How Palantir and GE Aerospace Helped FTAI Aviation Stock Soar in January

Aircraft engine maintenance company FTAI Aviation's (NASDAQ: FTAI) surging stock price is driven by deals with Palantir (NASDAQ: PLTR) and GE Aerospace (NYSE: GE). According to data provided by S&P Global Market Intelligence, the stock rose 38.3% in January and is up 173% over the last year as I write. Here's why.

Three reasons why FTAI stock soared

The move comes down to three fundamental, and interconnected, drivers. First, in November, FTAI announced a multi-year strategic partnership with Palantir, a leading AI company. The partnership will allow FTAI to use Palantir's Artificial Intelligence Platform (AIP) to enable AI-assisted decision-making to improve productivity, including managing inventory and scheduling maintenance for equipment worldwide.

Second, in late December, FTAI announced the creation of FTAI Power, a move that pivots the company toward becoming a provider of critical infrastructure equipment for data centers. FTAI is best known for maintaining and leasing aircraft engines such as the CFM56 (an engine made by GE Aerospace's joint venture CFM International), but FTAI Power will convert CFM56 engines (used on legacy Airbus A320 and Boeing 737 aircraft) for use as power turbines for data centers.

The deal with Palantir provides FTAI with the digital infrastructure to better manage the transition to converting engines, deal with its supply chain, and predict when the turbines will need servicing.

Image source: Getty Images.

FTAI Aviation secures the future of its core business and FTAI Power

Third, in late January, FTAI signed a multi-year agreement with CFM International, under which CFM International will provide FTAI with components and support for CFM56 engines. Not only will this help ensure FTAI's core business (servicing and repairing aircraft engines), but it will also derisk FTAI Power, as it needs to secure parts for converting into data center turbines.

The deal is also good news for GE Aerospace because it ensures the sale of CFM56 components and allows it to focus more on developing its services business for the CFM Leap engine (a newer engine on the Boeing 737 MAX and Airbus A320neo family of aircraft).

There's also a sense that the CFM deal validates FTAI's business model, because while the two do compete to service engines, FTAI also helps extend the life of CFM56 engines, and CFM can still sell high-margin parts to FTAI.

Image source: Getty Images.

Where next for FTAI Aviation?

Converting aero-engine technology to power turbines is not unusual, as GE Vernova has long made aeroderivative turbines (power turbines based on aero-engine technology). Moreover, the market's appetite for AI/data center infrastructure and aerospace equipment companies means FTAI's valuation (trading on 41 times forward earnings estimates) is fully in line with events. Still, the stock will attract investors looking to buy on any significant market weakness.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Boeing, GE Aerospace, Ge Vernova, and Palantir Technologies. The Motley Fool has a disclosure policy.