What changed in this filing

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Item 1A. Risk Factors

2022-03-14 compared with 2021-03-15 · 47 added, 54 removed, 401 unchanged (20% of the section changed)

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Risks Related to Our Operations

Our business has been and will continue to be negatively impacted by the recent COVID-19 outbreak, and COVID-19 related impacts have had a material adverse effect on the Company’s business, operating results and financial condition.

The worldwide spread of the COVID-19 virus has resulted in a global slowdown of economic activity.

While the duration and extent of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, it has had an adverse effect on the global economy and the ultimate societal and economic impact of the COVID-19 pandemic remains unknown.

In particular, the ongoing COVID-19 pandemic has caused significant disruptions to the airline industry that continue to persist and result in reduced demand for air travel for the foreseeable future.

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, which has significantly disrupted domestic and international passenger airline travel.

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.

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.

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.

For example, for the year ended December 31, 2020, our lease rent revenue decreased by 25.1% and our spare parts and equipment sales declined by 75.1% when compared to 2019.

For example, for the year ended December 31, 2021, our lease rent revenue decreased by 5.6% and our spare parts and equipment sales declined by 6.5% when compared to 2020, a year in which we experienced sharp declines in revenues due to the COVID-19 pandemic.

We also agreed to rent concessions, which resulted in a total reduction of rent revenues of $0.5 million for the year ended December 31, 2021 as a result of impacts from COVID-19.

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 duration of the coronavirus pandemic, the incidents and extent of outbreaks, 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.

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.

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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Any nonpayment or late payment of lease payments by a significant lessee or combination of lessees could in turn impose limits on our ability to fund our ongoing operations.

Even after the COVID-19 pandemic has subsided, we may experience materially adverse impacts to our business due to a lingering economic recession or any resulting depression.

Even after the COVID-19 pandemic has subsided, we may experience materially adverse impacts to our business due to a lingering economic recession or otherwise.

Additionally, concerns over the economic impact of COVID-19 have caused extreme volatility in financial and other capital markets which has and may continue to adversely impact the market value of our common stock and may adversely affect our ability to access capital markets.

In addition, as a result of the COVID-19 pandemic, 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.

Also, during 2020, 9% of our employees have been either furloughed, or subject to a form of reduced compensation.

The operations of our partners and customers have likewise been disrupted.

We are affected by the risks faced by commercial aircraft operators and MROs because they are our customers.

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• 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 concerns about security, terrorism, war, pandemics and similar public health concerns and political instability;

• 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;

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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 the potential to have an adverse effect on our business.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-02, “Leases (Topic 842)” (“ASU 2016-02”).

The FASB issued ASU 2016-02 to increase transparency and comparability among organizations recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.

Under ASU 2016-02, lessors will account for leases using an approach that is substantially equivalent to existing GAAP for sales-type leases, direct financing leases and operating leases.

Unlike prior guidance, however, a lease with collectability uncertainties may be classified as a sales-type lease.

If collectability of lease payments, plus any amount necessary to satisfy a lessee residual value guarantee, is not probable, lease payments received will be recognized as a deposit liability and the underlying assets will not be derecognized until collectability of the remaining amounts becomes probable.

The amendments in this accounting standard update were effective for the Company on January 1, 2019, with early adoption permitted.

The Company adopted this accounting standard update effective January 1, 2019.

The Company adopted the standard using the optional transition method with no restatement of comparative periods and a cumulative effect adjustment recognized as of the date of adoption.

We may not be adequately covered by insurance.

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While we maintain contingent insurance covering losses not covered by our lessees’ insurance, such coverage may not be available in circumstances where 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.

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.

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If we do find a lessee, we may not be able to obtain satisfactory lease rates and terms (including maintenance and redelivery conditions) or rates and terms comparable to our current leases, and we can give no assurance that the creditworthiness of any future lessee will be equal to or better than that of the existing lessees of our engines.

Engine leases with terms of 12 months or less, including engines off-lease, which as of December 31, 2020 constituted approximately 37.1% of our leased engines, may frequently need to be remarketed.

We face the risk that we may not be able to keep our engines on lease consistently.

Leases with terms of 12 months or less, including assets off-lease, which as of December 31, 2021 constituted approximately 68% of our assets, may frequently need to be remarketed.

We face the risk that we may not be able to keep our assets on lease consistently.

Although leases of engines account for most of our revenue, leases of aircraft expose us to greater risks than leases of engines and these risks could materially impact our financial condition and results of operations.

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In addition, we face greater credit risk from lessees in this business as the assets that we lease to them tend to have higher net book values than individual engines.

Moreover, aircraft technology is constantly improving and, as a result, aircraft of a particular model and type tend to become obsolete and less in demand over time, when newer, more advanced and efficient aircraft become available.

Moreover, aircraft technology is constantly improving and, as a result, aircraft of a particular

model and type tend to become obsolete and less in demand over time, when newer, more advanced and efficient aircraft become available.

Consequently, we may experience difficulty in leasing or selling aircraft.

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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 and WEST V engines are held in related engine reserve restricted cash accounts.

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.

Generally, the lessee under long term leases is responsible for all scheduled maintenance costs, even if they exceed the amounts of maintenance reserves paid.

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As manufacturers introduce technological innovations and new types of engines and aircraft, certain engines and aircraft in our existing portfolio of aviation equipment may become less desirable to potential lessees or purchasers.

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.

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.

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.

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Our revolving credit facility prohibits our purchasing or redeeming stock, or declaring or paying dividends on shares of any class or series of our common or preferred stock if an event of default under such facility has or will occur and remains uncured.

The agreements governing our debt, including the issuance of notes by WEST III, WEST IV and WEST V, also include restrictive financial covenants.

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.

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Our lease margins, as well as our earnings and cash flows may be adversely affected by increases in interest rates.

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 0.14% and 1.76% on December 31, 2020 and December 31, 2019, 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.

As reported by Intercontinental Exchange, the one-month LIBOR was approximately 0.10% and 0.14% on December 31, 2021 and 2020, respectively.

Changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect interest rates on our current or future indebtedness and may otherwise adversely affect our financial condition and results of operations.

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We seek to manage these risks by trying to anticipate demand for particular engine and aircraft types, maintaining a portfolio mix of engines that we believe is diversified and that will have long-term value and will be sought by lessees in the global market for jet engines, and by selling engines and aircraft that we expect will experience obsolescence or declining usefulness in the foreseeable future.

The WEST III securitization facility includes restrictions and limitations on the sale of assets in that facility including, with respect to pro forma limitations on assets subject to part-out agreements, a 15% limitation on sales prior to August 2019 and 20% thereafter, and also, in certain situations, with respect to a 25% limit on assets sold below a specific dollar threshold.

The WEST IV securitization facility includes restrictions and limitations on the sale of assets in that facility including, with respect to pro forma limitations on assets subject to part-out agreements, a 15% limitation on sales prior to August 2020 and 20% thereafter, and also, in certain situations, with respect to a 25% limit on assets sold below a specific dollar threshold.

The WEST V securitization facility includes restrictions and limitations on the sale of assets in that facility including, with respect to pro forma limitations on assets subject to part-out agreements, a 15% limitation on sales prior to March 2022 and a 20% limitation on sales prior to March 2024, and also, in certain situations, with respect to a 25% limit on assets sold below a specific dollar threshold.

The WEST III structured facility includes restrictions and limitations on the sale of assets in that facility including, with respect to pro forma limitations on assets subject to part-out agreements, a 15% limitation on sales prior to August 2019 and 20% thereafter, and also, in certain situations, with respect to a 25% limit on assets sold below a specific dollar threshold.

The WEST IV structured facility includes restrictions and limitations on the sale of assets in that facility including, with respect to pro forma limitations on assets subject to part-out agreements, a 15% limitation on sales prior to August 2020 and 20% thereafter, and also, in certain situations, with respect to a 25% limit on assets sold below a specific dollar threshold.

The WEST V structured facility includes restrictions and limitations on the sale of assets in that facility including, with respect to pro forma limitations on assets subject to part-out agreements, a 15% limitation on sales prior to March 2022 and a 20% limitation on sales prior to March 2024, and also, in certain situations, with respect to a 25% limit on assets sold below a specific dollar threshold.

The WEST VI structured facility includes restrictions and limitations on the sale of assets in that facility including, with respect to pro forma limitations on assets subject to part-out agreements, a 15% limitation on sales prior to May 2023 and a 20% limitation on sales prior to May 2025, and also, in certain situations, with respect to a 10% limit on assets sold below a specific dollar threshold per calendar year.

Our inability to maintain sufficient liquidity could limit our operational flexibility and also impact our ability to make payments on our obligations as they come due.

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See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Position, Liquidity and Capital Resources.”

Inflation may adversely affect us by increasing costs beyond what we can recover through price increases.

Recently, inflation has increased throughout the U.S.

Inflation can adversely affect us by increasing the costs of labor and other costs as well as by reducing demand for air travel.

In addition, inflation is often accompanied by higher interest rates, which could reduce the fair value of our outstanding debt obligations.

In an inflationary environment, depending on airline industry and other economic conditions, we may be unable to raise prices enough to keep up with the rate of inflation, which would reduce our profit margins.

We have experienced, and continue to experience, increases in the prices of labor and other costs of providing service.

Continued inflationary pressures could impact our profitabilit y.

RISKS RELATING TO THE COMMON STOCK TRADING PRICE

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We believe that our customers’ growth and financial condition are driven by economic growth in their service areas.

The largest portion of our lease revenues comes from Europe.

The largest portion of our foreign lease revenues comes from Europe.

European airline operations are among the most heavily regulated in the world.

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Low-cost carriers are having similar effects in North America and elsewhere.

Our operations may also be affected by political or economic instability in the areas where we have 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 United States.

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On June 23, 2016, the UK voted in favor of a referendum to leave the European Union, commonly referred to as “Brexit” and the UK ceased to be a member of the European Union on January 31, 2020.

A transition period through December 31, 2020 has been established to allow the UK and the European Union to negotiate the terms of the UK’s withdrawal.

A transition period through December 31, 2020 was established to allow the UK and the European Union to negotiate the terms of the UK’s withdrawal.

However, there is continued uncertainty surrounding the future relationship between the UK and European, 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.

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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 and WEST V.

Due to WEST III’s, WEST IV’s and WEST V’s bankruptcy remote structure, that interest is subject to the prior payments of WEST III’s, WEST IV’s and WEST V’s debt and other

Therefore, our rights and the rights of our creditors to participate in any distribution of the assets of WEST III, WEST IV and WEST V upon liquidation, reorganization, dissolution or winding up will be subject to the prior claims of WEST III’s, WEST IV’s and WEST V’s 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.

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.

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.

Similarly, the rights of our shareholders are subject to satisfaction of the claims of our lenders and other creditors.

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Any of the above factors could have a material adverse effect on us.

Compliance with the regulatory requirements imposed on us as a public company results in significant costs that may have an adverse effect on our results.

As a public company, we are subject to various regulatory requirements including, but not limited to, compliance with the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Compliance with these regulations results in significant additional costs to us both directly, through increased audit and consulting fees, and indirectly, through the time required by our limited resources to address such regulations.

We have complied with Section 404a of the Sarbanes-Oxley Act since December 31, 2007, completing our annual assessment of internal controls over financial reporting.

We have complied with Section 404b of the Sarbanes-Oxley Act since December 31, 2009, and our independent registered public accounting firm audits our internal controls over financial reporting.

Such compliance requires us to incur additional costs on audit and consulting fees and requires additional management time that may adversely affect our results of operations and cash flows.

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.

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As of December 31, 2021, Mr.

Willis beneficially owned or had the ability to direct the voting of 2,943,952 shares of our common stock, representing approximately 45% of the outstanding shares of our common stock.

Willis beneficially owned or had the ability to direct the voting of 2,977,244 shares of our common stock, representing approximately 46% of the issued shares of our common stock.

As a result, Mr.

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Loss of any of these employees, particularly our Chief Executive Officer, could have a material adverse effect on our business as our key employees have knowledge of our industry and customers and would be difficult to replace.

We are the servicer and administrative agent for the WEST III, WEST IV and WEST V 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 and WEST V facilities.

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 and WEST V on their engines.

We may be removed as servicer and or administrative agent of our WEST III, WEST IV and WEST V facilities by an affirmative vote of a requisite number of the WEST III, WEST IV and WEST V note holders.

Such vote could happen upon the occurrence of certain specified events as outlined in the WEST III, WEST IV and WEST V servicing and administrative agency agreements.

As of December 31, 2020, we were in compliance with the financial covenants set forth in the WEST III, WEST IV and WEST V servicing and administrative agency agreements.

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 and WEST V facilities.

If we are removed from such role with those facilities, our expenses would increase as our consolidated VIE’s WEST III, WEST IV and WEST V, would have to hire an outside provider to replace the servicer and administrative agent functions, and we would be materially and adversely affected.

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 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.

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, 2021, 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.

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.

Consequently, our business, financial condition, results of operations and cash flows would be adversely affected.

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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.

What changed 10-K

Item 1A. Risk Factors