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 ~~September 30, 2021~~March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-15369

WILLIS LEASE FINANCE CORPORATION

(Exact name of registrant as specified in its charter)


Delaware						68-0070656
(State or other jurisdiction of incorporation or organization)						(IRS Employer Identification No.)

4700 Lyons Technology Parkway

Coconut Creek

Florida

33073

(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

Common Stock, $0.01 par value per share

WLFC

Nasdaq Global Market

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	☐	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 ~~November 1, 2021~~May 9, 2022 was ~~6,076,051.~~6,144,837.

Table of Contents

WILLIS LEASE FINANCE CORPORATION

AND SUBSIDIARIES

INDEX


PART I.	FINANCIAL INFORMATION	4

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	4

	Condensed Consolidated Balance Sheets as of ~~September 30, 2021~~March 31 , 202 2 and December 31, ~~2020~~202 1	4

	Condensed Consolidated Statements of Income for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31 , 202 2 and ~~2020~~202 1	5

	Condensed Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31 , 202 2 and ~~2020~~202 1	6

	Condensed Consolidated Statements of Redeemable Preferred Stock and Shareholders' Equity for the three months ended March 31 , 202 2 and ~~nine months ended September 30, 2021 and 2020~~202 1	7

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 202 2 and ~~2020~~202 1	98

	Notes to Condensed Consolidated Financial Statements	109

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2420

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3125

Item 4.	Controls and Procedures	3225

PART II.	OTHER INFORMATION	3226

Item 1A.	Risk Factors	3226

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3327

Item 5.	Other Information	3327

Item 6.	Exhibits	3428

Table of Contents

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, ~~2020~~2021 filed with the Securities and Exchange Commission (“SEC”) on March ~~15, 2021,~~14, 2022, this quarterly report on Form 10-Q for the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 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.

Table of Contents

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)


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	15,092	$	42,540	Cash and cash equivalents	$	14,105	$	14,329
Restricted cash	Restricted cash	56,477		36,385		Restricted cash	68,875		81,312
Equipment held for operating lease, less accumulated depreciation of $505,605 and $454,123 at September 30, 2021 and December 31, 2020, respectively		1,971,252		1,886,613
Equipment held for operating lease, less accumulated depreciation of $526,243 and $524,968 at March 31, 2022 and December 31, 2021, respectively						Equipment held for operating lease, less accumulated depreciation of $526,243 and $524,968 at March 31, 2022 and December 31, 2021, respectively	1,951,448		1,991,368
Maintenance rights	Maintenance rights	22,511		20,097		Maintenance rights	22,511		22,511
Equipment held for sale	Equipment held for sale	11,057		2,850		Equipment held for sale	10,873		6,952
Receivables, net of allowances of $1,258 and $1,372 at September 30, 2021 and December 31, 2020, respectively		42,595		28,269
Receivables, net of allowances of $1,197 and $1,154 at March 31, 2022 and December 31, 2021, respectively						Receivables, net of allowances of $1,197 and $1,154 at March 31, 2022 and December 31, 2021, respectively	42,598		39,623
Spare parts inventory	Spare parts inventory	53,556		59,434		Spare parts inventory	47,654		50,959
Investments	Investments	53,153		53,275		Investments	54,454		55,927
Property, equipment & furnishings, less accumulated depreciation of $12,900 and $11,356 at September 30, 2021 and December 31, 2020, respectively		30,800		31,753
Property, equipment & furnishings, less accumulated depreciation of $14,064 and $13,484 at March 31, 2022 and December 31, 2021, respectively						Property, equipment & furnishings, less accumulated depreciation of $14,064 and $13,484 at March 31, 2022 and December 31, 2021, respectively	31,267		31,327
Intangible assets, net	Intangible assets, net	1,202		1,246		Intangible assets, net	1,173		1,188
Notes receivable	Notes receivable	196,146		158,708		Notes receivable	114,253		115,456
Other assets	Other assets	47,047		43,778		Other assets	70,715		51,975
Total assets (1)	Total assets (1)	$	2,500,888	$	2,364,948	Total assets (1)	$	2,429,926	$	2,462,927

LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY	LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY					LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY
Liabilities:	Liabilities:					Liabilities:
Accounts payable and accrued expenses	Accounts payable and accrued expenses	$	50,124	$	26,977	Accounts payable and accrued expenses	$	32,358	$	26,858
Deferred income taxes	Deferred income taxes	118,941		116,838		Deferred income taxes	121,398		124,332
Debt obligations	Debt obligations	1,814,208		1,693,753		Debt obligations	1,759,126		1,790,264
Maintenance reserves	Maintenance reserves	61,482		82,484		Maintenance reserves	67,762		65,976
Security deposits	Security deposits	22,915		19,522		Security deposits	18,321		19,349
Unearned revenue	Unearned revenue	12,590		11,637		Unearned revenue	10,128		10,458
Total liabilities (2)	Total liabilities (2)	2,080,260		1,951,211		Total liabilities (2)	2,009,093		2,037,237

Redeemable preferred stock ($0.01 par value, 2,500 shares authorized; 2,500 shares issued at September 30, 2021 and December 31, 2020, respectively)		49,785		49,722
Redeemable preferred stock ($0.01 par value, 2,500 shares authorized; 2,500 shares issued at March 31, 2022 and December 31, 2021, respectively)						Redeemable preferred stock ($0.01 par value, 2,500 shares authorized; 2,500 shares issued at March 31, 2022 and December 31, 2021, respectively)	49,826		49,805

Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Common stock ($0.01 par value, 20,000 shares authorized; 6,624 and 6,570 shares issued at September 30, 2021 and December 31, 2020, respectively)		66		66
Common stock ($0.01 par value, 20,000 shares authorized; 6,488 and 6,531 shares issued at March 31, 2022 and December 31, 2021, respectively)						Common stock ($0.01 par value, 20,000 shares authorized; 6,488 and 6,531 shares issued at March 31, 2022 and December 31, 2021, respectively)	65		65
Paid-in capital in excess of par	Paid-in capital in excess of par	15,653		13,696		Paid-in capital in excess of par	18,353		15,401
Retained earnings	Retained earnings	354,486		355,370		Retained earnings	333,365		355,388
Accumulated other comprehensive income (loss), net of income tax expense (benefit) of $201 and $(1,485) at September 30, 2021 and December 31, 2020, respectively		638		(5,117)
Accumulated other comprehensive income, net of income tax expense of $5,570 and $1,469 at March 31, 2022 and December 31, 2021, respectively						Accumulated other comprehensive income, net of income tax expense of $5,570 and $1,469 at March 31, 2022 and December 31, 2021, respectively	19,224		5,031
Total shareholders’ equity	Total shareholders’ equity	370,843		364,015		Total shareholders’ equity	371,007		375,885
Total liabilities, redeemable preferred stock and shareholders’ equity	Total liabilities, redeemable preferred stock and shareholders’ equity	$	2,500,888	$	2,364,948	Total liabilities, redeemable preferred stock and shareholders’ equity	$	2,429,926	$	2,462,927

_____________________________

(1)Total assets at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~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 ~~$56,476~~$68,875 and ~~$35,262;~~$81,312; Equipment ~~$1,224,879~~$1,197,953 and ~~$1,037,684;~~$1,226,395; Maintenance Rights $5,433 and ~~$767;~~$5,433; Inventory ~~$4,367~~$— and ~~$5,437;~~$4,367; Notes receivable ~~$131,584~~$90,145 and ~~$26,392;~~$90,868; and Other assets ~~$4,748~~$5,248 and ~~$558,~~$4,775, respectively.

(2)Total liabilities at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, include the following liabilities of VIEs for which the VIEs’ creditors do not have recourse to Willis Lease Finance Corporation: Debt obligations ~~$1,208,679~~$1,176,975 and ~~$907,550,~~$1,197,922, respectively.

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

WILLIS LEASE FINANCE CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
REVENUE	REVENUE									REVENUE
Lease rent revenue	Lease rent revenue	$	32,908	$	30,025	$	96,859	$	114,874	Lease rent revenue	$	38,125	$	31,520
Maintenance reserve revenue	Maintenance reserve revenue	23,659		32,302		60,749		82,816		Maintenance reserve revenue	14,834		19,812
Spare parts and equipment sales	Spare parts and equipment sales	5,091		2,888		13,226		14,848		Spare parts and equipment sales	6,630		4,566
Gain on sale of leased equipment	Gain on sale of leased equipment	2,440		—		2,440		1,367		Gain on sale of leased equipment	2,298		—
Asset transition fee		—		—		6,256		—

Other revenue	Other revenue	6,693		5,398		18,858		13,300		Other revenue	6,930		5,227
Total revenue	Total revenue	70,791		70,613		198,388		227,205		Total revenue	68,817		61,125

EXPENSES	EXPENSES									EXPENSES
Depreciation and amortization expense	Depreciation and amortization expense	21,274		24,022		68,755		71,176		Depreciation and amortization expense	21,809		24,141
Cost of spare parts and equipment sales	Cost of spare parts and equipment sales	3,921		4,125		11,008		13,461		Cost of spare parts and equipment sales	4,862		3,809
Write-down of equipment	Write-down of equipment	—		5,245		4,113		14,371		Write-down of equipment	21,117		1,867
General and administrative	General and administrative	18,662		16,461		54,312		51,256		General and administrative	23,605		16,151
Technical expense	Technical expense	2,524		827		6,130		3,422		Technical expense	5,646		1,310
Net finance costs:	Net finance costs:									Net finance costs:
Interest expense	Interest expense	18,325		15,351		50,331		47,136		Interest expense	16,883		15,019
Loss on debt extinguishment		—		—		—		4,688

Total net finance costs	Total net finance costs	18,325		15,351		50,331		51,824		Total net finance costs	16,883		15,019
Total expenses	Total expenses	64,706		66,031		194,649		205,510		Total expenses	93,922		62,297

Earnings from operations		6,085		4,582		3,739		21,695
Earnings (loss) from joint ventures		21		1,457		(1,183)		2,612
Income before income taxes		6,106		6,039		2,556		24,307
Income tax expense		3,222		3,055		946		11,665
Net income		2,884		2,984		1,610		12,642
Loss from operations										Loss from operations	(25,105)		(1,172)
Loss from joint ventures										Loss from joint ventures	(2,616)		(519)
Loss before income taxes										Loss before income taxes	(27,721)		(1,691)
Income tax benefit										Income tax benefit	(6,520)		(359)
Net loss										Net loss	(21,201)		(1,332)
Preferred stock dividends	Preferred stock dividends	819		819		2,431		2,440		Preferred stock dividends	801		801
Accretion of preferred stock issuance costs	Accretion of preferred stock issuance costs	21		21		63		63		Accretion of preferred stock issuance costs	21		21
Net income (loss) attributable to common shareholders		$	2,044	$	2,144	$	(884)	$	10,139
Net loss attributable to common shareholders										Net loss attributable to common shareholders	$	(22,023)	$	(2,154)

Basic weighted average earnings (loss) per common share		$	0.33	$	0.36	$	(0.14)	$	1.70
Diluted weighted average earnings (loss) per common share		$	0.32	$	0.35	$	(0.14)	$	1.66
Basic weighted average loss per common share										Basic weighted average loss per common share	$	(3.70)	$	(0.36)
Diluted weighted average loss per common share										Diluted weighted average loss per common share	$	(3.70)	$	(0.36)

Basic weighted average common shares outstanding	Basic weighted average common shares outstanding	6,189		5,985		6,135		5,954		Basic weighted average common shares outstanding	5,951		5,995
Diluted weighted average common shares outstanding	Diluted weighted average common shares outstanding	6,363		6,084		6,135		6,104		Diluted weighted average common shares outstanding	5,951		5,995

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

WILLIS LEASE FINANCE CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Net income $ 2,884 $ 2,984 $ 1,610 $ 12,642
Other comprehensive income (loss):
Currency translation adjustment (15) 551 143 325
Unrealized gain (loss) on derivative instruments 653 684 6,380 (3,088)
Unrealized gain on derivative instruments at joint venture 206 — 918 —
Net gain (loss) recognized in other comprehensive income (loss) 844 1,235 7,441 (2,763)
Tax (expense) benefit related to items of other comprehensive income (loss) (190) (273) (1,686) 612
Other comprehensive income (loss) 654 962 5,755 (2,151)
Total comprehensive income $ 3,538 $ 3,946 $ 7,365 $ 10,491


	Three Months Ended March 31,
	2022		2021
Net loss	$	(21,201)	$	(1,332)
Other comprehensive income:
Currency translation adjustment	53		2,832
Unrealized gain on derivative instruments	17,151		6,497
Unrealized gain on derivative instruments at joint venture	1,090		554
Net gain recognized in other comprehensive income	18,294		9,883
Tax expense related to items of other comprehensive income	4,101		2,216
Other comprehensive income	14,193		7,667
Total comprehensive (loss) income	$	(7,008)	$	6,335

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

WILLIS LEASE FINANCE CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of Redeemable Preferred Stock and Shareholders' Equity

Three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~

(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 (Loss) Income Equity
Balances at June 30, 2021 2,500 $ 49,764 6,749 $ 67 $ 16,196 $ 352,442 $ (16) $ 368,689
Net income — — — — — 2,884 — 2,884
Net unrealized loss from currency translation adjustment, net of tax benefit of $2 — — — — — — (13) (13)
Net unrealized gain from derivative instruments, net of tax expense of $192 — — — — — — 667 667
Shares repurchased — — (135) (1) (5,137) — — (5,138)
Shares issued under stock compensation plans — — 10 — 17 — — 17
Stock-based compensation expense, net of forfeitures — — — — 4,577 — — 4,577
Accretion of preferred shares issuance costs — 21 — — — (21) — (21)
Preferred stock dividends ($0.33 per share) — — — — — (819) — (819)
Balances at September 30, 2021 2,500 $ 49,785 6,624 $ 66 $ 15,653 $ 354,486 $ 638 $ 370,843
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 June 30, 2020 2,500 $ 49,680 6,552 $ 66 $ 7,203 $ 356,960 $ (6,361) $ 357,868
Net income — — — — — 2,984 — 2,984
Net unrealized gain from currency translation adjustment, net of tax expense of $122 — — — — — — 429 429
Net unrealized gain from derivative instruments, net of tax expense of $151 — — — — — — 533 533
Shares repurchased — — (1) — (20) — — (20)
Shares issued under stock compensation plans — — 8 — 228 — — 228
Stock-based compensation expense, net of forfeitures — — — — 3,113 — — 3,113
Accretion of preferred shares issuance costs — 21 — — — (21) — (21)
Preferred stock dividends ($0.33 per share) — — — — — (819) — (819)
Balances at September 30, 2020 2,500 $ 49,701 6,559 $ 66 $ 10,524 $ 359,104 $ (5,399) $ 364,295

~~See accompanying notes to the unaudited condensed consolidated financial statements.~~


				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	2,500	$	49,805	6,531	$	65	$	15,401	$	355,388	$	5,031	$	375,885
Net loss	—	—		—	—		—		(21,201)		—		(21,201)
Net unrealized gain from currency translation adjustment, net of tax expense of $12	—	—		—	—		—		—		41		41
Net unrealized gain from derivative instruments, net of tax expense of $4,089	—	—		—	—		—		—		14,152		14,152
Shares repurchased	—	—		(53)	—		(1,842)		—		—		(1,842)
Shares issued under stock compensation plans	—	—		10	—		165		—		—		165

Stock-based compensation expense, net of forfeitures	—	—		—	—		4,629		—		—		4,629
Accretion of preferred shares issuance costs	—	21		—	—		—		(21)		—		(21)
Preferred stock dividends ($0.32 per share)	—	—		—	—		—		(801)		—		(801)
Balances at March 31, 2022	2,500	$	49,826	6,488	$	65	$	18,353	$	333,365	$	19,224	$	371,007

				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 December 31, 2020	2,500	$	49,722	6,570	$	66	$	13,696	$	355,370	$	(5,117)	$	364,015
Net loss	—	—		—	—		—		(1,332)		—		(1,332)
Net unrealized gain from currency translation adjustment, net of tax expense of $635	—	—		—	—		—		—		2,197		2,197
Net unrealized gain from derivative instruments, net of tax expense of $1,581	—	—		—	—		—		—		5,470		5,470

Shares issued under stock compensation plans	—	—		8	—		169		—		—		169
Cancellation of restricted stock in satisfaction of withholding tax	—	—		(1)	—		(47)		—		—		(47)
Stock-based compensation expense, net of forfeitures	—	—		—	—		2,762		—		—		2,762
Accretion of preferred shares issuance costs	—	21		—	—		—		(21)		—		(21)
Preferred stock dividends ($0.32 per share)	—	—		—	—		—		(801)		—		(801)
Balances at March 31, 2021	2,500	$	49,743	6,577	$	66	$	16,580	$	353,216	$	2,550	$	372,412

~~Table of Contents~~

~~WILLIS LEASE FINANCE CORPORATION~~

~~AND SUBSIDIARIES~~

~~Condensed Consolidated Statements of Redeemable Preferred Stock and Shareholders' Equity~~

~~Nine months ended September 30, 2021 and 2020~~

~~(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 (Loss) Income Equity
Balances at December 31, 2020 2,500 $ 49,722 6,570 $ 66 $ 13,696 $ 355,370 $ (5,117) $ 364,015
Net income — — — — — 1,610 — 1,610
Net unrealized gain from currency translation adjustment, net of tax expense of $32 — — — — — — 111 111
Net unrealized gain from derivative instruments, net of tax expense of $1,654 — — — — — — 5,644 5,644
Shares repurchased — — (135) (1) (5,137) — — (5,138)
Shares issued under stock compensation plans — — 305 2 184 — — 186
Cancellation of restricted stock in satisfaction of withholding tax — — (116) (1) (4,965) — — (4,966)
Stock-based compensation expense, net of forfeitures — — — — 11,875 — — 11,875
Accretion of preferred shares issuance costs — 63 — — — (63) — (63)
Preferred stock dividends ($0.97 per share) — — — — — (2,431) — (2,431)
Balances at September 30, 2021 2,500 $ 49,785 6,624 $ 66 $ 15,653 $ 354,486 $ 638 $ 370,843
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, 2019 2,500 $ 49,638 6,356 $ 64 $ 4,557 $ 348,965 $ (3,248) $ 350,338
Net income — — — — — 12,642 — 12,642
Net unrealized gain from currency translation adjustment, net of tax expense of $72 — — — — — — 253 253
Net unrealized loss from derivative instruments, net of tax benefit of $684 — — — — — — (2,404) (2,404)
Shares repurchased — — (56) — (1,510) — — (1,510)
Shares issued under stock compensation plans — — 319 3 425 — — 428
Cancellation of restricted stock in satisfaction of withholding tax — — (60) (1) (1,193) — — (1,194)
Stock-based compensation expense, net of forfeitures — — — — 8,245 — — 8,245
Accretion of preferred shares issuance costs — 63 — — — (63) — (63)
Preferred stock dividends ($0.98 per share) — — — — — (2,440) — (2,440)
Balances at September 30, 2020 2,500 $ 49,701 6,559 $ 66 $ 10,524 $ 359,104 $ (5,399) $ 364,295

~~See accompanying notes to the unaudited condensed consolidated financial statements.~~

Table of Contents

WILLIS LEASE FINANCE CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


		Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income		$	1,610	$	12,642
Adjustments to reconcile net income to net cash provided by operating activities:
Net loss						Net loss	$	(21,201)	$	(1,332)
Adjustments to reconcile net loss to net cash provided by operating activities:						Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization expense	Depreciation and amortization expense	68,755		71,176		Depreciation and amortization expense	21,809		24,141
Write-down of equipment	Write-down of equipment	4,113		14,371		Write-down of equipment	21,117		1,867
Stock-based compensation expenses	Stock-based compensation expenses	11,875		8,245		Stock-based compensation expenses	4,629		2,762
Amortization of deferred costs	Amortization of deferred costs	3,680		3,984		Amortization of deferred costs	1,308		1,145
Allowances and provisions	Allowances and provisions	(60)		280		Allowances and provisions	305		(226)
Gain on sale of leased equipment	Gain on sale of leased equipment	(2,440)		(1,367)		Gain on sale of leased equipment	(2,298)		—
Income from joint ventures		1,183		(2,612)
Loss on debt extinguishment		—		4,688
Loss on sale of note receivable		—		79
Loss from joint ventures						Loss from joint ventures	2,616		519

Loss on disposal of property, equipment and furnishings	Loss on disposal of property, equipment and furnishings	40		—		Loss on disposal of property, equipment and furnishings	—		40
Deferred income taxes	Deferred income taxes	418		11,248		Deferred income taxes	(7,035)		(484)
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Receivables	Receivables	(14,267)		(18,464)		Receivables	(3,280)		(11,988)
Distributions received from joint ventures		—		7,200

Inventory	Inventory	4,449		5,737		Inventory	3,407		980
Other assets	Other assets	(2,250)		355		Other assets	(863)		(934)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	11,294		(19,092)		Accounts payable and accrued expenses	6,122		(648)
Maintenance reserves	Maintenance reserves	(22,074)		(10,660)		Maintenance reserves	2,626		6,299
Security deposits	Security deposits	3,393		520		Security deposits	(462)		135
Unearned revenue	Unearned revenue	(1,136)		(4,862)		Unearned revenue	(480)		351
Net cash provided by operating activities	Net cash provided by operating activities	68,583		83,468		Net cash provided by operating activities	28,320		22,627

Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Proceeds from sale of equipment (net of selling expenses)	Proceeds from sale of equipment (net of selling expenses)	27,887		17,665		Proceeds from sale of equipment (net of selling expenses)	17,255		—
Proceeds from sale of note receivable		—		8,431

Issuance of notes receivable	Issuance of notes receivable	(44,444)		(135,955)		Issuance of notes receivable	—		(39,801)
Payments received on notes receivable	Payments received on notes receivable	7,006		6,083		Payments received on notes receivable	1,203		958
Purchase of equipment held for operating lease	Purchase of equipment held for operating lease	(170,290)		(82,027)		Purchase of equipment held for operating lease	(24,220)		(26,510)
Purchase of property, equipment and furnishings	Purchase of property, equipment and furnishings	(1,022)		(2,719)		Purchase of property, equipment and furnishings	(540)		(121)
Net cash used in investing activities	Net cash used in investing activities	(180,863)		(188,522)		Net cash used in investing activities	(6,302)		(65,474)

Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from debt obligations	Proceeds from debt obligations	477,700		690,200		Proceeds from debt obligations	21,000		54,000
Debt issuance costs		(4,556)		(6,065)

Principal payments on debt obligations	Principal payments on debt obligations	(355,891)		(477,802)		Principal payments on debt obligations	(53,257)		(24,617)
Debt prepayment costs		—		(2,373)

Proceeds from shares issued under stock compensation plans	Proceeds from shares issued under stock compensation plans	186		428		Proceeds from shares issued under stock compensation plans	165		169
Cancellation of restricted stock units in satisfaction of withholding tax	Cancellation of restricted stock units in satisfaction of withholding tax	(4,966)		(1,194)		Cancellation of restricted stock units in satisfaction of withholding tax	—		(47)
Repurchase of common stock	Repurchase of common stock	(5,118)		(1,510)		Repurchase of common stock	(1,768)		—
Preferred stock dividends	Preferred stock dividends	(2,431)		(2,440)		Preferred stock dividends	(819)		(819)
Net cash provided by financing activities		104,924		199,244
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(34,679)		28,686

(Decrease) increase in cash, cash equivalents and restricted cash		(7,356)		94,190
Decrease in cash, cash equivalents and restricted cash						Decrease in cash, cash equivalents and restricted cash	(12,661)		(14,161)
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	78,925		63,668		Cash, cash equivalents and restricted cash at beginning of period	95,641		78,925
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	71,569	$	157,858	Cash, cash equivalents and restricted cash at end of period	$	82,980	$	64,764

Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Net cash paid for:	Net cash paid for:					Net cash paid for:
Interest	Interest	$	38,307	$	41,317	Interest	$	15,057	$	12,344
Income Taxes	Income Taxes	$	1,392	$	374	Income Taxes	$	213	$	170

Supplemental disclosures of non-cash activities:	Supplemental disclosures of non-cash activities:					Supplemental disclosures of non-cash activities:
Liabilities assumed in purchase of equipment held for operating lease		$	(2,089)	$	(5,680)

Transfers from Equipment held for operating lease to Spare parts inventory	Transfers from Equipment held for operating lease to Spare parts inventory	$	1,065	$	18,964	Transfers from Equipment held for operating lease to Spare parts inventory	$	102	$	169
Transfers from Equipment held for operating lease to Equipment held for sale	Transfers from Equipment held for operating lease to Equipment held for sale	$	12,256	$	2,793	Transfers from Equipment held for operating lease to Equipment held for sale	$	4,089	$	—
Transfers from Spare parts inventory to Equipment held for operating lease	Transfers from Spare parts inventory to Equipment held for operating lease	$	1,555	$	—	Transfers from Spare parts inventory to Equipment held for operating lease	$	—	$	585

Accrued preferred stock dividends						Accrued preferred stock dividends	$	18	$	18
Accrued share repurchases	Accrued share repurchases	$	20	$	—	Accrued share repurchases	$	73	$	—

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

WILLIS LEASE FINANCE CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September 30, 2021~~March 31, 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, ~~2020~~2021 (the ~~“2020~~“2021 Form 10-K”). There have been no significant changes in the Company’s significant accounting policies for the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 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 ~~2020~~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 ~~2020~~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

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, including variable interest entities (“VIEs”), where the Company is the primary beneficiary in accordance with consolidation guidance. The Company first evaluates all entities in which it has an economic interest to determine whether for accounting purposes the entity is either a VIE or a voting interest entity. If the entity is a VIE, the Company consolidates the financial statements of that entity if it is the primary beneficiary of such entity's activities. If the entity is a voting interest entity, the Company consolidates the entity when it has a majority of voting interests in such entity. Intercompany transactions and balances have been eliminated in consolidation.

As a result of the COVID-19 pandemic, the Company ~~has continued to~~had temporarily ~~close~~closed its headquarters and other offices, ~~require~~required its employees and contractors to predominately work remotely, and ~~implement~~implemented travel restrictions, all of which ~~represent~~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. During 2020, 9% of our employees were either furloughed, or subject to a form of reduced compensation which was subsequently reversed in 2021. The operations of the Company’s partners and customers

109

Table of Contents

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. During the nine months ended September 30, 2021, the Company experienced declining average utilization and a corresponding decrease in revenue as compared to the prior year comparable period. Additionally, as of September 30, 2021, the Company has, in certain situations, agreed to rent concessions which resulted in a total reduction to rent revenues of $0.3 million during the three months ended September 30, 2021 and $0.5 million during the nine months ended September 30, 2021. Rent concessions for the three and nine months ended September 30, 2020 resulted in a total reduction of rent revenue of $2.1 million and $5.2 million, respectively. The rent concessions provide lessees with payment deferral options or reduced rent, where the revised cash flows are substantially the same or less (i.e., the rights of the lessor and obligations of the lessee have not substantially increased) as the original lease agreements. There is no impact on the timing of revenue recognition for rent concessions that result in short term payment deferrals. The rent concessions with reduced rent qualify for the COVID-19 practical expedient to account for the rent concessions outside of the modification framework.

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 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.

(d) Recent Accounting Pronouncements

Recent Accounting Pronouncements Adopted by the Company

In ~~December 2019,~~July 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2019-12, “Income Taxes~~2021-05, “Lease (Topic ~~740)~~842): ~~Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). ASU 2019-12 simplifies the~~Lessors – Certain Leases with Variable Lease Payments” related to accounting for ~~income taxes by removing certain exceptions to the general principles in Topic 740.~~sales-type leases or direct financing leases with variable lease payments. This ASU ~~2019-12 also improves consistent application of~~is effective for interim and ~~simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance.~~annual years beginning after December 15, 2021, with early adoption permitted. The Company adopted this guidance effective January 1, ~~2021~~2022 and ~~it did not materially~~the adoption had no impact ~~our~~to the Company’s consolidated financial statements and related disclosures.

In ~~March~~November 2021, the FASB issued ASU ~~No. 2021-01, “Reference Rate Reform~~2021-10, “Government Assistance (Topic ~~848), Scope”, which clarifies certain optional expedients~~832): Disclosures by Business Entities about Government Assistance” related to ~~all derivatives affected~~disclosures about transactions with a government that are accounted for by ~~the discounting transition, regardless of whether the derivatives reference the London Interbank Offered Rate (“LIBOR”)~~applying a grant or ~~another rate expected to be discounted or whether the modification replaces or has the potential to replace the reference rate expected to be discounted. The amendments in this guidance are~~contribution accounting model by analogy. This ASU is effective ~~upon issuance through~~for annual periods beginning after December ~~31, 2022.~~15, 2021, with early application permitted. The Company adopted this guidance ~~upon issuance. When~~effective January 1, 2022 and the ~~transition occurs,~~adoption had no impact to the Company expects to apply this expedient to its existing debt instruments and interest rate swaps that reference LIBOR, and to any other new transactions that reference LIBOR or another reference rate that is discontinued, through December 31, 2022. The adoption of this ASU did not impact the Company’sCompany's consolidated financial ~~statements.~~statements and related disclosures.

Recent Accounting Pronouncements To Be Adopted by the Company

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 revises the measurement of credit losses for financial assets measured at amortized cost from an incurred loss methodology to an expected loss methodology. ASU 2016-13 affects trade receivables, debt securities, net investment in leases, and most other financial assets that represent a right to receive cash. Additional disclosures about significant estimates and credit quality are also required. In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” This ASU clarifies receivables from operating leases are accounted for using the lease guidance and not as financial instruments. In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” This ASU clarifies various scoping and other issues arising from ASU 2016-13. In March 2020, the FASB issued ASU 2020-03, “Codification Improvements to Financial Instruments.” This ASU improves the Codification and amends the interaction of

~~Table of Contents~~

Topic 842 and Topic 326. In March 2022, the FASB issued ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326)” which eliminated the accounting guidance for Troubled Debt Restructurings by creditors and enhances disclosure requirements for certain loan refinancing and restructurings. The amendment also requires an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases.The amendments in this ASU ~~2016-13~~ are effective for the Company on January 1, 2023, with early adoption permitted. The Company expects to adopt this accounting standard update effective January 1, 2023. The Company is evaluating the potential effects on the consolidated financial statements.

In July 2021, the FASB issued 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 plans to adopt this guidance effective January 1, 2022 and is currently evaluating the potential impact adoption will have on the consolidated financial statements and related disclosures.

Table of Contents

2. Revenue from Contracts with Customers

The following tables disaggregate revenue by major source for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ (in thousands):


Three months ended September 30, 2021		Leasing and Related Operations		Spare Parts Sales		Eliminations		Total
Three months ended March 31, 2022										Three months ended March 31, 2022	Leasing and Related Operations		Spare Parts Sales		Eliminations		Total
Lease rent revenue	Lease rent revenue	$	32,908	$	—	$	—	$	32,908	Lease rent revenue	$	38,125	$	—	$	—	$	38,125
Maintenance reserve revenue	Maintenance reserve revenue	23,659		—		—		23,659		Maintenance reserve revenue	14,834		—		—		14,834
Spare parts and equipment sales	Spare parts and equipment sales	85		4,980		26		5,091		Spare parts and equipment sales	202		6,428		—		6,630
Gain on sale of leased equipment	Gain on sale of leased equipment	2,440		—		—		2,440		Gain on sale of leased equipment	2,298		—		—		2,298
Managed services	Managed services	2,814		—		—		2,814		Managed services	4,644		—		—		4,644

Other revenue	Other revenue	3,607		319		(47)		3,879		Other revenue	2,168		176		(58)		2,286
Total revenue	Total revenue	$	65,513	$	5,299	$	(21)	$	70,791	Total revenue	$	62,271	$	6,604	$	(58)	$	68,817

Three Months Ended September 30, 2020 Leasing and
Related Operations Spare Parts Sales Eliminations Total
Lease rent revenue $ 30,025 $ — $ — $ 30,025
Maintenance reserve revenue 32,302 — — 32,302
Spare parts and equipment sales 115 3,000 (227) 2,888
Managed services 2,382 — — 2,382
Other revenue 3,015 35 (34) 3,016
Total revenue $ 67,839 $ 3,035 $ (261) $ 70,613

Nine months ended September 30, 2021 Leasing and
Related Operations Spare Parts Sales Eliminations Total
Lease rent revenue $ 96,859 $ — $ — $ 96,859
Maintenance reserve revenue 60,749 — — 60,749
Spare parts and equipment sales 254 12,946 26 13,226
Gain on sale of leased equipment 2,440 — — 2,440
Managed services 8,329 — — 8,329
Asset transition fee (1) 6,256 — — 6,256
Other revenue 10,214 416 (101) 10,529
Total revenue $ 185,101 $ 13,362 $ (75) $ 198,388

~~Table of Contents~~

Nine months ended September 30, 2020 Leasing and
Related Operations Spare Parts Sales Eliminations Total
Lease rent revenue $ 114,874 $ — $ — $ 114,874
Maintenance reserve revenue 82,816 — — 82,816
Spare parts and equipment sales 1,442 13,633 (227) 14,848
Gain on sale of leased equipment 1,367 — — 1,367
Managed services 6,508 — — 6,508
Other revenue 6,785 302 (295) 6,792
Total revenue $ 213,792 $ 13,935 $ (522) $ 227,205

~~_____________________________~~

~~(1)Asset transition fee reflects the settlement received from the close out of an engine transition program.~~


Three Months Ended March 31, 2021	Leasing and Related Operations		Spare Parts Sales		Eliminations		Total
Lease rent revenue	$	31,520	$	—	$	—	$	31,520
Maintenance reserve revenue	19,812		—		—		19,812
Spare parts and equipment sales	85		4,591		(110)		4,566

Managed services	2,269		—		—		2,269
Other revenue	2,937		56		(35)		2,958
Total revenue	$	56,623	$	4,647	$	(145)	$	61,125

3. Equipment Held for Operating Lease and Notes Receivable

As of ~~September 30, 2021,~~March 31, 2022, the Company had ~~$1,971.3~~$1,951.4 million equipment held for operating lease portfolio and ~~$196.1~~$114.3 million notes receivable which represented ~~313~~298 engines, 812 aircraft, 1 marine vessel and other leased parts and equipment. As of December 31, ~~2020,~~2021, the Company had ~~$1,886.6~~$1,991.4 million equipment held for operating lease portfolio and ~~$158.7~~$115.5 million notes receivable which represented ~~291~~304 engines, 812 aircraft, 1 marine vessel and other leased parts and equipment.

The following table disaggregates equipment held for operating lease by asset class (in thousands):


		September 30, 2021						December 31, 2020							March 31, 2022						December 31, 2021
		Gross Value		Accumulated Depreciation		Net Book Value		Gross Value		Accumulated Depreciation		Net Book Value			Gross Value		Accumulated Depreciation		Net Book Value		Gross Value		Accumulated Depreciation		Net Book Value
Engines and related equipment	Engines and related equipment	$	2,381,719	$	(497,146)	$	1,884,573	$	2,238,160	$	(445,780)	$	1,792,380	Engines and related equipment	$	2,327,007	$	(515,549)	$	1,811,458	$	2,368,496	$	(515,442)	1,853,054
Aircraft and airframes	Aircraft and airframes	82,128		(6,903)		75,225		89,613		(7,312)		82,301		Aircraft and airframes	137,214		(8,776)		128,438		134,370		(7,790)		126,580
Marine vessel	Marine vessel	13,010		(1,556)		11,454		12,963		(1,031)		11,932		Marine vessel	13,470		(1,918)		11,552		13,470		(1,736)		11,734
		$	2,476,857	$	(505,605)	$	1,971,252	$	2,340,736	$	(454,123)	$	1,886,613		$	2,477,691	$	(526,243)	$	1,951,448	$	2,516,336	(524,968)		1,991,368

Notes Receivable

During the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the Company recorded interest income related to the notes receivable of ~~$3.6~~$2.1 million and ~~$3.1~~$2.9 million, ~~respectively, and $10.1 million and $6.7 million during the nine months ended September 30, 2021 and 2020,~~ respectively, and is presented within Other revenue. The effective interest rates on our notes receivable ranged from 6.3% to 12.2% as of ~~September 30, 2021~~March 31, 2022 and 6.3% to ~~16.6%~~13.7% as of ~~September 30, 2020.~~March 31, 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 50 percent interest in the joint venture and the Company uses the equity method in recording investment activity. As of ~~September 30, 2021,~~March 31, 2022, WMES owned a lease portfolio, inclusive of a note receivable, of 37 engines and 5 aircraft with a net book value of ~~$297.3~~$281.1 million.

Table of Contents

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 50 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 ~~September 30, 2021,~~March 31, 2022, CASC Willis owned a lease portfolio of 4 engines with a net book value of ~~$48.9~~$48.5 million.

~~Table of Contents~~


As of September 30, 2021		WMES		CASC Willis		Total
As of March 31, 2022								As of March 31, 2022	WMES		CASC Willis		Total
		(in thousands)							(in thousands)
Investment in joint ventures as of December 31, 2020		$	37,365	$	15,910	$	53,275
Investment in joint ventures as of December 31, 2021								Investment in joint ventures as of December 31, 2021	$	39,069	$	16,858	$	55,927
(Loss) earnings from joint ventures	(Loss) earnings from joint ventures	(1,462)		279		(1,183)		(Loss) earnings from joint ventures	(2,705)		89		(2,616)

Foreign currency translation adjustment	Foreign currency translation adjustment	—		143		143		Foreign currency translation adjustment	—		53		53
Other comprehensive gain from joint ventures	Other comprehensive gain from joint ventures	918		—		918		Other comprehensive gain from joint ventures	1,090		—		1,090
Investment in joint ventures as of September 30, 2021		$	36,821	$	16,332	$	53,153
Investment in joint ventures as of March 31, 2022								Investment in joint ventures as of March 31, 2022	$	37,454	$	17,000	$	54,454

“Other revenue” on the Condensed Consolidated Statements of Income includes ~~$0.9~~$0.5 million and ~~$0.4~~$0.3 million of management fees earned during the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $1.6 million and $1.2 million during the nine months ended September 30, 2021 and 2020,~~ respectively, related to the servicing of engines for the WMES lease portfolio.

During the nine months ended September 30, 2021, the Company sold 2 engines to WMES for $25.0 million. During the nine months ended September 30, 2020, the Company sold 1 note receivable to WMES for $8.4 million.

There were no aircraft or engine sales to WMES or CASC Willis during the ~~nine~~three months ended ~~September 30,~~March 31, 2022 or 2021, ~~or 2020.~~respectively.

Unaudited summarized financial information for 100% of WMES is presented in the following tables:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
		(in thousands)				(in thousands)					(in thousands)
Revenue	Revenue	$	7,269	$	9,610	$	16,915	$	29,525	Revenue	$	9,541	$	4,761
Expenses	Expenses	7,217		7,539		19,992		25,718		Expenses	15,003		6,169
WMES net income (loss)		$	52	$	2,071	$	(3,077)	$	3,807
WMES net loss										WMES net loss	$	(5,462)	$	(1,408)


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(in thousands)					(in thousands)
Total assets	Total assets	$	314,110	$	303,886	Total assets	$	298,487	$	310,260
Total liabilities	Total liabilities	233,137		219,836		Total liabilities	219,605		225,917
Total WMES net equity	Total WMES net equity	$	80,973	$	84,050	Total WMES net equity	$	78,882	$	84,343

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.

1412

Table of Contents

5. Debt Obligations

Debt obligations consisted of the following:


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(in thousands)					(in thousands)
Credit facility at a floating rate of interest of one-month LIBOR plus 1.75% at September 30, 2021, secured by engines. The facility has a committed amount of $1.0 billion at September 30, 2021, which revolves until the maturity date of June 2024		$	603,000	$	777,000
Credit facility at a floating rate of interest of one-month LIBOR plus 1.375% at March 31, 2022, secured by engines. The facility has a committed amount of $1.0 billion at March 31, 2022, which revolves until the maturity date of June 2024						Credit facility at a floating rate of interest of one-month LIBOR plus 1.375% at March 31, 2022, secured by engines. The facility has a committed amount of $1.0 billion at March 31, 2022, which revolves until the maturity date of June 2024	$	580,000	$	590,000
WEST VI Series A 2021 term notes payable at a fixed rate of interest of 3.10%, maturing in May 2046, secured by engines and 1 airframe	WEST VI Series A 2021 term notes payable at a fixed rate of interest of 3.10%, maturing in May 2046, secured by engines and 1 airframe	275,848		—		WEST VI Series A 2021 term notes payable at a fixed rate of interest of 3.10%, maturing in May 2046, secured by engines and 1 airframe	271,544		273,723
WEST VI Series B 2021 term notes payable at a fixed rate of interest of 5.44%, maturing in May 2046, secured by engines and 1 airframe	WEST VI Series B 2021 term notes payable at a fixed rate of interest of 5.44%, maturing in May 2046, secured by engines and 1 airframe	38,318		—		WEST VI Series B 2021 term notes payable at a fixed rate of interest of 5.44%, maturing in May 2046, secured by engines and 1 airframe	37,720		38,022
WEST VI Series C 2021 term notes payable at a fixed rate of interest of 7.39%, maturing in May 2046, secured by engines and 1 airframe	WEST VI Series C 2021 term notes payable at a fixed rate of interest of 7.39%, maturing in May 2046, secured by engines and 1 airframe	18,779		—		WEST VI Series C 2021 term notes payable at a fixed rate of interest of 7.39%, maturing in May 2046, secured by engines and 1 airframe	17,535		18,158
WEST V Series A 2020 term notes payable at a fixed rate of interest of 3.23%, maturing in March 2045, secured by engines	WEST V Series A 2020 term notes payable at a fixed rate of interest of 3.23%, maturing in March 2045, secured by engines	276,861		286,863		WEST V Series A 2020 term notes payable at a fixed rate of interest of 3.23%, maturing in March 2045, secured by engines	266,784		272,909
WEST V Series B 2020 term notes payable at a fixed rate of interest of 4.21%, maturing in March 2045, secured by engines	WEST V Series B 2020 term notes payable at a fixed rate of interest of 4.21%, maturing in March 2045, secured by engines	38,468		39,855		WEST V Series B 2020 term notes payable at a fixed rate of interest of 4.21%, maturing in March 2045, secured by engines	37,066		38,004
WEST V Series C 2020 term notes payable at a fixed rate of interest of 6.66%, maturing in March 2045, secured by engines	WEST V Series C 2020 term notes payable at a fixed rate of interest of 6.66%, maturing in March 2045, secured by engines	17,441		19,043		WEST V Series C 2020 term notes payable at a fixed rate of interest of 6.66%, maturing in March 2045, secured by engines	15,282		16,342
WEST IV Series A 2018 term notes payable at a fixed rate of interest of 4.75%, maturing in September 2043, secured by engines	WEST IV Series A 2018 term notes payable at a fixed rate of interest of 4.75%, maturing in September 2043, secured by engines	265,287		277,481		WEST IV Series A 2018 term notes payable at a fixed rate of interest of 4.75%, maturing in September 2043, secured by engines	254,366		262,260
WEST IV Series B 2018 term notes payable at a fixed rate of interest of 5.44%, maturing in September 2043, secured by engines	WEST IV Series B 2018 term notes payable at a fixed rate of interest of 5.44%, maturing in September 2043, secured by engines	38,885		39,640		WEST IV Series B 2018 term notes payable at a fixed rate of interest of 5.44%, maturing in September 2043, secured by engines	38,885		38,885
WEST III Series A 2017 term notes payable at a fixed rate of interest of 4.69%, maturing in August 2042, secured by engines	WEST III Series A 2017 term notes payable at a fixed rate of interest of 4.69%, maturing in August 2042, secured by engines	223,815		227,138		WEST III Series A 2017 term notes payable at a fixed rate of interest of 4.69%, maturing in August 2042, secured by engines	221,174		223,815
WEST III Series B 2017 term notes payable at a fixed rate of interest of 6.36%, maturing in August 2042, secured by engines	WEST III Series B 2017 term notes payable at a fixed rate of interest of 6.36%, maturing in August 2042, secured by engines	32,195		32,481		WEST III Series B 2017 term notes payable at a fixed rate of interest of 6.36%, maturing in August 2042, secured by engines	32,195		32,195
Note payable at three-month LIBOR plus a margin ranging from 1.85% to 2.50%, repaid in May 2021, secured by engines		—		6,138

Note payable at a fixed rate of interest of 3.18%, maturing in July 2024, secured by an aircraft	Note payable at a fixed rate of interest of 3.18%, maturing in July 2024, secured by an aircraft	5,798		7,247		Note payable at a fixed rate of interest of 3.18%, maturing in July 2024, secured by an aircraft	4,812		5,307
		1,834,695		1,712,886			1,777,363		1,809,620
Less: unamortized debt issuance costs	Less: unamortized debt issuance costs	(20,487)		(19,133)		Less: unamortized debt issuance costs	(18,237)		(19,356)
Total debt obligations	Total debt obligations	$	1,814,208	$	1,693,753	Total debt obligations	$	1,759,126	$	1,790,264

One-month LIBOR was ~~0.08%~~0.45% and ~~0.14%~~0.10% as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

Principal outstanding at ~~September 30, 2021,~~March 31, 2022, is expected to be repayable as follows:


Year	Year	(in thousands)		Year	(in thousands)
2021		$	27,802
2022	2022	63,041		2022	$	56,504
2023	2023	63,107		2023	63,069
2024	2024	665,273		2024	642,236
2025	2025	61,038		2025	61,001
2026				2026	281,327
Thereafter	Thereafter	954,434		Thereafter	673,226
Total	Total	$	1,834,695	Total	$	1,777,363

~~Table of Contents~~

In May 2021, WLFC and its direct, wholly-owned subsidiary Willis Engine Structured Trust VI (“WEST VI”), closed its offering of $336.7 million aggregate principal amount of fixed rate notes (the “WEST VI Notes”). The WEST VI Notes were issued in 3 series, with the Series A Notes issued in an aggregate principal amount of $278.6 million, the Series B Notes issued in an aggregate principal amount of $38.7 million and the Series C Notes issued in an aggregate principal amount of $19.4 million. The WEST VI Notes are secured by, among other things, WEST VI’s direct and indirect ownership interests in a portfolio of 29 aircraft engines and 1 airframe.

The Series A Notes have a fixed coupon of 3.104%, an expected maturity of approximately eight years and a final maturity date in May 2046, the Series B Notes have a fixed coupon of 5.438%, an expected maturity of approximately eight years and a final maturity date in May 2046 and the Series C Notes have a fixed coupon of 7.385%, an expected maturity of approximately eight years and a final maturity date in May 2046. The Series A Notes were issued at a price of 99.99481% of par, the Series B Notes were issued at a price of 99.99996% of par and the Series C Notes were issued at a price of 99.99869% of par. Principal on the WEST VI Notes is payable monthly to the extent of available cash in accordance with a priority of payments included in the indenture.

~~In May 2021, WLFC repaid an existing note payable that was secured by 2 engines.~~

In June 2021, WLFC entered into Amendment No. 2 to the Fourth Amended and Restated Credit Agreement dated as of June 7, 2019, which updates the provisions relating to the future discontinuance of LIBOR and sets forth the mechanics for establishing the Secured Overnight Financing Rate (“SOFR”) as a benchmark replacement rate.

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 ~~September 30, 2021.~~March 31, 2022.

6. Derivative Instruments

Table of Contents

The Company periodically holds interest rate derivative instruments to mitigate exposure to changes in interest rates, predominantly one-month LIBOR, with ~~$603.0~~$580.0 million and ~~$783.1~~$590.0 million of variable rate borrowings at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. As a matter of policy, management does not use derivatives for speculative purposes. As of ~~September 30, 2021,~~March 31, 2022, the Company had 5 interest rate swap agreements. During the first quarter of 2021, the Company entered into 4 ~~additional~~ fixed-rate interest swap agreements, each having notional amounts of $100.0 million, 2 with remaining terms of 2822 months and 2 with remaining terms of 5246 months as of ~~September 30, 2021.~~March 31, 2022. NaN interest rate swap agreement was entered into during 2019 which has a notional outstanding amount of $100.0 million with a remaining term of 3327 months as of ~~September 30, 2021.~~March 31, 2022. NaN 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 ~~September 30, 2021.~~March 31, 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 ~~September 30, 2021~~March 31, 2022 was ~~$2.4~~$24.4 million, representing an asset ~~of $4.2 million~~ and ~~a liability of $1.8 million.~~is reflected within other assets on the condensed consolidated balance sheet. The net fair value of the interest rate swaps as of December 31, ~~2020~~2021 was ~~$4.0~~$7.3 million, representing an asset of $8.0 million and a ~~liability.~~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 interest expense of ~~$0.5~~$0.3 million and ~~$0.7~~$0.9 million during the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $1.9 million and $1.3 million during the nine months ended September 30, 2021 and 2020,~~ respectively, from derivative instruments.

~~Table of Contents~~

Effect of Derivative Instruments on Earnings in the Statements of Income and on Comprehensive Income

The following tables provide additional information about the financial statement effects related to the cash flow hedges for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2020:~~2021:


Derivatives in Cash Flow Hedging Relationships	Derivatives in Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in OCI on Derivatives (Effective Portion)								Derivatives in Cash Flow Hedging Relationships	Amount of Gain Recognized in OCI on Derivatives (Effective Portion)
		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
		(in thousands)				(in thousands)					(in thousands)
Interest rate contracts	Interest rate contracts	$	653	$	684	$	6,380	$	(3,088)	Interest rate contracts	$	17,151	$	6,497
Total	Total	$	653	$	684	$	6,380	$	(3,088)	Total	$	17,151	$	6,497

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.

Table of Contents

7. Income Taxes

Income tax ~~expense~~benefit for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and March 31, 2021 was ~~$3.2~~$6.5 million and ~~$0.9~~$0.4 million, respectively. The effective tax rate for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and March 31, 2021, was ~~52.8%~~23.5%. and 37.0%, respectively. Income tax expense for the three and nine months ended September 30, 2020 was $3.1 million and $11.7 million, respectively. The effective tax rate for the three and nine months ended September 30, 2020 was 50.6% and 48.0%21.2%, respectively. The ~~increase in the~~Company's effective tax rates differed from the U.S. federal statutory rate ~~was predominantly~~of 21% largely due to executive compensation ~~exceeding $1.0 million~~ as defined in IRS code Section 162(m). and a discrete item recorded in the first quarter of 2022.

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, state taxes, the amount of executive compensation exceeding $1.0 million as defined in IRS code Section 162(m) and numerous other factors, including changes in tax law.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the U.S., and includes several provisions related to employment and income taxes, including provisions for the deferral of the employer portion of social security taxes through December 31, 2020. On December 27, 2020, the U.S. government enacted the Consolidated Appropriations Act, 2021, which enhances and expands certain provisions of the CARES Act. The Company qualified for the Employment Retention Credit (“ERC”) and recognized a credit of ~~$0.8 million and $2.2~~$0.7 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 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

~~Table of Contents~~

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 ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 was estimated to have a fair value of approximately ~~$198.5~~$116.9 million and ~~$159.2~~$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).

•Debt obligations: The carrying amount of the Company’s outstanding balance on its Debt obligations as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 was estimated to have a fair value of approximately ~~$1,862.2~~$1,706.5 million and ~~$1,691.0~~$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).

Table of Contents

Assets Measured and Recorded at Fair Value on a Recurring Basis

As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~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 ~~September 30, 2021~~March 31, 2022 was ~~$2.4~~$24.4 million, representing ~~a net asset of $4.2 million and a net liability of $1.8 million.~~an asset. The net fair value of the interest rate swaps as of December 31, ~~2020~~2021 was ~~$4.0~~$7.3 million, representing an asset of $8.0 million and a ~~net liability.~~liability of $0.7 million. The Company recorded interest expense of ~~$0.5~~$0.3 million and ~~$0.7~~$0.9 million during the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $1.9 million and $1.3 million during the nine months ended September 30, 2021 and 2020,~~ 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									Total Losses
		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
		(in thousands)				(in thousands)					(in thousands)
Equipment held for lease	Equipment held for lease	$	—	$	5,245	$	4,113	$	14,301	Equipment held for lease	$	21,117	$	1,867
Equipment held for sale		—		—		—		70

Total	Total	$	—	$	5,245	$	4,113	$	14,371	Total	$	21,117	$	1,867

~~There were no write-downs for the three months ended September 30, 2021.~~ Write-downs of equipment to their estimated fair values totaled ~~$4.1~~$21.1 million for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, reflecting an adjustment of the carrying value of 43 impaired engines. Of this write-down, $20.4 million reflects the impairment of 2 engines located in Russia due to the Russia and ~~1 airframe.~~Ukraine conflict and were expected to be unrecoverable as of March 31, 2022. The remaining $0.7 million write-down was in the ordinary course of business. As of ~~September 30, 2021,~~March 31, 2022, included within equipment held for lease and equipment held for sale was ~~$30.7~~$36.6 million in remaining book values of 1624 assets which were previously written down.

~~Table of Contents~~

A write-down of ~~$5.2~~$1.9 million was recorded during the three months ended ~~September 30, 2020 due to a management decision to monetize 6 engines either by sale to a third party or for part-out. A write-down~~March 31, 2021 reflecting an adjustment of ~~$14.4 million was recorded during~~ the ~~nine months ended September 30, 2020 due to a management decision to monetize 10 engines either by sale to a third party or for part-out and 2 engines as a result~~carrying value of ~~our impairment analysis.~~1 impaired airframe.

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 September 30, 2021. There were 0.2 million anti-dilutive shares excluded from the computation of diluted weighted average earnings per common share for the nine months ended September 30, 2021. There were 0.20.3 million anti-dilutive shares excluded from the computation of diluted weighted average earnings per common share for the three months ended ~~September 30, 2020. There were no anti-dilutive shares for the nine months ended September 30, 2020.~~March 31, 2022 and 2021, respectively.

Table of Contents

The following table presents the calculation of basic and diluted EPS (in thousands, except per share data):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Net income (loss) attributable to common shareholders		$	2,044	$	2,144	$	(884)	$	10,139
Net loss attributable to common shareholders										Net loss attributable to common shareholders	$	(22,023)	$	(2,154)

Basic weighted average common shares outstanding	Basic weighted average common shares outstanding	6,189		5,985		6,135		5,954		Basic weighted average common shares outstanding	5,951		5,995
Potentially dilutive common shares	Potentially dilutive common shares	174		99		—		150		Potentially dilutive common shares	—		—
Diluted weighted average common shares outstanding	Diluted weighted average common shares outstanding	6,363		6,084		6,135		6,104		Diluted weighted average common shares outstanding	5,951		5,995

Basic weighted average earnings (loss) per common share		$	0.33	$	0.36	$	(0.14)	$	1.70
Diluted weighted average earnings (loss) per common share		$	0.32	$	0.35	$	(0.14)	$	1.66
Basic weighted average loss per common share										Basic weighted average loss per common share	$	(3.70)	$	(0.36)
Diluted weighted average loss per common share										Diluted weighted average loss per common share	$	(3.70)	$	(0.36)

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 ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, the Company repurchased a total of ~~135,118~~52,780 shares of common stock for approximately ~~$5.1~~$1.8 million at a weighted average price of ~~$38.03~~$34.86 per share. ~~During~~No shares were purchased during the ~~nine~~three months ended ~~September 30, 2020, the Company repurchased a total of 55,426 shares of common stock for~~March 31, 2021. At March 31, 2022, approximately ~~$1.5 million at a weighted average price of $27.24 per share. At September 30, 2021, approximately $49.8~~$43.0 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 ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the Company paid total dividends of ~~$2.4~~$0.8 million, respectively, on the Series A-1 and Series A-2 Preferred Stock.

~~Table of Contents~~

11. Stock-Based Compensation Plans

The components of stock-based compensation expense were as follows:


		Three months ended September 30,				Nine Months Ended September 30,					Three months ended March 31,
		2021		2020		2021		2020			2022		2021
		(in thousands)				(in thousands)					(in thousands)
2007 Stock Incentive Plan	2007 Stock Incentive Plan	$	9	$	707	$	1,651	$	2,435	2007 Stock Incentive Plan	$	—	$	685
2018 Stock Incentive Plan		4,517		2,329		10,023		5,626
2021 Stock Incentive Plan										2021 Stock Incentive Plan	4,607		1,999
Employee Stock Purchase Plan	Employee Stock Purchase Plan	51		77		201		184		Employee Stock Purchase Plan	22		78
Total Stock Compensation Expense	Total Stock Compensation Expense	$	4,577	$	3,113	$	11,875	$	8,245	Total Stock Compensation Expense	$	4,629	$	2,762

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 one 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‑~~grant date fair value of the award tranche that is actually vested at that date. As of ~~September 30, 2021,~~March 31, 2022, there were no0 stock options outstanding under the 2007 Plan.

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

Table of Contents

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 one 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 ~~September 30, 2021,~~March 31, 2022, the Company had granted ~~885,300~~926,300 RSAs under the ~~2018~~2021 Plan and had ~~9,296 shares~~968,296 RSAs available for future issuance. The fair value of the restricted stock awards equaled the stock price at the grant date.

The following table summarizes restricted stock activity ~~under the 2007 and 2018 Plans~~ during the ~~nine~~three months ended ~~September 30, 2021:~~March 31, 2022:


			Shares
Balance of unvested shares as of December 31, ~~2020~~2021			~~581,715~~560,608
Shares granted			~~286,550~~—
Shares forfeited			—
Shares vested			~~(339,657)~~—
Balance of unvested shares as of ~~September 30, 2021~~March 31, 2022			~~528,608~~560,608

Under the Employee Stock Purchase Plan (“ESPP”), as amended and restated effective ~~April 1, 2018, 325,000~~November 10, 2021, 425,000 shares of common stock have been reserved for issuance. Eligible employees may designate ~~not~~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 ~~not~~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. In the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, 9,919 and ~~2020, 18,211 and 11,418~~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.

~~Table of Contents~~

12. Reportable Segments

The Company has 2 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 2 business segments, the segments are managed separately because each requires different business strategies.

Table of Contents

The following tables present a summary of the reportable segments (in thousands):


Three Months Ended September 30, 2021		Leasing and Related Operations		Spare Parts Sales		Eliminations		Total
Three Months Ended March 31, 2022										Three Months Ended March 31, 2022	Leasing and Related Operations		Spare Parts Sales		Eliminations		Total
Revenue:	Revenue:									Revenue:
Lease rent revenue	Lease rent revenue	$	32,908	$	—	$	—	$	32,908	Lease rent revenue	$	38,125	$	—	$	—	$	38,125
Maintenance reserve revenue	Maintenance reserve revenue	23,659		—		—		23,659		Maintenance reserve revenue	14,834		—		—		14,834
Spare parts and equipment sales	Spare parts and equipment sales	85		4,980		26		5,091		Spare parts and equipment sales	202		6,428		—		6,630
Gain on sale of leased equipment	Gain on sale of leased equipment	2,440		—		—		2,440		Gain on sale of leased equipment	2,298		—		—		2,298

Other revenue	Other revenue	6,421		319		(47)		6,693		Other revenue	6,812		176		(58)		6,930
Total revenue	Total revenue	65,513		5,299		(21)		70,791		Total revenue	62,271		6,604		(58)		68,817

Expenses:	Expenses:									Expenses:
Depreciation and amortization expense	Depreciation and amortization expense	21,246		28		—		21,274		Depreciation and amortization expense	21,782		27		—		21,809
Cost of spare parts and equipment sales	Cost of spare parts and equipment sales	10		3,911		—		3,921		Cost of spare parts and equipment sales	6		4,856		—		4,862

Write-down of equipment										Write-down of equipment	21,117		—		—		21,117
General and administrative	General and administrative	18,069		619		(26)		18,662		General and administrative	22,806		799		—		23,605
Technical expense	Technical expense	2,524		—		—		2,524		Technical expense	5,646		—		—		5,646
Net finance costs:	Net finance costs:									Net finance costs:
Interest expense	Interest expense	18,325		—		—		18,325		Interest expense	16,883		—		—		16,883

Total finance costs	Total finance costs	18,325		—		—		18,325		Total finance costs	16,883		—		—		16,883
Total expenses	Total expenses	60,174		4,558		(26)		64,706		Total expenses	88,240		5,682		—		93,922
Earnings from operations		$	5,339	$	741	$	5	$	6,085
(Loss) earnings from operations										(Loss) earnings from operations	$	(25,969)	$	922	$	(58)	$	(25,105)


Three Months Ended March 31, 2021	Leasing and Related Operations		Spare Parts Sales		Eliminations		Total
Revenue:
Lease rent revenue	$	31,520	$	—	$	—	$	31,520
Maintenance reserve revenue	19,812		—		—		19,812
Spare parts and equipment sales	85		4,591		(110)		4,566

Other revenue	5,206		56		(35)		5,227
Total revenue	56,623		4,647		(145)		61,125

Expenses:
Depreciation and amortization expense	24,112		29		—		24,141
Cost of spare parts and equipment sales	6		3,817		(14)		3,809
Write-down of equipment	1,867		—		—		1,867
General and administrative	15,557		484		110		16,151
Technical expense	1,310		—		—		1,310
Net finance costs:
Interest expense	15,019		—		—		15,019

Total finance costs	15,019		—		—		15,019
Total expenses	57,871		4,330		96		62,297
(Loss) earnings loss from operations	$	(1,248)	$	317	$	(241)	$	(1,172)


	Leasing and Related Operations		Spare Parts Sales		Eliminations		Total
Total assets as of March 31, 2022	$	2,375,485	$	54,441	$	—	$	2,429,926
Total assets as of December 31, 2021	$	2,415,635	$	47,292	$	—	$	2,462,927

Table of Contents

Three Months Ended September 30, 2020 Leasing and
Related Operations Spare Parts Sales Eliminations Total
Revenue:
Lease rent revenue $ 30,025 $ — $ — $ 30,025
Maintenance reserve revenue 32,302 — — 32,302
Spare parts and equipment sales 115 3,000 (227) 2,888
Other revenue 5,397 35 (34) 5,398
Total revenue 67,839 3,035 (261) 70,613
Expenses:
Depreciation and amortization expense 23,993 29 — 24,022
Cost of spare parts and equipment sales 2 4,123 — 4,125
Write-down of equipment 5,245 — — 5,245
General and administrative 15,578 656 227 16,461
Technical expense 827 — — 827
Net finance costs:
Interest expense 15,351 — — 15,351
Total finance costs 15,351 — — 15,351
Total expenses 60,996 4,808 227 66,031
Earnings (loss) from operations $ 6,843 $ (1,773) $ (488) $ 4,582

Nine Months Ended September 30, 2021 Leasing and
Related Operations Spare Parts Sales Eliminations Total
Revenue:
Lease rent revenue $ 96,859 $ — $ — $ 96,859
Maintenance reserve revenue 60,749 — — 60,749
Spare parts and equipment sales 254 12,946 26 13,226
Gain on sale of leased equipment 2,440 — — 2,440
Asset transition fee (1) 6,256 — — 6,256
Other revenue 18,543 416 (101) 18,858
Total revenue 185,101 13,362 (75) 198,388
Expenses:
Depreciation and amortization expense 68,669 86 — 68,755
Cost of spare parts and equipment sales 18 11,004 (14) 11,008
Write-down of equipment 4,113 — — 4,113
General and administrative 52,769 1,569 (26) 54,312
Technical expense 6,130 — — 6,130
Net finance costs:
Interest expense 50,331 — — 50,331
Total finance costs 50,331 — — 50,331
Total expenses 182,030 12,659 (40) 194,649
Earnings (loss) from operations $ 3,071 $ 703 $ (35) $ 3,739

~~Table of Contents~~

Nine Months Ended September 30, 2020 Leasing and
Related Operations Spare Parts Sales Eliminations Total
Revenue:
Lease rent revenue $ 114,874 $ — $ — $ 114,874
Maintenance reserve revenue 82,816 — — 82,816
Spare parts and equipment sales 1,442 13,633 (227) 14,848
Gain on sale of leased equipment 1,367 — — 1,367
Other revenue 13,293 302 (295) 13,300
Total revenue 213,792 13,935 (522) 227,205
Expenses:
Depreciation and amortization expense 71,107 69 — 71,176
Cost of spare parts and equipment sales 154 13,307 — 13,461
Write-down of equipment 14,371 — — 14,371
General and administrative 48,928 2,101 227 51,256
Technical expense 3,422 — — 3,422
Net finance costs:
Interest expense 47,136 — — 47,136
Loss on debt extinguishment 4,688 — — 4,688
Total finance costs 51,824 — — 51,824
Total expenses 189,806 15,477 227 205,510
Earnings (loss) from operations $ 23,986 $ (1,542) $ (749) $ 21,695

~~_____________________________~~

~~(1)Asset transition fee reflects the settlement received from the close out of an engine transition program.~~

Leasing and
Related Operations Spare Parts Sales Eliminations Total
Total assets as of September 30, 2021 $ 2,448,431 $ 52,457 $ — $ 2,500,888
Total assets as of December 31, 2020 $ 2,312,172 $ 52,776 $ — $ 2,364,948

13. Related Party Transactions

Joint Ventures

“Other revenue” on the Condensed Consolidated Statements of Income includes management fees earned of ~~$0.9~~$0.5 million and ~~$0.4~~$0.3 million during the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $1.6 million and $1.2 million during the nine months ended September 30, 2021 and 2020,~~ respectively, related to the servicing of engines for the WMES lease portfolio.

Other

During 2020, the Board’s ~~Independent Directors~~independent directors approved the Company’s agreement to a lease with our former Chief Executive Officer (“CEO”) in support of the Company’s marine vessel leasing business. That lease ~~provides~~provided for a payment to our former CEO of $750 per day for the use of his tender in support of our vessel lease to a third-party lessee. The Company ~~has~~ paid a total of ~~$18,750 and $41,250~~$12,000 during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 ~~respectively,~~ for usage of the tender.

During 2021, the Company paid approximately $27,000 of expenses to Mikchalk Lake, LLC, an entity in which our CEO retains an ownership interest. These expenses were for lodging and other business-related services. These transactions were approved by the Board’s Independent Directors.

~~Table of Contents~~

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, ~~2020~~2021 (the ~~“2020~~“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 ~~September 30, 2021,~~March 31, 2022, all 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. As of ~~September 30, 2021,~~March 31, 2022, we had 7175 lessees in ~~40 countries.~~39 countries and four of our lessees were located in Russia. Our portfolio is continually changing due to equipment acquisitions and sales. As of ~~September 30, 2021, $1,971.3~~March 31, 2022, $1,951.4 million of equipment held in our operating lease portfolio and ~~$196.1~~$114.3 million of notes receivable represented ~~313~~298 engines, ~~eight~~twelve aircraft, one marine vessel and other leased parts and equipment. As of ~~September 30, 2021,~~March 31, 2022, we also managed ~~488~~349 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.

As previously disclosed, on March 16, 2021, we received a non-binding indication of interest (the “Indication of Interest”) to acquire all of the outstanding shares of the Company’s common stock not already owned by Charles F. Willis IV, the Company’s Chief Executive OfficerRisks and largest stockholder (individually and together with an entity controlled by him), and Austin C. Willis, the Company’s Senior Vice President, Corporate Development (together, the “Group”), in exchange for cash consideration of $42.00 per share. The Indication of Interest was filed as an exhibit to a Schedule 13D/A filed by the Group on March 17, 2021. The Indication of Interest did not provide details on how the Group proposed to finance its acquisition. On June 25, 2021, the Company’s Chief Executive Officer delivered a letter (the “Letter”) to the Special Committee of the Board of Directors reaffirming interest in acquiring all of the Company’s common stock not already owned by the Group in exchange for cash consideration of $42.00 per share (the “Offer Price”) and clarifying that he does not intend to increase the Offer Price.Uncertainties

~~On March 19, 2021, the Board of Directors~~As a result of the Company formed a committee (the “Independent Committee”) comprised solely of independent directors to review, evaluate and negotiate any proposal from the Group. See “Risk Factors” in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, and our other filings with the SEC.

~~On August 10, 2021, the Group delivered a notice of withdrawal to the Board of Directors of~~COVID-19 pandemic, the Company ~~notifying the Company that it was withdrawing~~had temporarily closed its proposal for the acquisition of all the outstanding shares of common stock of the Company not already owned by the Group and that it had mutually agreed with the Independent Committee to immediately terminate and abandon any further discussions regarding a potential acquisition.

~~COVID-19 Impact~~

~~Throughout the remainder of the year, we plan to continue to stay focused on cost control and remain prudent with our capital expenditures. We have continued to temporarily close our~~ headquarters and other offices, ~~require our~~required its employees and contractors to predominately work remotely, and ~~implement~~implemented travel restrictions, all of which ~~represent~~represented a significant disruption in how ~~we operate our~~the Company operates its business. ~~We have~~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. ~~During~~

~~Table of Contents~~

~~2020, 9% of our employees were either furloughed, or subject to a form of reduced compensation which was subsequently reversed in 2021.~~ The operations of ~~our~~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

Table of Contents

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 ~~that~~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 ~~our~~the Company, resulting in impacts ~~that~~which have adversely affected ~~our~~the Company’s business, results of ~~operations,~~operation, and financial condition. Lower demand for spare parts and engine and airframe leasing has negatively impacted collections of accounts receivable, caused ~~our~~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 ~~our~~the Company’s customers to go out of business, and limited the ability of ~~our~~the Company’s personnel to travel to customers and potential customers. ~~During~~The Company is not able to evaluate or foresee the ~~nine months ended September 30, 2021, we experienced declining average utilization and a corresponding decrease in revenue as compared to~~full extent of these impacts at the prior year comparable period. Additionally, as of September 30, 2021, the Company has, in certain situations, agreed to rent concessions which resulted in a total reduction to rent revenues of $0.3 million during the third quarter of 2021 and $0.5 million year-to-date. Rent concessions for the three and nine months ended September 30, 2020 resulted in a total reduction of rent revenue of $2.1 million and $5.2 million, respectively. The rent concessions provide lessees with payment deferral options or reduced rent, where the revised cash flows are substantially the same or less (i.e., the rights of the lessor and obligations of the lessee have not substantially increased) as the original lease agreements. There is no impact on the timing of revenue recognition for rent concessions that result in short term payment deferrals. The rent concessions with reduced rent qualify for the COVID-19 practical expedient to account for the rent concessions outside of the modification framework.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.

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 ~~2020~~2021 Form 10-K.

Results of Operations

Three months ended ~~September 30, 2021~~March 31, 2022 compared to the three months ended ~~September 30, 2020~~March 31, 2021

Revenue is summarized as follows:


		Three Months Ended September 30,							Three Months Ended March 31,
		2021		2020		% Change			2022		2021		% Change
		(dollars in thousands)							(dollars in thousands)
Lease rent revenue	Lease rent revenue	$	32,908	$	30,025	9.6	%	Lease rent revenue	$	38,125	$	31,520	21.0	%
Maintenance reserve revenue	Maintenance reserve revenue	23,659		32,302		(26.8)	%	Maintenance reserve revenue	14,834		19,812		(25.1)	%
Spare parts and equipment sales	Spare parts and equipment sales	5,091		2,888		76.3	%	Spare parts and equipment sales	6,630		4,566		45.2	%
Gain on sale of leased equipment	Gain on sale of leased equipment	2,440		—		100.0	%	Gain on sale of leased equipment	2,298		—		N/A

Other revenue	Other revenue	6,693		5,398		24.0	%	Other revenue	6,930		5,227		32.6	%
Total revenue	Total revenue	$	70,791	$	70,613	0.3	%	Total revenue	$	68,817	$	61,125	12.6	%

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 ~~$2.9~~$6.6 million, or ~~9.6%~~21.0%, to ~~$32.9~~$38.1 million in the three months ended ~~September 30, 2021~~March 31, 2022 from ~~$30.0~~$31.5 million for the three months ended ~~September 30, 2020.~~March 31, 2021. The increase is due to ~~lower COVID-19 related rent concessions and~~ an increase in the number of engines ~~acquired and~~ placed on ~~lease.~~lease as supported by an increase in utilization compared to the prior year period. These increases were partially offset by ~~a decline in portfolio utilization and~~ a lower lease rent factor due to leases on newer technology engines which tend to have longer term leases and lower rent rates. During the three months ended ~~September 30, 2021,~~March 31, 2022, we purchased equipment (including capitalized costs) totaling ~~$106.5~~$24.2 million, which consisted of ~~25 engines~~one engine and other parts and equipment purchased for our lease portfolio. During the three months ended ~~September 30, 2020,~~March 31, 2021, we purchased equipment (including capitalized costs) totaling ~~$5.0~~$26.5 million, which consisted of two engines and other parts and equipment purchased for our lease portfolio.

~~Table of Contents~~

One customer accounted for more than 10% of total lease rent revenue during the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively.

Table of Contents

The aggregate net book value of equipment held for lease at ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ consisted of ~~$1,971.3~~$1,951.4 million and ~~$196.1~~$114.3 million notes receivable and ~~$1,616.5~~$1,887.9 million and ~~$159.6~~$197.6 million notes receivable, respectively. Average utilization (based on net book value) was approximately ~~82%~~84% and ~~86%~~80% for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively.

Maintenance Reserve Revenue. Maintenance reserve revenue decreased ~~$8.6~~$5.0 million, or ~~26.8%~~25.1%, to ~~$23.7~~$14.8 million for the three months ended ~~September 30, 2021~~March 31, 2022 from ~~$32.3~~$19.8 million for the three months ended ~~September 30, 2020.~~March 31, 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 ~~$18.6~~$8.2 million for the three months ended ~~September 30, 2021~~March 31, 2022 compared to ~~$30.6~~$17.2 million in the comparable prior period. “Non-reimbursable” maintenance reserve revenue is directly influenced by on lease engine flight hours and cycles. Engines out on lease with “non-reimbursable” usage fees generated ~~$5.0~~$6.6 million of short-term maintenance revenues compared to ~~$1.7~~$2.7 million in the comparable prior period.

Spare Parts and Equipment Sales. Spare parts sales increased by ~~$2.2~~$2.1 million, or ~~76.3%~~45.2%, to ~~$5.1~~$6.6 million for the three months ended ~~September 30, 2021~~March 31, 2022 compared to ~~$2.9~~$4.6 million for the three months ended ~~September 30, 2020.~~March 31, 2021. The increase in spare parts sales for the ~~third~~first quarter of ~~2021~~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 ~~September 30,~~March 31, 2022 or 2021, ~~or 2020.~~respectively.

Gain on Sale of Leased Equipment. During the three months ended ~~September 30, 2021,~~March 31, 2022, we sold ~~six~~five engines ~~one airframe~~ and other parts and equipment from the lease portfolio for a net gain of ~~$2.4~~$2.3 million. There was no gain on sale of leased equipment during the three months ended ~~September 30, 2020.~~March 31, 2021.

Other Revenue. Other revenue increased by ~~$1.3~~$1.7 million, to ~~$6.7~~$6.9 million in the three months ended ~~September 30, 2021~~March 31, 2022 from ~~$5.4~~$5.2 million in the three months ended ~~September 30, 2020.~~March 31, 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 in the first quarter of 2022 compared to the prior year period primarily reflects ~~increases of $0.4 million in~~increased service ~~related fees and $0.5 million in interest income from our notes receivable.~~revenue.

Depreciation and Amortization Expense. Depreciation and amortization expense decreased by ~~$2.7~~$2.3 million, or ~~11.4%~~9.7%, to ~~$21.3~~$21.8 million for the three months ended ~~September 30, 2021~~March 31, 2022 compared to ~~$24.0~~$24.1 million for the three months ended ~~September 30, 2020.~~March 31, 2021. The decrease primarily reflects ~~certain~~ assets reaching ~~the end of~~ their ~~depreciable lives as compared to~~residual value in the prior ~~year period.~~year.

Cost of Spare Parts and Equipment Sales. Cost of spare parts sales ~~decreased~~increased by ~~$0.2~~$1.1 million, or ~~4.9%~~27.6%, to ~~$3.9~~$4.9 million for the three months ended ~~September 30, 2021~~March 31, 2022 compared to ~~$4.1~~$3.8 million for the three months ended ~~September 30, 2020.~~March 31, 2021. There was no equipment or cost of equipment sales for the three months ended ~~September 30, 2021~~March 31, 2022 and ~~2020.~~2021.

Write-down of Equipment. ~~There was no write-down of equipment for the three months ended September 30, 2021.~~ Write-down of equipment was ~~$5.2~~$21.1 million for the three months ended ~~September 30, 2020,~~March 31, 2022, reflecting the write-down of ~~six~~three engines. Of this write-down, $20.4 million reflects the impairment of two engines located in Russia due to the Russia and Ukraine conflict and were expected to be unrecoverable as of March 31, 2022. The remaining $0.7 million write-down was in the ordinary course of business. Write-down of equipment was $1.9 million for the three months ended March 31, 2021, reflecting the write-down of one airframe.

General and Administrative Expenses. General and administrative expenses increased by ~~$2.2~~$7.5 million, or ~~13.4%~~46.2%, to ~~$18.7~~$23.6 million for the three months ended ~~September 30, 2021~~March 31, 2022 compared to ~~$16.5~~$16.2 million for the three months ended ~~September 30, 2020.~~March 31, 2021. The increase primarily reflects ~~increased stock-based compensation~~a $2.5 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, a $0.7 million of incremental wage expense due to annual increases and new employee hiring, as ~~compared~~well as a $0.7 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 $1.9 million of expense which was driven by an increase in stock ~~price.~~price prior to the 2021 RSA grant. General and Administrative expenses were also negatively impacted by $1.6 million in accrued legal expenses. Additionally, with the lifting of travel bans and the opening of various markets, travel and related costs increased by $1.1 million as our sales force reengaged with customers globally.

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 ~~$1.7~~$4.3 million to ~~$2.5~~$5.6 million for the three months ended ~~September 30, 2021~~March 31, 2022 compared to ~~$0.8~~$1.3 million for the three months ended ~~September 30, 2020.~~March 31, 2021. The increase is primarily due to an increase in engine maintenance and hub repairs ~~as compared to the prior year period~~resulting from an FAA airworthiness directive, as well as the industry-wide increase in engine and aircraft ~~utilization.~~utilization, as compared to the prior year period.

Net Finance Costs. Net finance costs increased ~~$3.0~~$1.9 million, or ~~19.4%~~12.4%, to ~~$18.3~~$16.9 million for the three months ended ~~September 30, 2021~~March 31, 2022 compared to ~~$15.4~~$15.0 million for the three months ended ~~September 30, 2020.~~March 31, 2021. The increase is due to higher ~~leverage levels~~LIBOR rates and pricing on

Table of Contents

the revolving credit facility, as compared to the prior year period. ~~Net finance costs are also influenced by the execution of the WEST VI transaction, which temporarily increases total leverage and interest expense at the Company.~~ Debt obligations outstanding, net of unamortized debt issuance costs, as of ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ were ~~$1,814.2~~$1,759.1 million and ~~$1,462.7~~$1,724.1 million, respectively. After adjustment for interest rate derivative instruments, ~~$103.0~~$80.0 million and ~~$318.0~~$217.0 million as of ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, were tied to one-month LIBOR. As of ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ we held $500 million and ~~$200~~$600 million, respectively, of interest rate derivative instruments on this debt and one-month LIBOR was ~~0.08%~~0.45% and ~~0.15%~~0.11% respectively.

~~Table of Contents~~

Income Tax ~~Expense.~~Benefit. Income tax ~~expense~~benefit was ~~$3.2~~$6.5 million for the three months ended ~~September 30, 2021~~March 31, 2022 compared to ~~$3.1~~$0.4 million for the three months ended ~~September 30, 2020.~~March 31, 2021. The effective tax rate for the ~~third~~first quarter of ~~2021~~2022 was ~~52.8%~~23.5% compared to ~~50.6%~~21.2% in the prior year period. The ~~increase in the~~Company's effective tax rates differed from the U.S. federal statutory rate ~~was predominantly~~of 21% largely due to executive compensation ~~exceeding $1.0 million~~ as defined in IRS code Section 162(m).

~~Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020~~

~~Revenue is summarized as follows:~~

Nine Months Ended September 30,
2021 2020 % Change
(dollars in thousands)
Lease rent revenue $ 96,859 $ 114,874 (15.7) %
Maintenance reserve revenue 60,749 82,816 (26.6) %
Spare parts and equipment sales 13,226 14,848 (10.9) %
Gain on sale of leased equipment 2,440 1,367 78.5 %
Asset transition fee 6,256 — 100.0 %
Other revenue 18,858 13,300 41.8 %
Total revenue $ 198,388 $ 227,205 (12.7) %

~~Lease Rent Revenue.~~ Lease rent revenue decreased by $18.0 million, or 15.7%, to $96.9 million for the nine months ended September 30, 2021, compared to $114.9 million for the nine months ended September 30, 2020. The decrease is primarily due to lower utilization when compared to the prior year period which includes operations prior to the COVID-19 pandemic. This decrease is partially offset by an increase and a discrete item recorded in the ~~number~~first quarter of engines acquired and placed on lease during 2021. During the nine months ended September 30, 2021, we purchased equipment (including capitalized costs) totaling $170.3 million, which primarily consisted of 32 engines, one aircraft and other parts and equipment purchased for our lease portfolio. During the nine months ended September 30, 2020, we purchased equipment (including capitalized costs) totaling $82.0 million, which primarily consisted of four engines and other parts and equipment purchased for our lease portfolio.

~~One customer accounted for more than 10% of total lease rent revenue during the nine months ended September 30, 2021 and 2020, respectively.~~

The aggregate net book value of equipment held for lease at September 30, 2021 and 2020, was $1,971.3 million and $196.1 million notes receivable and $1,616.5 million and $159.6 million notes receivable, respectively. Average utilization (based on net book value) was approximately 81% and 86% for the nine months ended September 30, 2021 and 2020, respectively.

~~Maintenance Reserve Revenue.~~ Maintenance reserve revenue decreased $22.1 million, or 26.6%, to $60.7 million for the nine months ended September 30, 2021 from $82.8 million for the nine months ended September 30, 2020. Long-term maintenance revenue was $50.6 million for the nine months ended September 30, 2021 compared to $66.4 million in the prior year period. Engines out on lease with “non-reimbursable” usage fees generated $10.2 million of short-term maintenance revenues compared to $16.5 million in the comparable prior period, resulting from the decline in global flight traffic related to the COVID-19 pandemic.

~~Spare Parts and Equipment Sales.~~ Spare parts and equipment sales decreased by $1.6 million, or 10.9%, to $13.2 million for the nine months ended September 30, 2021 compared to $14.8 million in the prior year period. Spare parts sales for the nine months ended September 30, 2021 were $13.2 million, compared to $14.0 million in the comparable period of 2020. There were no equipment sales during the nine months ended September 30, 2021, compared to $0.9 million for the sale of one engine in the comparable period of 2020.

~~Gain on Sale of Leased Equipment.~~ During the nine months ended September 30, 2021, we sold six engines, one airframe and other parts and equipment from the lease portfolio for a net gain of $2.4 million. During the nine months ended September 30, 2020 we sold 10 engines and two airframes from the lease portfolio for a net gain of $1.4 million.

~~Asset Transition Fee.~~ Asset transition fee was $6.3 million during the nine months ended September 30, 2021 reflecting the settlement received from the close out of an engine transition program. There was no asset transition fee during the nine months ended September 30, 2020.

~~Table of Contents~~

~~Other Revenue.~~ Other revenue increased by $5.6 million, or 41.8%, to $18.9 million for the nine months ended September 30, 2021 from $13.3 million for the nine months ended September 30, 2020. The increase primarily reflects increases of $1.8 million in service related fees and $3.4 million in interest income from our notes receivable.

~~Depreciation and Amortization Expense.~~ Depreciation and amortization expense decreased by $2.4 million, to $68.8 million for the nine months ended September 30, 2021 compared to $71.2 million for the nine months ended September 30, 2020. The decrease reflects certain assets reaching the end of their depreciable lives as compared to the prior year period.

~~Cost of Spare Parts and Equipment Sales.~~ Cost of spare parts and equipment sales decreased by $2.5 million, or 18.2%, to $11.0 million for the nine months ended September 30, 2021 compared to $13.5 million for the nine months ended September 30, 2020. Cost of spare parts for the nine months ended September 30, 2021 were $11.0 million compared to $13.3 million in the prior year period due to lower spare parts sales. There was no cost of equipment sales for the nine months ended September 30, 2021, compared to $0.1 million in the prior year period.

~~Write-down of Equipment.~~ Write-down of equipment was $4.1 million for the nine months ended September 30, 2021, primarily reflecting the write-down of four engines and one airframe. Write-down of equipment was $14.4 million for the nine months ended September 30, 2020, primarily reflecting the write-down of twelve engines, two of which resulted from the Company’s interim impairment analysis, which indicated the carrying values of two engines were in excess of their respective fair value by $0.5 million.

~~General and Administrative Expenses.~~ General and administrative expenses increased by $3.1 million, or 6.0%, to $54.3 million for the nine months ended September 30, 2021 compared to $51.3 million for the nine months ended September 30, 2020. The increase primarily reflects increased stock-based compensation as compared to the prior year period which was driven by an increase in stock price.

~~Technical Expense.~~ Technical expense increased by $2.7 million, or 79.1%, to $6.1 million for the nine months ended September 30, 2021 compared to $3.4 million for the nine months ended September 30, 2020. The increase primarily reflects the increase in engine repairs.

~~Net Finance Costs.~~ Net finance costs decreased by $1.5 million, or 2.9%, to $50.3 million for the nine months ended September 30, 2021 compared to $51.8 million for the nine months ended September 30, 2020. The decrease was primarily due to a loss on debt extinguishment of $4.7 million recognized in the prior year period partly offset by the increase in interest expense related to the WEST VI transaction as compared to the prior year period.

~~Income Tax Expense.~~ Income tax expense was $0.9 million for the nine months ended September 30, 2021 compared to $11.7 million for the nine months ended September 30, 2020. The effective tax rate for the nine months ended September 30, 2021 was 37.0% compared to 48.0% in the prior year period. The decrease in the effective tax rate was predominantly due to Section 162(m) limitation.2022.

Financial Position, Liquidity and Capital Resources

Liquidity

At ~~September 30, 2021,~~March 31, 2022, the Company had ~~$71.6~~$14.1 million of cash and cash equivalents and $68.9 million of restricted ~~cash, of which $15.1 million was unrestricted.~~cash. We fund our operations primarily from cash provided by our leasing activities. We finance our growth through borrowings secured primarily by our equipment lease portfolio. Cash of approximately ~~$477.7~~$21.0 million and ~~$690.2~~$54.0 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, was derived from our borrowing activities. In these same time periods, ~~$355.9~~$53.3 million and ~~$477.8~~$24.6 million, respectively, was used to pay down related debt.

The impact of the COVID-19 pandemic on the global business environment has caused and could result in additional customer bankruptcies, early lease returns, payment defaults, and rental concessions which could reduce rent or result in deferred customer payments, negatively impacting our financial results.

For any interest rate swaps that we enter into, we will be exposed to risk in the event of non-performance of the interest rate hedge counter-parties. We anticipate that we may hedge additional amounts of our floating rate debt in the future.

~~Table of Contents~~

Cash Flows Discussion

Cash flows provided by operating activities was ~~$68.6~~$28.3 million and ~~$83.5~~$22.6 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ 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 ~~79% and 78%~~82%, by book value, of our assets were on-lease as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. The average utilization rate (based on net book value) for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ was approximately ~~81%~~84% and ~~86%~~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 ~~$180.9~~$6.3 million for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 and primarily reflected $44.4 million related to leases entered into during 2021 which were classified as notes receivable under ASC 842 and $170.3 million for the purchase of equipment held for operating lease (including capitalized costs and prepaid deposits made in the period). Cash flows used in investing activities was $188.5 million in the nine months ended September 30, 2020, and primarily reflected $136.0 million related to eight leases entered into during 2020 which were classified as notes receivable under ASC 842 and $82.0$24.2 million for the purchase of equipment held for operating lease (including capitalized costs and prepaid deposits made in the period), partly offset by ~~$17.7~~$17.3 million of proceeds from the sale of equipment. Cash flows used in investing activities was $65.5 million in the three months ended March 31, 2021, and primarily reflected $39.8 million related to leases entered into during the first quarter of 2021 which were classified as notes receivable under ASC 842 and $26.5 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 $34.7 million for the three months ended March 31, 2022 and primarily reflected $53.3 million in principal payments and $1.8 million of share repurchases, partially offset by $21.0 million inproceeds from ~~sales of equipment (net of selling expenses).~~

debt obligations. Cash flows provided by financing activities was ~~$104.9~~$28.7 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and primarily reflected ~~$477.7 million in~~proceeds from debt obligations, partially offset by $355.9 million in principal payments and $5.1 million of share repurchases. Cash flows provided by financing activities was $199.2 million for the nine months ended September 30, 2020 and primarily reflected $690.2$54.0 million in proceeds from debt obligations, partially offset by ~~$477.8~~$24.6 million in principal ~~payments and $8.4 million in debt issuance and prepayment costs.~~payments.

Table of Contents

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 ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the Company paid total dividends of ~~$2.4~~$0.8 million, respectively, on the Series A-1 and Series A-2 Preferred Stock.

Debt Obligations and Covenant Compliance

In June 2021, WLFC entered into Amendment No. 2 to the Fourth Amended and Restated Credit Agreement dated as of June 7, 2019, which updates the provisions relating to the future discontinuance of the London Interbank Offered Rate (“LIBOR”) and sets forth the mechanics for establishing the Secured Overnight Financing Rate as a benchmark replacement rate.

In May 2021, WLFC and its direct, wholly-owned subsidiary Willis Engine Structured Trust VI (“WEST VI”), closed its offering of $336.7 million aggregate principal amount of fixed rate notes (“WEST VI Notes”). The WEST VI Notes were issued in three series, with the Series A Notes issued in an aggregate principal amount of $278.6 million, the Series B Notes issued in an aggregate principal amount of $38.7 million and the Series C Notes issued in an aggregate principal amount of $19.4 million. The WEST VI Notes are secured by, among other things, WEST VI’s direct and indirect ownership interests in a portfolio of 29 aircraft engines and one airframe.

The assets of WEST VI are not available to satisfy the Company’s obligations other than the obligations specific to WEST VI. WEST VI is consolidated for financial statement presentation purposes. WEST VI’s ability to make distributions and pay dividends to the Company is subject to the prior payments of its debt and other obligations and WEST VI’s maintenance of adequate reserves and capital. Under WEST VI’s indenture, cash is collected in a restricted account, which is used to service the debt and any remaining

~~Table of Contents~~

amounts, after debt service and defined expenses, are distributed to the Company. Additionally, a portion of maintenance reserve payments and lease security deposits are formulaically accumulated in restricted accounts and are available to fund future maintenance events and to secure lease payments, respectively. The WEST VI indenture requires that a minimum threshold of maintenance reserve and security deposit balances be held in restricted cash accounts.

~~In May 2021, WLFC repaid an existing note payable that was secured by two engines.~~

InAt March 2020, WLFC and its direct, wholly-owned subsidiary Willis Engine Structured Trust V (“WEST V”) (formerly known as Willis Engine Securitization Trust II (“WEST II”)), closed its offering of $366.2 million aggregate principal amount of fixed rate notes (the “WEST V Notes”). The WEST V Notes were issued in three series, with the Series A Notes issued in an aggregate principal amount of $303.0 million, the Series B Notes issued in an aggregate principal amount of $42.1 million and the Series C Notes issued in an aggregate principal amount of $21.1 million. The WEST V Notes are secured by, among other things, WEST V’s direct and indirect ownership interests in a portfolio of 54 aircraft engines and three airframes, including 25 aircraft engines and three airframes which WEST V acquired from WLFC pursuant to an asset purchase agreement.

The Series A Notes have a fixed coupon of 3.228%, an expected maturity of approximately eight years and a final maturity date in March 2045, the Series B Notes have a fixed coupon of 4.212%, an expected maturity of approximately eight years and a final maturity date in March 2045 and the Series C Notes have a fixed coupon of 6.657%, an expected maturity of approximately eight years and a final maturity date in March 2045. The Series A Notes were issued at a price of 99.99859% of par, the Series B Notes were issued at a price of 99.99493% of par and the Series C Notes were issued at a price of 99.99918% of par. Principal on the WEST V Notes is payable monthly to the extent of available cash in accordance with a priority of payments included in the indenture for the WEST V Notes.

The assets of WEST V are not available to satisfy the Company’s obligations other than the obligations specific to WEST V. WEST V is consolidated for financial statement presentation purposes. WEST V’s ability to make distributions and pay dividends to the Company is subject to the prior payments of its debt and other obligations and WEST V’s maintenance of adequate reserves and capital. Under WEST V’s indenture, cash is collected in a restricted account, which is used to service the debt and any remaining amounts, after debt service and defined expenses, are distributed to the Company. Additionally, a portion of maintenance reserve payments and lease security deposits are formulaically accumulated in restricted accounts and are available to fund future maintenance events and to secure lease payments, respectively. The WEST V indenture requires that a minimum threshold of maintenance reserve and security deposit balances be held in restricted cash accounts.

~~We recognized a $4.7 million loss on debt extinguishment upon the repayment of the WEST II Series A 2012 term notes in March 2020.~~

~~At September 30, 2021,~~31, 2022, debt obligations consisted of loans totaling ~~$1,814.2~~$1,759.1 million, net of unamortized issuance costs, payable with interest rates varying between approximately 1.8% and 7.4%. Substantially all of our assets are pledged to secure our obligations to creditors. For further information on our debt instruments, see Note 5 “Debt Obligations” in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Virtually all of our debt requires our ongoing compliance with certain financial covenants including debt/equity ratios, minimum tangible net worth and minimum interest coverage ratios, and other eligibility criteria including customer and geographic concentration restrictions. Under our revolving credit facility, we can borrow no more than 85% of an engine’s net book value and 65% of an airframe’s, spare parts inventory’s or other assets net book value. Therefore, we must have other available funds for the balance of the purchase price of any new equipment to be purchased. Our revolving credit facility, certain indentures and other debt related agreements also contain cross-default provisions. If we do not comply with the covenants or eligibility requirements, we may not be permitted to borrow additional funds and accelerated payments may become necessary. Additionally, much of the debt is secured by engines and aircraft, and to the extent that engines or aircraft are sold, repayment of that portion of the debt could be required.

At ~~September 30, 2021,~~March 31, 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 ~~September 30, 2021,~~March 31, 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.

~~Table of Contents~~

Off-Balance Sheet Arrangements

As of ~~September 30, 2021,~~March 31, 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 ~~September 30, 2021:~~March 31, 2022:


				Payment due by period (in thousands)											Payment due by period (in thousands)
		Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years			Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Debt obligations	Debt obligations	$	1,834,695	$	75,077	$	728,887	$	122,076	$	908,655	Debt obligations	$	1,777,363	$	72,266	$	704,794	$	338,490	$	661,813
Interest payments under debt obligations	Interest payments under debt obligations	295,012		60,899		110,551		80,053		43,509		Interest payments under debt obligations	267,928		61,165		104,326		71,884		30,553
Operating lease obligations	Operating lease obligations	2,956		864		1,065		747		280		Operating lease obligations	5,482		981		1,635		1,538		1,328
Purchase obligations	Purchase obligations	447,917		22,174		425,743		—		—		Purchase obligations	439,917		127,697		241,220		71,000		—
Total	Total	$	2,580,580	$	159,014	$	1,266,246	$	202,876	$	952,444	Total	$	2,490,690	$	262,109	$	1,051,975	$	482,912	$	693,694

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 have purchased three new LEAP-1B engines and are currently committed to purchasing 12 additional new LEAP-1B ~~engines.~~engines for $170.6 million and 19 additional new LEAP-1A engines for $269.3 million by 2025. 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

Table of Contents

as the 737 Max iscontinues to be re-certified globally 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 ~~$70.2~~$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 ~~September 30, 2021~~March 31, 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.

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 ~~September 30, 2021, $603.0~~March 31, 2022, $580.0 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 ~~$1.0~~$0.8 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.

~~Table of Contents~~

We are also exposed to currency devaluation risk. Substantially all of our leases require payment in U.S. dollars. During the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, 57% and ~~2020, 54% and 78%~~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) 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) of 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 ~~September 30, 2021~~March 31, 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.

Table of Contents

(b) ~~Inherent Limitations~~Management’s Report on ~~Controls.~~Internal Control Over Financial Reporting. Management, including the CEO and CFO, ~~does not expect that our disclosure controls~~is responsible for establishing and ~~procedures will prevent or detect all error~~maintaining adequate “internal control over financial reporting,” as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control structure is designed to provide reasonable assurance regarding the reliability of financial reporting and ~~fraud. Any~~the preparation and fair presentation of its financial statements prepared for external purposes in accordance with U.S. generally accepted accounting principles.

Because of its inherent limitations, internal control ~~system, no matter how well designed and operated, is based upon certain assumptions and~~over financial reporting can provide only reasonable ~~not absolute,~~ assurance that ~~its~~the objectives ~~will be met. Further, no~~of the control system are met and may not prevent or detect misstatements. In addition, any evaluation of the effectiveness of internal controls ~~can provide absolute assurance~~over financial reporting in future periods is subject to risk that ~~misstatements due to error~~those internal controls may become inadequate because of changes in conditions, or ~~fraud~~that the degree of compliance with the policies or procedures may deteriorate.

Management, including the CEO and CFO, conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and identified a material weakness in the Company’s internal control over financial reporting, which is described below.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not ~~occur~~be prevented or ~~that all control issues and instances~~detected on a timely basis.

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 ~~fraud, if any, within~~ the ~~Company have been detected. The design~~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 ~~control system must reflect~~review process sufficiently precise to evaluate the ~~fact that there are resource constraints,~~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).

Based on the results of its evaluation and the ~~benefits~~material weakness described above, Management concluded that the Company’s internal control over financial reporting was not effective to provide reasonable assurance regarding the reliability of ~~controls must be considered relative to their costs.~~financial reporting and the preparation of financial statements for external reporting purposes in accordance with GAAP as of March 31, 2022.

(c) Changes in internal controls over financial reporting. There has been no change in our internal control over financial reporting during our fiscal quarter ended ~~September 30, 2021~~March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. Management has commenced the process of designing a remediation plan.

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, ~~2020~~2021 filed with the SEC on March ~~15, 2021, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021,~~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, ~~2020 and Form 10-Q for the period ended March 31,~~ 2021.

3226

Table of Contents

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.

Common stock repurchases, under our authorized plan, in the three months ended ~~September 30, 2021~~March 31, 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
July 2021 — $ — — $ 54,925
August 2021 — $ — — $ 54,925
September 2021 135,118 $ 38.03 135,118 $ 49,787
Total 135,118 $ 38.03 135,118 $ 49,787


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
January 2022	18,431	$	35.93	18,431	$	44,178
February 2022	16,573	$	35.32	16,573	$	43,593
March 2022	17,776	$	33.47	17,776	$	42,997
Total	52,780	$	34.86	52,780	$	42,997

Item 5. Other Information

~~None.~~

On March 3, 2022, the Board appointed Austin C. Willis, a member of the Board and the Company’s Senior Vice President, Corporate Development, as the Company’s Chief Executive Officer, effective April 1, 2022.

In connection with the appointment of Austin C. Willis, Charles F. Willis, IV, the Chairman and Chief Executive Officer of the Company, notified the Board of his decision to step down as Chief Executive Officer, effective April 1, 2022. Charles F. Willis, IV continues to serve as the Chairman of the Board and assumed the role of Executive Chairman on April 1, 2022.

On March 3, 2022, the Company entered into an employment agreement with Charles F. Willis IV in connection with his assumption of the role of Executive Chairman of the Board, effective as of April 1, 2022. The agreement provides that Charles F. Willis IV is entitled to an initial annual base salary of $1,097,000 and establishes his target annual bonus opportunity at 100% of his annual base salary. In addition, the agreement provides for a $1,000,000 signing bonus.

Also, on March 3, 2022, the Company entered into an employment agreement with Austin C. Willis in connection with his appointment as Chief Executive Officer of the Company, effective as of April 1, 2022. The agreement provides that Austin C. Willis is entitled to an initial annual base salary of $640,000 and establishes his target annual bonus opportunity at 90% of his annual base salary.

The foregoing descriptions of the employment agreements are qualified in their entirety by reference to the employment agreements, copies of which are filed as Exhibit 10.1 and 10.2, respectively, to this Quarterly Report on Form 10-Q and are incorporated herein by reference.

3327

Table of Contents

Item 6.

EXHIBITS


Exhibit Number						Description
10.1						Employment Agreement, dated as of March 3, 2022 and effective as of April 1, 2022, by and between the Company and Austin C. Willis.
10.2						Employment Agreement, dated as of March 3, 2022 and effective as of April 1, 2022, by and between the Company and Charles F . Willis IV.
31.1						Certification of ~~Charles F.~~Austin C. Willis ~~IV,~~, pursuant to Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2						Certification of Scott B. Flaherty, pursuant to Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32						Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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 ~~September 30, 2021,~~March 31, 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).

3428

Table of Contents

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: ~~November 3, 2021~~May 10, 2022


			Willis Lease Finance Corporation

			By:			/s/ Scott B. Flaherty
						Scott B. Flaherty
						Chief Financial Officer
						(Principal Financial and Accounting Officer)

3529


Three Months Ended September 30, 2020	Leasing and Related Operations		Spare Parts Sales		Eliminations		Total
Lease rent revenue	$	30,025	$	—	$	—	$	30,025
Maintenance reserve revenue	32,302		—		—		32,302
Spare parts and equipment sales	115		3,000		(227)		2,888

Managed services	2,382		—		—		2,382
Other revenue	3,015		35		(34)		3,016
Total revenue	$	67,839	$	3,035	$	(261)	$	70,613


Nine months ended September 30, 2021	Leasing and Related Operations		Spare Parts Sales		Eliminations		Total
Lease rent revenue	$	96,859	$	—	$	—	$	96,859
Maintenance reserve revenue	60,749		—		—		60,749
Spare parts and equipment sales	254		12,946		26		13,226
Gain on sale of leased equipment	2,440		—		—		2,440
Managed services	8,329		—		—		8,329
Asset transition fee (1)	6,256		—		—		6,256
Other revenue	10,214		416		(101)		10,529
Total revenue	$	185,101	$	13,362	$	(75)	$	198,388


Nine months ended September 30, 2020	Leasing and Related Operations		Spare Parts Sales		Eliminations		Total
Lease rent revenue	$	114,874	$	—	$	—	$	114,874
Maintenance reserve revenue	82,816		—		—		82,816
Spare parts and equipment sales	1,442		13,633		(227)		14,848
Gain on sale of leased equipment	1,367		—		—		1,367
Managed services	6,508		—		—		6,508
Other revenue	6,785		302		(295)		6,792
Total revenue	$	213,792	$	13,935	$	(522)	$	227,205