Willis Lease Finance Corp: Form 10-Q for the period ended Jun 30, 2025

The following discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and notes thereto included under Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, reference should be made to our Audited Consolidated Financial Statements and notes thereto and related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (the “2024 Form 10-K”). In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs, including the potential impact of changes in interest rates or inflation, as well as the impact of new or increased tariffs on our business, results of operations and financial condition. Our actual results may differ materially from those contained in or implied by any forward-looking statements. The financial information included in this discussion and in our consolidated financial statements may not be indicative of our consolidated financial position, operating results, changes in equity and cash flows in the future. See “Special Note Regarding Forward-Looking Statements” included earlier in this report.

Overview

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, 2025, 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, 2025, we had 69 lessees in 36 countries. Our portfolio is continually changing due to equipment acquisitions and sales. As of June 30, 2025, we had $2,606.6 million of equipment held in our operating lease portfolio, $171.8 million of notes receivable, $34.7 million of maintenance rights, and $16.8 million of investments in sales-type leases, which represented 348 engines, 15 aircraft, one marine vessel, and other leased parts and equipment. As of June 30, 2025, we also managed 284 engines, aircraft and related equipment on behalf of other parties.

Willis Aeronautical Services, Inc. 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 and engines. 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.

We actively manage our portfolio and structure our leases to maximize the residual values of our leased assets. Our leasing business focuses on popular Stage IV commercial jet engines manufactured by CFMI, General Electric, Pratt & Whitney, Rolls Royce and International Aero Engines.

Risks and Uncertainties

Given the uncertainty in the rapidly changing market and economic conditions related to the potential impact of changes in interest rates or inflation, as well as the impact of new or increased tariffs, we will continue to evaluate the nature and extent of the impact to the Company’s business and financial position. The ultimate extent of changes in interest rates or inflation, as well as the impact of new or increased tariffs, on the Company will depend on future developments, and such effects could exist for an extended period of time.

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2024 Form 10-K.

Results of Operations

Three months ended June 30, 2025 compared to the three months ended June 30, 2024

Revenue is summarized as follows:

(dollars in thousands)

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 $16.4 million, or 29.4%, to $72.3 million in the three months ended June 30, 2025 from $55.9 million for the three months ended June 30, 2024. 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 average utilization (based on net book value of equipment held for operating lease, maintenance rights, and notes receivable and investments in sales-type leases net of allowance) of equipment held in our operating lease portfolio.

Two customers accounted for approximately 13% and 10% of total lease rent revenue of the Company during the three months ended June 30, 2025, and one customer accounted for approximately 10% of total lease rent revenue during the three months ended June 30, 2024.

At June 30, 2025, the Company had $2,606.6 million of equipment held in our operating lease portfolio, $171.8 million of notes receivable, $34.7 million of maintenance rights, and $16.8 million of investments in sales-type leases. 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. Average utilization (based on net book value of equipment held for operating lease, maintenance rights, and notes receivable and investments in sales-type leases net of allowances) was approximately 87.2% and 83.0% for the three months ended June 30, 2025 and 2024, respectively. Utilization at June 30, 2025 was 88.3%.

Maintenance Reserve Revenue. Maintenance reserve revenue decreased $12.2 million, or 19.3%, to $50.7 million for the three months ended June 30, 2025 from $62.9 million for the three months ended June 30, 2024. 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 $0.5 million in long-term maintenance revenue for the three months ended June 30, 2025, compared to $17.0 million in long-term maintenance revenue recognized in the comparable prior period as significantly fewer engines came off leases with long-term maintenance conditions during the second quarter of 2025 as compared to the second quarter of 2024. Engines on lease with “non-reimbursable” usage fees generated $50.2 million of short-term maintenance revenues, compared to $45.9 million in the comparable prior period, an increase of $4.4 million or 9.5%. The increase in short-term maintenance reserve revenue was influenced by an increase in the number of engines on short-term lease conditions, 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 increased by $24.2 million, or 390.7%, to $30.4 million for the three months ended June 30, 2025, compared to $6.2 million for the three months ended June 30, 2024. Spare parts sales were $9.2 million and $6.2 million for the three months ended June 30, 2025 and 2024, respectively, an increase of $3.1 million, or 49.3%, compared to the same period in 2024. The increase in spare parts sales for the three months ended June 30, 2025 reflects the demand for surplus material as operators extend the lives of their current generation engine portfolios. Equipment sales for the three months ended June 30, 2025 were $21.1 million for the sale of one engine. There were no equipment sales for the three months ended June 30, 2024.

Interest Revenue. Interest revenue increased by $1.4 million, or 59.8%, to $3.6 million for the three months ended June 30, 2025, from $2.3 million for the three months ended June 30, 2024. The increase primarily reflects an increase in notes receivable related to failed sale-leasebacks in which the Company was the buyer-lessor.

Gain on Sale of Leased Equipment. During the three months ended June 30, 2025, we sold 14 engines, two airframes, and other parts and equipment from the lease portfolio for $91.1 million less economic closing adjustments, resulting in a net gain of $27.6 million. During the three months ended June 30, 2024, we sold seven engines, eight airframes, and other parts and equipment from the lease portfolio for $68.5 million less economic closing adjustments, resulting in a net gain of $14.4 million.

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 increased by $1.3 million, or 18.4%, to $8.0 million for the three months ended June 30, 2025, from $6.8 million for the three months ended June 30, 2024. The increase primarily reflects an increase in service fee revenue.

Other Revenue. Other revenue increased by $0.2 million, or 7.4%, to $2.9 million for the three months ended June 30, 2025 from $2.7 million for the three months ended June 30, 2024. 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. 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 by $5.4 million, or 24.3%, to $27.6 million for the three months ended June 30, 2025, compared to $22.2 million for the three months ended June 30, 2024. The increase is primarily due to an increase in the size of our lease portfolio, as well as the timing of placing acquired engines on lease.

Cost of Spare Parts and Equipment Sales. Cost of spare parts and equipment sales increased by $22.7 million, or 416.9%, to $28.1 million for the three months ended June 30, 2025, compared to $5.4 million for the three months ended June 30, 2024. Cost of spare parts sales were $8.3 million and $6.2 million for the three months ended June 30, 2025 and 2024, respectively, an increase of $2.1 million, or 34.7%, reflecting the increase in spare parts sales. Cost of equipment sales were $19.8 million for the three months ended June 30, 2025. There were no equipment or cost of equipment sales for the three months ended June 30, 2024.

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 $3.0 million, or 52.0%, to $8.6 million for the three months ended June 30, 2025, compared to $5.7 million for the three months ended June 30, 2024. The increase is primarily related to an increase in personnel as well as project-related costs, as a result of expansion of our aircraft tear down and repair services business.

Write-down of Equipment. There was $11.5 million in write-downs of equipment for the three months ended June 30, 2025, reflecting the write-down of six engines. Write-downs were predominantly related to engines moved from Equipment held for operating lease to Equipment held for sale. There was no write-down of equipment for the three months ended June 30, 2024.

General and Administrative Expenses. General and administrative expenses increased by $15.7 million, or 45.4%, to $50.4 million for the three months ended June 30, 2025, compared to $34.7 million for the three months ended June 30, 2024. The increase primarily reflects a $15.0 million increase in personnel costs. Increased personnel costs included approximately $12.6 million of increased share-based compensation. Of the $12.6 million increase in share-based compensation, $5.3 million related to the acceleration of the vesting of shares upon the resignation of our prior General Counsel, and the remainder primarily related to the rapid appreciation of the market value of the Company’s equity.

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 increased by $3.0 million to $7.5 million for the three months ended June 30, 2025, compared to $4.5 million for the three months ended June 30, 2024, primarily due to an increased level of engine repair activity as compared to that of the prior period.

Net Finance Costs. Net finance costs increased $9.0 million, or 36.7%, to $33.6 million for the three months ended June 30, 2025, compared to $24.6 million for the three months ended June 30, 2024, primarily due to an overall increased level of debt obligations and an increased weighted average borrowing cost. Interest expense associated with the Company’s credit facility increased by $4.4 million for the three months ended June 30, 2025, due to an increase in the average outstanding balance of the credit facility for the three months ended June 30, 2025, as compared to that of the prior year period. Further, there was additional interest expense of $3.7 million for the three months ended June 30, 2025 associated with Willis Warehouse Facility LLC (“WWFL”), as the senior secured warehouse facility was not entered into until May 2024 and $1.2 million of additional interest expense associated with the Willis Engine Structured Trust VIII (“WEST VIII”) notes offering which closed in June 2025. Further, both the Company’s credit facility and WWFL have a floating rate of interest of one-month term Secured Overnight Financing Rate (“SOFR”) plus a certain spread, so fluctuations in SOFR impact interest expense as well. Additionally, derivative-related receipts were $2.5 million for the three months ended June 30, 2025, as compared to $3.1 million for the three months ended June 30, 2024, as certain interest rate swap positions ran off.

Gain on Sale of Business. During the three months ended June 30, 2025, Willis Asset Management Limited (“WAML”), a wholly-owned subsidiary of the Company entered into a Share Purchase Agreement (the “SPA”), by and between WAML and WMES. Pursuant to the SPA, WAML sold the entire issued share capital of Bridgend Asset Management Limited (“BAML”), a United Kingdom-based aviation consultancy business, to WMES for a total purchase price of $45.0 million subject to certain working capital adjustments. The transaction closed on June 30, 2025, resulting in a gain on sale of business of approximately $43.0 million for the Company.

Income Tax Expense. Income tax expense was $13.9 million for the three months ended June 30, 2025, compared to income tax expense of $15.3 million for the three months ended June 30, 2024. The effective tax rate for the second quarter of 2025 was 18.7%, compared to 26.5% 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”), as well as the sale of the Company’s entire issued share capital of BAML, for which no statutory tax was due on the gain recognized.

Six months ended June 30, 2025 compared to the six months ended June 30, 2024

Revenue is summarized as follows:

(dollars in thousands)

Lease Rent Revenue. Lease rent revenue increased by $31.3 million, or 28.7%, to $140.0 million for the six months ended June 30, 2025, compared to $108.7 million for the six months ended June 30, 2024. The increase is due to an increase in the average size of the portfolio as compared to that of the prior year period and an increase in the average lease rate factor.

Two customers accounted for approximately 13% and 10% of the total lease rent revenue of the Company during the six months ended June 30, 2025, and two customers accounted for approximately 11%, each, of the Company’s total lease rent revenue during the six months ended June 30, 2024.

At June 30, 2025, the Company had $2,606.6 million of equipment held in our operating lease portfolio, $171.8 million of notes receivable, $34.7 million of maintenance rights, and $16.8 million of investments in sales-type leases. 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. Average utilization (based on net book value of equipment held for operating lease, maintenance rights, and notes receivable and investments in sales-type leases net of allowances) was approximately 83.6% and 83.5% for the six months ended June 30, 2025 and 2024, respectively. Utilization at June 30, 2025 was 88.3%.

Maintenance Reserve Revenue. Maintenance reserve revenue decreased $1.2 million, or 1.1%, to $105.6 million for the six months ended June 30, 2025 from $106.8 million for the six months ended June 30, 2024. Long-term maintenance revenue was $10.1 million for the six months ended June 30, 2025 compared to $23.3 million in the prior year period. 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 on lease with “non-reimbursable” usage fees generated $95.5 million of short-term maintenance revenues compared to $83.4 million in the comparable prior period, an increase of $12.1 million or 14.5%. The increase in short-term maintenance reserve revenue was influenced by an increase in the number of engines on short-term lease conditions, 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 increased by $39.1 million, or 412.9%, to $48.6 million for the six months ended June 30, 2025 compared to $9.5 million in the prior year period. Spare parts sales were $25.3 million and $9.5 million for the six months ended June 30, 2025 and 2024, respectively, an increase of $15.8 million, or 166.8%, compared to the same period in 2024. The increase in spare parts sales for the six months ended June 30, 2025 reflects the demand for surplus material as operators extend the lives of their current generation engine portfolios. In addition, the increase includes a discrete $7.0 million sale. Equipment sales for the six months ended were $23.3 million for the sale of two engines. There were no equipment sales for the six months ended June 30, 2024.

Interest Revenue. Interest revenue increased by $3.0 million, or 66.5%, to $7.6 million for the six months ended June 30, 2025 compared to $4.6 million for the six months ended June 30, 2024. 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 six months ended June 30, 2025, we sold 21 engines, three airframes, and other parts and equipment from the lease portfolio for $138.8 million less economic closing adjustments, resulting in a net gain of $32.0 million. During the six months ended June 30, 2024, we sold 15 engines, eight airframes, and other parts and equipment from the lease portfolio for $104.7 million less economic closing adjustments, resulting in a net gain of $23.6 million.

Gain on Sale of Financial Assets. During the six months ended June 30, 2025, we sold two investments in sales-type lease assets for a net gain of $0.4 million. There was no gain on sale of financial assets during the six months ended June 30, 2024.

Maintenance Services Revenue. Maintenance services revenue increased by $1.6 million, or 13.4%, to $13.6 million for the six months ended June 30, 2025, from $12.0 million for the six months ended June 30, 2024. The increase primarily reflects an increase in service fee revenue.

Other Revenue. Other revenue increased by $0.4 million, or 8.1%, to $5.4 million for the six months ended June 30, 2025 from $5.0 million for the six months ended June 30, 2024. Other revenue consists primarily of managed service fee revenue related to the servicing of engines for the WMES lease portfolio. 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 by $7.9 million, or 17.7%, to $52.6 million for the six months ended June 30, 2025 compared to $44.7 million for the six months ended June 30, 2024. The increase is primarily due to an increase in the size of our lease portfolio, as well as the timing of placing acquired engines on lease.

Cost of Spare Parts and Equipment Sales. Cost of spare parts and equipment sales increased by $35.3 million, or 433.3%, to $43.4 million for the six months ended June 30, 2025 compared to $8.1 million for the six months ended June 30, 2024. Cost of spare parts sales were $22.2 million and $8.1 million for the six months ended June 30, 2025 and 2024, respectively, an increase of $14.0 million, or 172.1%, reflecting the increase in spare parts sales. Cost of equipment sales were $21.3 million for the six months ended June 30, 2025. There were no equipment or cost of equipment sales for the six months ended June 30, 2024.

Cost of Maintenance Services. Cost of maintenance services increased by $2.7 million, or 24.1%, to $14.0 million for the six months ended June 30, 2025, compared to $11.2 million for the six months ended June 30, 2024. 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.

Write-down of Equipment. Write-down of equipment was $13.6 million for the six months ended June 30, 2025, primarily reflecting the write-down of 11 engines. Write-downs were predominantly related to engines moved from Equipment held for operating lease to Equipment held for sale. Write-down of equipment was $0.3 million for the six months ended June 30, 2024, primarily reflecting the write-down of one airframe.

General and Administrative Expenses. General and administrative expenses increased by $33.9 million, or 52.7%, to $98.1 million for the six months ended June 30, 2025 compared to $64.3 million for the six months ended June 30, 2024. The increase primarily reflects a $19.3 million increase in personnel costs. Increased personnel costs included approximately $15.6 million of increased share-based compensation. Of the $15.6 million increase in share-based compensation, $5.3 million related to the acceleration of the vesting of shares upon the resignation of our prior General Counsel, and the remainder primarily related to the rapid appreciation of the market value of the Company’s equity. Further, there was a $6.3 million increase in consultant-related fees, primarily related to the Company’s sustainable aviation fuel project, as well as a $3.4 million increase in legal fees.

Technical Expense. Technical expense increased by $1.0 million, or 7.6%, to $13.7 million for the six months ended June 30, 2025 compared to $12.8 million for the six months ended June 30, 2024, primarily due to an increased level of engine repair activity as compared to that of the prior period.

Net Finance Costs. Net finance costs increased by $18.1 million, or 38.0%, to $65.7 million for the six months ended June 30, 2025 compared to $47.6 million for the six months ended June 30, 2024, primarily due to an overall increased level of debt obligations and an increased weighted average borrowing cost. Interest expense associated with the Company’s credit facility increased by $9.5 million for the six months ended June 30, 2025, due to an increase in the average outstanding balance of the credit facility for the six months ended June 30, 2025, as compared to that of the prior year period. Further, there was additional interest expense of $7.6 million for the six months ended June 30, 2025 associated with WWFL, as the senior secured warehouse facility was not entered into until May 2024, and $1.2 million of additional interest expense associated with the WEST VIII notes offering which closed in June 2025. Further, both the Company’s credit facility and WWFL have a floating rate of interest of one-month term SOFR plus a certain spread, so fluctuations in SOFR impact interest expense as well. Additionally, derivative-related receipts were $4.9 million for the six months ended June 30, 2025, as compared to $6.2 million for the six months ended June 30, 2024 as certain interest rate swap positions ran off.

Gain on Sale of Business. During the six months ended June 30, 2025, WAML, a wholly-owned subsidiary of the Company entered into a SPA, by and between WAML and WMES. Pursuant to the SPA, WAML sold the entire issued share capital of BAML, a United Kingdom-based aviation consultancy business, to WMES for a total purchase price of $45.0 million subject to certain working capital adjustments. The transaction closed on June 30, 2025, resulting in a gain on sale of business of approximately $43.0 million for the Company.

Income Tax Expense. Income tax expense was $22.3 million for the six months ended June 30, 2025 compared to $24.3 million for the six months ended June 30, 2024. The effective tax rate for the six months ended June 30, 2025 was 22.4% compared to 27.7% 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, as well as the sale of the Company’s entire issued share capital of BAML, for which no statutory tax was due on the gain recognized.

Financial Position, Liquidity and Capital Resources

Liquidity

At June 30, 2025, the Company had $37.3 million of cash and cash equivalents and $745.3 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 $851.1 million and $357.2 million for the six months ended June 30, 2025 and 2024, respectively, was derived from our borrowing activities, which included our $596.0 million WEST VIII capital raise in June 2025. In these same time periods, $309.6 million and $211.3 million, respectively, was used to pay down related debt.

For any interest rate swaps that we enter into, we will be exposed to risk in the event of non-performance of the interest rate hedge counter-parties. We may hedge additional amounts of our floating rate debt in the future.

Cash Flows Discussion

Cash flows provided by operating activities were $145.2 million and $129.7 million for the six months ended June 30, 2025 and 2024, respectively. The $15.5 million, or 12.0%, increase in operating cash flows was primarily driven by a period over period $49.6 million increase in cash flows from changes in inventory, partially offset by a $22.2 million decrease in payments on sales-type leases and a period over period $10.9 million decrease in cash flows from changes in accounts payable and accrued expenses. These changes reflect significant inventory purchases made in the prior comparable period to meet the high demand for spare parts. Spare parts sales were $25.3 million and $9.5 million for the six months ended June 30, 2025 and 2024, respectively, an increase of $15.8 million, or 166.8%, compared to the same period in 2024. 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. The average utilization rate (based on net book value of equipment held for operating lease, maintenance rights, and notes receivable and investments in sales-type leases net of allowances) for the six months ended June 30, 2025 and 2024 was approximately 83.6% and 83.5%, 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 $2.2 million for the six months ended June 30, 2025 and primarily reflected $154.9 million for the purchase of equipment held for operating lease and for sale (including capitalized costs and prepaid deposits made in the period) and $17.1 million for the purchase of property, equipment and furnishings, which was primarily related to leasehold improvements, partially offset by proceeds from sale of equipment (net of selling expenses) of $141.9 million and proceeds from sale of business of $23.1 million. 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 (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, partly offset by proceeds from sale of equipment (net of selling expenses) of $70.0 million.

Cash flows provided by financing activities were $507.1 million for the six months ended June 30, 2025 and primarily reflected $851.1 million in proceeds from debt obligations, partially offset by $309.6 million in principal payments and $18.7 million in cancellation of restricted stock in satisfaction of withholding tax. 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 shareholders.

Cash Dividends

During the six months ended June 30, 2025, the Company paid cash dividends of $3.7 million to shareholders of common stock. During the six months ended June 30, 2024, the Company paid cash dividends of $7.1 million to shareholders of common stock.

Preferred Stock Dividends

In September 2024, the Company entered into a Series A Preferred Stock Purchase Agreement with Development Bank of Japan Inc. (the “Stock Purchase Agreement”), 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.

Prior to the Stock Purchase Agreement, the Company’s Series A-1 Preferred Stock accrued quarterly dividends at the rate per annum of 8.5% per share, and the Series A-2 Preferred Stock accrued quarterly dividends at the rate per annum of 6.5% per share. During each of the six months ended June 30, 2025 and 2024, the Company paid total preferred stock dividends of $3.0 million and $1.8 million, respectively.

Debt Obligations and Covenant Compliance

At June 30, 2025, debt obligations consisted of loans totaling $2,800.6 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.

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.

At June 30, 2025, 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 4.25 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 June 30, 2025, we were in compliance with the covenants specified in the WEST III, WEST IV, WEST V, WEST VI, WEST VII, WEST VIII, and WWFL indentures and servicing and other debt related agreements.

Off-Balance Sheet Arrangements

As of June 30, 2025, we had no material off-balance sheet arrangements or obligations that have or are reasonably likely to have a current or future effect on our financial condition, change in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.

Contractual Obligations and Commitments

Repayments of our gross debt obligations primarily consist of scheduled installments due under term loans and are funded by the use of unrestricted cash reserves and from cash flows from ongoing operations. The table below summarizes our contractual commitments at June 30, 2025:

From time to time we enter into contractual commitments to purchase engines directly from original equipment manufacturers. We are currently committed to purchasing 30 additional new LEAP-1A engines and 21 additional new LEAP-1B engines for an aggregate total of $912.6 million by 2030. Further, we are currently committed to purchasing 16 used engines for approximately $48.7 million in 2025. The purchase obligations are subject to escalation based on the closing date of each transaction. 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.

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 $97.1 million and $126.6 million by 2030.

We have estimated the interest payments due under debt obligations by applying the interest rates applicable at June 30, 2025 to the remaining debt, adjusted for the estimated debt repayments identified in the table above. Actual interest payments made will vary due to changes in the rates.

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.

Recent Accounting Pronouncements

The most recent adopted accounting pronouncements and accounting pronouncements to be adopted by the Company are described in Note 1 to our Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Our primary market risk exposure is that of interest rate risk. A change in interest rates would affect our cost of borrowing. Increases in interest rates, which may cause us to raise the implicit rates charged to our customers, could result in a reduction in demand for our leases. Alternatively, we may price our leases based on market rates so as to keep the fleet on-lease and suffer a decrease in our operating margin due to interest costs that we are unable to pass on to our customers. As of June 30, 2025, $866.5 million of our outstanding debt is variable rate debt. We estimate that for every one percent increase or decrease in interest rates on our variable rate debt, net of our interest rate swaps, our annual interest expense would increase or decrease by $3.9 million.

We hedge a portion of our borrowings from time to time, effectively fixing the rate of these borrowings. This hedging activity, which at times is required by our borrowing facilities, helps protect us against reduced margins on longer term fixed rate leases. Such hedging activities may limit our ability to participate in the benefits of any decrease in interest rates but may also protect us from increases in interest rates. Furthermore, since lease rates tend to vary with interest rate levels, it is possible that we can adjust lease rates for the effect of changes in interest rates at the termination of leases. Other financial assets and liabilities are at fixed rates.

We are also exposed to currency devaluation risk. Substantially all of our leases require payment in U.S. dollars. During the six months ended June 30, 2025 and 2024, 71% and 70%, respectively, of our lease rent revenues came from non-United States domiciled lessees. If these lessees’ currency devalues against the U.S. dollar, the lessees could potentially encounter difficulty in making their lease payments.

(a) Evaluation of disclosure controls and procedures. In accordance with Rule 13a-15(b) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness and design of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, our CEO and CFO have concluded that as of June 30, 2025, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

(b) Inherent limitations on controls. Management, including the CEO and CFO, does not expect that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

(c) Changes in internal control over financial reporting. There has been no change in our internal control over financial reporting during our fiscal quarter ended June 30, 2025 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

Investors should carefully consider the risks in the “Risk Factors” in Part 1: Item 1A of our 2024 Form 10-K, filed with the SEC on March 11, 2025, and our other filings with the SEC. These risks are not the only ones facing the Company. Additional risks not currently known to us or that we currently believe are immaterial may also impair our business operations. Any of these risks could adversely affect our business, cash flows, financial condition and results of operations. The trading price of our common stock could fluctuate due to any of these risks, and investors may lose all or part of their investment. In assessing these risks, investors should also refer to the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q. Other than as set forth below, there have been no material changes in our risk factors from those discussed in our 2024 Form 10-K.

The Company’s business may be materially adversely affected by the imposition of duties and tariffs and other trade barriers and retaliatory countermeasures implemented by the U.S. and other governments.

Recently there have been significant changes to U.S. trade policies, sanctions, legislation, treaties and tariffs, including, but not limited to, trade policies and tariffs affecting products from outside of the U.S. The extent and duration of increased tariffs and the resulting impact on general economic conditions and on our business are uncertain and depend on various factors, such as negotiations between the U.S. and affected countries, the responses of other countries or regions, exemptions or exclusions that may be granted, availability and cost of alternative sources of supply, and demand for our business in affected markets. Additionally, it is possible that U.S. policy changes and uncertainty about such changes could increase market volatility and currency exchange rate fluctuations. As a result of these dynamics, we cannot predict the impact to our business of any future changes to the U.S.’s or other countries’ trading relationships or the impact of new laws or regulations adopted by the U.S. or other countries.