Executive Summary / Key Takeaways

• Willis Lease Finance Corporation (WLFC) operates a differentiated "flywheel" business model, integrating engine leasing, spare parts sales, and maintenance services, which drives robust financial performance and capitalizes on strong aviation market demand.
• The company's strategic focus on future-generation engines (over 53% of its portfolio in LEAP, GTF, and GEnx) and innovative programs like ConstantThrust position it to benefit from fleet transitions and airlines' increasing need for shop visit avoidance strategies.
• WLFC delivered strong financial results in the first nine months of 2025, with total revenue increasing by 28.9% year-over-year to $536.6 million, driven by record lease rent and maintenance reserve revenues, alongside a significant gain from the sale of its consulting business.
• A substantial unrecognized value in WLFC's engine portfolio, estimated at approximately $600 million above book value as of year-end 2024, underscores the long-term asset appreciation inherent in its business model.
• Despite a temporary higher effective tax rate in Q3 2025 and ongoing investments in strategic initiatives like Sustainable Aviation Fuel (SAF) and an engine test facility, WLFC maintains a strong liquidity position, a flexible capital structure, and a commitment to shareholder returns through a growing dividend.

A Specialized Powerhouse in Aviation Propulsion

Willis Lease Finance Corporation (WLFC) has carved out a unique and resilient position within the global aviation industry, evolving from its pioneering roots in independent engine leasing in the early 1980s into a vertically integrated powerhouse. The company's core business revolves around acquiring and leasing commercial aircraft engines and related equipment, complemented by robust spare parts sales and comprehensive maintenance services. This integrated approach, which management refers to as its "flywheel business model," is a significant differentiator, enabling WLFC to generate premium returns and uncover investment opportunities often inaccessible to more specialized lessors.

The aviation industry currently faces a complex landscape characterized by a substantial "aircraft deficit," with an estimated 5,000 aircraft not expected to be built between 2018 and 2030. This supply-demand imbalance, coupled with escalating costs for new engines and traditional engine shop visits, is driving airlines to seek more flexible and cost-effective solutions for their propulsion needs. WLFC's strategy directly addresses these market dynamics, positioning itself as a premier partner in aviation propulsion by offering solutions that minimize downtime and optimize maintenance expenses.

Technological Edge and Operational Innovation

WLFC's competitive moat is not built on proprietary hardware, but rather on its sophisticated operational "technology" and integrated service delivery. The company's core differentiated offering, the ConstantThrust program, exemplifies this. This innovative service involves a sale-leaseback arrangement on an airline's fleet of aircraft or engines. Critically, when an engine becomes unserviceable, WLFC replaces it with another from its own fleet, managing the maintenance of the unserviceable unit through its extensive service network. This process reduces airline downtime to as little as one day, offering a level of efficiency and cost savings largely unobtainable through traditional maintenance or leasing arrangements. This tangible benefit directly translates into operational advantages for airlines, making ConstantThrust increasingly sought after as carriers navigate fleet transitions.

Further enhancing its operational technology, WLFC operates two Part 145 repair stations in the U.S. and the U.K., capable of performing a wide range of maintenance, from borescopes and lease returns to heavy maintenance. To address a critical industry bottleneck—the shortage of engine testing capacity—WLFC formed a joint venture, Willis Global Engine Testing (WGET), in March 2025 to build an engine test facility in West Palm Beach, Florida. This facility will initially focus on CFM56-5B and 7B engines, with future capabilities for modern variants, improving throughput for WLFC's own engines, its customers', and third parties. This strategic investment directly tackles a "logjam" in the industry, enhancing WLFC's service capabilities and competitive standing.

The company's asset management strategy also reflects a technological foresight. Over 53% of WLFC's owned portfolio is now comprised of "future generation equipment," including LEAP, GTF, and GEnx engines. This proactive shift ensures WLFC consistently holds the most in-demand asset types, positioning it to capitalize on evolving fleet requirements and the anticipated higher shop visit rates for this new generation of engines. This strategic asset allocation, combined with its integrated service model, creates a powerful ecosystem for long-term value creation.

Competitive Landscape and Strategic Positioning

WLFC operates in a competitive environment alongside larger, more diversified aircraft lessors such as AerCap Holdings N.V. and Air Lease Corporation , as well as other transportation asset lessors like GATX Corporation . While these competitors boast greater scale and broader market reach in overall aircraft leasing, WLFC distinguishes itself through its specialized focus on engine management and its vertically integrated service offerings.

WLFC's strength lies in its ability to offer tailored, comprehensive solutions that extend beyond simple leasing. Its ConstantThrust program, for instance, provides a unique value proposition that larger, pure-play lessors may struggle to replicate due to their less integrated maintenance capabilities. This specialization allows WLFC to effectively compete for niche contracts and build stronger, more sticky customer relationships, particularly with airlines seeking to optimize engine maintenance and minimize operational disruptions.

Compared to AerCap (AER) and Air Lease (AL), which often focus on high-volume leasing agreements, WLFC's strategy emphasizes deeper engagement with the engine lifecycle, from acquisition and leasing to parts sales and maintenance. This integrated approach, while potentially leading to a smaller overall fleet size compared to the industry giants, provides superior margins in its specialized segments and a more resilient business model. For example, WLFC's spare parts business, Willis Aeronautical Services, Inc. (WASI), provides valuable feedstock in a tight parts market, supporting both WLFC's and its customers' fleets, with recycling often occurring at its MRO facilities. This contrasts with GATX (GATX), which has a broader, more diversified portfolio across multiple transportation assets, potentially offering greater cost efficiencies through diversification but lacking WLFC's deep aviation-specific expertise.

WLFC's global network of 69 lessees across 37 countries further strengthens its competitive position, providing a diversified revenue base and mitigating regional risks. The company's strategic partnerships, such as its long-standing joint ventures with Mitsui Co., Ltd. (MITSY) (WMES) and China Aviation Supplies Import Export Corporation (CASC Willis), expand its reach and capabilities in key markets. The recent sale of its consulting arm, Bridgend Asset Management Limited (BAML), to WMES for $45 million, resulting in a $43 million gain, further integrates technical consultancy services into the joint venture, enhancing its capabilities while providing WLFC with an infusion of equity without shareholder dilution.

Robust Financial Performance and Capital Allocation

WLFC has demonstrated strong financial performance, particularly in the first nine months of 2025, reflecting the effectiveness of its integrated strategy and favorable market conditions.

• Revenue Growth: Total revenue for the nine months ended September 30, 2025, surged by 28.9% to $536.6 million, up from $416.4 million in the prior-year period. This growth was primarily fueled by a 24.7% increase in lease rent revenue to $216.6 million and a 16.1% rise in maintenance reserve revenue to $181.7 million. Spare parts and equipment sales also saw a significant jump of 165.5% to $54.0 million, driven by strong demand for surplus material.

• Profitability: Income from operations for the nine months ended September 30, 2025, stood at $90.2 million. Net income attributable to common shareholders reached $97.3 million, resulting in diluted weighted average income per common share of $13.89.

• Asset Utilization and Lease Rates: The average utilization rate for WLFC's portfolio (based on net book value of equipment held for operating lease, maintenance rights, and notes receivable and investments in sales-type leases) increased to approximately 84.4% for the nine months ended September 30, 2025, compared to 83.3% in the prior-year period. The average lease rate factor for on-lease operating lease assets remained strong at 1.04% in Q3 2025.
• Unrecognized Value: A key insight into WLFC's financial strength is the substantial unrecognized value in its lease portfolio. As of year-end 2024, the market value of its engine and aircraft assets, as determined by annual appraisals, exceeded their book value by approximately $600 million. This disparity highlights the long-term appreciation of these assets, which often GAAP depreciate through the P&L while their market value increases.
• Cash Flow and Liquidity: Cash flows provided by operating activities were $209.1 million for the nine months ended September 30, 2025. The company maintains a robust capital structure, with 89% of its indebtedness at a fixed rate and a weighted average cost of debt of 5.11% as of Q3 2025. WLFC's total debt obligations stood at $2.24 billion as of September 30, 2025, with a net leverage ratio of 2.90x, down from 3.48x at year-end 2024.

The company's $1 billion credit facility and $500 million warehouse facility provide significant liquidity and flexibility to pursue growth opportunities.

• Shareholder Returns: WLFC has demonstrated a commitment to returning capital to shareholders, declaring its seventh consecutive quarterly dividend and increasing it to $0.40 per share, payable on November 26, 2025. This increased recurring dividend underscores management's confidence in the business's health and strong cash flow generation.

Outlook and Strategic Initiatives

WLFC's management anticipates continued robust demand for its lease engines and services. The ongoing "aircraft deficit" and the accelerating trend of airlines seeking "shop visit avoidance strategies" are expected to drive demand for WLFC's integrated solutions, particularly ConstantThrust. The company is actively expanding its MRO capabilities, with its new aircraft maintenance hangar in Teesside already fully booked through the winter season. While current MRO operations primarily serve CFM56 and V2500 markets, WLFC intends to grow into GTF and LEAP engine maintenance in the future, capitalizing on the anticipated higher shop visit rates for these newer generation engines.

Strategic investments include the Sustainable Aviation Fuel (SAF) project, for which WLFC received approximately $6.3 million in government grant receipts during the nine months ended September 30, 2025. Management expects the significant consultant fees incurred in Q1 2025 for this project to represent the bulk of the net anticipated spend for 2025, inclusive of future grant receipts. The SAF project, along with the new engine test facility, underscores WLFC's vision to be a leader in sustainable aviation and to address critical infrastructure needs. The company also plans to grow its aircraft leasing capability, focusing on adding value through engines and services within aircraft leases, rather than becoming a large-scale airframe lessor.

Risks and Challenges

Despite a positive outlook, WLFC faces several inherent risks. Its primary market risk is exposure to interest rate fluctuations, as a portion of its debt is variable rate. While the company uses interest rate swaps to mitigate this, significant increases in rates could impact operating margins if not fully passed on to customers. Currency devaluation risk is also present, as 70% of lease rent revenues come from non-U.S. domiciled lessees who pay in U.S. dollars.

The imposition of duties, tariffs, and other trade barriers could materially affect the business, although management notes that impacts have been de minimis thus far, and the company's global network of repair stations provides a structural advantage in a potentially bifurcated global system. Furthermore, the company's significant accounting estimates, particularly for long-lived assets and allowances, involve inherent uncertainties that could lead to material differences in actual results.

Conclusion

Willis Lease Finance Corporation stands as a compelling investment opportunity, uniquely positioned within the aviation sector through its integrated "flywheel" business model. The company's strategic focus on engine leasing, combined with its robust spare parts sales and expanding maintenance services, creates a powerful ecosystem that addresses critical airline needs for efficiency and cost optimization. WLFC's innovative ConstantThrust program and its proactive investment in future-generation engine assets and maintenance infrastructure, such as the new engine test facility, underscore its technological differentiation and commitment to long-term value creation.

With strong financial performance in 2025, a significant unrecognized value in its asset portfolio, and a disciplined approach to capital allocation, WLFC is well-equipped to capitalize on the ongoing demand for aviation propulsion solutions. While market risks such as interest rate volatility and potential trade barriers exist, the company's flexible capital structure, strong liquidity, and proven ability to adapt to industry changes reinforce its investment thesis. Investors looking for exposure to a specialized, high-performing player in the essential aviation engine market should consider WLFC's integrated strategy and consistent execution.