Willis Lease Finance's Q3 2025 Earnings Call: Contradictions in Aircraft Production, Write-Downs, Tariff Impact, and Leasing Strategy Revealed

Date of Call: November 4, 2025

Financials Results

• Revenue: $183.4 million, up 25.4% YOY
• EPS: $3.25 per diluted share (diluted weighted average income per share was $3.25)

Guidance:

• Q4 / near-term: management expects continued strong demand for lease engines and services driven by airlines' shop-visit avoidance strategies and sustained portfolio utilization.
• Capital allocation: intend to continue deploying capital into lease portfolio opportunities while returning capital to shareholders (dividend increased to $0.40/share; payable Nov 26, 2025).
• Aircraft leasing: will modestly expand aircraft-leasing capability (add-on to core engine business, not a shift to becoming a large global lessor).
• SAF project: Wilton site secured; development is stage-gated and expected to include third-party equity alongside Willis' equity (no final funding split yet).
• Balance sheet: actively assessing capital markets to lower cost of capital and opportunistically refinance given liquidity and leverage profile.

Business Commentary:

* Record Financial Performance: - Willis Lease Finance Corporation reported quarterly revenue of $183.4 million, a 25.4% increase year-over-year. - This growth was driven by sustained demand for its core leasing business and the strengthening aviation market, as airlines rely on their services to minimize lengthy and costly engine shop visits.

• Portfolio Expansion and Investments:
• The company purchased 16 engines and 6 aircraft for its lease portfolio, totaling approximately $136.4 million.

• This expansion, including a significant engagement with Air India Express, reflects the company's strategic focus on maintaining a relevant and in-demand portfolio to meet customer needs.

• Dividend Increase:

• Willis Lease Finance Corporation declared its seventh consecutive quarterly dividend, increasing it to $0.40 per share.

• The decision to raise the dividend demonstrates the company's confidence in its business strength and the ability to return capital to shareholders while maintaining strong cash flow characteristics.

• margin Dynamics:

• The company's maintenance reserve revenue was $76.1 million, representing a 52.8% increase from the prior year, driven by long-term maintenance revenues related to end-of-lease payments.
• This rise was attributed to increased engine utilization and the release of maintenance reserve liabilities, reflecting the high level of asset usage by the customer base.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted record metrics: total revenue $183.4M (+25.4% YOY), record core lease rent revenues $76.6M, EBT $43.2M (+25.4% YOY), income from operations $38M (+12.8% YOY), and declared an increased quarterly dividend of $0.40 — framing performance and capital returns as evidence of business strength.

Q&A:

• Question from Louis Raffetto (Wolfe Research, LLC): How do you see improving new aircraft delivery rates potentially impacting legacy engine values?
  Response: Increased OEM deliveries could add supply and hasten retirements, potentially pressuring legacy engine values, but Willis expects demand for services and shop-avoidance programs (e.g., ConstantThrust) to benefit its business; portfolio already ~53–54% future-generation assets to mitigate risk.

• Question from William Waller (M3F, Inc.): Can you reconcile the ~$32.3M increase in common equity vs reported common earnings of ~$22.9M (and the $1.7M dividend)?
  Response: The equity increase reflects net income plus non-income paid-in-capital items (stock-based compensation and other changes); management pointed to the detailed reconciliation in the 10-Q for line-by-line explanation.

• Question from William Waller (M3F, Inc.): Can you walk through the compensation component of G&A this quarter and explain drivers of the increase?
  Response: G&A rose primarily from higher incentive compensation (~+$1.6M), increased share-based compensation (~$11.2M, up ~$0.9M) and higher personnel costs due to headcount; sequentially personnel expenses actually declined by >$8M.

• Question from William Waller (M3F, Inc.): Please explain the $18.9M income tax expense and the impact of Section 162(m).
  Response: Q3's elevated effective tax rate was largely a temporary result of recent tax-law changes implemented in July (benefits like bonus depreciation offset by net negative impacts from GILTI/Section 250) with Section 162(m) contributing; management expects reversion toward year-to-date rates.

• Question from William Waller (M3F, Inc.): Given stated equity vs apparent portfolio value disparity, what are your views on share repurchases?
  Response: Management said they evaluate buybacks to maximize shareholder value and have repurchased in the past, but provided no current repurchase program — they remain open to repurchases while balancing other capital uses.

• Question from Eric Gregg (Four Tree Island Advisory LLC): Why have write-downs been recurring this year and is this the new normal? Also, are you ramping aircraft-leasing investments and how will you fund the Wilton SAF project?
  Response: Write-downs reflect end-of-lease asset condition and repositioning (engines moved to held-for-sale or monetization without full shop visits) amid higher utilization, not portfolio deterioration; aircraft-leasing will be modestly expanded to add customer value (not to become a large lessor); Wilton SAF is stage-gated, management secured the site and intends a conservative funding approach with third-party equity alongside Willis capital, no final FID/funding split yet.

Contradiction Point 1

Aircraft Production and Engine Leasing Strategy

It involves differing perspectives on the impact of OEM production on engine leasing strategy, which could influence investment decisions and market positioning.

With strong demand and rising new aircraft deliveries helping airlines manage fleets, how will this affect legacy engine values? - Louis Raffetto(Wolfe Research, LLC)

2025Q3: If OEMs increase aircraft supply, it will add supply to the market, potentially retiring current aircraft and impacting values. However, this could also hasten airlines' transition strategies, benefiting our services. - Austin Willis(CEO)

Are OEM production improvements affecting lease rates? When are lease rates expected to peak? - Hillary Cacanando(Deutsche Bank AG, Research Division)

2025Q2: We've seen lease rates increase about 9% relative to the same period last year and about 2% to 4% over the prior quarter and we don't expect to see any real negative pressure on lease rates because of OEM production in the near term. - Austin Chandler Willis(CEO)

Contradiction Point 2

Write-downs and Financial Strategy

It highlights differing explanations for the frequency of write-downs, which could affect investor understanding of the company's financial health and strategy.

Why are write-downs so frequent after three consecutive quarters with multimillion-dollar charges? - Eric Gregg(Four Tree Island Advisory LLC)

2025Q3: Write-downs are common when engines exit long-term leases. Engines are often moved to held-for-sale, and impairments are taken. This is typical in the engine leasing industry. - Austin Willis(CEO)

How should we interpret the maintenance reserve revenue and liability? - William Chester Waller(M3F, Inc.)

2025Q2: Long-term maintenance reserve recognition occurs when engines come off long-term lease, with some timing-related variations affecting the Q2 figures. - Austin Chandler Willis(CEO)

Contradiction Point 3

Impact of Tariffs on Engine Values

The responses differ on the potential impact of tariffs on the value of the company's existing engine portfolio, which could affect lease rates and market demand.

Given strong demand and rising new aircraft deliveries helping airlines manage fleets, how might this affect legacy engine values? - Louis Raffetto(Wolfe Research, LLC)

2025Q3: If OEMs increase aircraft supply, it will add supply to the market, potentially retiring current aircraft and impacting values. - Austin Willis(CEO)

How will the value of your existing portfolio's market values and lease rates be affected if tariffs with Europe escalate? - Hillary Cacanando(Deutsche Bank)

2025Q1: It's hard to predict future market values, but inflation in assets is expected. OEM engines may become more expensive due to tariffs, potentially driving up values of incumbent assets. - Austin Willis(CEO)

Contradiction Point 4

Demand and Market Conditions

It highlights differing perspectives on the demand backdrop and market conditions, which are crucial for understanding the company's strategic positioning and growth prospects.

With strong demand and rising new aircraft delivery rates helping airlines manage fleets, how will this affect legacy engine values? - Louis Raffetto (Wolfe Research, LLC)

2025Q3: The demand backdrop seems strong, and improving new aircraft delivery rates may help airlines manage their fleets, potentially impacting legacy engine values. - Austin Willis(CEO)

Not explicitly stated in the provided transcript. - Louis Raffetto (Wolfe Research)

2024Q4: Weak demand and overcapacity in the aviation industry. - Austin Willis(CEO)

Contradiction Point 5

Strategic Focus on Aircraft Leasing

The company's strategic focus on expanding its aircraft leasing business appears to be inconsistent between the two quarters.

Are you increasing investment in aircraft leasing, and will this change the strategy? - Eric Gregg(Four Tree Island Advisory LLC)

2025Q3: We aim to expand our aircraft leasing, but not to become a major player like AerCap. We will focus on adding value through our existing strategy, such as ConstantThrust. - Austin Willis(CEO)

Are you planning to expand in the aircraft leasing market or do you believe maintaining a niche position is advantageous compared to larger competitors like AerCap or GE? - Louis Raffetto(Wolfe Research)

2025Q1: We aim to be a sizeable player in the aircraft leasing space and believe we are positioned well with a diversified portfolio of assets. - Austin Willis(CEO)