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Our principal business objective is to build value for our shareholders by acquiring commercial aircraft and engines and managing those assets in order to provide a return on investment, primarily through lease rent and maintenance reserve revenues, as well as through management fees earned for managing assets owned by other parties.
−Removed: As of December 31, 2020, our $1,886.6 million equipment held for operating lease portfolio and $158.7 million notes receivable represented 291 engines, eight aircraft, one marine vessel and other leased parts and equipment with 70 lessees in 41 countries.
+Added: As of December 31, 2021, our $1,991.4 million equipment held for operating lease portfolio and $115.5 million notes receivable represented 304 engines, twelve aircraft, one marine vessel and other leased parts and equipment with 76 lessees in 40 countries.
In addition to our owned portfolio, as of December 31, 2021, we managed a total lease portfolio of 475 engines, aircraft and related equipment for other parties.
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Commercial aircraft operators need engines in addition to those installed on the aircraft that they operate.
−Removed: These spare engines are required for various reasons, including requirements that engines be inspected and repaired at regular intervals based on equipment utilization.
+Added: Spare engines are required to support fleet operation during the highly regulated maintenance cycle of aircraft engines.
Furthermore, unscheduled events such as mechanical failure, Federal Aviation Administration (“FAA”) airworthiness directives or manufacturer-recommended actions for maintenance, repair and overhaul of engines result in the need for spare engines.
−Removed: Commercial aircraft operators and others in the industry generally estimate that the total number of spare engines needed is around 12% of the total number of installed engines.
−Removed: Industry research suggests that there are nearly 52,000 engines installed on commercial aircraft.
−Removed: Accordingly, it is estimated that there are 6,200 spare engines in the market, including both owned and leased spare engines.
+Added: Based on industry data, we estimate that the total number of spare engines needed is around 12% of the total number of installed engines, including both owned and leased spare engines.
Our engine portfolio primarily consists of noise-compliant Stage IV commercial jet engines manufactured by CFMI, General Electric, Pratt & Whitney, Rolls Royce and International Aero Engines.
These engines generally may be used on one or more aircraft types and are the most widely used engines in the world, powering Airbus, Boeing, Bombardier and Embraer aircraft.
−Removed: The Company acquires engines for its leasing portfolio in a number of ways.
−Removed: It enters into sale and lease back transactions with operators of aircraft, original equipment manufacturers of engines and providers of engine maintenance cost per hour services.
+Added: We acquire engines for our leasing portfolio in a number of ways.
+Added: We enter into sale and lease back transactions with operators of aircraft, original equipment manufacturers of engines and providers of engine maintenance cost per hour services.
We also purchase both new and used engines that are subject to a lease when purchased and on a speculative basis (i.e.
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Future leases may provide for payments to be made in euros or other foreign currencies.
−Removed: In 2020, we leased our equipment to lessees domiciled in eight geographic regions.
+Added: In 2021, we leased our equipment to lessees domiciled in seven geographic regions.
Spare Parts Sales
Our wholly owned 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.
−Removed: 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.
+Added: 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.
COVID-19 Impact
−Removed: The worldwide spread of the COVID-19 virus has resulted in a global slowdown of economic activity.
−Removed: While the duration and extent of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment actions, it has had an adverse effect on the global economy and the ultimate societal and economic impact of the COVID-19 pandemic remains unknown.
−Removed: In particular, the ongoing COVID-19 pandemic has caused significant disruptions to the airline industry that has resulted in a dramatic reduction in demand for air travel domestically and abroad, which is likely to continue for the foreseeable future.
−Removed: Throughout the next year, we plan to continue to stay focused on cost control and remain prudent with our capital expenditures.
−Removed: In addition to the impacts described below, dramatically lower demand for air travel in turn presents significant risks to our Company, not all of which we are able to fully evaluate or even to foresee at the current time, and could negatively impact collections of accounts receivable, cause our lessee customers to not enter into new leases, reduce spending from new and existing customers for leases or spare parts or equipment, lower usage fees, cause some of our customers to go out of business, and limit the ability of our personnel to travel to customers and potential customers, all of which could adversely affect our business, results of operations, and financial condition.
−Removed: During the year ended December 31, 2020, we experienced declining average utilization and a corresponding decrease in revenue, as well as a significant decline in spare parts and equipment sales, in each case as compared to the prior year periods.
+Added: As a result of the COVID-19 pandemic, we have continued to temporarily close our headquarters and other offices, require our employees and contractors to predominately work remotely, and implement travel restrictions, all of which represent a significant disruption in how we operate our business.
+Added: We have also taken various proactive actions in an attempt to mitigate the financial impact of the COVID-19 pandemic.
+Added: During 2020, 9% of our employees were either furloughed, or subject to a form of reduced compensation which was subsequently reversed in 2021.
+Added: The operations of our partners and customers have likewise been disrupted.
+Added: The worldwide spread of the COVID-19 virus has resulted in a global slowdown of economic activity, and more specifically within the aviation industry.
+Added: While the duration and extent of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time and the ultimate societal and economic impact of the COVID-19 pandemic remains unknown.
+Added: In particular, the ongoing COVID-19 pandemic has caused significant disruptions to the airline industry and has resulted in a dramatic reduction in demand for air travel domestically and abroad, which is likely to continue for the foreseeable future.
+Added: Lower demand for air travel in turn presents significant risks to our Company, resulting in impacts which have adversely affected our business, results of operation, and financial condition.
+Added: Lower demand for spare parts and engine and airframe leasing has negatively impacted collections and accounts receivable, caused our lessee customers to not enter into new leases, resulted in reduced spending by new and existing customers for leases or spare parts or equipment, resulted in lower usage fees, caused some of our customers to go out of business, and limited the ability of our personnel to travel to customers and potential customers.
+Added: We are not able to evaluate or foresee the full extent of these impacts at the current time.
+Added: During the year ended December 31, 2021, we continued to experience a reduction in lease rent and maintenance reserve revenues as compared to the pre-COVID-19 environment, as well as a decline in spare parts and equipment sales.
Additionally, we have, in certain situations, agreed to rent concessions which resulted in a total reduction to rent revenues of $0.5 million during 2021.
+Added: Rent concessions during 2020 resulted in a total reduction of rent revenue of $6.5 million.
The COVID-19 pandemic has materially affected our business and financial results for the year ended December 31, 2021, and may continue to do so indefinitely thereafter.
−Removed: We have temporarily closed our headquarters and other offices, required our employees and contractors to predominately work remotely, and implemented travel restrictions, all of which represent a significant disruption in how we operate our business.
−Removed: We have taken various proactive actions in an attempt to mitigate the financial impact of the COVID-19 pandemic.
−Removed: Additionally, during 2020, 9% of our employees have been either furloughed, or subject to a form of reduced compensation.
−Removed: The operations of our partners and customers have likewise been disrupted.
The scope and nature of the impact of COVID-19 on the airline industry, and in turn our business, continue to evolve and the outcomes are uncertain.
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• the proportion of engines that are leased, rather than owned, by commercial aircraft operators.
−Removed: While COVID-19 has significantly impacted engine leasing, we still believe leasing will increase over time but more slowly.
+Added: While COVID-19 has significantly impacted engine leasing, we still believe leasing will increase over the long term but more slowly as we emerge from the pandemic.
Increased number of aircraft, and therefore engines, in the market
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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.
−Removed: 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
−Removed: the U.S., and we believe such growth and demand may be negatively impacted over the short to medium term.
+Added: While we believe these predictions are accurate over the long
+Added: 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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We try to mitigate risk where possible.
−Removed: For example, we make an analysis of the credit risk associated with the lessee before entering into any significant lease transaction.
−Removed: Our credit analysis generally consists of evaluating the prospective lessee’s financial standing by utilizing financial statements and trade and/or banking references.
+Added: For example, we analyze the credit risk associated with a lessee before entering into any significant lease transaction.
+Added: 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.
+Added: The company utilizes our credit facility as a warehouse facility to aggregate purchased assets.
+Added: Generally, when the Company aggregates a critical mass of assets through revolver financing, we refinance the assets through the issuance long term fixed rate debt through the Asset Backed Security ("ABS") market.
+Added: The maturity profile of the ABS term financings tend to better match the long life characteristics of our long life asset base.
+Added: 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.
+Added: At December 31, 2021 the Company had $1.2 billion of fixed rate financing.
+Added: Our credit analysis generally consists of
+Added: evaluating the prospective lessee’s financial standing by utilizing financial statements and trade and/or banking references.
In certain circumstances, we may require our lessees to provide additional credit support, such as a letter of credit or a guaranty from a bank or a third party or a security deposit.
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The security deposit is returned to the lessee after all lease return conditions have been met.
−Removed: Under the terms of some of our
−Removed: leases, during the term of the lease, the lessee pays amounts to us based on usage of the engine, which is referred to as maintenance reserves or use fees, which are designed to cover the expected future maintenance costs.
+Added: Under the terms of some of our leases, during the term of the lease, the lessee pays amounts to us based on usage of the engine, which is referred to as maintenance reserves or use fees, which are designed to cover the expected future maintenance costs.
For those leases in which the maintenance reserves are reimbursable to the lessee, maintenance reserves are collected and are reimbursed to the lessee when qualifying maintenance is performed.
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Values of engines also may decline because of manufacturing defects that may surface subsequently.
+Added: As of December 31, 2021, our $1,991.4 million equipment held for operating lease portfolio and $115.5 million notes receivable represented 304 engines, twelve aircraft, one marine vessel and other leased parts and equipment.
As of December 31, 2020, our $1,886.6 million equipment held for operating lease portfolio and $158.7 million notes receivable represented 291 engines, eight aircraft, one marine vessel and other leased parts and equipment.
−Removed: As of December 31, 2019, our $1,650.9 million equipment held for operating lease portfolio and $38.1 million notes receivable represented 263 engines, 12 aircraft, one marine vessel and other leased parts and equipment.
As of December 31, 2021 minimum future rentals under non-cancelable operating leases of these engines, related equipment and aircraft assets were as follows:
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We believe the loss of any one customer would not have a significant long-term adverse effect on our business.
−Removed: We operate in a global market in which our engines are easily transferable among lessees located in many countries, which
−Removed: stabilizes demand and allows us to recover from the loss of a particular customer.
+Added: We operate in a global market in which our engines are easily transferable among lessees located in many countries, which stabilizes demand and allows us to recover from the loss of a particular customer.
As a result, we do not believe we are dependent on a single customer or a few customers, the loss of which would have a material adverse effect on our revenues.
+Added: We provide other engine leasing related services such as engine storage, Part 145 maintenance and aircraft tear down services to our customers as well.
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 — Willis Mitsui & Company Engine Support Limited (“WMES”) for the purpose of acquiring and leasing jet engines.
−Removed: Each partner holds a fifty percent interest in the joint venture.
+Added: Each partner holds a 50% interest in the joint venture.
WMES owned a lease portfolio, inclusive of a note receivable, of 37 engines and five aircraft with a net book value of $292.5 million as of December 31, 2021.
Our investment in the joint venture was $39.1 million as of December 31, 2021.
−Removed: 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 new joint venture based in Shanghai, China.
−Removed: Each partner holds a fifty percent interest in the joint venture.
+Added: 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.
+Added: 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.
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AIRCRAFT LEASING
−Removed: As of December 31, 2020, our operating lease portfolio and notes receivable included two Boeing 737 aircraft, five A319-111 aircraft, and one A321-200 aircraft with an aggregate net book value of $105.2 million.
+Added: As of December 31, 2021, our operating lease portfolio and notes receivable included five A319-111 aircraft, four ATR 72-500 aircraft, one A320-233 aircraft, one A321-200 aircraft and one Boeing 737 with an aggregate net book value of $126.6 million.
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.
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The lessee is required to continue to make lease payments under all circumstances, including periods during which the aircraft is not in operation due to maintenance or grounding.
+Added: We provide other aircraft leasing related services such as engine storage, Part 145 maintenance and aircraft tear down services to our customers as well.
SPARE PARTS SALES
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Additionally, increased oversight will continue to originate from the quality assurance departments of airline operators.
−Removed: We have been able to meet all such requirements to date, and believe that we will be able to meet any additional requirements that may be imposed.
+Added: We have been able to meet all such requirements to date, and are well positioned to meet any additional requirements that may be imposed.
We cannot give assurance, however, that new, more stringent government regulations will not be adopted in the future or that any such new regulations, if enacted, would not have a material adverse impact on us.
FINANCING/SOURCE OF FUNDS
−Removed: We, directly or through our Willis Engine Structured Trust III, IV, and V (“WEST III”, “WEST IV” and “WEST V”) asset-backed securitizations (“ABS”) typically acquire engines with a combination of equity capital and funds borrowed from financial institutions.
+Added: 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 (“ABS”), typically acquire engines with a combination of equity capital and funds borrowed from financial institutions.
In order to facilitate financing and leasing of engines, each engine is generally owned through a statutory or common law trust that is wholly owned by us or our subsidiaries.
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We typically acquire engines from airlines, engine manufacturers or from other lessors.
−Removed: From time to time, we selectively acquire engines prior to a firm commitment to lease or sell the engine, depending on the price of the
−Removed: engine and market demand with the expectation that we can lease or sell such engines in the future.
+Added: From time to time, we selectively acquire engines prior to a firm commitment to lease or sell the engine, depending on the price of the engine and market demand with the expectation that we can lease or sell such engines in the future.
Additionally, for discrete financing purposes, we will enter into bi-lateral and preferred financing arrangements from time to time.
As of December 31, 2021, we had 243 total employees, of which 229 are full-time employees (excluding consultants), in sales and marketing, technical service and administration.
−Removed: During 2020, 9% of our employees have been either furloughed, or subject to a form of reduced compensation.
None of our employees are covered by a collective bargaining agreement and we believe our employee relations are satisfactory.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.