Executive Summary / Key Takeaways

• Record Performance Driven by Integrated Model: Willis Lease Finance Corporation (WLFC) delivered a record-setting Q2 2025, with total revenue of $195.5 million and pre-tax income of $74.3 million, underscoring the strength of its "flywheel business model" that integrates engine leasing, parts, and maintenance services.
• Differentiated Technological & Operational Edge: WLFC's proprietary ConstantThrust program, new engine test facility joint venture, and strategic investments in next-generation engines (54% of portfolio) provide a significant competitive moat by offering unparalleled efficiency and cost savings to airlines amidst MRO bottlenecks and rising new engine costs.
• Robust Capital Structure & Strategic Flexibility: Recent capital raises, including the largest-ever WEST VIII ABS offering ($596 million) and an expanded $1 billion revolving credit facility, bolster liquidity and provide the financial agility to pursue growth opportunities, with net leverage now at a healthy 2.96x.
• Significant Unrealized Asset Value: The market value of WLFC's engine and aircraft portfolio exceeded its book value by approximately $600 million at year-end 2024, highlighting a long-term thesis of asset appreciation against GAAP depreciation.
• Outlook for Continued Growth: Management anticipates robust demand for its specialized solutions, supported by high utilization rates (88.3% at Q2 end), stabilizing strong lease rates, and strategic expansion into sustainable aviation fuels, despite lingering macroeconomic uncertainties and interest rate risks.

The Engine of Aviation's Future: A Specialized Powerhouse

Willis Lease Finance Corporation has carved a unique and resilient niche in the global aviation industry, operating as a leading lessor and servicer of commercial aircraft engines and related equipment. Since its inception in 1985, building on Charlie Willis's pioneering independent engine leasing platform in the early 1980s, WLFC has consistently demonstrated a commitment to innovation, marked by industry firsts such as the first aircraft engine ABS in 2005 and the first engine JOLCO financing in 2023. This rich history of financial and operational ingenuity underpins its "flywheel business model," a vertically integrated approach that combines engine leasing, spare parts sales through Willis Aeronautical Services, Inc. (WASI), and comprehensive maintenance, repair, and overhaul (MRO) services via entities like Willis Engine Repair Center (WERC) and Willis Aviation Services Limited (WASL).

The current industry landscape is characterized by persistent supply chain disruptions, escalating costs for new engines, and significant MRO bottlenecks, leading to extended turnaround times for engine servicing. These challenges have created an insatiable demand for spare engines and efficient maintenance solutions, a dynamic WLFC is uniquely positioned to exploit. Unlike broader aircraft lessors such as AerCap (AER) and Air Lease Corporation (AL), whose portfolios encompass entire aircraft, WLFC's specialized focus on engines allows for deeper operational expertise and more tailored solutions. While AER and AL benefit from larger scale and broader market presence, potentially leading to greater economies of scale and robust overall growth, WLFC's targeted approach aims for premium returns by addressing specific, critical pain points for airlines.

WLFC's integrated model provides a distinct competitive advantage. Its in-house MRO capabilities and parts business enable efficient asset recycling and support customer fleets in a tight parts market, a level of vertical integration less pronounced in pure aircraft lessors. This specialization allows WLFC to offer qualitatively superior value in segments requiring intricate engine expertise, potentially leading to greater efficiency in maintenance and asset management. Compared to a diversified industrial lessor like GATX (GATX), WLFC's aviation-specific specialization provides a clear edge in its core market, though GATX's broader portfolio might offer greater resilience through diversification.

Technological Edge and Operational Excellence

WLFC's competitive moat is significantly fortified by its differentiated technology and operational strategies, which directly address critical industry needs. The company's proprietary ConstantThrust program, developed over a decade ago, exemplifies this innovation. This program involves a sale and leaseback of an airline's engines; when an engine becomes unserviceable, WLFC replaces it with another from its fleet, managing the unserviceable unit through its maintenance businesses. This process minimizes airline downtime to as little as one day, offering substantial efficiency and cost savings compared to traditional MRO shop visits which can take six months to a year and often require leasing an expensive spare engine. A recent deal with Air India Express for 26 CFM56-7B engines underscores the program's value, particularly as airlines transition from legacy fleets to newer NEO and MAX aircraft.

To further alleviate industry bottlenecks, WLFC announced in March 2025 a joint venture with Global Engine Maintenance to build Willis Global Engine Testing (WGET), an engine test facility in West Palm Beach, Florida. WLFC holds a 70% interest in this venture, which will initially focus on CFM56-5B and 7B engines but will have the capability to test more modern variants. This initiative directly addresses the shortage of adequate testing capacity that constrains throughput and slows engine repair times across the industry. The facility will serve WLFC's own needs, its customers, GEM's customers, and third parties, creating a new revenue stream while enhancing operational efficiency.

WLFC's strategic investment in its portfolio's composition is another key differentiator. The company acquired nearly $1 billion in engines and aircraft in 2024, with 65% being "future technology assets" like LEAP and GTF engines. As of year-end 2024, 53% of WLFC's total portfolio comprised these next-generation assets, a figure that increased to 54% by Q2 2025. This forward-looking approach positions WLFC to capitalize on the increasing pool of these aircraft, ensuring its portfolio remains highly in-demand. The company also continues to pursue its Sustainable Aviation Fuel (SAF) project in Teesside, UK, targeting commercial operations by Q1 2028 with an anticipated annual production capacity of 14,000 tonnes. This initiative, supported by a $6.3 million UK government grant received in Q2 2025, aligns with broader industry decarbonization efforts and positions WLFC at the forefront of aviation's environmental transition.

These technological and operational advancements contribute directly to WLFC's competitive moat, driving higher asset utilization, enabling premium lease rates, and fostering deeper customer relationships. The company's lean business system, SOAR (Strategy, Operations, Action, and Results), has already delivered measurable results, including an 85% reduction in time from engine acquisition to lease readiness, further enhancing efficiency and profitability.

Financial Performance: A Record-Setting Trajectory

WLFC's integrated strategy and operational prowess translated into a record-setting financial performance in the second quarter of 2025. The company reported its highest-ever quarterly total revenue of $195.5 million, a substantial 29.4% increase over Q2 2024. Pre-tax income reached a record $74.3 million, up 28.3% year-over-year, leading to net income attributable to common shareholders of $59.0 million and diluted EPS of $8.43. For the first half of 2025, total revenue was $353.2 million, up 30.7% from H1 2024, with net income attributable to common shareholders of $74.4 million.

`
The growth was broadly distributed across key revenue streams. Lease rent revenue surged by 29.4% to $72.3 million in Q2 2025, driven by an increase in the average portfolio size and a higher average utilization rate, which reached 88.3% at quarter-end, up from 83.0% in Q2 2024. Short-term maintenance reserve revenue, reflecting hourly and cyclical usage, increased by 9.5% to $50.2 million, benefiting from more engines on short-term leases. While long-term maintenance revenue was lower due to fewer engines coming off long-term leases, the underlying recurring revenue strength remains evident.

`
Spare parts and equipment sales witnessed a dramatic 390.7% increase to $30.4 million in Q2 2025, fueled by the sale of one engine for $21.1 million and robust demand for used serviceable material. The company realized a 30% margin on the sale of leased equipment, which generated $27.6 million in Q2 2025 from the sale of 14 engines and two airframes. This highlights the significant unrealized value within WLFC's portfolio, which, as of year-end 2024, held an excess market value of approximately $600 million over its book value.

Expenses also saw notable movements. General and administrative (G&A) expenses increased by 45.4% to $50.4 million in Q2 2025, primarily due to a $15 million increase in personnel costs, including $12.6 million in share-based compensation (partially due to accelerated vesting for a departing General Counsel and a 2024 performance-linked grant). However, these were partially offset by $6.3 million in government grant proceeds for the SAF project. Net finance costs rose by 36.7% to $33.6 million, reflecting increased debt obligations and higher weighted average borrowing costs, though derivative-related receipts partially mitigated this. A significant $43.0 million gain on the sale of the Bridgend Asset Management consultancy business to the Willis Mitsui joint venture further boosted profitability, demonstrating WLFC's ability to monetize strategic assets without diluting shareholder value.

`

Capital Structure and Strategic Flexibility

WLFC's financial strength is further underscored by its robust capital structure and strategic approach to funding growth. The company successfully executed its largest Asset-Backed Securitization (ABS) to date in June 2025, the WEST VIII offering, raising $596.0 million in fixed-rate notes. This transaction was well oversubscribed and priced at the tightest spread WLFC has achieved, signaling strong market confidence in its business model. This follows the completion of its sixth JOLCO financing in April 2025, bringing total JOLCO financings to approximately $125 million.

`
Subsequent to Q2 2025, WLFC amended and extended its $500 million warehouse facility, securing more favorable asset advance rates, reduced borrowing costs, and extended maturity dates. This, combined with the refinancing and expansion of its revolving credit facility to $1 billion in October 2024, provides substantial liquidity and financial flexibility. The company's net leverage, defined as total debt obligations net of cash and restricted cash to equity (inclusive of preferred stock), decreased to 2.96x at June 30, 2025, from 3.48x at year-end 2024. WLFC targets a net leverage in the low-3s, indicating a disciplined approach to capital management while still pursuing opportunistic growth.

These capital initiatives are critical for funding WLFC's ambitious purchase commitments, which totaled $1.0 billion as of June 30, 2025, expected to be satisfied within five fiscal years. This includes 30 new LEAP-1A and 21 new LEAP-1B engines, valued at $912.6 million by 2030, and 16 used engines for $48.7 million in 2025. The company's ability to access diverse capital sources at attractive rates is a testament to its strong financial health and its position as a specialty finance company.

Risks and Outlook: Fueling Future Growth

Despite a strong performance, WLFC operates within a dynamic global environment that presents several risks. Interest rate fluctuations pose a notable challenge, as $866.5 million of the company's outstanding debt is variable rate. A one percent increase in interest rates, net of swaps, would increase annual interest expense by an estimated $3.9 million. Currency devaluation risk is also present, given that 71% of Q2 2025 lease rent revenue came from non-U.S. domiciled lessees, who could face payment difficulties if their local currencies weaken against the U.S. dollar. While a potential U.S./EU zero-tariff policy for aircraft and parts is a positive development, broader tariff and trade barrier risks remain.

Management remains confident in the company's outlook, projecting continued robust demand for its products and services. Lease rates are expected to remain strong, having increased approximately 9% year-over-year and 2-4% over the prior quarter, with no significant negative pressure anticipated from improving OEM production in the near term. The strategic shift towards next-generation assets (54% of the portfolio) positions WLFC to benefit from the growing market for these engines. The company also plans to expand its MRO operations to service GTF and LEAP engines in the future, further leveraging its vertical integration.

WLFC's ability to generate premium returns is rooted in its differentiated offerings and its capacity to address the evolving needs of the aviation industry. The company's "flywheel business model," combined with its technological advantages like ConstantThrust and strategic investments in infrastructure like the WGET test facility, provides a resilient platform for growth. Management's disciplined capital allocation, evidenced by a healthy leverage profile and recurring quarterly dividends, further strengthens the investment thesis.

Conclusion

Willis Lease Finance Corporation stands as a compelling investment opportunity, uniquely positioned at the intersection of critical aviation demand and specialized service provision. The company's record-setting financial performance in Q2 2025, driven by robust lease revenue, strategic asset sales, and a growing spare parts business, vividly illustrates the effectiveness of its integrated "flywheel business model." This model, underpinned by a history of innovation and a deep understanding of the aviation lifecycle, allows WLFC to generate premium returns and maintain a competitive edge against broader lessors.

WLFC's technological differentiators, particularly the ConstantThrust program and the new engine test facility joint venture, are not merely operational enhancements but fundamental pillars of its competitive moat. These initiatives directly address the industry's pressing needs for efficiency, cost savings, and reduced downtime, ensuring sustained demand for WLFC's specialized assets and services. Coupled with a modernized portfolio heavily weighted towards next-generation engines and a flexible, well-capitalized financial structure, WLFC is poised for continued growth. While macroeconomic headwinds and interest rate risks persist, the company's strategic agility, strong asset base, and commitment to innovation position it to thrive, making it a noteworthy consideration for discerning investors seeking exposure to the resilient and evolving aviation sector.