Q1 2024 AerSale Corp Earnings Call

Participants

Jackie Carlon; Vice President of Marketing and Communications; AerSale Corp

Nicolas Finazzo; Chairman of the Board, Chief Executive Officer, Division President - TechOps; AerSale Corp

Martin Garmendia; Chief Financial Officer, Treasurer; AerSale Corp

Gautam Khanna; Analyst; Cowen & Co., LLC

Ken Herbert; Analyst; RBC Capital Markets

Bert Subin; ANalyst; Stifel, Nicolaus & Company, Inc.

Michael Ciarmoli; Analyst; Truist Securities

Presentation

Operator

Good day and welcome to the Aircell First Quarter 2024 earnings conference call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Jackie Carlon, Vice President of Marketing and Communications. Please go ahead.

Jackie Carlon

Good afternoon. I'd like to welcome everyone to air sales first quarter 2024 earnings call. Conducting the call today are Nick Finazzo, Chief Executive Officer; and Martin Garmendia, Chief Financial Officer.
Before we discuss this quarter's results, we want to remind you that all statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements within the meaning of the federal securities law, including statements regarding our current expectations for the business and our financial performance.
These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors. It may cause our actual results, performance or achievements to be materially different from any future results.
Important factors that could cause actual results to differ materially from forward-looking statements are discussed in the Risk Factors section on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission SEC on March 8, 2024, and its other filings with the SEC. These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those indicated by the forward-looking statements.
On this call, we'll also refer to non-GAAP measures that we view as important in assessing the performance of our business. A reconciliation of those non-GAAP metrics to the nearest GAAP metric can be found in the earnings presentation materials made available on the Investors section of the Aircell web at ir dot AirSeal.com. With that, I'll turn the call over to Nick Finazzo.

Nicolas Finazzo

Thank you, Jackie. Good afternoon, and thank you for joining our call today. I'll begin with a recap of the quarter and our strategic objectives before turning the call over to Martin to review the numbers in greater detail, we're off to a good start in 2024, driven by stronger feedstock acquisitions in the back half of 2023.
This facilitated whole asset sales and increased USM volume and was supported by continued strength in our TechOps segment as commercial MRO demand remains robust. This translated to first quarter revenue of $90.5 million, which was up $15.7 million from the first quarter of 2023 and also led to stronger profitability as adjusted EBITDA grew 80% year over year to $9 million.
As we remind investors, every quarter due to the nature of our business and the impact of whole asset sales. Our revenue levels tend to be volatile quarter-to-quarter, and we believe our business is best assessed based on aggregate performance over a longer period of time with a focus on MRO activity, feedstock levels and our unique business model that enables us to extract significant value from our inventory.
At the segment level and beginning with asset management, first quarter sales were $59.3 million, which increased 22.4% year over year. Stronger revenue in the first quarter of 2024 stemmed from higher flight equipment sales of $38.6 million compared to $27.7 million in the year ago period. Excluding whole asset sales in the period segment local sales were relatively flat as lower leasing revenue offset gains in USM volume. In the quarter, we sold one aircraft and four engines compared to two aircraft and one engine in the year-ago period.
Commercial demand remained strong and is particularly elevated for USM. Airline traffic and capacity continue to operate above pre-pandemic levels, which is a strong indicator for our business. That being said, the supply side remains challenging given OEM production and delivery delays, which substantially limit our ability to acquire feedstock.
Regardless, our primary competitive advantage is in our purpose-built end to end solution, which enables us to drive asset value from feedstock across various segments of the supply chain. As asset availability improves, we're ready to move decisively on acquisitions.
To date, we've acquired $31 million of feedstock and have an additional $52 million under LOI in our US and parts business. We continued to realize the benefits of better feedstock acquisitions in the second half of 2023, specifically in engine USM, which grew more than 30% year over year in the cargo market, the environment continues to be under pressure as we saw during 2023 as the strong demand that carried through the pandemic unwinds and cargo shipping normalizes, we expect these conditions to persist for some time, but did see incrementally positive movements in quoting activity and customer interest in our seven 57 freighters in the first quarter.
As of quarter end we have one converted seven 57 available for sale with six more that will complete the conversion process through the remainder of this year.
Finally, in our leasing portfolio, full year sales declined by approximately 45% as we had fewer assets under lease during the period and no aircraft on lease in the first quarter of 2024 compared to one aircraft in the prior year that was subsequently sold. We expect to see an increase in leasing activity as more engines become available and placed on lease this year, resulting from increased feedstock availability.
Turning to our TechOps segment, our MRO facilities were busy during the quarter. Sales improved across all of our facilities with additional growth from the sale of components by our off-airport MRO shops, which includes landing gear, thrust reversers and other complex assemblies.
As a result, segment sales were $31.3 million compared to $29.8 million in the year ago period. We anticipate continued strength throughout the forecast period because of a supportive end market as we look to increase our MRO business beyond the current run rate. We see growth opportunities on component MRO, heavy MRO and Aerostructures. In our Goodyear heavy MRO, we're realigning our operation our operations to create additional facility capacity for heavy maintenance activities, coupled with a significant initiative to increase the availability of train mechanics.
We have been actively recruiting and training new employees for our on-airport heavy MROs, which has been assisted by awards of over $2 million in state and federal training grants this year. We also expect to commence operations at our on-airport heavy MRO facility in Millington tenancy in the third quarter and anticipate this facility to be a positive contributor in the latter half of 2024 and beyond.
In our component MROs, we're winning new contracts that are generating recurring and predictable revenue, utilizing existing facility capacity to significantly grow these business units.
Next, I'd like to provide an update on our Engineered Solutions business, beginning with Airwear in the first quarter we continued our go-to-market efforts and all five of the written proposals we made remain outstanding and under consideration since we reported these in March, we continue engagement with these customers and notably, we've had incrementally positive discussions with several as it relates to safety enhancement that enhancements that Airwear provides across the airline system.
The pandemic lead to early retirements of commercial pilots and experience levels have decreased as new pilots are brought online. Airware can enhance safety under these circumstances and has been a focus area with potential launch customers beyond the ROI associated with decreased diversions and ground stops. This has led some discussions to expand well beyond the original scope. All of the proposals remain under review, but we consider this enhanced focus on the safety profile of the AIRWARE system to be a meaningfully positive note to our overall market acceptance of this product.
Besides the existing proposals we've made, we're engaged with three new operators who have expressed a requirement for their seven 37 as word spreads throughout the industry. There is also interest in other aircraft models, including the ET-3 20 wide bodies and regional aircraft concurrently with our go-to-market strategy.
In April, we successfully demonstrated our AIRWARE ground and flight training program to the FDA, which included classroom and flight training of six airline and for Epic a pilot. Once our AIRWARE training program is published by the FDA, it will be the first and only FA. validated training program covering operation of a seven 37, incorporating an enhanced flight vision system. Although a validation of this training program was not a requirement of our STC., it will assist in the adoption process for airlines that install AIRWARE in their fleets.
Besides AIRWARE, we've increased our marketing efforts for aerospace, our SDRSTC. product covering fuel tank flammability operators that do not have an existing system to prevent fuel tank explosions must provide a means to mitigate a potential electrical short in the wiring of an aircraft steal quantity indication system from causing a catastrophe installation of Air Serv complies with this requirement with regulatory compliance deadlines for different aircraft types running through 2026.
We expect increasing sales of air safe throughout the balance of this year and into 2026 with sustainment sustainment sales lasting the life of a given airframe air safe is approved for the Boeing seven 27 seven 37 seven 57 seven 67 and triple sevens and the Airbus A. three 20 family of aircraft.
In closing, we're off to a good start in 2024 and end market demand remains strong. Our team is working hard to maximize the ROI on feedstock we've acquired, and we continue to evaluate additional opportunities amid a challenging supplier environment.
Meanwhile, meanwhile, we're working diligently to advance conversations with potential customers for our Engineered Solutions products. I want to thank our dedicated employees for their hard work and our investors for their continued support. We look forward to updating you on our progress.
Now I'll turn the call over to Martin for a closer look at the deep, a closer look at the numbers. Martin?

Martin Garmendia

Thanks Nick first quarter revenue was $90.5 million, which included $38.6 million of flight equipment sales comprising of one aircraft and four engines. Our revenue in the first quarter of 2023 was $78.3 million and included $27.7 million of flight equipment sales consisting of two aircraft and one engine, excluding flight equipment, the Company continued to demonstrate underlying growth as our base revenue increased to $51.9 million from $50.6 million in the prior year.
As we have pointed out in the past, flight equipment sales fluctuate significantly from quarter to quarter, and we believe monitoring our progress based on asset purchases and sales over the long term is more appropriate. First quarter gross margin was 31.8% compared to 31.2% in the first quarter of 2023, largely due to the sales mix in the first quarter, which included additional higher-margin flight equipment sales.
Selling, general and administrative expenses were $24.1 million in the first quarter of 2024, which included 800,000 of noncash equity-based compensation expenses.
Selling, general and administrative expenses were $25.2 million in the first quarter of 2023 and included $2.7 million of non-cash equity based compensation expenses. First Quarter 2024 income from operations was $4.7 million, while loss from operations was 800,000 in the first quarter of 2023.
Net income was $6.3 million in the first quarter compared to 5,000 in the first quarter of 2023 adjusted for noncash equity based compensation, mark-to-market adjustments of the private warrant liability and facility relocation costs. First quarter adjusted net income was $5.5 million, while adjusted net income was $3.3 million in the first quarter of 2023.
First quarter diluted earnings per share was $0.12 compared to $0 earnings in the first quarter of 2023. Excluding the adjustments mentioned first quarter, adjusted diluted earnings per share was $0.11 compared to $0.07 for the first quarter of 2023.
Our adjusted EBITDA was $9 million in the first quarter of 2024 compared to $5 million in the prior year. The increase in adjusted EBITDA was primarily due to the increase in flight equipment sales. Cash used in operating activities was $21.5 million, primarily as a result of cash deployed to increase inventory availability.
As we look to the balance of the year, we expect to see continued demand in our tech ops segment, driven by a healthy commercial backdrop and several contract wins that will allow us to benefit from our available capacity we also remain focused on monetizing the inventory we have on hand from a stronger feedstock environment in 2023.
While the current supply side for feedstock remains challenged, we have a healthy pipeline of deals recently completed or in process to drive volume through 2024 and into early 2025. We continue to make progress on our go to market with AIRWARE and anticipate air safe will be supportive to our results as the year progresses.
With that, operator, we are ready to take questions.

Question and Answer Session

Operator

(Operator Instructions) Gautam Khanna, TD Cowen.

Gautam Khanna

Hi, good afternoon, guys.

Nicolas Finazzo

Good afternoon, Gautham.

Gautam Khanna

Hey, I had a couple of questions. The first, I was wondering if you could comment on whether you see any used equipment monetizations in the second quarter and what your visibility is for that in general in the for the remainder of the year?
And if you could just update us on like the seven five sevens, in particular, as part of the yes.

Nicolas Finazzo

We have no pending sales or transactions involving the seven 50 sevens for the second quarter. And as far as other equipment sales I mean, we are selling other In others, we are selling engines.

Martin Garmendia

I mean that's typical for golf, and we're seeing a very supportive overall market. We are definitely already in negotiations for several engine sales on that we've acquired overall in the overall portfolio. So we expect to see continued growth in the whole asset opportunities in Q2.
And again, we're also working on opportunities in Q3 and Q4. We're also starting to monetize inventory through the USM line. So we saw some modest increases in the USM sales in Q1, and we expect that to continue through Q2 and then start getting even better through the latter part of the year.

Gautam Khanna

Okay. That's helpful. And just curious on the Airwear product and the content, the customer consideration of it, is it like we have you can you had worked with a with the hoped for a launch customer while it was being developed? What do you think is sort of the hesitation on the side of customers pulling the trigger? And maybe if you think it's a function of price, is it a function of ability to train what is sort of the sticking point?

Nicolas Finazzo

Well, I wouldn't characterize to you. I don't think we have a sticking point. I just think it's a process. It's a it's it's very complicated. It involves, you know, multiple facets of the airline from our pilot training as a finance operations planning engineering. And if you look across the industry today, the things that are going on are very distracting to pretty much everybody.
We're talking to certainly all the domestic airlines that we're talking to, which on the one hand, he's done a little frustrating, but on the other. I think that I think that the safety aspect of our system could be a catalyst to to get a number of these of domestic airlines that are focused on things that they can do to improve safety to accelerate the process of getting of organizing all their people together.
At the same time, too, take advantage of a system that will actually enhance their safety and potentially avoid some of the issues that airlines are having today.

Gautam Khanna

And have your pricing expectations for the product changed just given what you've learned over the last several months? Or do you still think it's going to confirm the level of unit price and gross margins you guys have spoke about in the past?

Nicolas Finazzo

So we previously said 2.5 years ago, we previously stated that our but our list price for our system was about $700 a total of about $770,000. That included our portion which was about $300,000 in Elbit's, which is about $370,000. And we are let our list price today is $1,495,000. I think and obviously that's for both Elbit's portion or universal L, that Universal's portion and air sales portion.
Now the obviously we feel that if we get a launch order that will and we get a multiple aircraft order, we can we can discount that price. So we've we've done we've got we've got room there. As I've mentioned previously, our cost in the system is is still in line with our original expectations.
So we're optimistic that we can deliver this at this product at a at a price that and that the airlines will find attractive. And we don't think there's a competitive system out there. That's a they're available today. That does what our system does. And when they become available, we believe they're going to be much higher price than the system we have.

Gautam Khanna

Okay. That's helpful.
I appreciate it.
I'll get back in the queue. Thank you.

Nicolas Finazzo

Thank you, thanks Gautam.

Operator

Ken Herbert, RBC Capital Markets.

Ken Herbert

Yes, hey, good afternoon, Nick and Martin.

Nicolas Finazzo

Afternoon.

Ken Herbert

Hey, Nick. Maybe just wanted to first start on AIRWARE. You've indicated that you're waiting for of some of the manuals and the training documentation to be published by the FAA. Do you have any update on timing on that? Or can you give us any more expectations around sort of how that maybe could play out over the next few months?

Nicolas Finazzo

Yes. I actually think that's a that's very it's a very short in process. So we finished we finished the on the demonstration, which included again ground school training for for 10 pilots and then flight training, we were going to do two. That's five sets of crews. I think we ended up doing four and then they were satisfied that they had done that we passed.
And so the processes, the FA reviews that whole that whole our flight training manuals, the whole process, the ground school training and they they recommend basically they called validation. They recommend validation of our system. And probably we've been told our system meets the requirements and they're going to set it for publication.
I don't know if it's been published yet though, and I'm not exactly sure where it gets published, but it gets published then there's a comment period for anybody who wants to make a comment about this about the publication of the validation of our system and then it just automatically becomes validated. So I think I think that that will likely occur within the next 30 days.

Ken Herbert

Great. And then do you see beyond that, do you see any other sort of significant roadblocks to a potential initial order? Or is there anything else that the airlines could be waiting for?

Nicolas Finazzo

I don't I don't think the airlines waited for that. That was something that we always told them that we were going to work on and more larger airlines could have done that on their own. We just made it easier for them, smaller airlines, it's more difficult. That's actually why we didn't spend the money to do it.
So on impediments to getting this system in across the board, everyone, we're talking to how are we going to implement it into our simulators and how long is that going to take?
Okay. We've got your FA validated flight training program, subject to publication. See lots of questions across a number of airlines on the safety aspect of the system. And again, I think that that's a little bit being of the catalyst here is what's just going on in the industry and the heightened the heightened amount of thought of attention from the industry is getting from things.
Candidly, that happen every day and have been happening every day for a long time. Just they're just getting a heightened level of security do it due to a few events. So everybody is focused on on that and done and that we've had customers potential customers. One of the three that I mentioned earlier. And new customers actually came to us because they heard about the system and they're interested in the safety aspect.
So it I don't think there's any impediments to moving forward other than the process of getting it installed in the system and they're getting it installed in their simulators and integrating it into their flight manuals by training manuals, and figuring out when and how long it's going to take for the system to get up and running price has not been an issue in our discussions at this point.

Ken Herbert

Okay.
Great.
Very helpful.
And I guess that was just my final question would be first, what looks like almost basically a doubling in your list price, so to speak at that higher price. Does that how much how much of that drops down to your gross margins and how much of that reflects just maybe higher costs than you envisioned when you first started to talk about this too, to bring this system to market.

Nicolas Finazzo

Our customers would love to know that information. So I'm sorry, can I can't answer so far?

Ken Herbert

I appreciate that. And I think I'll get back in the queue.

Nicolas Finazzo

You're welcome.

Operator

Bert Subin, Stifel.

Bert Subin

Have a good afternoon and appreciate the questions. Robert And Nick, maybe just to start out, I guess if we go back three months, you guys were to stop providing guidance on. It seems like you're sort of off to a good start here in '24 and you're acquiring feedstock maybe a little less than you'd like, but you're acquiring it. And it sounds like you're starting to get a handle on sort of monetizing a good portion of the inventory outside of the seven five sevens.
So with that in mind, I guess would you agree that maybe relative to three months ago, your visibility is improving? And is there anything in terms of forward thinking commentary you can provide about how to think about the rest of the year?

Martin Garmendia

I think our definitely our it's overall improving. We feel strong on the inventory position that we have. We have $350 million of inventory. We have another $50 million of feedstock. So that definitely giving us some support on kind of the forward projections. We still have the variability and timing of flight equipment sales and whole asset between whole assets, USM or leasing.
So we're still trying to kind of have a better grasp on that kind of overall. We're also very optimistic on what we're seeing in the pickup side of the business. We have a lot of capacity that we're starting to utilize at our component MRO is aerostructures landing gear facilities.
We're getting new contracts that are starting to give us more of a backlog of work and once that becomes more established, we'll have a greater visibility into that overall unit. We have initiatives to increase our heavy MROs by adding additional labor and also kind of reconfiguring some of the facilities to have more more more asset flow through those facilities.
So we feel really good on the overall dynamics. I think this year we're starting to capture all of that and get that better visibility. So we expect to definitely have improvements. As far as providing guidance, we probably won't return to that until the business kind of grows. We see more establishment in some of these new aspects. And frankly, whole ASSETS becomes a smaller part of the overall business.

Bert Subin

Got it. Okay. On the, um, I guess the other piece of that inventory that the freighter side TransDigm posted the earnings call yesterday and called out sort of the weakness in freighters as a result of what they're seeing in belly capacity and how does that make you think about those assets? Is it is it still just sort of a wait and monetize those as cargo rebounds? Or have you started to think about other alternatives.

Nicolas Finazzo

So once we made the investment in the airframes to convert them to freighter and basically take them, do heavy checks and landing gear, et cetera, you know that there really is no better option for those airframes at that point than to wait it out and put them in the freighter market now to mitigate to mitigate the delay associated with when the freighter market returns.
And again, that seven 57 is a nice freighter. We are we are looking at placing the engines off those airplanes, which is in very very high demand, putting those engines on lease with with different carriers, the risk that we face with that as we put the engines on lease and then for whatever reason we can't get them back in the time that we need then and it would impair our ability to put the aircraft out.
So we're doing a little bit of a balancing act because we have we have seven airplanes that will be available this year. We feel we can take that risk with some of the later deliveries until we see we get.
Let's say we get three or four delivered then then if we have aircraft engines on lease, we should have sufficient time to pull them back to accommodate any future requirements.

Martin Garmendia

If I could add. I mean, what we're seeing right now and kind of some of the increase that we're receiving market information that we have providing estimated values on the seven five, seven we have a good book value position on those assets. And definitely not at this point, we can afford to wait for the highest use or the highest monetization strategy, which we deploy those as far as passenger freighter assets into the cargo market, either through lease or through sale.

Bert Subin

Got it.
Okay.
I've got one final and then just a clarification. But um, I guess broke from my last question here, Nick, just as you think over time, you know, you've been in this business a long time and you've seen a lot of different cycles. And it seems like right now the aftermarket cycles really looking favorable in that sort of a consensus expectation and extending out.
As you think about that in the context of your USM. business that's maybe not performed as well just broadly across the energy because it's tough to get feedstock in that feedstock. It's priced at a higher rate where do you think we are in the USM. cycle? Do you think that is countercyclical and gets better at aftermarket starts to weaken because of retirements? Like what do you expect out of that business over the next few years?

Nicolas Finazzo

I think the I think the U.S. and availability will continue to be constrained because we're seeing so few aircraft today that things that like what do we want, say three, 27, 30 sevens, we're not seeing any seven, 67 reaching the retirement age where they're being parted out. We have we have acquired some seven 40 sevens for their engine value that's wide body in that.
And that is primarily those engines will feed seven, 67 freighters and passenger aircraft. And but we're not seeing unless an airline is retiring a fleet of aircraft, like as an example, we're buying a bank for seven 47. Now we closed on the first one.
We don't we don't I don't expect to see any significant improvement in the availability of aircraft for that will eventually become US and parts unless and I've said this multiple times over the last several quarters unless the flight equipment is so run down if you need to do everything to it at landing gear overhaul, APU overhauls and airframe overhaul engine overhaul and then.
And then what we're finding is we're finding that we're buying an aircraft with multiple of those problems are just an airframe or just an engine that needs to be fixed what we're doing with that is we're because we're buying in volume all of these things. And because of our ability to extract value in multiple ways, we cobbled together the We cobbled together engines and airframe using the best engines and aircraft using the best pieces from the inventory that we have from the feedstock that we acquire.
So that's our advantage and that's why we're able to continue to buy in a in a very in a very, very competitive market, candidly, when when we it's by the way, and it's not that we're not bidding we're bidding. And so we're very we're very careful on our bidding. I think we bid on them and we bid on over $500 million worth of feedstock and in the last quarter and we closed on a $15 million of it roughly under 3% win rate.
Typically our win rate is about 10%. So that tells you how competitive the market is just because it's competitive, doesn't mean that the people are winning, those deals can make sense out of it if you're buying it because you need the material, you're an engine shop or you're an airline and you're keeping a piece of equipment.
Okay, that's different. You're not buying that for resale. You're buying that for your own consumption but if you're buying it for resale and you don't have the ability to extract value in multiple ways. I think it's I think you're severely challenged on acquiring feedstock. So it's a complicated answer to your question, which is how do I foresee this the feedstock market in the U.S. end market in the coming years?
What I foresee is it will continue to be a challenge for people who can't extract the kind of value out of it. We can it will be diminished from normal because it's an over competitive market. I don't even think it's a rational market. I think it's irrationally over competitive.
What's going to change when the new airplanes catch up May three, 20 engine problems are solved and more of the new aircraft will get delivered and this isn't new. This is new information. And I've said this multiple times before we will see a Powerwave of flight equipment are kind of stuff come in, come into being and we'll we'll be positioned to pounce on that and have the infrastructure to again figure out how to extract value out of out of all the pieces and done.
And so I think the best is coming yet for us that whatever we're whatever we're seeing today and is growing is going to it's going to be dramatically better when the when the when the when the aircraft problem, the new aircraft problems are solved.

Bert Subin

Thanks Nick. And just the clarification on some of your earlier AIRWARE comments have you started the process for approval with the with international regulators and for the three 20.

Nicolas Finazzo

Not yet on the A3 20.
But yes, on the international regulators in multiple jurisdictions.

Bert Subin

Thank you.

Nicolas Finazzo

You're welcome.

Operator

Michael Ciarmoli, Truist.

Michael Ciarmoli

Hey, good evening, guys. Nice quarter. Thanks for taking the question here. You just said I think you bid on $500 million in the first quarter. How does it how does it look and quarter to date? I mean, are you still as active?

Nicolas Finazzo

Well, we're still we're still?
Yes, we are still active on looking at everything and on and I would tell you that our hit rate is no better.

Michael Ciarmoli

Okay.
Has the documentation issue? I know that came up last quarter and even at the MRO America's show a lot. A lot of guys are saying you don't even much buy the equipment you really are paying for the accurate documentation. So what's sort of the update there?

Nicolas Finazzo

It's the same. We continue to do SaaS. You know, the records condition of pretty much everything we look at in almost every case, the records that we see have deficiencies. And we have we have developed an AI tool that we've been working on for a year where we can take a records package now and what would normally take us a week to do can about four hours. We can take an engine. We can run it for our power systems and four hours. We can get a full summary of everything we need to know about that engine.
And what does that do for us? That one, it allows the limited amount of resources that are available to review records do instead of assemble the records and figure out what the condition of the records are and what's missing a week to do that. A computer could do it in four hours or AI. does it in four hours spits out the report?
I wouldn't otherwise take one of our people a week to do and that person can now focus on solving the problems that exist immediately rather than spending a week just to understand what the problems are. So that's a significant investment we made to facilitate the yes, to facilitate that the rapid review of records and to help solve some of these records issues they exist. It's just they're always going to exist and done. The key is how quickly, can you get through them and you can get your people focused on fixing them.

Michael Ciarmoli

Got it.

Martin Garmendia

That Mike and Nick, that I noted in the in the meeting, if anything that's a competitive advantage that we have. We have the expertise, we have the records team that can actually go through this material and make sense of the other competitors might just move away from it. So we can work with counterparties to clean up those records and come through it.
And if we can't, we adjust the pricing a fairly. So if we cannot do not have the records. We do not pay for those that material. And subsequently, we continue to work on it to see if we can fill in the gaps and sell that material. So if anything, that has a competitive advantage and in this market where feedstock is more limited, having, that ability is absolutely something that we are. We are proud of and we're making investments to continue to support.

Michael Ciarmoli

Got it. That's helpful. And then, Tom, I don't know if this, Nick or Martin, and I don't know how much until you want to give up share, but out of that inventory, that $350 million significantly higher than it's been and you've got $50 million of feedstock added to that can you give us any color in terms of how much is readily available for sale right now versus something like the seven five seven?
Can you even slice it in terms of do you have X amount of value or percentage in whole assets versus more sort of U. S and piece parts or components? And then I guess it would just I mean an update on how many aerial work that you have and kind of how much of that's reflected in the inventory?

Martin Garmendia

So overall, from a meet me to go through all the overall points of our air safe kits. We have 150 kits overall. I can't provide you an overall lack of inventory value for that for competitive reasons. But there are 150 kits in that in that overall, number seven, five seven, we've noted we have nine assets have a better, better 12 car.
We have seven assets, one was that's ready and another six that are in process that those inventory costs are there. It's that's a mixture of the airframe value and the engine value. I can't give you those specific amounts either for competitive reasons, as we've given out the numbers we're giving you $1 value with nearly no matter what our net book value is there.
But I think we made the comment earlier. We feel confident in the position that we have in the book value of based on what we're seeing in the market that we can monetize those assets going forward.
As far as the breakdown of overall inventory, as a reminder, our whole assets are pretty much assets that are being evaluated to either be monetized through U.S. and coal asset opportunities or leasing of what I can tell you about three-quarters of that inventory value is engine material that's readily available. We have a variety of engines, CFM56 CF6 80 VW's RB to 11 cities engine materials, not readily currently 2,500 overall engines, flight equipment materials on copper is that a lot of that is still with.
Yes, debt of material that is being processed. And as Nick was noting, some of that is in process of the USAA channel in engines, we're definitely seeing a slowdown in our ability to monetize that, which is a good sign. That means that there's a lot of demand for that material, which is why it's taking longer for us to get that through the system overall.
But we also have bought with an amount of feedstock that we bought last year, inventory to replenish our inventory portfolio. So we already have opportunities of various engine types to add those into the leasing portfolio. We're starting to deploy those out. We've added a couple of already in the current quarter. We have more that are available and we're starting to see demand. We have about 10 additional engines that are in repair that will come into that leasing portfolio.
So what I expect to see in the remainder of the year is we're going to see growth in our engine leasing portfolio because we'll start monetizing some of those assets from a U.S. perspective. We're also going to be monetizing at a faster rate. We started seeing a pickup during March. We expect the second quarter to be comparable to Q1, and that's just are seeing a more a stronger growth in the second half of the year.

Michael Ciarmoli

Got it. That's helpful. On last last one for me. I know you don't want to disclose the margins on a Airwear with the updated pricing, but I know you've been building needs kits for quite some time. I mean, assuming we get new orders, is it realistic to think that the drop through is significantly better on the these first 150 kits. And it seems like you're ready to go. You just have to they have the labor to print the install. Is that should we get maybe a disproportionate margin benefit on these first ones go out the door?

Nicolas Finazzo

I think we'll get a better margin profile for the ones that are made after the first months because I think I don't think we did it. I'm very happy with our cost by the way, but I think that there's it can be done more efficiently than we did it in-house. I've got it because they're not concerned about the margin, the gross margin that we can make off of the after the sale of the kits as far as <unk>.
And again, we're not we're not going to reveal drop through at some point when we start you start seeing AIRWARE sales. We'll talk about how many or where sales that we make. And I guess, yes, I guess we'll talk about what we'll do is we'll disclose gross dollars forward and margins. You're probably not going to see. I think you'll see the margin in our tech side, maybe you'll see them maybe you'll see the dollar margin, but it just that's really tough to start disclosing that type of level.
Yes, critically we are negotiating with renegotiating with the industry.

Michael Ciarmoli

Understandable.
All right. Perfect.
Thanks, guys. Appreciate it.

Operator

Ken Herbert.

Ken Herbert

Yes, hey, Martin. I maybe just wanted to follow up on a comment you made earlier in the call. We're sort of five to six weeks here into the second quarter, and I can appreciate you don't want to give any sort of full year guidance, but it sounds like you were just commenting that second quarter EBITDA.
I think it wasn't clear if that was for the company or particular segment, but second quarter EBITDA looks very similar to first quarter EBITDA that I get that correctly with maybe a more pronounced step-up in the second half over the first half?

Martin Garmendia

No, that comment was specifically to USM. sales overall. Okay. I mean because some activity improving, probably Q2 will be similar to Q1 activities. And then as more material flows through specifically engine material. We'll see an acceleration of that through the remainder of the year.

Ken Herbert

Okay. But are you any sort of high-level views on on EBITDA in the second quarter and sort of maybe expectations relative to first quarter or just anything you can help with as we think about sort of the setup here near term?

Martin Garmendia

Yes. I think we won't provide any specific financial guidance overall, what we can say is we are seeing good opportunities in all sides of the business. We're starting to see aerospace sales that Nick mentioned in his in his remarks. So we're starting to see that contribution flow through the P&L. We're seeing the pickup in our component MROs that we've talked about with some of the new contract sales.
So we're expecting improvements there. And then from the asset management side, we've already done some deals related to engines. So we expect full asset whole asset sales in the second quarter. And you assume, as I noted, of being overall and you will start seeing some increase in leasing, but that also will be a stronger acceleration starting in Q3 Perfect.

Ken Herbert

Thanks, Martin.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Nick Finazzo, CEO. Please go ahead.

Nicolas Finazzo

I want to thank got them, Ken Burke and Michael for the good questions because it really does help our investors better understand our business. So thank you, guys, for everyone else. We appreciate you listening.
To our call today and for your interest in AirSeal. And I hope everyone has a good day.
Good day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.