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Item 7. Management’s Discussion and Analysis

2025-03-11 compared with 2024-03-15 · 107 added, 94 removed, 196 unchanged (51% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report.

A discussion of our results of operations for our fiscal year ended December 31, 2023 compared to the year ended December 31, 2022 is included our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on March 15, 2024 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-Looking Statements.

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Our portfolio is continually changing due to acquisitions and sales.

As of December 31, 2023, we had $2,112.8 million of equipment held in our operating lease portfolio, $92.6 million of notes receivable, $9.2 million of maintenance rights, and $8.8 million of investments in sales-type leases, which represented 337 engines, 12 aircraft, one marine vessel and other leased parts and equipment.

As of December 31, 2024, we had $2,635.9 million of equipment held in our operating lease portfolio, $183.6 million of notes receivable, $31.1 million of maintenance rights, and $21.6 million of investments in sales-type leases, which represented, in aggregate, 354 engines, 16 aircraft, one marine vessel and other leased parts and equipment.

As of December 31, 2024, we also managed 277 engines, aircraft and related equipment on behalf of other parties.

Willis Aero is a wholly-owned and vertically-integrated subsidiary whose primary focus is the sale of aircraft engine parts and materials through the acquisition or consignment of aircraft engines.

As of December 31, 2023, Willis Aero had $40.3 million in spare parts inventory.

As of December 31, 2024, we had $72.2 million in spare parts inventory.

Willis Asset Management is a wholly-owned and vertically-integrated subsidiary whose primary focus is the engine management and consulting business.

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

WMES owns a lease portfolio of 35 engines and four aircraft with a net book value of $232.2 million at December 31, 2023.

WMES owned a lease portfolio of 50 engines with a net book value of $328.9 million at December 31, 2024.

Our investment in the joint venture was $44.8 million as of December 31, 2024.

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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, 2023, 24 engines having a net book value of $17.2 million were depreciated under this policy with estimated remaining useful lives ranging from 1 to 83 months.

As of December 31, 2024, 14 engines having a net book value of $11.6 million were depreciated under this policy with estimated remaining useful lives up to 34 months.

Asset Valuation .

Long-lived assets and certain identifiable intangibles to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable, and long-lived assets and certain identifiable intangibles to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.

When a long-lived asset is written down and moved to equipment held for sale from equipment held for lease, it is no longer depreciated.

On a quarterly basis, management monitors the lease portfolio for events which may indicate that a particular asset may need to be evaluated for potential impairment.

These events may include a decision to part-out or sell an asset, knowledge of specific damage to an asset ( e.g.

, impairment of two engines as a result of the Russia and Ukraine conflict), or supply/demand events which may impact the Company’s ability to lease an asset in the future.

These events may include a decision to part-out or sell an asset, knowledge of specific damage to an asset, or supply/demand events which may impact the Company’s ability to lease an asset in the future.

On an annual basis, even absent any such ‘triggering event’, we evaluate the carrying value of the assets in our lease portfolio to determine if any impairment exists.

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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 $11.2 million for the year ended December 31, 2024, primarily reflecting an adjustment of the carrying value of one airframe and 11 engines.

As of December 31, 2024, included within equipment held for lease and equipment held for sale was $50.8 million in remaining book value of 16 assets which were previously written down.

Write-downs of equipment to their estimated fair values totaled $4.4 million for the year ended December 31, 2023, primarily reflecting an adjustment of the carrying value of five engines and two airframes.

As of December 31, 2023, included within equipment held for lease and equipment held for sale was $31.9 million in remaining book value of 15 assets which were previously written down.

Write-downs of equipment to their estimated fair values totaled $21.8 million for the year ended December 31, 2022.

Of this write-down, $20.4 million reflects the impairment of two engines located in Russia which were determined, due to the Russia and Ukraine conflict, to be unrecoverable.

The remaining write-downs were in the ordinary course of business.

Management continuously monitors the aviation industry and evaluates any trends, events and 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.

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Spare parts and equipment sales 27,099 20,359 33.1 %

Interest income 8,721 7,579 15.1 %

Interest revenue 11,683 8,721 34.0 %

Gain on sale of leased equipment 45,063 10,581 325.9 %

Gain on sale of financial assets — 3,116 (100.0) %

Maintenance services revenue 24,158 24,168 — %

Other revenue 9,076 7,920 14.6 %

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Lease rent revenue increased by $25.1 million, or 11.8%, to $238.2 million for the year ended December 31, 2024 from $213.1 million for the year ended December 31, 2023.

The increase is primarily due to an increase in the number of engines acquired and placed on lease, including an increase in utilization compared to that of the prior period.

During the year ended December 31, 2023, we purchased equipment (including capitalized costs) totaling $163.6 million, which consisted of 23 engines and other parts and equipment purchased for our lease portfolio.

During the year ended December 31, 2022, we purchased equipment (including capitalized costs) totaling $286.4 million, which consisted of 46 engines, one aircraft, and other parts and equipment purchased for our lease portfolio.

One customer accounted for more than 10% of total lease rent revenue during the years ended December 31, 2023 and 2022.

The increase is primarily due to an increase in the average size of the portfolio as compared to that of the prior period, offset by a slight decrease in average utilization (based on net book value) of equipment held in our operating lease portfolio, primarily as a result of the Company’s significant purchases of engines during December 2024, the majority of which were off-lease as of December 31, 2024.

Two customers accounted for approximately 11% each of total lease rent revenue during the year ended December 31, 2024.

One customer accounted for approximately 15% of total lease rent revenue during the year ended December 31, 2023.

As of December 31, 2024, the Company had $2,635.9 million of equipment held in our operating lease portfolio, $183.6 million of notes receivable, $31.1 million of maintenance rights, and $21.6 million of investments in sales-type leases.

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Long-term maintenance revenue was $39.4 million for the year ended December 31, 2024 compared to $15.4 million for the year ended December 31, 2023.

Engines out on lease with “non-reimbursable” usage fees generated $118.3 million of short-term maintenance revenues for the year ended December 31, 2023 compared to $47.4 million for the year ended December 31, 2022.

This increase is primarily due to an increase in the percentage of engines on short-term leases as well as the increase in utilization on those engines relative to prior period.

Additionally, as of December 31, 2023 and 2022, there were $28.4 million and $6.3 million, respectively, of deferred in-substance fixed payment use fees included in Unearned Revenue associated with engines on short-term leases.

Long-term maintenance revenue is influenced by end of lease compensation and the realization of long-term maintenance reserves associated with engines coming off lease.

Engines out on lease with “non-reimbursable” usage fees generated $174.5 million of short-term maintenance revenues for the year ended December 31, 2024 compared to $118.3 million for the year ended December 31, 2023, an increase of $56.2 million or 47.5%.

The increase in short-term maintenance reserve revenue was influenced by an increase in the number of engines on short-term lease conditions, the timing of recognition of in-substance fixed payments, and the systematic, contractual increase in the hourly and cyclical usage rates on our engines.

Spare Parts and Equipment Sales .

Spare parts and equipment sales for the year ended December 31, 2023 decreased by $6.7 million, or 24.6%, to $20.4 million compared to $27.0 million for the year ended December 31, 2022.

Spare parts sales for the year ended December 31, 2023 were $20.4 million compared to $25.9 million for the year ended December 31, 2022.

The decrease in spare parts sales reflects variations in the timing of sales.

There were no equipment sales during the year ended December 31, 2023, compared to $1.1 million for the sales of two engines during the year ended December 31, 2022.

Spare parts and equipment sales for the year ended December 31, 2024 increased by $6.7 million, or 33.1%, to $27.1 million compared to $20.4 million for the year ended December 31, 2023.

The increase in spare parts sales reflects the demand for surplus material that we are seeing as operators extend the lives of their current generation engine portfolios.

Equipment sales for the year ended December 31, 2024 were $1.0 million for the sale of one engine.

There were no equipment sales for the year ended December 31, 2023.

Interest Revenue .

Interest revenue increased by $3.0 million, or 34.0%, to $11.7 million for the year ended December 31, 2024, from $8.7 million for the year ended December 31, 2023.

The increase primarily reflects an increase in notes receivable related to failed sale-leasebacks in which the Company was the buyer-lessor and on sales-type leases.

Gain on Sale of Leased Equipment .

During the year ended December 31, 2024, we sold 35 engines, eight airframes, and other parts and equipment from the lease portfolio for a net gain of $45.1 million.

During the year ended December 31, 2023, we sold 28 engines, one airframe, and other parts and equipment from the lease portfolio for a net gain of $10.6 million.

During the year ended December 31, 2022, we sold 25 engines from the lease portfolio for a net gain of $3.1 million.

Gain on Sale of Financial Assets.

During the year ended December 31, 2023, there was no gain on sale of financial assets as we did not sell any notes receivable.

During the year ended December 31, 2022, we sold four notes receivable for a net gain of $3.1 million.

Maintenance Services Revenue .

Maintenance services revenue predominantly represents fleet management, engine and aircraft storage and repair services, and revenue related to management of fixed base operator services to third-party customers.

Maintenance services revenue remained relatively flat for the year ended December 31, 2024.

Other Revenue.

Other revenue increased by $7.0 million, to $32.1 million for the year ended December 31, 2023 from $25.1 million in 2022.

Other revenue consists primarily of management fee income, lease administration fees, third-party consignment commissions earned, service fee revenue, and other discrete revenue items.

The increase primarily reflects an increase of $5.6 million in managed service revenues.

Other revenue increased by $1.2 million, or 14.6%, to $9.1 million for the year ended December 31, 2024 from $7.9 million in 2023.

Other revenue consists primarily of managed service fee revenue related to the servicing of engines for the WMES lease portfolio.

The increase for the year ended December 31, 2024 compared to that of the prior year primarily reflects increased managed service revenue.

These services include management of the WMES lease portfolio, which occurs on an ongoing basis, as well as marketing, which occurs on a transactional basis.

Depreciation and Amortization Expense .

Depreciation and amortization expense increased $1.5 million, or 1.7%, to $92.5 million for the year ended December 31, 2024 compared to $90.9 million for the year ended December 31, 2023.

The increase primarily reflects the growth in our portfolio subject to depreciation as compared to the prior period.

The increase is primarily due to an increase in the size of our lease portfolio.

Cost of Spare Parts and Equipment Sales .

Cost of spare parts and equipment sales decreased by $5.6 million, or 27.0%, to $15.2 million for the year ended December 31, 2023 compared to $20.8 million in the prior year period, reflecting the decline in spare part sales.

There were no equipment sales or cost of equipment sales for the year ended December 31, 2023, compared to $0.1 million of cost of equipment sales for the year ended December 31, 2022.

Cost of spare parts and equipment sales increased by $7.6 million, or 50.3%, to $22.9 million for the year ended December 31, 2024 compared to $15.2 million in the prior year period, reflecting the increase in spare parts and equipment sales.

Cost of equipment sales were $0.1 million for the year ended December 31, 2024.

There were no equipment or cost of equipment sales for the year ended December 31, 2023.

Cost of Maintenance Services.

Cost of maintenance services increased by $3.3 million, or 15.6%, to $24.5 million for the year ended December 31, 2024, compared to $21.2 million for the for the year ended December 31, 2023.

The increase is primarily related to an increase in personnel costs, as a result of expansion of our aircraft tear down and repair services business, as well as an increase in facility related costs.

Write-down of Equipment.

Write-down of equipment to their estimated fair values totaled $4.4 million for the year ended December 31, 2023, primarily reflecting the write-down of five engines and two airframes.

Write-down of equipment totaled $21.8 million for the year ended December 31, 2022, primarily reflecting write-downs of $20.4 million for the impairment of two engines located in Russia which were determined, due to the Russia and Ukraine conflict, to be unrecoverable.

The remaining write-downs were in the ordinary course of business.

Write-downs of equipment to their estimated fair values totaled $4.4 million for the year ended December 31, 2024, primarily reflecting an adjustment of the carrying value of two airframes and five engines.

General and Administrative Expenses .

General and administrative expenses increased 56.5% to $144.8 million for the year ended December 31, 2023 compared to $92.5 million in 2022.

The increase primarily reflects a $29.5 million increase in personnel costs, which includes an increase of $18.4 million in bonus compensation.

Additionally, a $4.9 million increase in outside service fees, a $7.4 million increase in asset management project costs, a $4.4 million increase in aviation hull war insurance as a result of the Russia and Ukraine conflict, a $1.8 million increase in other taxes due to an increase in business conducted in India, and a $1.5 million increase in equipment costs further contributed to the increased general and administrative expenses.

General and administrative expenses increased by $31.0 million, or 26.8%, to $146.8 million for the year ended December 31, 2024 compared to $115.7 million in 2023.

The increase primarily reflects a $35.5 million increase in personnel costs, partially offset by a $3.3 million decrease in other taxes related to international tax treaties.

Increased personnel costs included approximately $14.4 million of costs related directly and indirectly to share-based compensation, which was influenced by the rapid appreciation of the market value of the Company’s common stock.

Share-based compensation included one-time special awards of $3.0 million and $1.7 million made at the direction of the Compensation Committee of the Board of Directors of the Company to our Executive Chairman and our President, respectively.

Further, incentive compensation increased by $9.2 million as a result of full-year business performance to date as the Company’s incentive compensation expense has historically been formulaically derived from consolidated pre-tax, pre-incentive compensation earnings.

Technical Expense .

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

These expenses increased 40.3% to $20.2 million for the year ended December 31, 2023, compared to $14.4 million in 2022.

The increase is primarily due to a higher level of engine repair activity and thrust rental fees, which is driven by increased activity in the industry.

These expenses decreased by $5.8 million, or 20.7%, to $22.3 million for the year ended December 31, 2024, compared to $28.1 million in 2023.

The decrease is primarily due to a lower level of engine repair activity as compared to that of the prior period.

Net Finance Costs .

Net finance costs increased to $78.8 million for the year ended December 31, 2023, from $64.2 million for the year ended December 31, 2022, primarily due to an increase in short-term interest rates, which drive borrowing costs in our revolving credit facility.

This increase was partially offset by derivative-related receipts of $23.4 million for the year ended December 31, 2023 as compared to $7.8 million for the year ended December 31, 2022.

Net finance costs increased by $26.0 million, or 33.0%, to $104.8 million for the year ended December 31, 2024, from $78.8 million for the year ended December 31, 2023, primarily due to an overall higher level of debt obligations, including increased borrowing costs.

Interest expense associated with WEST VII Series A 2023 term notes payable increased by $25.0 million for the year ended December 31, 2024, as the notes payable was not issued until late 2023.

Further, there was additional interest expense of $6.6 million for the year ended December 31, 2024 associated with WWFL, as the senior secured warehouse facility was not entered into until 2024.

Additionally, derivative-related receipts were $12.0 million for the year ended December 31, 2024, as compared to $23.4 million for the year ended December 31, 2023, as certain swap positions ran off.

These increases were offset by a decrease in interest expense of $18.2 million associated with the Company’s credit facility for the year ended December 31, 2024, due to a decrease in the average outstanding balance of the credit facility over the course of the year.

Income Taxes .

Income tax expense for the year ended December 31, 2023 increased to $23.3 million from $4.4 million for the comparable period in 2022.

Income tax expense for the year ended December 31, 2024 increased by $20.7 million, or 88.6% to $44.0 million from $23.3 million for the comparable period in 2023.

The effective tax rate for the years ended December 31, 2024 and December 31, 2023 was 28.8% and 34.8%, respectively.

The decrease in the effective tax rate was predominantly due to an increase in pre-book tax income.

The decrease in the effective tax rate was predominantly due to a decrease in state taxes as a percentage of the overall rate.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

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At December 31, 2024, $7.3 million in cash and cash equivalents and restricted cash were held in foreign subsidiaries.

Other than $1.3 million held at a subsidiary in China, for which the tax impact of the planned repatriation has been accrued, we do not intend to repatriate the funds held in other foreign subsidiaries to the U.S.

In the event that we decide to repatriate these funds held at the other foreign subsidiaries to the U.S., we would be required to accrue and pay taxes upon the repatriation.

We generate significant cash flow from our core business as evidenced by our net cash provided by operating activities, which was $284.4 million in 2024.

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

Cash of approximately $625.7 million and $284.0 million in the years ended December 31, 2023 and 2022, respectively, was derived from this borrowing activity.

Cash of approximately $1.3 billion and $625.7 million in the years ended December 31, 2024 and 2023, respectively, was derived from this borrowing activity.

In these same time periods $840.0 million and $665.5 million, respectively, was used to pay down related debt.

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

Our credit facility and senior secured warehouse credit facility are our primary source of capital to grow our business.

We also access the ABS and other markets to establish term fixed rate debt financing to better match our long-lived assets.

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The net proceeds to the Company after deducting issuance costs were $29.7 million.

The Company’s Series A-1 Preferred Stock accrued quarterly dividends at the rate per annum of 6.5% per share through October 15, 2023 and accrue quarterly dividends at the rate per annum of 8.5% per share thereafter.

The Company’s Series A-2 Preferred Stock accrue quarterly dividends at the rate per annum of 6.5% per share.

During the years ended December 31, 2023 and 2022, the Company paid total dividends of $3.2 million and $3.3 million on the Series A-1 and Series A-2 Preferred Stock, respectively.

In September 2024, the Company entered into a Series A Preferred Stock Purchase Agreement with DBJ, which refinanced and expanded the Company’s Series A-1 and Series A-2 Preferred Stock into one $65.0 million Series A Preferred Stock series (the “Series A Preferred Stock”), which accrues quarterly dividends at the rate per annum of 8.35% per share.

The net proceeds after deducting issuance costs were $13.1 million.

The Company’s Series A-1 Preferred Stock accrued quarterly dividends at the rate per annum of 6.5% per share through October 15, 2023 and accrued at the rate per annum of 8.5% per share thereafter through September 26, 2024.

The Series A-2 Preferred Stock accrued quarterly dividends at the rate per annum of 6.5% per share.

During the years ended December 31, 2024 and 2023, the Company paid total preferred stock dividends of $3.5 million and $3.2 million, respectively.

Cash Flows Discussion

Cash flows provided by operating activities were $284.4 million and $229.7 million in the years ended December 31, 2024 and 2023, respectively.

The $85.3 million, or 59.1%, increase in operating cash flows was primarily driven by a 31.1% increase in lease rent revenue and a 60.2% increase in maintenance reserve revenue, reflecting growth in the size and utilization of the lease portfolio along with increased levels of usage fees resulting from high levels of travel and supply chain constraints.

Changes in maintenance reserves contributed to a $29.8 million increase in year-over-year operating cash flows as market conditions limited asset returns, thereby reducing the return or forfeiture of maintenance reserves.

Additionally, changes in unearned revenue contributed to $18.2 million of incremental operating cash flows, reflecting deferrals of in-substance fixed payment use fees.

Changes in accounts receivables and accounts payables year-over-year largely offset as increased business activities impacted both balances.

The $54.7 million, or 23.8%, increase in operating cash flows was primarily driven by a 60.0% increase in maintenance reserve revenue, reflecting increased levels of usage fees resulting from high levels of travel and supply chain constraints.

Additionally, payments received on sales-type leases increased $25.9 million, and changes in receivables contributed to $38.5 million of incremental operating cash flows as collections improved.

Partially offsetting these increases in operating cash flows was a year over year $29.5 million decline in cash flows from changes in inventory, reflecting investment in parts of high demand engine types, and a $27.0 million decline in cash flows from changes in unearned revenue driven by the increase in long-term maintenance revenue recognition.

Cash flows from operations are driven significantly by payments made under our lease agreements, which comprise lease revenue, security deposits, and maintenance reserves, and are offset by interest expense and general and administrative costs.

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Approximately 74% and 84%, by book value, of our assets were on-lease as of December 31, 2024 and 2023, respectively.

Our year-end 2024 on-lease rate was influenced by a large, late December 2024 purchase of nine off-lease Pratt & Whitney GTF Advantage™ engines.

The average utilization rate for the years ended December 31, 2024 and 2023 was approximately 83% and 84%, respectively.

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

Cash flows used in investing activities were $764.9 million for the year ended December 31, 2024 and primarily reflected $830.5 million for the purchase of equipment held for operating lease (including capitalized costs and prepaid deposits made during the year), and $101.8 million related to leases entered into during 2024 which were classified as notes receivable under ASC 842, partly offset by $171.2 million in proceeds from sales of equipment (net of selling expenses).

Cash flows used in investing activities were $92.8 million for the year ended December 31, 2023 and primarily reflected $163.6 million for the purchase of equipment held for operating lease (including capitalized costs and prepaid deposits made during the year), and $15.4 million related to a lease entered into during 2023 which was classified as a note receivable under ASC 842, partly offset by $85.1 million in proceeds from sales of equipment (net of selling expenses).

Cash flows used in investing activities were $194.4 million for the year ended December 31, 2022 and primarily reflected $286.4 million for the purchase of equipment held for operating lease (including capitalized costs and prepaid deposits made during the year), and $15.3 million related to leases entered into during 2022 which were classified as notes receivable under ASC 842, partly offset by $69.2 million in proceeds from sales of equipment (net of selling expenses) and $40.7 million in proceeds from the sale of notes receivable (net of selling expense).

Cash flows used in financing activities for the year ended December 31, 2023 were $57.9 million and primarily reflected $665.5 million in principal payments and $9.4 million in new debt issuance costs, partly offset by $625.7 million in proceeds from the issuance of debt obligations.

Cash flows provided by financing activities for the year ended December 31, 2022 were $43.3 million and primarily reflected $284.0 million in proceeds from the issuance of debt obligations, partly offset by $228.8 million in principal payments, and $5.2 million in share repurchases.

Cash flows provided by financing activities for the year ended December 31, 2024 were $445.0 million and primarily reflected $1,305.7 million and $13.1 million in proceeds from the issuance of debt obligations and preferred stock, respectively, partly offset by $840.0 million in principal payments, $11.6 million in new debt issuance costs, and $10.7 million in common stock cash dividends paid.

Debt Obligations and Covenant Compliance

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For further information on our debt instruments, see Note 5 “Debt Obligations” in Part II, Item 8 of this Form 10-K.

In October 2023, the Company entered into Amendment No.

4 to the Fourth Amended and Restated Credit Agreement (“Amendment No.

4”), which extended the maturity date for $500.0 million of its credit facility to June 2025.

In December 2023, under the terms of Amendment No.

4, the Company terminated $292.0 million of its credit facility.

This termination resulted in the credit facility having a reduced total committed amount of $708.0 million as of December 31, 2023.

$49.8 million revolves until the earlier of the final WEST VII novated asset or the maturity date of March 31, 2024, and $158.2 million revolves until the maturity date of June 2024.

In October 2024, the Company entered into a new, $1.0 billion, five-year, revolving credit facility with a consortium of lenders, refinancing its $500.0 million credit facility.

The purpose of the revolving credit facility is to finance the acquisition of equipment for lease as well as for general working capital purposes, with the amounts drawn under the facility not to exceed that which is allowed under the borrowing base as defined by the credit agreement.

As of December 31, 2024 and 2023, $307.0 million and $355.0 million were available under this facility, respectively.

On a quarterly basis, the interest rate is adjusted based on the Company’s leverage ratio, as calculated under the terms of the revolving credit facility.

Under the revolving credit facility, some subsidiaries except WEST III, WEST IV, WEST V, WEST VI, WEST VII, and WWFL jointly and severally guarantee payment and performance of the terms of the loan agreement.

The guarantee would be triggered by a default under the agreement.

In May 2024, WWFL, a wholly-owned subsidiary of the Company, entered into a secured credit agreement with the Bank of Utah as security trustee and administrative agent and Bank of America, N.A.

as facility agent.

The secured credit agreement provides for a five-year non-recourse, senior secured warehouse credit facility with an availability period of two years and an initial committed amount of up to $500.0 million.

The purpose of the senior secured warehouse credit facility is to finance the acquisition of equipment for lease as well as for general working capital purposes, with the amounts drawn under the facility not to exceed that which is allowed under the borrowing base as defined by the credit agreement.

As of December 31, 2024, $278.1 million was available under this facility.

On a quarterly basis, the interest rate is adjusted based on the Company’s leverage ratio, as calculated under the terms of the senior secured warehouse credit facility.

Pursuant to the secured warehouse credit facility, some subsidiaries except WEST III, WEST IV, WEST V, WEST VI, and WEST VII jointly and severally guarantee payment and performance of the terms of the loan agreement.

The guarantee would be triggered by a default under the agreement.

In October 2023, the Company and its direct, wholly-owned subsidiary WEST VII, closed its offering of $410.0 million aggregate principal amount of fixed rate notes.

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

In December 2022, the Company recognized a $2.6 million gain on debt extinguishment associated with the repurchase of six tranches of ABS notes with a balance of $12.2 million.

The assets of WEST III, WEST IV, WEST V, WEST VI, and WEST VII are not available to satisfy the Company’s obligations other than the obligations specific to that WEST entity.

WEST III, WEST IV, WEST V, WEST VI, and WEST VII are consolidated for financial statement presentation purposes.

WEST III’s, WEST IV’s, WEST V’s, WEST VI’s, and WEST VII’s abilities to make distributions and pay dividends to the Company is subject to the prior payments of their debt and other obligations and their maintenance of adequate reserves and capital.

Under WEST III, WEST IV, WEST V, WEST VI, and WEST VII, cash is collected in restricted accounts, which is used to service the debt and any remaining amounts, after debt service and defined expenses, are distributed to the Company.

The assets of WEST III, WEST IV, WEST V, WEST VI, WEST VII, and WWFL are not available to satisfy the Company’s obligations other than the obligations specific to that WEST entity or WWFL.

WEST III, WEST IV, WEST V, WEST VI, WEST VII, and WWFL are consolidated for financial statement presentation purposes.

WEST III’s, WEST IV’s, WEST V’s, WEST VI’s, WEST VII’s, and WWFL’s abilities to make distributions and pay dividends to the Company are subject to the prior payments of their debt and other obligations and their maintenance of adequate reserves and capital.

Under WEST III, WEST IV, WEST V, WEST VI, WEST VII, and WWFL, cash is collected in restricted accounts, which is used to service the debt and any remaining amounts, after debt service and defined expenses, are distributed to the Company.

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 III, WEST IV, WEST V, WEST VI, and WEST VII indentures require that a minimum threshold of maintenance reserve and security deposit balances be held in restricted cash accounts.

Virtually all of our debt requires ongoing compliance with the covenants of each financing, including debt/equity ratios, minimum tangible net worth and minimum interest coverage ratios, and other eligibility criteria including customer and geographic concentration restrictions.

The Company also has certain negative financial covenants such as liens, advances, change in business, sales of assets, dividends, and stock repurchases.

These covenants are tested either monthly, quarterly, or annually as required, and the Company was in full compliance with all financial covenant requirements at December 31, 2023.

At December 31, 2023, we were in compliance with the covenants specified in the revolving credit facility, including the Interest Coverage Ratio requirement of at least 2.25 to 1.00, and the Total Leverage Ratio requirement of not greater than 4.50 to 1.00, on or prior to December 31, 2024, and not greater than 4.25 to 1.00 for the quarter ending March 31, 2025 and thereafter.

The Interest Coverage Ratio, as defined in the credit facility, is the ratio of earnings before interest, taxes, depreciation and amortization (“EBITDA”), and other one-time charges to consolidated interest expense.

The WEST III, WEST IV, WEST V, WEST VI, WEST VII, and WWFL indentures require that a minimum threshold of maintenance reserve and security deposit balances be held in restricted cash accounts.

Virtually all of the Company’s debt requires ongoing compliance with the covenants of each financing, including debt and tangible net worth ratios, minimum interest coverage ratios, and other eligibility criteria including asset type, customer and geographic concentration restrictions.

The Company also has certain negative financial covenants such as liens, advances, changes in business, sales of assets, dividends and stock repurchases.

Compliance with these covenants is tested either monthly, quarterly, or annually, as required, and the Company was in full compliance with all financial covenant requirements at December 31, 2024.

At December 31, 2024, we were in compliance with the covenants specified in our revolving credit facility, including the Interest Coverage Ratio requirement of at least 2.25 to 1.00, and the Total Leverage Ratio requirement of not greater than 4.50 to 1.00.

The Interest Coverage Ratio, as defined in the credit facility, is the ratio of earnings before interest, taxes, depreciation and amortization and other one-time charges to consolidated interest expense.

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

At December 31, 2023, we were in compliance with the covenants specified in the WEST III, WEST IV, WEST V, WEST VI, and WEST VII indentures, servicing and other debt related agreements.

At December 31, 2024, we were in compliance with the covenants specified in the WEST III, WEST IV, WEST V, WEST VI, WEST VII, and WWFL indentures and servicing and other debt related agreements.

Contractual Obligations and Commitments

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

We are currently committed to purchasing nine additional new LEAP-1B engines and 18 additional new LEAP-1A engines for $459.7 million by 2027.

We are currently committed to purchasing six additional new LEAP-1B engines and 15 additional new LEAP-1A engines for an aggregate total of $374.6 million by 2027.

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 continues to be re-certified and aircraft (and their installed engines) that have been parked and in storage for more than one year continue to return to service.

In December 2020, we entered into definitive agreements for the purchase of 21 modern technology aircraft engines.

In December 2020, we entered into definitive agreements for the purchase of 25 Pratt & Whitney aircraft engines.

As part of the purchase, we have committed to certain future overhaul and maintenance services which are anticipated to range between $93.3 million and $121.4 million by 2030.

12 unchanged sentences

such investments are not intended to speculate or trade in derivative products.

As of December 31, 2023, we have five interest rate swap agreements with a total notional value of $500.0 million.

During 2021, the Company entered into four fixed-rate interest swap agreements, each having notional amounts of $100.0 million, two with remaining terms of one month and two with remaining terms of 25 months as of December 31, 2023.

One interest rate swap agreement was entered into during 2019 which has a notional outstanding amount of $100.0 million with a remaining term of six months as of December 31, 2023.

As of December 31, 2024, we have six interest rate swap agreements.

During 2021, the Company entered into four fixed-rate interest swap agreements, each having notional amounts of $100.0 million, two of which matured during the year ended December 31, 2024 and two of which had remaining terms of 13 months as of December 31, 2024.

One interest rate swap agreement was entered into during 2019, having a notional amount of $100.0 million, which matured during the year ended December 31, 2024.

During the year ended December 31, 2024, the Company entered into three fixed-rate interest swap agreements, each having notional amounts of $50.0 million, and with remaining terms of 53 months as of December 31, 2024.

During the year ended December 31, 2024, the Company also entered into one fixed-rate interest swap agreement, having a notional amount of $75.0 million, and with a remaining term of 53 months as of December 31, 2024.

The derivative instruments were each designated as cash flow hedges at inception and recorded at fair value.

The net fair value of the interest rate swaps as of December 31, 2024 and December 31, 2023 was $11.0 million and $16.5 million, respectively, each representing an asset and reflected within Other assets on the Consolidated Balance Sheets.

As it relates to the two fixed-rate interest swap agreements with remaining terms of one month as of December 31, 2023, the Company evaluated the probability of the forecasted transactions occurring.

The Company determined that it is not probable that the forecasted transactions will occur upon the maturities of these two fixed-rate interest rate swap agreements and as such, reclassified into earnings the associated amount in accumulated other comprehensive income.

The impact was an addition to interest income, or reduction to interest expense, in the Company’s Consolidated Statements of Income of approximately $0.2 million for the year ended December 31, 2023.

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

We have used derivative instruments (primarily interest rate swaps) to manage the risk of interest rate fluctuation.

While substantially all of our derivative transactions are entered into for the purposes described above, hedge accounting is only applied when specific criteria have been met and it is practicable to do so.

In order to apply hedge accounting, the transaction must be designated as a hedge and the hedge relationship must be highly effective.

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“Other revenue” on the Consolidated Statements of Income includes management fees earned of $4.8 million and $2.4 million during the years ended December 31, 2024 and 2023, respectively, related to the servicing of engines for the WMES lease portfolio.

During 2023, WMES sold an engine to the Company for $22.3 million, and the Company sold two engines to WMES for $28.8 million.

During 2022, the Company sold two engines to WMES for $12.6 million.

During 2022, the Company subleased a WMES engine to a third party, with WMES as the head lessor.

Under ASC 842, the Company recognized a right-of-use (“ROU”) asset of $4.9 million and a lease liability of $4.9 million for this lease during the year ended December 31, 2022.

Between January 2023 and July 2023, Willis Asset Management Limited, one of the Company’s wholly-owned and vertically-integrated subsidiaries, leased one of its hangars to Fur Feather and Fin Limited, an entity in which the Company’s Executive Chairman retains an ownership interest, for quarterly rent payments of approximately $7,700.

The lease was approved by the Board’s Independent Directors.

During 2023, the Company paid approximately $44,000 of expenses payable to Mikchalk Lake, LLC, an entity in which our Executive Chairman retains an ownership interest.

During 2024, the Company sold four engines to WMES for $50.5 million, which resulted in a net gain of $12.7 million for the Company.

During 2023, WMES sold one engine to the Company for $22.3 million, and the Company sold two engines to WMES for $28.8 million, which resulted in a net gain of $6.5 million for the Company.

During 2024, the Company paid approximately $0.1 million expense to Mikchalk Lake, LLC, an entity in which our Executive Chairman retains an ownership interest.

These expenses were for lodging and other business-related services and were approved by the Board’s Independent Directors.

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