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What changed in WILLIS LEASE FINANCE CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of WILLIS LEASE FINANCE CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+253 added−290 removedSource: 10-K (2024-03-15) vs 10-K (2023-03-10)

Top changes in WILLIS LEASE FINANCE CORP's 2023 10-K

253 paragraphs added · 290 removed · 209 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

43 edited+3 added−10 removed51 unchanged
Biggest changeIn addition, when an engine becomes off-lease, it undergoes inspection to verify compliance with lease return conditions. Our management believes that our attention to our lessees and our emphasis on maintenance and inspection helps preserve residual values and generally helps us to recover our investment in our leased engines.
Biggest changeDuring the lease period, our leases require that maintenance and inspection of the leased engines be performed at qualified maintenance facilities certified by the FAA or its foreign equivalent. In addition, when an engine becomes off-lease, it undergoes inspection to verify compliance with lease return conditions.
In addition, the lessee is responsible for normal maintenance and repairs, engine and airframe overhauls, and compliance with return conditions of flight equipment on lease. Under the provisions of many leases, for certain engine and airframe overhauls, we reimburse the lessee for costs incurred up to but not exceeding maintenance reserves the lessee has paid to us.
In addition, the lessee is responsible for normal maintenance and repairs, and compliance with return conditions of flight equipment on lease. Under the provisions of many leases, for certain engine and airframe overhauls, we reimburse the lessee for costs incurred up to but not exceeding maintenance reserves the lessee has paid to us.
Those resources may include greater name recognition, larger product lines, complementary lines of business, greater financial, marketing, information systems and other resources. In addition, equipment manufacturers, aircraft maintenance providers, FAA certified repair facilities and other aviation aftermarket suppliers may vertically integrate into the markets that we serve, thereby significantly increasing industry competition and negatively impacting the Company.
Those resources may include greater name recognition, larger product lines, complementary lines of business, greater financial, marketing, and information systems, and other resources. In addition, equipment manufacturers, aircraft maintenance providers, FAA certified repair facilities and other aviation aftermarket suppliers may vertically integrate into the markets that we serve, thereby significantly increasing industry competition and negatively impacting the Company.
We manage our interest rate risk through maintaining a balance of fixed and floating rate debt which allows us to limit our exposure to interest rate movements while also allowing us to benefit from low short-term interest rates. The Company utilizes our credit facility as a warehouse facility to aggregate purchased assets.
We manage our interest rate risk through maintaining a balance of fixed and floating rate debt which allows us to limit our exposure to interest rate movements while also allowing us to benefit from low short-term interest rates. The Company generally utilizes our credit facility as a warehouse facility to aggregate purchased assets.
As of December 31, 2022, most of the engines in our lease portfolio are Stage IV engines and are generally suitable for use on one or more commonly used aircraft. We believe that the aviation industry will be subject to continued regulatory activity. Additionally, increased oversight will continue to originate from the quality assurance departments of airline operators.
As of December 31, 2023, most of the engines in our lease portfolio are Stage IV engines and are generally suitable for use on one or more commonly used aircraft. We believe that the aviation industry will be subject to continued regulatory activity. Additionally, increased oversight will continue to originate from the quality assurance departments of airline operators.
In 2022, we leased our equipment to lessees domiciled in seven geographic regions. 3 Table of Contents Spare Parts Sales Our wholly-owned and vertically-integrated subsidiary Willis Aero primarily engages in the sale of aircraft engine parts and materials through the acquisition or consignment of engines from third parties or from the leasing portfolio.
In 2023, we leased our equipment to lessees domiciled in seven geographic regions. 3 Table of Contents Spare Parts Sales Our wholly-owned and vertically-integrated subsidiary Willis Aero primarily engages in the sale of aircraft engine parts and materials through the acquisition or consignment of engines from third parties or from the leasing portfolio.
In order to facilitate financing and leasing of engines, most of our engines are generally owned through a statutory or common law trust that is wholly-owned by us or our subsidiaries. We usually borrow up to 85% of an engine purchase price. Substantially all of our assets secure our related indebtedness.
In order to facilitate financing and leasing of engines, most of our engines are generally owned through a statutory or common law trust that is wholly-owned by us or our subsidiaries. We usually borrow up to 85% of an engine’s purchase price. Substantially all of our assets secure our related indebtedness.
Generally, when the Company aggregates a critical mass of assets through revolver financing, we refinance the assets through the issuance of long-term fixed rate debt through the Asset-Backed Security (“ABS”) and other markets. The maturity profile of the ABS term financings tend to better match the long life characteristics of our long life asset base.
Historically, when the Company aggregates a critical mass of assets through revolver financing, we refinance the assets through the issuance of long-term fixed rate debt through the Asset-Backed Security (“ABS”) and other markets. The maturity profile of the ABS term financings tend to better match the long-life characteristics of our long-life asset base.
ENGINE LEASING As of December 31, 2022, the majority of our leases to air carriers, manufacturers and MROs were operating leases with the exception of certain failed sale-leaseback transactions classified as notes receivable under Accounting Standards Codification (“ASC”) 842 and investments in sales-type leases.
ENGINE LEASING As of December 31, 2023, the majority of our leases to air carriers, manufacturers and MROs were operating leases with the exception of certain failed sale-leaseback transactions classified as notes receivable under Accounting Standards Codification (“ASC”) 842 and investments in sales-type leases.
This business segment enables us to provide end-of-life solutions for the growing supply of surplus aircraft and engines, as well as manage the full lifecycle of our lease assets, enhance the returns on our engine portfolio and create incremental value for our shareholders.
This business segment enables us to provide end-of-life solutions for the growing supply of surplus aircraft and engines, as well as manage the full life cycle of our lease assets, enhance the returns on our engine portfolio, and create incremental value for our shareholders.
It is common for commercial aircraft operators and MROs to utilize several leasing companies to meet their aircraft engine needs and to minimize reliance on a single leasing company. 7 Table of Contents Our competitors compete with us in many ways, including pricing, technical expertise, lease flexibility, engine availability, supply reliability, customer service and the quality and condition of engines.
It is common for commercial aircraft operators and MROs to utilize several leasing companies to meet their aircraft engine needs and to minimize reliance on a single leasing company. Our competitors compete with us in many ways, including pricing, technical expertise, lease flexibility, engine availability, supply reliability, customer service, and the quality and condition of engines.
We also carry contingent physical damage and third-party liability insurance as well as product liability insurance at levels determined to be appropriate by the Company. GOVERNMENT REGULATION Our customers are subject to a high degree of regulation in the jurisdictions in which they operate.
We also carry contingent physical damage and third-party liability insurance as well as product liability insurance at levels determined to be appropriate by the Company. GOVERNMENT REGULATION 7 Table of Contents Our customers are subject to a high degree of regulation in the jurisdictions in which they operate.
In addition to the current Stage III compliance requirements, the U.S. and the International Civil Aviation Organization (“ICAO”) have adopted a more stringent set of “Stage IV” standards for noise levels which apply to engines manufactured or certified from 2006 onward.
In addition to the current Stage III compliance requirements, the U.S. and the International Civil Aviation Organization (“ICAO”) have adopted a more stringent set of Stage IV standards for noise levels which apply to engines manufactured or certified from 2006 onward.
Furthermore, the Company also manages interest rate exposure through the purchasing of interest rate swaps which immunizes us from short-term rate movements that would influence the cost of our credit facility borrowings. At December 31, 2022 the Company had $1.1 billion of fixed rate financing.
Furthermore, the Company also manages interest rate exposure through the purchasing of interest rate swaps which immunizes us from short-term rate movements that would influence the cost of our credit facility borrowings. At December 31, 2023 the Company had $1.5 billion of fixed rate financing.
In addition to our owned portfolio, as of December 31, 2022, we managed a total lease portfolio of 324 engines, aircraft and related equipment for other parties. Willis Aeronautical Services, Inc. (“Willis Aero”) is a wholly-owned and vertically-integrated subsidiary whose primary focus is the sale of aircraft engine parts and materials through the acquisition or consignment of aircraft and engines.
In addition to our owned portfolio, as of December 31, 2023, we managed a total lease portfolio of 198 engines, aircraft and related equipment for other parties. Willis Aeronautical Services, Inc. (“Willis Aero”) is a wholly-owned and vertically-integrated subsidiary whose primary focus is the sale of aircraft engine parts and materials through the acquisition or consignment of aircraft and engines.
At December 31, 2022, approximately 72% of our on-lease engines, aircraft, and related equipment (all of which we sometimes refer to as “equipment”) by net book value are leased and operated internationally. Substantially all leases relating to this equipment are denominated and payable in United States (“U.S.”) dollars, which is customary in the industry.
At December 31, 2023, approximately 74% of our on-lease engines, aircraft, and related equipment (all of which we sometimes refer to as “equipment”) by net book value are leased and operated internationally. Substantially all leases relating to this equipment are denominated and payable in United States (“U.S.”) dollars, which is customary in the industry.
We maintain a website at www.willislease.com where our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports are available without charge, as soon as reasonably practicable following the time they are filed with or furnished to the Securities and Exchange Commission (“SEC”).
We maintain a website at www.wlfc.global where our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports are available without charge, as soon as reasonably practicable following the time they are filed with or furnished to the Securities and Exchange Commission (“SEC”).
ASSET MANAGEMENT Willis Asset Management is a wholly-owned and vertically-integrated subsidiary whose primary focus is the engine management and consulting business. Willis Asset Management had 289 engines, excluding WLFC engines, under management as of December 31, 2022. COMPETITION The markets for our products and services are very competitive, and we face competition from a number of sources.
ASSET MANAGEMENT Willis Asset Management is a wholly-owned and vertically-integrated subsidiary whose primary focus is the engine management and consulting business. Willis Asset Management had 158 engines, excluding WLFC engines, under management as of December 31, 2023. COMPETITION The markets for our products and services are very competitive, and we face competition from a number of sources.
Willis Asset Management Limited (“Willis Asset Management”) is a wholly-owned and vertically-integrated subsidiary whose primary focus is the engine management and consulting business. Willis Asset Management had 289 engines, excluding WLFC engines, under management as of December 31, 2022. We are a Delaware corporation, incorporated in 1998.
Willis Asset Management Limited (“Willis Asset Management”) is a wholly-owned and vertically-integrated subsidiary whose primary focus is the engine management and consulting business. Willis Asset Management had 158 engines, excluding WLFC engines, under management as of December 31, 2023. We are a Delaware corporation, incorporated in 1998.
Payment terms of our leases are predominately monthly in advance for rent and in arrears for the expenses associated with the use of the engines. As of December 31, 2022 and 2021, 21% and 31%, respectively, of the Company’s leases by net book value were short-term leases. We try to mitigate risk where possible.
Payment terms of our leases are predominately monthly in advance for rent and in arrears for the expenses associated with the use of the engines. As of December 31, 2023 and 2022, 46% and 40%, respectively, of the Company’s leases by net book value were short-term leases. We try to mitigate risk where possible.
FINANCING/SOURCE OF FUNDS 8 Table of Contents We, directly or through our Willis Engine Structured Trust III, IV, V and VI (“WEST III,” “WEST IV,” “WEST V,” and “WEST VI”) asset-backed securitizations typically acquire engines with a combination of equity capital and funds borrowed from financial institutions.
FINANCING/SOURCE OF FUNDS We, directly or through our Willis Engine Structured Trust III, IV, V, VI, and VII (“WEST III,” “WEST IV,” “WEST V,” “WEST VI,” and “WEST VII”) asset-backed securitizations typically acquire engines with a combination of equity capital and funds borrowed from financial institutions.
Additionally, for discrete financing purposes, we will enter into bi-lateral and preferred financing arrangements from time to time. EMPLOYEES As of December 31, 2022, we had 288 total employees, of which 263 are full-time employees (excluding consultants), in sales and marketing, technical service and administration.
Additionally, for discrete financing purposes, we will enter into bi-lateral and preferred financing arrangements from time to time. EMPLOYEES As of December 31, 2023, we had 363 total employees, of which 361 are full-time employees (excluding consultants), in sales and marketing, technical service, and administration.
This business segment enables our Company to provide end-of-life solutions for the growing supply of surplus aircraft and engines, as well as manage the full lifecycle of our lease assets, enhance the returns on our engine portfolio and create incremental value for our shareholders. As of December 31, 2022, spare parts inventory had a carrying value of $38.6 million.
This business segment enables our Company to provide end-of-life solutions for the growing supply of surplus aircraft and engines, as well as manage the full life cycle of our lease assets, enhance the returns on our engine portfolio, and create incremental value for our shareholders. As of December 31, 2023, spare parts inventory had a carrying value of $41.0 million.
Total revenues from our Leasing and Related Operations reportable segment was 91.7% and 93.6% of the respective total consolidated revenue for the years ended December 31, 2022 and 2021, respectively.
Total revenues from our Leasing and Related Operations reportable segment was 95.1% and 91.7% of the respective total consolidated revenue for the years ended December 31, 2023 and 2022, respectively.
We describe all of our current leases as “triple-net” operating leases. A triple-net operating lease requires the lessee to make the full lease payment and pay any other expenses associated with the use of the engines, such as maintenance, casualty and liability insurance, sales or use taxes and personal property taxes.
A triple-net operating lease requires the lessee to make the full lease payment and pay any other expenses associated with the use of the engines, such as maintenance, casualty and liability insurance, sales or use taxes and personal property taxes.
Increased number of aircraft, and therefore engines, in the market We believe that the number of commercial and cargo aircraft, and hence spare engines, will increase. Boeing projects 2.8% annual growth in the global commercial jet fleet, increasing the current fleet to over 47,080 aircraft by 2041.
Increased number of aircraft, and therefore engines, in the market We believe that the number of commercial and cargo aircraft, and hence spare engines, will increase. Boeing projects 3.5% annual growth in the global commercial jet fleet, increasing the current fleet to over 48,575 aircraft by 2042.
As of December 31, 2022, we had $2,111.9 million of equipment held in our operating lease portfolio, $81.4 million of notes receivable, $17.7 million of maintenance rights, and $6.4 million of investments in sales-type leases, which represented 339 engines, 13 aircraft, one marine vessel and other leased parts and equipment with 80 lessees in 41 countries.
As of December 31, 2023, we had $2,112.8 million of equipment held in our operating lease portfolio, $92.6 million of notes receivable, $9.2 million of maintenance rights, and $8.8 million of investments in sales-type leases, which represented 337 engines, 12 aircraft, one marine vessel and other leased parts and equipment with 74 lessees in 42 countries.
Operating leases allow commercial aircraft operators greater fleet and financial flexibility due to the relatively small initial capital outlay necessary to obtain use of the aircraft equipment, and the availability of short- and long-term leases to better meet their needs. Operating lease rates are generally higher than finance lease rates, in part because of the lessor retained residual value risk.
Operating leases allow commercial aircraft operators greater fleet and financial flexibility due to the relatively small initial capital outlay necessary to obtain use of the aircraft equipment and the availability of short-term and long-term leases to better meet their needs.
Growth in the spare engine leasing industry is dependent on two fundamental drivers: • the number of commercial aircraft, and therefore engines, in the market; and • the proportion of engines that are leased, rather than owned, by commercial aircraft operators.
Participants in this sector need access to capital, as well as specialized technical knowledge, in order to compete successfully. Growth in the spare engine leasing industry is dependent on two fundamental drivers: • the number of commercial aircraft, and therefore engines, in the market; and • the proportion of engines that are leased, rather than owned, by commercial aircraft operators.
Aircraft equipment manufacturers have predicted such an increase in aircraft to address the rapid growth of both passenger and cargo traffic in the Asian markets, as well as demand for new aircraft in more mature markets.
Aircraft equipment manufacturers have predicted such an increase in aircraft to address the rapid growth of both passenger and cargo traffic in the Asian markets, as well as demand for new aircraft in more mature markets. Increased lease penetration rate Spare engines provide support for installed engines in the event of routine or other engine maintenance or unscheduled removal.
Our investment in the joint venture was $41.0 million as of December 31, 2022. 6 Table of Contents In 2014 we entered into an agreement with China Aviation Supplies Import & Export Corporation (“CASC”) to participate in a joint venture named CASC Willis Lease Finance Company Limited (“CASC Willis”), a joint venture based in Shanghai, China.
In 2014 we entered into an agreement with China Aviation Supplies Import & Export Corporation (“CASC”) to participate in a joint venture named CASC Willis Lease Finance Company Limited (“CASC Willis”), a joint venture based in Shanghai, China. Each partner holds a 50% interest in the joint venture.
CASC Willis owned a lease portfolio of four engines with a net book value of $42.7 million as of December 31, 2022. Our investment in the joint venture was $15.2 million as of December 31, 2022.
WMES owned a lease portfolio of 35 engines and four aircraft with a net book value of $232.2 million as of December 31, 2023. Our investment in the joint venture was $40.0 million as of December 31, 2023.
The demand for aftermarket engines for either sale or lease may be affected by a number of variables, including: • general market conditions; • regulatory changes (particularly those imposing environmental, maintenance and other requirements on the operation of engines); • changes in demand for air travel; • fuel costs; • changes in the supply and cost of aircraft equipment; and • technological developments.
The demand for aftermarket engines for either sale or lease may be affected by a number of variables, including: • general market conditions; • regulatory changes (particularly those imposing environmental, maintenance, and other requirements on the operation of engines); • changes in demand for air travel; • fuel costs; • changes in the supply and cost of aircraft equipment; and • technological developments. 5 Table of Contents The value of a particular used engine or airframe varies greatly depending upon its condition, the maintenance services performed during the lease term and, as applicable, the number of hours or cycles remaining until the next major maintenance interval.
As engines become more powerful and technically sophisticated, they have also become more expensive to acquire and maintain. In part due to cash constraints on commercial aircraft operators and the costs associated with engine ownership, commercial aircraft operators have become more cost-conscious and now utilize operating leases for a portion of their spare engines.
In part due to cash constraints on commercial aircraft operators and the costs associated with engine ownership, commercial aircraft operators have become more cost-conscious and now utilize operating leases for a portion of their spare engines. Engine leasing is a specialized business that has evolved into a discrete sector of the commercial aviation market.
As of December 31, 2021, we had $1,991.4 million of equipment held in our operating lease portfolio, $115.5 million of notes receivable, and $22.5 million of maintenance rights, which represented 304 engines, 12 aircraft, one marine vessel and other leased parts and equipment.
As of December 31, 2023, we had $2,112.8 million of equipment held in our operating lease portfolio, $92.6 million of notes receivable, $9.2 million of maintenance rights, and $8.8 million of investments in sales-type leases, which represented 337 engines, 12 aircraft, one marine vessel and other leased parts and equipment.
These factors include: • the number and type of aircraft in an aircraft operator’s fleet; • the geographic scope of such aircraft operator’s destinations; • the time an engine is on-wing between removals; • average shop visit time; and • the number of spare engines an aircraft operator requires in order to ensure coverage for predicted and unscheduled removals. 4 Table of Contents We believe that commercial aircraft operators are increasingly considering their spare engines as significant capital assets, in which operating leases may be more attractive than finance leases or ownership of spare engines.
These factors include: • the number and type of aircraft in an aircraft operator’s fleet; • the geographic scope of such aircraft operator’s destinations; • the time an engine is on-wing between removals; • average shop visit time; and • the number of spare engines an aircraft operator requires in order to ensure coverage for predicted and unscheduled removals.
Each partner holds a 50% interest in the joint venture. CASC Willis acquires and leases jet engines to Chinese airlines and concentrates on meeting the fast-growing demand for leased commercial aircraft engines and aviation assets in the People’s Republic of China.
CASC Willis acquires and leases jet engines to Chinese airlines and concentrates on meeting the fast-growing demand for leased commercial aircraft engines and aviation assets in the People’s Republic of China. CASC Willis owned a lease portfolio of four engines with a net book value of $39.8 million as of December 31, 2023.
As of December 31, 2022 minimum future rentals under non-cancelable operating leases of these engines, related equipment and aircraft assets were as follows: Year (in thousands) 2023 $ 146,842 2024 66,513 2025 52,000 2026 39,410 2027 27,763 Thereafter 35,708 $ 368,236 As of December 31, 2022, we had 80 lessees of commercial aircraft engines and related equipment, aircraft, and other leased parts and equipment in 41 countries.
As of December 31, 2023 minimum future rentals under non-cancelable operating leases of these engines, related equipment and aircraft assets were as follows: Year (in thousands) 2024 $ 158,408 2025 78,803 2026 50,926 2027 36,122 2028 6,431 Thereafter 45,031 $ 375,721 As of December 31, 2023, we had 74 lessees of commercial aircraft engines and related equipment, aircraft, and other leased parts and equipment in 42 countries.
Upon termination of a lease, we will either enter into a new lease, sell, or part out (disassemble and sell the parts separately), the related engines or airframe.
Our management believes that our attention to our lessees and our emphasis on maintenance and inspection helps preserve residual values and generally helps us to recover our investment in our leased engines. Upon termination of a lease, we will either enter into a new lease, sell, or part out (disassemble and sell the parts separately), the related engines or airframe.
Our aircraft leases are “triple-net” leases and the lessee is responsible for making the full lease payment and paying any other expenses associated with the use of the aircraft, such as maintenance, casualty and liability insurance, sales or use taxes and personal property taxes.
AIRCRAFT LEASING As of December 31, 2023, our operating lease portfolio included four A319-100 aircraft, four ATR 72-500 aircraft, one A320-200 aircraft, one A320-233 aircraft, one A321-200 aircraft, and one Boeing 737-700 with an aggregate net book value of $136.2 million. 6 Table of Contents Our aircraft leases are “triple-net” leases, and the lessee is responsible for making the full lease payment and paying any other expenses associated with the use of the aircraft, such as maintenance, casualty and liability insurance, sales or use taxes and personal property taxes.
Under longer-term leases, to the extent that cumulative use fee billings are inadequate to fund expenditures required prior to return of the engine to us, the lessee is obligated to cover the shortfall. 5 Table of Contents During the lease period, our leases require that maintenance and inspection of the leased engines be performed at qualified maintenance facilities certified by the FAA or its foreign equivalent.
Under longer-term leases, to the extent that cumulative use fee billings are inadequate to fund expenditures required prior to return of the engine to us, the lessee is obligated to cover the shortfall.
Industry analysts have forecasted that the percentage of leased engines is likely to increase over the next 15 years as engine leasing follows the growth of aircraft leasing.
We believe that commercial aircraft operators are increasingly considering their spare engines as significant capital assets, in which operating leases may be more attractive than finance leases or ownership of spare engines. Industry analysts have forecasted that the percentage of leased engines is likely to increase over the next 15 years as engine leasing follows the growth of aircraft leasing.
Increased lease penetration rate Spare engines provide support for installed engines in the event of routine or other engine maintenance or unscheduled removal. The number of spare engines needed to service any fleet is determined by many factors.
The number of spare engines needed to service any fleet is determined by many factors.
Removed
COVID-19 Impact In January 2022, the Company lifted travel restrictions and subsequently reopened its corporate headquarters and other offices for employees and contractors to work from. The Company has experienced and continues to experience various degrees of disruption due to the COVID-19 pandemic.
Added
INDUSTRY BACKGROUND - THE DEMAND FOR LEASED AIRCRAFT ENGINES Historically, commercial aircraft operators owned rather than leased their spare engines. As engines become more powerful and technically sophisticated, they have also become more expensive to acquire and maintain.
Removed
Lower demand for air travel presents significant risks to the Company, resulting in impacts which have adversely affected the Company's business, results of operations, and financial condition. The Company is not able to evaluate or foresee the full extent of these impacts at the current time.
Added
Operating lease rates are generally higher than finance lease rates, in part because of the lessor retained residual value risk. 4 Table of Contents We describe our leases as “triple-net” operating leases.
Removed
The scope and nature of the impact of COVID-19 on the airline industry, and in turn the Company's business, continue to evolve and the outcomes are uncertain. Given the uncertainty in the rapidly changing market and economic conditions related to COVID-19, we will continue to evaluate the nature and extent of the impact to the Company's business and financial position.
Added
Our investment in the joint venture was $18.0 million as of December 31, 2023.
Removed
The ultimate extent of the effects of the COVID-19 pandemic on the Company will depend on future developments, and such effects could exist for an extended period of time. INDUSTRY BACKGROUND - THE DEMAND FOR LEASED AIRCRAFT ENGINES Historically, commercial aircraft operators owned rather than leased their spare engines.
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Engine leasing is a specialized business that has evolved into a discrete sector of the commercial aviation market. Participants in this sector need access to capital, as well as specialized technical knowledge, in order to compete successfully.
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While COVID-19 has significantly impacted engine leasing, we still believe that engine leasing will gradually increase over the long term, but at a slower and less predictable pace than historically, as we emerge from the pandemic.
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While we believe these predictions are accurate over the long term, COVID-19 has materially disrupted the airline industry and significantly slowed down passenger growth globally, including in the U.S., and we believe such growth and demand may be negatively impacted over the short to medium term. See “Risk Factors” below.
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The value of a particular used engine or airframe varies greatly depending upon its condition, the maintenance services performed during the lease term and, as applicable, the number of hours or cycles remaining until the next major maintenance interval.
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WMES owned a lease portfolio of 35 engines and five aircraft with a net book value of $255.5 million as of December 31, 2022.
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AIRCRAFT LEASING As of December 31, 2022, our operating lease portfolio included five A319-100 aircraft, four ATR 72-500 aircraft, one A320-200 aircraft, one A320-233 aircraft, one A321-200 aircraft, and one Boeing 737-700 with an aggregate net book value of $134.5 million.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

71 edited+19 added−38 removed124 unchanged
Biggest changeThe U.S. and other jurisdictions are imposing more stringent limits on the emission of nitrogen oxide, carbon monoxide and carbon dioxide emissions from engines, consistent with ICAO standards. These limits generally apply only to engines manufactured after 1999. In 2005, the EU launched an Emissions Trading System limiting greenhouse gas emissions by various industries and persons, including aircraft operators.
Biggest changeThese limits generally apply only to engines manufactured after 1999. In 2005, the EU launched an Emissions Trading System limiting greenhouse gas emissions by various industries and persons, including aircraft operators. Concerns over global warming, climate change, or other environmental issues could result in more stringent limitations on the operation of older, non-compliant engines and aircraft.
Such liens may have priority over our interest as well as our creditors’ interest in the engines or aircraft, either because they have such priority under applicable local law or because our creditors’ security interests are not filed in jurisdictions outside the U.S.
Such liens may have priority over our interest as well as our creditors’ interests in the engines or aircraft, either because they have such priority under applicable local law or because our creditors’ security interests are not filed in jurisdictions outside the U.S.
The agreements governing our debt, including the issuance of notes by WEST III, WEST IV, WEST V and WEST VI, also include restrictive financial covenants. A breach of those and other covenants could, unless waived or amended by our creditors, result in a cross-default to other indebtedness and an acceleration of all or substantially all of our debt.
The agreements governing our debt, including the issuance of notes by WEST III, WEST IV, WEST V, WEST VI, and WEST VII also include restrictive financial covenants. A breach of those and other covenants could, unless waived or amended by our creditors, result in a cross-default to other indebtedness and an acceleration of all or substantially all of our debt.
The trading price of our common stock may fluctuate due to many factors, including but not limited to the following: • risks relating to our business described in this Annual Report; • sales or purchases of our securities by a few stockholders or even a single significant stockholder; • general economic conditions; • changes in accounting mandated under GAAP; • quarterly variations in our operating results; • our financial condition, performance and prospects; • changes in financial estimates by us; 18 Table of Contents • the level, direction and volatility of interest rates and expectations of changes in rates; • the market for securities similar to our common stock; • changes in our capital structure, including additional issuances by us of debt or equity securities; and • failure to maintain effective internal controls over financial reporting.
The trading price of our common stock may fluctuate due to many factors, including but not limited to the following: • risks relating to our business described in this Annual Report; • sales or purchases of our securities by a few stockholders or even a single significant stockholder; • general economic conditions; • changes in accounting mandated under GAAP; • quarterly variations in our operating results; • our financial condition, performance and prospects; • changes in financial estimates by us; • the level, direction and volatility of interest rates and expectations of changes in rates; 17 Table of Contents • the market for securities similar to our common stock; • changes in our capital structure, including additional issuances by us of debt or equity securities; and • failure to maintain effective internal controls over financial reporting.
Under most of our engine and aircraft leases, the lessee makes monthly maintenance reserve payments to us based on the asset’s usage and management’s estimate of maintenance costs. A certain level of maintenance reserve payments on the WEST III, WEST IV, WEST V and WEST VI engines are held in related engine reserve restricted cash accounts.
Under most of our engine and aircraft leases, the lessee makes monthly maintenance reserve payments to us based on the asset’s usage and management’s estimate of maintenance costs. A certain level of maintenance reserve payments on the WEST III, WEST IV, WEST V, WEST VI, and WEST VII engines are held in related engine reserve restricted cash accounts.
If we are removed from such role with those facilities, our expenses would increase as our consolidated VIE’s WEST III, WEST IV, WEST V and WEST VI, would have to hire an outside provider to replace the servicer and administrative agent functions, and we would be materially and adversely affected.
If we are removed from such role with those facilities, our expenses would increase as our consolidated VIE’s WEST III, WEST IV, WEST V, WEST VI, and WEST VII would have to hire an outside provider to replace the servicer and administrative agent functions, and we would be materially and adversely affected.
We receive monthly fees of 11.5% as servicer (3.5% of which is subordinated in each case) and 2.0% as administrative agent of the aggregate net rents actually received by WEST III, WEST IV, WEST V and WEST VI on their engines.
We receive monthly fees of 11.5% as servicer (3.5% of which is subordinated in each case) and 2.0% as administrative agent of the aggregate net rents actually received by WEST III, WEST IV, WEST V, WEST VI, and WEST VII on their engines.
However, there is continued uncertainty surrounding the future relationship between the UK and the EU, including any trade agreements between them, which could adversely affect European and worldwide economic and market conditions, and contribute to instability in global financial and foreign exchange markets.
There is continued uncertainty surrounding the future relationship between the UK and the EU, including any trade agreements between them, which could adversely affect European and worldwide economic and market conditions, and contribute to instability in global financial and foreign exchange markets.
There can be no assurance that we will be in compliance with these covenants in the future or will not otherwise be terminated as servicer or administrative agent for the WEST III, WEST IV, WEST V and WEST VI facilities.
There can be no assurance that we will be in compliance with these covenants in the future or will not otherwise be terminated as servicer or administrative agent for the WEST III, WEST IV, WEST V, WEST VI, and WEST VII facilities.
If we are unable to obtain commitments for the remaining deliveries or otherwise satisfy our contractual obligations to the engine manufacturers, we will be subject to several potential risks, including: • forfeiting advance deposits, as well as incurring certain significant costs related to these commitments such as contractual damages and legal, accounting and financial advisory expenses; 15 Table of Contents • defaulting on any future lease commitments we may have entered into with respect to these engines, which could result in monetary damages and strained relationships with lessees; • failing to realize the benefits of purchasing and leasing the engines; and • risking harm to our business reputation, which would make it more difficult to purchase and lease engines in the future on agreeable terms, if at all.
If we are unable to obtain commitments for the remaining deliveries or otherwise satisfy our contractual obligations to the engine manufacturers, we will be subject to several potential risks, including: • forfeiting advance deposits, as well as incurring certain significant costs related to these commitments, such as contractual damages and legal, accounting, and financial advisory expenses; • defaulting on any future lease commitments we may have entered into with respect to these engines, which could result in monetary damages and strained relationships with lessees; • failing to realize the benefits of purchasing and leasing the engines; and • risking harm to our business reputation, which would make it more difficult to purchase and lease engines in the future on agreeable terms, if at all.
Substantially all of our assets are pledged to secure our obligations to creditors. Our revolving credit banks have a lien on all of our assets, including our residual interests in WEST III, WEST IV, WEST V and WEST VI.
Substantially all of our assets are pledged to secure our obligations to creditors. Our revolving credit banks have a lien on all of our assets, including our residual interests in WEST III, WEST IV, WEST V, WEST VI, and WEST VII.
We may be removed as servicer and or administrative agent of our WEST III, WEST IV, WEST V and WEST VI facilities by an affirmative vote of a requisite number of the WEST III, WEST IV, WEST V and WEST VI note holders.
We may be removed as servicer and or administrative agent of our WEST III, WEST IV, WEST V, WEST VI, and WEST VII facilities by an affirmative vote of a requisite number of the WEST III, WEST IV, WEST V, WEST VI, and WEST VII note holders.
Willis, IV is the founder of WLFC, has served as a Director since our establishment in 1985, served as Chief Executive Officer from 1985 until April 2022, served as President until July 2011, and has served as Chairman of the Board of Directors from 1996 until April 2022, when he became Executive Chairman. Mr.
Charles F. Willis, IV is the founder of WLFC, has served as a Director since our establishment in 1985, served as Chief Executive Officer from 1985 until April 2022, served as President until July 2011, and has served as Chairman of the Board of Directors from 1996 until April 2022, when he became Executive Chairman. Mr.
Therefore, our rights and the rights of our creditors to participate in any distribution of the assets of WEST III, WEST IV, WEST V and WEST VI upon liquidation, reorganization, dissolution or winding up will be subject to the prior claims of WEST III’s, WEST IV’s, WEST V’s and WEST VI’s creditors.
Therefore, our rights and the rights of our creditors to participate in any distribution of the assets of WEST III, WEST IV, WEST V, WEST VI, and WEST VII upon liquidation, reorganization, dissolution or winding up will be subject to the prior claims of WEST III’s, WEST IV’s, WEST V’s, WEST VI’s, and WEST VII’s creditors.
Our leases require our lessees to indemnify us against these claims and to carry insurance customary in the air transportation industry, including liability, property damage and hull all risks insurance on our engines and on our aircraft at agreed upon levels.
Our leases require our lessees to indemnify us against these claims and to carry insurance customary in the air transportation industry, including liability, property damage, and all-risk hull insurance on our engines and on our aircraft at agreed upon levels.
Our board of directors has authorized the issuance of shares of 6.5% Series A Preferred Stock and 6.5% Series A-2 Preferred Stock, by us and to Development Bank of Japan Inc. (“DBJ”), with American Stock Transfer and Trust Company serving as rights agent.
Our board of directors has authorized the issuance of shares of Series A Preferred Stock and Series A-2 Preferred Stock, by us and to Development Bank of Japan Inc. (“DBJ”), with American Stock Transfer and Trust Company serving as rights agent.
Willis brings to the Board significant senior leadership, sales and marketing, industry, technical and global experience, as well as a deep institutional knowledge of the Company, its operations and customer relations . As of December 31, 2022, Mr.
Willis brings to the Board significant senior leadership, sales and marketing, industry, technical and global experience, as well as a deep institutional knowledge of the Company, its operations and customer relations . As of December 31, 2023, Mr.
Any of these risks could have a material adverse impact on our financial condition and results of operations. 13 Table of Contents We carry the risk of maintenance for our leased assets. Our maintenance reserves may be inadequate or lessees may default on their obligations to perform maintenance, which could increase our expenses.
Any of these risks could have a material adverse impact on our financial condition and results of operations. We carry the risk of maintenance for our leased assets. Our maintenance reserves may be inadequate or lessees may default on their obligations to perform maintenance, which could increase our expenses.
This may be affected by factors beyond our control, including: • general economic conditions in the countries in which our customers operate, including changes in gross domestic product; • demand for air travel and air cargo shipments; • increased competition; 9 Table of Contents • the availability of government support, which may be in the form of subsidies, loans (including export/import financing), guarantees, equity investments or otherwise; • changes in interest rates and the availability and terms of credit available to commercial aircraft operators including covenants in financings, terms imposed by credit card issuers, collateral posting requirements contained in fuel hedging contracts and the ability of airlines and MROs to make or refinance principal payments as they come due; • geopolitical and other events, including those arising from war, such as the escalating conflict between Russia and Ukraine, concerns about security, terrorism, war, pandemics and similar public health concerns and political instability; • changing political conditions, including risk of rising protectionism and imposition of new trade barriers; • inclement weather and natural disasters; • environmental compliance and other regulatory costs, including noise regulations, emissions regulations, climate change initiatives, and aircraft age limitations; • cyber risk, including information hacking, viruses and malware; • labor contracts, labor costs and strikes or stoppages at commercial aircraft operators; • operating costs, including the price and availability of fuel, maintenance costs, and insurance costs and coverages; • technological developments; • airport access and air traffic control infrastructure constraints; • industry capacity, utilization and general market conditions; and • market prices for aviation equipment.
This may be affected by factors beyond our control, including: • general economic conditions in the countries in which our customers operate, including changes in gross domestic product; • demand for air travel and air cargo shipments; • increased competition; • the availability of government support, which may be in the form of subsidies, loans (including export/import financing), guarantees, equity investments or otherwise; • changes in interest rates and the availability and terms of credit available to commercial aircraft operators including covenants in financings, terms imposed by credit card issuers, collateral posting requirements contained in fuel hedging contracts and the ability of airlines and MROs to make or refinance principal payments as they come due; • geopolitical and other events, including those arising from war, concerns about security, terrorism, war, pandemics and similar public health concerns and political instability; • changing political conditions, including risk of rising protectionism and imposition of new trade barriers; • inclement weather and natural disasters; • environmental compliance and other regulatory costs, including noise regulations, emissions regulations, climate change initiatives, and aircraft age limitations; • potential and actual cyberattacks, including information hacking, viruses and malware; • labor contracts, labor costs and strikes or stoppages at commercial aircraft operators; • operating costs, including the price and availability of fuel, maintenance costs, and insurance costs and coverages; • technological developments; • airport access and air traffic control infrastructure constraints; • industry capacity, utilization and general market conditions; and • market prices for aviation equipment.
In addition to the current Stage III compliance requirements, the U.S. and the ICAO have adopted a more stringent set of “Stage IV” standards for noise levels which apply to engines manufactured or certified from 2006 onward.
In addition to the current Stage III compliance requirements, the U.S. and the ICAO have adopted a more stringent set of Stage IV standards for noise levels which apply to engines manufactured or certified from 2006 onward.
As of December 31, 2022, engines on-lease with lease terms of 12 months or less and engines off-lease constituted approximately 65% of our assets. These engines may frequently need to be remarketed, which could drive up our operating costs associated with such equipment. Such higher operating costs could have a material, adverse impact on our results of operations and profitability.
As of December 31, 2023, engines on-lease with lease terms of 12 months or less and engines off-lease constituted approximately 57% of our assets. These engines may frequently need to be remarketed, which could drive up our operating costs associated with such equipment. Such higher operating costs could have a material, adverse impact on our results of operations and profitability.
For the year ended December 31, 2022, 60% of our lease rent revenue was generated by leases to foreign customers. Such international leases present risks to us because certain foreign laws, regulations and judicial procedures may not be as protective of lessor rights as those which apply in the U.S.
For the year ended December 31, 2023, 66% of our lease rent revenue was generated by leases to foreign customers. Such international leases present risks to us because certain foreign laws, regulations, and judicial procedures may not be as protective of lessor rights as those which apply in the U.S.
We have a presence in the UK and certain EU countries, including Ireland, and France. During 2022, we derived approximately 60% of our core lease rent revenue from international business. The consequences of Brexit could introduce significant uncertainties into global financial markets and adversely impact the markets in which we and our customers operate.
We have a presence in the UK and certain EU countries, including Ireland, and France. During 2023, we derived approximately 66% of our core lease rent revenue from international business. The consequences of Brexit could introduce significant uncertainties into global financial markets and adversely impact the markets in which we and our customers operate.
Our primary competitors include AerCap Holdings N.V., GE Capital Aviation Services, Shannon Engine Support Ltd., Pratt & Whitney, Rolls-Royce Partners Finance and Engine Lease Finance Corporation. Our primary competitors generally have significantly greater financial, personnel and other resources, as well as a physical presence in more locations, than we do.
Our primary competitors include AerCap Holdings N.V., Shannon Engine Support Ltd., Pratt & Whitney, Rolls-Royce Partners Finance, Engine Lease Finance Corporation, and FTAI Aviation LTD. Our primary competitors generally have significantly greater financial, personnel and other resources, as well as a physical presence in more locations, than we do.
We cannot give assurance that we will be able to compete effectively or that competitive pressures will not adversely affect us. There is no organized market for the spare engines or the aircraft we purchase. Typically, we purchase engines and aircraft from commercial aircraft operators, engine manufacturers, MROs and other suppliers.
We cannot give assurance that we will be able to compete effectively or that competitive pressures will not adversely affect us. 19 Table of Contents There is no organized market for the spare engines or the aircraft we purchase. Typically, we purchase engines and aircraft from commercial aircraft operators, engine manufacturers, MROs and other suppliers.
Willis has over 45 years of experience in the aviation industry which includes serving as President of Willis Lease’s predecessor, Charles F.
Willis has over 55 years of experience in the aviation industry which includes serving as President of Willis Lease’s predecessor, Charles F.
If they do not, we may, in the future, find it necessary to pay the claims secured by such liens to repossess such assets. In certain countries, an engine affixed to an aircraft may become an accession to the aircraft and we may not be able to exercise our ownership rights over the engine.
If they do not, we may, in the future, find it necessary to pay the claims secured by such liens to repossess such assets. 18 Table of Contents In certain countries, an engine affixed to an aircraft may become an accession to the aircraft and we may not be able to exercise our ownership rights over the engine.
Risks Related to Our Small Size and Corporate Structure Intense competition in our industry, particularly with major companies with substantially greater financial, personnel, marketing and other resources, could cause our revenues and business to suffer. 20 Table of Contents The engine and aircraft leasing industry is highly competitive and global.
Risks Related to Our Small Size and Corporate Structure Intense competition in our industry, particularly with major companies with substantially greater financial, personnel, marketing and other resources, could cause our revenues and business to suffer. The engine and aircraft leasing industry is highly competitive and global.
Our U.S. and international operations and warehouse facilities are also susceptible to losses and interruptions caused by floods, hurricanes, earthquakes, typhoons, and similar natural disasters, as well as power outages, telecommunications failures, and similar events.
Our U.S. and international operations and warehouse facilities are susceptible to losses and interruptions caused by floods, hurricanes, earthquakes, typhoons, and similar natural disasters, public health emergencies, as well as power outages, telecommunications failures, and similar events.
As of December 31, 2022, 109 of our leases comprising approximately 30% of the net book value of our on-lease assets do not provide for any monthly maintenance reserve payments to be made by lessees, and we can give no assurance that future leases of our engines or aircraft will require maintenance reserves.
As of December 31, 2023, 67 of our leases comprising approximately 24% of the net book value of our on-lease assets do not provide for any monthly maintenance reserve payments to be made by lessees, and we can give no assurance that future leases of our engines or aircraft will require maintenance reserves.
The largest portion of our foreign lease revenues comes from Europe. European airline operations are among the most heavily regulated in the world. At the same time, low-cost carriers have exerted substantial competitive and financial pressure on major European airlines. Low-cost carriers are having similar effects in North America and elsewhere.
The largest portion of our foreign lease revenues comes from the Asia-Pacific and European regions. Some of these airline operations are among the most heavily regulated in the world. At the same time, low-cost carriers have exerted substantial competitive and financial pressure on major Asia-Pacific and European airlines. Low-cost carriers are having similar effects in North America and elsewhere.
Due to WEST III’s, WEST IV’s, WEST V’s and WEST VI’s bankruptcy remote structure, that interest is subject to the prior payments of WEST III’s, WEST IV’s, WEST V’s and WEST VI’s debt and other obligations.
Due to WEST III’s, WEST IV’s, WEST V’s, WEST VI’s, and WEST VII’s bankruptcy remote structures, that interest is subject to the prior payments of WEST III’s, WEST IV’s, WEST V’s, WEST VI’s, and WEST VII’s debt and other obligations.
As of December 31, 2022, we had an aggregate of approximately $7.4 million in lease rent and $5.9 million in maintenance reserve payments more than 30 days past due as compared to $6.8 million in lease rent and $4.1 million in maintenance reserve payments more than 30 days past due as of December 31, 2021.
As of December 31, 2023, we had an aggregate of approximately $10.5 million in lease rent and $8.9 million in maintenance reserve payments more than 30 days past due as compared to $7.4 million in lease rent and $5.9 million in maintenance reserve payments more than 30 days past due as of December 31, 2022.
We are exposed to interest rate risk on our leases, which could have a negative impact on our margins. 16 Table of Contents We are affected by fluctuations in interest rates.
We are exposed to interest rate risk on our leases, which could have a negative impact on our margins. We are affected by fluctuations in interest rates.
Our ability to recover engines installed on airframes may depend on the cooperation of the airframe owner. Risks Related to Our Orders of New Engines We have committed to purchase new engines in 2023 with an aggregate value of up to $98.2 million.
Our ability to recover engines installed on airframes may depend on the cooperation of the airframe owner. Risks Related to Our Orders of New Engines We have committed to purchase new engines in 2024 with an aggregate value of up to $138.8 million.
If there are future changes in GAAP with regard to how we and our customers must account for leases, it could change the way we and our customers conduct our businesses and, therefore, could have a potential adverse effect on our business. We may not be adequately covered by insurance.
If there are future changes in GAAP with regard to how we and our customers must account for leases, it could change the way we and our customers conduct our businesses and, therefore, could have a potential adverse effect on our business.
We are the servicer and administrative agent for the WEST III, WEST IV, WEST V and WEST VI facilities and our cash flows would be materially and adversely affected if we were removed from these positions. We are the servicer and administrative agent with respect to engines in the WEST III, WEST IV, WEST V and WEST VI facilities.
We are the servicer and administrative agent for the WEST III, WEST IV, WEST V, WEST VI, and WEST VII facilities and our cash flows would be materially and adversely affected if we were removed from these positions.
We are affected by the risks faced by commercial aircraft operators and MROs because they are our customers. We operate as a supplier of engines, aircraft and related parts (“aviation equipment”) to commercial aircraft operators and MROs and are indirectly impacted by all the risks facing commercial aircraft operators and MROs today.
We operate as a supplier of engines, aircraft and related parts (“aviation equipment”) to commercial aircraft operators and MROs and are indirectly impacted by all the risks facing commercial aircraft operators and MROs today.
Willis beneficially owned or had the ability to direct the voting of 3,073,706 shares of our common stock, representing approximately 46% of the issued shares of our common stock. As a result, Mr.
Willis beneficially owned or had the ability to direct the voting of 3,077,610 shares of our common stock, representing approximately 45% of the issued shares of our common stock. As a result, Mr.
Our lease rates are generally fixed, and a portion of our debt bears variable rate interest based on one-month London Interbank Offered Rate (“LIBOR”), so changes in interest rates directly affect our lease margins.
Our lease rates are generally fixed, and a portion of our debt bears variable rate interest based on one-month term Secured Overnight Financing Rate (“SOFR”), so changes in interest rates directly affect our lease margins.
If interest rates or our borrowing margins increase between the time an existing financing arrangement was consummated and the time such financing arrangement is refinanced, the cost of servicing our debt would increase and our results of operations, financial condition, liquidity and cash flows could be materially and adversely affected.
If interest rates or our borrowing margins increase between the time an existing financing arrangement was consummated and the time such financing arrangement is refinanced, the cost of servicing our debt would increase and our results of operations, financial condition, liquidity, and cash flows could be materially and adversely affected. 16 Table of Contents We have risks in managing our portfolio of engines to meet customer needs.
These fluctuations may also be caused by: • the timing and number of purchases and sales of engines or aircraft; • the timing and amount of maintenance reserve revenues recorded resulting from the termination of long-term leases, for which significant amounts of maintenance reserves may have accumulated; • the termination or announced termination of production of particular aircraft and engine types; • the retirement or announced retirement of particular aircraft models by aircraft operators; • the operating history of any particular engine, aircraft or engine or aircraft model; • the length of our operating leases; and • the timing of necessary overhauls of engines and aircraft. 10 Table of Contents These risks may reduce our utilization rates, lease margins, maintenance reserve revenues and proceeds from engine and aircraft sales, and result in higher legal, technical, maintenance, storage and insurance costs related to repossession and the cost of engines being off lease.
These fluctuations may also be caused by: 9 Table of Contents • the timing and number of purchases and sales of engines or aircraft; • the timing and amount of maintenance reserve revenues recorded resulting from the termination of long-term leases, for which significant amounts of maintenance reserves may have accumulated; • the termination or announced termination of production of particular aircraft and engine types; • the retirement or announced retirement of particular aircraft models by aircraft operators; • the operating history of any particular engine, aircraft or engine or aircraft model; • the length of our operating leases; and • the timing of necessary overhauls of engines and aircraft.
Treasury Department’s Office of Foreign Assets Control (“OFAC”) and the Bureau of Industry and Security (“BIS”) of the Department of Commerce. 11 Table of Contents As part of our business, we may deal with state-owned business enterprises, the employees of which are considered foreign officials for purposes of the FCPA’s prohibition on providing anything of value to foreign officials in connection with obtaining or retaining business or securing business advantage.
As part of our business, we may deal with state-owned business enterprises, the employees of which are considered foreign officials for purposes of the FCPA’s prohibition on providing anything of value to foreign officials in connection with obtaining or retaining business or securing business advantage.
We have risks in managing our portfolio of engines to meet customer needs. The relatively long life cycles of aircraft and jet engines can be shortened by world events, government regulation or customer preferences.
The relatively long life cycles of aircraft and jet engines can be shortened by world events, government regulation, or customer preferences.
Such vote could happen upon the occurrence of certain specified events as outlined in the WEST III, WEST IV, WEST V and WEST VI servicing and administrative agency agreements. As of December 31, 2022, we were in compliance with the financial covenants set forth in the WEST III, WEST IV, WEST V and WEST VI servicing and administrative agency agreements.
Such vote could happen upon the occurrence of certain specified events as outlined in the WEST III, WEST IV, WEST V, WEST VI, and WEST VII servicing and administrative agency agreements.
Our bylaws also limit the ability of stockholders to raise matters at a meeting of stockholders without giving advance notice.
Our bylaws also limit the ability of stockholders to raise matters at a meeting of stockholders without giving advance notice. ITEM 1B. UNRESOLVED STAFF COMMENTS None. 21 Table of Contents
We are effectively controlled by one principal stockholder, who has the power to contest the outcome of most matters submitted to the stockholders for approval and to affect our stock prices adversely if he were to sell substantial amounts of his common stock. Charles F.
Denial of export licenses could reduce our sales to those countries and could have a material adverse effect on our business. 20 Table of Contents We are effectively controlled by one principal stockholder, who has the power to contest the outcome of most matters submitted to the stockholders for approval and to affect our stock prices adversely if he were to sell substantial amounts of his common stock.
On June 23, 2016, the UK voted in favor of a referendum to leave the EU, commonly referred to as “Brexit” and the UK ceased to be a member of the EU on January 31, 2020. A transition period through December 31, 2020 was established to allow the UK and the EU to negotiate the terms of the UK’s withdrawal.
On June 23, 2016, the UK voted in favor of a referendum to leave the EU, commonly referred to as “Brexit,” and the UK ceased to be a member of the EU on January 31, 2020.
This next generation of engines and aircraft is expected to deliver improved fuel consumption and reduced noise and emissions with lower operating costs compared to current-technology aircraft. 14 Table of Contents The introduction of new models of engines and aircraft and the potential resulting overcapacity in supply, could adversely affect the residual values and the lease rates for our engines and aircraft, our ability to lease or sell our engines and aircraft on favorable terms, or at all, or result in us recording future impairment charges.
The introduction of new models of engines and aircraft and the potential resulting overcapacity in supply, could adversely affect the residual values and the lease rates for our engines and aircraft, our ability to lease or sell our engines and aircraft on favorable terms, or at all, or result in us recording future impairment charges.
We may not correctly assess the credit risk of each lessee or may not be in a position to charge risk-adjusted lease rates, and lessees may not be able to continue to perform their financial and other obligations under our leases in the future.
Our inability to collect receivables or to repossess engines, aircraft or other leased equipment in the event of a default by a lessee could have a material adverse effect on us. 14 Table of Contents We may not correctly assess the credit risk of each lessee or may not be in a position to charge risk-adjusted lease rates, and lessees may not be able to continue to perform their financial and other obligations under our leases in the future.
By virtue of holding title to engines and aircraft, parties suffering damage as a result of the malfunction of an engine or aircraft may assert that lessors are strictly liable for the resulting losses. Such liability may be asserted even under circumstances in which the lessor is not directly controlling the operation of the relevant aircraft.
We may not be adequately covered by insurance. 11 Table of Contents By virtue of holding title to engines and aircraft, parties suffering damage as a result of the malfunction of an engine or aircraft may assert that lessors are strictly liable for the resulting losses.
To the extent we do not have hedges or other derivatives in place or if our hedges or other derivatives do not mitigate our interest rate exposure from an economic standpoint, we would be adversely affected by increasing interest rates. As reported by Intercontinental Exchange, the one-month LIBOR was approximately 4.39% and 0.10% on December 31, 2022 and 2021, respectively.
To the extent we do not have hedges or other derivatives in place, or if our hedges or other derivatives do not mitigate our interest rate exposure from an economic standpoint, we would be adversely affected by increasing interest rates.
These regulations could limit the economic life of our engines and aircraft or reduce their value, could limit our ability to lease or sell the non-compliant engines or aircraft or, if modifications are permitted, require us to make significant additional investments in the engines or aircraft to make them compliant.
These regulations could limit the economic life of our engines and aircraft or reduce their value, could limit our ability to lease or sell the non-compliant engines or aircraft or, if modifications are permitted, require us to make significant additional investments in the engines or aircraft to make them compliant. 10 Table of Contents The U.S. and other jurisdictions are imposing more stringent limits on the emission of nitrogen oxide, carbon monoxide, and carbon dioxide emissions from engines, consistent with ICAO standards.
In some jurisdictions, a lien may give the holder the right to detain or, in limited cases, sell or cause the forfeiture of the engine or aircraft.
These liens may secure substantial sums that may, in certain jurisdictions or for limited types of liens, exceed the value of the particular engine or aircraft to which the liens have attached. In some jurisdictions, a lien may give the holder the right to detain or, in limited cases, sell or cause the forfeiture of the engine or aircraft.
Section 1110 has been the subject of significant litigation and we can give no assurance that Section 1110 will protect our investment in aircraft or engines in the event of a lessee’s bankruptcy. In addition, Section 1110 does not apply to lessees located outside of the U.S. and applicable foreign laws may not provide comparable protection.
In the case of U.S.-certificated airlines, Section 1110 of the Bankruptcy Code provides certain relief to lessors of aircraft equipment. Section 1110 has been the subject of significant litigation, and we can give no assurance that Section 1110 will protect our investment in aircraft or engines in the event of a lessee’s bankruptcy.
Risks Related to Our Capital Structure Our future growth and profitability will depend on our ability to acquire aviation equipment and make other strategic investments. As a result, our inability to obtain sufficient capital to finance these acquisitions would constrain our ability to grow our portfolio and to increase our revenues. Our business is capital intensive and highly leveraged.
As a result, our inability to obtain sufficient capital to finance these acquisitions would constrain our ability to grow our portfolio and to increase our revenues. 15 Table of Contents Our business is capital intensive and highly leveraged.
Our business might suffer if we were to lose the services of certain key employees. Our business operations depend upon our key employees, including our executive officers.
Willis of substantial amounts of the Company’s common stock, or the potential for such sales, could adversely affect the prevailing market price of the Company’s common stock. Our business might suffer if we were to lose the services of certain key employees. Our business operations depend upon our key employees, including our executive officers.
Furthermore, we can provide no assurance that lessees will meet their obligations to make maintenance reserve payments or perform required scheduled maintenance or, to the extent that maintenance reserve payments are insufficient, to cover the cost of refurbishments or repairs.
Furthermore, we can provide no assurance that lessees will meet their obligations to make maintenance reserve payments or perform required scheduled maintenance or, to the extent that maintenance reserve payments are insufficient, to cover the cost of refurbishments or repairs. 13 Table of Contents Failures by lessees to meet their maintenance and recordkeeping obligations under our leases could adversely affect the value of our leased engines and aircraft and our ability to lease the engines and aircraft in a timely manner following termination of the leases.
An increase in interest rates or in our borrowing margin would increase the cost of servicing our debt and could reduce our profitability. A significant portion of our outstanding debt bears interest at floating rates.
The one-month term SOFR and the one-month London Inter-Bank Offered Rate (“LIBOR”) was approximately 5.38% and 4.39% on December 31, 2023 and 2022, respectively. An increase in interest rates or in our borrowing margin would increase the cost of servicing our debt and could reduce our profitability. A significant portion of our outstanding debt bears interest at floating rates.
If any of the following risks occur, our business, financial condition, operating results, and cash flows could be materially and adversely affected.
If any of the following risks occur, our business, financial condition, operating results, and cash flows could be materially and adversely affected. RISKS RELATING TO OUR BUSINESS 8 Table of Contents Risks Related to Our Operations We are affected by the risks faced by commercial aircraft operators and MROs because they are our customers.
Our operations may also be affected by political or economic instability, such as those arising from the escalating conflict between Russia and Ukraine; in the areas, countries or regions where we have customers, particularly Europe. We may not be able to enforce our rights as a creditor if a lessee files for bankruptcy outside of the U.S.
Our operations may also be affected by political or economic instability in the areas we have customers. We may not be able to enforce our rights as a creditor if a lessee files for bankruptcy outside of the U.S. When a debtor seeks protection under the United States Bankruptcy Code (“Bankruptcy Code”), creditors are automatically stayed from enforcing their rights.
In addition, certain product sales to foreign countries require approval or licensing from the U.S. government. Denial of export licenses could reduce our sales to those countries and could have a material adverse effect on our business.
In addition, certain product sales to foreign countries require approval or licensing from the U.S. government.
While we maintain contingent insurance covering losses not covered by our lessees’ insurance, such coverage may not be available in circumstances in which the lessees’ insurance coverage is insufficient. In addition, if a lessee is not obligated to maintain sufficient insurance, we may incur the costs of additional insurance coverage during the related lease.
Such liability may be asserted even under circumstances in which the lessor is not directly controlling the operation of the relevant aircraft. While we maintain contingent insurance covering losses not covered by our lessees’ insurance, such coverage may not be available in circumstances in which the lessees’ insurance coverage is insufficient.
We are subject to governmental regulation and our failure to comply with these regulations could cause the government to withdraw or revoke our authorizations and approvals to do business and could subject us to penalties and sanctions that could harm our business. 21 Table of Contents Governmental agencies throughout the world, including the FAA, highly regulate the manufacture, repair and operation of all aircraft operated in the U.S. and equivalent regulatory agencies in other countries, such as the EASA in Europe, regulate aircraft operated in those countries.
Governmental agencies throughout the world, including the FAA, highly regulate the manufacture, repair, and operation of all aircraft operated in the U.S. and equivalent regulatory agencies in other countries, such as the EASA in Europe, regulate aircraft operated in those countries.
In addition, the occurrence of natural disasters and health emergency or similar events in any of the regions in which we operate could disrupt and materially and adversely impact the operations of our business. Risks Related to Our Aviation Assets The value and lease rates of our engines and aircraft could decline.
In addition, the occurrence of natural disasters and health emergency or similar events in any of the regions in which we operate could disrupt and materially and adversely impact the operations of our business. Cyberattacks or other information security breaches could adversely affect our business, operating results and financial condition. Our operations are becoming increasingly dependent on information technologies.
Concerns over global warming, climate change or other environmental issues could result in more stringent limitations on the operation of older, non-compliant engines and aircraft. Failure to comply with anti-corruption laws, trade controls, economic sanctions and similar laws and regulations could subject us to penalties and other adverse consequences.
Failure to comply with anti-corruption laws, trade controls, economic sanctions and similar laws and regulations could subject us to penalties and other adverse consequences.
Engines also may be installed on airframes to which liens unrelated to the engines have attached. These liens may secure substantial sums that may, in certain jurisdictions or for limited types of liens, exceed the value of the particular engine or aircraft to which the liens have attached.
Liens that secure the payment of repairers’ charges or other liens may, depending on the jurisdiction, attach to engines and aircraft. Engines also may be installed on airframes to which liens unrelated to the engines have attached.
Liens on our engines or aircraft could exceed the value of such assets, which could negatively affect our ability to repossess, lease or sell a particular engine or aircraft. 19 Table of Contents Liens that secure the payment of repairers’ charges or other liens may, depending on the jurisdiction, attach to engines and aircraft.
In addition, Section 1110 does not apply to lessees located outside of the U.S. and applicable foreign laws may not provide comparable protection. Liens on our engines or aircraft could exceed the value of such assets, which could negatively affect our ability to repossess, lease or sell a particular engine or aircraft.
A loss of an aircraft in which we lease the airframe, an engine or other leased equipment could result in significant monetary claims for which there may not be sufficient insurance coverage. 12 Table of Contents Natural disasters, public health emergencies, such as the outbreak of the COVID-19 virus, and other business disruptions could cause significant harm to our customer base, which may materially adversely affect our business, results of operations, and financial condition.
Natural disasters, public health emergencies, and other business disruptions could cause significant harm to our customer base, which may materially adversely affect our business, results of operations, and financial condition.
We and our lenders generally are named as additional insureds on liability insurance policies carried by our lessees and are usually the loss payees for damage to our engines and aircraft. However, an uninsured or partially insured claim, or a claim for which third-party indemnification is not available, could have a material adverse effect upon us.
We can give no assurance that such insurance will be available at commercially reasonable rates, if at all. We and our lenders generally are named as additional insureds on liability insurance policies carried by our lessees and are usually the loss payees for damage to our engines and aircraft.
We are required under certain of our debt facilities to obtain political risk insurance for leases to lessees in specified jurisdictions. We can give no assurance that such insurance will be available at commercially reasonable rates, if at all.
In addition, if a lessee is not obligated to maintain sufficient insurance, we may incur the costs of additional insurance coverage during the related lease. We are required under certain of our debt facilities to obtain political risk insurance for leases to lessees in specified jurisdictions.
Removed
RISKS RELATING TO OUR BUSINESS Risks Related to Our Operations Our business has been and will continue to be negatively impacted by the COVID-19 pandemic, and COVID-19 related impacts have had a material adverse effect on the Company’s business, operating results and financial condition.
Added
These risks may reduce our utilization rates, lease margins, maintenance reserve revenues, and proceeds from engine and aircraft sales, and result in higher legal, technical, maintenance, storage and insurance costs related to repossession and the cost of engines being off lease.
Removed
The ongoing COVID-19 pandemic has resulted in a global slowdown of economic activity, particularly in the airline industry, and its impacts are expected to continue to persist and result in reduced demand for air travel for the foreseeable future.
Added
Treasury Department’s Office of Foreign Assets Control (“OFAC”), and the Bureau of Industry and Security (“BIS”) of the Department of Commerce.
Removed
We have experienced, and expect to continue to experience, diminished demand for leases of our engines and aircraft as a result of the COVID-19 pandemic. These COVID-19 pandemic-related impacts have, in the aggregate, had a material adverse impact on our business, results of operations and financial condition.
Added
However, an uninsured or partially insured claim, or a claim for which third-party indemnification is not available, could have a material adverse effect upon us. A loss of an aircraft in which we lease the airframe, an engine or other leased equipment could result in significant monetary claims for which there may not be sufficient insurance coverage.
Removed
We are unable to predict the extent or duration of these impacts as they will depend on future developments, which are highly uncertain and cannot be predicted at this time, such as the incidence and extent of outbreaks associated with new variants of the virus, the availability and effectiveness of treatments for COVID-19, such as vaccines, and the timing and extent that passenger airline travel will increase and recover to levels before the pandemic.
Added
Threats to our information technology systems continue to grow, and include, among other things, power outages, natural disasters, malware, ransomware, phishing, computer viruses, human error, and unexpected complications as our information technology systems are maintained or upgraded.
Removed
Challenges for our Company include possible declines in the values of aircraft, engines and related aircraft equipment in our portfolio, lower market rents for engines and aircraft offered for lease by us, and continued and further reductions in demand by potential and existing customers for additional or replacement engines offered by us.

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Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed1 unchanged
Biggest changeWe lease 45,000 square feet of warehouse space in Pompano Beach, Florida. We sub-lease 1,615 square feet of office and warehouse space for our operations in San Diego, California. We lease 4,166 square feet of office space in Dublin, Ireland. We also lease facilities for sales and operations in Larkspur, CA; Shanghai, China; Singapore; and Blagnac, France.
Biggest changeWe lease 45,000 square feet of warehouse space in Pompano Beach, Florida. We sub-lease 1,615 square feet of office and warehouse space for our operations in San Diego, California. We lease 4,166 square feet of office space in Dublin, Ireland. We also lease facilities for sales and operations in Larkspur, California; Shanghai, China; Singapore; Blagnac, France; and Gandhinagar, India.
The Company’s Leasing and Related Operations segment conducts business in all of the properties above except for Pompano Beach. The Spare Parts segment primarily conducts business in the Coconut Creek and Pompano Beach, Florida facilities. 23 Table of Contents ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II
The Company’s Leasing and Related Operations segment conducts business in all of the properties above except for Pompano Beach. The Spare Parts segment primarily conducts business in the Coconut Creek and Pompano Beach, Florida facilities. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+2 added−4 removed2 unchanged
Biggest changeFor 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. 24 Table of Contents As of December 31, 2022, the Company had granted 1,256,700 RSAs under the 2021 Plan and has 637,896 shares available for future issuance.
Biggest changeAs of December 31, 2023, the Company had granted 1,591,800 RSAs under the 2023 Plan and has 2,052,796 shares available for future issuance. The fair value of the restricted stock awards equaled the stock price at the grant date.
The RSAs are subject to either service-based vesting, which is typically between one and four years, in which a specific period of continued employment must pass before an award vests, or performance-based vesting, which is typically over one year.
The RSAs are subject to either service-based vesting, which is typically between one and four years, in which a specific period of continued employment must pass before an award vests, or performance-based vesting, which is typically between one and two years.
Repurchased shares are immediately retired. During 2022, the Company repurchased 154,215 shares of common stock for approximately $5.2 million at a weighted average price of $33.98. At December 31, 2022, approximately $39.6 million was available to purchase shares under the plan. As of December 31, 2022, the total number of common shares issued was approximately 6.6 million. ITEM 6.
During 2022, the Company repurchased 154,215 shares of common stock for approximately $5.2 million under the plan, at a weighted average price of $33.98 per share. At December 31, 2023, approximately $39.6 million was available to purchase shares under the plan. As of December 31, 2023, the total number of common shares issued was approximately 6.8 million. ITEM 6.
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Our Common Stock is listed on the Nasdaq Global Market under the symbol WLFC. As of March 7, 2023, there were approximately 2,000 shareholders of record of our Common Stock.
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Our Common Stock is listed on the Nasdaq Global Market under the symbol WLFC. As of March 4, 2024, there were 2,809 shareholders of record of our Common Stock.
The following table outlines our Equity Compensation Plan Information: Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (a) (b) (c) Plans Not Approved by Shareholders: None n/a n/a n/a Plans Approved by Shareholders: Employee Stock Purchase Plan — n/a 113,538 2007 Stock Incentive Plan — n/a — 2021 Stock Incentive Plan — n/a 637,896 Total — n/a 751,434 The 2007 Stock Incentive Plan (the “2007 Plan”) was adopted in May 2007.
The following table outlines our Equity Compensation Plan Information: Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (a) (b) (c) Plans Not Approved by Shareholders: None n/a n/a n/a Plans Approved by Shareholders: Employee Stock Purchase Plan — n/a 103,706 2023 Stock Incentive Plan — n/a 2,052,796 Total — n/a 2,156,502 23 Table of Contents The 2023 Incentive Stock Plan (the “2023 Plan”) amended and restated the prior 2021 Incentive Stock Plan.
Under this 2018 Plan, a total of 800,000 shares were authorized for stock-based compensation, plus the number of shares remaining under the 2007 Plan and any future forfeited awards under the 2007 Plan, in the form of RSAs.
The 2023 Plan authorized 1,750,000 shares for issuance, plus the number of shares remaining for issuance under the prior stock plan and any future forfeited awards under the prior plan. Stock-based compensation is in the form of restricted stock awards (“RSAs”).
In addition, certain of our debt facilities contain negative covenants which, in certain situations, prohibit us from paying any dividends or making distributions of any kind with respect to our common stock. The Series A-1 and Series A-2 Preferred Stock carry a quarterly dividend at the rate per annum of 6.5% per share, with a $20.00 liquidation preference per share.
In addition, certain of our debt facilities contain negative covenants which, in certain situations, prohibit us from paying any dividends or making distributions of any kind with respect to our common stock.
The fair value of the restricted stock awards equaled the stock price at the grant date. At its October 26, 2022 meeting, the Board of Directors approved the renewal of the existing common stock repurchase plan which allows for repurchases of up to $60.0 million of the Company's common stock, extending the plan through December 31, 2024.
In October 2022, the Board of Directors approved the renewal of the existing common stock repurchase plan which allows for repurchases of up to $60.0 million of the Company’s common stock, extending the plan through December 31, 2024. Repurchased shares are immediately retired. During 2023, no shares were repurchased.
Removed
Under this 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, in which a specific period of continued employment must pass before an award vests.
Added
The Company’s Series A-1 Preferred Stock accrued quarterly dividends at the rate per annum of 6.5% per share through October 15, 2023 and accrue quarterly dividends at the rate per annum of 8.5% per share thereafter. The Company’s Series A-2 Preferred Stock accrue quarterly dividends at the rate per annum of 6.5% per share.
Removed
As of December 31, 2022, there were no stock options outstanding under the 2007 Plan. The 2018 Stock Incentive Plan (the “2018 Plan”) was adopted in May 2018.
Added
The Series A-1 and Series A-2 Preferred Stock have a $20.00 liquidation preference per share.
Removed
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.
Removed
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.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

80 edited+20 added−29 removed28 unchanged
Biggest changeIf 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. 30 Table of Contents Cash flows used in investing activities were $194.4 million for the year ended December 31, 2022 and primarily reflected $15.3 million related to a lease entered into during 2022 which was classified as a note receivable under ASC 842 and $286.4 million for the purchase of equipment held for operating lease (including capitalized costs and prepaid deposits made during the year), partly offset by $69.2 million in proceeds from sales of equipment (net of selling expenses) and $40.7 million in proceeds from the sale of notes receivable (net of selling expenses).
Biggest changeCash flows used in investing activities were $92.8 million for the year ended December 31, 2023 and primarily reflected $163.6 million for the purchase of equipment held for operating lease (including capitalized costs and prepaid deposits made during the year), and $15.4 million related to a lease entered into during 2023 which was classified as a note receivable under ASC 842, partly offset by $85.1 million in proceeds from sales of equipment (net of selling expenses).
Aircraft and airframes are generally depreciated on a straight-line basis over 13 to 20 years to a 15% to 17% residual value. The marine vessel is depreciated on a straight-line basis over an estimated useful life of 18 years to a 15% residual value.
Aircraft and airframes are generally depreciated on a straight-line basis over 13 to 20 years to a 17% residual value. The marine vessel is depreciated on a straight-line basis over an estimated useful life of 18 years to a 15% residual value.
Under WEST III, WEST IV, WEST V and WEST VI, cash is collected in restricted accounts, which are used to service the debt and any remaining amounts, after debt service and defined expenses, are distributed to the Company.
Under WEST III, WEST IV, WEST V, WEST VI, and WEST VII, cash is collected in restricted accounts, which is used to service the debt and any remaining amounts, after debt service and defined expenses, are distributed to the Company.
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 December 31, 2022, the majority of our leases were operating leases with the exception of certain failed sale-leaseback transactions classified as notes receivable under the guidance provided by ASC 842 and investments in sales-type leases.
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 December 31, 2023, the majority of our leases were operating leases with the exception of certain failed sale-leaseback transactions classified as notes receivable under the guidance provided by ASC 842 and investments in sales-type leases.
In September 2017, the Company sold and issued to DBJ an aggregate of 1,500,000 shares of the Company’s 6.5% Series A-2 Preferred Stock, $0.01 par value per share (the “Series A-2 Preferred Stock”) at a purchase price of $20.00 per share. The net proceeds to the Company after deducting issuance costs were $29.7 million.
In September 2017, the Company sold and issued to DBJ an aggregate of 1,500,000 shares of the Company’s Series A-2 Preferred Stock, $0.01 par value per share (the “Series A-2 Preferred Stock”) at a purchase price of $20.00 per share. The net proceeds to the Company after deducting issuance costs were $29.7 million.
Preferred Stock Dividends In October 2016, the Company sold and issued to DBJ an aggregate of 1,000,000 shares of the Company’s 6.5% Series A Preferred Stock, $0.01 par value per share (the “Series A Preferred Stock”) at a purchase price of $20.00 per share. The net proceeds to the Company after deducting investor fees were $19.8 million.
Preferred Stock Dividends In October 2016, the Company sold and issued to DBJ an aggregate of 1,000,000 shares of the Company’s Series A Preferred Stock, $0.01 par value per share (the “Series A Preferred Stock”) at a purchase price of $20.00 per share. The net proceeds to the Company after deducting investor fees were $19.8 million.
The increase is primarily due to an increase in the number of engines acquired and placed on lease, including an increase in utilization compared to the prior period.
The increase is primarily due to an increase in the number of engines acquired and placed on lease, including an increase in utilization compared to that of the prior period.
On an annual basis, even absent any such ‘triggering event’, we evaluate the carrying value of the assets in our lease portfolio to determine if any impairment exists. 26 Table of Contents Impairment may be identified by several factors, including, comparison of estimated sales proceeds or forecasted undiscounted cash flows over the life of the asset with the asset’s book value.
On an annual basis, even absent any such ‘triggering event’, we evaluate the carrying value of the assets in our lease portfolio to determine if any impairment exists. Impairment may be identified by several factors, including, comparison of estimated sales proceeds or forecasted undiscounted cash flows over the life of the asset with the asset’s book value.
As of December 31, 2022, the majority of our leases were operating leases with the exception of certain failed sale-leaseback transactions classified as notes receivable under the guidance provided by ASC 842 and investments in sales-type leases.
As of December 31, 2023, the majority of our leases were operating leases with the exception of certain failed sale-leaseback transactions classified as notes receivable under the guidance provided by ASC 842 and investments in sales-type leases.
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.
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.
In December 2022, the Company recognized a $2.6 million gain on debt extinguishment associated with the repurchase of six tranches of ABS notes with a balance of $12.2 million. The assets of WEST III, WEST IV, WEST V and WEST VI are not available to satisfy the Company’s obligations other than the obligations specific to the applicable WEST entity.
In December 2022, the Company recognized a $2.6 million gain on debt extinguishment associated with the repurchase of six tranches of ABS notes with a balance of $12.2 million. The assets of WEST III, WEST IV, WEST V, WEST VI, and WEST VII are not available to satisfy the Company’s obligations other than the obligations specific to that WEST entity.
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. COVID-19 Impact.
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.
Beyond cash provided through operations, we generally fund the growth of our business through a combination of equity and corporate borrowings secured by our equipment lease portfolio. Cash of approximately $284.0 million and $513.7 million in the years ended December 31, 2022 and 2021, respectively, was derived from this borrowing activity.
Beyond cash provided through operations, we generally fund the growth of our business through a combination of equity and corporate borrowings secured by our equipment lease portfolio. Cash of approximately $625.7 million and $284.0 million in the years ended December 31, 2023 and 2022, respectively, was derived from this borrowing activity.
The ineffective portion of these hedges flows through earnings in the current period. The Company recorded an adjustment to interest expense of $(7.8) million and $2.4 million during the years ended December 31, 2022 and 2021, respectively, from derivative investments.
The ineffective portion of these hedges flows through earnings in the current period. The Company recorded an adjustment to interest expense of $(23.4) million and $(7.8) million during the years ended December 31, 2023 and 2022, respectively, from derivative investments.
In the event that we decide to repatriate these funds held at the other foreign subsidiaries to the U.S., we would be required to accrue and pay taxes upon the repatriation. We generate significant cash flow from our core business as evidenced by our net cash provided by operating activities which was $144.4 million in 2022.
In the event that we decide to repatriate these funds held at the other foreign subsidiaries to the U.S., we would be required to accrue and pay taxes upon the repatriation. We generate significant cash flow from our core business as evidenced by our net cash provided by operating activities which was $229.7 million in 2023.
Actual interest payments made will vary due to actual 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 through 2023.
Actual interest payments made will vary due to actual changes in the rates for one-month term SOFR. We believe our equity base, internally generated funds and existing debt facilities are sufficient to maintain our level of operations through 2024.
Approximately 80% and 82%, by book value, of our assets were on-lease as of December 31, 2022 and 2021, respectively. The average utilization rate for the years ended December 31, 2022 and 2021 was approximately 82% and 81%, respectively.
Approximately 84% and 80%, by book value, of our assets were on-lease as of December 31, 2023 and 2022, respectively. The average utilization rate for the years ended December 31, 2023 and 2022 was approximately 84% and 82%, respectively.
In these same time periods $228.8 million and $417.0 million, respectively, was used to pay down related debt. Our credit facility is our primary source of capital to grow our business. We also access the ABS and other markets to establish term fixed rate debt financing to better match our long-lived assets.
In these same time periods $665.5 million and $228.8 million, respectively, was used to pay down related debt. 28 Table of Contents Our credit facility is our primary source of capital to grow our business. We also access the ABS and other markets to establish term fixed rate debt financing to better match our long-lived assets.
Major overhauls paid for by us, which improve functionality or extend the original useful life, are capitalized and depreciated over the shorter of the estimated period to the next overhaul (“deferral method”) or the remaining useful life of the equipment. We do not accrue for planned major maintenance.
When we pay for major overhauls, which improve functionality or extend the original useful life, they are capitalized and depreciated over the shorter of the estimated period to the next overhaul (“deferral method”) or the remaining useful life of the equipment. We do not accrue for planned major maintenance.
As of December 31, 2022, we also managed 324 engines, aircraft and related equipment on behalf of other parties. Willis Aero is a wholly-owned and vertically-integrated subsidiary whose primary focus is the sale of aircraft engine parts and materials through the acquisition or consignment of aircraft engines.
As of December 31, 2023, we also managed 198 engines, aircraft and related equipment on behalf of other parties. 24 Table of Contents Willis Aero is a wholly-owned and vertically-integrated subsidiary whose primary focus is the sale of aircraft engine parts and materials through the acquisition or consignment of aircraft engines.
As of December 31, 2022, 28 engines having a net book value of $24.2 million were depreciated under this policy with estimated remaining useful lives ranging from 1 to 101 months. Asset Valuation .
As of December 31, 2023, 24 engines having a net book value of $17.2 million were depreciated under this policy with estimated remaining useful lives ranging from 1 to 83 months. Asset Valuation .
We are currently committed to purchasing nine additional new LEAP-1B engines for $145.3 million and 18 additional new LEAP-1A engines for $282.8 million by 2026. Our purchase agreements generally contain terms that allow the Company to defer or cancel purchase commitments in certain situations.
We are currently committed to purchasing nine additional new LEAP-1B engines and 18 additional new LEAP-1A engines for $459.7 million by 2027. Our purchase agreements generally contain terms that allow the Company to defer or cancel purchase commitments in certain situations.
Technical expenses consist 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. These expenses increased 53.7% to $14.4 million for the year ended December 31, 2022, compared to $9.4 million in 2021.
Technical Expense . Technical expenses consist 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. These expenses increased 40.3% to $20.2 million for the year ended December 31, 2023, compared to $14.4 million in 2022.
RELATED PARTY TRANSACTIONS Joint Ventures “Other revenue” on the Consolidated Statements of Income includes management fees earned of $2.0 million and $2.1 million during the years ended December 31, 2022 and 2021, respectively, related to the servicing of engines for the WMES lease portfolio. During 2022, the Company sold two engines to WMES for $12.6 million.
RELATED PARTY TRANSACTIONS Joint Ventures “Other revenue” on the Consolidated Statements of Income includes management fees earned of $2.4 million and $2.0 million during the years ended December 31, 2023 and 2022, respectively, related to the servicing of engines for the WMES lease portfolio.
At December 31, 2022, $10.7 million in cash and cash equivalents and restricted cash were held in foreign subsidiaries. Other than $6.2 million held at a subsidiary in China, for which the tax impact of the planned repatriation has been accrued, we do not intend to repatriate the funds held in other foreign subsidiaries to the U.S.
At December 31, 2023, $4.9 million in cash and cash equivalents and restricted cash were held in foreign subsidiaries. Other than $1.3 million held at a subsidiary in China, for which the tax impact of the planned repatriation has been accrued, we do not intend to repatriate the funds held in other foreign subsidiaries to the U.S.
WEST III, WEST IV, WEST V and WEST VI are consolidated for financial statement presentation purposes. WEST III, WEST IV, WEST V and WEST VI’s ability to make distributions and pay dividends to the Company is subject to the prior payment of their debt and other obligations and their maintenance of adequate reserves and capital.
WEST III, WEST IV, WEST V, WEST VI, and WEST VII are consolidated for financial statement presentation purposes. WEST III’s, WEST IV’s, WEST V’s, WEST VI’s, and WEST VII’s abilities to make distributions and pay dividends to the Company is subject to the prior payments of their debt and other obligations and their maintenance of adequate reserves and capital.
During the year ended December 31, 2021, we purchased equipment (including capitalized costs) totaling $205.8 million, which primarily consisted of 34 engines, four airframes, one aircraft and other parts and equipment purchased for our lease portfolio. One customer accounted for more than 10% of total lease rent revenue during the years ended December 31, 2022 and 2021.
During the year ended December 31, 2022, we purchased equipment (including capitalized costs) totaling $286.4 million, which consisted of 46 engines, one aircraft, and other parts and equipment purchased for our lease portfolio. One customer accounted for more than 10% of total lease rent revenue during the years ended December 31, 2023 and 2022.
During the year ended December 31, 2022, we sold 25 engines from the lease portfolio for a net gain of $3.1 million. During the year ended December 31, 2021, we sold 12 engines and one airframe from the lease portfolio for a net gain of $6.0 million. Gain on Sale of Financial Assets.
During the year ended December 31, 2023, we sold 28 engines, one airframe, and other parts and equipment from the lease portfolio for a net gain of $10.6 million. During the year ended December 31, 2022, we sold 25 engines from the lease portfolio for a net gain of $3.1 million. Gain on Sale of Financial Assets.
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 $27.7 million, or 20.6%, to $162.6 million for the year ended December 31, 2022 from $134.8 million for the year ended December 31, 2021.
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 $50.6 million, or 31.1%, to $213.1 million for the year ended December 31, 2023 from $162.6 million for the year ended December 31, 2022.
MANAGEMENT OF INTEREST RATE EXPOSURE 32 Table of Contents At December 31, 2022, $727.0 million of our borrowings were on a variable rate basis at various interest rates tied to one-month LIBOR. Our equipment leases are generally structured at fixed rental rates for specified terms.
MANAGEMENT OF INTEREST RATE EXPOSURE At December 31, 2023, $353.0 million of our borrowings were on a variable rate basis at various interest rates tied to one-month term SOFR. Our equipment leases are generally structured at fixed rental rates for specified terms.
As part of the purchase, we have committed to certain future overhaul and maintenance services which are anticipated to range between $77.7 million and $112.0 million by 2030. $62.9 million of variable interest payments due under debt obligations, scheduled above, are estimated by applying the interest rates applicable at December 31, 2022 to the remaining debt, adjusted for the estimated debt repayments identified in the table above.
As part of the purchase, we have committed to certain future overhaul and maintenance services which are anticipated to range between $74.5 million and $102.3 million by 2030. $38.4 million of variable interest payments due under debt obligations, scheduled above, are estimated by applying the interest rates applicable at December 31, 2023 to the remaining debt, adjusted for the estimated debt repayments identified in the table above.
As of December 31, 2022, we had 80 lessees in 41 countries. Our portfolio is continually changing due to acquisitions and sales.
As of December 31, 2023, we had 74 lessees in 42 countries. Our portfolio is continually changing due to acquisitions and sales.
Cost of equipment sales was $0.1 million for the year ended December 31, 2022, compared to no cost of equipment sales for the year ended December 31, 2021. Write-down of Equipment.
There were no equipment sales or cost of equipment sales for the year ended December 31, 2023, compared to $0.1 million of cost of equipment sales for the year ended December 31, 2022. Write-down of Equipment.
Cash flows used in investing activities were $148.0 million for the year ended December 31, 2021 and primarily reflected $44.4 million related to leases entered into during 2021 which were classified as notes receivable under ASC 842 and $205.8 million for the purchase of equipment held for operating lease (including capitalized costs and prepaid deposits made during the year), partly offset by $37.6 million in proceeds from sales of equipment (net of selling expenses) and $58.4 million in proceeds from the sale of notes receivable (net of selling expense).
Cash flows used in investing activities were $194.4 million for the year ended December 31, 2022 and primarily reflected $286.4 million for the purchase of equipment held for operating lease (including capitalized costs and prepaid deposits made during the year), and $15.3 million related to leases entered into during 2022 which were classified as notes receivable under ASC 842, partly offset by $69.2 million in proceeds from sales of equipment (net of selling expenses) and $40.7 million in proceeds from the sale of notes receivable (net of selling expense).
As of December 31, 2022, the Company had $2,111.9 million of equipment held in our operating lease portfolio, $81.4 million of notes receivable, $17.7 million of maintenance rights, and $6.4 million of investments in sales-type leases.
As of December 31, 2023, the Company had $2,112.8 million of equipment held in our operating lease portfolio, $92.6 million of notes receivable, $9.2 million of maintenance rights, and $8.8 million of investments in sales-type leases.
As of December 31, 2022, we had $2,111.9 million of equipment held in our operating lease portfolio, $81.4 million of notes receivable, $17.7 million of maintenance rights, and $6.4 million of investments in sales-type leases, which represented 339 engines, 13 aircraft, one marine vessel and other leased parts and equipment.
As of December 31, 2023, we had $2,112.8 million of equipment held in our operating lease portfolio, $92.6 million of notes receivable, $9.2 million of maintenance rights, and $8.8 million of investments in sales-type leases, which represented 337 engines, 12 aircraft, one marine vessel and other leased parts and equipment.
Long-lived assets and certain identifiable intangibles to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable, and long-lived assets and certain identifiable intangibles to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
Long-lived assets and certain identifiable intangibles to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable, and long-lived assets and certain identifiable intangibles to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. 25 Table of Contents On a quarterly basis, management monitors the lease portfolio for events which may indicate that a particular asset may need to be evaluated for potential impairment.
During the year ended December 31, 2022, we purchased equipment (including capitalized costs) totaling $286.4 million, which consisted of 46 engines, one aircraft and other parts and equipment purchased for our lease portfolio.
During the year ended December 31, 2023, we purchased equipment (including capitalized costs) totaling $163.6 million, which consisted of 23 engines and other parts and equipment purchased for our lease portfolio.
As of December 31, 2022, we have five interest rate swap agreements. During the first quarter of 2021, the Company entered into four fixed-rate interest swap agreements, each having notional amounts of $100.0 million, two with remaining terms of 13 months and two with remaining terms of 37 months as of December 31, 2022.
As of December 31, 2023, we have five interest rate swap agreements with a total notional value of $500.0 million. During 2021, the Company entered into four fixed-rate interest swap agreements, each having notional amounts of $100.0 million, two with remaining terms of one month and two with remaining terms of 25 months as of December 31, 2023.
One interest rate swap agreement was entered into during 2019 which has a notional outstanding amount of $100.0 million with a remaining term of 18 months as of December 31, 2022. One interest rate swap agreement which the Company entered into in 2016 expired in April 2021.
One interest rate swap agreement was entered into during 2019 which has a notional outstanding amount of $100.0 million with a remaining term of six months as of December 31, 2023.
For further information on our debt instruments, see Note 6 “Debt Obligations” in Part II, Item 8 of this Form 10-K.
Substantially all of our assets are pledged to secure our obligations to creditors. For further information on our debt instruments, see Note 6 “Debt Obligations” in Part II, Item 8 of this Form 10-K.
Actual results could differ materially for a variety of reasons, including, among others: the effects on the airline industry and the global economy of events such as terrorist activity and the COVID-19 pandemic, changes in oil prices and other disruptions to the world markets; trends in the airline industry and our ability to capitalize on those trends, including growth rates of markets and other economic factors; risks associated with owning and leasing jet engines and aircraft; our ability to successfully negotiate equipment purchases, sales and leases, to collect outstanding amounts due and to control costs and expenses; changes in interest rates and availability of capital, both to us and our customers; our ability to continue to meet the changing customer demands; regulatory changes affecting airline operations, aircraft maintenance, accounting standards and taxes; and the market value of engines and other assets in our portfolio.
Actual results could differ materially for a variety of reasons, including, among others: the effects on the airline industry and the global economy of events such as the current high interest rate and inflationary environment; changes in oil prices and other disruptions to the world markets; trends in the airline industry and our ability to capitalize on those trends, including growth rates of markets and other economic factors; risks associated with owning and leasing jet engines and aircraft; our ability to successfully negotiate equipment purchases, sales and leases, to collect outstanding amounts due and to control costs and expenses; managing the risks and impacts of potential and actual security breaches, cyberattacks, privacy breaches or data breaches, including business, service, or operational disruptions, the unauthorized access to or disclosure of data, financial loss, reputational damage, increased response and remediation costs, legal and regulatory proceedings or other unfavorable outcomes; changes in interest rates and availability of capital, both to us and our customers; our ability to continue to meet the changing customer demands; regulatory changes affecting airline operations, aircraft maintenance, accounting standards and taxes; the market value of engines and other assets in our portfolio; and the impact of pandemics or other public health crises on our business, financial condition, and results of operations.
The Company continues to expect demand for LEAP-1B engines to increase as the 737 Max continues to be re-certified and aircraft (and their installed engines) that have been parked and in storage for more than one year begin the technical process of returning to service.
The Company continues to expect demand for LEAP-1B engines to increase as the 737 Max continues to be re-certified and aircraft (and their installed engines) that have been parked and in storage for more than one year continue to return to service. In December 2020, we entered into definitive agreements for the purchase of 21 modern technology aircraft engines.
As of December 31, 2021, the Company had $1,991.4 million of equipment held in our operating lease portfolio, $115.5 million of notes receivable, and $22.5 million of maintenance rights. Average utilization (based on net book value) was approximately 82% and 81% for the years ended December 31, 2022 and 2021, respectively. Maintenance Reserve Revenue .
As of December 31, 2022, the Company had $2,111.9 million of equipment held in our operating lease portfolio, $81.4 million of notes receivable, $17.7 million of maintenance rights, and $6.4 million of investments in sales-type leases. Average utilization (based on net book value) was approximately 84% and 82% for the years ended December 31, 2023 and 2022, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS The most recent adopted and to be adopted accounting pronouncements are described in Note 1(x) to our Consolidated financial statements included in this Annual Report on Form 10-K. 27 Table of Contents RESULTS OF OPERATIONS Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 Revenue is summarized as follows: Years Ended December 31, 2022 2021 % Change (dollars in thousands) Lease rent revenue $ 162,571 $ 134,831 20.6 % Maintenance reserve revenue 83,424 73,961 12.8 % Spare parts and equipment sales 27,009 17,417 55.1 % Interest income 7,579 12,938 (41.4) % Gain on sale of leased equipment 3,133 5,975 (47.6) % Gain on sale of financial assets 3,116 10,874 (71.3) % Asset transition fee — 6,256 (100.0) % Other revenue 25,095 11,950 110.0 % Total revenue $ 311,927 $ 274,202 13.8 % Lease Rent Revenue .
RECENT ACCOUNTING PRONOUNCEMENTS The most recent adopted and to be adopted accounting pronouncements are described in Note 1(x) to our Consolidated financial statements included in this Annual Report on Form 10-K. 26 Table of Contents RESULTS OF OPERATIONS Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022 Revenue is summarized as follows: Years Ended December 31, 2023 2022 % Change (dollars in thousands) Lease rent revenue $ 213,138 $ 162,571 31.1 % Maintenance reserve revenue 133,668 83,424 60.2 % Spare parts and equipment sales 20,359 27,009 (24.6) % Interest income 8,721 7,579 15.1 % Gain on sale of leased equipment 10,581 3,133 237.7 % Gain on sale of financial assets — 3,116 (100.0) % Other revenue 32,088 25,095 27.9 % Total revenue $ 418,555 $ 311,927 34.2 % Lease Rent Revenue .
CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to residual values, estimated asset lives, impairments and bad debts.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.
Write-downs of equipment to their estimated fair values totaled $21.8 million for the year ended December 31, 2022, primarily reflecting an adjustment of the carrying value of four impaired engines. Of these write-downs, $20.4 million reflects the impairment of two engines located in Russia which were determined, due to the Russia and Ukraine conflict, to be unrecoverable.
Write-down of equipment totaled $21.8 million for the year ended December 31, 2022, primarily reflecting write-downs of $20.4 million for the impairment of two engines located in Russia which were determined, due to the Russia and Ukraine conflict, to be unrecoverable. The remaining write-downs were in the ordinary course of business. General and Administrative Expenses .
The Company’s credit facility matures in 2024 and we have historically rolled that facility prior to its expiration. The ABS market continues to be open for issuers like the Company. Refer to Note 6 of the consolidated financial statements for a detailed discussion of the Company’s debt obligations.
The ABS market continues to be open for issuers like the Company. Refer to Note 6 of the consolidated financial statements for a detailed discussion of the Company’s debt obligations.
Cash flows provided by financing activities for the year ended December 31, 2022 were $43.3 million and primarily reflected $284.0 million in proceeds from the issuance of debt obligations, partly offset by $228.8 million in principal payments and $5.2 million in share repurchases.
Cash flows provided by financing activities for the year ended December 31, 2022 were $43.3 million and primarily reflected $284.0 million in proceeds from the issuance of debt obligations, partly offset by $228.8 million in principal payments, and $5.2 million in share repurchases. 29 Table of Contents Debt Obligations and Covenant Compliance At December 31, 2023, debt obligations totaled $1,802.9 million, net of unamortized debt issuance costs and note discounts, payable with interest rates varying between approximately 3.1% and 8.0%.
At December 31, 2022, we were in compliance with the covenants specified in the revolving credit facility, including the Interest Coverage Ratio requirement of at least 2.25 to 1.00, and the Total Leverage Ratio requirement to remain below 4.00 to 1.00.
At December 31, 2023, we were in compliance with the covenants specified in the revolving credit facility, including the Interest Coverage Ratio requirement of at least 2.25 to 1.00, and the Total Leverage Ratio requirement of not greater than 4.50 to 1.00, on or prior to December 31, 2024, and not greater than 4.25 to 1.00 for the quarter ending March 31, 2025 and thereafter.
Willis Asset Management is a wholly-owned and vertically-integrated subsidiary whose primary focus is the engine management and consulting business. In 2011 we entered into an agreement with Mitsui & Co., Ltd. to participate in a joint venture formed as a Dublin-based Irish limited company, WMES, for the purpose of acquiring and leasing jet engines.
In 2011 we entered into an agreement with Mitsui & Co., Ltd. to participate in a joint venture formed as a Dublin-based Irish limited company, WMES, for the purpose of acquiring and leasing jet engines. Each partner holds a 50% interest in the joint venture.
Cash flows provided by financing activities for the year ended December 31, 2021 were $74.1 million and primarily reflected $513.7 million in proceeds from the issuance of debt obligations, partly offset by $417.0 million in principal payments, $10.1 million in share repurchases, and $4.6 million in debt issuance costs.
Cash flows used in financing activities for the year ended December 31, 2023 were $57.9 million and primarily reflected $665.5 million in principal payments and $9.4 million in new debt issuance costs, partly offset by $625.7 million in proceeds from the issuance of debt obligations.
Maintenance reserve revenue for the year ended December 31, 2022 increased $9.5 million, or 12.8%, to $83.4 million from $74.0 million for the year ended December 31, 2021. Long-term maintenance revenue was $36.0 million for the year ended December 31, 2022 compared to $56.3 million for the year ended December 31, 2021.
Maintenance Reserve Revenue . Maintenance reserve revenue for the year ended December 31, 2023 increased $50.2 million, or 60.2%, to $133.7 million from $83.4 million for the year ended December 31, 2022. Long-term maintenance revenue was $15.4 million for the year ended December 31, 2023 compared to $36.0 million for the year ended December 31, 2022.
The remaining write-downs were in the ordinary course of business. As of December 31, 2022, included within equipment held for lease and equipment held for sale was $32.4 million in remaining book value of 16 assets which were previously written down.
As of December 31, 2023, included within equipment held for lease and equipment held for sale was $31.9 million in remaining book value of 15 assets which were previously written down. Write-downs of equipment to their estimated fair values totaled $21.8 million for the year ended December 31, 2022.
During the year ended December 31, 2022, we sold four notes receivable for a net gain of $3.1 million. There were two notes receivable sold for a $10.9 million net gain on sale of financial assets during the year ended December 31, 2021. Asset Transition Fee. There was no asset transition fee during the year ended December 31, 2022.
During the year ended December 31, 2023, there was no gain on sale of financial assets as we did not sell any notes receivable. During the year ended December 31, 2022, we sold four notes receivable for a net gain of $3.1 million. 27 Table of Contents Other Revenue.
CASC Willis acquires and leases jet engines to Chinese airlines and concentrates on meeting the fast-growing demand for leased commercial aircraft engines and aviation assets in the People’s Republic of China. CASC Willis owned a lease portfolio of four engines with a net book value of $42.7 million as of December 31, 2022.
Each partner holds a 50% interest in the joint venture. CASC Willis acquires and leases jet engines to Chinese airlines and concentrates on meeting the fast-growing demand for leased commercial aircraft engines and aviation assets in the People’s Republic of China.
An impairment charge for excess or inactive inventory is recorded based upon an analysis that considers current inventory levels, historical usage patterns, future sales expectations and salvage value. Accounting for Maintenance Expenditures and Maintenance Reserves. Use fees received are recognized in revenue as maintenance reserve revenue if they are not reimbursable to the lessee.
An impairment charge for excess or inactive inventory is recorded based upon an analysis that considers current inventory levels, historical usage patterns, future sales expectations, and salvage value.
Engines out on lease with “non-reimbursable” usage fees generated $47.4 million of short-term maintenance revenues for the year ended December 31, 2022 compared to $17.7 million for the year ended December 31, 2021, as a result of recovery in global flight traffic subsequent to the most significant impacts of the COVID-19 pandemic.
Engines out on lease with “non-reimbursable” usage fees generated $118.3 million of short-term maintenance revenues for the year ended December 31, 2023 compared to $47.4 million for the year ended December 31, 2022.
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 or quarterly, and the Company was in full compliance with all financial covenant requirements at December 31, 2022.
These covenants are tested either monthly, quarterly, or annually as required, and the Company was in full compliance with all financial covenant requirements at December 31, 2023.
Cost of spare parts and equipment sales increased by $5.9 million, or 39.6%, to $20.8 million for the year ended December 31, 2022 compared to $14.9 million in the prior year period due to higher spare parts sales and aged lot write-downs.
Cost of Spare Parts and Equipment Sales . Cost of spare parts and equipment sales decreased by $5.6 million, or 27.0%, to $15.2 million for the year ended December 31, 2023 compared to $20.8 million in the prior year period, reflecting the decline in spare part sales.
The decrease in the effective tax rate was predominantly due to a state tax benefit recognized in 2022. 29 Table of Contents FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES At December 31, 2022, the Company had $89.0 million of cash, cash equivalents and restricted cash.
The effective tax rate for the years ended December 31, 2023 and December 31, 2022 was 34.8% and 44.5%, respectively. The decrease in the effective tax rate was predominantly due to an increase in pre-book tax income. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES At December 31, 2023, the Company had $168.0 million of cash, cash equivalents, and restricted cash.
Write-downs of equipment to their estimated fair values totaled $21.8 million for the year ended December 31, 2022, primarily reflecting an adjustment of the carrying value of four impaired engines. Of these write-downs, $20.4 million reflects the impairment of two engines located in Russia which were determined, due to the Russia and Ukraine conflict, to be unrecoverable.
Write-downs of equipment to their estimated fair values totaled $4.4 million for the year ended December 31, 2023, primarily reflecting an adjustment of the carrying value of five engines and two airframes.
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.
At December 31, 2023, we were in compliance with the covenants specified in the WEST III, WEST IV, WEST V, WEST VI, and WEST VII indentures, servicing and other debt related agreements. 30 Table of Contents 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.
Our investment in the joint venture was $15.2 million as of December 31, 2022. 25 Table of Contents We actively manage our portfolio and structure our leases to maximize the residual values of our leased assets.
CASC Willis owned a lease portfolio of four engines with a net book value of $39.8 million as of December 31, 2023. Our investment in the joint venture was $18.0 million as of December 31, 2023. We actively manage our portfolio and structure our leases to maximize the residual values of our leased assets.
General and administrative expenses increased 22.8% to $92.5 million for the year ended December 31, 2022 compared to $75.4 million in 2021.
General and administrative expenses increased 56.5% to $144.8 million for the year ended December 31, 2023 compared to $92.5 million in 2022. The increase primarily reflects a $29.5 million increase in personnel costs, which includes an increase of $18.4 million in bonus compensation.
Cash Flows Discussion Cash flows provided by operating activities were $144.4 million and $90.7 million in the years ended December 31, 2022 and 2021, respectively. Cash flows from operations are driven significantly by payments made under our lease agreements, which comprise lease revenue, security deposits and maintenance reserves, and are offset by interest expense and general and administrative costs.
Changes in accounts receivables and accounts payables year-over-year largely offset as increased business activities impacted both balances. 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.
Each partner holds a 50% interest in the joint venture. WMES owns a lease portfolio of 35 engines and five aircraft with a net book value of $255.5 million at December 31, 2022. Our investment in the joint venture was $41.0 million as of December 31, 2022.
WMES owns a lease portfolio of 35 engines and four aircraft with a net book value of $232.2 million at December 31, 2023. Our investment in the joint venture was $40.0 million as of December 31, 2023. In 2014 we entered into an agreement with CASC to participate in CASC Willis, a joint venture based in Shanghai, China.
There were equipment sales of $1.1 million for the sales of two engines during the year ended December 31, 2022, compared to no equipment sales during the year ended December 31, 2021. Interest Income. Interest income decreased by $5.4 million, to $7.6 million for the year ended December 31, 2022 from $12.9 million in 2021.
The decrease in spare parts sales reflects variations in the timing of sales. There were no equipment sales during the year ended December 31, 2023, compared to $1.1 million for the sales of two engines during the year ended December 31, 2022. Gain on Sale of Leased Equipment .
The Company’s Series A-1 Preferred Stock and Series A-2 Preferred Stock accrue quarterly dividends at the rate per annum of 6.5% per share. During each of the years ended December 31, 2022 and 2021, the Company paid total dividends of $3.3 million on the Series A-1 and Series A-2 Preferred Stock, respectively.
The Company’s Series A-1 Preferred Stock accrued quarterly dividends at the rate per annum of 6.5% per share through October 15, 2023 and accrue quarterly dividends at the rate per annum of 8.5% per share thereafter. The Company’s Series A-2 Preferred Stock accrue quarterly dividends at the rate per annum of 6.5% per share.
As of December 31, 2022, there was $6.3 million of deferred in-substance fixed payment use fees included in Unearned Revenue. Spare Parts and Equipment Sales . Spare parts and equipment sales for the year ended December 31, 2022 increased by $9.6 million, or 55.1%, to $27.0 million compared to $17.4 million for the year ended December 31, 2021.
Additionally, as of December 31, 2023 and 2022, there were $28.4 million and $6.3 million, respectively, of deferred in-substance fixed payment use fees included in Unearned Revenue associated with engines on short-term leases. Spare Parts and Equipment Sales .
During 2021, the Company sold two engines to WMES for $25.0 million. There were no engine or aircraft sales to CASC Willis during 2022 or 2021. Other During 2022, the Company paid approximately $35,000 of expenses payable to Mikchalk Lake, LLC, an entity in which our Executive Chairman retains an ownership interest.
During 2023, the Company paid approximately $44,000 of expenses payable to Mikchalk Lake, LLC, an entity in which our Executive Chairman retains an ownership interest. These expenses were for lodging and other business-related services and were approved by the Board’s Independent Directors.
The WEST III, WEST IV, WEST V and WEST VI indentures require that a minimum threshold of maintenance reserve and security deposit balances be held in restricted cash accounts. 31 Table of Contents Virtually all of our debt requires ongoing compliance with the covenants of each financing, including debt/equity ratios, minimum tangible net worth and minimum interest coverage ratios, and other eligibility criteria including customer and geographic concentration restrictions.
The WEST III, WEST IV, WEST V, WEST VI, and WEST VII indentures require that a minimum threshold of maintenance reserve and security deposit balances be held in restricted cash accounts.
The increase primarily reflects an increase of $12.2 million in managed service revenues subsequent to the most significant impacts of the COVID-19 pandemic. Depreciation and Amortization Expense . Depreciation and amortization expense decreased $2.2 million, or 2.5%, to $88.3 million for the year ended December 31, 2022 compared to $90.5 million for the year ended December 31, 2021.
Depreciation and Amortization Expense . Depreciation and amortization expense increased $2.7 million, or 3.0%, to $90.9 million for the year ended December 31, 2023 compared to $88.3 million for the year ended December 31, 2022. The increase primarily reflects the growth in our portfolio subject to depreciation as compared to the prior period.
Income tax expense for the year ended December 31, 2022 decreased to $4.4 million from $5.8 million for the comparable period in 2021. The effective tax rate for the years ended December 31, 2022 and December 31, 2021 was 44.5% and 63.3%, respectively.
This increase was partially offset by derivative-related receipts of $23.4 million for the year ended December 31, 2023 as compared to $7.8 million for the year ended December 31, 2022. Income Taxes . Income tax expense for the year ended December 31, 2023 increased to $23.3 million from $4.4 million for the comparable period in 2022.
The WEST VI Notes are secured by, among other things, WEST VI’s direct and indirect ownership interests in a portfolio of aircraft engines and an airframe.
In October 2023, the Company and its direct, wholly-owned subsidiary WEST VII, closed its offering of $410.0 million aggregate principal amount of fixed rate notes. The notes are secured by, among other things, WEST VII’s direct and indirect interests in a portfolio of aircraft engines and airframes.
The net fair value of the swaps as of December 31, 2022 was $34.8 million, representing an asset. The net fair value of the interest rate swaps as of December 31, 2021 was $7.3 million, representing an asset of $8.0 million and a liability of $0.7 million. We record derivative instruments at fair value as either an asset or liability.
The impact was an addition to interest income, or reduction to interest expense, in the Company’s Consolidated Statements of Income of approximately $0.2 million for the year ended December 31, 2023. We record derivative instruments at fair value as either an asset or liability.
Net finance costs decreased to $64.2 million in the year ended December 31, 2022, from $68.0 million for the year ended December 31, 2021.
Net finance costs increased to $78.8 million for the year ended December 31, 2023, from $64.2 million for the year ended December 31, 2022, primarily due to an increase in short-term interest rates, which drive borrowing costs in our revolving credit facility.
Spare parts sales for the year ended December 31, 2022 were $25.9 million compared to $17.4 million for the year ended December 31, 2021. The increase in spare parts sales 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.
Spare parts and equipment sales for the year ended December 31, 2023 decreased by $6.7 million, or 24.6%, to $20.4 million compared to $27.0 million for the year ended December 31, 2022. Spare parts sales for the year ended December 31, 2023 were $20.4 million compared to $25.9 million for the year ended December 31, 2022.
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 with a balance of $5.8 million that was secured by two engines.
The notes have a fixed coupon of 8.00%, an expected maturity in October 2029, and a final maturity date in October 2048. The notes were issued at a price of 98.84814% of par. Principal on the notes is payable monthly to the extent of available cash in accordance with a priority of payments included in the indenture.
Asset transition fee was $6.3 million during the year ended December 31, 2021 reflecting the settlement received from the close out of an engine transition program. Other Revenue. Other revenue increased by $13.1 million, to $25.1 million for the year ended December 31, 2022 from $12.0 million in 2021.
Other revenue increased by $7.0 million, to $32.1 million for the year ended December 31, 2023 from $25.1 million in 2022. Other revenue consists primarily of management fee income, lease administration fees, third-party consignment commissions earned, service fee revenue, and other discrete revenue items. The increase primarily reflects an increase of $5.6 million in managed service revenues.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+0 added−0 removed2 unchanged
Biggest changeWe estimate that for every 1% increase or decrease in interest rate, the annual interest expense for our variable rate debt, would increase or decrease $2.3 million compared to $0.9 million in 2021. 33 Table of Contents We hedge a portion of our borrowings from time to time, effectively fixing the rate of these borrowings.
Biggest changeWe estimate that for every 1% increase or decrease in interest rate, the annual interest expense for our variable rate debt, would increase or decrease $0.5 million, as compared to $2.3 million as of December 31, 2022. 32 Table of Contents We hedge a portion of our borrowings from time to time, effectively fixing the rate of these borrowings.
ITEM 7A. 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our primary market risk exposure is that of interest rate risk. A change in SOFR 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.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is submitted as a separate section of this report beginning on page 36. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is submitted as a separate section of this report beginning on page 42. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
During the years ended December 31, 2022 and 2021, 60% and 54% of our total lease rent revenues came from non-U.S. domiciled lessees, respectively. Substantially all of our leases require payment in U.S. dollars. If these lessees’ currency devalues against the U.S. dollar, the lessees could potentially encounter difficulty in making their lease payments. ITEM 8.
During the years ended December 31, 2023 and 2022, 66% and 60% of our total lease rent revenues came from non-U.S. domiciled lessees, respectively. Substantially all of our leases require payment in U.S. dollars. If these lessees’ currency devalues against the U.S. dollar, the lessees could potentially encounter difficulty in making their lease payments. ITEM 8.
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 December 31, 2022, $727.0 million of our outstanding debt is variable rate debt.
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 December 31, 2023, $353.0 million of our outstanding debt is variable rate debt.

Other WLFC 10-K year-over-year comparisons