A class action lawsuit was filed against FTAI Aviation Ltd. (FTAI) by Levi & Korsinsky on January 17, 2025. The plaintiffs (shareholders) alleged that they bought FTAI stock at artificially inflated prices between July 23, 2024 and January 15, 2025 (Class Period) and are now seeking compensation for their financial losses. Investors who bought FTAI Aviation stock during that period can click here to learn about joining the lawsuit.
FTAI Aviation is engaged in the ownership and maintenance of commercial jet engines. The company has a special focus on the maintenance, repair, and exchange (MRE) of CFM56 and V2500 engines.
The company’s faulty accounting practices and sales recognition techniques are at the heart of the current complaint.
FTAI Aviation’s Misleading Claims
According to the lawsuit, FTAI and two of its senior officers (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about the Company’s revenue, sales, and demand, from SEC (Securities and Exchange Commission) filings and related material.
For instance, during the Class Period, the company kept stressing the importance of adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) as a key performance measure. The metric helps the Chief Operating Decision Maker (CODM) to assess the company’s operational efficiency, and accordingly make resource planning and allocation decisions.
Furthermore, FTAI noted that the revenue in the Aerospace products segment was mainly related to the transaction price of repaired CFM56-7B, CFM56-5B and V2500 engines, engine modules, spare parts, and used material inventory. Plus, revenue was recognized only when the control of the asset was transferred to a customer. Also, revenue was recorded on a gross basis, along with corresponding cost of sales.
However, subsequent events (discussed below) revealed that the defendants wilfully misled investors about the incorrect revenue recognition techniques employed by the company to inflate its sales and adjusted EBITDA figures.
Plaintiffs’ Arguments
The plaintiffs maintain that the defendants deceived investors by lying and withholding critical information about the business practices and prospects during the Class Period. Importantly, the defendants are accused of misleading investors about the company’s current and expected financial performance.
The information became clear on January 15, 2025, when a Muddy Waters Research report alleged that FTAI had exaggerated the size of its aftermarket aerospace business by incorrectly recording one-time engine sales as MRE revenue in its Aerospace Products segment. In reality, FTAI undertook very limited repair and maintenance work on the engines sold. Moreover, FTAI lowered its cost of goods sold and overstated its EBITDA by incorrectly depreciating engines that are not on lease. Following the news, FTAI stock plunged by 24.3% on the same day.
Additionally, the report alleged that FTAI wrongly reported whole engine sales as individual module sales. For example, showing each whole engine sale as three separate module sales. Thus, leading to significantly higher module sale numbers, which incorrectly showed a higher customer demand for them.
To conclude, the defendants allegedly misled investors about the demand for the company’s products, sales, and adjusted EBITDA expectations. Owing to these revelations, FTAI stock has lost 32.2% so far this year.
