Willis Lease Finance Corp 10-Q for FY2023 Q1
Willis Lease Finance Corp (WLFC)
10-Q
2023-05-05
For: 2023-03-31
View Original
Added on
April 04, 2026
About this 10-Q
Willis Lease Finance Corp filed this 10-Q on May 5, 2023, covering the quarter ended March 31, 2023 (FY2023 Q1).
Headline figures
Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $89.54M
- up 30.1% from $68.82M a year earlier
- Net income
- $4.39M
- compared with a net loss of $21.2M a year earlier
- Diluted EPS
- $0.55
- compared with -$3.70 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended March 31, 2023
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
Commission File Number: 001-15369
______________________________________________________________________
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
Registrant’s telephone number, including area code (561 ) 349-9989
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of exchange on which registered | ||||||||||||
______________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☐ | ☒ | |||||||||
| Non-Accelerated Filer | ☐ | Smaller Reporting Company | |||||||||
| Emerging Growth Company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of the registrant's Common Stock outstanding as of May 2, 2023 was 6,353,336 .
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
INDEX
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain forward-looking statements, including, without limitation, statements concerning the conditions in our industry, our operations, our economic performance and financial condition, including, in particular, statements relating to our business, operations, growth strategy and service development efforts and potential impact of the COVID-19 pandemic on the Company's business, operating results and financial condition. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements so long as such information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information. When used in this Quarterly Report on Form 10-Q, the words “may,” “might,” “should,” “estimate,” “project,” “plan,” “anticipate,” “expect,” “intend,” “outlook,” “believe” and other similar expressions are intended to identify forward-looking statements and information. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking statements are based on estimates and assumptions by our management that, although we believe to be reasonable, are inherently uncertain and subject to a number of risks and uncertainties. These risks and uncertainties include, without limitation, those in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (“SEC”) on March 10, 2023, this quarterly report on Form 10-Q for the three months ended March 31, 2023, and our other reports filed with the SEC. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. Reference is also made to such risks and uncertainties detailed from time to time in our other filings with the SEC.
3
PART I — FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)
| March 31, 2023 | December 31, 2022 | ||||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
Equipment held for operating lease, less accumulated depreciation of $ | |||||||||||
| Maintenance rights | |||||||||||
| Equipment held for sale | |||||||||||
Receivables, net of allowances of $ | |||||||||||
| Spare parts inventory | |||||||||||
| Investments | |||||||||||
Property, equipment & furnishings, less accumulated depreciation of $ | |||||||||||
| Intangible assets, net | |||||||||||
Notes receivable, net of allowances of $ | |||||||||||
Investments in sales-type leases , net of allowances of $ | |||||||||||
| Other assets | |||||||||||
| Total assets (1) | $ | $ | |||||||||
| LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY | |||||||||||
| Liabilities: | |||||||||||
| Accounts payable and accrued expenses | $ | $ | |||||||||
| Deferred income taxes | |||||||||||
| Debt obligations | |||||||||||
| Maintenance reserves | |||||||||||
| Security deposits | |||||||||||
| Unearned revenue | |||||||||||
| Total liabilities (2) | |||||||||||
Redeemable preferred stock ($ | |||||||||||
| Shareholders’ equity: | |||||||||||
Common stock ($ | |||||||||||
| Paid-in capital in excess of par | |||||||||||
| Retained earnings | |||||||||||
Accumulated other comprehensive income, net of income tax expense of $ | |||||||||||
| Total shareholders’ equity | |||||||||||
| Total liabilities, redeemable preferred stock and shareholders’ equity | $ | $ | |||||||||
4
_____________________________
(1)Total assets at March 31, 2023 and December 31, 2022, include the following assets of variable interest entities (“VIEs”) that can only be used to settle the liabilities of the VIEs: Restricted cash $54,684 and $76,870 ; Equipment $1,183,337 and $1,167,970 ; Maintenance Rights $6,822 and $5,433 ; Notes receivable $79,502 and $80,220 ; and Other assets $6,543 and $6,470 (each respectively).
(2)Total liabilities at March 31, 2023 and December 31, 2022, include the following liabilities of VIEs for which the VIEs’ creditors do not have recourse to Willis Lease Finance Corporation: Debt obligations $1,093,537 and $1,118,721 , respectively.
See accompanying notes to the unaudited condensed consolidated financial statements.
5
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
| Three months ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| REVENUE | |||||||||||||||||||||||
| Lease rent revenue | $ | $ | |||||||||||||||||||||
| Maintenance reserve revenue | |||||||||||||||||||||||
| Spare parts and equipment sales | |||||||||||||||||||||||
| Interest revenue | |||||||||||||||||||||||
| (Loss) Gain on sale of leased equipment | ( | ||||||||||||||||||||||
| Other revenue | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| EXPENSES | |||||||||||||||||||||||
| Depreciation and amortization expense | |||||||||||||||||||||||
| Cost of spare parts and equipment sales | |||||||||||||||||||||||
| Write-down of equipment | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Technical expense | |||||||||||||||||||||||
| Net finance costs: | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Total net finance costs | |||||||||||||||||||||||
| Total expenses | |||||||||||||||||||||||
| Income (Loss) from operations | ( | ||||||||||||||||||||||
| Loss from joint ventures | ( | ( | |||||||||||||||||||||
| Income (Loss) before income taxes | ( | ||||||||||||||||||||||
| Income tax expense (benefit) | ( | ||||||||||||||||||||||
| Net income (loss) | ( | ||||||||||||||||||||||
| Preferred stock dividends | |||||||||||||||||||||||
| Accretion of preferred stock issuance costs | |||||||||||||||||||||||
| Net income (loss) attributable to common shareholders | $ | $ | ( | ||||||||||||||||||||
| Basic weighted average income (loss) per common share | $ | $ | ( | ||||||||||||||||||||
| Diluted weighted average income (loss) per common share | $ | $ | ( | ||||||||||||||||||||
| Basic weighted average common shares outstanding | |||||||||||||||||||||||
| Diluted weighted average common shares outstanding | |||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
6
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
| Three months ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Net income (loss) | $ | $ | ( | ||||||||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||
| Currency translation adjustment | |||||||||||||||||||||||
| Unrealized (loss) gain on derivative instruments | ( | ||||||||||||||||||||||
| Unrealized (loss) gain on derivative instruments at joint venture | ( | ||||||||||||||||||||||
| Net (loss) gain recognized in other comprehensive income | ( | ||||||||||||||||||||||
| Tax (benefit) expense related to items of other comprehensive income | ( | ||||||||||||||||||||||
| Other comprehensive (loss) income | ( | ||||||||||||||||||||||
| Total comprehensive loss | $ | ( | $ | ( | |||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
7
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Redeemable Preferred Stock and Shareholders' Equity
Three months ended March 31, 2023 and 2022
(In thousands)
(Unaudited)
| Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable | Accumulated Other | |||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid in Capital in | Retained | Comprehensive | Total Shareholders' | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Excess of par | Earnings | Income | Equity | |||||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Net unrealized gain from currency translation adjustment, net of tax expense of $ | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Net unrealized loss from derivative instruments, net of tax benefit of $( | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Shares issued under stock compensation plans | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Cancellation of restricted stock in satisfaction of withholding tax | — | — | ( | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense, net of forfeitures | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Accretion of preferred shares issuance costs | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends ($ | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||
Balances at March 31, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable | Accumulated Other | |||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid in Capital in | Retained | Comprehensive | Total Shareholders' | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Excess of par | Earnings | Income | Equity | |||||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
Net unrealized gain from currency translation adjustment, net of tax expense of $ | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Net unrealized gain from derivative instruments, net of tax expense of $ | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Shares repurchased | — | — | ( | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Shares issued under stock compensation plans | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense, net of forfeitures | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Accretion of preferred shares issuance costs | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends ($ | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
Balances at March 31, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
8
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Three months ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization expense | |||||||||||
| Write-down of equipment | |||||||||||
| Stock-based compensation expense | |||||||||||
| Amortization of deferred costs | |||||||||||
| Loss from joint ventures | |||||||||||
| Payments received on sales-type leases | |||||||||||
| Allowances and provisions | |||||||||||
| Loss (Gain) on sale of leased equipment | ( | ||||||||||
| Deferred income taxes | ( | ||||||||||
| Changes in assets and liabilities: | |||||||||||
| Receivables | ( | ( | |||||||||
| Inventory | |||||||||||
| Other assets | ( | ( | |||||||||
| Accounts payable and accrued expenses | |||||||||||
| Maintenance reserves | |||||||||||
| Security deposits | ( | ||||||||||
| Unearned revenue | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Proceeds from sale of equipment (net of selling expenses) | |||||||||||
| Issuance of notes receivable | ( | ||||||||||
| Payments received on notes receivable | |||||||||||
| Purchase of equipment held for operating lease and for sale | ( | ( | |||||||||
| Purchase of property, equipment and furnishings | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from debt obligations | |||||||||||
| Principal payments on debt obligations | ( | ( | |||||||||
| Proceeds from shares issued under stock compensation plans | |||||||||||
| Repurchase of common stock | ( | ||||||||||
| Preferred stock dividends | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Decrease in cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||
| Supplemental disclosures of cash flow information: | |||||||||||
| Net cash paid for: | |||||||||||
| Interest | $ | $ | |||||||||
| Income Taxes | $ | $ | |||||||||
| Supplemental disclosures of non-cash activities: | |||||||||||
| Transfers from Equipment held for operating lease to Other assets | $ | $ | |||||||||
| Transfers from Equipment held for operating lease to Spare parts inventory | $ | $ | |||||||||
| Transfers from Equipment held for operating lease to Equipment held for sale | $ | $ | |||||||||
| Accrued share repurchases | $ | $ | |||||||||
| Accrued preferred stock dividends | $ | $ | |||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
9
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2023
(Unaudited)
Unless the context requires otherwise, references to the “Company,” “WLFC,” “we,” “us” or “our” in this Quarterly Report on Form 10-Q refer to Willis Lease Finance Corporation and its subsidiaries.
1. Summary of Significant Accounting Policies
The significant accounting policies of the Company were described in Note 1 to the Audited Consolidated Financial Statements included in the Company’s Form 10-K for the fiscal year ended December 31, 2022 (the “2022 Form 10-K”). There have been no significant changes in the Company’s significant accounting policies for the three months ended March 31, 2023.
(a) Basis of Presentation
The accompanying Unaudited Condensed Consolidated Financial Statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”), consistent in all material respects with those applied in the 2022 Form 10-K, for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. Therefore, they do not include all information and footnotes normally included in annual consolidated financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the 2022 Form 10-K. In the opinion of management, the Unaudited Condensed Consolidated Financial Statements contain all adjustments (consisting principally of normal recurring accruals) necessary for a fair presentation of the Condensed Consolidated Balance Sheets, Statements of Income, Statements of Comprehensive Income, Statements of Redeemable Preferred Stock and Shareholders’ Equity and Statements of Cash Flows for such interim periods presented. Additionally, operating results for interim periods are not necessarily indicative of the results that can be expected for a full year.
In accordance with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. These estimates and judgments are based on historical experience and other assumptions that management believes are reasonable and the inputs into management's estimates and judgment consider the economic implications of the COVID-19 pandemic and the current rising interest rate and inflationary environment on the Company’s critical and significant accounting estimates. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ materially from these estimates. The significant estimates made in the accompanying Unaudited Condensed Consolidated Financial Statements include certain assumptions related to intangible assets, long-lived assets, equipment held for sale, allowances for doubtful accounts and credit losses, inventory, deferred in-substance fixed payment use fees included in “Unearned revenue” on the Condensed Consolidated Balance Sheets, and estimated income taxes. Actual results may differ materially from these estimates under different assumptions or conditions. Given the uncertainty in the rapidly changing market and economic conditions related to the COVID-19 pandemic and the current rising interest rate and inflationary environment, the Company will continue to evaluate the nature and extent of the impact to its business, results of operations and financial condition.
(b) Principles of Consolidation
(c) Risks and Uncertainties
10
(d) Recent Accounting Pronouncements
Recent Accounting Pronouncements Adopted by the Company
At the beginning of January 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 revises the measurement of credit losses for financial assets measured at amortized cost from an incurred loss methodology to an expected loss methodology. ASU 2016-13 affects trade receivables, debt securities, net investment in leases, and most other financial assets that represent a right to receive cash. Additional disclosures about significant estimates and credit quality are also required. There was not a significant impact on the Unaudited Condensed Consolidated Financial Statements upon adoption of the standard.
Notes receivable and investments in sales-type leases, net of allowances represent the current remaining balances we expect to collect for our failed sale-leaseback transactions and sales-type leases. We establish allowances for credit losses to cover probable but specifically unknown losses existing in the portfolio. In doing so, we categorize our financial assets by pools with similar risk characteristics, including whether the financial asset is collateral-backed and whether the customer is placed on non-accrual status. A write-off is recorded when all or part of the financial asset is deemed uncollectible. Write-offs are charged against previously established allowances for credit losses. Partial or full recoveries of amounts previously written off are generally recognized as a reduction in the allowances for credit losses.
Receivables, net of allowances includes amounts billed to customers where the right to payment is unconditional. We maintain an allowance for our trade receivables to provide for the estimated amount that will not be collected, even when the risk of loss is remote. The allowance is measured on a collective pool basis when similar risk characteristics exist and is established as a percentage of accounts receivable. The percentage is based on all available and relevant information including age of outstanding receivables, historical payment experience and loss history, current economic conditions, and, when reasonable and supportable factors exist, management’s expectation of future economic conditions. A write-off is recorded when all or part of the receivable is deemed uncollectible. Write-offs are charged against the previously established allowance for credit losses. Partial or full recoveries of amounts previously written off are generally recognized as a reduction in the allowance for credit losses.
2. Revenue from Contracts with Customers
The following tables disaggregate revenue by major source for the three months ended March 31, 2023 and 2022 (in thousands):
| Three months ended March 31, 2023 | Leasing and Related Operations | Spare Parts Sales | Eliminations | Total | ||||||||||||||||||||||
| Lease rent revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Maintenance reserve revenue | ||||||||||||||||||||||||||
| Spare parts and equipment sales | ||||||||||||||||||||||||||
| Interest revenue | ||||||||||||||||||||||||||
| Loss on sale of leased equipment | ( | ( | ||||||||||||||||||||||||
| Managed services | ||||||||||||||||||||||||||
| Other revenue | ( | |||||||||||||||||||||||||
| Total revenue | $ | $ | $ | ( | $ | |||||||||||||||||||||
11
| Three months ended March 31, 2022 | Leasing and Related Operations | Spare Parts Sales | Eliminations | Total | ||||||||||||||||||||||
| Lease rent revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Maintenance reserve revenue | ||||||||||||||||||||||||||
| Spare parts and equipment sales | ||||||||||||||||||||||||||
| Interest revenue | ||||||||||||||||||||||||||
| Gain on sale of leased equipment | ||||||||||||||||||||||||||
| Managed services | ||||||||||||||||||||||||||
| Other revenue | ( | |||||||||||||||||||||||||
| Total revenue | $ | $ | $ | ( | $ | |||||||||||||||||||||
As of March 31, 2023 and December 31, 2022, there was $13.7 million and $6.3 million, respectively, of deferred in-substance fixed payment use fees included in “Unearned revenue.”
3. Equipment Held for Operating Lease and Notes Receivable
As of March 31, 2023, the Company had $2,141.8 million of equipment held in our operating lease portfolio, $96.0 million of notes receivable, $14.6 million of maintenance rights, and $6.1 million of investments in sales-type leases, which represented 341 engines, 13 aircraft, one marine vessel and other leased parts and equipment. As of December 31, 2022, the Company had $2,111.9 million of equipment held in our operating lease portfolio, $81.4 million of notes receivable, $17.7 million of maintenance rights, and $6.4 million of investments in sales-type leases, which represented 339 engines, 13 aircraft, one marine vessel and other leased parts and equipment.
The following table disaggregates equipment held for operating lease by asset class (in thousands):
| March 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||
| Gross Value | Accumulated Depreciation | Net Book Value | Gross Value | Accumulated Depreciation | Net Book Value | ||||||||||||||||||||||||||||||
| Engines and related equipment | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Aircraft and airframes | ( | ( | |||||||||||||||||||||||||||||||||
| Marine vessel | ( | ( | |||||||||||||||||||||||||||||||||
| $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
Notes Receivable and Investments in Sales-Type Leases
During the three months ended March 31, 2023 and 2022, the Company recorded interest revenue related to the notes receivable and investments in sales-type leases of $2.0 million and $2.1 million, respectively. The effective interest rates on our notes receivable and investments in sales-type leases ranged from 7.1 % to 12.2 % as of March 31, 2023 and 6.3 % to 12.2 % as of March 31, 2022.
4. Investments
In 2011, the Company entered into an agreement with Mitsui & Co., Ltd. to participate in a joint venture formed as a Dublin-based Irish limited company, Willis Mitsui & Company Engine Support Limited (“WMES”) for the purpose of acquiring and leasing jet engines. Each partner holds a fifty percent interest in the joint venture, and the Company uses the equity method in recording investment activity. As of March 31, 2023, WMES owned a lease portfolio, inclusive of 34 engines and five aircraft with a net book value of $227.5 million.
In 2014, the Company entered into an agreement with China Aviation Supplies Import & Export Corporation (“CASC”) to participate in a joint venture named CASC Willis Engine Lease Company Limited (“CASC Willis”), a joint venture based in Shanghai, China. Each partner holds a fifty percent interest in the joint venture, and the Company uses the equity method in recording investment activity. CASC Willis acquires and leases jet engines to Chinese airlines and concentrates on the demand for leased commercial aircraft engines and aviation assets in the People’s Republic of China. As of March 31, 2023, CASC Willis owned a lease portfolio of four engines with a net book value of $42.9 million.
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| As of March 31, 2023 | WMES | CASC Willis | Total | |||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Investment in joint ventures as of December 31, 2022 | $ | $ | $ | |||||||||||||||||
| Loss (income) from joint ventures | ( | ( | ||||||||||||||||||
| Foreign currency translation adjustment | ||||||||||||||||||||
| Other comprehensive loss from joint ventures | ( | ( | ||||||||||||||||||
| Investment in joint ventures as of March 31, 2023 | $ | $ | $ | |||||||||||||||||
“Other revenue” on the Condensed Consolidated Statements of Income includes $0.5
During the three months ended March 31, 2023, WMES sold an engine to the Company for $22.3 million. There were no
Unaudited summarized financial information for 100% of WMES is presented in the following tables:
| Three months ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Revenue | $ | $ | |||||||||||||||||||||
| Expenses | |||||||||||||||||||||||
| WMES net loss | $ | ( | $ | ( | |||||||||||||||||||
| March 31, 2023 | December 31, 2022 | ||||||||||
| (in thousands) | |||||||||||
| Total assets | $ | $ | |||||||||
| Total liabilities | |||||||||||
| Total WMES net equity | $ | $ | |||||||||
The difference between the Company’s investment in WMES and 50 % of total WMES net equity is primarily attributable to the recognition of deferred gains, which are related to engines sold by WMES to the Company, and prior to the adoption of ASU 2017-05, related to engines sold by the Company to WMES.
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5. Debt Obligations
Debt obligations consisted of the following:
| March 31, 2023 | December 31, 2022 | ||||||||||
| (in thousands) | |||||||||||
Credit facility at a floating rate of interest of one-month LIBOR plus | $ | $ | |||||||||
WEST VI Series A 2021 term notes payable at a fixed rate of interest of | |||||||||||
WEST VI Series B 2021 term notes payable at a fixed rate of interest of | |||||||||||
WEST VI Series C 2021 term notes payable at a fixed rate of interest of | |||||||||||
WEST V Series A 2020 term notes payable at a fixed rate of interest of | |||||||||||
WEST V Series B 2020 term notes payable at a fixed rate of interest of | |||||||||||
WEST V Series C 2020 term notes payable at a fixed rate of interest of | |||||||||||
WEST IV Series A 2018 term notes payable at a fixed rate of interest of | |||||||||||
WEST IV Series B 2018 term notes payable at a fixed rate of interest of | |||||||||||
WEST III Series A 2017 term notes payable at a fixed rate of interest of | |||||||||||
WEST III Series B 2017 term notes payable at a fixed rate of interest of | |||||||||||
Note payable at a fixed rate of interest of | |||||||||||
| Less: unamortized debt issuance costs | ( | ( | |||||||||
| Total debt obligations | $ | $ | |||||||||
One-month LIBOR was 4.86% and 4.39% as of March 31, 2023 and December 31, 2022, respectively.
Principal outstanding at March 31, 2023, is expected to be repayable as follows:
| Year | (in thousands) | |||||||
| 2023 | $ | |||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| Thereafter | ||||||||
| Total | $ | |||||||
Virtually all of the above debt requires ongoing compliance with certain financial covenants, including debt/equity ratios, minimum tangible net worth and minimum interest coverage ratios, and other eligibility criteria including customer and geographic concentration restrictions. The Company also has certain negative financial covenants such as liens, advances, change in business, sales of assets, dividends and stock repurchases. These covenants are tested either monthly, quarterly or annually, and the Company was in full compliance with all financial covenant requirements at March 31, 2023.
6. Derivative Instruments
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The Company periodically holds interest rate derivative instruments to mitigate exposure to changes in interest rates, predominantly one-month LIBOR, with $742.0 million and $727.0 million of variable rate borrowings at March 31, 2023 and December 31, 2022, respectively. As a matter of policy, management does not use derivatives for speculative purposes. As of March 31, 2023, the Company had five interest rate swap agreements. During 2021, the Company entered into four fixed-rate interest swap agreements, each having notional amounts of $100.0 million, two with remaining terms of 10 months and two with remaining terms of 34 months as of March 31, 2023. One interest rate swap agreement was entered into during 2019 which has a notional outstanding amount of $100.0 million with a remaining term of 15 months as of March 31, 2023. The derivative instruments were each designated as cash flow hedges at inception and recorded at fair value.
The Company evaluated the effectiveness of the swap agreements to hedge the interest rate risk associated with its variable rate debt and concluded at the swap inception dates that each swap was highly effective in hedging that risk. The Company evaluates the effectiveness of the hedging relationships on an ongoing basis and concluded there was no ineffectiveness in the hedges for the period ended March 31, 2023.
The Company estimates the fair value of derivative instruments using a discounted cash flow technique and has used creditworthiness inputs that corroborate observable market data when evaluating the Company’s and counterparty’s risk of non-performance. Valuation of the derivative instruments requires certain assumptions for underlying variables and the use of different assumptions would result in a different valuation. Management believes it has applied assumptions consistently during the period. The Company applies hedge accounting and accounts for the change in fair value of its cash flow hedges through other comprehensive income for all derivative instruments.
The net fair value of the interest rate swaps as of March 31, 2023 was $28.1 million, representing an asset and is reflected within “Other assets” on the Condensed Consolidated Balance Sheets. The net fair value of the interest rate swaps as of December 31, 2022 was $34.8 million, representing an asset and reflected within “Other assets” on the Condensed Consolidated Balance Sheets. The Company recorded an adjustment to interest expense of $(5.4 ) million and $0.3 million during the three months ended March 31, 2023 and 2022, respectively, from derivative instruments.
Effect of Derivative Instruments on Earnings in the Condensed Consolidated Statements of Income and Comprehensive Income
The following table provides additional information about the financial statement effects related to the cash flow hedges for the three months ended March 31, 2023 and 2022:
| Derivatives in Cash Flow Hedging Relationships | Amount of (Loss) Gain Recognized in OCI on Derivatives (Effective Portion) | |||||||||||||||||||||||||
| Three months ended March 31, | ||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Interest rate contracts | $ | ( | $ | |||||||||||||||||||||||
| Total | $ | ( | $ | |||||||||||||||||||||||
The effective portion of the change in fair value on a derivative instrument designated as a cash flow hedge is reported as a component of other comprehensive income and is reclassified into earnings in the period during which the transaction being hedged affects earnings or it is probable that the forecasted transaction will not occur. The ineffective portion of the hedges, if any, is recorded in earnings in the current period.
Counterparty Credit Risk
The Company evaluates the creditworthiness of the counterparties under its hedging agreements. The counterparties for the interest rate swaps are large financial institutions that possessed investment grade credit ratings. Based on these ratings, the Company believes that the counterparties were credit-worthy and that their continuing performance under the hedging agreements was probable and did not require the counterparties to provide collateral or other security to the Company.
15
7. Income Taxes
Income tax expense (benefit) for the three months ended March 31, 2023 and March 31, 2022 was $2.4 million and $(6.5 ) million, respectively. The effective tax rate for the three months ended March 31, 2023 and March 31, 2022 was 35.7 % and 23.5 %, respectively. The Company’s effective tax rates differed from the U.S. federal statutory rate of 21.0% primarily due to executive compensation exceeding $1.0 million as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), and a discrete item recorded in the quarter ended March 31, 2022 associated with a write-down of engines due to the Russia and Ukraine conflict. Refer to Note 8 "Fair Value Measurements" for further detail on the write-downs related to Russia.
The Company records tax expense or benefit for unusual or infrequent items discretely in the period in which they occur. The Company’s tax rate is subject to change based on changes in the mix of assets leased to domestic and foreign lessees, the proportions of revenue generated within and outside of California, the amount of executive compensation exceeding $1.0 million as defined in Section 162(m) of the Code and numerous other factors, including changes in tax law.
8. Fair Value Measurements
The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties in contrast to a forced sale or liquidation. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of judgment, and therefore cannot be determined with precision.
Accounting standards define fair value as the price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting standards establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and also establishes the following three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:
•Cash and cash equivalents, restricted cash, receivables, and accounts payable: The amounts reported in the accompanying Condensed Consolidated Balance Sheets approximate fair value due to their short-term nature.
•Notes receivable: The carrying amount of the Company’s outstanding balance on its Notes receivable as of March 31, 2023 and December 31, 2022 was estimated to have a fair value of approximately $88.7 million and $83.5 million, respectively, based on the fair value of estimated future payments calculated using interest rates that approximate prevailing market rates at each period end (Level 2 inputs).
•Investments in sales-type leases: The carrying amount of the Company's outstanding balance on its Investments in sales-type leases as of March 31, 2023 and December 31, 2022 was estimated to have a fair value of approximately $6.1 million and $6.4 million, respectively, based on the fair value of estimated future payments calculated using interest rates that approximate prevailing market rates at each period end (Level 2 inputs).
•Debt obligations: The carrying amount of the Company’s outstanding balance on its Debt obligations as of March 31, 2023 and December 31, 2022 was estimated to have a fair value of approximately $1,546.9 million and $1,540.2 million, respectively, based on the fair value of estimated future payments calculated using interest rates that approximate prevailing market rates at each period end (Level 2 inputs).
16
Assets Measured and Recorded at Fair Value on a Recurring Basis and a Nonrecurring Basis
As of March 31, 2023 and December 31, 2022, the Company measured the fair value of its interest rate swap agreements based on Level 2 inputs, due to the usage of inputs that can be corroborated by observable market data. The Company estimates the fair value of derivative instruments using a discounted cash flow technique and has used creditworthiness inputs that corroborate observable market data evaluating the Company’s and counterparties’ risk of non-performance. The net fair value of the interest rate swaps as of March 31, 2023 was $28.1 million, representing an asset. The net fair value of the interest rate swaps as of December 31, 2022 was $34.8 million, representing an asset. The Company recorded an adjustment to interest expense of $(5.4 ) million and $0.3 million during the three months ended March 31, 2023 and 2022, respectively, from derivative instruments.
Goodwill is assessed for impairment annually, at each year end by comparing the fair values of the reporting units to their carrying amounts. The Company first assesses qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test.
The Company determines fair value of long-lived assets held and used, such as Equipment held for operating lease and Equipment held for sale, by reference to independent appraisals, quoted market prices (e.g. an offer to purchase) and other factors. An impairment charge is recorded when the carrying value of the asset exceeds its fair value. The Company uses Level 2 inputs to measure write-downs of equipment held for lease and equipment held for sale.
| Total Losses | |||||||||||||||||||||||
| Three months ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Equipment held for lease | $ | $ | |||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||
For the three months ended March 31, 2023, the Company had no impairment on its equipment.
Write-downs of equipment to their estimated fair values totaled $21.1 million for the three months ended March 31, 2022, reflecting an adjustment of the carrying value of three impaired engines. Of this write-down, $20.4 million reflects the impairment of two engines located in Russia which were determined, due to the Russia and Ukraine conflict, to be unrecoverable. The remaining write-downs were in the ordinary course of business.
9. Earnings Per Share
Basic earnings per common share is computed by dividing net income, less preferred stock dividends and accretion of preferred stock issuance costs, by the weighted average number of common shares outstanding for the period. Treasury stock is excluded from the weighted average number of shares of common stock outstanding. Diluted earnings per share attributable to common stockholders is computed based on the weighted average number of shares of common stock and dilutive securities outstanding during the period. Dilutive securities are common stock equivalents that are freely exercisable into common stock at less than market prices or otherwise dilute earnings if converted. The net effect of common stock equivalents is based on the incremental common stock that would be issued upon the vesting of restricted stock using the treasury stock method. Common stock equivalents are not included in diluted earnings per share when their inclusion is antidilutive. Additionally, redeemable preferred stock is not convertible and does not affect dilutive shares.
There were no anti-dilutive shares for the three months ended March 31, 2023. There were $0.3 million anti-dilutive shares excluded from the computation of diluted weighted average loss per share for the three months ended March 31, 2022.
17
The following table presents the calculation of basic and diluted earnings per share (in thousands, except per share data):
| Three months ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Net income (loss) attributable to common shareholders | $ | $ | ( | ||||||||||||||||||||
| Basic weighted average common shares outstanding | |||||||||||||||||||||||
| Potentially dilutive common shares | |||||||||||||||||||||||
| Diluted weighted average common shares outstanding | |||||||||||||||||||||||
| Basic weighted average income (loss) per common share | $ | $ | ( | ||||||||||||||||||||
| Diluted weighted average income (loss) per common share | $ | $ | ( | ||||||||||||||||||||
10. Equity
Common Stock Repurchase
In October 2022, the Board of Directors approved the renewal of the existing common stock repurchase plan which allows for repurchases of up to $60.0 million of the Company’s common stock, extending the plan through December 31, 2024. Repurchased shares are immediately retired. No shares were repurchased during the three months ended March 31, 2023. During the three months ended March 31, 2022, the Company repurchased a total of 52,780 shares of common stock for approximately $1.8 million at a weighted average price of $34.86 per share.
Redeemable Preferred Stock
Dividends: The Company’s Series A-1 Preferred Stock and Series A-2 Preferred Stock accrue quarterly dividends at the rate per annum of 6.5 % per share. During each of the three months ended March 31, 2023 and 2022, the Company paid total dividends of $0.8
11. Stock-Based Compensation Plans
The components of stock-based compensation expense were as follows:
| Three months ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| 2021 Stock Incentive Plan | $ | $ | |||||||||||||||||||||
| Employee Stock Purchase Plan | |||||||||||||||||||||||
| Total Stock Compensation Expense | $ | $ | |||||||||||||||||||||
The 2021 Stock Incentive Plan (the “2021 Plan”) authorized 1,800,000 shares for issuance, plus the number of shares remaining for issuance under the prior stock plan and any future forfeited awards under the prior plan. Stock-based compensation is in the form of restricted stock awards (“RSAs”). The RSAs are subject to either service-based vesting, which is typically between and four years , in which a specific period of continued employment must pass before an award vests, or performance-based vesting, which is typically between and two years . The expense associated with these awards is recognized on a straight-line basis over the respective vesting period, with forfeitures accounted for as they occur. For any vesting tranche of an award, the cumulative amount of compensation cost recognized is equal to the portion of the grant‑date fair value of the award tranche that is actually vested at that date.
As of March 31, 2023, the Company had granted 1,256,700 RSAs under the 2021 Plan and had 637,896 shares available for future issuance. The fair value of the restricted stock awards equaled the stock price at the grant date.
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The following table summarizes the restricted stock activity during the three months ended March 31, 2023:
| Shares | |||||
| Balance of unvested shares as of December 31, 2022 | |||||
| Shares granted | |||||
| Shares forfeited | ( | ||||
| Shares vested | |||||
| Balance of unvested shares as of March 31, 2023 | |||||
Under the Employee Stock Purchase Plan (“ESPP”), as amended and restated effective November 2021, 425,000 shares of common stock have been reserved for issuance. Eligible employees may designate no more than 10 % of their base cash compensation to be deducted each pay period for the purchase of common stock under the ESPP. Participants may purchase no more than 1,000 shares or $25,000 of common stock in any one calendar year. Each January 31 and July 31, shares of common stock are purchased with the employees’ payroll deductions from the immediately preceding six months at a price per share of 85 % of the lesser of the market price of the common stock on the purchase date or the market price of the common stock on the date of entry into an offering period. During the three months ended March 31, 2023 and 2022, 5,506 and 9,919 shares of common stock, respectively, were issued under the ESPP. The Company issues new shares through its transfer agent upon an employee stock purchase.
12. Reportable Segments
The Company has two reportable segments: (i) Leasing and Related Operations which involves acquiring and leasing, primarily pursuant to operating leases, commercial aircraft, aircraft engines and other aircraft equipment and the selective purchase and resale of commercial aircraft engines and other aircraft equipment and other related businesses and (ii) Spare Parts Sales which involves the purchase and resale of after-market engine parts, whole engines, engine modules and portable aircraft components.
The Company evaluates the performance of each of the segments based on profit or loss after general and administrative expenses. While the Company believes there are synergies between the two business segments, the segments are managed separately because each requires different business strategies.
The following tables present a summary of the reportable segments (in thousands):
| Three months ended March 31, 2023 | Leasing and Related Operations | Spare Parts Sales | Eliminations | Total | ||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||
| Lease rent revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Maintenance reserve revenue | ||||||||||||||||||||||||||
| Spare parts and equipment sales | ||||||||||||||||||||||||||
| Interest revenue | ||||||||||||||||||||||||||
| Loss on sale of leased equipment | ( | ( | ||||||||||||||||||||||||
| Other revenue | ( | |||||||||||||||||||||||||
| Total revenue | ( | |||||||||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||||||||||||
| Cost of spare parts and equipment sales | ||||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||||
| Technical expense | ||||||||||||||||||||||||||
| Net finance costs: | ||||||||||||||||||||||||||
| Interest expense | ||||||||||||||||||||||||||
| Total finance costs | ||||||||||||||||||||||||||
| Total expenses | ||||||||||||||||||||||||||
| Income (loss) from operations | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||
19
| Three months ended March 31, 2022 | Leasing and Related Operations | Spare Parts Sales | Eliminations | Total | ||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||
| Lease rent revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Maintenance reserve revenue | ||||||||||||||||||||||||||
| Spare parts and equipment sales | ||||||||||||||||||||||||||
| Interest revenue | ||||||||||||||||||||||||||
| Gain on sale of leased equipment | ||||||||||||||||||||||||||
| Other revenue | ( | |||||||||||||||||||||||||
| Total revenue | ( | |||||||||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||||||||||||
| Cost of spare parts and equipment sales | ||||||||||||||||||||||||||
| Write-down of equipment | ||||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||||
| Technical expense | ||||||||||||||||||||||||||
| Net finance costs: | ||||||||||||||||||||||||||
| Interest expense | ||||||||||||||||||||||||||
| Total finance costs | ||||||||||||||||||||||||||
| Total expenses | ||||||||||||||||||||||||||
| (Loss) income from operations | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||
| Leasing and Related Operations | Spare Parts Sales | Eliminations | Total | |||||||||||||||||||||||
| Total assets as of March 31, 2023 | $ | $ | $ | $ | ||||||||||||||||||||||
| Total assets as of December 31, 2022 | $ | $ | $ | $ | ||||||||||||||||||||||
13. Related Party Transactions
Joint Ventures
“Other revenue” on the Condensed Consolidated Statements of Income includes management fees earned of $0.5
During the three months ended March 31, 2023, WMES sold an engine to the Company for $22.3 million.
Other
20
14. Subsequent Events
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and notes thereto included under Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, reference should be made to our Audited Consolidated Financial Statements and notes thereto and related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Form 10-K for the fiscal year ended December 31, 2022 (the “2022 Form 10-K”). In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs, including potential impacts of the COVID-19 pandemic on our business, results of operations and financial condition. Our actual results may differ materially from those contained in or implied by any forward-looking statements. The financial information included in this discussion and in our consolidated financial statements may not be indicative of our consolidated financial position, operating results, changes in equity and cash flows in the future. See “Special Note Regarding Forward-Looking Statements” included earlier in this report.
Overview
Our core business is acquiring and leasing commercial aircraft and aircraft engines and related aircraft equipment pursuant to operating leases, all of which we sometimes collectively refer to as “equipment.” As of March 31, 2023, the majority of our leases were operating leases, with the exception of certain failed sale-leaseback transactions classified as notes receivable under the guidance provided by Accounting Standards Codification (“ASC”) 842 and investments in sales-type leases. As of March 31, 2023, we had 80 lessees in 43 countries. Our portfolio is continually changing due to equipment acquisitions and sales. As of March 31, 2023, we had $2,141.8 million of equipment held in our operating lease portfolio, $96.0 million of notes receivable, $14.6 million of maintenance rights, and $6.1 million of investments in sales-type leases, which represented 341 engines, 13 aircraft, one marine vessel and other leased parts and equipment. As of March 31, 2023, we also managed 327 engines, aircraft and related equipment on behalf of other parties.
Our wholly-owned and vertically-integrated subsidiary Willis Asset Management Limited (“Willis Asset Management”) is focused on the engine management and consulting business. Willis Aeronautical Services, Inc. (“Willis Aero”) is a wholly-owned and vertically-integrated subsidiary whose primary focus is the sale of aircraft engine parts and materials through the acquisition or consignment of aircraft and engines.
We actively manage our portfolio and structure our leases to maximize the residual values of our leased assets. Our leasing business focuses on popular Stage IV commercial jet engines manufactured by CFMI, General Electric, Pratt & Whitney, Rolls Royce and International Aero Engines. These engines are the most widely used engines in the world, powering Airbus, Boeing, Bombardier and Embraer aircraft.
Risks and Uncertainties
The scope and nature of the impact of COVID-19 on the airline industry, and in turn the Company's business, continue to evolve and the outcomes are uncertain. Given the uncertainty in the rapidly changing market and economic conditions related to COVID-19, we will continue to evaluate the nature and extent of the impact to the Company's business and financial position. The ultimate extent of the effects of the COVID-19 pandemic on the Company will depend on future developments, and such effects could exist for an extended period of time.
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2022 Form 10-K.
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Results of Operations
Three months ended March 31, 2023 compared to the three months ended March 31, 2022
Revenue is summarized as follows:
| Three months ended March 31, | |||||||||||||||||
| 2023 | 2022 | % Change | |||||||||||||||
| (dollars in thousands) | |||||||||||||||||
| Lease rent revenue | $ | 53,220 | $ | 38,125 | 39.6 | % | |||||||||||
| Maintenance reserve revenue | 23,498 | 14,834 | 58.4 | % | |||||||||||||
| Spare parts and equipment sales | 5,052 | 6,630 | (23.8) | % | |||||||||||||
| Interest revenue | 2,046 | 2,114 | (3.2) | % | |||||||||||||
| (Loss) Gain on sale of leased equipment | (133) | 2,298 | (105.8) | % | |||||||||||||
| Other revenue | 5,852 | 4,816 | 21.5 | % | |||||||||||||
| Total revenue | $ | 89,535 | $ | 68,817 | 30.1 | % | |||||||||||
Lease Rent Revenue. Lease rent revenue consists of rental income from long-term and short-term engine leases, aircraft leases, and other leased parts and equipment. Lease rent revenue increased by $15.1 million, or 39.6%, to $53.2 million in the three months ended March 31, 2023 from $38.1 million for the three months ended March 31, 2022. The increase is due to an increase in the number of engines acquired and placed on lease, including an increase in utilization compared to that of the prior period. During the three months ended March 31, 2023, we purchased equipment (including capitalized costs) totaling $55.7 million, which consisted of five engines and other parts and equipment purchased for our lease portfolio. During the three months ended March 31, 2022, we purchased equipment (including capitalized costs) totaling $24.2 million, which consisted of one engine and other parts and equipment purchased for our lease portfolio.
Two customers and one customer accounted for more than 10% of total lease rent revenue during the three months ended March 31, 2023 and 2022, respectively.
At March 31, 2023, the Company had $2,141.8 million of equipment held in our operating lease portfolio, $96.0 million of notes receivable, $14.6 million of maintenance rights, and $6.1 million of investments in sales-type leases. At March 31, 2022, the Company had $1,951.4 million of equipment held in our operating lease portfolio, $114.3 million of notes receivable, and $22.5 million of maintenance rights. Average utilization (based on net book value) was approximately 86% and 84% for the three months ended March 31, 2023 and 2022, respectively.
Maintenance Reserve Revenue. Maintenance reserve revenue increased $8.7 million, or 58.4%, to $23.5 million for the three months ended March 31, 2023 from $14.8 million for the three months ended March 31, 2022. Long-term maintenance revenue is influenced by end of lease compensation and the realization of long-term maintenance reserves associated with engines coming off lease. There was no long-term maintenance revenue recognized for the three months ended March 31, 2023, compared to $8.2 million in the comparable prior period. “Non-reimbursable” maintenance reserve revenue is directly influenced by on lease engine flight hours and cycles. Engines out on lease with “non-reimbursable” usage fees generated $23.5 million of short-term maintenance revenues, compared to $6.6 million in the comparable prior period. As of March 31, 2023, there was $13.7 million of deferred in-substance fixed payment use fees included in “Unearned revenue.” These deferred in-substance fixed payment use fees represent portfolio utilization beyond the maintenance reserve revenues reflected in our Condensed Consolidated Statements of Income.
Spare Parts and Equipment Sales. Spare parts and equipment sales decreased by $1.6 million, or 23.8%, to $5.1 million for the three months ended March 31, 2023 compared to $6.6 million for the three months ended March 31, 2022. There were no equipment sales for each of the three months ended March 31, 2023 and March 31, 2022.
(Loss) Gain on Sale of Leased Equipment. During the three months ended March 31, 2023, we sold two engines from the lease portfolio for a net loss of $(0.1) million. During the three months ended March 31, 2022, we sold five engines and other parts and equipment from the lease portfolio for a net gain of $2.3 million.
Other Revenue. Other revenue increased by $1.0 million, or 21.5%, to $5.9 million for the three months ended March 31, 2023 from $4.8 million for the three months ended March 31, 2022. Other revenue consists primarily of management fee income, lease administration fees, third party consignment commissions earned, service fee revenue, and other discrete revenue items. The increase in the first quarter of 2023 compared to the prior year period primarily reflects increased managed service revenue.
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Depreciation and Amortization Expense. Depreciation and amortization expense increased by $0.7 million, or 3.4%, to $22.5 million for the three months ended March 31, 2023 compared to $21.8 million for the three months ended March 31, 2022. The increase reflects the growth in the portfolio as compared to the prior year period.
Cost of Spare Parts and Equipment Sales. Cost of spare parts and equipment sales decreased by $0.4 million, or 7.5%, to $4.5 million for the three months ended March 31, 2023 compared to $4.9 million for the three months ended March 31, 2022. There was no equipment or cost of equipment sales for each of the three months ended March 31, 2023 and March 31, 2022.
Write-down of Equipment. There was no write-down of equipment for the three months ended March 31, 2023. Write-down of equipment was $21.1 million for the three months ended March 31, 2022, reflecting the write-down of three engines. Of this write-down, $20.4 million reflects the impairment of two engines located in Russia due to the Russia and Ukraine conflict and were expected to be unrecoverable as of March 31, 2022. The remaining $0.7 million write-down was in the ordinary course of business.
General and Administrative Expenses. General and administrative expenses increased by $9.7 million, or 40.9%, to $33.3 million for the three months ended March 31, 2023 compared to $23.6 million for the three months ended March 31, 2022. The increase reflects a $3.9 million increase in personnel costs. Additionally, project costs increased by $1.5 million, primarily related to an increase in managed service revenues. Insurance costs increased by $1.3 million due to an increase in aviation hull war insurance as a result of the Russia and Ukraine conflict, and other taxes increased by $1.9 million due to an increase in business conducted in India.
Technical Expense. Technical expense consists of the non-capitalized cost of engine repairs, engine thrust rental fees, outsourced technical support services, sublease engine rental expense, engine storage and freight costs. Technical expense decreased by $2.8 million to $2.8 million for the three months ended March 31, 2023 compared to $5.6 million for the three months ended March 31, 2022 primarily due to a lower level of engine repair activity.
Net Finance Costs. Net finance costs increased $1.5 million, or 8.9%, to $18.4 million for the three months ended March 31, 2023 compared to $16.9 million for the three months ended March 31, 2022 due to higher levels of floating rate debt and an increase in one-month LIBOR, which drives borrowing costs in our revolving credit facility.
Income Tax Expense (Benefit). Income tax expense was $2.4 million for the three months ended March 31, 2023 compared to income tax benefit of $(6.5) million for the three months ended March 31, 2022. The effective tax rate for the first quarter of 2023 was 35.7% compared to 23.5% in the prior year period. The increase in the effective tax rate was predominantly due to executive compensation exceeding $1.0 million as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).
Financial Position, Liquidity and Capital Resources
Liquidity
At March 31, 2023, the Company had $9.8 million of cash and cash equivalents, and $54.7 million of restricted cash. We fund our operations primarily from cash provided by our leasing activities. We finance our growth through borrowings secured primarily by our equipment lease portfolio. Cash of approximately $42.0 million and $21.0 million for the three months ended March 31, 2023 and 2022, respectively, was derived from our borrowing activities. In these same time periods, $53.5 million and $53.3 million, respectively, was used to pay down related debt.
The impact of the COVID-19 pandemic on the global business environment has caused and could result in additional customer bankruptcies, early lease returns, payment defaults, and rental concessions which could reduce rent or result in deferred customer payments, negatively impacting our financial results.
For any interest rate swaps that we enter into, we will be exposed to risk in the event of non-performance of the interest rate hedge counter-parties. We may hedge additional amounts of our floating rate debt in the future.
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Cash Flows Discussion
Cash flows provided by operating activities were $51.9 million and $28.3 million for the three months ended March 31, 2023 and 2022, respectively.
Cash flows from operations are driven significantly by payments made under our lease agreements, which comprise lease revenue, security deposits and maintenance reserves, and are offset by interest expense and general and administrative costs. Cash received as maintenance reserve payments for some of our engines on lease are partially restricted by our debt arrangements. The lease revenue stream, in the short-term, is at fixed rates while a portion of our debt is at variable rates. If interest rates increase, it is unlikely we could increase lease rates in the short term and this would cause a reduction in our earnings and operating cash flows. Revenue and maintenance reserves are also affected by the amount of equipment off lease. Approximately 87% and 80%, by book value, of our assets were on-lease as of March 31, 2023 and December 31, 2022, respectively. The average utilization rate (based on net book value) for the three months ended March 31, 2023 and 2022 was approximately 86% and 84%, respectively. If there is an increase in off-lease rates or deterioration in lease rates that are not offset by reductions in interest rates, there will be a negative impact on earnings and cash flows from operations.
Cash flows used in investing activities were $64.3 million for the three months ended March 31, 2023 and primarily reflected $55.7 million for the purchase of equipment held for operating lease (including capitalized costs and prepaid deposits made in the period) and $15.4 million related to a lease entered into which was classified as a note receivable under ASC 842, offset by proceeds from sale of equipment (net of selling expenses) of $7.6 million. Cash flows used in investing activities were $6.3 million in the three months ended March 31, 2022 and primarily reflected $24.2 million for the purchase of equipment held for operating lease (including capitalized costs and prepaid deposits made in the period), partly offset by $17.3 million of proceeds from the sale of equipment.
Cash flows used in financing activities were $12.1 million for the three months ended March 31, 2023 and primarily reflected $53.5 million in principal payments, partially offset by $42.0 million in proceeds from debt obligations. Cash flows used in financing activities were $34.7 million for the three months ended March 31, 2022 and primarily reflected $53.3 million in principal payments and $1.8 million of share repurchases, partially offset by $21.0 million in proceeds from debt obligations.
Preferred Stock Dividends
The Company’s Series A-1 Preferred Stock and Series A-2 Preferred Stock accrue quarterly dividends at the rate per annum of 6.5% per share. During each of the three months ended March 31, 2023 and 2022, the Company paid total dividends of $0.8 million on the Series A-1 and Series A-2 Preferred Stock.
Debt Obligations and Covenant Compliance
At March 31, 2023, debt obligations consisted of loans totaling $1,836.9 million, net of unamortized issuance costs, payable with interest rates varying between approximately 3.1% and 7.4%. Substantially all of our assets are pledged to secure our obligations to creditors. For further information on our debt instruments, see Note 5 “Debt Obligations” in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Virtually all of our debt requires our ongoing compliance with certain financial covenants including debt/equity ratios, minimum tangible net worth and minimum interest coverage ratios, and other eligibility criteria including customer and geographic concentration restrictions. Under our revolving credit facility, we can borrow no more than 85% of an engine’s net book value and 65% of an airframe’s, spare parts inventory’s or other assets net book value. Therefore, we must have other available funds for the balance of the purchase price of any new equipment to be purchased. Our revolving credit facility, certain indentures and other debt related agreements also contain cross-default provisions. If we do not comply with the covenants or eligibility requirements, we may not be permitted to borrow additional funds and accelerated payments may become necessary. Additionally, much of the debt is secured by engines and aircraft, and to the extent that engines or aircraft are sold, repayment of that portion of the debt could be required.
At March 31, 2023, we were in compliance with the covenants specified in our revolving credit facility, including the Interest Coverage Ratio requirement of at least 2.25 to 1.00, and the Total Leverage Ratio requirement to remain below 4.00 to 1.00. The Interest Coverage Ratio, as defined in the credit facility, is the ratio of earnings before interest, taxes, depreciation and amortization (EBITDA) and other one-time charges to consolidated interest expense. The Total Leverage Ratio, as defined in the credit facility, is the ratio of total indebtedness to tangible net worth. At March 31, 2023, we were in compliance with the covenants specified in the WEST III, WEST IV, WEST V and WEST VI indentures and servicing and other debt related agreements.
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Off-Balance Sheet Arrangements
As of March 31, 2023, we had no material off-balance sheet arrangements or obligations that have or are reasonably likely to have a current or future effect on our financial condition, change in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.
Contractual Obligations and Commitments
Repayments of our gross debt obligations primarily consist of scheduled installments due under term loans and are funded by the use of unrestricted cash reserves and from cash flows from ongoing operations. The table below summarizes our contractual commitments at March 31, 2023:
| Payment due by period (in thousands) | |||||||||||||||||||||||||||||
| Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | |||||||||||||||||||||||||
| Debt obligations | $ | 1,850,631 | $ | 72,594 | $ | 862,098 | $ | 660,881 | $ | 255,058 | |||||||||||||||||||
| Interest payments under debt obligations | 247,274 | 93,475 | 92,832 | 51,074 | 9,893 | ||||||||||||||||||||||||
| Purchase obligations | 453,200 | 73,992 | 282,960 | 96,248 | — | ||||||||||||||||||||||||
| Operating lease obligations | 10,639 | 3,259 | 5,343 | 1,260 | 777 | ||||||||||||||||||||||||
| Total | $ | 2,561,744 | $ | 243,320 | $ | 1,243,233 | $ | 809,463 | $ | 265,728 | |||||||||||||||||||
From time to time we enter into contractual commitments to purchase engines directly from original equipment manufacturers. As of the date of this report we are committed to purchasing 18 additional new LEAP-1A engines for $282.8 million, nine additional new LEAP-1B engines for $159.3 million, and two used CFM56-5B engines for $11.2 million. Our purchase agreements generally contain terms that allow the Company to defer or cancel purchase commitments in certain situations. These deferrals or conversions would not result in penalties or increased costs other than any potential increase due to the normal year-over-year change in engine list prices, which is akin to ordinary inflation. The Company continues to expect demand for LEAP-1B engines to increase as the 737 Max continues to be re-certified and aircraft (and their installed engines) that have been parked and in storage for more than one year begin the technical process of returning to service.
In December 2020, we entered into definitive agreements for the purchase of 25 modern technology aircraft engines. As part of the purchase, we have committed to certain future overhaul and maintenance services which are anticipated to range between $77.7 million and $112.0 million by 2030.
We have estimated the interest payments due under debt obligations by applying the interest rates applicable at March 31, 2023 to the remaining debt, adjusted for the estimated debt repayments identified in the table above. Actual interest payments made will vary due to changes in the rates.
We believe our equity base, internally generated funds and existing debt facilities are sufficient to maintain our level of operations for the next twelve months. A decline in the level of internally generated funds could result if the amount of equipment off-lease increases, there is a decrease in availability under our existing debt facilities, or there is a significant step-up in borrowing costs. Such decline would impair our ability to sustain our level of operations. We continue to discuss additions to our capital base with our commercial and investment banks. If we are not able to access additional capital, our ability to continue to grow our asset base consistent with historical trends will be impaired and our future growth limited to that which can be funded from internally generated capital.
Recent Accounting Pronouncements
The most recent adopted accounting pronouncements and accounting pronouncements to be adopted by the Company are described in Note 1 to our Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our primary market risk exposure is that of interest rate risk. A change in rates would affect our cost of borrowing. Increases in interest rates, which may cause us to raise the implicit rates charged to our customers, could result in a reduction in demand for our leases. Alternatively, we may price our leases based on market rates so as to keep the fleet on-lease and suffer a decrease in our operating margin due to interest costs that we are unable to pass on to our customers. As of March 31, 2023, $742.0 million of our outstanding debt is variable rate debt. We estimate that for every one percent increase or decrease in interest rates on our variable rate debt, net of our interest rate swaps, our annual interest expense would increase or decrease by $2.4 million.
We hedge a portion of our borrowings from time to time, effectively fixing the rate of these borrowings. This hedging activity helps protect us against reduced margins on longer term fixed rate leases. Such hedging activities may limit our ability to participate in the benefits of any decrease in interest rates but may also protect us from increases in interest rates. Furthermore, since lease rates tend to vary with interest rate levels, it is possible that we can adjust lease rates for the effect of changes in interest rates at the termination of leases. Other financial assets and liabilities are at fixed rates.
We are also exposed to currency devaluation risk. Substantially all of our leases require payment in U.S. dollars. During the three months ended March 31, 2023 and 2022, 63% and 57%, respectively, of our lease rent revenues came from non-United States domiciled lessees. If these lessees’ currency devalues against the U.S. dollar, the lessees could potentially encounter difficulty in making their lease payments.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. In accordance with Rule 13a-15(b) promulgated under the Securities Exchange Act of 1934, as amended (“Exchange Act”) we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness and design of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, our CEO and CFO have concluded that as of March 31, 2023, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
(b) Inherent Limitations on Controls. Management, including the CEO and CFO, does not expect that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.
(c) Changes in internal control over financial reporting. There has been no change in our internal control over financial reporting during our fiscal quarter ended March 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
PART II — OTHER INFORMATION
Item 1A. Risk Factors
Investors should carefully consider the risks in the “Risk Factors” in Part 1: Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 10, 2023, and our other filings with the SEC. These risks are not the only ones facing the Company. Additional risks not currently known to us or that we currently believe are immaterial may also impair our business operations. Any of these risks could adversely affect our business, cash flows, financial condition and results of operations. The trading price of our common stock could fluctuate due to any of these risks, and investors may lose all or part of their investment. In assessing these risks, investors should also refer to the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q. There have been no material changes in our risk factors from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2022.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) None.
(b) None.
(c) Issuer Purchases of Equity Securities. In October 2022, the Board of Directors approved the renewal of the existing common stock repurchase plan which allows for repurchases of up to $60.0 million of the Company’s common stock, extending the plan through December 31, 2024. Repurchased shares are immediately retired. No shares were repurchased during the three months ended March 31, 2023.
Item 5. Other Information
None.
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Item 6.
EXHIBITS
| Exhibit Number | Description | |||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32 | ||||||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||
| 101 | The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Redeemable Preferred Stock and Shareholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |||||||
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 5, 2023
| Willis Lease Finance Corporation | ||||||||
| By: | /s/ Scott B. Flaherty | |||||||
| Scott B. Flaherty | ||||||||
| Chief Financial Officer | ||||||||
| (Principal Financial and Accounting Officer) | ||||||||
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Exhibit 31.1
CERTIFICATIONS
I, Austin C. Willis, certify that:
1. I have reviewed this report on Form 10-Q of Willis Lease Finance Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | May 5, 2023 | /s/ Austin C. Willis | |||||||||
| Austin C. Willis | |||||||||||
| Chief Executive Officer | |||||||||||
Exhibit 31.2
CERTIFICATIONS
I, Scott B. Flaherty, certify that:
1. I have reviewed this report on Form 10-Q of Willis Lease Finance Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | May 5, 2023 | /s/ Scott B. Flaherty | |||||||||
| Scott B. Flaherty | |||||||||||
| Chief Financial Officer | |||||||||||
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Each of the undersigned hereby certifies, in his or her capacity as an officer of Willis Lease Finance Corporation (the “Company”), for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his or her knowledge:
•the Quarterly Report of the Company on Form 10-Q for the period ended March 31, 2023 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
•the information contained in such report fairly presents, in all material respects, the financial condition and results of operation of the Company.
| Dated: May 5, 2023 | |||||
| /s/ Austin C. Willis | |||||
| Austin C. Willis | |||||
| Chief Executive Officer | |||||
| /s/ Scott B. Flaherty | |||||
| Scott B. Flaherty | |||||
| Chief Financial Officer | |||||