryan -- JMP Securities -- Analyst

Okay. Terrific color. And then just a follow-up, just if you can remind us with the infrastructure kind of development over the next year? Capital needs relative to kind of capital position and just the ability to fund kind of all of that at the asset level? Just trying to make sure that we are thinking about that correctly.

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

Yes. So really, the only Long Ridge is 100% funded. It's under construction. It was all project finance debt. So that's easy. Repauno, we have about $30 million of capital remaining for the build-out of Phase I. And we could opt not to do that if we decided, but I think we will go forward. There's really great opportunities in the NGL market. And I think once we have an operating site, we're going to see some just like you see in the crude markets, if you had storage available, all of a sudden, you can mint money off of it. So I think there's an opportunity to being in business as a benefit, and that $30 million is not huge. It's very manageable. So I think that we will go ahead and do. And then at Jefferson, all the capital is basically going to be funded through either debt that we've already raised at Jefferson or debt that we will raise going forward, so it doesn't require any FTAI capital.

Devin Ryan -- JMP Securities -- Analyst

Thank terrific. Appreciate the color, Jeff.

Operator

Our next question comes from Ari Rosa with Bank of America. You may proceed with your question.

Ari Rosa -- Bank of America -- Analyst

Hey, good morning, guys, and Strong quarter, all things considered. So I want to stay on that line of questioning. Joe, maybe you could talk about what the appetite looks like in the marketplace for selling infrastructure assets? And if that's something you obviously said that, that's something that you would consider. It would shift you away from that targeted 50-50 mix between engine leasing or between leasing and infrastructure that you guys have spoken about a couple of years back. So just if you could give a little more color on what your thoughts are on the potential to do that and what the market looks like for those assets, if you were to actually look to monetize some of those?

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

Yes. I mean, in general, our philosophy has been to, as we've said, we like to build infrastructure at three to 5 times EBITDA. We like to see it develop and lease-up so that it would trade at 10 to 12 times. And in certain circumstances, we would sell it at 15 to 20 times EBITDA and then recycle that capital. So we'll have other development opportunities at each one of the properties we could invest in. So we don't see the sale or liquidation or monetization of infrastructure as a divestment more as a just a going full circle from start to finish and then doing it all over again. So I think that, that opportunity exists. And as I said, with the U.S., potentially doing this big $2 trillion infrastructure, there might be many, many more opportunities to do that. So and there aren't that many people that develop. There's a lot of people in the infrastructure world that buy mature cash flowing properties, but very few people build stuff. So I think we have a skill set and experience and the know-how that is quite valuable. So really, that's the philosophy.

As I said today, you wouldn't start an M&A process today in this market environment. But who knows in a month or 2, it might be back to normal, and you do you have a tremendous imbalance of funds, where there's been an enormous amount of money raised in the infrastructure for private infrastructure investments and very few investments available. And now I think if you look at it, one of the areas that people had invested in was airports or container terminals, and you wouldn't necessarily rush to do that right now. So the types of things that we do, I think, could be very, very valuable, and there could be a lot of demand. But as I said, I wouldn't be in a process today, but I don't expect that to stay that way for very long.

Ari Rosa -- Bank of America -- Analyst

Sure. That makes a lot of sense. And then I think it was to Chris, you mentioned that there could be an impact of about $50 million to $100 million from COVID. Just so I understand, is that relative to traditionally, you guys have provided an outlook on run rate FAD from aviation. Is that saying basically a $50 million to $100 million hit to that run rate? And if so, do you have a view on where that might settle out based on kind of that baseline assumption that you mentioned with a six to 9-month timeline to recovery for the domestic market. Just your latest thoughts on kind of what that market looks like with the understanding that, obviously, there's a lot of uncertainties out there?

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

Yes. No, that $50 million to $100 million would be a onetime impact this year for the balance of the year. And I expect we expect that in 2021 run rate targeted run rate of 25% EBITDA to invested capital will be fully normalized back to normal. And it's quite possible if we do a number of deals this year. And we have what happens what I was talking about, more airlines are leasing engines, and there's a shortage, it could be better than that in 2021. So I fully I expect a full recovery, if not upside next year. But this year, we'll have this year, you're going to have lower maintenance revenues and some rent deferrals. In most cases, what you're doing is deferring the revenue. So you put it on the back end, so it's not totally lost. But it would have a onetime effect this year.

Ari Rosa -- Bank of America -- Analyst

Got it. Understood. And then just last question for me. I think the presentation mentioned you guys have about $200 million in LOIs. And obviously, there's still a couple of deals in negotiation or under development. Is it safe to assume that any deal that you guys would do at this point would have some sort of guarantee along the lines of the Air France deal that we saw hit yesterday?

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

Yes. We could possibly I mean, any sort of aircraft deal we're going to do with we would only do with revenue attached. So to bridge, and particularly like the Air France deal, it's an average of 3-year term will get us to the other side easily. And the other deal working on is actually a little bit longer than that. So yes, any aircraft deal, we will buy engines at various points in time that don't have revenue, but we can lease those out pretty quickly. So and in particular, like, for instance, the freight market, as I mentioned, is very strong. So we have CF6 ADC2 engines and Pratt 4000 engines that fly on 767s and 747s, and there's tremendous demand for those right now. So we actually bought a few of those this quarter. So we will buy engines to put in our regular inventory and lease. But on an aircraft deal, we would only do it with revenues attached.

Ari Rosa -- Bank of America -- Analyst

Got it makes a lot of sense. Thanks for the time, john.

Operator

Your next question comes from Giuliano Bologna with BTIG. You may proceed with your question.

Giuliano Bologna -- BTIG -- Analyst

Good morning, and thanks for taking my questions. I guess jumping in on the aviation side. Obviously, there's a lot of disruption. It would be interesting to get your perspective on the timing of the JV. You mentioned the first initiative of product that's in the approval process. Is there an update on the time line for the second part?

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

There's no change. I mean, we're still expecting by the end of this year. We have not been impacted in any way by COVID yet that I'm aware of.

Giuliano Bologna -- BTIG -- Analyst

That sounds pretty good. Then thinking about the opportunity set on the other side, if a lot of airlines are deferring maintenance and effectively deferring having or effectively sitting on a lot of run out engines. And the market tightens toward the end of the year and you could get approval for the first two JV parts by the end of the year or somewhere in that time frame. Could there be some opportunities on the back end to effectively do sale leasebacks, where you're going out and buying a lot of those engines and effectively putting them back in service at the kind of lowest cost in the industry?

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

Yes. Absolutely. That was a great softball question.

Giuliano Bologna -- BTIG -- Analyst

That makes sense.

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

We do see that absolutely. And even the biggest airlines in the world who we've had conversations with have said, prior to that, they said, "Well, we do our own shop visits. We manage our own fleets. We don't do engine leasing, and we'll take care of ourselves." Totally different tone now, and I could see us providing programs to big airlines so that we manage the shop visit, we put in the joint venture low-cost parts. And when then we lease engines to even the biggest airlines, and then they don't have to manage the shop visit, and we can both make money that way. So I think it's as I said, ironically, it could actually accelerate our business plan to develop that because the airlines are in a much weaker position.

Giuliano Bologna -- BTIG -- Analyst

That makes sense. Then thinking a little more strategically on the leasing side. Obviously, a lot of the shops are under a lot of pressure at the moment as everyone's deferring maintenance events and overhauls. Do you think it would ever make sense to try and go out and buy a shop or do some sort of deal where you can acquire a shop with kind of an associated business to in-house a lot of the overhauls and kind of provide more of a full package to some of the airline counter-parties?

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

Yes. Another great question. We have been having and I've mentioned over the last year, we've been having conversations. And one of our concerns has been that the maintenance shops were so full that we wouldn't have priority for our engines, and we were very that was one of the things we are concerned about. Well, no more. I mean, the opposite has happened. The shops are emptying out. So we are in a totally different position now to drive. And one of the things I mentioned is that this will also help us get a much better deal with an MRO shop. We don't we've sort of hesitated about buying an MRO shop because we don't really want to be in that business, but I think we can have our cake and eat it too. I think we can have a deal with an MRO and not own it but get everything that we want from that arrangement. And I think the environment to do that just got a lot better. So we expect we hope we'll have a deal in that area over the next few months and we're pretty far along with one party. So it's quite favorable, and I think it would be the last piece of what we're trying to put together.

Giuliano Bologna -- BTIG -- Analyst

That makes a lot of sense, but I really appreciate the time for the questions and good luck.

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

Thanks.

Operator

Thank you. Our next question comes from Frank Galanti with Stifel. You may proceed with your question.

Frank Galanti -- Stifel -- Analyst

Yeah, hi, Joe. Thanks. I wanted to ask about the balance sheet. Largest concern I hear from investors about FTAI is liquidity. Obviously, the investment opportunity set has gotten a lot better in the last couple of months, but a lot of investors I talked to are concerned about staying in power. And I know you have a revolver of $250 million. But looking at 1Q, cash balance went down pretty materially from 4Q down to $45 million. Looking at your net debt-to-cap is about 52%. What could you realistically get that up to? I know you'd mentioned $1.5 billion of unencumbered assets. But with $1.2 billion at the corporate level, is that going to limit your ability to draw debt down?

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

No, we can we have ability to do secure secured debt for purchase money indebtedness. I think all the deal we just announced, we expect to fund that 100% with debt. So and as I said, we'll we can also look at some asset sales to manage that as well. So I think the yes, we feel pretty good and we've brought the nonrecourse leverage down to 40s under 40-something percent, which is the lowest of any aircraft leasing company in the world, I think. So we've got ourselves in a good position where we can increase that. We got it as high as 60%, I think, before we started the program we did we began a year ago. So I would say that's probably maybe the upper bound. But we can also we did preferred offerings last year, and we did asset sales. So there's a number of levers we can pull. And it's obviously dynamic as this year unfolds with deals, but we feel like we're in a good spot to sort of manage that within those bounds. And we got upgraded by Moody's to BB, and they didn't downgrade us. So we feel good about the capital structure and the flexibility.

Frank Galanti -- Stifel -- Analyst

Great. That's super helpful. Kind of following on onto that. At what point do you look at that big juicy common dividend you're paying, and kind of maybe want to reprioritize that to the current investment opportunity set in the aviation space? Is that something considering worth considering?

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

We've always paid a dividend. It was always a part of our investment thesis and story, and we can pay the dividend. So we felt that, that's important to our shareholders. And it's not to say that it couldn't the environment could get worse, but we don't want to cut the dividend. So I think that's the clearest way I can express it. And if the scenario that I laid out is sort of close to coming true, we won't have to cut the dividends. So that would be our first choice.

Frank Galanti -- Stifel -- Analyst

Okay, great. Thanks very much.

Operator

Thank you. Your next question comes from Rob Salmon with Wolfe Research. You may proceed with your question.

Rob Salmon -- Wolfe Research -- Analyst

Hey, good morning, guys. And thanks for taking the question. Just a follow-up in terms of the aviation investments. Obviously, a lot has changed since kind of the end of the quarter. But can you give us a sense with the LOIs? Does that include the Air France deal? And if we looked at kind of what the LOIs would have looked like on May 1, what would that look like relative to the $220 million that you called out in the presentation?

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

Scott, do you have an answer to that?

Scott Christopher -- Chief Financial Officer

Yes. It does include the Air France portion of it, but some of the other deals that we still are kind of working on that Joe alluded to doesn't necessarily include that.

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

But Air France is included in that.

Scott Christopher -- Chief Financial Officer

Yes.

Rob Salmon -- Wolfe Research -- Analyst

That's helpful. And obviously, we're seeing you guys have got the ability to monetize the aviation portfolio. Can you give us a sense of kind of the timing of the asset sales? And were you selling kind of engines to the cargo market? Were you scrapping some of the aviation aircraft just so to get a better sense of kind of how that played out as the airline industry felt a lot of pain throughout the quarter?

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

Yes. The biggest category for the asset sales in Q1 were the sale of the airframes from the Avianca deal. So if you remember, we bought 14 aircraft from Avianca at the end of last year, and 10 of those were targeted for engines just to keep the engines, so we sold the airframes. And that was always part of the deal. So it was basically just monetizing the part of the asset that we didn't want to keep. That was the biggest portion of asset sales in Q1.

Going forward, as I mentioned, I think we have the potential to sell some aircraft into the freighter, some freighter aircraft. So we may look to do that, given that's a very strong market. And we have some that we can sell. We've signed an LOI to sell a couple of 76s that are that will be converted from passenger to freighter. We're not going to do the conversion, but we would sell the aircraft. So that kind of a deal is what I would expect for this year. And it's possible if the market recovers, and we have we do the Air France deal and we do maybe one or two others, we could sell a portion of some of those deals too. Might be a very attractive way to sort of change the basis in what we bought.

Rob Salmon -- Wolfe Research -- Analyst

Got it. And actually, as kind of my final question in terms of the aviation business is, I was actually surprised that the number of engines off lease as well as aircraft off lease didn't tick up more sequentially kind of fourth quarter to first quarter. Can you give us a sense in terms of what the timing is of some of your we see an average duration of a little roughly a year in terms of the engines, roughly three years in terms of the aircraft. Can you give us a sense of what that how much of your current book is going to be is currently on a month-to-month lease, and what the terminations look like over the duration of the year?

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

Yes. We have it was about 15% of the fleet comes up in a year for the aircraft. Is that right?

Scott Christopher -- Chief Financial Officer

Yes. It's around 10% in between 10% and 15%.

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

10% to 15%. So that's what is available on the aircraft side. The engines, obviously are many of them are on short-term leases, but people don't return. If people expect that they're going to fly again, they're not going to return all the engines because it's going to be hard for them to get them all back. So we don't see a rush of people giving returning engines, we haven't seen that. So and as I said, the engines, the CF6-80 engine and the Pratt 4000 engine are the engines for the 76 and 74 for the cargo, and those engines are in demand, and they're flying a lot. And then if you have a CFM engine for V2500 for the 737 and the A320, those are the first aircraft that you're going to put back in passenger service. So it's not likely to give those engines back either. So it's a stickier market in general. People don't just take everything and return it immediately. But obviously, if it's prolonged, and that's why if it goes on a long time, then more of those assets will come back because people will they'll give up, and they'll just say, I don't know when I'm going to fly and I'll return everything.

Rob Salmon -- Wolfe Research -- Analyst

Makes sense. Well, we'll appreciate the perspective and stay well, guys

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

Thanks.

Operator

Our next question comes from Robert Dodd with Raymond James. [Operator Instructions] Robert Dodd proceed with your question.

Robert Dodd -- Raymond James -- Analyst

Hi, guys Just sticking with the aviation business. Of the kind of $50 million to $100 million negative impact on FAD that you talked about, Joe, I mean, what's the visibility on that? In terms of all the passenger aircraft that are flying or the engines as well, how many of the ones you would expect could ask for relief, deferral, etc, etc? How many of those requests you've already seen and kind of maybe already adjusted lease terms? Or do you think there's a lot more still to come on that front and you're making an estimate? Or is that the incremental not factored into that yet because visibility is so important?

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

Now pretty much everyone has asked for some deferrals, and we've negotiated many of the deals already. And so when we came up with that number, we did it asset-by-asset, lease-by-lease. And so we have basically gone through the whole portfolio. So it's not just an assumption of what will happen. It's actually what has what we pretty much see has happened. But as I mentioned, what it's an assumption that people will start flying again in Q3 and Q4. And so if that doesn't happen, that would change that assumption. But right now, that's what most people are planning, and it seems that many countries are starting to do that. China has recovered and added flights in the domestic side, Vietnam has added flights. Italy has actually increased flying. So there's it's starting to happen, but there are many, many forecasts out there that says this could be a W or a U or an L or whatever, and no one's 100% sure if it comes back, that people wouldn't stop. But right now, the plans that people are putting in place, it pretty much reflects what we're being told and what we're seeing and asset-by-asset negotiations.

Robert Dodd -- Raymond James -- Analyst

Got it. I appreciate that. On I mean, you just mentioned in one of the other responses about cargo conversions. Obviously, you don't do them. But there does there's increasing stories of where even 737s and some others that have not typically been cargo operators. But you've talked about those and the A320s could be kind of the next-generation of freighters. Do you think this environment is accelerating there? And what does that do to potential allocation or your willingness to lease out an engine to a passenger aircraft versus holding off maybe and hoping for freighter where demand seems to be higher right now?

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

Well, the beauty about engines is the engine doesn't care if it's on a passenger plane or a freighter, and it can go back and forth. So for instance, we have 767s, some fly passenger and some fly freighter and you can lease an engine to either one. And an engine could go from a passenger plane to a freighter plane and then back again. So that's one of the reasons I like the engine business because you can serve either market and you're not stuck with it. I think there will be accelerating conversions, you're seeing already. People are taking passenger planes and putting in taking the seat out and putting in freighter systems to allow those like a 777 or an A330 to fly in freighter-only flights that are today are passenger airplanes. So there's going to be more freighter conversions for sure, and that's good. I mean, it's a lot of way to sort of shift and soak up some of the supply.

Robert Dodd -- Raymond James -- Analyst

Okay. Thank you.

Operator

Thank you. Your next question comes from Brandon Oglenski with Barclays. You may proceed with your question.

Brandon Oglenski -- Barclays -- Analyst

Hey, good morning, Joe. So Joe, I just want to come back to this, what percentage of the lease book do you expect will actually be paying revenue through the second and third quarter at this point?

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

Well, look I mean, I mentioned 30% of cargo. And then we have 20% that are flagged carriers, and they will be paying partial rents so you're not giving 100% of the rent. So I think in the second quarter, we're probably going to see 25% decrease in rent, something like that.

Brandon Oglenski -- Barclays -- Analyst

Okay. And with the I mean, how much of the portfolio has actually reached out to restructure, renegotiated terms, if you don't mind sharing?

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

Well, as I said, to Robert, pretty much every airline we've had negotiations with already. So it's been asset-by-asset, lease-by-lease. So nobody has not spoken been spoken to, and we've not assumed anybody is just going to keep paying and not talk about it.

Brandon Oglenski -- Barclays -- Analyst

Okay. So appreciate the visibility there. I guess, along those lines, with your cash balance, I think it's around, what, $50 million right now. What are some more finite financing options that you're going to take in the market, especially with deals like Air France coming? Because by our math, I think you do need some incremental liquidity. Is that correct?

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

Yes. And I think we're looking at a range of debt financing alternatives for that deal. We could do secured. And that market is wide open. So there's a range of alternatives that we're considering, including the easiest one would be secured debt.

Brandon Oglenski -- Barclays -- Analyst

Okay. But what about any form of equity financing even in preferred markets, is that on the table as well?

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

Yes. It's volatile market, but yesterday was a good day. So I mean today may not be, but yes.

Brandon Oglenski -- Barclays -- Analyst

Okay. And then I think, my last one on infrastructure, the capex projects on the pipeline build out to two of your large customers. I guess, do you have committed contracts behind that spending such that you feel pretty comfortable that, that will ramp earnings of the Jefferson facility?

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

Yes. Yes, we do. So if you recall, for instance, the Motiva contract had a provision, it was a 3-year deal on the storage before the pipeline was built. And then once the pipeline is built, it converts to a 5-year deal. And then Exxon, we have a refined products deal to Mexico, and we've also just added an additional storage deal of jet fuel as well. And we think when the pipeline when those pipelines are completed, we expect to get additional business and ramp those volumes up.

Brandon Oglenski -- Barclays -- Analyst

Okay. Appreciate Because of managing through a pretty difficult position. Thank you.

Operator

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Alan Andreini for any further remarks.

Alan Andreini -- Investor Relations

Thanks, Josh. Thank you all for participating in today's conference call. We look forward to updating you after Q2.

Operator

[Operator Closing Remarks]

Duration: 66 minutes

Call participants:

Alan Andreini -- Investor Relations

Joseph P. Adams -- Chairman of the Board and Chief Executive Officer

Scott Christopher -- Chief Financial Officer

Justin Long -- Stephens -- Analyst

Chris Wetherbee -- Citi -- Analyst

Devin Ryan -- JMP Securities -- Analyst

Ari Rosa -- Bank of America -- Analyst

Giuliano Bologna -- BTIG -- Analyst

Frank Galanti -- Stifel -- Analyst

Rob Salmon -- Wolfe Research -- Analyst

Robert Dodd -- Raymond James -- Analyst

Brandon Oglenski -- Barclays -- Analyst

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