FTAI Aviation Ltd. (FTAI) Q2 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Second Quarter 2018 Fortress Transportation and Infrastructure Investors LLC Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host, Alan Andreini. Please, begin sir.

Thank you, operator. I would like to welcome you to the Fortress Transportation and Infrastructure's second quarter 2018 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. The 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.

Thanks, Alan. To start the call, I'm pleased to announce our 13th dividend as a public company and our 28th consecutive dividend since inception. The dividend of $0.33 per share will be paid on August 28, based on the shareholder record date of August 17. So first, let's discuss some numbers. The key metrics for us are adjusted EBITDA and FAD or funds available for distribution. Adjusted EBITDA for Q2 2018 was $52.2 million compared to Q1 of 2018 $48.1 million and Q2 of 2017 of $28.8 million. FAD was $44.8 million in Q2 versus $34.4 million in Q1 of 2018, and $34.6 million in Q2 of 2017. During the second quarter, the $44.8 million FAD number was comprised of $73.2 million from our equipment leasing portfolio, negative $11.2 million from infrastructure and negative $17.2 million from corporate. The overall infrastructure number was better this quarter due to improved results at Jefferson. Corporate FAD was slightly higher than Q1, primarily due to increase in interest expense, resulting from the new $100 million bond issuance in May, and higher corporate G&A expenses. Now, let me turn to Aviation. Our Aviation business continues to exceed our expectations for growth as we maintain and even exceed our expectations for profitability. Aviation normalized adjusted EBITDA was $59.8 million versus last quarter of $56.2 million. We closed on $113 million of new investments in Q2, or $194 million year-to-date. And as of this call, we have added about $280 million of new deals, which brings our total outstanding LOIs to $313 million, which is our highest ever. Our Aviation businesses expanding and our ability to source and make new investments, which meet or exceed our return standards is keeping pace with that growth. We now expect our run rate Aviation FAD to be approximately $315 million per annum after closing all these LOIs over the next two quarters, up from $265 million last quarter. Aviation EBITDA will be growing over the balance of 2018, because most of the equipment that we have closed on, and expect to close on this year, is already on lease. In addition, 8 of the 9 Air China planes, which in some cases were off-lease for over years and they went through heavy maintenance, are now on lease and the 9th and final plane, we expect will go on lease this quarter. So even if we did not do any more aviation deals for the balance of 2018, you should expect continued growth in EBITDA and FAD from aviation in Q3 and Q4 of this year. The engine market is extremely strong currently and the conditions to create this tight market are highly likely to continue for at least the next three to five years. As a reminder, we currently own 126 engines and 57 aircraft, which also have engines on them. And because we focus on older aircraft by design over 80% of the value of the aircraft fleet is engine value. So overall, approximately 90% of our total aviation portfolio by asset value is engines. And we’ve chosen to focus on the engines that power the 757, the 767, the A-320 and the 737 aircraft, which are in our opinion, the best of the best and the market agrees with us, illustrates on the engines in which we specialize are up. The factors driving this market growth are; one, overall growth in global passenger air travel and e-commerce growth driving higher air cargo; second, a large number of 737 and A-320 engines are coming up on their first major shop visit; third, there has been an increase in mandated inspections as a result of regulatory directives for maintenance; and fourth, the life extension of 757, 767 and 747 engines due to aircraft being proven moneymakers extremely reliable and freighter convertible; and fifth and finally, there is a tight supply of independent maintenance capacity and parts availability, which result in cost inflation for major shop visits comprised of parts and labor, which means engines go up in value, which is good for us. Given the math around the engines in our relevant market space, it's easy to feel good about the value of everything we own. The prospects are stable and even increasing returns available through our advanced engine repair proprietary products and the opportunity to grow the fleet faster through larger acquisitions from airlines and other owners. Now, talking about offshore, as we discussed on last quarter’s call, we are in the process of repositioning our advanced construction vessel, the Pride, into the more profitable and less over supplied well intervention market. The vessel completed its most recent project in May of 2018, and it's currently in shipyard in Singapore undergoing repairs and maintenance. We expect to use these vessels down time in the yard to undertake modifications for well intervention and we’ve begun the process of procuring the necessary well intervention equipment for the vessel. While we continue to market the vessel for interim work, our 2018 results will reflect the lower utilization on the Pride as we ready it for well intervention work in 2019. Turning now to infrastructure and starting with Jefferson, Jefferson had an excellent Q2 on a couple of levels. One, operationally we handled over 3.3 million barrels of product through the terminal with strong growth in refined products and crude. And secondly, strategically the expansion plans advanced on all fronts around pipeline connectivity, new storage customers, crude by rail and refined products to Mexico. It’s a great time to own an energy terminal on the U.S. Gulf Coast. Firstly on refined products, we have been loading approximately 15,000 barrels per day starting in Q2, and with the addition of a tank, which will come on soon. We will increase that to 20,000 barrels per day. We will be offline for several weeks in August as we do undertake more CapEx investment to take our existing customer to 40,000 barrels per day capacity. And the outlook for additional demand remains excellent. We could sell every barrel of capacity we could deliver. Regarding ethanol, we experienced a decrease in volume in Q2 due to capacity constraints during our transition to the new operator and the expected seasonal fluctuations in that market. But we have been running at 20,000 barrels per day in Q3 and expect to go to 35,000 per day by Q4 and onward. Demand for ethanol internationally remains high. To that point, we expect to sign in the next few weeks a terminal service agreement with our first third-party customer. If this deal is executed, the terminal will be fully sold out with commensurate volume commitments with respect to the existing infrastructure. On crude, with WCS, Western Canadian select spreads to WTI very wide crude by rail from Canada is a very attractive move. We moved approximately 250,000 barrels equivalent to five unit trains in Q2 and we’ll move 500,000 barrels equivalent to 10 unit trains in Q3, on behalf of a new customer, one of the major refiners near us in Belmont. In September, we began the new crude by rail service where we originate barrels in Canada directly from producers and arrange all of the transportation to Jefferson with committed rail capacity provided by CN, running for 14 months. On that move, we will be delivering approximately 10,000 barrels per day with enhanced economics. Regarding the bigger expansion of the crude system, we have completed a significant amount of the engineering, permitting and write-away acquisition for the $400 million investment in the TransCanada and Zydeco pipeline connections, a construction of a new ship dock and 3.5 million barrels of new storage. On the commercial side, we've made great progress with three major potential tenants with the crude and are working on timing and engineering with a goal of having commitments in place by the end of 2018, for this expansion, which would be operational by the end of 2020. In the interim, we are under construction with 8,000 barrels of new storage, which has been slightly delayed a couple of months, due to the timing of steel deliveries. We've made very strong demand - we have very strong demand for that capacity from multiple parties and expect to execute a contract shortly, which will give our newest customer access to the entire 800,000 barrels. As a result, we expect to start construction on an additional 1.4 million barrels of storage with an expected in-service date of fourth quarter 2019 for that capacity. To roll that up, we currently operating with 2.1 million barrels of storage today and we expect to increase to 2.9 million barrels by the end of Q1 2019 and 4.3 million by the end of 2019, and 6.5 million barrels by the end of 2020. In the addition, in the last week, we executed and have ratified our amended agreement with the Port of Belmont, which will give us the additional property that will make it possible to develop Jefferson to between 26 million and 29 million barrels of storage in total. All the pieces are coming together quite nicely and we've made great strides by executing contracts with key new customers. Best of all, as we execute these new contracts, conversations are already proceeding on expanding those relationships. With refinery expansion in full swing near us and with Jefferson’s locations and capabilities, we’re in a very strong position now. Let’s turn to CMQR, the Central, Maine and Quebec railroad. The railroad has another good quarter. Total revenue, adjusted EBITDA and revenue per car load, were all up in Q2 2018 versus Q2 2017. The car cleaning operation started this quarter and is off to a promising start. We continue to look at opportunities to purchase other short line railroads, but the competition for these assets is only getting more intense. In one recent auction, we understand that over 30 parties submitted bids. So we’ll continue to pursue opportunities in this space, but at this time, we are not seeing the value opportunities that we like. Turning now to Repauno. We had a busy and collective quarter at Repauno. Our deepwater multipurpose stock construction is going well. The dock will be completed on time by this December and on budget. The new dock will give us the ability to handle both the growing LPG liquids export market and roll-on, roll-off cargo. The core sample analysis of the granite formation under our property is complete, and the results are even better than we or our geologists had hope for. The study confirmed that the granite formation under our site would easily accommodate an initial 3 million barrels of LPG cavern storage with the potential for incremental 3 million barrels in the future. Our core in program also confirmed our initial cost estimates - cost estimates of $125 per barrel for the first one million barrels of storage and $85 a barrel for the second and third million barrels of storage. So taking into account, the above ground rail, piping and handling infrastructure, the total cost for the first three million barrels of storage and handle the infrastructure is estimated to be approximately $450 million and should generate approximately a $150 million in annual EBITDA. We are now working on permits and engineering and expect to be operational with the first three million barrel cavern by early 2021. We mentioned on our last call also that we were pleased and somewhat surprise by the level of interest from Europe for LPGs. And over that last quarter that interest has become even stronger. As such, we are in the process of developing a unit-train transloading system that will allow us to transload LPGs directly from rail to ship and allow us to get into business sooner. We’re moving forward with this project due to the immediate desire buy buyers in Europe to secure alternative and new sources of LPGs, and buyers are willing and able to enter into long-term contracts before our caverns are operational in 2021. We expect this rail to ship system to be operational by -- at the end of 2019, for a total cost of approximately $70 million and expected $25 million to $30 million in annual EBITDA, beginning in 2020. Also worth noting is that we expect to be able to originate these unit trains of LPGs at our Long Ridge Terminal in Ohio. As to our existing 200,000 barrel butane cavern that business is going as planned, we are storing butane for a number of local refiners and gasoline blenders, and we are now 90% full going to a 100% by the end of August, and expect to generate approximately $3 million of EBITDA in Q4 of this year. Repauno is turning out to be bigger, better and happening sooner than we expected. Now on Long Ridge, much like Repauno, Long Ridge is coming together faster than we had expected. Let me start on the frac sand business. We now expect a run rate of 1.1 million tons a year to be reached by Q4 of this year. June was a record volume for us handling 70,000 tons, which exceeded our initial estimates, which we had expected to reach that level in September - by September or October of this year. Importantly, we are now signing up new high quality customers at translating fees, which are 25% higher than we originally forecast. On the CapEx costs of $4 million, we're now projecting frac sand to generate $3 million of EBITDA in 2018, and $6 million to $7 million in 2019. We're receiving inbound requests for that capacity almost daily for two reasons. One, the market demand for frac sand is increasing dramatically as drillers have realized that more sand equates to more productive wells. And two, Long Ridge is strategically positioned as the only terminal in the Marcellus and Utica region that offers barge, truck and unit train shipping capabilities. As to frac sand, we have the perfect asset in exactly the right location. We've added 7 new customers in the last 90 days. Now that we have unit train capabilities, which we built for the frac sand operation, we're also in the process of developing a unit-train LPG rail loading system, which will take advantage of that infrastructure already in place. And we're well along in discussions with a nearby fractionation facility to build a pipeline from the facility to our terminal and Long Ridge to load unit trains of LPG, which same can be rail to the east coast including Repauno. And as I mentioned in the Repauno discussion, the need for LPGs in Europe is acute and growing. Given Long Ridge's proximity the sources of LPG and access to direct rail, we can offer a transportation solution that is competitive with pipelines. And if we land these trains at Repauno, we win twice. Now, let me turn to the power plant at Long Ridge. We are well along in negotiations with multiple long-term offtakers of that power from the new 485 megawatt plant that we were planning to build. Most of those contracts will be fixed price with 10-year taker page terms. Based on current negotiations, we expect to have the plant fully contracted by this fall. And it began the process for securing non-recourse project debt, which we hope to have in place by Q4 of this year. Once financing is arranged, our current intention is to offer to sell a 49% interest in that plan in Q1 of 2019, whereby we would take out all of the capital currently invested by us in Long Ridge plus some. So at that point, after that transaction, we would own a 51% interest in a fully contracted power plant, which we commence operations in late 2020. And still own a 100% of the rest of the terminal and operations. So to conclude on Long Ridge, it is ramping faster than we had expected, and as of today, it looks as if the EBITDA stream is going to be higher than we expected. And on the other side, our net equity capital needs are going to be lower than projected. And we're hopefully going to be able to take all of that equity out, plus some fairly soon, which feels like a very good investment. So in conclusion, our Aviation team is executing on the business perfectly. Five years ago, we made the decision to stay away from wide bodies and to focus on midlife narrow body aircraft, as a means of cost effectively acquiring engines. And that was a good choice and we continue to reap the benefits of that decision today. Also, our plans to widen the mote to defend that business are coming together exactly as we've laid out two years ago. In short, I could not be more pleased with our team, our strategy, and our execution. As to the infrastructure, the plans and strategies for all of our assets are now firmly in place and we are in execution mode on all four. In the last 90 days, we’ve acquired a total of 13 new customers at these growing businesses. Some of these deals like frac sand at Long Ridge are coming together quickly, some like the more complex deals at Jefferson, can take months to bring together. The point is that they are all happening and they are happening at an accelerating pace. With respect to Jefferson, Long Ridge and Repauno, all three of these assets are in the perfect location geographically and have the products to meet the current and long-term needs of our industrial customers. In multiple cases, customers that we’ve had difficulty engaging with two years ago are now meeting with us weekly. And these meetings review current operations and importantly often include planning sessions for much bigger initiatives yet to come. Division setting is complete and we’re in execution mode. Using hindsight, we made the right choices about where to acquire infrastructure and the capabilities and attributes of those assets. Our current and future customers recognize that as a result of the frequency of new customer signing and the size of the contracts involved are growing. Finally it's taken a lot of hard work from very talented and dedicated team of people who have kept their eye on the long-term goals that we are collectively set for FTAI. We set out to build a company where it leasing will cover our dividend and our infrastructure assets would provide long-term growth to increase that dividend. And I could now be more proud of our team and how we are positioned today. So with that, let me turn the call back to Alan.

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

Thank you. [Operator Instructions] Our first question comes from Justin Long of Stephens. Your line is open.

Thanks, and good morning. With the continued strength in the pipeline for Aviation and the plans for Long Ridge going forward, you just discussed now, could you provide an update on how you’re thinking about financing these investments going forward? And is there a possibility you would be willing to go beyond the 50% debt to cap ratio you’ve historically talked about as the ceiling?

Sure. So on the second question, I mean, to the extent we have non-recourse project level debt like where we talked about at Long Ridge, we would not count that in the 50%. And I don’t think that’s appropriate way to look at the leverage given that it's truly is non-recourse and it's project in particular investment like that where we might have little or no equity investment. We wouldn’t use that as a sort of a measuring stick. And we do intend to do a fair amount of project that, as I mentioned Long Ridge, we intend to do substantial amount of capital that way. If we secure contracts at Repauno for off takers LPGs, we would certainly do that. And based on the numbers we’re talking about we would be able to finance quite a bit if not all of the CapEx there. So I think for those assets, that’s how we would proceed. On the corporate side, we are increasing our revolver, we've up from $75 million or $125 million. We have nothing drawn on that today. So we have availability there. And we have very good access to the debt capital markets or bonds or trading of about 5% yield right now. So we have options on the debt side for the aviation portfolio. And its - this is not a rush for us to do anything on that anyway because those deals will be closing over the next two quarters, so sometime in the fall iss when we’ll look at the various options.

And secondly, I wanted to ask about the dividend, with the new Aviation FAD run rate that you provided and all the commercial development activity that you walk through, do you have any updated thoughts about when you could reach that 2 to 1 coverage ratio and potentially evaluate an upward revision to the dividend?

Sure. So based on what I've just laid out, it feels to us like we would cross that 2 to 1 lines sometime would be either between or including the fourth quarter of this year and the second quarter of next year, and that’s when we would look at it.

Thank you. Our next question comes from Devin Ryan of JMP Securities. Your line is open.

Hey great, good morning, Joe. How are you?

Good.

Good. I guess first one here on, on Long Ridge, appreciate all the color. It sounds like could well be a home run if you can sell us big and take out the initial capital there. So really, a two-part question here. So I guess, do you have any data points or comparables on sales prices or anything that we get some indication of kind of what you could get there, or are there already indications of interest? And then the second part is, obviously, it sounds like there is a lot of demand there in your 485 megawatt now scheduled. Is there a way or do you have the capacity to actually increase the size there. And if you could how large could you get?

Sure. So on the first part of your question is, there have been some recent transactions around 13 times EBITDA mix, we just announced sale of beyond as such that and some other private transactions for contracted deals and so that’s the key difference rather than merchant and so. In some ways our contracted power will be better than others. In that we will have fully contracted, not partially, so we are looking for 100% coverage. And we also have some interesting twist where we have some upsides to that and that we could, as we bring in tenants to the property, we could swap out some of the existing capacity for higher returning tenants and up the EBITDA further. So I think we could present somebody with a very nice profile where we have the 100% fully contracted with upside, which is pretty hard to get. So I'm hopeful that the market multiples, we could exceed those market multiples based on, I think, what we have is extremely attractive and what that’s what people said to us. So feeling good about that. And then, obviously, we had the same reaction, we said well 485, we could do this, why don't we maybe we should make it bigger and we’re studying that. So it's now without some issues as always, but we’re definitely looking at it.

And then just to follow-up here, I heard your commentary on CMQR and just need the level of demand for other assets in the market. I am curious just based of that dynamic, if we read that, is that makes you more of a seller versus a buyer or just, how we should think about that asset and maybe timing of your thought process there?

Well, as we’ve said in the past, we definitely, something we’re considering. And as the market is strengthened it's even more compelling. There are some strategic advantages for us to own that right now, but it’s definitely on our minds and something we will look at in, probably in the near future.

Thank you. Our next question comes from Christian Wetherbee of Citi. Your line is open.

Maybe want to start on Jefferson. It showed you went through a lot of potential opportunity there the terminal partner deal potential you, obviously, have been incurred by real contracts coming through. Can you just help remind us sort of how we think about sort of ramp or word install of the asset as we start to get into later this year and sort of 2019. Can you sort of help us with that EBITDA on [indiscernible] you talked about before?

Sure. So last time we've talked about the run rate of $40 million to $50 million at the end of 2019. And as I mentioned, a decent chunk of that revenue and EBITDA was coming from the new 800,000 barrels of storage, which is pushed out probably two to three months given the timing of getting steel with it. The announcement of the tariffs has caused some delays in the steel supply chain. So it’s probably, Q1 of that now to get to that level. And then beyond that, we’ve got the additional capacity, I mentioned coming on by the end of 2019, which is another jump up for us probably in two different stages. I suppose, the last time we wanted all together, but that would push us up close to the $70 million to $80 million range by the end of 2019. And so then -- and that is just fairly linear as you lay out storage additions from there as we did the last time?

I don't know if we get the extra timing there. Switching gears to the Aviation to get a sense the LOI number, obviously, has increased pretty dramatically as you talked about certain ramp up even if you stop making incremental deals in that space. And my guess is you’re not going to do that. So could you sort of just give us a sense of maybe what you think the ramp up on the LOI side could be in the back half of the year? And I’m guessing demand is still quite strong. I just want to get a sense of maybe how you just see that kind of playing out?

Well, I think, as I mentioned, we've got a very active pipeline, and the deals are looking bigger and better. So I’ve never tried to forecast CapEx because you never know -- you want to make sure you maintain your return requirements and you don’t force a deal. But it's very -- it’s a very good margin in spite of the fact that many of the segments of Aviation leasing, if you talk to other leasing companies, I’ll say, how competitive and how difficult things are and how much money is chasing deals. Most of that is for newer assets. And so in our space, we haven’t seen any change in the competitive environment as a matter of fact our presence and our ability to source bigger deals is getting better. So I’m pretty positive about the environment for investing.

That’s certainly make sense. Last question, just staying on Aviation for a minute, you've talked about the sort of choices you’ve made in terms of engine investment. And it clearly seems what you guys are in the right part of the market right now. We don’t get as much visibility into it, but can you give us a sense of sort of how you’re thinking about asset prices, maybe give us a sense of how asset prices have developed over the course of the last year, so you’ve made a lot of incremental investments or census, those investments that paid-off from asset depreciation as well as the income that's reporting off, but I just want to get a sense of how to think about that?

Yes, I mean, we look at our portfolio and we look at our price values and -- we’re -- I mean, it could be 30% to 40% higher than what we’ve paid in terms of - if you use that metric. So we’re well underway where I think assets which sell or where assets are valued by others. So very good on that and we continue to be able to source deals that way. I think that discounts by buying claims and getting rid of difference of buying planes that are sort of viewed as less attractive aircraft, but have great engines on them. So I think we should be able to continue to do that. One other way, if you look at lease rates, probably lease rate on 737 engine a year ago might have been 50,000 a month and today it could be 60,000 or 70,000 a month. So it's indicative of what we thought is that there is a lot of demand out there for the CFM56 and the V2500 engine, which is where we’re going to be spending most of our time in the next three to five years. With this I don’t really see how that changes in a negative way. I think it's really - it's very, very attractive market opportunity.

Okay. That’s great color. Thanks for the time. I just want to appreciate it.

Yes.

Thank you. And our next question comes from Ariel Rosa from Bank of America Merrill Lynch. Your line is now open.

Hey, good morning guys. This is really exciting rundown there, Joe. Maybe just on -- if you could do -- two big pictures here, not that the landscape, on the infrastructure side, it sounds like the ball space we in our court in terms of timeline of development and the size of the investment you’re going to be laying out. Can you just run through what are the incremental CapEx needs each of Repauno, Jefferson and Long Ridge, over the next 12 to 18 months, maybe?

Sure. So starting with Repauno, as I mentioned, the rail to ship loading system -- where first of all we are finishing the dock this year, which was roughly $60 million investment?

Yes.

So that’s in 2018, and it's mostly done. We have also applied for some grant programs for various pieces of development there, which we haven’t - I have nothing to report on yet, but I am optimistic we're going to get some free money here from somebody. And then next year, as I mentioned, the rail to ship loading system is approximately $70 million. And then that puts us in business in 2020 with LPGs direct from rail to ship. And then cavern program is $450 million and that is - that would be starting next year to spread over two years and then would put us in business in 2021 in the cavern side. And as I said, I think there is availability of people willing to sign long-term offtake agreements. And so if we get that, we should be able debt finance very attractively on project basis all of that, I hope. Second one was on Long Ridge?

Long Ridge, yes.

Long Ridge, we invested $4 million in our unit train and frac sand loading system, and that’s basically done. Then we're looking next at the pipeline from the fractionation plant and the rail loading system for LPGs, and I believe that number where I say was 60 also, that’s my recollection. So that would put us in the LPG rail loading business in the end of next year. And that’s it for frac sand and LTGs. Then the power plant, as I mentioned, it's roughly a $600 million investment. In that, we’re looking to do, as I said, debt financing on substantial portion of that I can -- I've been able to -- I would give a specific number, but call it a very high amount of that $600 million by the end of -- by the fourth quarter of this year. And then we would look to sell a half interest in that, in Q1 of next year. Then Jefferson is -- this year’s investment was$80 million, and that includes the 800,000 barrels of storage that I mentioned. Then next year we would be adding 1.2 million barrels of storage, which figured $50 a barrel, so that’s $60 million for that but end of dock is also $50 million or $60 million. Yes. That seems to be that -- everything $50 million or $60 million whether [indiscernible] dock. And then the pipeline project is $400 million and that would give us connections to market link in Zydeco and it also includes a new -- it includes additional storage and I forget the exact number of 2 million or 3 million barrels of storage. So that’s the $400 million. And again, I think, that spread out over the next two years and it should be financed all with debt.

Okay. That’s a really great rundown. And Jefferson, would you guys -- you obviously increased your equity stake this past quarter, would you guys be looking to take on a new partner? Is there any trick to get some of this financing in similar to how you’re doing at Long Ridge or what kind of intentions sounds like it is at Long Ridge?

It's possible. We have a couple of negotiations with new customers and anything vast about the availability of an equity stake as part of the deal. So we’re definitely, I think, that makes us a little more flexible than some of the other terminals in the areas. So I think we’re trying to use that and we’re definitely open to it.

Okay, great. And then just -- maybe you could talk me through the strategy of this or maybe explain to me kind of what are you guys thinking as in terms of the balance sheet? Obviously, you’ve been taking on debt at the parent level to fund Aviation purchases. Is there a reason that you guys aren’t instead looking to do that at the Aviation segment level?

Yes, we decided, I guess, three years ago to do -- to access the public markets for debt as opposed to the asset-backed market. And our experience in that has been the asset back markets become operationally very complex. It's much harder to time your financings, to sell assets when we want to sell assets, and go through the process of ranging asset by asset debt financing. In some cases, it looks cheaper and then ends up being more expensive. And most of the lease incomes as you see -- all the big leasing companies restarted in Aircastle in 2007, I think, we went unsecured and now all the leasing companies that’s what they do. So I think it's been proven to be a - our debt is traded at 5% and has no amortization and very few covenants. So it's really hard to beat that.

Got it, that makes a lot of sense. And then just a last question for me. You mentioned the fuel tariffs, maybe you could talk a little bit about your kind of broad view on political risk Nafta and Amlo taking control on Mexico. Is that -- has any impact on refine products to Mexico. And just kind of your broader view on tariffs and political risk.

Sure. So we've obviously watched Mexico and we've e been talking Exxon and others a bit. Their view down there and no one - initially, no one expected Amlo being elected. He did win by a wide margin. And now his focus seems to be on -- and he just announced last week that he wanted to put money directly into building at refining capacity, so Mexico can invest certainly less dependent on imports of refine products. Most people think that there is no way to get that done in his term. It’s a 5 to 10 year process at a minimum. And even if you did the amount of capacity that could add probably would only cover the growth in the market, not even touch the existing 800,000 barrels a day they currently import. So it doesn’t feel like that’s much of a risk for us or for the other people that are supplying in market, so that one seems okay. As I mentioned, other things that have hit -- steel prices went up 35%, just on the discussion and announcement of tariffs. And so that if we’re building tanks it's just hit us there in terms of price and timing. But the cost of a tank is more - much more labor than it is steel. So I think it's less than 15% the cost of the tank is steel. So it's not a huge impact, but it's kind of -- it is felt like unnecessary, but we’ve had there. On other things, ethanol has potential, some upside for us if tariffs come down in Europe in particular. Europe is always had a 25% import tariff on ethanol, which has made ethanol basically uneconomic for Europe. If that were to come-off then we could see a big jump in volumes there. So there are some pluses and minuses. And we’ve taken as they come and it seems to change week to week, but so far so good.

Thanks a lot. And thanks for run down there.

Thank you. Our next question comes from Robert Salmon of Wolfe Research. Your line is now open.

Hey, good morning, guys. Joe, could you give us a little bit more color in terms of the contract duration. As you've announced this morning as Jefferson kind of, if we're seeing longer contracts with the new counterpart is that repaying [indiscernible] deals?

Most of the bulk of them -- the contracts are in the three to five year range. There are some outliers that we haven’t signed yet, but there is one that would go 20 years. But high and large, I think, the market is the vast amount of the contracts duration in the three to five year range, which often times the thermal operators prefer that because there has been so much growth and demand that you've actually been - it's been an advantage to have renewals.

That makes sense. And terminal like you have got less available capacity when those renewals come up like it could be some pricing opportunities.

Yeah.

When I think about the terminal kind of longer term strategically and I already touched on this a little bit. You know clearly you bought out and now own about 80% of the terminal and it sounds like you’re willing to sell a stake for with a strategic partner. Would you ever contemplate the best thing at the entire terminal if the right opportunity came from the counterparty?

Sure, I mean, everything in our life has a price. So if we fell like it was a good return relative to what we could earn, absolutely, I mean that’s how I always tell our people to think about what will be the return if you were the buyer instead of the seller. And if you think that return is crazy low, then you should sell.

Makes a ton of sense. It will be curious to kind of see how things develop at the terminal but certainly a lot of great opportunities there.

Yes. It feels good.

Okay. Thanks. I’ll turn it over to someone else.

Thank you. Our next question comes from Robert Dodd of Raymond James. Your line is open. Robert, you may be muted.

Yes, sorry, I was muted. Couple of questions about the small businesses, obviously, CMQR, you talked about a little bit. Offshore as well, I mean the Pride is going through some refurbishment in that now maybe a higher value there flat afterwards. So is it both competitive opportunities and the capital rates with the other business is pretty small. I mean at what point do you think it's just not worth keeping them because of the extra overhead they put on new verses the opportunity of time or opportunity across the time looking at these other businesses, which have such large optionality?

Well, I mean, it’s a good play and we do look at it all the time. And I think that is probably something that should or could happen next year once we get the vessel repositioned into a much better market. So but the other thing is there is not a lot of overhead or costs associated with staying in the business. So it's pretty much. But you’re right, I mean, from a strategic point of view, relative to Aviation, it doesn’t make a lot of sense.

Got it. And then one quick one on the steel side of the tanks, have you -- in terms of construction delays at tanks like a little bit. Have you now looked down the supplier steel you need or …

Yes.

Yes, okay got it. Thank you.

It was -- the market was in sort of chaos for probably a month or two just everyone was scrambling and locking everything that could find up and sellers weren’t locking any prices, but its it has to stabilize.

Okay. Appreciate that. Thanks a lot.

Thank you. [Operator Instructions] And at this time, I would like to turn the call over to Alan Andreini for closing remarks.

Thank you, operator, and thank you all for participating in today’s conference call. We look forward to updating you after Q3.

Ladies and gentlemen, thank you for your participation in today’s conference. You may disconnect and have a wonderful day.