Willis Lease Finance Corporation — Q1 2023 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet comparisons are to December 31, 2022. Unaudited, consolidated results. WLFC leases aircraft, engines and related equipment and also sells spare parts and provides related services.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $89.5 million | $68.8 million |
| Income (loss) from operations | $8.0 million | $(25.1) million |
| Net income (loss) | $4.4 million | $(21.2) million |
| Net income (loss) attributable to common shareholders | $3.6 million | $(22.0) million |
| Basic / diluted EPS | $0.58 / $0.55 | $(3.70) / $(3.70) |
| Operating cash flow | $51.9 million | $28.3 million |
| Investing cash flow | $(64.3) million | $(6.3) million |
| Financing cash flow | $(12.1) million | $(34.7) million |
Revenue growth was led by lease rent revenue, up 39.6% to $53.2 million, and maintenance reserve revenue, up 58.4% to $23.5 million. Spare parts and equipment sales fell 23.8% to $5.1 million; leased-equipment sales generated a $0.1 million loss versus a $2.3 million gain a year earlier. General and administrative expense rose 40.9% to $33.3 million, while technical expense fell to $2.8 million from $5.6 million. Net finance costs increased 8.9% to $18.4 million. No equipment impairment was recorded, compared with a $21.1 million write-down in Q1 2022.
Financial position, debt and liquidity
- Total assets were $2.587 billion, versus $2.575 billion at year-end. Operating-lease equipment, net, was $2.142 billion.
- Debt obligations, net of issuance costs, were $1.837 billion, compared with $1.847 billion at year-end. Gross principal outstanding was $1.851 billion. The revolving facility had $742 million outstanding and a $1.0 billion commitment; it matures in June 2024.
- Cash and cash equivalents were $9.8 million; restricted cash was $54.7 million. Cash, cash equivalents and restricted cash totaled $64.5 million at quarter-end, down $24.5 million during the quarter.
- Debt includes floating-rate borrowings; one-month LIBOR was 4.86% at March 31. Management estimated a 1 percentage-point rate change would alter annual interest expense by approximately $2.4 million, net of swaps. Five interest-rate swaps had a net fair-value asset of $28.1 million.
- The company reported compliance with debt covenants at quarter-end. It said equity, internally generated funds and existing debt facilities should support operations for the next 12 months, while noting that lower internally generated cash, reduced facility availability or higher borrowing costs could constrain operations and growth.
Changes, management commentary and notable items
- Management attributed higher lease rent to more engines placed on lease and increased utilization; average utilization by net book value was approximately 86%, versus 84% in Q1 2022. Approximately 87% of assets by book value were on lease at quarter-end.
- Maintenance reserve revenue increased despite no long-term maintenance revenue being recognized in Q1 2023; short-term non-reimbursable maintenance revenue was $23.5 million, versus $6.6 million a year earlier.
- Higher G&A reflected personnel, project, aviation hull war insurance and tax costs. Finance costs rose with higher floating-rate debt and LIBOR.
- Operating cash flow improved, while investing outflows increased, primarily reflecting $55.7 million of equipment purchases and $15.4 million in notes receivable issuance. The company received $42.0 million of debt proceeds and made $53.5 million of principal payments.
- Committed purchase obligations totaled $453.2 million, including 18 new LEAP-1A engines for $282.8 million, nine new LEAP-1B engines for $159.3 million, and two used CFM56-5B engines for $11.2 million. The filing says some commitments may be deferred or canceled under specified terms. Separately, anticipated overhaul and maintenance commitments for 25 engines were estimated at $77.7–$112.0 million by 2030.
- A consortium’s proposed acquisition of the company was withdrawn and abandoned on April 14, 2023. The company made no common-stock repurchases in Q1; its repurchase authorization allows up to $60 million through December 31, 2024.
- Risks discussed include airline-sector effects from COVID-19, customer defaults or early lease returns, interest-rate exposure, off-lease equipment, currency weakness among non-U.S. lessees, and covenant or funding constraints. The filing reports no material change in previously disclosed risk factors. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether utilization, lease demand and maintenance-related cash receipts remain strong, and whether customer concentration or payment risks change.
- Available liquidity and borrowing capacity ahead of the June 2024 revolving-facility maturity; covenant headroom and the impact of variable rates.
- Timing, funding and flexibility of the $453.2 million purchase commitments and future overhaul obligations.
- Whether higher G&A, insurance costs and interest expense persist, and how they affect earnings and cash generation.
- Potential effects of restricted maintenance-reserve cash, currency exposure and further airline-industry disruption.