Willis Lease Finance Corp 10-Q for FY2022 Q2
Willis Lease Finance Corp (WLFC)
10-Q
2022-08-05
For: 2022-06-30
View Original
Added on
April 04, 2026
About this 10-Q
Willis Lease Finance Corp filed this 10-Q on August 5, 2022, covering the quarter ended June 30, 2022 (FY2022 Q2).
Headline figures
Quarter ended June 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $78.08M
- up 17.5% from $66.47M a year earlier
- Net income
- $5.91M
- up 10086.2% from net income of $58K a year earlier
- Diluted EPS
- $0.81
- compared with -$0.12 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 June 30, 2022
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 August 3, 2022 was 6,097,024 .
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, 2021 filed with the Securities and Exchange Commission (“SEC”) on March 14, 2022, this quarterly report on Form 10-Q for the three and six months ended June 30, 2022, 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)
| June 30, 2022 | December 31, 2021 | ||||||||||
| 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 | |||||||||||
| Investment in sales-type leases | |||||||||||
| 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 June 30, 2022 and December 31, 2021, respectively, include the following assets of variable interest entities (“VIEs”) that can only be used to settle the liabilities of the VIEs: Restricted cash $60,982 and $81,312 ; Equipment $1,205,623 and $1,226,395 ; Maintenance Rights $5,433 and $5,433 ; Inventory $0 and $4,367 ; Notes receivable $81,621 and $90,868 ; and Other assets $5,519 and $4,775 , respectively.
(2)Total liabilities at June 30, 2022 and December 31, 2021, respectively, include the following liabilities of VIEs for which the VIEs’ creditors do not have recourse to Willis Lease Finance Corporation: Debt obligations $1,160,849 and $1,197,922 , 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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| REVENUE | |||||||||||||||||||||||
| Lease rent revenue | $ | $ | $ | $ | |||||||||||||||||||
| Maintenance reserve revenue | |||||||||||||||||||||||
| Spare parts and equipment sales | |||||||||||||||||||||||
| Gain on sale of leased equipment | |||||||||||||||||||||||
| Gain on sale of financial assets | |||||||||||||||||||||||
| Asset transition fee | |||||||||||||||||||||||
| 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 | ( | ( | ( | ||||||||||||||||||||
| Income (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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net income (loss) | $ | $ | $ | ( | $ | ( | |||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Currency translation adjustment | ( | ( | ( | ||||||||||||||||||||
| Unrealized gain (loss) on derivative instruments | ( | ||||||||||||||||||||||
| Unrealized gain on derivative instruments at joint venture | |||||||||||||||||||||||
| Net gain (loss) recognized in other comprehensive income (loss) | ( | ||||||||||||||||||||||
| Tax expense (benefit) related to items of other comprehensive income (loss) | ( | ||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ||||||||||||||||||||||
| Total comprehensive income (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 June 30, 2022 and 2021
(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 March 31, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Net unrealized loss from currency translation adjustment, net of tax benefit of $ | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
Net unrealized gain from derivative instruments, net of tax expense of $ | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Shares repurchased | — | — | ( | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| 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 June 30, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| 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 | (Loss) Income | Equity | |||||||||||||||||||||||||||||||||||||||||||
Balances at March 31, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Net unrealized loss from currency translation adjustment, net of tax benefit 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 June 30, 2021 | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
8
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Redeemable Preferred Stock and Shareholders' Equity
Six months ended June 30, 2022 and 2021
(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, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
Net unrealized loss from currency translation adjustment, net of tax benefit of $ | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
Net unrealized gain from derivative instruments, net of tax expense of $ | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Shares repurchased | — | — | ( | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| 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 June 30, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| 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 | Loss | Equity | |||||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2020 | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||
| 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 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 June 30, 2021 | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
9
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization expense | |||||||||||
| Write-down of equipment | |||||||||||
| Stock-based compensation expense | |||||||||||
| Amortization of deferred costs | |||||||||||
| Allowances and provisions | |||||||||||
| Gain on sale of leased equipment | ( | ||||||||||
| Gain on sale of financial assets | ( | ||||||||||
| Loss from joint ventures | |||||||||||
| Loss on disposal of property, equipment and furnishings | |||||||||||
| 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) | |||||||||||
| Proceeds from sale of notes receivable | |||||||||||
| Issuance of notes receivable | ( | ( | |||||||||
| Payments received on notes receivable | |||||||||||
| Purchase of equipment held for operating lease | ( | ( | |||||||||
| Purchase of property, equipment and furnishings | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from debt obligations | |||||||||||
| Debt issuance costs | ( | ||||||||||
| Principal payments on debt obligations | ( | ( | |||||||||
| Proceeds from shares issued under stock compensation plans | |||||||||||
| Cancellation of restricted stock units in satisfaction of withholding tax | ( | ( | |||||||||
| Repurchase of common stock | ( | ||||||||||
| Preferred stock dividends | ( | ( | |||||||||
| Net cash (used in) provided by financing activities | ( | ||||||||||
| (Decrease) increase 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 Investment in sales-type leases | $ | $ | |||||||||
| Transfers from Equipment held for operating lease to Spare parts inventory | $ | $ | |||||||||
| Transfers from Equipment held for operating lease to Equipment held for sale | $ | $ | |||||||||
| Transfers from Spare parts inventory to Equipment held for operating lease | $ | $ | |||||||||
| Accrued preferred stock dividends | $ | $ | |||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
10
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2022
(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, 2021 (the “2021 Form 10-K”). There have been no significant changes in the Company’s significant accounting policies for the six months ended June 30, 2022.
(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 2021 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 2021 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 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, allowance for doubtful accounts, inventory 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, 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
11
As a result of the COVID-19 pandemic, the Company had temporarily closed its headquarters and other offices, required its employees and contractors to predominately work remotely, and implemented travel restrictions, all of which represented a significant disruption in how the Company operates its business. In January 2022, the Company lifted travel restrictions and has also subsequently opened its corporate headquarters and other offices for employees and contractors to work from offices at their discretion. The Company has also taken various proactive actions in an attempt to mitigate the financial impact of the COVID-19 pandemic. The operations of the Company's partners and customers have likewise been disrupted. The worldwide spread of the COVID-19 virus has resulted in a global slowdown of economic activity. While the duration and extent of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment actions, it has had an adverse effect on the global economy, and the ultimate societal and economic impact of the COVID-19 pandemic remains unknown. In particular, the ongoing COVID-19 pandemic has caused significant disruptions to the airline industry and has resulted in a dramatic reduction in demand for air travel domestically and abroad, which is likely to continue for the foreseeable future. Lower demand for air travel in turn presents significant risks to the Company, resulting in impacts which have adversely affected the Company's business, results of operations, and financial condition. Lower demand for spare parts and engine and airframe leasing has negatively impacted collections of accounts receivable, caused the Company's lessee customers to not enter into new leases, resulted in reduced spending by new and existing customers for leases or spare parts or equipment, resulted in lower usage fees, caused some of the Company's customers to go out of business, and limited the ability of the Company's personnel to travel to customers and potential customers. The Company is not able to evaluate or foresee the full extent of these impacts at the current time.
Other than what has been reflected in the Unaudited Condensed Consolidated Financial Statements, the Company is not aware of any specific event or circumstance related to the COVID-19 pandemic that would require it to update its estimates or judgments or adjust the carrying value of its assets or liabilities. Actual results could differ from those estimates, and any such differences may be material to the Unaudited Condensed Consolidated Financial Statements.
In February 2022, Russia commenced military action with Ukraine. As a result of this action, various nations, including the United States, have instituted economic sanctions against Russia. Further, the full impact of this action and related sanctions on the world economy is not determinable as of the date of these financial statements, and the specific impact on the Company's financial condition, results of operations and cash flows is also not determinable as of the date of these financial statements.
(d) Recent Accounting Pronouncements
Recent Accounting Pronouncements Adopted by the Company
In July 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-05, “Lease (Topic 842): Lessors – Certain Leases with Variable Lease Payments” related to accounting for sales-type leases or direct financing leases with variable lease payments. This ASU is effective for interim and annual years beginning after December 15, 2021, with early adoption permitted. The Company adopted this guidance effective January 1, 2022, and the adoption had no impact to the Company’s consolidated financial statements and related disclosures.
In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance” related to disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. This ASU is effective for annual periods beginning after December 15, 2021, with early application permitted. The Company adopted this guidance effective January 1, 2022, and the adoption had no impact to the Company's consolidated financial statements and related disclosures.
Recent Accounting Pronouncements To Be Adopted by the Company
12
2. Revenue from Contracts with Customers
The following tables disaggregate revenue by major source for the three and six months ended June 30, 2022 and 2021 (in thousands):
| Three months ended June 30, 2022 | Leasing and Related Operations | Spare Parts Sales | Eliminations | Total | ||||||||||||||||||||||
| Lease rent revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Maintenance reserve revenue | ||||||||||||||||||||||||||
| Spare parts and equipment sales | ||||||||||||||||||||||||||
| Gain on sale of leased equipment | ||||||||||||||||||||||||||
| Gain on sale of financial assets | ||||||||||||||||||||||||||
| Managed services | ||||||||||||||||||||||||||
| Other revenue | ( | |||||||||||||||||||||||||
| Total revenue | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Three Months Ended June 30, 2021 | Leasing and Related Operations | Spare Parts Sales | Eliminations | Total | ||||||||||||||||||||||
| Lease rent revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Maintenance reserve revenue | ||||||||||||||||||||||||||
| Spare parts and equipment sales | ||||||||||||||||||||||||||
| Managed services | ||||||||||||||||||||||||||
| Asset transition fee (1) | ||||||||||||||||||||||||||
| Other revenue | ( | |||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Six months ended June 30, 2022 | Leasing and Related Operations | Spare Parts Sales | Eliminations | Total | ||||||||||||||||||||||
| Lease rent revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Maintenance reserve revenue | ||||||||||||||||||||||||||
| Spare parts and equipment sales | ||||||||||||||||||||||||||
| Gain on sale of leased equipment | ||||||||||||||||||||||||||
| Gain on sale of financial assets | ||||||||||||||||||||||||||
| Managed services | ||||||||||||||||||||||||||
| Other revenue | ( | |||||||||||||||||||||||||
| Total revenue | $ | $ | $ | ( | $ | |||||||||||||||||||||
13
| Six months ended June 30, 2021 | Leasing and Related Operations | Spare Parts Sales | Eliminations | Total | ||||||||||||||||||||||
| Lease rent revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Maintenance reserve revenue | ||||||||||||||||||||||||||
| Spare parts and equipment sales | ||||||||||||||||||||||||||
| Managed services | ||||||||||||||||||||||||||
| Asset transition fee (1) | ||||||||||||||||||||||||||
| Other revenue | ( | |||||||||||||||||||||||||
| Total revenue | $ | $ | $ | ( | $ | |||||||||||||||||||||
_____________________________
(1)Asset transition fee reflects the settlement received from the close out of an engine transition program.
3. Equipment Held for Operating Lease and Notes Receivable
As of June 30, 2022, the Company had $1,957.6 million equipment held in our operating lease portfolio, $83.3 million notes receivable, and $7.0 million investment in sales-type leases, which represented 293 engines, twelve aircraft, one marine vessel and other leased parts and equipment. As of December 31, 2021, the Company had $1,991.4 million equipment held in our operating lease portfolio and $115.5 million notes receivable which represented 304 engines, twelve aircraft, one marine vessel and other leased parts and equipment.
The following table disaggregates equipment held for operating lease by asset class (in thousands):
| June 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
| 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
During the three months ended June 30, 2022 and 2021, the Company recorded interest income related to the notes receivable of $1.9 million and $3.6 million, respectively, and $4.0 million and $6.5 million during the six months ended June 30, 2022 and 2021, respectively, and is presented within Other revenue. The effective interest rates on our notes receivable ranged from 7.1 % to 12.2 % as of June 30, 2022 and 6.3 % to 12.2 % as of June 30, 2021.
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 June 30, 2022, WMES owned a lease portfolio, inclusive of 36 engines and five aircraft with a net book value of $258.9 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 June 30, 2022, CASC Willis owned a lease portfolio of four engines with a net book value of $45.5 million.
14
| As of June 30, 2022 | WMES | CASC Willis | Total | |||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Investment in joint ventures as of December 31, 2021 | $ | $ | $ | |||||||||||||||||
| Loss from joint ventures | ( | ( | ( | |||||||||||||||||
| Foreign currency translation adjustment | ( | ( | ||||||||||||||||||
| Other comprehensive gain from joint ventures | ||||||||||||||||||||
| Investment in joint ventures as of June 30, 2022 | $ | $ | $ | |||||||||||||||||
“Other revenue” on the Condensed Consolidated Statements of Income includes $0.5 million and $0.4 million of management fees earned during the three months ended June 30, 2022 and 2021, respectively, and $1.0 million and $0.7 million during the six months ended June 30, 2022 and 2021, respectively, related to the servicing of engines for the WMES lease portfolio.
There were no
Unaudited summarized financial information for 100% of WMES is presented in the following tables:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in thousands) | (in thousands) | ||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Expenses | |||||||||||||||||||||||
| WMES net income (loss) | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| June 30, 2022 | December 31, 2021 | ||||||||||
| (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, prior to the adoption of ASU 2017-05, related to engines sold by the Company to WMES.
15
5. Debt Obligations
Debt obligations consisted of the following:
| June 30, 2022 | December 31, 2021 | ||||||||||
| (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 1.79% and 0.10% as of June 30, 2022 and December 31, 2021, respectively.
Principal outstanding at June 30, 2022, is expected to be repayable as follows:
| Year | (in thousands) | |||||||
| 2022 | $ | |||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 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 June 30, 2022.
6. Derivative Instruments
16
The Company periodically holds interest rate derivative instruments to mitigate exposure to changes in interest rates, predominantly one-month LIBOR, with $569.0 million and $590.0 million of variable rate borrowings at June 30, 2022 and December 31, 2021, respectively. As a matter of policy, management does not use derivatives for speculative purposes. As of June 30, 2022, the Company had five interest rate swap agreements. During the first quarter of 2021, the Company entered into four fixed-rate interest swap agreements, each having notional amounts of $100.0 million, two with remaining terms of 19 months and two with remaining terms of 43 months as of June 30, 2022. 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 24 months as of June 30, 2022. One interest rate swap agreement which the Company entered into in 2016 expired in April 2021. 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 June 30, 2022.
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 June 30, 2022 was $28.4 million, representing an asset and is reflected within other assets on the condensed consolidated balance sheet. The net fair value of the interest rate swaps as of December 31, 2021 was $7.3 million, representing an asset of $8.0 million and a liability of $0.7 million, reflected within other assets and accounts payable and accrued expenses on the condensed consolidated balance sheet, respectively. The Company recorded an adjustment to interest expense of $(0.9 ) million and $0.5 million during the three months ended June 30, 2022 and 2021, respectively, and $(0.6 ) million and $1.4 million during the six months ended June 30, 2022 and 2021, respectively, from derivative instruments.
Effect of Derivative Instruments on Earnings in the Condensed Consolidated Statements of Income and Comprehensive Income
The following tables provide additional information about the financial statement effects related to the cash flow hedges for the three and six months ended June 30, 2022 and 2021:
| Derivatives in Cash Flow Hedging Relationships | Amount of Gain (Loss) Recognized in OCI on Derivatives (Effective Portion) | |||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| (in thousands) | (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.
17
7. Income Taxes
Income tax expense (benefit) for the three and six months ended June 30, 2022 was $5.0 million and $(1.5 ) million, respectively. The effective tax rate for the three and six months ended June 30, 2022 was 46.1 % and 8.8 %, respectively. Income tax benefit for the three and six months ended June 30, 2021 was $1.9 million and $2.3 million, respectively. The effective tax rate for the three and six months ended June 30, 2021 was 103.1 % and 64.1 %, 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 prior quarter 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.
The Company qualified for the Employment Retention Credit (“ERC”) and recognized a credit of $0.7 million and $1.4 million for the three and six months ended June 30 2021, respectively, as a reduction to payroll tax.
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 June 30, 2022 and December 31, 2021 was estimated to have a fair value of approximately $85.3 million and $117.7 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).
•Investment in sales-type leases: The carrying amount of the Company's outstanding balance on its Investment in sales-type leases as of June 30, 2022 was estimated to have a fair value of approximately $7.0 million 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). The Company did not have investment in sales-type leases at December 31, 2021.
18
•Debt obligations: The carrying amount of the Company’s outstanding balance on its Debt obligations as of June 30, 2022 and December 31, 2021 was estimated to have a fair value of approximately $1,549.0 million and $1,827.4 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).
Assets Measured and Recorded at Fair Value on a Recurring Basis
As of June 30, 2022 and December 31, 2021, 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 June 30, 2022 was $28.4 million, representing an asset. The net fair value of the interest rate swaps as of December 31, 2021 was $7.3 million, representing an asset of $8.0 million and a liability of $0.7 million. The Company recorded an adjustment to interest expense of $(0.9 ) million and $0.5 million during the three months ended June 30, 2022 and 2021, respectively, and $(0.6 ) million and $1.4 million during the six months ended June 30, 2022 and 2021, respectively, from derivative instruments.
Assets Measured and Recorded at Fair Value on a Nonrecurring Basis
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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in thousands) | (in thousands) | ||||||||||||||||||||||
| Equipment held for lease | $ | $ | $ | $ | |||||||||||||||||||
| Equipment held for sale | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Write-downs of equipment to their estimated fair values totaled $0.1 million for the three months ended June 30, 2022. Write-downs of equipment to their estimated fair values totaled $21.2 million for the six months ended June 30, 2022, primarily 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. As of June 30, 2022, included within equipment held for lease and equipment held for sale was $32.8 million in remaining book values of 19 assets which were previously written down.
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 June 30, 2022. There were 0.2 million anti-dilutive shares excluded from the computation of diluted weighted average earnings per common share for the six months ended June 30, 2022. There were 0.2 million and 0.3 million anti-dilutive shares for the three and six months ended June 30, 2021, respectively.
19
The following table presents the calculation of basic and diluted EPS (in thousands, except per share data):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| 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
Effective December 31, 2018, the Board of Directors approved the renewal of the existing common stock repurchase plan, extending the plan through December 31, 2020 and amending the plan to allow for repurchases of up to $60.0 million of the Company's common stock until such date. Effective December 31, 2020, the Board of Directors approved the renewal of the existing common stock repurchase plan, extending the plan through December 31, 2022. Repurchased shares are immediately retired. During the six months ended June 30, 2022, the Company repurchased a total of 154,215 shares of common stock for approximately $5.2 million at a weighted average price of $33.98 per share. During the six months ended June 30, 2021, no shares were repurchased. At June 30, 2022, approximately $39.6 million is available to purchase shares under the plan.
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 the six months ended June 30, 2022 and 2021, the Company paid total dividends of $1.6
11. Stock-Based Compensation Plans
The components of stock-based compensation expense were as follows:
| Three months ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in thousands) | (in thousands) | ||||||||||||||||||||||
| 2007 Stock Incentive Plan | $ | $ | $ | $ | |||||||||||||||||||
| 2021 Stock Incentive Plan | |||||||||||||||||||||||
| Employee Stock Purchase Plan | |||||||||||||||||||||||
| Total Stock Compensation Expense | $ | $ | $ | $ | |||||||||||||||||||
The significant stock compensation plans are described below.
The 2007 Stock Incentive Plan (the “2007 Plan”) was adopted in May 2007. Under the 2007 Plan, a total of 2,800,000 shares were authorized for stock-based compensation available in the form of either restricted stock awards (“RSAs”) or stock options. The RSAs are subject to service-based vesting, typically between and four years , where a specific period of continued employment must pass before an award vests. 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 June 30, 2022, there were no stock options outstanding under the 2007 Plan.
20
The 2018 Stock Incentive Plan (the “2018 Plan”) was adopted in May 2018. Under the 2018 Plan, a total of 800,000 shares are authorized for stock-based compensation, plus the number of shares remaining under the 2007 Plan and any future forfeited awards under the 2007 Plan, in the form of RSAs. In November 2021, the 2018 Plan was amended and restated as the 2021 Stock Incentive Plan (the “2021 Plan”) to increase the number of shares reserved for issuance under the 2021 Plan by 1,000,000 shares. The RSAs are subject to service and performance-based vesting, typically between and four years , where a specific period of continued employment or service must pass before an award vests. 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 June 30, 2022, 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.
The following table summarizes the restricted stock activity during the six months ended June 30, 2022:
| Shares | |||||
| Balance of unvested shares as of December 31, 2021 | |||||
| Shares granted | |||||
| Shares forfeited | |||||
| Shares vested | ( | ||||
| Balance of unvested shares as of June 30, 2022 | |||||
Under the Employee Stock Purchase Plan (“ESPP”), as amended and restated effective November 10, 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 six months ended June 30, 2022 and 2021, 9,919 and 8,307 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.
21
The following tables present a summary of the reportable segments (in thousands):
| Three Months Ended June 30, 2022 | Leasing and Related Operations | Spare Parts Sales | Eliminations | Total | ||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||
| Lease rent revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Maintenance reserve revenue | ||||||||||||||||||||||||||
| Spare parts and equipment sales | ||||||||||||||||||||||||||
| Gain on sale of leased equipment | ||||||||||||||||||||||||||
| Gain on sale of financial assets | ||||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||||||
| Earnings (loss) from operations | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||
| Three Months Ended June 30, 2021 | Leasing and Related Operations | Spare Parts Sales | Eliminations | Total | ||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||
| Lease rent revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Maintenance reserve revenue | ||||||||||||||||||||||||||
| Spare parts and equipment sales | ||||||||||||||||||||||||||
| Asset transition fee (1) | ||||||||||||||||||||||||||
| 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) earnings from operations | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||
_____________________________
(1)Asset transition fee reflects the settlement received from the close out of an engine transition program.
22
| Six Months Ended June 30, 2022 | Leasing and Related Operations | Spare Parts Sales | Eliminations | Total | ||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||
| Lease rent revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Maintenance reserve revenue | ||||||||||||||||||||||||||
| Spare parts and equipment sales | ||||||||||||||||||||||||||
| Gain on sale of leased equipment | ||||||||||||||||||||||||||
| Gain on sale of financial assets | ||||||||||||||||||||||||||
| 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 from operations | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Six Months Ended June 30, 2021 | Leasing and Related Operations | Spare Parts Sales | Eliminations | Total | ||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||
| Lease rent revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Maintenance reserve revenue | ||||||||||||||||||||||||||
| Spare parts and equipment sales | ||||||||||||||||||||||||||
| Asset transition fee (1) | ||||||||||||||||||||||||||
| 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 from operations | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
_____________________________
(1)Asset transition fee reflects the settlement received from the close out of an engine transition program.
23
| Leasing and Related Operations | Spare Parts Sales | Eliminations | Total | |||||||||||||||||||||||
| Total assets as of June 30, 2022 | $ | $ | $ | $ | ||||||||||||||||||||||
| Total assets as of December 31, 2021 | $ | $ | $ | $ | ||||||||||||||||||||||
13. Related Party Transactions
Joint Ventures
“Other revenue” on the Condensed Consolidated Statements of Income includes management fees earned of $0.5 million and $0.4 million during the three months ended June 30, 2022 and 2021, respectively, and $1.0 million and $0.7 million during the six months ended June 30, 2022 and 2021, respectively, related to the servicing of engines for the WMES lease portfolio.
14. Subsequent Event
24
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, 2021 (the “2021 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 June 30, 2022, 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 a $7.0 million investment in sales-type leases. As of June 30, 2022, we had 79 lessees in 42 countries. Our portfolio is continually changing due to equipment acquisitions and sales. As of June 30, 2022, $1,957.6 million of equipment held in our operating lease portfolio, $83.3 million of notes receivable, and $7.0 million of investment in sales-type leases represented 293 engines, twelve aircraft, one marine vessel and other leased parts and equipment. As of June 30, 2022, we also managed 351 engines, aircraft and related equipment on behalf of other parties.
Our wholly owned 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 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
As a result of the COVID-19 pandemic, the Company had temporarily closed its headquarters and other offices, required its employees and contractors to predominately work remotely, and implemented travel restrictions, all of which represented a significant disruption in how the Company operates its business. In January 2022, the Company lifted travel restrictions and has also subsequently opened its corporate headquarters and other offices for employees and contractors to work from offices at their discretion. The Company has also taken various proactive actions in an attempt to mitigate the financial impact of the COVID-19 pandemic. The operations of the Company’s partners and customers have likewise been disrupted. The worldwide spread of the COVID-19 virus has resulted in a global slowdown of economic activity. While the duration and extent of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment actions, it has had an adverse effect on the global economy and the ultimate societal and economic impact of the COVID-19 pandemic remains unknown. In particular, the ongoing COVID-19 pandemic has caused significant disruptions to the airline industry and has resulted in a dramatic reduction in demand for air travel domestically and abroad, which is likely to continue for the foreseeable future. Lower demand for air travel in turn presents significant risks to the Company, resulting in impacts which have adversely affected the Company’s business, results of operation, and financial condition. Lower demand for spare parts and engine and airframe leasing has negatively impacted collections of accounts receivable, caused the Company’s lessee customers to not enter into new leases, resulted in reduced spending by new and existing customers for leases or spare parts or equipment, resulted in lower usage fees, caused some of the Company’s customers to go out of business, and limited the ability of the Company’s personnel to travel to customers and potential customers. The Company is not able to evaluate or foresee the full extent of these impacts at the current time.
The scope and nature of the impact of COVID-19 on the airline industry, and in turn our 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 our business and financial position. The ultimate extent of the effects of the COVID-19 pandemic on our Company will depend on future developments, and such effects could exist for an extended period of time.
25
In February 2022, Russia commenced a military action with Ukraine. As a result of this action, various nations, including the United States, have instituted economic sanctions against Russia. Further, the full impact of this action and related sanctions on the world economy is not determinable as of the date of these financial statements, and the specific impact on the Company’s financial condition, results of operations and cash flows is also not determinable as of the date of these financial statements.
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 2021 Form 10-K.
Results of Operations
Three months ended June 30, 2022 compared to the three months ended June 30, 2021
Revenue is summarized as follows:
| Three Months Ended June 30, | |||||||||||||||||
| 2022 | 2021 | % Change | |||||||||||||||
| (dollars in thousands) | |||||||||||||||||
| Lease rent revenue | $ | 36,704 | $ | 32,431 | 13.2 | % | |||||||||||
| Maintenance reserve revenue | 24,245 | 17,278 | 40.3 | % | |||||||||||||
| Spare parts and equipment sales | 6,792 | 3,569 | 90.3 | % | |||||||||||||
| Gain on sale of leased equipment | 498 | — | N/A | ||||||||||||||
| Gain on sale of financial assets | 3,116 | — | N/A | ||||||||||||||
| Asset transition fee | — | 6,256 | (100.0) | % | |||||||||||||
| Other revenue | 6,720 | 6,938 | (3.1) | % | |||||||||||||
| Total revenue | $ | 78,075 | $ | 66,472 | 17.5 | % | |||||||||||
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 $4.3 million, or 13.2%, to $36.7 million in the three months ended June 30, 2022 from $32.4 million for the three months ended June 30, 2021. The increase is due to an increase in the number of engines placed on lease as supported by an increase in utilization compared to the prior year period. During the three months ended June 30, 2022, we purchased equipment (including capitalized costs) totaling $57.1 million, which consisted of four engines and other parts and equipment purchased for our lease portfolio. During the three months ended June 30, 2021, we purchased equipment (including capitalized costs) totaling $37.3 million, which consisted of five engines and one aircraft purchased for our lease portfolio.
One customer accounted for more than 10% of total lease rent revenue during the three months ended June 30, 2022 and 2021, respectively.
At June 30, 2022, the aggregate net book value of equipment held for lease consisted of $1,957.6 million, $83.3 million notes receivable, and $7.0 million investment in sales-type leases. At June 30, 2021, the aggregate net book value of equipment held for lease consisted of $1,889.9 million and $195.6 million notes receivable. Average utilization (based on net book value) was approximately 82% and 81% for the three months ended June 30, 2022 and 2021, respectively.
Maintenance Reserve Revenue. Maintenance reserve revenue increased $7.0 million, or 40.3%, to $24.2 million for the three months ended June 30, 2022 from $17.3 million for the three months ended June 30, 2021. 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. Long-term maintenance revenue was $15.1 million for the three months ended June 30, 2022 compared to $14.8 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 $9.2 million of short-term maintenance revenues compared to $2.5 million in the comparable prior period, resulting from an increase in global flight traffic subsequent to the most significant impacts of the COVID-19 pandemic.
26
Spare Parts and Equipment Sales. Spare parts sales increased by $3.2 million, or 90.3%, to $6.8 million for the three months ended June 30, 2022 compared to $3.6 million for the three months ended June 30, 2021. The increase in spare parts sales for the second quarter of 2022 was driven by an industry-wide increase in engine and aircraft utilization and the demand for parts associated with such increase compared to the prior year period. There were no equipment sales for the three months ended June 30, 2022 and 2021.
Gain on Sale of Leased Equipment. During the three months ended June 30, 2022, we sold eight engines from the lease portfolio for a net gain of $0.5 million. There was no gain on sale of leased equipment during the three months ended June 30, 2021.
Gain on Sale of Financial Assets. During the three months ended June 30, 2022, we sold four notes receivable for a net gain of $3.1 million. There was no gain on sale of financial assets during the three months ended June 30, 2021.
Asset Transition Fee. There was no asset transition fee in the three months ended June 30, 2022. Asset transition fee of $6.3 million during the three months ended June 30, 2021 reflects a settlement received from the close out of an engine transition program.
Other Revenue. Other revenue decreased by $0.2 million, or 3.1%, to $6.7 million for the three months ended June 30, 2022 from $6.9 million for the three months ended June 30, 2021. Other revenue consists primarily of management fee income, lease administration fees, third party consignment commissions earned, service fee revenue, interest income on notes receivable related to failed sale-leasebacks where the Company was the buyer-lessor, and other discrete revenue items.
Depreciation and Amortization Expense. Depreciation and amortization expense decreased by $1.7 million, or 7.4%, to $21.6 million for the three months ended June 30, 2022 compared to $23.3 million for the three months ended June 30, 2021. The decrease reflects certain assets reaching their residual values as compared to the prior year period.
Cost of Spare Parts and Equipment Sales. Cost of spare parts sales increased by $3.7 million, or 114.0%, to $7.0 million for the three months ended June 30, 2022 compared to $3.3 million for the three months ended June 30, 2021 due to higher spare parts sales and aged lot write-downs of $1.4 million. There was no equipment or cost of equipment sales for the three months ended June 30, 2022 and 2021.
Write-down of Equipment. Write-down of equipment was $0.1 million for the three months ended June 30, 2022. Write-down of equipment was $2.2 million for the three months ended June 30, 2021, reflecting the write-down of four engines.
General and Administrative Expenses. General and administrative expenses increased by $0.9 million, or 4.8%, to $20.4 million for the three months ended June 30, 2022 compared to $19.5 million for the three months ended June 30, 2021.
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 increased by $1.1 million to $3.4 million for the three months ended June 30, 2022 compared to $2.3 million for the three months ended June 30, 2021. The increase is primarily due to an increase in engine maintenance due to industry-wide increase in engine and aircraft utilization and engine hub repairs resulting from a Federal Aviation Administration ("FAA") airworthiness directive, as compared to the prior year period.
Net Finance Costs. Net finance costs decreased $1.0 million, or 5.7%, to $16.0 million for the three months ended June 30, 2022 compared to $17.0 million for the three months ended June 30, 2021.
Income Tax Expense (Benefit). Income tax expense (benefit) was $5.0 million for the three months ended June 30, 2022 compared to $(1.9) million for the three months ended June 30, 2021. The effective tax rate for the second quarter of 2022 was 46.1% compared to 103.1% in the prior year period. The Company’s effective tax rate 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").
27
Six months ended June 30, 2022 compared to the six months ended June 30, 2021
Revenue is summarized as follows:
| Six Months Ended June 30, | |||||||||||||||||
| 2022 | 2021 | % Change | |||||||||||||||
| (dollars in thousands) | |||||||||||||||||
| Lease rent revenue | $ | 74,829 | $ | 63,951 | 17.0 | % | |||||||||||
| Maintenance reserve revenue | 39,079 | 37,090 | 5.4 | % | |||||||||||||
| Spare parts and equipment sales | 13,422 | 8,135 | 65.0 | % | |||||||||||||
| Gain on sale of leased equipment | 2,796 | — | N/A | ||||||||||||||
| Gain on sale of financial assets | 3,116 | — | N/A | ||||||||||||||
| Asset transition fee | — | 6,256 | (100.0) | % | |||||||||||||
| Other revenue | 13,650 | 12,165 | 12.2 | % | |||||||||||||
| Total revenue | $ | 146,892 | $ | 127,597 | 15.1 | % | |||||||||||
Lease Rent Revenue. Lease rent revenue increased by $10.9 million, or 17.0%, to $74.8 million for the six months ended June 30, 2022, compared to $64.0 million for the six months ended June 30, 2021. The increase is due to an increase in the number of engines placed on lease as supported by an increase in utilization compared to the prior year period. During the six months ended June 30, 2022, we purchased equipment (including capitalized costs) totaling $81.3 million, which consisted of five engines and other parts and equipment purchased for our lease portfolio. During the six months ended June 30, 2021, we purchased equipment (including capitalized costs) totaling $63.8 million, which primarily consisted of seven engines, one aircraft, and other parts and equipment purchased for our lease portfolio.
One customer accounted for more than 10% of total lease rent revenue during the six months ended June 30, 2022 and 2021, respectively.
At June 30, 2022, the aggregate net book value of equipment held for lease consisted of $1,957.6 million, $83.3 million notes receivable, and $7.0 million investment in sales-type leases. At June 30, 2021, the aggregate net book value of equipment held for lease consisted of $1,889.9 million and $195.6 million notes receivable. Average utilization (based on net book value) was approximately 83% and 80% for the six months ended June 30, 2022 and 2021, respectively.
Maintenance Reserve Revenue. Maintenance reserve revenue increased $2.0 million, or 5.4%, to $39.1 million for the six months ended June 30, 2022 from $37.1 million for the six months ended June 30, 2021. Long-term maintenance revenue was $23.3 million for the six months ended June 30, 2022 compared to $31.9 million in the prior year period. Engines out on lease with “non-reimbursable” usage fees generated $15.8 million of short-term maintenance revenues compared to $5.2 million in the comparable prior period, resulting from an increase in global flight traffic subsequent to the most significant impacts of the COVID-19 pandemic.
Spare Parts and Equipment Sales. Spare parts and equipment sales increased by $5.3 million, or 65.0%, to $13.4 million for the six months ended June 30, 2022 compared to $8.1 million in the prior year period. The increase in spare parts sales for the six months ended June 30, 2022 was driven by an industry-wide increase in engine and aircraft utilization and the demand for parts associated with such increase compared to the prior year period. There were no equipment sales during the six months ended June 30, 2022 and 2021.
Gain on Sale of Leased Equipment. During the six months ended June 30, 2022, we sold thirteen engines and other parts and equipment from the lease portfolio for a net gain of $2.8 million. There were no sales of leased equipment during the six months ended June 30, 2021.
Gain on Sale of Financial Assets. During the six months ended June 30, 2022, we sold four notes receivable for a net gain of $3.1 million. There was no gain on sale of financial assets during the six months ended June 30, 2021.
Asset Transition Fee. There was no asset transition fee in the six months ended June 30, 2022. Asset transition fee of $6.3 million in the six months ended June 30, 2021 reflects a settlement received from the close out of an engine transition program.
28
Other Revenue. Other revenue increased by $1.5 million, or 12.2%, to $13.7 million for the six months ended June 30, 2022 from $12.2 million for the six months ended June 30, 2021. Other revenue consists primarily of management fee income, lease administration fees, third party consignment commissions earned, service fee revenue, interest income on notes receivable related to failed sale-leasebacks where the Company was the buyer-lessor, and other discrete revenue items. The increase for the six months ended June 30, 2022 compared to the prior year period primarily reflects increased service revenue.
Depreciation and Amortization Expense. Depreciation and amortization expense decreased by $4.1 million, or 8.6%, to $43.4 million for the six months ended June 30, 2022 compared to $47.5 million for the six months ended June 30, 2021. The decrease reflects certain assets reaching their residual values as compared to the prior year period.
Cost of Spare Parts and Equipment Sales. Cost of spare parts and equipment sales increased by $4.8 million, or 67.6%, to $11.9 million for the six months ended June 30, 2022 compared to $7.1 million for the six months ended June 30, 2021 due to higher spare parts sales and aged lot write-downs of $1.4 million. There was no cost of equipment or cost of equipment sales for the six months ended June 30, 2022 and 2021.
Write-down of Equipment. Write-down of equipment was $21.2 million for the six months ended June 30, 2022, primarily reflecting the write-down of three 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. Write-down of equipment was $4.1 million for the six months ended June 30, 2021, primarily reflecting the write-down of four engines and one airframe.
General and Administrative Expenses. General and administrative expenses increased by $8.4 million, or 23.5%, to $44.0 million for the six months ended June 30, 2022 compared to $35.7 million for the six months ended June 30, 2021. The increase primarily reflects a $4.4 million increase in personnel costs, inclusive of a $1.0 million bonus to our Executive Chairman for his 25 years of prior service to the Company, as well as a $1.4 million reduction to the prior year period personnel costs resulting from the Coronavirus Aid, Relief, and Economic Security Act employee retention credit. Stock based compensation reflected an additional $0.5 million of expense which was driven by an increase in stock price prior to the 2021 RSA grant. Additionally, with the lifting of travel bans and the opening of various markets, travel and related costs increased by $2.0 million as our sales force reengaged with customers globally.
Technical Expense. Technical expense increased by $5.5 million, or 151.9%, to $9.1 million for the six months ended June 30, 2022 compared to $3.6 million for the six months ended June 30, 2021. The increase is primarily due to an increase in engine maintenance due to an industry-wide increase in engine and aircraft utilization and engine hub repairs resulting from a FAA airworthiness directive, as compared to the prior year period.
Net Finance Costs. Net finance costs increased by $0.9 million, or 2.8%, to $32.9 million for the six months ended June 30, 2022 compared to $32.0 million for the six months ended June 30, 2021.
Income Tax Benefit. Income tax benefit was $1.5 million for the six months ended June 30, 2022 compared to $2.3 million for the six months ended June 30, 2021. The effective tax rate for the six months ended June 30, 2022 was 8.8% compared to 64.1% in the prior year period. The Company’s effective tax rate 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 Code and a discrete item recorded in 2022 associated with a write-down of engines due to the Russia and Ukraine conflict.
Financial Position, Liquidity and Capital Resources
Liquidity
At June 30, 2022, the Company had $73.8 million of cash, cash equivalents and restricted cash, of which $12.9 million was unrestricted. 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 $59.0 million and $395.7 million for the six months ended June 30, 2022 and 2021, respectively, was derived from our borrowing activities. In these same time periods, $119.7 million and $175.8 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.
29
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 anticipate that we may hedge additional amounts of our floating rate debt in the future.
Cash Flows Discussion
Cash flows provided by operating activities was $57.8 million and $42.8 million for the six months ended June 30, 2022 and 2021, 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 80% and 82%, by book value, of our assets were on-lease as of June 30, 2022 and December 31, 2021, respectively. The average utilization rate (based on net book value) for the six months ended June 30, 2022 and 2021 was approximately 83% and 80%, 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 was $8.7 million for the six months ended June 30, 2022 and primarily reflected $15.3 million related to leases entered into during 2021 which were classified as notes receivable under ASC 842 and $81.3 million for the purchase of equipment held for operating lease (including capitalized costs and prepaid deposits made in the period), offset by proceeds from sale of equipment (net of selling expenses) and proceeds from sale of notes receivable of $47.7 million and $40.7 million, respectively. Cash flows used in investing activities was $101.5 million in the six months ended June 30, 2021, and primarily reflected $42.5 million related to leases entered into during the first half of 2021 which were classified as notes receivable under ASC 842 and $63.8 million for the purchase of equipment held for operating lease (including capitalized costs and prepaid deposits made in the period).
Cash flows used in financing activities was $70.8 million for the six months ended June 30, 2022 and primarily reflected $59.0 million in proceeds from debt obligations, partially offset by $119.7 million in principal payments and $5.2 million of share repurchases. Cash flows provided by financing activities was $208.9 million for the six months ended June 30, 2021 and primarily reflected $395.7 million in proceeds from debt obligations, partially offset by $175.8 million in principal payments.
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 the six months ended June 30, 2022 and 2021, the Company paid total dividends of $1.6 million, respectively, on the Series A-1 and Series A-2 Preferred Stock.
Debt Obligations and Covenant Compliance
At June 30, 2022, debt obligations consisted of loans totaling $1,731.8 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.
30
At June 30, 2022, 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 4.50 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 June 30, 2022, 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.
Off-Balance Sheet Arrangements
As of June 30, 2022, 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 June 30, 2022:
| Payment due by period (in thousands) | |||||||||||||||||||||||||||||
| Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | |||||||||||||||||||||||||
| Debt obligations | $ | 1,748,936 | $ | 82,008 | $ | 691,879 | $ | 334,672 | $ | 640,377 | |||||||||||||||||||
| Interest payments under debt obligations | 251,414 | 65,282 | 104,184 | 63,325 | 18,623 | ||||||||||||||||||||||||
| Operating lease obligations | 6,632 | 1,112 | 2,798 | 1,490 | 1,232 | ||||||||||||||||||||||||
| Purchase obligations | 411,482 | 99,262 | 241,220 | 71,000 | — | ||||||||||||||||||||||||
| Total | $ | 2,418,464 | $ | 247,664 | $ | 1,040,081 | $ | 470,487 | $ | 660,232 | |||||||||||||||||||
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 currently committed to purchasing nineteen additional new LEAP-1A engines for $269.3 million and ten additional new LEAP-1B engines for $142.2 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 May 2021, we entered into a commitment for future maintenance services which are anticipated to cost $24.0 million by 2024.
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 $73.8 million and $112.0 million by 2030.
We have estimated the interest payments due under debt obligations by applying the interest rates applicable at June 30, 2022 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 for one-month LIBOR.
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.
31
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our primary market risk exposure is that of interest rate risk. A change in LIBOR 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 June 30, 2022, $569.0 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 $0.7 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 six months ended June 30, 2022 and 2021, 57% and 55%, 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 June 30, 2022 as a result of the material weakness described below, our disclosure controls and procedures were not 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) Previously reported material weakness in internal control over financial reporting. During the review process related to the three months ended March 31, 2022, management, together with the Company’s independent registered public accounting firm, identified a material weakness in one of the Company’s internal controls related to the review of the quarterly income tax provision. Specifically, the Company’s evaluation of the quarterly income tax provision did not include a review process sufficiently precise to evaluate the accuracy of the income tax expense (benefit) calculation during the quarter ended March 31, 2022. Additionally, the review was not sufficiently detailed to identify a material misstatement in the calculation of the income tax expense (benefit).
(c) Remediation plan for previously identified material weakness in internal control. Our remediation plan includes, but is not limited to, improving our existing tax controls relating to the review of the quarterly income tax provision, which will include an assessment of the accuracy of the income tax expense (benefit) calculation. The Company will also allocate additional accounting resources to prepare and review the income tax provision.
We will continue to assess our internal control over financial reporting and our disclosure controls and procedures and intend to take further action as necessary or appropriate to address any other matters we identify. The actions we have taken and will continue to take are subject to continued review, supported by confirmation and testing by management as well as audit committee oversight. While we have a plan to remediate the identified material weakness, we cannot assure you that we will be able to remediate this material weakness, which could impair our ability to accurately and timely report our financial position, results of operations or cash flows. Moreover, a failure to remediate this material weakness identified above or the identification of additional material weaknesses could adversely affect our external financial reporting, and with that, confidence in our public disclosures, our stock price, and our ability to maintain compliance with listing requirements of The Nasdaq Stock Market LLC.
32
Notwithstanding the foregoing, having given full consideration to the material weakness described above, we have concluded that the financial statements and other financial information included in this quarterly report fairly present in all material respects our financial condition, results of operations, and cash flows for the periods presented in conformity with U.S. GAAP.
(d) Changes in internal controls over financial reporting. Other than as described above, there has been no change in our internal control over financial reporting during our fiscal quarter ended June 30, 2022 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, 2021, filed with the SEC on March 14, 2022, 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, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) None.
(b) None.
(c) Issuer Purchases of Equity Securities. Effective December 31, 2018, the Board of Directors approved the renewal of the existing common stock repurchase plan extending the plan through December 31, 2020 and amending the plan to allow for repurchases of up to $60.0 million of the Company’s common stock until such date. Effective December 31, 2020, the Board of Directors approved the renewal of the existing common stock repurchase plan extending the plan through December 31, 2022. On June 6, 2022, the Company suspended repurchases under its 10b5-01 plan.
Common stock repurchases, under our authorized plan, in the three months ended June 30, 2022 were as follows:
| Period | Total Number of Shares Purchased | Average Price per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans | ||||||||||
| April 2022 | 30,514 | $ | 32.06 | 30,514 | $ | 42,019 | ||||||||
| May 2022 | 56,185 | $ | 33.05 | 56,185 | $ | 40,162 | ||||||||
| June 2022 | 14,736 | $ | 38.45 | 14,736 | $ | 39,595 | ||||||||
| Total | 101,435 | $ | 33.55 | 101,435 | $ | 39,595 | ||||||||
Item 5. Other Information
None.
33
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 June 30, 2022, 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). | |||||||
34
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: August 5, 2022
| Willis Lease Finance Corporation | ||||||||
| By: | /s/ Scott B. Flaherty | |||||||
| Scott B. Flaherty | ||||||||
| Chief Financial Officer | ||||||||
| (Principal Financial and Accounting Officer) | ||||||||
35
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: | August 5, 2022 | /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: | August 5, 2022 | /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 June 30, 2022 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: August 5, 2022 | |||||
| /s/ Austin C. Willis | |||||
| Austin C. Willis | |||||
| Chief Executive Officer | |||||
| /s/ Scott B. Flaherty | |||||
| Scott B. Flaherty | |||||
| Chief Financial Officer | |||||