Carriage House's Will Cleary on $FTAI

Why It Matters

FTI’s vertically integrated, module‑swap model delivers significant cost and time savings for airlines, creating a durable competitive moat and a high‑margin growth engine for investors.

Key Takeaways

• FTI vertically integrates engine ownership and maintenance for higher margins
• Module‑swap model reduces airline repair time from months to weeks
• Shop‑visit cost drops from $7 million to $4.5 million per engine
• Market share grew from 5% to 10% between 2020‑2024
• Network effects create moat against new entrants in CFM ecosystem

Summary

In this episode of the Yet Another Value Podcast, Carriage House Fund’s Will Cleary breaks down why FTI Aviation (FTAI) has become a standout in the aftermarket jet‑engine market. Cleary explains that the firm’s core strategy hinges on vertical integration—owning both the engine assets and the in‑house maintenance capability—allowing it to offer a differentiated "module‑swap" service to airlines.

The module‑swap model lets airlines replace a single worn engine module rather than sending the entire engine for a full shop visit. This slashes turnaround times from two‑plus months to a few weeks and cuts costs from roughly $7 million to $4.5 million per repair. Leveraging the ubiquitous CFM56 engine—found on about 60% of narrow‑body aircraft and numbering around 20,000 in service—FTI has expanded its market share from zero swaps in 2020 to a $2 billion business with roughly 10% of the market today.

Cleary illustrates the advantage with a concrete example: a midsize carrier with limited MRO capacity can receive a refurbished module overnight, install it, and return to service in weeks, while the old module is repaired and re‑entered into FTI’s inventory. This not only reduces direct maintenance expenses but also extends the useful life of CFM56 engines, whose third‑largest cost component for airlines is engine upkeep. The firm’s extensive inventory and established relationships create a network‑effect barrier that makes replication difficult for competitors.

For investors, FTI’s model promises outsized profitability, scalable cash flows, and resilience against short‑term industry shocks such as the recent GTF powder‑metal issues. The long runway of the CFM56 platform, combined with the company’s growing market share and high‑margin module‑swap business, positions it as a compelling value play in the aviation services sector.

Original Description

Host Andrew Walker speaks with Will Cleary of Carriage House Fund about FTAI Aviation and its rapidly expanding jet engine aftermarket platform. Will explains how FTAI transformed from a traditional aircraft leasing company into a vertically integrated provider of engine maintenance, repair, and module swaps for commercial airlines. The discussion examines the economics of engine maintenance, why FTAI’s model reduces costs and turnaround times for airlines, and how its growing ecosystem of engines and modules creates competitive advantages. They also address the Muddy Waters short report, valuation considerations, and FTAI’s new power initiative converting retired jet engines into turbines for data centers.

______________________________________________________________________

[00:00:00] Andrew introduces guest Will Cleary

[00:03:35] Overview of FTAI business model

[00:04:05] Vertical integration into engine maintenance

[00:05:58] Aviation engine supply shortage context

[00:07:05] Why module swap model works

[00:09:32] Cost savings from engine module swaps

[00:13:58] Network effects in module ecosystem

[00:17:15] Adoption by larger airline operators

[00:18:41] Strategic capital initiative explained

[00:22:35] Risks of off-balance sheet financing

[00:25:51] Muddy Waters short report discussion

[00:30:23] Evaluating short seller claims

[00:32:06] Growth outlook and valuation debate

[00:37:09] Framework for valuing FTAI

[00:41:21] Data center power turbine initiative

[00:43:20] Economics of repurposed jet engines

[00:47:05] Potential index inclusion and visibility

[00:48:17] Management ownership and alignment

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Production and editing by The Podcast Consultant - https://thepodcastconsultant.com/