WILLIS LEASE FINANCE CORP Q3 FY2024 earnings call

• CEO thanked employees and recognized contributions in capital markets, including completing eighth ABS, establishing engine warehouse, and capital market transactions.
• Announced a $0.25 per share quarterly dividend payable on November 21, 2024.
• Core leasing EBT was ~$35 million, second highest on record, highest when adjusting for long-term maintenance reserves.
• Demand for engines remains robust with supply chain issues affecting OEMs and MROs; Boeing strike exacerbates issues, leading to more lease extensions.
• Constant Thrust program helps airlines pay for incremental hours/cycles, with increased requests.
• Portfolio growth: purchased 27 engines and 4 airframes, sold 13 engines, net portfolio growth $182 million.
• Refinanced and expanded preferred stock and revolving credit facility, with $1 billion revolver and $65 million preferred stock extension.

The core leasing business is performing strongly. Q3 revenues were $146.2 million. Core leasing revenues, including lease rent and interest revenues, were $68.3 million, an all-time high. Maintenance reserve revenues were $49.8 million, with short-term maintenance revenues up 41% year-over-year. Spare parts and equipment sales were $10.9 million, up 223.4% from the prior year with 18.4% gross margins. Gain on sale of portfolio assets was $9.5 million. Maintenance services were $5.9 million, slightly down from the prior year. The portfolio size was nearly $2.7 billion at quarter end, with net portfolio growth of $182 million during the quarter.

• Intend to deploy capital from recent financings to support growth.
• Aim to continue reducing leverage while growing the lease portfolio.
• Expect growth opportunities to support premium returns.

• Supply chain issues affecting OEM production and MRO repair timeliness.
• Boeing strike exacerbating supply chain problems and impacting customer fleet plans.
• Market uncertainties related to aircraft fleet retirements and new aircraft deliveries.

Q: About asset values and lease rates for narrowbody engines A: Year-over-year lease rate increase of 37%, rates not dissimilar to 2019 levels, some types stabilized, others have room to grow Q: Maintenance overhaul costs and MRO availability A: Tight MRO availability, especially with large MROs; overhaul costs high, core modules ~$7M, preference for module swaps but limited core module availability Q: PMA usage A: PMA has cost-saving potential but concerns about on-wing life and asset remarketability; most airline customers prefer OEM parts Q: Engine acquisition activity and availability A: Originations broad, including direct from OEM, programmatic deals, and open market; diversity of business model helps in originating assets Q: Average utilization rate A: Third quarter utilization rate was a little under 83%, influenced by new transactions, programmatic deals, and asset churn Q: Average lease life remaining A: Average lease term remaining is in the neighborhood of two years Q: Capital allocation and stock buybacks A: Appreciation in share price provides optionality, but no specific comments on stock buybacks Q: Operating leverage in G&A A: Q3 G&A impact due to stock-based comp, but year-to-date G&A margins improving, expecting positive operating leverage with growth Q: Maintenance reserve revenues lumpy nature A: Lumpy due to lessees extending leases rather than returning engines, affecting long-term reserves; short-term reserves increased due to portfolio growth and utilization Q: Leverage and deleveraging A: Aim to both grow and delever, current net leverage in low 3s, aiming for BB-type credit profile Q: Engine life cycle and V2500 A: Engines have long life, many V2500s not yet had first shop visit; need well-balanced portfolio of in-demand assets Q: Dynamic offerings and market strength A: Seller's market for in-demand assets, programmatic business enables premium returns and resilience