Record Results for Willis Lease Finance Corporation in 2023

Rhea-AI Summary

Willis Lease Finance Corporation (WLFC) reports record revenues of $418.6 million and pre-tax income of $67.1 million for 2023. The growth is attributed to core lease and maintenance revenues in the aviation sector. Strategic expansion into enhanced aviation services has led to increased earnings. The company's diversified service offerings and efficient asset management have positioned it well for market opportunities.

Insights

Financial Analyst

The reported financial performance of Willis Lease Finance Corporation (WLFC) is a robust indicator of the company's growth and operational efficiency. A 41% increase in core lease rent and maintenance reserve revenues signifies a substantial expansion in the company's leasing activities, which is a core revenue driver. The reported pre-tax income of $67.1 million, a considerable rise from the previous year, suggests effective cost management and capitalization on the resurging aviation market.

The strategic expansion into enhanced aviation services, including vertical integration, has likely contributed to this growth by creating a comprehensive service offering that appeals to a broad customer base. The introduction of programs like ConstantThrust® could represent an innovative approach to asset utilization, potentially setting industry benchmarks. However, the decrease in spare parts and equipment sales could be a point of concern, indicating possible volatility in sales cycles or market demand.

Investors should note the company's success in capital market activities, raising $410 million through ABS financings and accessing the JOLCO market. This financial agility could provide WLFC with a competitive edge in seizing market opportunities. The increase in book value per share to $67.73 also demonstrates an enhanced shareholder value proposition.

Market Research Analyst

WLFC's record revenues and lease activities reflect broader trends in the aviation industry's recovery post-pandemic. The growth in lease rent revenue and maintenance reserve revenue indicates a strong demand for spare engine leasing, likely fueled by OEM challenges, supply chain disruptions and MRO bottlenecks. The company's ability to minimize MRO turn times and maintenance costs through their materials business demonstrates a strategic advantage in an industry facing skilled labor shortages and increased demand for operational efficiency.

WLFC's positioning as a leader in the aircraft engine leasing and after-market services business is supported by their financial results, which could attract additional airline partnerships looking for comprehensive and adaptable leasing solutions. The company's focus on reducing spend and maximizing asset usage for airlines is aligned with current industry needs for cost-effective and reliable operations.

Legal Expert

WLFC's financial disclosures and forward-looking statements regarding their strategic initiatives and market position must be scrutinized for compliance with securities regulations. The emphasis on the company's resilience and the robustness of its business model suggests a strong corporate governance framework, which is crucial for investor confidence. Additionally, the company's engagement in multiple capital market transactions, including ABS financings and JOLCO, requires adherence to complex financial regulations and international standards, which WLFC appears to have successfully navigated given their reported outcomes.

It is important for stakeholders to be aware of the regulatory landscape that governs WLFC's operations, especially in light of their global leasing activities and the potential for cross-border regulatory challenges. The company's ability to maintain high-integrity technical records and comply with airworthiness inspections is critical in preserving asset value and ensuring regulatory compliance.

COCONUT CREEK, Fla., March 13, 2024 (GLOBE NEWSWIRE) -- Willis Lease Finance Corporation (NASDAQ: WLFC) (“WLFC”) today reported record annual total revenues of $418.6 million and pre-tax income of $67.1 million. For the year ended December 31, 2023, aggregate, core lease rent and maintenance reserve revenues were at an all-time record of $346.8 million, up 41.0% as compared to $246.0 million in 2022. The growth was predominantly driven by core, recurring lease and maintenance revenues associated with a strong, resurging aviation marketplace.

WLFC Chief Executive Officer, Austin C. Willis, noted that “the results of WLFC’s strategic expansion into enhanced aviation services, aimed at delivering greater value to customers, are evident in our earnings. The vertical integration spanning leasing, materials supply, asset management, consultancy services, as well as engine and airframe maintenance, repair, and overhaul (“MRO”) services has established a virtuous cycle of growth and efficiency. With a state-of-the-art fleet, strategically aligned service offerings, adaptable lease structures, and optimal utilization of leased units, WLFC stands poised to seize opportunities in the market's resurgence to pre-pandemic levels and beyond.”

“By sourcing parts from our materials business, WLFC is able to minimize turn times in our MRO facilities and reduce the maintenance costs of our assets. Our asset management and consulting services significantly enhance our capability to accurately predict the timing and cost of shop visits across our entire fleet. This services area also ensures the maintenance of high-integrity technical records, thereby preserving the value of our assets. Our engine repair shops, strategically located in both the US and the UK, specialize in conducting shop visits and repairs, effectively mitigating prolonged wait times. This optimization ensures WLFC’s assets experience minimal downtime, keeping them on-lease and generating substantial revenues. As we grow our aircraft leasing portfolio, our aircraft base maintenance facility in the UK has the ability to quickly provide necessary maintenance to bridge aircraft from one lessee to the next, as well as perform related airworthiness inspections and disassemblies/teardowns as aircraft come off lease.”

WLFC President, Brian R. Hole, stated that “our achievements in 2023 are a direct reflection of our ability to leverage our balance sheet, wide ranging engine portfolio and our service businesses to offer our customers unique leasing solutions such as our ConstantThrust^® program. More and more airlines are realizing today, in the face of unprecedented engine and supply chain issues, the value of planning ahead by utilizing programs we are uniquely positioned to deliver because of our entire platform. We take responsibility for reducing spend and maximizing efficient usage of assets for airlines that sign up for our programs so they can concentrate on their core business: transporting passengers.”

WLFC Executive Chairman, Charles F. Willis remarked that “WLFC’s financial performance underscores our position as the leader in the aircraft engine leasing and after-market services business, as well as our commitment to deliver value to our shareholders while capitalizing on opportunities in the evolving aviation landscape.” He emphasized that the company set an all-time record for revenue as well as lease and maintenance reserve receipts in 2023 and the second highest record for overall earnings before taxes in the company’s 40+ year history, adding that “our year-end results are a testament to the resilience of our business model and the dedication of the Willis team.”

“As we enter a new post-pandemic era, like others, WLFC is seeing a combination of adversities in the industry such as original engine manufacturer (“OEM”) challenges, supply chain disruptions, MRO bottlenecks, and skilled labor shortages – creating a significant demand for spare engine leasing. This anticipated surge underscores the importance of our commitment to providing adaptable and streamlined solutions to our airline, OEM and MRO partners, enabling operational continuity and prudent cost management amidst prevailing industry challenges.”

WLFC plans to hold an informational call in the near future in order to provide further information to investors and other interested parties.

2023 Highlights (at or for the year ended December 31, 2023, as compared to at or for the year ended December 31, 2022):

• Lease rent revenue increased by $50.6 million, or 31.1%, to $213.1 million in 2023, compared to $162.6 million in 2022, primarily reflecting an increase in the number of engines acquired and placed on lease, including growth in utilization compared to that of the prior period.
• Maintenance reserve revenue was $133.7 million in 2023, an increase of 60.2%, compared to $83.4 million in 2022. Engines out on lease with “non-reimbursable” usage fees generated $118.3 million of short-term maintenance revenues in 2023, compared to $47.4 million in the prior year. There was $15.4 million of long-term maintenance revenue recognized in 2023, compared to $36.0 million in the prior year. 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.
• 2023 annual lease rent and maintenance reserve revenues represent all-time highs in the Company’s 40+ year history.
• Spare parts and equipment sales decreased to $20.4 million in 2023, compared to $27.0 million in 2022. The decrease in spare parts sales reflects variations in the timing of sales.
• Gain on sale of leased equipment was $10.6 million in 2023, reflecting the sale of 28 engines, one airframe, and other parts and equipment. Gain on sale of leased equipment was $3.1 million in 2022, reflecting the sale of 25 engines.
• The Company generated $67.1 million of pre-tax income in 2023, compared to $9.8 million in 2022.
• The book value of lease assets directly owned or through our joint ventures, inclusive of our notes receivable, maintenance rights, and investments in sales-type leases, was $2,495.4 million as of December 31, 2023.
• The Company successfully accessed the capital markets on multiple occasions in 2023, raising $410 million in Asset-Backed Security (“ABS”) financings, refinancing our credit facility, and accessing the Japanese Operating Lease with Call Option (“JOLCO”) market on numerous occasions.
• Diluted weighted average income per common share was $6.23 for 2023, compared to $0.33 in 2022.
• Book value per diluted weighted average common share outstanding increased to $67.73 at December 31, 2023, compared to $64.27 at December 31, 2022.

Balance Sheet

As of December 31, 2023, the Company’s lease portfolio was $2,223.4 million, consisting of $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, 2022, the Company’s lease portfolio was $2,217.5 million, consisting of $2,111.9 million of equipment held in our operating lease portfolio, $81.4 million of notes receivable, $17.7 million of maintenance rights, and $6.4 million of investments in sales-type leases, which represented 339 engines, 13 aircraft, one marine vessel and other leased parts and equipment.

Willis Lease Finance Corporation

Willis Lease Finance Corporation (“WLFC”) leases large and regional spare commercial aircraft engines, auxiliary power units and aircraft to airlines, aircraft engine manufacturers and maintenance, repair and overhaul providers worldwide. These leasing activities are integrated with engine and aircraft trading, engine lease pools and asset management services through Willis Asset Management Limited, as well as various end-of-life solutions for engines and aviation materials provided through Willis Aeronautical Services, Inc. Additionally, through Willis Engine Repair Center®, Jet Centre by Willis, and Willis Aviation Services Limited, the Company’s service offerings include Part 145 engine maintenance, aircraft line and base maintenance, aircraft disassembly, parking and storage, airport FBO and ground and cargo handling services.

Except for historical information, the matters discussed in this press release contain forward-looking statements that involve risks and uncertainties. Do not unduly rely on forward-looking statements, which give only expectations about the future and are not guarantees. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them. Our actual results may differ materially from the results discussed in forward-looking statements. Factors that might cause such a difference include, but are not limited to: the effects on the airline industry and the global economy of events such as war, terrorist activity and pandemics; changes in oil prices, rising inflation and other disruptions to world markets; trends in the airline industry and our ability to capitalize on those trends, including growth rates of markets and other economic factors; risks associated with owning and leasing jet engines and aircraft; our ability to successfully negotiate equipment purchases, sales and leases, to collect outstanding amounts due and to control costs and expenses; changes in interest rates and availability of capital, both to us and our customers; our ability to continue to meet changing customer demands; regulatory changes affecting airline operations, aircraft maintenance, accounting standards and taxes; the market value of engines and other assets in our portfolio; and risks detailed in the Company’s Annual Report on Form 10-K and other continuing reports filed with the Securities and Exchange Commission.

Unaudited Consolidated Statements of Income
(In thousands, except per share data) 

	Three Months Ended December 31,										Years Ended December 31,
		2023			2022			% Change				2023			2022			% Change
REVENUE
Lease rent revenue	$	51,929		$	48,227			7.7	%		$	213,138		$	162,571			31.1	%
Maintenance reserve revenue		37,059			23,907			55.0	%			133,668			83,424			60.2	%
Spare parts and equipment sales		7,398			6,621			11.7	%			20,359			27,009			(24.6)%
Interest income		2,311			1,789			29.2	%			8,721			7,579			15.1	%
Gain (loss) on sale of leased equipment		5,480			(583	)		nm				10,581			3,133			237.7	%
Gain on sale of financial assets		—			—			—	%			—			3,116			(100.0)%
Other revenue		10,102			8,183			23.5	%			32,088			25,095			27.9	%
Total revenue		114,279			88,144			29.7	%			418,555			311,927			34.2	%
EXPENSES
Depreciation and amortization expense		22,794			22,780			0.1	%			90,925			88,260			3.0	%
Cost of spare parts and equipment sales		5,626			4,753			18.4	%			15,207			20,833			(27.0)%
Write-down of equipment		2,008			—			nm				4,398			21,849			(79.9)%
General and administrative		39,197			25,710			52.5	%			144,788			92,530			56.5	%
Technical expense		5,601			3,193			75.4	%			20,220			14,415			40.3	%
Net finance costs:
Interest expense		22,269			17,534			27.0	%			78,795			66,743			18.1	%
Gain on debt extinguishment		—			(2,558	)		nm				—			(2,558	)		nm
Total net finance costs		22,269			14,976			48.7	%			78,795			64,185			22.8	%
Total expenses		97,495			71,412			36.5	%			354,333			302,072			17.3	%
Income from operations		16,784			16,732			0.3	%			64,222			9,855			551.7	%
Income (loss) from joint ventures		4,197			1,469			185.7	%			2,908			(62	)		nm
Income before income taxes		20,981			18,201			15.3	%			67,130			9,793			585.5	%
Income tax expense		10,028			3,858			159.9	%			23,349			4,354			436.3	%
Net income		10,953			14,343			(23.6)%				43,781			5,439			704.9	%
Preferred stock dividends		903			819			10.3	%			3,334			3,250			2.6	%
Accretion of preferred stock issuance costs		12			21			(42.9)%				75			84			(10.7)%
Net income attributable to common shareholders	$	10,038		$	13,503			(25.7)%			$	40,372		$	2,105			1,817.9	%
Basic weighted average income per common share	$	1.57		$	2.21						$	6.40		$	0.35
Diluted weighted average income per common share	$	1.53		$	2.12						$	6.23		$	0.33
Basic weighted average common shares outstanding		6,375			6,110							6,305			6,071
Diluted weighted average common shares outstanding		6,559			6,379							6,481			6,297

Unaudited Consolidated Balance Sheets
(In thousands, except per share data)

	December 31, 2023			December 31, 2022
ASSETS
Cash and cash equivalents	$	7,071		$	12,146
Restricted cash		160,958			76,870
Equipment held for operating lease, less accumulated depreciation		2,112,837			2,111,935
Maintenance rights		9,180			17,708
Equipment held for sale		805			3,275
Receivables, net		58,485			46,954
Spare parts inventory		40,954			38,577
Investments		58,044			56,189
Property, equipment & furnishings, less accumulated depreciation		37,160			35,350
Intangible assets, net		1,040			1,129
Notes receivable, net		92,621			81,439
Investments in sales-type leases, net		8,759			6,440
Other assets		64,430			87,205
Total assets	$	2,652,344		$	2,575,217
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued expenses	$	52,937		$	43,040
Deferred income taxes		147,779			132,516
Debt obligations		1,802,881			1,847,278
Maintenance reserves		92,497			59,453
Security deposits		23,790			20,490
Unearned revenue		43,533			17,863
Total liabilities		2,163,417			2,120,640
Redeemable preferred stock ($0.01 par value)		49,964			49,889
Shareholders’ equity:
Common stock ($0.01 par value)		68			66
Paid-in capital in excess of par		29,667			20,386
Retained earnings		397,781			357,493
Accumulated other comprehensive income, net of tax		11,447			26,743
Total shareholders’ equity		438,963			404,688
Total liabilities, redeemable preferred stock and shareholders’ equity	$	2,652,344		$	2,575,217

 

CONTACT:	Scott B. Flaherty
	Chief Financial Officer
	(561) 349-9989

FAQ

What were WLFC's total revenues and pre-tax income for 2023?

WLFC reported record annual total revenues of $418.6 million and pre-tax income of $67.1 million for the year ended December 31, 2023.

What contributed to the growth in revenues for WLFC in 2023?

The growth in revenues was predominantly driven by core, recurring lease and maintenance revenues associated with a strong aviation marketplace.

What strategic expansion did WLFC undertake in the aviation sector?

WLFC expanded into enhanced aviation services, including leasing, materials supply, asset management, consultancy services, engine and airframe maintenance, repair, and overhaul services.

How did WLFC achieve operational efficiency in maintenance and asset management?

WLFC sourced parts from its materials business to minimize turn times in MRO facilities, reduce maintenance costs, and enhance predictive maintenance capabilities across its fleet.

What unique leasing solutions does WLFC offer to airlines?

WLFC offers unique leasing solutions such as the ConstantThrust® program, leveraging its engine portfolio and service businesses to reduce spend and maximize asset efficiency for airlines.

What challenges is WLFC facing in the aviation industry post-pandemic?

WLFC is facing challenges such as OEM issues, supply chain disruptions, MRO bottlenecks, and skilled labor shortages, leading to a significant demand for spare engine leasing.