Market Overview

Willis Lease Finance Reports Third Quarter 2012 Results


NOVATO, Calif., Nov. 5, 2012 (GLOBE NEWSWIRE) -- Willis Lease Finance Corporation (Nasdaq: WLFC), a leading lessor of commercial jet engines, reported that following a $15.4 million charge for extinguishment of debt and derivatives termination, it lost $8.0 million, or $0.90 per share, in the third quarter of 2012. In the second quarter of 2012, net income available to common shareholders was $2.4 million, or $0.28 per share, and $1.5 million, or $0.17 per share in the third quarter a year ago. In the first nine months of 2012, the net loss was $3.0 million, or $0.34 per share, compared to earnings of $8.5 million, or $0.96 per share, in the first nine months of 2011.

Third Quarter 2012 Highlights (at or for the periods ended Sept. 30, 2012, compared to Sept. 30, 2011):

  • Willis Lease completed a $390 million ABS offering of senior secured notes on September 17, 2012, resulting in a $10.1 million charge related to the termination of interest rate swaps used to hedge the prior ABS floating rate debt that was refinanced and a $5.3 million non-cash charge to write off unamortized debt issuance costs and unamortized note discount. 
  • Lease portfolio increased 1.7% to $976.6 million from $960.5 million a year ago, with one engine purchased and three engines sold in the current quarter.
  • Total revenues fell 5% to $37.5 million from $39.5 million a year ago, reflecting lower average portfolio utilization, and lower gains from sale of equipment.
  • Average utilization for the third quarter was 82% compared to 82% in the second quarter and 86% in the third quarter of 2011.
  • Utilization was 83% at September 30, 2012, compared to 82% at the end of the preceding quarter, and 86% at September 30, 2011. 
  • Lease rent revenues decreased 13% to $23.0 million compared to $26.5 million a year ago.
  • Maintenance reserve revenues increased 19% to $10.7 million, compared to $9.0 million a year ago.
  • The revolving credit facility was upsized by $85 million in the third quarter with three new banks joining the lending group, increasing available liquidity to $159 million at quarter end, up from $105 million a year ago.
  • Tangible book value per common share was $22.59 compared to $21.86 a year ago.

"We have already begun to deploy the additional liquidity generated by the $390 million ABS offering which closed in mid-September," said Charles F. Willis, Chairman and Chief Executive Officer. "We redeemed all of the outstanding Series A preferred shares this month, eliminating $3.1 million after-tax in annual dividend payments going forward.  In addition, we repurchased 460,545 shares of common stock in October at an average price of $13.79 per share totaling $6.4 million. There are several benefits of this debt financing including expanding current liquidity, improving access to operational cash flows, locking in today's low interest rates for 10 years and providing substantial funding to support the growth in our engine portfolio over the coming years." 

"I'm also pleased to report that Mitsui & Co., Ltd., our partner in our engine leasing joint venture company in Dublin, Willis Mitsui Engine Support, recently agreed to become a key strategic partner in the development of a new engine ("GE9X") by GE Aviation (an operating unit of GE) for the next generation of wide-body aircraft. Mitsui will cover part of the development costs for the GE9X and buy or lease engines through our joint venture to expand the engine leasing business."

"Our new Chinese subsidiary, Willis Lease (China) Limited, funded its first transaction at the end of the third quarter," said Donald A. Nunemaker, President.  "The transaction was a purchase leaseback with a major Chinese airline for a CFM56-5B engine, which powers the Airbus 320 aircraft. The debt for this transaction was funded by a large Chinese bank. While we have been leasing engines in China since 1997 this is the first time we have borrowed from a Chinese bank to finance the purchase of an engine.  Overall, we are very pleased with the relationships we are forging in China and believe that China offers tremendous opportunities for us." 

"We have seen a definite increase in the amount of new lease activity during September and October," Nunemaker continued. "For example, during the last week of September we closed ten new leases—the most we have ever closed in a single week. The increase in new lease activity has also led to improved utilization. We went from 82% at the end of the previous quarter to 83% at September 30, 2012, and October will show even more impressive results."

Interest costs declined 15% to $7.5 million in the third quarter compared to $8.9 million in the third quarter a year ago. In the first nine months, interest costs fell 16% to $22.6 million compared to $26.9 million in the first nine months of 2011. "In the third quarter, we completed two major financings - the closing of WEST II and the upsizing of our revolving credit facility, which sets the stage for the next phase of our growth," said Brad Forsyth, Chief Financial Officer. "While the interest rate on the WEST II debt is higher than the previous WEST debt, our overall financing costs are expected to rise only moderately because we are able to deploy the additional liquidity from the transaction to reduce other debt balances. Most importantly, we have the funding to add in-demand engines to our portfolio and grow our franchise in the coming years. The long-term benefits of this transaction cannot be overstated." As noted in the September announcement of the WEST II deal, those benefits include the following:

  • Locks in fixed interest rate for the life of the notes, providing certainty of future cash flows.
  • Significantly reduces principal payments and extends amortization period, improving cash flow.
  • Releases significant cash from restricted cash and facilitates leverage on previously unlevered assets.
  •  Eliminates certain administrative costs for servicing and other third party expenses.
  • Provides greater operating flexibility by eliminating several corporate and portfolio concentration covenants.
  • Provides greater flexibility to sell engines and reinvest the proceeds to update the portfolio.

Balance Sheet

At September 30, 2012, Willis Lease had 187 commercial aircraft engines, 4 aircraft parts packages and 10 aircraft and other engine-related equipment in its lease portfolio, with a net book value of $976.6 million, compared to 183 commercial aircraft engines, 3 aircraft parts packages and 3 aircraft and other engine-related equipment in its lease portfolio, with a net book value of $960.5 million a year ago. The Company's funded debt-to-equity ratio was 2.84 to 1 at quarter end, compared to 2.95 to 1 a year ago.

About Willis Lease Finance

Willis Lease Finance Corporation leases spare commercial aircraft engines and aircraft to commercial airlines, aircraft engine manufacturers, air cargo carriers and maintenance, repair and overhaul facilities worldwide. These leasing activities are integrated with the purchase and resale of used and refurbished commercial aircraft engines.

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

Consolidated Statements of Income            
(In thousands, except per share data, unaudited) Three Months Ended   Nine Months Ended   
  September 30, % September 30, %
  2012 2011 Change 2012 2011 Change
Lease rent revenue  $ 23,022  $ 26,458 (13.0)%  $ 70,917  $ 79,419 (10.7)%
Maintenance reserve revenue  10,653  8,962 18.9%  28,668  27,319 4.9%
Gain on sale of leased equipment  561  3,637 (84.6)%  4,557  11,231 (59.4)%
Other income  3,270  423 673.0%  4,256  1,015 319.3%
Total revenue  37,506  39,480 (5.0)%  108,398  118,984 (8.9)%
Depreciation expense  13,885  12,456 11.5%  38,881  38,716 0.4%
Write-down of equipment  2,474  2,306 7.3%  2,756  2,306 19.5%
General and administrative  7,298  8,684 (16.0)%  25,339  26,108 (2.9)%
Technical expense  1,961  1,270 54.4%  4,715  5,737 (17.8)%
Net finance costs            
 Interest expense  7,529  8,876 (15.2)%  22,595  26,908 (16.0)%
 Interest income  (21)  (42) (50.0)%  (81)  (127) (36.2)%
 Net loss on debt extinguishment and derivatives termination  15,412  --  100.0%  15,412  --  100.0%
Total net finance costs  22,920  8,834 159.5%  37,926  26,781 41.6%
Total expenses  48,538  33,550 44.7%  109,617  99,648 10.0%
Earnings (loss) from operations  (11,032)  5,930 (286.0)%  (1,219)  19,336 (106.3)%
Earnings from joint ventures  352  232 51.7%  948  858 10.5%
Income (loss) before income taxes   (10,680)  6,162 (273.3)%  (271)  20,194 (101.3)%
Income tax expense (benefit)  (3,486)  3,846 (190.6)%  405  9,334 (95.7)%
Net income (loss)  $ (7,194)  $ 2,316 (410.6)%  $ (676)  $ 10,860 (106.2)%
Preferred stock dividends paid and declared-Series A  782  782 0.0%  2,346  2,346 0.0%
Net income (loss) attributable to common shareholders  $ (7,976)  $ 1,534 (619.9)%  $ (3,022)  $ 8,514 (135.5)%
Basic earnings (loss) per common share  $ (0.92)  $ 0.18    $ (0.35)  $ 1.01  
Diluted earnings (loss) per common share  $ (0.90)  $ 0.17    $ (0.34)  $ 0.96  
Average common shares outstanding  8,667  8,397    8,553  8,423  
Diluted average common shares outstanding   8,889  8,811    8,846  8,903  
Consolidated Balance Sheets      
(In thousands, except share data, unaudited)      
  Sept 30,
Dec 31,
Sept 30,
Cash and cash equivalents  $ 17,179  $ 6,440  $ 6,007
Restricted cash  54,225  76,252  80,273
Equipment held for operating lease, less accumulated depreciation  976,639  981,505  960,504
Equipment held for sale  8,117  20,648  4,501
Operating lease related receivable, net of allowances   8,877  8,434  6,844
Notes receivable, net of allowances  --   542  587
Investments  19,540  15,239  15,037
Property, equipment & furnishings, less accumulated depreciation  6,502  6,901  7,040
Equipment purchase deposits  1,369  1,369  3,376
Other assets  18,225  15,875  11,141
Total assets  $ 1,110,673  $ 1,133,205  $ 1,095,310
Accounts payable and accrued expenses  $ 12,878  $ 16,833  $ 16,079
Liabilities under derivative instruments  2,115  12,341  14,958
Deferred income taxes  88,777  84,706  84,002
Notes payable  690,041  718,134  684,084
Maintenance reserves  63,097  54,509  53,341
Security deposits  7,093  6,278  5,946
Unearned lease revenue  4,102  3,743  4,870
Total liabilities  868,103  896,544  863,280
Shareholders' equity:      
Preferred stock  $ 31,915  $ 31,915  $ 31,915
Common stock ($0.01 par value)  93  91  92
Paid-in capital in excess of par  58,245  56,842  56,781
Retained earnings  153,682  156,704  153,838
Accumulated other comprehensive loss, net of tax  (1,365)  (8,891)  (10,596)
Total shareholders' equity  242,570  236,661  232,030
Total liabilities and shareholders' equity  $ 1,110,673  $ 1,133,205  $ 1,095,310
CONTACT: Brad Forsyth Chief Financial Officer (415) 408-4700
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