We came across a bullish thesis on FTAI Aviation Ltd. (FTAI) on Substack by Komodo Capital. In this article, we will summarize the bulls’ thesis on FTAI. FTAI Aviation Ltd. (FTAI)'s share was trading at $103.24 as of March 12^th. FTAI’s trailing and forward P/E were 44.42 and 19.34 respectively according to Yahoo Finance.

An aeronautics engineer inspecting a model aircraft engine in a factory setting.

FTAI Aviation (FTAI) presents a compelling investment opportunity, leveraging its unique positioning in the aerospace maintenance, repair, and overhaul (MRO) sector. The company benefits from long-term contracts with airlines, ensuring recurring revenue through sticky maintenance services. Unlike traditional aircraft lessors that rely on leasing fees, FTAI's vertically integrated maintenance model allows it to provide comprehensive servicing with limited competition. The ongoing production constraints at Boeing and Airbus have created a supply-demand imbalance, making airlines more dependent on MRO services as they struggle to source new engines. This has provided FTAI with significant pricing power, enabling it to pass on cost increases from OEMs while maintaining strong margins. Additionally, the potential expansion of FAA-approved Parts Manufacture Approval (PMA) could further enhance profitability, reinforcing FTAI’s competitive moat.

Despite these advantages, there are risks to consider. If supply chain constraints ease and engine availability improves, FTAI's pricing power could diminish. Increased competition from aircraft lessors acquiring their own MRO facilities could also pressure margins. Furthermore, any decline in air travel demand, whether due to macroeconomic conditions or unforeseen global events, could negatively impact maintenance volume. However, FTAI's robust operational model and strong customer relationships mitigate these risks, ensuring sustained demand for its services.

FTAI operates through two primary business segments: Aerospace Products and Aviation Leasing. The Aerospace Products segment specializes in engine maintenance for CFM56 and V2500 engines through its Miami and Montreal MRO facilities, which were acquired in 2023 and 2024, respectively. The CFM56 engine, which powers Boeing 737 and Airbus A320 models, accounts for 40% of the global aircraft fleet, while the V2500 holds an 11% market share. These facilities have a combined capacity of 1,350 overhauls per year, offering a significant advantage in engine servicing. FTAI’s modular servicing model allows airlines to swap entire engine modules instead of undergoing costly and time-intensive heavy shop visits, reducing turnaround time to just 5-25 days compared to the industry average of 120-180 days. The company’s ability to pre-build CFM engine sets ensures consistent availability, further strengthening its market position.

A key differentiator for FTAI is its exclusive PMA joint venture with Chromalloy, the only company with FAA approval for manufacturing both low-pressure and high-pressure turbine blades. This partnership allows FTAI to source PMA parts at a 60-70% discount compared to OEMs while capturing a significant portion of cost savings. The stringent FAA certification process, which takes 3-5 years per part, creates a significant barrier to entry for competitors. FTAI’s relationship with AAR further enhances its ability to recycle used serviceable materials (USM) from CFM56 engines, aligning with sustainability initiatives while generating additional EBITDA through scrap material sales.

The Aviation Leasing segment complements the MRO business by providing airlines with long-term leasing contracts, typically lasting 36 months. This ensures that even if an airline purchases an aircraft from FTAI, they are likely to continue using its MRO services, maintaining a steady revenue stream. With an inventory of 442 CFM56 engines, FTAI is well-positioned to meet leasing demand while reinforcing its presence in the aerospace market.

The recent short report by Muddy Waters has created an opportunity for long-term investors. The increasing contribution of the V2500 engine segment, which has higher complexity and lower modularity, is expected to drive margin expansion as it grows. Analysts appear to be underestimating the EBITDA contribution from this segment, which could provide an upside surprise. The acquisition of the Miami and Quebec facilities will further internalize maintenance operations, projected to generate $40-$50M in savings for 2025, with even greater efficiencies expected in 2026.

FTAI’s international expansion presents another major growth avenue, particularly in Southeast Asia. While speculative, management has hinted at establishing a facility in China, Japan, or South Korea to tap into rising global demand. This expansion would solidify FTAI’s global footprint and provide additional capacity to meet increasing service requirements.

A major catalyst for FTAI’s growth is the recently announced Strategic Capital Investment initiative. CEO Joe Adams has outlined plans to deploy an outsourced $3 billion to support leasing and acquisition, particularly for CFM and V2500 engines. This initiative could fund new facility expansions, aftermarket engine purchases, or strategic acquisitions, with estimates suggesting an incremental $200M in annual EBITDA. This capital-light scaling strategy allows FTAI to expand its market presence without significantly increasing leverage.

FTAI’s pricing power continues to strengthen, with EBITDA per CFM module rising from $500K in 2023 to over $700K in early 2024. As its facilities handle a greater volume of engines, the company’s bargaining power and service capabilities expand, further cementing its competitive advantage. The Chromalloy partnership has already secured FAA approval for two of five modules, with a third approval expected soon. Each additional approval enhances FTAI’s ability to capture a larger share of the engine servicing market.

From a valuation standpoint, FTAI remains significantly undervalued. With projected ~$1.6B in Adj. EBITDA over the next twelve months, the company trades at under 9x EBITDA—far below industrial peers like Heico and TransDigm, which trade at over 20x. A reasonable multiple expansion to 13-14x EBITDA over the next two years could drive a 50% multiple expansion. Key factors that could trigger a rerating include continued market share gains, accelerated MRO growth through the Strategic Capital Initiative, additional PMA approvals, increased pricing power, and geographic expansion into EMEA and APAC.

Despite short-term volatility, the long-term thesis for FTAI remains intact. The company’s vertically integrated model, pricing leverage, and ability to capture industry tailwinds position it for sustained growth. The market has yet to fully appreciate these dynamics, but as they become more apparent over the next twelve months, FTAI is poised for a significant revaluation. With multiple catalysts in play, strong operational execution, and a leadership team focused on expansion, FTAI represents a highly attractive investment opportunity with substantial upside potential.

FTAI Aviation Ltd. (FTAI) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 54 hedge fund portfolios held FTAI at the end of the fourth quarter which was 41 in the previous quarter. While we acknowledge the risk and potential of FTAI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than FTAI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.