Fortress Transportation and Infrastructure Investors LLC (FTAI) Q3 2021 Earnings Call Transcript

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Fortress Transportation and Infrastructure Investors LLC (FTAI)
Q3 2021 Earnings Call
Oct 29, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Third Quarter 2021 Fortress Transportation and Infrastructure Investors LLC Earnings conference call.

[Operator Instructions] And now I would 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 and 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. A 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.

Joseph P. Adams Jr. -- Chairman of the Board and 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 of 2021 of $68 million and Q3 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 business, 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, but 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 we 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 leasebacks range from six months to 10 years with an average of 50 months and 3/4 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 from multiple airlines and MROs or maintenance and repair organizations for shop 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. As for 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 CFM56 aerospace activity is expected to contribute between 50 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 the 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 ExxonMobil 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. The 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 toward 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 Uinta Basin 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, we're making progress on DRU, diluent 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 ratable 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 to Repauno. Repauno continued its strong pace 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 gasoline blending season. Rounding out the first export season, the highly flexible multi-modal 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 customers' needs, not only in New Jersey, but also in the entire Northeast region.

Pushing toward further development outlined in FTAI's long-term vision, the newest port on the Delaware River plans to see expanded capacity with 3-plus million barrels of highly efficient underground storage capable of handling a wide variety of LPG and refined products to be ready for exports 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 deepwater docks and eventually by 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 primed for staging and manufacturing of wind farm components and for waste plastic recycling projects. And these discussions are in advanced stages, and we hope to have one or more concluded by year-end. Together with the Jefferson facility in Beaumont, Texas, FTAI is well-positioned with multi-modal 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 a 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 $50 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 and 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 to 10 years and generating approximately $120 million per year of EBITDA.

We've also recently seen lots of interest 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. But 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. Jon Carnes and his team are already meeting or exceeding expectations. And 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 in 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 had projected. Transition expenses are tapering off and expect it to be de minimis in 2022.

As to the core business, 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 and Q1 of next year. Other steel segments are holding steady and strong. Mon Valley is running full. While Gary, Indiana has a planned maintenance outage at the number 6 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 happened post the acquisition is happening. Turning now to corporate items on the spin-out of infrastructure. We have made considerable progress on the spin-off of infrastructure and conversion to C-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 the 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, this still 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 passenger 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 Chromo and Lockheed Martin AAR suite of products growing as well. As the infrastructure projects that we started 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 stand-alone 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 of 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.

Questions and Answers:

Operator

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

Justin Long -- Stephens -- Analyst

Thanks and good morning. Joe, I wanted to start with the 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 expectations for the balance sheet and leverage more broadly going forward as well?

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

Yes. So that 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 than 3.00%, LIBOR plus, and a little less than that, like LIBOR plus 2.75% and pre-payable at any time. And our goal with that is to prepay that from the $800 million of infrastructure funding that's going to come back to aviation. So we'll essentially be reducing debt net on a net basis when the spin happens at aviation. And so that's where we wanted to have that immediately or pre-payable immediately. In terms of the leverage for the companies, I mean, we stated as part of the spin, we wanted to maintain a 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 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 -- Analyst

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 I 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?

Joseph P. Adams Jr. -- Chairman of the Board and 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 as I mentioned, we had a lot of engine lease deals signed. But then when the restrictions start to be reimposed and airlines start, they started to slow down the ramp-up in 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 as I said, 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 is looking for additional equipment and a lot of engines. But 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. And turning to the crude products, we also expect a very strong year. We've had good momentum in all of these businesses, with the exception of PMA because the second part is not yet approved, but USM has developed nicely. We have 20 engines in tear down, and we are one of the largest providers of USM. I think the ramp-up in 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 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 will be putting out PMA into our own engines, and we have a number of shoppers as 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 is 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 store front, that's our cash register. That's where we -- all three products can be combined and provide real value and real savings to airlines by either selling them the 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 at first-time shop visits were lower, and are now looking at returning engines to lessors and others in a run-out condition. They're 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 -- Analyst

Very helpful. Appreciate the time.

Operator

Our next question is from Josh Sullivan with Benchmark Company.

Josh Sullivan -- Benchmark Company -- Analyst

Hi, good morning. Just on the current PMA submission, how is 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 the following three parts are moving forward as well.

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

Yes. It's tracking very similarly and 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 the way the first part went, and that's the way Chromo has been approaching these new products, and it's worked well because then 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 been reviewed and signed off as we go. So I think the final submission should -- and the approval should track similar to what happened with the first part and Chromo is very confident. They never had a part that didn't get approved. So it's, I would say, very similar in terms of process to the first part. And then 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 are less complex parts. Obviously, we started with the more expensive ones and the higher difficulty ones first.

Josh Sullivan -- Benchmark Company -- Analyst

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?

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

Some of them are sort of grinded out by adding storage and repair services and right-of-way income. It would occur 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 sort of service that you can provide, it could be a step function up. And the rail market, obviously, is strong. The core industries, the rail serves are all doing pretty well. We see development opportunities in many different spots and locations. We had a good dialogue with U.S. Steel about additional opportunities we could provide them. So the playbook is really to try to come up with 10 ideas that you can pursue, and hopefully, three or four of them hit. And that's exactly what happened at RailAmerica when we did that. And and those tend to be sizable and they tend to be sticky. So it feels like deja vu 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 different areas. And we also see at in Long Ridge, we see a lot of companies that 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 that's going to be moving around. So I think the environment is good, and we've got the playbook, and I think we're going to hit on a few of them.

Josh Sullivan -- Benchmark Company -- Analyst

Thanks for the time.

Operator

Next is from Guiliano Bologna with Compass Point.

Guiliano Bologna -- Compass Point -- Analyst

Good morning. I guess jumping in on -- I have a quick question on the PMA side, then I have kind of a follow-up question on a different topic. But one of the things I was curious about was you actually have the first part approved. Second part is coming and hopefully in the relatively near term. And I think one of the discussion points that's come up in the past is that a lot of airlines order the first and second part that they're going to have in sets, and that probably created 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 contingent on 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, put those savings in the near-term?

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

Yes. So there are orders for sets. And I think you correctly pointed out, if an engine, if an airline is 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 I think that they are sort of joined together for many airlines but -- and particularly because they know it's coming. And sort of if they had a decision to make and what we put in the first part, without knowing the second part is coming, it's easy to say, well, I'm not doing a lot of shop just 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 deal in the industry, and they are very eager to get it. So I think that backdrop is quite positive. And we expect, as do most of the industry, as third-party shop visits 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 visit is delayed, that will also facilitate looking at PMA as an alternative. And the other thing you have is we have some significant potential inflation in metals out there. So you could see bigger price increases from OEMs than people have experienced previously. So that's another dynamic that I think could help the effort. So I think 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 five parts in total are 80% of this, for a shop visit, then this is 60% of the 80% or half of it. So 50% of the total for costs is represented in these first two parts.

Guiliano Bologna -- Compass Point -- Analyst

That's great. That's great. And switching to a little bit of a different topic. I may have missed it, but one of the things I was curious about when thinking about the split of the companies to entities is where -- if the preferred shares, if you intend to move the preferred, one way or the other, I'm assuming there is still aviation, but would be good to confirm that.

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

Yes, that's correct. There's good aviation.

Guiliano Bologna -- Compass Point -- Analyst

And then the only other question was, I think you referred to the infrastructure business being spun off as a C-corp, I'm assuming using some sort of offshore limited structure that would not have a K-1 for aviation?

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

I didn't quite understand the question.

Guiliano Bologna -- Compass Point -- Analyst

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 will move the K-1?

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

Yes. It will be a corporation, a corporate structure that will be a non-U.S. corporation.

Guiliano Bologna -- Compass Point -- Analyst

That's great. That's perfect. And I'll jump back in the queue.

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

So it does, it eliminates K-1s. Just to draw a line under that.

Guiliano Bologna -- Compass Point -- Analyst

That's perfect. I'll jump back in the year. Thank you so much.

Operator

Next question is from Chris Wetherbee with Citi.

Chris Wetherbee -- Citi- -- Analyst

Hi, thanks. Good morning guys. Maybe I 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 ramp up there. I'm sure there's probably some WCS-WTI type spread dynamics that we need to consider here. But as you think about 4Q and then maybe the first half of next year, can you give us some sense of what you think the outlook is in terms of EBITDA or FAD from that business?

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

Yes. I mean, the pipelines are operating, which is great, and that was a big part of getting them into service, getting operating in function. And now obviously, we're all over everybody to try to use them. So 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 oil price point of view, refined product demand point of view, from refineries looking to bring in crudes from discounted 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 we blend. So we have all of that in front of everybody, and it's just a question of getting a couple or two of those to hit. And that's really what all of our focus and attention is on that. And you heard, I think, we have multiple pathways to get there. So I'm confident we'll get there, and the environment is going to help. We just need to do it. We just need to execute on it.

Chris Wetherbee -- Citi- -- Analyst

Okay. All right. 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 the sort of, I guess the question is that 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 stand-alone, and maybe what kind of capital you'd be deploying on an annual basis?

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

Yes. So historically, if you look back, 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 wanted to do at the beginning of the year because that's not the right way to think about investing. But 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 CFM56, obviously, and we're focused on some of these transactions that we think we can add engine business as part of the transaction. So I mentioned, Avianca, Alitalia, American, we believe we're going to have follow-on opportunities above and beyond the sale leaseback that will enhance the value relationship, enhance our profitability and not require 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 grow that business, if it doesn't require capital, I'd rather do that and invest $1 billion of capital and not get any other business. So that's the way we're thinking. So I think that the goal is to grow the non asset-based service businesses as to the maximum degree possible and to use the capital in the most efficient way to do that.

Chris Wetherbee -- Citi- -- Analyst

Okay. That's helpful. Thanks for the color. Appreciate it guys.

Operator

Next question is from Devin Ryan with JMP Securities.

Devin Ryan -- JMP Securities -- Analyst

Hi. Good morning. I guess, the first one, just coming back to some of the earlier comments on Long Ridge. Great to hear about kind of the increased contribution there over the intermediate term here. If I missed it, the $40 million, where is that -- are you going to reinvest that back in the business then give dividend to the parent? How should we think about kind of increased profitability there? And then with electricity costs, the 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.

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

Yes. So on 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 refinancing. 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 a better rate, and we may get more debt. So there might be a recap opportunity that has helped to facilitate by having additional income and profitability. So it's good, and it's played out. We always expected it right around the time we went live, we would look seriously at refinancing the debt at Long Ridge and rates are lower and profitability is higher. So 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 the plants. So we have 6% that's available.

We also could potentially increase the capacity from 485 megawatts up to 505. We believe it will 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 could also monetize some of that. So we're looking at everything to try to take advantage of what's an amazing and incredible market opportunity that 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 then clearly, the power forward markets is strong through the winter, and there are a lot of people that are pretty positive beyond that because the switch over to renewables is not as easy as maybe people were thinking initially. So it's a good dynamic. I think we'll look to refinance and take advantage of that opportunity and then look to add EBITDA from power and gas in any way we can to squeeze out more.

Devin Ryan -- JMP Securities -- Analyst

Okay terrific. Obviously, good to see. And then just another follow-up here on the split of the businesses. And just procedurally, I know you guys are working closely with the auditors. I know it's also kind of a complicated process here. So from the outside, it seems like you 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 could kind of 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, is it going to be the same management team are you going to run both businesses? Or has that been decided yet? Just kind of to think about some of the infrastructure-related to both of the businesses?

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

Yes. So in terms of your first question, we are more confident. We -- probably the biggest issue that we had to address first was refinance the Transtar acquisition debt, which we did in Q3. So that removes any transactional impediment to getting the spin done. And so now as you mentioned, it's a process, and I'm looking at Scott because he's doing the audits, and the lawyers are doing the documents, but we've done -- Fortress has done a number of spins. And nobody has raised an issue yet or otherwise I wouldn't be giving a lot more detail on this. So I think it feels like it's on a pretty good path to getting execution. And there is no third-party or any outside process that we're getting away of it. So that's good. In terms of the management, I mean, the -- what I've indicated is that I will be the Chairman -- I'll stay Chairman and CEO of FTAI and Chairman of Infrastructure and likely will to design around the spin have a CEO that is not me, which is somebody that we know, but we haven't disclosed and discussed in much more detail yet, but that would be the management. Otherwise, there's a few spots that we'll look for some outside hires, but it's primarily just dividing up the team.

Devin Ryan -- JMP Securities -- Analyst

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

Operator

We have a question from Brandon Oglenski with Barclays

David Michael Zazula -- Barclays -- Analyst

This is David on for Brandon. You talked a little bit about the acceleration you expected to see in non-service for material. I was just wondering if you could provide some more color on to any early orders you're seeing or what 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?

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

Yes. So our ability to generate new service 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 that are positioned, that are either in tear down or in the process. So that side of it, 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 business 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 sort of the programmatic nature of what we're shooting for. And those are progressing nicely. I would say that the the ramp-up in shop is -- it's starting, but you're probably not going to see too much activity until Q1 of 2022, and then we expect Q2 and Q3 of next year to be pretty busy, which I think is consistent with what the big independent MROs and even the OEMs have been saying about shop business 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.

David Michael Zazula -- Barclays -- Analyst

Awesome. 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?

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

Yes. So 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'll also to look at potentially asset sales to provide some of that, which is obviously a very good market for infrastructure, and infrastructure funds that we are looking to invest capital in the space, so there's a lot of capital raise. 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 at the spin either. So we can stage it, but we'll run a full process and be very deliberate and look to sort of optimize that over the next six months?

Operator

Next question is from Greg Lewis with BTIG.

Greg Lewis -- BTIG -- Analyst

Yes thank you and good morning. Joe, I was hoping you could touch a little bit more on infrastructure. As we think about what's going on at Traverse, and clearly, you guys have invested a lot of money there, built out the infrastructure there. It seems like the market is finally starting to go the right way with a little bit of 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 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?

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

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

Greg Lewis -- BTIG -- Analyst

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, you mentioned the Aframax incoming tanker and WCS. Is that kind of the right way to just feel that potential growth? Is it -- or I think you mentioned -- yes.

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

So that's part of it. And the other part, as we mentioned, would be, for instance, a DRU or diluent recovery unit volumes coming from Canada on a steady basis. So if you could bring one train a day from the DRU into the terminal, that's 50,000 barrels of rail in, and you bring that with additional pipeline, it's probably two or 3:1. So that's potentially like 200,000 barrels a day from just that one move, and that's the leverage. And 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 in the spread business.

Greg Lewis -- BTIG -- Analyst

Thank you very much.

Operator

Next question is from Robert Dodd with Raymond James.

Robert Dodd -- Raymond James -- Analyst

Hi guys. Congratulations on getting those aviation deals. I'm going to ask about the dividend, when we look at funds available for distribution, when we put on Transtar, put on these new -- the new aviation deals, etc., you're going to be, by my math, above the 2:1 coverage of the dividend. At the same time, we're obviously heading into a spin-off and a changing corporate structure next year. So could you give us an outline if you've gotten that part on what the plans would be for the dividends from one or both different pieces? And what, given where FAD is, you'd expect the relative scale of those dividends to be maybe compared to what it is for the pure-play, the single tied right now?

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

Yes. So the best sort of guidance we can give right now is that 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 our thinking. And then each entity is going to look at the extent to which FAD and funds available for distributions exceed the 2:1. And as you point out, our goal has always been to maintain that. So we would increase the dividend at each to the extent we have more than 2:1 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 -- Analyst

Got it. I really appreciate that.

Operator

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

Alan Andreini -- Investor Relations

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

Operator

[Operator Closing Remarks]

Duration: 53 minutes

Call participants:

Alan Andreini -- Investor Relations

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

Justin Long -- Stephens -- Analyst

Josh Sullivan -- Benchmark Company -- Analyst

Guiliano Bologna -- Compass Point -- Analyst

Chris Wetherbee -- Citi- -- Analyst

Devin Ryan -- JMP Securities -- Analyst

David Michael Zazula -- Barclays -- Analyst

Greg Lewis -- BTIG -- Analyst

Robert Dodd -- Raymond James -- Analyst

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