What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-03-14 compared with 2021-03-15 · 121 added, 90 removed, 217 unchanged (49% of the section changed)

18 unchanged sentences

Our portfolio is continually changing due to acquisitions and sales.

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.

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, 2021, we also managed 475 engines, aircraft and related equipment on behalf of other parties.

7 unchanged sentences

Our investment in the joint venture was $39.1 million as of December 31, 2021.

In 2014 we entered into an agreement with CASC to participate in CASC Willis, a new joint venture based in Shanghai, China.

In 2014 we entered into an agreement with CASC to participate in CASC Willis, a joint venture based in Shanghai, China.

Each partner holds a 50% interest in the joint venture.

The company 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.

The company 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 $49.0 million as of December 31, 2021.

5 unchanged sentences

Throughout the next year, we plan to continue to stay focused on cost control and remain prudent with our capital expenditures.

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.

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.

We have taken various proactive actions in an attempt to mitigate the financial impact of the COVID-19 pandemic.

Additionally, 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.

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

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

In particular, the ongoing COVID-19 pandemic has caused significant disruptions to the airline industry that has resulted in a dramatic reduction in demand for air travel domestically and abroad, which is likely to continue for the foreseeable future.

In addition, 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.

Due to the impact of recent events, including challenges from declines in market conditions, we have performed quarterly interim impairment analysis during 2020.

The results of the analysis indicated $0.5 million additional impairment during 2020 for two engines having net book values in excess of their respective fair value.

During 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.

Additionally, as of December 31, 2020, we have, in certain situations, agreed to rent concessions which resulted in a total reduction to rent revenues of $6.5 million.

During 2020, 9% of our employees have been either furloughed, or subject to a form of reduced compensation which was subsequently reversed in 2021.

The operations of the Company’s partners and customers have likewise been disrupted.

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 and has resulted in a dramatic reduction in demand for air travel domestically and abroad, which is likely to continue for the foreseeable future.

Lower demand for air travel in turn presents significant risks to the Company, resulting in impacts which have adversely affected the Company’s business, results of operation, and financial condition.

Lower demand for spare parts and engine and airframe leasing has negatively impacted collections of accounts receivable, caused the Company’s lessee customers to not enter into new leases, resulted in reduced spending by new and existing customers for leases or spare parts or equipment, resulted in lower usage fees, caused some of the Company’s customers to go out of business, and limited the ability of the Company’s personnel to travel to customers and potential customers.

The Company is not able to evaluate or foresee the full extent of these impacts at the current time.

During the year ended December 31, 2021, the Company experienced a decrease in lease rent revenue and maintenance reserve revenue as compared to the prior year.

Additionally, as of December 31, 2021, the Company has, in certain situations, agreed to rent concessions which resulted in a total reduction to rent revenues of $0.5 million for the year ended December 31, 2021.

Rent concessions for the year ended December 31, 2020 resulted in a total reduction of rent revenue of $6.5 million.

The rent concessions provide lessees with payment deferral options or reduced rent, where the revised cash flows are substantially the same or less (i.e., the rights of the lessor and obligations of the lessee have not substantially increased) as the original lease agreements.

There is no impact on the timing of revenue recognition for rent concessions that result in short term payment deferrals.

The rent concessions with reduced rent qualify for the COVID-19 practical expedient to account for the rent concessions outside of the modification framework.

Due to the impact of recent events, including challenges from declines in market conditions, the Company performed quarterly interim impairment analyses.

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.

22 unchanged sentences

We do not accrue for planned major maintenance.

For equipment which is unlikely to be repaired at the end of its current expected life, and is likely to be disassembled upon lease termination, we depreciate the equipment over its estimated life to a residual value based on an estimate of the wholesale value of the parts after disassembly.

For equipment which is unlikely to be repaired at the end of its current expected life, and is likely to be disassembled upon lease

termination, we depreciate the equipment over its estimated life to a residual value based on an estimate of the wholesale value of the parts after disassembly.

As of December 31, 2021, 40 engines having a net book value of $37.0 million were depreciated under this policy with estimated useful lives ranging from 1 to 113 months.

13 unchanged sentences

If the forecasted undiscounted cash flows and fair value of our long-lived assets decrease in the future we may incur impairment charges.

Write-downs of equipment to their estimated fair values totaled $7.7 million for the year ended December 31, 2021 which included write-downs of $3.9 million due to a management decision to monetize three engines and one airframe either by sale to a third party or for part-out and $3.8 million for the adjustment of the carrying value of seven impaired engines.

As of December 31, 2021, included within equipment held for lease and equipment held for sale was $36.0 million in remaining book value of 22 assets which were previously written down.

Write-downs of equipment to their estimated fair values totaled $20.5 million for the year ended December 31, 2020 which included write-downs of $15.2 million due to a management decision to monetize 10 engines and two airframes either by sale to a third party or for part-out and $5.3 million for the adjustment of the carrying value of seven impaired engines.

Management continuously monitors the aviation industry and evaluates any trends, events or uncertainties involving airlines, individual aircraft and engine models, as well as the engine leasing and sale market which would materially affect the methodology or assumptions employed by WLFC.

20 unchanged sentences

Gain on sale of leased equipment 5,975 3,391 76.2 %

Gain on sale of financial assets 10,874 — 100.0 %

Asset transition fee 6,256 — 100.0 %

Other revenue 24,888 18,416 35.1 %

3 unchanged sentences

Lease rent revenue decreased by $8.1 million, or 5.6%, to $134.8 million for the year ended December 31, 2021 from $142.9 million for the year ended December 31, 2020.

The decrease is primarily due to lower average utilization and rent concessions for reduced rent of $6.5 million given during 2020, directly related to impacts of the COVID-19 pandemic, when compared to the prior year.

The decrease is primarily due to lower average utilization when compared to the prior year which includes operations prior to the COVID-19 pandemic.

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.

During the year ended December 31, 2020, we purchased equipment (including capitalized costs) totaling $409.3 million, which primarily consisted of 38 engines and other parts and equipment purchased for our lease portfolio.

During the year ended December 31, 2019, 45 engines, 6 aircraft, one marine vessel and other lease equipment were added to our lease portfolio at a total cost of $289.4 million (including capitalized costs).

One customer accounted for 11.4% of total lease rent revenue during the year ended December 31, 2020 and no customers accounted for more than 10% of total lease rent revenue during the year ended December 31, 2019.

The aggregate net book value of equipment held for lease at December 31, 2020 and 2019 was $1,886.6 million and $158.7 million notes receivable and $1,650.9 million and $38.1 million notes receivable, respectively, an increase of 14.3%.

One customer accounted for more than 10% of total lease rent revenue during the year ended December 31, 2021 and 2020, respectively.

The aggregate net book value of equipment held for lease at December 31, 2021 and 2020 was $1,991.4 million and $115.5 million notes receivable and $1,886.6 million and $158.7 million notes receivable, respectively.

Average utilization (based on net book value) was approximately 81% and 84% for the year ended December 31, 2021 and 2020, respectively.

1 unchanged sentence

Maintenance reserve revenue for the year ended December 31, 2021 decreased $31.4 million, or 29.8%, to $74.0 million from $105.4 million for the year ended December 31, 2020.

Long-term maintenance revenue, which is influenced by end of lease compensation, was $87.7 million for the year ended December 31, 2020 compared to $37.6 million in 2019.

“Non-reimbursable” maintenance reserve revenue is directly influenced by on lease engine flight hours and cycles.

Engines out on lease with “non-reimbursable” usage fees generated $17.7 million of short-term maintenance revenues for the year ended December 31, 2020 compared to $71.4 million in the prior year, resulting from the decline in global flight traffic related to the COVID-19 pandemic.

Long-term maintenance revenue was $56.3 million for the year ended December 31, 2021 compared to $87.7 million for the year ended December 31, 2020.

Engines out on lease with “non-reimbursable” usage fees generated $17.7 million of short-term maintenance revenues for the years ended December 31, 2021 and 2020.

Spare Parts and Equipment Sales .

Spare parts and equipment sales for the year ended December 31, 2020 decreased by $56.0 million, or 75.1%, to $18.6 million compared to $74.7 million in 2019.

Spare parts and equipment sales for the year ended December 31, 2021 decreased by $1.2 million, or 6.5%, to $17.4 million compared to $18.6 million for the year ended December 31, 2020.

Spare parts sales for the year ended December 31, 2021 were $17.4 million compared to $17.7 million in 2020.

The decline in spare parts sales paralleled the slowdown in global flight traffic, which was directly affected by the impacts of the COVID-19 pandemic.

Equipment sales for the year ended December 31, 2020 were $0.9 million for the sale of one engine compared to $18.4 million for the sale of three engines, two airframes and one equipment package in 2019.

There were no equipment sales for the year ended December 31, 2021 compared to $0.9 million for the sale of one engine for the year ended December 31, 2020.

Gain on Sale of Leased Equipment .

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.

During the year ended December 31, 2020, we sold 11 engines and two airframes from the lease portfolio for a net gain of $3.4 million.

During the year ended December 31, 2019, we sold 16 engines, seven aircraft, four airframes and other related equipment from the lease portfolio for a net gain of $20.0 million.

Gain on Sale of Financial Assets.

During the year ended December 31, 2021, we sold two notes receivable for a net gain of $10.9 million.

There were no gain on sale of financial assets during the year ended December 31, 2020.

Asset Transition Fee.

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.

There was no asset transition fee during the year ended December 31, 2020.

Other Revenue.

Other revenue increased by $6.5 million, to $24.9 million for the year ended December 31, 2021 from $18.4 million in 2020.

The increase was primarily due to the increase in interest income from our notes receivable, partly offset by a decrease in service related fees.

Other revenue also includes a net loss on sale of a note receivable to WMES of $0.1 million.

The increase primarily reflects increases of $2.7 million in service related fees and $3.4 million in interest income from our notes receivable.

Depreciation and Amortization Expense .

Depreciation and amortization expense increased $8.3 million, or 9.6%, to $94.5 million for the year ended December 31, 2020 compared to $86.2 million for the year ended December 31, 2019.

The increase in depreciation reflects an increase in the number of assets held in the portfolio as well as the change in mix of portfolio, as compared to the prior year period.

Depreciation and amortization expense decreased $4.0 million, or 4.3%, to $90.5 million for the year ended December 31, 2021 compared to $94.5 million for the year ended December 31, 2020.

The decrease reflects certain assets reaching the end of their depreciable lives as compared to the prior year period.

Cost of Spare Parts and Equipment Sales .

Cost of spare parts and equipment sales decreased by $45.9 million, or 73.2%, to $16.8 million for the year ended December 31, 2020 compared to $62.6 million in the prior year period.

Cost of spare parts sales for the year

ended December 31, 2020 were $16.6 million compared to $47.4 million in 2019 due to lower spare parts sales, coupled with lower of cost or market write-downs and scrap sales.

The reduced sales were driven by lower industry wide demand resulting from the impacts of the COVID-19 pandemic.

Cost of equipment sales was $0.1 million and $15.2 million in the years ended December 31, 2020 and 2019, respectively.

Cost of spare parts and equipment sales decreased by $1.8 million, or 10.9%, to $14.9 million for the year ended December 31, 2021 compared to $16.8 million in the prior year period due to lower spare parts sales.

There were no cost of equipment sales for the year ended December 31, 2021 compared to $0.1 million for the year ended December 31, 2020.

Write-down of Equipment.

Write-down of equipment was $20.5 million for the year ended December 31, 2020 and reflects the write-down of 10 engines and two airframes due to a management decision to monetize the assets either by sale to third-party or for part-out and an adjustment of the carrying value of seven impaired engines.

Write-down of equipment was $18.2 million for the year ended December 31, 2019 reflecting the write-down of 11 engines due to a management decision to monetize the engines either by sale to a third-party or for part-out and an adjustment of the carrying value of seven impaired engines.

Write-down of equipment was $20.5 million for the year ended December 31, 2020 reflecting the write-down of 10 engines and two airframes due to a management decision to monetize the assets either by sale to a third-party or for part-out and an adjustment of the carrying value of seven impaired engines.

General and Administrative Expenses .

General and administrative expenses decreased 21.5% to $67.9 million for the year ended December 31, 2020 compared to $86.5 million in 2019.

The decrease, when compared to the prior year period, primarily reflects no bonus accrual in the current year due to operating performance as well as the effect of reduced business travel spending and procurement of outside services.

General and administrative expenses increased 11.0% to $75.4 million for the year ended December 31, 2021 compared to $67.9 million in 2020.

The increase primarily reflects increased stock-based compensation as compared to the prior year period which was driven by an increased stock price at time of grant.

Technical Expense .

Technical expenses consist of the cost of engine repairs, engine thrust rental fees, outsourced technical support services, sublease engine rental expense, engine storage and freight costs.

These expenses decreased 19.6% to $6.5 million for the year ended December 31, 2020, compared to $8.1 million in 2019.

The decrease is primarily due to a decrease in technical support services driven by lower industry-wide demand due to impact of the COVID-19 pandemic.

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 43.6% to $9.4 million for the year ended December 31, 2021, compared to $6.5 million in 2020.

The increase primarily reflects the increase in engine repairs.

Net Finance Costs .

Net finance costs increased to $68.0 million in the year ended December 31, 2021, from $67.7 million for the year ended December 31, 2020.

The increase was primarily due to a loss on debt extinguishment of $4.7 million, partly offset by lower interest expense as a result of lower interest rates in 2020 as compared to the prior year period.

The slight increase was primarily due to the increase in interest expense related to the WEST VI transaction partly offset by a loss on debt extinguishment of $4.7 million recognized in the prior year period.

Income Taxes .

1 unchanged sentence

The effective tax rate for the years ended December 31, 2021 and December 31, 2020 was 63.3% and 43.8%, respectively.

The increase in the effective tax rate was predominantly due to non-deductible officer compensation.

The increase in the effective tax rate was predominantly due to change in tax laws in the United Kingdom.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

3 unchanged sentences

In the event that we decide to repatriate these funds to the United States, 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 $90.7 million in 2021.

The Company’s largest recurring expense is its non-cash depreciation.

Beyond cash provided through operations, we generally fund the growth of our business through a combination of equity and corporate borrowings.

Our credit facility is our primary source of capital to grow our business.

We also access the Asset Backed Security (“ABS”) market to establish term fixed rate debt financing to better match our long-lived assets.

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 and active for issuers like the Company.

Refer to Note 6 of the consolidated financial statements for a detailed discussion of the Company's debt obligations.

We finance our growth through borrowings secured by our equipment lease portfolio.

The Company’s largest recurring expense is its non-cash depreciation.

Beyond cash provided through operations, we generally fund the growth of our business through borrowings provided by our credit facility as well the issuance of ABS debt securities which allow us to establish term fixed rate debt against our long-lived assets.

The Company’s credit facility matures in 2024 and has historically rolled that facility prior to its expiration.

The ABS market continues to be open and active for issuers like the Company.

Cash of approximately $513.7 million and $973.2 million in the years ended December 31, 2021 and 2020, respectively, was derived from this borrowing activity.

19 unchanged sentences

If there is an increase in off-lease rates or deterioration in lease rates that are not offset by reductions in interest rates, there will be a negative impact on earnings and cash flows from operations.

Distributions received from our investment in WMES were $7.2 million and $3.3 million in the years ended December 31, 2020 and 2019, respectively.

Cash flows used in investing activities were $506.7 million for the year ended December 31, 2020 and primarily reflected $136.6 million related to leases entered into during 2020 which were classified as notes receivable under ASC 842 and $409.3 million for the purchase of equipment held for operating lease (including capitalized costs and prepaid deposits made during the year), partly offset by $26.1 million in proceeds from sales of equipment (net of selling expenses) and $8.4 million in proceeds from the sale of a note receivable (net of selling expenses).

Cash flows used in investing activities were $147.4 million for the year ended December 31, 2019 and primarily reflected $289.4 million for the purchase of equipment held for operating lease (including capitalized costs and prepaid deposits made during the year) and $42.9 million related to leases entered into during 2019 which were classified as notes receivable under ASC 842, partly offset by $191.9 million in proceeds from sales of equipment (net of selling expenses).

There were no distributions received from our investment in WMES in the year ended December 31, 2021.

Distributions received from WMES were $7.2 million in the year ended December 31, 2020.

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 expenses).

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, $4.6 million in debt issuance costs and $10.1 million in share repurchases.

Cash flows provided by financing activities for the year ended December 31, 2020 were $428.5 million and primarily reflected $973.2 million in proceeds from the issuance of debt obligations, partly offset by $530.8 million in principal payments, $6.1 million in debt issuance costs, $2.4 million in debt prepayment costs and $1.5 million in share repurchases.

Cash flows used in financing activities for the year ended December 31, 2019 were $101.2 million and primarily reflected $428.1 million in principal payments and $3.6 million in share repurchases, partly offset by $340.1 million in proceeds from the issuance of debt obligations.

Debt Obligations and Covenant Compliance

2 unchanged sentences

For further information on our debt instruments, see Note 6 “Debt Obligations” in Part II, Item 8 of this Form 10-K.

In March 2020, WEST V (formerly known as “WEST II”), a consolidated VIE of the Company, closed its offering of $366.2 million aggregate principal amount of fixed rate notes (the “WEST V Notes”).

In June 2021, WLFC entered into Amendment No.

2 to the Fourth Amended and Restated Credit Agreement dated as of June 7, 2019, which updates the provisions relating to the future discontinuance of the London Interbank Offered Rate (“LIBOR”) and sets forth the mechanics for establishing the Secured Overnight Financing Rate as a benchmark replacement rate.

In May 2021, WLFC and its direct, wholly-owned subsidiary Willis Engine Structured Trust VI (“WEST VI”), closed its offering of $336.7 million aggregate principal amount of fixed rate notes (“WEST VI Notes”).

The WEST VI Notes were issued in three series, with the Series A Notes issued in an aggregate principal amount of $278.6 million, the Series B Notes issued in an aggregate principal amount of $38.7 million and the Series C Notes issued in an aggregate principal amount of $19.4 million.

The WEST VI Notes are secured by, among other things, WEST VI’s direct and indirect ownership interests in a portfolio of aircraft engines and an airframe.

The Series A Notes have a fixed coupon of 3.104%, an expected maturity of approximately eight years and a final maturity date in May 2046, the Series B Notes have a fixed coupon of 5.438%, an expected maturity of approximately eight years and a final maturity date in May 2046 and the Series C Notes have a fixed coupon of 7.385%, an expected maturity of approximately eight years and a final maturity date in May 2046.

The Series A Notes were issued at a price of 99.99481% of par, the Series B Notes were issued at a price of 99.99996% of par and the Series C Notes were issued at a price of 99.99869% of par.

Principal on the WEST VI Notes is payable monthly to the extent of available cash in accordance with a priority of payments included in the indenture.

The assets of WEST VI are not available to satisfy the Company’s obligations other than the obligations specific to WEST VI.

WEST VI is consolidated for financial statement presentation purposes.

WEST VI’s ability to make distributions and pay dividends to the Company is subject to the prior payments of its debt and other obligations and WEST VI’s maintenance of adequate reserves and capital.

Under WEST VI’s indenture, cash is collected in a restricted account, which is used to service the debt and any remaining amounts, after debt service and defined expenses, are distributed to the Company.

Additionally, a portion of maintenance reserve payments and lease security deposits are formulaically accumulated in restricted accounts and are available to fund future maintenance events and to secure lease payments, respectively.

The WEST VI indenture requires that a minimum threshold of maintenance reserve and security deposit balances be held in restricted cash accounts.

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

In March 2020, WLFC and its direct, wholly-owned subsidiary Willis Engine Structured Trust V (“WEST V”) (formerly known as Willis Engine Securitization Trust II (“WEST II”)), closed its offering of $366.2 million aggregate principal amount of fixed rate notes (the “WEST V Notes”).

The WEST V Notes were issued in three series, with the Series A Notes issued in an aggregate principal amount of $303.0 million, the Series B Notes issued in an aggregate principal amount of $42.1 million and the Series C Notes issued in an aggregate principal amount of $21.1 million.

The WEST V Notes are secured by, among other things, WEST V’s direct and indirect ownership interests in a portfolio of 54 aircraft engines and three airframes.

The Series A Notes have a fixed coupon of 3.228%, an expected maturity of approximately eight years and a final maturity date of March 15, 2045, the Series B Notes have a fixed coupon of 4.212%, an expected maturity of approximately eight years and a final maturity date of March 15, 2045 and the Series C Notes have a fixed coupon of 6.657%, an expected maturity of approximately eight years and a final maturity date of March 15, 2045.

The WEST V Notes are secured by, among other things, WEST V’s direct and indirect ownership interests in a portfolio of aircraft engines and airframes.

The Series A Notes have a fixed coupon of 3.228%, an expected maturity of approximately eight years and a final maturity date in March 2045, the Series B Notes have a fixed coupon of 4.212%, an expected maturity of approximately eight years and a final maturity date in March 2045 and the Series C Notes have a fixed coupon of 6.657%, an expected maturity of approximately eight years and a final maturity date in March 2045.

The Series A Notes were issued at a price of 99.99859% of par, the Series B Notes were issued at a price of 99.99493% of par and the Series C Notes were issued at a price of 99.99918% of par.

Principal on the WEST V Notes is payable monthly to the extent of available cash in accordance with a priority of payments included in the indenture for the WEST V Notes.

Proceeds from asset sales by WEST V will be used, at WEST V’s election subject to certain conditions, to reduce WEST V’s debt or to acquire other engines or airframes.

The assets of WEST V are not available to satisfy the Company’s obligations other than the obligations specific to WEST V.

WEST V is consolidated VIE for financial statement presentation purposes.

WEST V is consolidated for financial statement presentation purposes.

WEST V’s ability to make distributions and pay dividends to the Company is subject to the prior payments of its debt and other obligations and WEST V’s maintenance of adequate reserves and capital.

Under WEST V, cash is collected in a restricted account, which is used to service the debt and any remaining amounts, after debt service and defined expenses, are distributed to the Company.

Under WEST V’s indenture, cash is collected in a restricted account, which is used to service the debt and any remaining amounts, after debt service and defined expenses, are distributed to the Company.

1 unchanged sentence

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

In June 2019, the Company entered into the Fourth Amended and Restated Credit Agreement (“Amended Credit Agreement”) which increased the revolving credit facility from $890.0 million to $1.0 billion and extended the maturity of the credit facility to June 2024.

As a result, the Company incurred and deferred an additional $2.8 million of debt issuance costs and recognized a loss on debt extinguishment of $0.2 million.

In December 2019, the Company entered into Amendment No.

1 to the Fourth Amended and Restated Credit Agreement and Amendment No.

5 to the Security Agreement.

The amendments, which among other things, increase the maximum leverage ratio from 4.00:1.00 to 4.50:1.00 through December 31, 2020, if a permitted change in control is consummated.

In October 2020, the Company entered into a Limited Waiver (the “Waiver”) to its Fourth Amended and Restated Credit Agreement.

The Waiver provides for the partial exclusion for specified periods of certain asset book values in the calculation of customer concentration limits, as such limits are defined in the Amended Credit Agreement.

In February 2019, the Company entered into an $8.1 million loan with a financial institution with a maturity date of July 2022.

Interest is payable at three-month LIBOR plus a margin ranging from 1.85% to 2.50% and principal and interest are paid quarterly.

The loan is secured by two engines.

Virtually all of the above debt requires our 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.

7 unchanged sentences

The Total Leverage Ratio, as defined in the credit facility, is the ratio of total indebtedness to tangible net worth.

At December 31, 2020, we were in compliance with the covenants specified in the WEST III, WEST IV and WEST V indentures, servicing and other debt related agreements.

Off-Balance Sheet Arrangements

As of December 31, 2020, we had no material off-balance sheet arrangements or obligations that have or are reasonably likely to have a current or future effect on our financial condition, change in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.

At December 31, 2021, we were in compliance with the covenants specified in the WEST III, WEST IV, WEST V and WEST VI indentures, servicing and other debt related agreements.

Contractual Obligation and Commitments

10 unchanged sentences

From time to time we enter into contractual commitments to purchase engines directly from original equipment manufacturers.

As of the date of this report we have purchased three new LEAP-1B engines and are currently committed to purchasing 17 additional new LEAP-1B engines.

As of the date of this report we have purchased three new LEAP-1B engines and are currently committed to purchasing 12 additional new LEAP-1B engines for $170.6 million and 19 additional new LEAP-1A engines for $269.3 million by 2025.

Our purchase agreements generally contain terms that allow the Company to defer or cancel purchase commitments in certain situations.

These deferrals or conversions would not result in penalties or increased costs other than any potential increase due to the normal year-over-year change in engine list prices, which is akin to ordinary inflation.

The Company continues to expect demand for LEAP-1B engines to increase as the 737 Max is 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 begin the technical process of returning to service.

In May 2021, we entered into a commitment for future maintenance services which are anticipated to cost $24.0 million by 2024.

In December 2020, we entered into definitive agreements for the purchase of 25 modern technology aircraft engines.

As part of the purchase, we have committed to certain future overhaul and maintenance services which are anticipated to range between $67.1 million and $112.0 million.

We have estimated the interest payments due under debt obligations by applying the interest rates applicable at December 31, 2020 to the remaining debt, adjusted for the estimated debt repayments identified in the table above.

Actual interest payments made will vary due to actual changes in the rates for one-month and three-month LIBOR.

As part of the purchase, we have committed to certain future overhaul and maintenance services which are anticipated to range between $73.8 million and $112.0 million by 2030.

$27.3 million of interest payments due under debt obligations, scheduled above, are estimated based upon by applying the interest rates applicable at December 31, 2021 to the remaining debt, adjusted for the estimated debt repayments identified in the table above.

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 2022.

1 unchanged sentence

Such decline would impair our ability to sustain our level of operations.

We continue to discuss additions to our capital base with our commercial and investment banks.

We continue to discuss additions to our capital base with our commercial and

investment banks.

If we are not able to access additional capital, our ability to continue to grow our asset base consistent with historical trends will be impaired and our future growth limited to that which can be funded from internally generated capital.

MANAGEMENT OF INTEREST RATE EXPOSURE

At December 31, 2020, $783.1 million of our borrowings were on a variable rate basis at various interest rates tied to one-month and three-month LIBOR.

At December 31, 2021, $590.0 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.

1 unchanged sentence

Historically, we have entered into interest rate derivative instruments to mitigate our exposure to interest rate risk and not to speculate or trade in these derivative products.

As of December 31, 2020, we have two interest rate swap agreements.

One interest rate swap was entered into during 2016 which has a notional outstanding amount of $100.0 million, with a remaining term of four months as of December 31, 2020.

During 2019, we entered into one additional fixed-rate interest swap agreement which has a notional outstanding amount of $100.0 million, with a remaining term of 42 months as of December 31, 2020.

The net fair value of the swaps was $4.0 million and $1.7 million, representing a net liability, at December 31, 2020 and 2019, respectively.

As of December 31, 2021, 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 25 months and two with remaining terms of 49 months as of December 31, 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 30 months as of December 31, 2021.

One interest rate swap agreement which the Company entered into in 2016 expired in April 2021.

The net fair value of the swaps as of December 31, 2021 was $7.3 million, representing an asset of $8.0 million and a liability of $0.7 million.

The net fair value of the interest rate swaps as of December 31, 2020 was $4.0 million, representing a liability.

We record derivative instruments at fair value as either an asset or liability.

6 unchanged sentences

The ineffective portion of these hedges flows through earnings in the current period.

The hedge accounting for these derivative instrument arrangements increased interest expense by $2.0 million and reduced interest expense by $0.7 million for the years ended December 31, 2020 and 2019, respectively.

The hedge accounting for these derivative instrument arrangements increased interest expense by $2.4 million and $2.0 million for the years ended December 31, 2021 and 2020, respectively.

This incremental adjustment for the swaps effective for hedge accounting was included in interest expense for the respective periods.

4 unchanged sentences

“Other revenue” on the Consolidated Statements of Income includes management fees earned of $2.1 million and $1.6 million during the years ended December 31, 2021 and 2020, respectively, related to the servicing of engines for the WMES lease portfolio.

During 2021, the Company sold two engines to WMES for $25.0 million.

During 2020, the Company sold one note receivable to WMES for $8.4 million.

During 2019, the Company sold five aircraft and other equipment to WMES for $76.4 million.

Additionally, during 2019, WMES sold one engine to Willis Aeronautical Services, Inc., a wholly-owned subsidiary of the Company, for $2.6 million.

There were no engine or aircraft sales to CASC Willis during 2021 or 2020.

During 2019, the Special Committee of the Board of Directors approved a transaction in which the Company’s Chief Executive Officer (“CEO”), Charles F.

Willis, purchased a car at its market value of $0.1 million from the Company.

During 2019, the Company’s CEO was charged $0.2 million for usage of the Company’s marine vessel in the Company’s lease portfolio.

On December 2, 2021, in a transaction approved by an independent committee, as well as the Audit Committee, of the Board of Directors, the Company purchased 60,000 shares of its common stock directly from the Company’s Chief Executive Officer (“CEO”), Charles F.

The agreed and paid price per share was $35.43, the discounted volume weighted average price on December 2, 2021.

On October 1, 2021, the Board’s Independent Directors approved the payment of $0.2 million to the Company’s CEO, Charles F.

Willis, for reimbursement of a club membership fee, as well as future payments of reasonable annual club dues.

During 2021, the Company paid approximately $27,000 of expenses payable to Mikchalk Lake, LLC, an entity in which our CEO retains an ownership interest.

1 unchanged sentence

These transactions were approved by the Board’s Independent Directors.

During 2020, the Board’s independent directors approved the Company’s agreement to a lease with our CEO in support of the Company’s vessel leasing business.

During 2020, the Board’s Independent Directors approved the Company’s agreement to a lease with our CEO in support of the Company’s marine vessel leasing business.

That lease provides for a payment to our CEO of $750 per day for the use of his tender in support of our vessel lease to a third-party lessee.

In addition, the Company has purchased a hull insurance policy, for our CEO’s tender, at a rate of $6,800 per annum, plus a one-time subscriber fee of $695 to insure his tender while in the service of the Company’s vessel leasing business.

The lease agreement was subsequently amended and approved by the Board’s independent directors to increase the daily rate to $750 per day.

The Company has paid a total of $9,750 for usage of the tender.

Additionally, our CEO was charged $4,000 for personal expenses while onboard the Company’s marine vessel.

During 2020, the Company’s CEO was charged $9,100 for the purchase of artwork.

In addition, the Company purchased a hull insurance policy, for our CEO’s tender, at

a rate of $6,800 per annum, plus a one-time subscriber fee of $695 to insure his tender while in the service of the Company’s vessel leasing business.

The Company has paid a total of $41,250 and $9,750 during the years ended December 31, 2021 and 2020, respectively, for usage of the tender.

On November 11, 2021, in a transaction approved by the Independent Compensation Committee, the Company purchased the tender for $0.5 million.

Additionally, during 2020, our CEO was charged $4,000 for personal expenses while onboard the Company’s marine vessel.

During 2020, the Company’s CEO was charged $9,100 for the purchase of artwork from the Company.

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 7. Management’s Discussion and Analysis