WILLIS LEASE FINANCE CORP

Previous wording

Our core business is acquiring and leasing commercial aircraft and aircraft engines and related aircraft equipment pursuant to operating leases, all of which we sometimes collectively refer to as “equipment.” As of June 30, 2024, the majority of our leases were operating leases, with the exception of certain failed sale-leaseback transactions classified as notes receivable under the guidance provided by Accounting Standards Codification (“ASC”) 842 and investments in sales-type leases. As of June 30, 2024, we had 70 lessees in 35 countries. Our portfolio is continually changing due to equipment acquisitions and sales. As of June 30, 2024, we had $2,317.9 million of equipment held in our operating lease portfolio, $115.5 million of notes receivable, $25.5 million of maintenance rights, and $6.2 million of investments in sales-type leases, which represented 344 engines, 12 aircraft, one marine vessel, and other leased parts and equipment. As of June 30, 2024, we also managed 222 engines, aircraft and related equipment on behalf of other parties.

Current wording

Our core business is acquiring and leasing commercial aircraft and aircraft engines and related aircraft equipment pursuant to operating leases, all of which we sometimes collectively refer to as “equipment.” As of September 30, 2024, the majority of our leases were operating leases, with the exception of certain failed sale-leaseback transactions classified as notes receivable under the guidance provided by Accounting Standards Codification (“ASC”) 842 and investments in sales-type leases. As of September 30, 2024, we had 66 lessees in 34 countries. Our portfolio is continually changing due to equipment acquisitions and sales. As of September 30, 2024, we had $2,435.6 million of equipment held in our operating lease portfolio, $175.4 million of notes receivable, $31.5 million of maintenance rights, and $23.2 million of investments in sales-type leases, which represented 348 engines, 16 aircraft, one marine vessel, and other leased parts and equipment. As of September 30, 2024, we also managed 234 engines, aircraft and related equipment on behalf of other parties.

Previous wording

Lease Rent Revenue. Lease rent revenue consists of rental income from long-term and short-term engine leases, aircraft leases, and other leased parts and equipment. Lease rent revenue increased by $1.5 million, or 2.7%, to $55.9 million in the three months ended June 30, 2024 from $54.4 million for the three months ended June 30, 2023. The increase is due to an increase in the number of engines acquired and placed on lease as compared to that of the prior year period as well as an increase in the average lease rate factor. During the three months ended June 30, 2024, we purchased equipment (including capitalized costs) totaling $258.8 million, which consisted of three aircraft, 11 engines, and other parts and equipment purchased for our lease portfolio. During the three months ended June 30, 2023, we purchased equipment (including capitalized costs) totaling $55.8 million, which consisted of nine engines and other parts and equipment purchased for our lease portfolio.

Current wording

Lease Rent Revenue. Lease rent revenue consists of rental income from long-term and short-term engine leases, aircraft leases, and other leased parts and equipment. Lease rent revenue increased by $11.3 million, or 21.2%, to $64.9 million in the three months ended September 30, 2024 from $53.6 million for the three months ended September 30, 2023. The increase is due to an increase in the average size of the portfolio as compared to that of the prior year period as well as an increase in the average lease rate factor.

Previous wording

The Company had one customer account for approximately 10% and 15% of total lease rent revenue during each of the three months ended June 30, 2024 and 2023, respectively.

Current wording

Two customers accounted for approximately 11% each of total lease rent revenue of the Company, during the three months ended September 30, 2024, and one customer accounted for approximately 16% of total lease rent revenue during the three months ended September 30, 2023.

Previous wording

At June 30, 2024, the Company had $2,317.9 million of equipment held in our operating lease portfolio, $115.5 million of notes receivable, $25.5 million of maintenance rights, and $6.2 million of investments in sales-type leases. At June 30, 2023, the Company had $2,161.7 million of equipment held in our operating lease portfolio, $95.0 million of notes receivable, $14.0 million of maintenance rights, and $5.8 million of investments in sales-type leases. Average utilization (based on net book value) was approximately 83% and 84% for the three months ended June 30, 2024 and 2023, respectively.

Current wording

At September 30, 2024, the Company had $2,435.6 million of equipment held in our operating lease portfolio, $175.4 million of notes receivable, $31.5 million of maintenance rights, and $23.2 million of investments in sales-type leases. At September 30, 2023, the Company had $2,171.0 million of equipment held in our operating lease portfolio, $94.0 million of notes receivable, $13.4 million of maintenance rights, and $5.5 million of investments in sales-type leases. Average utilization (based on net book value) was approximately 83% and 85% for the three months ended September 30, 2024 and 2023, respectively.

Previous wording

Maintenance Reserve Revenue. Maintenance reserve revenue increased $27.5 million, or 77.6%, to $62.9 million for the three months ended June 30, 2024 from $35.4 million for the three months ended June 30, 2023. 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. There was $17.0 million long-term maintenance revenue recognized for the three months ended June 30, 2024, compared to $6.8 million long-term maintenance revenue recognized in the comparable prior period. Engines on lease with “non-reimbursable” usage fees generated $45.9 million of short-term maintenance revenues, compared to $28.6 million in the comparable prior period. As of June 30, 2024, there was $24.6 million of deferred in-substance fixed payment use fees included in Unearned revenue, compared to $19.8 million in the comparable prior period. During the three months ended June 30, 2024, our balance of deferred in-substance fixed payment use fees decreased by approximately $2.1 million from the balance for the quarter ended March 31, 2024. These deferred in-substance fixed payment use fees represent portfolio utilization beyond the maintenance reserve revenues reflected in our Condensed Consolidated Statements of Income.

Current wording

Maintenance Reserve Revenue. Maintenance reserve revenue increased $12.1 million, or 32.0%, to $49.8 million for the three months ended September 30, 2024 from $37.7 million for the three months ended September 30, 2023. 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. We recognized $1.2 million in long-term maintenance revenue for the three months ended September 30, 2024, compared to $3.3 million in long-term maintenance revenue recognized in the comparable prior period. Engines on lease with “non-reimbursable” usage fees generated $48.5 million of short-term maintenance revenues, compared to $34.4 million in the comparable prior period. These short-term maintenance revenues are a proxy for flight time of our portfolio of engines.

Previous wording

Spare Parts and Equipment Sales. Spare parts and equipment sales increased by $1.6 million, or 36.0%, to $6.2 million for the three months ended June 30, 2024 compared to $4.6 million for the three months ended June 30, 2023. The increase in spare parts sales for the three months ended June 30, 2024 reflects variations in the timing of sales. There were no equipment sales for the three months ended June 30, 2024 and 2023.

Current wording

Spare Parts and Equipment Sales. Spare parts and equipment sales increased by $7.5 million, or 223.4%, to $10.9 million for the three months ended September 30, 2024 compared to $3.4 million for the three months ended September 30, 2023. The increase in spare parts sales for the three months ended September 30, 2024 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 three months ended September 30, 2024 were $1.0 million for the sale of one engine. There were no equipment sales for the three months ended September 30, 2023.

Previous wording

Gain on Sale of Leased Equipment. During the six months ended June 30, 2024, we sold 15 engines, eight airframes, and other parts and equipment from the lease portfolio for a net gain of $23.6 million. During the six months ended June 30, 2023, we sold four engines and other parts and equipment from the lease portfolio for a net gain of $4.3 million.

Current wording

Gain on Sale of Leased Equipment. During the three months ended September 30, 2024, we sold 13 engines and other parts and equipment from the lease portfolio for a net gain of $9.5 million. During the three months ended September 30, 2023, we sold one engine, one airframe, and other parts and equipment from the lease portfolio for a net gain of $0.8 million.

Previous wording

Maintenance Services Revenue. Maintenance services revenues predominately represent fleet management, engine and aircraft storage and repair services, and revenue related to management of fixed base operator services, such as refueling, maintenance, and hangar services. Maintenance services revenue increased by $0.9 million, or 15.9%, to $6.8 million for the three months ended June 30, 2024, from $5.8 million for the three months ended June 30, 2023. The increase primarily reflects an increase in service fee revenue and revenue related to the management of fixed base operator services.

Current wording

Maintenance Services Revenue. Maintenance services revenues predominately represent fleet management, engine and aircraft storage and repair services, and revenue related to fixed base operator services provided to third parties, such as refueling, maintenance, and hangar services. Maintenance services revenue decreased by $0.3 million, or 4.0%, to $5.9 million for the three months ended September 30, 2024, from $6.2 million for the three months ended September 30, 2023.

Previous wording

Other Revenue. Other revenue increased by $0.6 million, or 30.8%, to $2.7 million for the three months ended June 30, 2024 from $2.0 million for the three months ended June 30, 2023. Other revenue consists primarily of managed service fee revenue and other discrete revenue items. The increase primarily reflects increased managed service fee revenue.

Current wording

Other Revenue. Other revenue decreased by $0.2 million, or 10.9%, to $1.8 million for the three months ended September 30, 2024 from $2.0 million for the three months ended September 30, 2023. Other revenue consists primarily of managed service fee revenue related to the servicing of engines for the Willis Mitsui & Company Engine Support Limited (“WMES”) lease portfolio.

Previous wording

Depreciation and Amortization Expense. Depreciation and amortization expense decreased by $0.3 million, or 1.5%, to $22.2 million for the three months ended June 30, 2024 compared to $22.5 million for the three months ended June 30, 2023.

Current wording

Depreciation and Amortization Expense. Depreciation and amortization expense increased by $0.6 million, or 2.4%, to $23.7 million for the three months ended September 30, 2024 compared to $23.1 million for the three months ended September 30, 2023. The increase is primarily due to an increase in the size of our lease portfolio.

Previous wording

Cost of Spare Parts and Equipment Sales. Cost of spare parts and equipment sales increased by $2.4 million, or 77.8%, to $5.4 million for the three months ended June 30, 2024 compared to $3.1 million for the three months ended June 30, 2023, reflecting the increase in spare part sales. There were no equipment or cost of equipment sales for the three months ended June 30, 2024 and 2023.

Current wording

Cost of Spare Parts and Equipment Sales. Cost of spare parts and equipment sales increased by $6.8 million, or 337.8%, to $8.9 million for the three months ended September 30, 2024 compared to $2.0 million for the three months ended September 30, 2023, reflecting the increase in spare parts and equipment sales. Cost of equipment sales were $0.1 million for the three months ended September 30, 2024. There were no equipment or cost of equipment sales for the three months ended September 30, 2023.

Previous wording

Cost of Maintenance Services. Cost of maintenance services predominately represent the costs of fleet management, engine and aircraft storage and repair services, and the management of fixed base operator services. Cost of maintenance services increased by $0.8 million, or 17.1%, to $5.7 million for the three months ended June 30, 2024, compared to $4.8 million for the three months ended June 30, 2023. The increase primarily reflects increased maintenance service fee revenue.

Current wording

Cost of Maintenance Services. Cost of maintenance services predominately represent the costs of fleet management, engine and aircraft storage and repair services, and the management of fixed base operator services provided to third parties. Cost of maintenance services increased by $0.8 million, or 14.7%, to $6.4 million for the three months ended September 30, 2024, compared to $5.6 million for the three months ended September 30, 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.

Previous wording

Write-down of Equipment. There was no write-down of equipment for the three months ended June 30, 2024. Write-down of equipment was $1.7 million for the three months ended June 30, 2023, reflecting the write-down of two engines.

Current wording

Write-down of Equipment. There was $0.6 million in write-downs of equipment for the three months ended September 30, 2024, reflecting the write-down of three engines. Write-down of equipment was $0.7 million for the three months ended September 30, 2023, reflecting the write-down of one engine and two airframes.

Previous wording

Technical Expense. Technical expense consists 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. Technical expense decreased by $2.2 million to $4.5 million for the three months ended June 30, 2024 compared to $6.7 million for the three months ended June 30, 2023, primarily due to a lower level of engine repair activity as compared to that of the prior period.

Current wording

Technical Expense. Technical expense consists 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. Technical expense decreased by $3.6 million to $5.2 million for the three months ended September 30, 2024 compared to $8.7 million for the three months ended September 30, 2023, primarily due to a lower level of engine repair activity as compared to that of the prior period.

Previous wording

Net Finance Costs. Net finance costs increased $5.5 million, or 28.7%, to $24.6 million for the three months ended June 30, 2024, compared to $19.1 million for the three months ended June 30, 2023, primarily due to a higher level of debt obligations, including increased borrowing costs associated with our WEST VII notes payable, which has a fixed interest rate of 8.0%, as compared to that of the Company’s other notes payable. Additionally, derivative-related receipts were $3.1 million for the three months ended June 30, 2024, as compared to $5.7 million for the three months ended June 30, 2023. These increases were offset by a decrease in interest expense associated with our credit facility that matures in June 2025 due to principal payments made and a decrease in the outstanding balance of the credit facility.

Current wording

Net Finance Costs. Net finance costs increased $8.8 million, or 46.0%, to $27.8 million for the three months ended September 30, 2024, compared to $19.1 million for the three months ended September 30, 2023, primarily due to a higher level of debt obligations, including increased borrowing costs. Additionally, derivative-related receipts were $3.0 million for the three months ended September 30, 2024, as compared to $6.3 million for the three months ended September 30, 2023 as certain interest rate swap positions ran off. These increases were offset by a decrease in interest expense associated with our credit facility that matures in June 2025 due to principal payments made and a decrease in the outstanding balance of the credit facility.

Previous wording

Income Tax Expense. Income tax expense was $15.3 million for the three months ended June 30, 2024 compared to income tax expense of $5.2 million for the three months ended June 30, 2023. The effective tax rate for the second quarter of 2024 was 26.5% compared to 27.2% in the prior year period. The Company’s effective tax rate differed from the U.S. federal statutory rate of 21.0% primarily due to executive compensation exceeding $1.0 million as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).

Current wording

Income Tax Expense. Income tax expense was $10.4 million for the three months ended September 30, 2024 compared to income tax expense of $5.7 million for the three months ended September 30, 2023. The effective tax rate for the third quarter of 2024 was 30.1% compared to 28.1% in the prior year period. The Company’s effective tax rate differed from the U.S. federal statutory rate of 21.0% primarily due to executive compensation exceeding $1.0 million as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).

Previous wording

The Company had two customers account for approximately 11% and 11%, and 15% and 11%, of total lease rent revenue during the six months ended June 30, 2024 and 2023, respectively.

Current wording

Two customers accounted for approximately 11% and 10%, and 15% and 10%, of the Company’s total lease rent revenue during the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

At June 30, 2024, the Company had $2,317.9 million of equipment held in our operating lease portfolio, $115.5 million of notes receivable, $25.5 million of maintenance rights, and $6.2 million of investments in sales-type leases. At June 30, 2023, the Company had $2,161.7 million of equipment held in our operating lease portfolio, $95.0 million of notes receivable, $14.0 million of maintenance rights, and $5.8 million of investments in sales-type leases. Average utilization (based on net book value) was approximately 84% and 85% for the six months ended June 30, 2024 and 2023, respectively.

Current wording

At September 30, 2024, the Company had $2,435.6 million of equipment held in our operating lease portfolio, $175.4 million of notes receivable, $31.5 million of maintenance rights, and $23.2 million of investments in sales-type leases. At September 30, 2023, the Company had $2,171.0 million of equipment held in our operating lease portfolio, $94.0 million of notes receivable, $13.4 million of maintenance rights, and $5.5 million of investments in sales-type leases. Average utilization (based on net book value) was approximately 83% and 85% for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Spare Parts and Equipment Sales. Spare parts and equipment sales decreased by $0.1 million, or 1.3%, to $9.5 million for the six months ended June 30, 2024 compared to $9.6 million in the prior year period. The decrease in spare parts sales for the six months ended June 30, 2024 reflects variations in the timing of sales. There were no equipment sales during the six months ended June 30, 2024 and 2023.

Current wording

Spare Parts and Equipment Sales. Spare parts and equipment sales increased by $7.4 million, or 56.9%, to $20.3 million for the nine months ended September 30, 2024 compared to $13.0 million in the prior year period. The increase in spare parts sales for the nine months ended September 30, 2024 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 nine months ended were $1.0 million for the sale of one engine. There were no equipment sales for the nine months ended September 30, 2023.

Previous wording

Gain on Sale of Leased Equipment. During the three months ended June 30, 2024, we sold seven engines, eight airframes, and other parts and equipment from the lease portfolio for a net gain of $14.4 million. During the three months ended June 30, 2023, we sold two engines and other parts and equipment from the lease portfolio for a net gain of $4.5 million.

Current wording

Gain on Sale of Leased Equipment. During the nine months ended September 30, 2024, we sold 28 engines, eight airframes, and other parts and equipment from the lease portfolio for a net gain of $33.1 million. During the nine months ended September 30, 2023, we sold five engines, one airframe, and other parts and equipment from the lease portfolio for a net gain of $5.1 million.

Previous wording

Maintenance Services Revenue. Maintenance services revenues predominately represent fleet management, engine and aircraft storage and repair services, and revenue related to management of fixed base operator services. Maintenance services revenue increased by $1.5 million, or 14.3%, to $12.0 million for the six months ended June 30, 2024, from $10.5 million for the six months ended June 30, 2023. The increase primarily reflects an increase in service fee revenue and revenue related to the management of fixed base operator services.

Current wording

Maintenance Services Revenue. Maintenance services revenues predominately represent fleet management, engine and aircraft storage and repair services, and revenue related to management of fixed base operator services. Maintenance services revenue increased by $1.2 million, or 7.5%, to $18.0 million for the nine months ended September 30, 2024, from $16.7 million for the nine months ended September 30, 2023. The increase primarily reflects an increase in service fee revenue and revenue related to the management of fixed base operator services provided to third parties.

Previous wording

Other Revenue. Other revenue increased by $1.8 million, or 55.1%, to $5.0 million for the six months ended June 30, 2024 from $3.2 million for the six months ended June 30, 2023. Other revenue consists primarily of managed service fee revenue and other discrete revenue items. The increase for the six months ended June 30, 2024 compared to the prior year period primarily reflects increased managed service revenue.

Current wording

Other Revenue. Other revenue increased by $1.6 million, or 29.6%, to $6.8 million for the nine months ended September 30, 2024 from $5.3 million for the nine months ended September 30, 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 nine months ended September 30, 2024 compared to the prior year period primarily reflects increased managed service revenue.

Previous wording

Depreciation and Amortization Expense. Depreciation and amortization expense decreased by $0.4 million, or 0.9%, to $44.7 million for the six months ended June 30, 2024 compared to $45.0 million for the six months ended June 30, 2023.

Current wording

Depreciation and Amortization Expense. Depreciation and amortization expense increased by $0.2 million, or 0.3%, to $68.3 million for the nine months ended September 30, 2024 compared to $68.1 million for the nine months ended September 30, 2023. The increase is primarily due to an increase in the size of our lease portfolio.

Previous wording

Cost of Spare Parts and Equipment Sales. Cost of spare parts and equipment sales increased by $0.6 million, or 7.7%, to $8.1 million for the six months ended June 30, 2024 compared to $7.6 million for the six months ended June 30, 2023. There were no equipment or cost of equipment sales for the six months ended June 30, 2024 and 2023.

Current wording

Cost of Spare Parts and Equipment Sales. Cost of spare parts and equipment sales increased by $7.4 million, or 77.5%, to $17.0 million for the nine months ended September 30, 2024 compared to $9.6 million for the nine months ended September 30, 2023, reflecting the increase in spare parts and equipment sales. Cost of equipment sales were $0.1 million for the nine months ended September 30, 2024. There were no equipment or cost of equipment sales for the nine months ended September 30, 2023.

Previous wording

Cost of Maintenance Services. Cost of maintenance services increased by $2.5 million, or 28.2%, to $11.2 million for the six months ended June 30, 2024, compared to $8.8 million for the six months ended June 30, 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, as well as an increase in facility related costs.

Current wording

Cost of Maintenance Services. Cost of maintenance services increased by $3.3 million, or 23.0%, to $17.6 million for the nine months ended September 30, 2024, compared to $14.4 million for the nine months ended September 30, 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.

Previous wording

Write-down of Equipment. Write-down of equipment was $0.3 million for the six months ended June 30, 2024, primarily reflecting the write-down of one airframe. Write-down of equipment was $1.7 million for the six months ended June 30, 2023, primarily reflecting the write-down of two engines.

Current wording

Write-down of Equipment. Write-down of equipment was $0.9 million for the nine months ended September 30, 2024, primarily reflecting the write-down of one airframe and three engines. Write-down of equipment was $2.4 million for the nine months ended September 30, 2023, primarily reflecting the write-down of three engines and two airframes.

Previous wording

Technical Expense. Technical expense increased by $1.8 million, or 15.9%, to $12.8 million for the six months ended June 30, 2024 compared to $11.0 million for the six months ended June 30, 2023, primarily due to a higher level of engine repair activity and thrust rental fees, which is driven by increased activity in the industry.

Current wording

Technical Expense. Technical expense decreased by $1.8 million, or 9.3%, to $17.9 million for the nine months ended September 30, 2024 compared to $19.8 million for the nine months ended September 30, 2023, primarily due to a lower level of engine repair activity as compared to that of the prior period.

Previous wording

Net Finance Costs. Net finance costs increased by $10.1 million, or 26.9%, to $47.6 million for the six months ended June 30, 2024 compared to $37.5 million for the six months ended June 30, 2023, primarily due a higher level of debt obligations, including increased borrowing costs associated with our WEST VII notes payable, which has a fixed interest rate of 8.0%, as compared to that of the Company’s other notes payable. Additionally, derivative-related receipts were $6.2 million for the six months ended June 30, 2024, as compared to $11.1 million for the six months ended June 30, 2023. These increases were offset by a decrease in interest expense associated with our credit facility that matures in June 2025 due to principal payments made and a decrease in the outstanding balance of the credit facility.

Current wording

Net Finance Costs. Net finance costs increased by $18.9 million, or 33.4%, to $75.4 million for the nine months ended September 30, 2024 compared to $56.5 million for the nine months ended September 30, 2023, primarily due a higher level of debt obligations, including increased borrowing costs. Additionally, derivative-related receipts were $9.2 million for the nine months ended September 30, 2024, as compared to $17.4 million for the nine months ended September 30, 2023 as certain interest rate swap positions ran off. These increases were offset by a decrease in interest expense associated with our credit facility that matures in June 2025 due to principal payments made and a decrease in the outstanding balance of the credit facility.

Previous wording

Income Tax Expense. Income tax expense was $24.3 million for the six months ended June 30, 2024 compared to $7.6 million for the six months ended June 30, 2023. The effective tax rate for the six months ended June 30, 2024 was 27.7% compared to 29.4% in the prior year period. The Company’s effective tax rate differed from the U.S. federal statutory rate of 21.0% primarily due to executive compensation exceeding $1.0 million as defined in Section 162(m) of the Code.

Current wording

Income Tax Expense. Income tax expense was $34.7 million for the nine months ended September 30, 2024 compared to $13.3 million for the nine months ended September 30, 2023. The effective tax rate for the nine months ended September 30, 2024 was 28.4% compared to 28.9% in the prior year period. The Company’s effective tax rate differed from the U.S. federal statutory rate of 21.0% primarily due to executive compensation exceeding $1.0 million as defined in Section 162(m) of the Code.

Previous wording

At June 30, 2024, the Company had $5.0 million of cash and cash equivalents and $142.9 million of restricted cash. We fund our operations primarily from cash provided by our leasing activities. We finance our growth through borrowings secured primarily by our equipment lease portfolio. Cash of approximately $357.2 million and $109.0 million for the six months ended June 30, 2024 and 2023, respectively, was derived from our borrowing activities. In these same time periods, $211.3 million and $131.4 million, respectively, was used to pay down related debt.

Current wording

At September 30, 2024, the Company had $5.8 million of cash and cash equivalents and $99.3 million of restricted cash. We fund our operations primarily from cash provided by our leasing activities. We finance our growth through borrowings secured primarily by our equipment lease portfolio. Cash of approximately $518.9 million and $159.8 million for the nine months ended September 30, 2024 and 2023, respectively, was derived from our borrowing activities. In these same time periods, $331.2 million and $221.9 million, respectively, was used to pay down related debt.

Previous wording

Cash flows provided by operating activities were $129.7 million and $98.5 million for the six months ended June 30, 2024 and 2023, respectively. The $31.2 million, or 31.6%, increase in operating cash flows was primarily driven by a 81.2% 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 $26.8 million, and changes in receivables contributed to $15.1 million of incremental operating cash flows as collections improved. Partially offsetting these increases in operating cash flows was a period over period $37.8 million decline in cash flows from changes in inventory, reflecting investment in parts of high demand engine types. 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. Cash received as maintenance reserve payments for some of our engines on lease are partially restricted by our debt arrangements. The lease revenue stream, in the short-term, is at fixed rates while a portion of our debt is at variable rates. If interest rates increase, it is unlikely we could increase lease rates in the short term and this would cause a reduction in our earnings and operating cash flows. Revenue and maintenance reserves are also affected by the amount of equipment off lease. Approximately 80% and 84%, by book value, of our assets were on-lease as of June 30, 2024 and December 31, 2023, respectively. The average utilization rate (based on net book value) for the six months ended June 30, 2024 and 2023 was approximately 84% and 85%, 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.

Current wording

Cash flows provided by operating activities were $216.4 million and $169.0 million for the nine months ended September 30, 2024 and 2023, respectively. The $47.5 million, or 28.1%, increase in operating cash flows was primarily driven by a 62.0% 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 $28.0 million, gain on sale of leased equipment increased $28.0 million, and changes in receivables contributed to $26.9 million of incremental operating cash flows as collections improved. Partially offsetting these increases in operating cash flows was a period over period decline of $30.7 million in cash flows from changes in inventory, reflecting investment in high demand engine types. 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. Cash received as maintenance reserve payments for some of our engines on lease are partially restricted by our debt arrangements. The lease revenue stream, in the short-term, is at fixed rates while a portion of our debt is at variable rates. If interest rates increase, it is unlikely we could increase lease rates in the short-term and this would cause a reduction in our earnings and operating cash flows. Revenue and maintenance reserves are also affected by the amount of equipment off lease. Approximately 80% and 84%, by book value, of our assets were on-lease as of September 30, 2024 and December 31, 2023, respectively. The average utilization rate (based on net book value) for the nine months ended September 30, 2024 and 2023 was approximately 83% and 85%, 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.

Previous wording

Cash flows used in investing activities were $275.0 million for the six months ended June 30, 2024 and primarily reflected $321.6 million for the purchase of equipment held for operating lease and for sale (including capitalized costs and prepaid deposits made in the period) and $26.7 million related to leases entered into which were classified as notes receivable under ASC 842, partially offset by proceeds from sale of equipment (net of selling expenses) of $70.0 million. Cash flows used in investing activities were $103.0 million for the six months ended June 30, 2023 and primarily reflected $111.4 million for the purchase of equipment held for operating lease and for sale (including capitalized costs and prepaid deposits made in the period) and $15.4 million related to leases entered into which were classified as notes receivable under ASC 842, partially offset by proceeds from sale of equipment (net of selling expenses) of $23.4 million.

Current wording

Cash flows used in investing activities were $455.0 million for the nine months ended September 30, 2024 and primarily reflected $488.4 million for the purchase of equipment held for operating lease and for sale (including capitalized costs and prepaid deposits made in the period) and $89.6 million related to leases entered into which were classified as notes receivable under ASC 842, partially offset by proceeds from sale of equipment (net of selling expenses) of $117.9 million. Cash flows used in investing activities were $132.1 million for the nine months ended September 30, 2023 and primarily reflected $142.5 million for the purchase of equipment held for operating lease and for sale (including capitalized costs and prepaid deposits made in the period) and $15.4 million related to leases entered into which were classified as notes receivable under ASC 842, partially offset by proceeds from sale of equipment (net of selling expenses) of $25.0 million.

Previous wording

Cash flows provided by financing activities were $125.2 million for the six months ended June 30, 2024 and primarily reflected $357.2 million in proceeds from debt obligations, partially offset by $211.3 million in principal payments and $7.1 million in cash dividends paid to common stock holders. Cash flows used in financing activities were $29.4 million for the six months ended June 30, 2023 and primarily reflected $131.4 million in principal payments, partially offset by $109.0 million in proceeds from debt obligations.

Current wording

Cash flows provided by financing activities were $175.6 million for the nine months ended September 30, 2024 and primarily reflected $518.9 million in proceeds from debt obligations and $13.1 million in proceeds from issuance of preferred stock, partially offset by $331.2 million in principal payments, $8.9 million in cash dividends paid to shareholders of common stock, and $7.2 million in cancellation of restricted stock in satisfaction of withholding tax. Cash flows used in financing activities were $70.2 million for the nine months ended September 30, 2023 and primarily reflected $221.9 million in principal payments, partially offset by $159.8 million in proceeds from debt obligations.

Previous wording

During the six months ended June 30, 2024, the Company paid cash dividends of $7.1 million to shareholders of common stock.

Current wording

During the nine months ended September 30, 2024, the Company paid cash dividends of $8.9 million to shareholders of common stock.

Previous wording

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 at the rate per annum of 8.5% per share thereafter. The Series A-2 Preferred Stock accrue quarterly dividends at the rate per annum of 6.5% per share. During each of the six months ended June 30, 2024 and 2023, the Company paid total dividends of $1.8 million and $1.6 million, respectively, on the Series A-1 and Series A-2 Preferred Stock.

Current wording

On September 27, 2024, the Company entered into a Series A Preferred Stock Purchase Agreement with Development Bank of Japan Inc. (the “Stock Purchase Agreement”), which refinanced 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 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 each of the nine months ended September 30, 2024 and 2023, the Company paid total preferred stock dividends of $3.4 million and $2.4 million, respectively.

Previous wording

At June 30, 2024, debt obligations consisted of loans totaling $1,946.8 million, net of unamortized issuance costs and note discounts, payable with interest rates varying between approximately 3.1% and 8.4%. Substantially all of our assets are pledged to secure our obligations to creditors. For further information on our debt instruments, see Note 4 “Debt Obligations” in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Current wording

At September 30, 2024, debt obligations consisted of loans totaling $1,990.5 million, net of unamortized issuance costs and note discounts, payable with interest rates varying between approximately 3.1% and 8.0%. Substantially all of our assets are pledged to secure our obligations to creditors. For further information on our debt instruments, see Note 4 “Debt Obligations” in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Previous wording

Virtually all of our debt requires our ongoing compliance with certain financial covenants including debt/equity ratios, minimum tangible net worth and minimum interest coverage ratios, and other eligibility criteria including customer and geographic concentration restrictions. Under our revolving credit facility, we can borrow no more than 85% of an engine’s net book value and 65% of an airframe’s, spare parts inventory’s or other assets net book value. Therefore, we must have other available funds for the balance of the purchase price of any new equipment to be purchased. Our revolving credit facility, certain indentures and other debt related agreements also contain cross-default provisions. If we do not comply with the covenants or eligibility requirements, we may not be permitted to borrow additional funds and accelerated payments may become necessary. Additionally, much of the debt is secured by engines and aircraft, and to the extent that engines or aircraft are sold, repayment of that portion of the debt could be required.

Current wording

Virtually all of our debt requires our ongoing compliance with certain financial covenants including debt/equity ratios, minimum tangible net worth and minimum interest coverage ratios, and other eligibility criteria including customer and geographic concentration restrictions. Under our revolving credit facility, we can borrow no more than 85% of an engine’s net book value and 65% of the net book value of an airframe, spare parts or other assets. Therefore, we must have other available funds for the balance of the purchase price of any new equipment to be purchased. Our revolving credit facility, certain indentures and other debt related agreements also contain cross-default provisions. If we do not comply with the covenants or eligibility requirements, we may not be permitted to borrow additional funds and accelerated payments may become necessary. Additionally, much of the debt is secured by engines and aircraft, and to the extent that engines or aircraft are sold, repayment of that portion of the debt could be required.

Previous wording

At June 30, 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 (“EBITDA”) 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 June 30, 2024, we were in compliance with the covenants specified in the WEST III, WEST IV, WEST V, WEST VI, WEST VII, and Willis Warehouse Facility LLC indentures and servicing and other debt related agreements.

Current wording

At September 30, 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 September 30, 2024, we were in compliance with the covenants specified in the WEST III, WEST IV, WEST V, WEST VI, WEST VII, and Willis Warehouse Facility LLC indentures and servicing and other debt related agreements.

Previous wording

From time to time we enter into contractual commitments to purchase engines directly from original equipment manufacturers. We are currently committed to purchasing two additional Pratt & Whitney aircraft engines, seven additional new LEAP-1B engines, and 18 additional new LEAP-1A engines for an aggregate total of $475.3 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 begin the technical process of returning to service.

Current wording

From time to time we enter into contractual commitments to purchase engines directly from original equipment manufacturers. We are currently committed to purchasing seven additional new LEAP-1B engines, and 18 additional new LEAP-1A engines for an aggregate total of $426.7 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 cancellations 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.

Previous wording

We believe our equity base, internally generated funds and existing debt facilities are sufficient to maintain our level of operations for the next twelve months. A decline in the level of internally generated funds could result if the amount of equipment off-lease increases, there is a decrease in availability under our existing debt facilities, or there is a significant step-up in borrowing costs. 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. 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.

Current wording

We believe our equity base, internally generated funds and existing debt facilities are sufficient to maintain our level of operations for the next twelve months. The level of internally generated funds could decline if the amount of equipment off-lease increases, there is a decrease in availability under our existing debt facilities, or there is a significant increase in borrowing costs. Such decline would impair our ability to sustain our current level of operations. 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 would be limited to that which can be funded from internally generated capital.