Aeronautical maintenance and aerospace products company FTAI Aviation is the subject of heavy accusations in a report by the Muddy Waters Research fund. The fund questions the veracity of the company's financial reports, leveling serious accusations at the allegedly misleading way in which it presents its results.
According to Muddy Waters, actual revenues from maintenance and sales of individual modules are much lower than reported. The research firm accuses FTAI Aviation of misrepresenting one-off engine sales as Maintenance, Repair and Overhaul (MRO) revenues in its Aerospace Products (AP) segment. It suggests that AP revenue growth is mainly due to the sale of whole engines, and not to genuine MRO activity. As a result, FTAI is artificially inflating the size of its MRO business. Since the third quarter of 2024, FTAI has stopped disclosing the number of modules sold per quarter, which, according to Muddy Waters, allows it to maintain its narrative - in reality, FTAI is not truly present in aerospace, at least not as much as it claims.
From this, the fund estimates that nearly 80% of the adjusted EBITDA of the company's AP segment comes from profits derived from these sales, mainly of whole engines. Muddy Waters considers that the AP segment is simply a leasing activity in disguise. The company argues that the engine business, which is inherent in leasing, is highly volatile, and that there is nothing sustainable or proprietary about it. Evidence also suggests that FTAI inflated its sales through dubious aircraft transactions in 2023.
Muddy Waters' analysis concludes that FTAI's current EBITDA margins are not sustainable. These exceptional margins are due to an accounting manipulation whereby the company depreciates the engines in its Leasing segment, even when they are not leased, but simply ready for use. These depreciated engines are then transferred to AP inventory, enabling FTAI to significantly outperform its competitors' margins. The company boasts EBITDA margins around 10 percentage points higher than its peers, including Boeing and GE Commercial Engines and Services, which have a considerably greater effect of scale.
As a reminder, the short-selling fund recently took on French company Eurofins Scientific last year, whose share price fell by 16.5%. The company's stock market value has continued to fall ever since.