Willis Lease Finance Reports Increase in Lease Rent Revenue in Q1/22
MAY 10, 2022 - 7:22 am
Willis Lease Finance reported total revenues of $68.8 million, aggregate lease rent and maintenance reserve revenues of $53 million and spare parts and equipment sales of $6.6 million in Q1/22. The company’s reported total revenues increased year over year in Q1/22, primarily due to an increase in lease rent revenue and short-term maintenance revenue.
The company also reported that quarterly performance was negatively impacted by the effects of the Russian military action in Ukraine and related sanctions. In Q1/22, Willis Lease Finance recorded a $20.4 million impairment on two engines located in Russia, which are expected to be unrecoverable, and wrote down $0.9 million of receivables associated with Russian leases.
Furthermore, through its joint venture, Willis Mitsui & Company Engine Support Limited, the company recorded an additional net impairment of $2.4 million, presented through loss from joint ventures, for one engine located in Russia, which is also expected to be unrecoverable.
“The recent events in Ukraine are tragic and have impacted us commercially through asset seizures in Russia,” Austin C. Willis, CEO of Willis Lease Finance, said. “However, proactive measures were taken early on to reduce exposure and recover assets, helping to mitigate potentially greater impairments.”
“One-time book losses from the impairment of assets in Russia overwhelmed our income statement in the first quarter, but the company’s core operating business has continued to improve as recovery from the pandemic continues,” Brian R. Hole, president of Willis Lease Finance, said. “Our customers are flying, in some cases above pre-pandemic levels, and we are working hard to make sure they have whatever support they need to continue that trend”
Lease rent revenue increased by $6.6 million, or 21%, to $38.1 million in Q1/22 compared with $31.5 million in the same quarter of 2021, primarily reflecting an increase in the number of engines placed on lease. This increase was partly offset by a $0.3 million reduction in lease rent revenue associated with Russian leases, which was determined to be uncollectible as of March 31.
Maintenance reserve revenue was $14.8 million in Q1/22, a decrease of 25.1% compared with $19.8 million in the same quarter of 2021.
According to Willis Lease Finance, the decline in maintenance revenue was primarily influenced by lower long-term maintenance revenue, which was reflective of fewer engines returning off lease as compared with the prior year period.
Short-term maintenance reserve revenue, which results from usage of assets the company has on short-term lease, and is a proxy for how much its engines are flying, was $6.6 million in Q1/22 compared with $2.7 million in the prior year period. Short-term maintenance reserve revenue was negatively impacted by $0.6 million related to Russian lessees, which was determined to be uncollectible as of March 31.
Spare parts and equipment sales increased to $6.6 million in Q1/22 compared with $4.6 million in Q1/21. The increase in spare parts sales was driven by improved industry-wide demand compared with the prior year period, according to Willis Lease Finance.
Gain on sale of leased equipment was $2.3 million in Q1/22, reflecting the sale of five engines and other parts and equipment. There was no gain on sale of leased equipment in Q1/21.
Other revenue increased by $1.7 million to $6.9 million in Q1/22 from $5.2 million in Q1/21, primarily reflecting increased service revenue.
Write-down of equipment was $21.1 million for Q1/22, primarily reflecting the impairment of two engines located in Russia due to the Russian military action in Ukraine that were expected to be unrecoverable as of March 31, compared with a write-down of $1.9 million for Q1/21, reflecting the write-down of one airframe.
Willis Lease Finance’s aggregate lease assets, inclusive of its equipment held for operating lease and notes receivable, at March 31, 2022, and 2021 was $2,065.7 million and $2,085.4 million, respectively, marking a year-over-year decrease of 1%.
Income tax benefit was $6.5 million for the three months ended March 31 compared with $0.4 million for the three months ended March 31, 2021. The effective tax rate for Q1/22 was 23.5% compared with 21.2% in the prior year period. The company’s effective tax rates differed from the U.S. federal statutory rate of 21% largely due to executive compensation as defined in IRS code Section 162(m) and a discrete item recorded in Q1/22.
The book value of lease assets Willis Lease Finance owns directly or through its joint ventures, inclusive of its notes receivable, was $2,395.2 million at March 31. As of March 31, the company also managed 349 engines, aircraft and related equipment on behalf of other parties.
The company maintained $420 million of undrawn revolver capacity at March 31.
During Q1/22, the company repurchased a total of 52,780 shares of common stock for approximately $1.8 million at a weighted average price of $34.86 per share.
Diluted weighted average loss per common share was $3.70 for Q1/22 compared with $0.36 in Q1/21.
Book value per diluted weighted average common share outstanding increased to $62.34 at March 31 compared with $59.23 at Dec. 31.
As of March 31, $1.951 billion of equipment held in Willis Lease Finance’s operating lease portfolio and $114.3 million of notes receivable represented 298 engines, 12 aircraft, one marine vessel and other leased parts and equipment. As of Dec. 31, the company had $1.991 billion of equipment held for its operating lease portfolio and $115.5 million notes receivable, which represented 304 engines, 12 aircraft, one marine vessel and other leased parts and equipment.
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