Willis Lease Finance Corporation

11/04/2025 | Press release | Distributed by Public on 11/04/2025 14:04

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and notes thereto included under Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, reference should be made to our Audited Consolidated Financial Statements and notes thereto and related "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (the "2024 Form 10-K"). In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs, including the potential impact of changes in interest rates or inflation, as well as the impact of new or increased tariffs on our business, results of operations and financial condition. Our actual results may differ materially from those contained in or implied by any forward-looking statements. The financial information included in this discussion and in our consolidated financial statements may not be indicative of our consolidated financial position, operating results, changes in equity and cash flows in the future. See "Special Note Regarding Forward-Looking Statements" included earlier in this report.
Overview
Our core business is acquiring and leasing commercial aircraft and aircraft engines and related aircraft equipment pursuant to operating leases, all of which we sometimes collectively refer to as "equipment." As of September 30, 2025, the majority of our leases were operating leases, with the exception of certain failed sale-leaseback transactions classified as notes receivable under the guidance provided by Accounting Standards Codification ("ASC") 842 and investments in sales-type leases. As of September 30, 2025, we had 69 lessees in 37 countries. Our portfolio is continually changing due to equipment acquisitions and sales. As of September 30, 2025, we had $2,700.4 million of equipment held in our operating lease portfolio, $144.8 million of notes receivable, $27.0 million of maintenance rights, and $16.3 million of investments in sales-type leases, which represented 354 engines, 20 aircraft, one marine vessel, and other leased parts and equipment. As of September 30, 2025, we also managed 86 engines, aircraft and related equipment on behalf of other parties.
Willis Aeronautical Services, Inc. is a wholly-owned and vertically-integrated subsidiary whose primary focus is the sale of aircraft engine parts and materials through the acquisition or consignment of aircraft and engines. Additionally, through Willis Engine Repair Center®, Jet Centre by Willis, and Willis Aviation Services Limited, the Company's service offerings include Part 145 engine maintenance, aircraft line and base maintenance, aircraft disassembly, parking and storage, airport FBO and ground and cargo handling services.
We actively manage our portfolio and structure our leases to maximize the residual values of our leased assets. Our leasing business focuses on popular Stage IV commercial jet engines manufactured by CFMI, General Electric, Pratt & Whitney, Rolls Royce and International Aero Engines.
Risks and Uncertainties
Given the uncertainty in the rapidly changing market and economic conditions related to the potential impact of changes in interest rates or inflation, as well as the impact of new or increased tariffs, we will continue to evaluate the nature and extent of the impact to the Company's business and financial position. The ultimate extent of changes in interest rates or inflation, as well as the impact of new or increased tariffs, on the Company will depend on future developments, and such effects could exist for an extended period of time.
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations included in our 2024 Form 10-K.
Results of Operations
Three months ended September 30, 2025 compared to the three months ended September 30, 2024
Revenue is summarized as follows:
Three months ended September 30,
2025 2024 % Change
(dollars in thousands)
Lease rent revenue $ 76,552 $ 64,905 17.9 %
Maintenance reserve revenue 76,054 49,760 52.8 %
Spare parts and equipment sales 5,394 10,863 (50.3) %
Interest revenue 3,360 3,412 (1.5) %
Gain on sale of leased equipment 16,134 9,519 69.5 %
Maintenance services revenue 3,636 5,948 (38.9) %
Other revenue 2,259 1,816 24.4 %
Total revenue $ 183,389 $ 146,223 25.4 %
Lease Rent Revenue.Lease rent revenue consists of rental income from long-term and short-term engine leases, aircraft leases, and other leased parts and equipment. Lease rent revenue increased by $11.6 million, or 17.9%, to $76.6 million in the three months ended September 30, 2025 from $64.9 million for the three months ended September 30, 2024. The increase is due to an increase in the average size of the portfolio as compared to that of the prior year period as well as an increase in average utilization (based on net book value of equipment held for operating lease, maintenance rights, and notes receivable and investments in sales-type leases net of allowances) of equipment held in our operating lease portfolio.
At September 30, 2025, the Company had $2,700.4 million of equipment held in our operating lease portfolio, $144.8 million of notes receivable, $27.0 million of maintenance rights, and $16.3 million of investments in sales-type leases. At September 30, 2024, the Company had $2,435.6 million of equipment held in our operating lease portfolio, $175.4 million of notes receivable, $31.5 million of maintenance rights, and $23.2 million of investments in sales-type leases. Average utilization (based on net book value of equipment held for operating lease, maintenance rights, and notes receivable and investments in sales-type leases net of allowances) was approximately 86.0% and 82.9% for the three months ended September 30, 2025 and 2024, respectively.
Two customers accounted for approximately 12% and 10% of the Company's total lease rent revenue during the three months ended September 30, 2025, and two customers each accounted for approximately 11% of the Company's total lease rent revenue during the three months ended September 30, 2024.
Maintenance Reserve Revenue. Maintenance reserve revenue increased $26.3 million, or 52.8%, to $76.1 million for the three months ended September 30, 2025 from $49.8 million for the three months ended September 30, 2024. We recognized $29.5 million in long-term maintenance revenue for the three months ended September 30, 2025, compared to $1.2 million in long-term maintenance revenue recognized in the comparable prior period as more engines came off leases with long-term maintenance conditions. Long-term maintenance revenue is influenced by end of lease compensation and the realization of long-term maintenance reserves associated with engines coming off lease. Engines on lease with "non-reimbursable" usage fees generated $46.6 million of short-term maintenance revenues, compared to $48.5 million in the comparable prior period. Short-term maintenance revenues are a proxy for flight time of our portfolio of engines.
Spare Parts and Equipment Sales. Spare parts and equipment sales decreased by $5.5 million, or 50.3%, to $5.4 million for the three months ended September 30, 2025, compared to $10.9 million for the three months ended September 30, 2024. Spare parts sales were $5.4 million and $9.9 million for the three months ended September 30, 2025 and 2024, respectively, a decrease of $4.5 million, or 45.4%, compared to the same period in 2024. The decrease in spare parts sales reflects the variations in the timing of sales. There were no equipment sales for the three months ended September 30, 2025. Equipment sales for the three months ended September 30, 2024 were $1.0 million for the sale of one engine.
Interest Revenue.Interest revenue decreased slightly by $0.1 million, or 1.5%, for the three months ended September 30, 2025, as compared to that of the three months ended September 30, 2024.
Gain on Sale of Leased Equipment.During the three months ended September 30, 2025, we sold 10 engines, one airframe, and other parts and equipment from the lease portfolio for $73.7 million less economic closing adjustments, resulting in a net gain of $16.1 million. During the three months ended September 30, 2024, we sold 13 engines and other parts and equipment from the lease portfolio, resulting in a net gain of $9.5 million.
Maintenance Services Revenue. Maintenance services revenues predominately represent fleet management, engine and aircraft storage and repair services, and revenue related to fixed base operator services provided to third parties, such as refueling, maintenance, and hangar services. Maintenance services revenue decreased by $2.3 million, or 38.9%, to $3.6 million for the three months ended September 30, 2025, from $5.9 million for the three months ended September 30, 2024. The decrease primarily reflects a decrease in fleet management revenue resulting from the sale of that line of business on June 30, 2025 to our joint venture Willis Mitsui & Company Engine Support Limited ("WMES").
Other Revenue.Other revenue increased by $0.4 million, or 24.4%, to $2.3 million for the three months ended September 30, 2025 from $1.8 million for the three months ended September 30, 2024. Other revenue consists primarily of managed service fee revenue related to the servicing of engines for the WMES lease portfolio. These services include management of the WMES lease portfolio, which occurs on an ongoing basis, as well as marketing, which occurs on a transactional basis.
Depreciation and Amortization Expense.Depreciation and amortization expense increased by $5.0 million, or 21.2%, to $28.7 million for the three months ended September 30, 2025, compared to $23.7 million for the three months ended September 30, 2024. The increase is primarily due to an increase in the size of our lease portfolio, the timing of placing acquired engines on lease, and to a lesser extent, an increase in accelerated depreciation on older engine models.
Cost of Spare Parts and Equipment Sales. Cost of spare parts and equipment sales decreased by $2.2 million, or 24.6%, to $6.7 million for the three months ended September 30, 2025, compared to $8.9 million for the three months ended September 30, 2024. Cost of spare parts sales were $6.7 million and $8.8 million for the three months ended September 30, 2025 and 2024, respectively, a decrease of $2.1 million, or 23.7%, reflecting the decrease in spare parts sales. Cost of equipment sales were $0.1 million for the three months ended September 30, 2024.
Cost of Maintenance Services. Cost of maintenance services predominately represent the costs of fleet management, engine and aircraft storage and repair services, and the management of fixed base operator services provided to third parties. Cost of maintenance services decreased by $1.3 million, or 19.8%, to $5.1 million for the three months ended September 30, 2025, compared to $6.4 million for the three months ended September 30, 2024, reflecting the decrease in maintenance services revenue.
Write-down of Equipment.There was $10.2 million in write-downs of equipment for the three months ended September 30, 2025, reflecting the write-down of eight engines. Write-downs were predominantly related to engines moved from Equipment held for operating lease to Equipment held for sale. There was $0.6 million in write-downs of equipment for the three months ended September 30, 2024, reflecting the write-down of three engines.
General and Administrative Expenses.General and administrative expenses increased by $9.2 million, or 22.9%, to $49.2 million for the three months ended September 30, 2025, compared to $40.0 million for the three months ended September 30, 2024. The increase reflects a $3.5 million increase in consultant fees, which was influenced by costs associated with the Company's sustainable aviation fuel project, as well as a $1.6 million increase in legal fees primarily associated with finance and strategic initiatives. In addition, personnel costs increased by $2.8 million, which included an increase of $1.6 million in incentive compensation as a result of business performance to date as well as $0.9 million of additional share-based compensation.
Technical Expense.Technical expense consists of the non-capitalized cost of engine repairs, engine thrust rental fees, outsourced technical support services, sublease engine rental expense, engine storage and freight costs. Technical expense increased by $3.2 million to $8.4 million for the three months ended September 30, 2025, compared to $5.2 million for the three months ended September 30, 2024, primarily due to an increased level of engine repair activity as compared to that of the prior period.
Net Finance Costs.Net finance costs increased $9.3 million, or 33.5%, to $37.1 million for the three months ended September 30, 2025, compared to $27.8 million for the three months ended September 30, 2024, primarily due to an overall increased level of debt obligations. There was additional interest expense of $8.3 million for the three months ended September 30, 2025 associated with the Willis Engine Structured Trust VIII ("WEST VIII") notes payable, which closed in June 2025, and loss on debt extinguishment of $3.0 million associated with the refinance of Willis Engine Structured Trust IV ("WEST IV") and Willis Engine Structured Trust VII ("WEST VII") notes. Additionally, derivative-related receipts were $(0.5) million for the three months ended September 30, 2025, as compared to $3.0 million for the three months ended September 30, 2024, as certain interest rate swap positions were terminated. These increases in expense were partially offset by an increase of $3.0 million in interest income primarily related to interest earned on WEST VIII restricted cash accounts.
Income Tax Expense.Income tax expense was $18.9 million for the three months ended September 30, 2025, compared to income tax expense of $10.4 million for the three months ended September 30, 2024. The effective tax rate for the third quarter of 2025 was 43.7%, compared to 30.1% in the prior year period. The Company's effective tax rate differed from the U.S. federal statutory rate of 21.0% primarily due to executive compensation exceeding $1.0 million as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). H.R. 1., also known as the One Big Beautiful Bill Act ("OBBBA"), was enacted on July 4, 2025. The provisions of the OBBBA impacted certain tax deductions, including bonus depreciation, limiting the Company's ability to benefit from the Section 250 deduction. This disallowance caused the Company's third quarter effective tax rate to be higher than that of the previous quarter.
Nine months ended September 30, 2025 compared to the nine months ended September 30, 2024
Revenue is summarized as follows:
Nine months ended September 30,
2025 2024 % Change
(dollars in thousands)
Lease rent revenue $ 216,559 $ 173,652 24.7 %
Maintenance reserve revenue 181,656 156,527 16.1 %
Spare parts and equipment sales 53,988 20,337 165.5 %
Interest revenue 10,943 7,965 37.4 %
Gain on sale of leased equipment 48,153 33,148 45.3 %
Gain on sale of financial assets 378 - nm
Maintenance services revenue 17,253 17,956 (3.9) %
Other revenue 7,693 6,841 12.5 %
Total revenue $ 536,623 $ 416,426 28.9 %
Lease Rent Revenue.Lease rent revenue increased by $42.9 million, or 24.7%, to $216.6 million for the nine months ended September 30, 2025, compared to $173.7 million for the nine months ended September 30, 2024. The increase is due to an increase in the average size of the portfolio as compared to that of the prior year period as well as an increase in average utilization (based on net book value of equipment held for operating lease, maintenance rights, and notes receivable and investments in sales-type leases net of allowances) of equipment held in our operating lease portfolio.
At September 30, 2025, the Company had $2,700.4 million of equipment held in our operating lease portfolio, $144.8 million of notes receivable, $27.0 million of maintenance rights, and $16.3 million of investments in sales-type leases. At September 30, 2024, the Company had $2,435.6 million of equipment held in our operating lease portfolio, $175.4 million of notes receivable, $31.5 million of maintenance rights, and $23.2 million of investments in sales-type leases. Average utilization (based on net book value of equipment held for operating lease, maintenance rights, and notes receivable and investments in sales-type leases net of allowances) was approximately 84.4% and 83.3% for the nine months ended September 30, 2025 and 2024, respectively.
Two customers accounted for approximately 13% and 10% of the Company's total lease rent revenue during the nine months ended September 30, 2025, and two customers accounted for approximately 11% and 10% of the Company's total lease rent revenue during the nine months ended September 30, 2024.
Maintenance Reserve Revenue.Maintenance reserve revenue increased $25.1 million, or 16.1%, to $181.7 million for the nine months ended September 30, 2025 from $156.5 million for the nine months ended September 30, 2024. Long-term maintenance revenue was $39.5 million for the nine months ended September 30, 2025 compared to $24.6 million in the prior year period, an increase of $15.0 million or 61.0%. Long-term maintenance revenue is influenced by end of lease compensation and the realization of long-term maintenance reserves associated with engines coming off lease. Engines on lease with "non-reimbursable" usage fees generated $142.1 million of short-term maintenance revenues compared to $132.0 million in the comparable prior period, an increase of $10.1 million or 7.7%. The increase in short-term maintenance reserve revenue was influenced by an increase in the number of engines on short-term lease conditions, and the systematic, contractual increase in the hourly and cyclical usage rates on our engines.
Spare Parts and Equipment Sales.Spare parts and equipment sales increased by $33.7 million, or 165.5%, to $54.0 million for the nine months ended September 30, 2025 compared to $20.3 million in the prior year period. Spare parts sales were $30.7 million and $19.4 million for the nine months ended September 30, 2025 and 2024, respectively, an increase of $11.3 million, or 58.4%, compared to the same period in 2024. The increase in spare parts sales for the nine months ended September 30, 2025 reflects the demand for surplus material as operators extend the lives of their current generation engine portfolios. Equipment sales for the nine months ended were $23.3 million for the sale of two engines. Equipment sales for the nine months ended September 30, 2024 were $1.0 million for the sale of one engine.
Interest Revenue.Interest revenue increased by $3.0 million, or 37.4%, to $10.9 million for the nine months ended September 30, 2025 compared to $8.0 million for the nine months ended September 30, 2024. The increase primarily reflects an overall higher amount of interest revenue recognized on new notes receivable that were entered into during the latter half of 2024. Notes receivable result from failed sale-leasebacks in which the Company was the buyer-lessor.
Gain on Sale of Leased Equipment.During the nine months ended September 30, 2025, we sold 31 engines, four airframes, and other parts and equipment from the lease portfolio for $212.5 million less economic closing adjustments, resulting in a net gain of $48.2 million. During the nine months ended September 30, 2024, we sold 28 engines, eight airframes, and other parts and equipment from the lease portfolio, resulting in a net gain of $33.1 million.
Gain on Sale of Financial Assets.During the nine months ended September 30, 2025, we sold two investments in sales-type lease assets for a net gain of $0.4 million. There was no gain on sale of financial assets during the nine months ended September 30, 2024.
Maintenance Services Revenue. Maintenance services revenue decreased by $0.7 million, or 3.9%, to $17.3 million for the nine months ended September 30, 2025, from $18.0 million for the nine months ended September 30, 2024, reflecting the sale of the fleet management business on June 30, 2025 to our joint venture WMES.
Other Revenue.Other revenue increased by $0.9 million, or 12.5%, to $7.7 million for the nine months ended September 30, 2025 from $6.8 million for the nine months ended September 30, 2024. Other revenue consists primarily of managed service fee revenue related to the servicing of engines for the WMES lease portfolio. These services include management of the WMES lease portfolio, which occurs on an ongoing basis, as well as marketing, which occurs on a transactional basis.
Depreciation and Amortization Expense.Depreciation and amortization expense increased by $12.9 million, or 18.9%, to $81.2 million for the nine months ended September 30, 2025 compared to $68.3 million for the nine months ended September 30, 2024. The increase is primarily due to an increase in the size of our lease portfolio, the timing of placing acquired engines on lease, and to a lesser extent, an increase in accelerated depreciation on older engine models.
Cost of Spare Parts and Equipment Sales.Cost of spare parts and equipment sales increased by $33.1 million, or 194.7%, to $50.1 million for the nine months ended September 30, 2025 compared to $17.0 million for the nine months ended September 30, 2024. Cost of spare parts sales were $28.8 million and $16.9 million for the nine months ended September 30, 2025 and 2024, respectively, an increase of $11.9 million, or 70.6%, reflecting the increase in spare parts sales. Cost of equipment sales were $21.3 million and $0.1 million for the nine months ended September 30, 2025 and September 30, 2024, respectively, reflecting the increase in equipment sales.
Cost of Maintenance Services. Cost of maintenance services increased by $1.4 million, or 8.1%, to $19.1 million for the nine months ended September 30, 2025, compared to $17.6 million for the nine months ended September 30, 2024. The increase is primarily related to an increase in personnel costs, as a result of expansion of our aircraft tear down and repair services business.
Write-down of Equipment.Write-down of equipment was $23.8 million for the nine months ended September 30, 2025, primarily reflecting the write-down of 19 engines. Write-downs were predominantly related to engines moved from Equipment held for operating lease to Equipment held for sale. Write-down of equipment was $0.9 million for the nine months ended September 30, 2024, primarily reflecting the write-down of one airframe and three engines.
General and Administrative Expenses.General and administrative expenses increased by $43.0 million, or 41.3%, to $147.3 million for the nine months ended September 30, 2025 compared to $104.3 million for the nine months ended September 30, 2024. The increase primarily reflects a $22.1 million increase in personnel costs, which included an increase of $16.5 million in share-based compensation and an increase of $3.3 million in wages. Of the $16.5 million increase in share-based compensation, $5.3 million related to the acceleration of the vesting of shares upon the resignation of our prior General Counsel, and the remainder primarily related to the appreciation of the market value of the Company's equity as well as share awards to new personnel to support the continued growth of the Company. Further, there was a $9.8 million increase in consultant fees, which was influenced by costs associated with the Company's sustainable aviation fuel project, as well as a $4.9 million increase in legal fees primarily associated with finance and strategic initiatives.
Technical Expense.Technical expense increased by $4.2 million, or 23.2%, to $22.1 million for the nine months ended September 30, 2025 compared to $17.9 million for the nine months ended September 30, 2024, primarily due to an increased level of engine repair activity as compared to that of the prior period.
Net Finance Costs.Net finance costs increased by $27.4 million, or 36.4%, to $102.8 million for the nine months ended September 30, 2025 compared to $75.4 million for the nine months ended September 30, 2024, primarily due to an overall increased level of debt obligations. Interest expense associated with the Company's credit facility increased by $9.4 million for the nine months ended September 30, 2025, due to an increase in the average outstanding balance of the credit facility for the nine months ended September 30, 2025, as compared to that of the prior year period. Further, there was additional interest expense of $7.2 million for the nine months ended September 30, 2025 associated with Willis Warehouse Facility LLC ("WWFL"), as the senior secured warehouse facility did not close until May 2024, and $9.6 million of additional interest expense associated with WEST VIII notes payable, which did not close until June 2025, and loss on debt extinguishment of $3.0 million. These increases in interest expense were partially offset by a decrease of $3.8 million in interest expense associated with WEST VII notes payable due to a reduction in these notes outstanding and $1.9 million of increased interest income associated with larger restricted cash balances as we refinanced the balance sheet. Additionally, derivative-related receipts were $4.4 million for the nine months ended September 30, 2025, as compared to $9.2 million for the nine months ended September 30, 2024 as certain interest rate swap positions were terminated and certain interest rate metrics fluctuated.
Gain on Sale of Business.During the nine months ended September 30, 2025, a wholly-owned subsidiary of the Company, entered into a Share Purchase Agreement (the "SPA"), by and between Willis Asset Management Limited ("WAML") and WMES. Pursuant to the SPA, WAML sold the entire issued share capital of Bridgend Asset Management Limited ("BAML"), a United Kingdom-based aviation consultancy business, to WMES for a total purchase price of $45.0 million subject to certain working capital adjustments. The transaction closed on June 30, 2025, resulting in a gain on sale of business of approximately $43.0 million for the Company.
Income Tax Expense.Income tax expense was $41.2 million for the nine months ended September 30, 2025 compared to $34.7 million for the nine months ended September 30, 2024. The effective tax rate for the nine months ended September 30, 2025 was 28.9% compared to 28.4% in the prior year period. The Company's effective tax rate differed from the U.S. federal statutory rate of 21.0% primarily due to executive compensation exceeding $1.0 million as defined in Section 162(m) of the Code, as well as the sale of the Company's entire issued share capital of BAML, a discrete item per ASC 270, "Interim Reporting," due to the unusual and infrequent nature of the sale. The provisions of the OBBBA impacted certain tax deductions, including bonus depreciation, limiting the Company's ability to benefit from the Section 250 deduction.
Financial Position, Liquidity and Capital Resources
Liquidity
At September 30, 2025, the Company had $12.9 million of cash and cash equivalents and $158.1 million of restricted cash. We fund our operations primarily from cash provided by our leasing activities. We finance our growth through borrowings secured primarily by our equipment lease portfolio. Cash of approximately $1,005.1 million and $518.9 million for the nine months ended September 30, 2025 and 2024, respectively, was derived from our borrowing activities, which included our $596.0 WEST VIII capital raise in June 2025. In these same time periods, $1,029.8 million and $331.2 million, respectively, was used to pay down related debt.
For any interest rate swaps that we enter into, we will be exposed to risk in the event of non-performance of the interest rate hedge counter-parties. We may hedge additional amounts of our floating rate debt in the future.
Cash Flows Discussion
Cash flows provided by operating activities were $209.1 million and $216.4 million for the nine months ended September 30, 2025 and 2024, respectively. The $7.4 million, or 3.4%, decrease in operating cash flows was primarily driven by a $23.2 million decrease in payments on sales-type leases, a period over period $28.1 million decrease in cash flows from changes in accounts receivable, and a period over period $24.0 million decrease in cash flows from changes in accounts payable and accrued expenses. Partially offsetting the decreases was a period over period $52.1 million increase in cash flows from changes in inventory. These changes reflect significant inventory purchases made in the prior comparable period to meet the high demand for spare parts. Spare parts sales were $30.7 million and $19.4 million for the nine months ended September 30, 2025 and 2024, respectively, an increase of $11.3 million, or 58.4%, compared to the same period in 2024. Cash flows from operations are driven significantly by payments made under our lease agreements, which comprise lease revenue, security deposits and maintenance reserves, and are offset by interest expense and general and administrative costs. Cash received as maintenance reserve payments for some of our engines on lease are partially restricted by our debt arrangements. The lease revenue stream, in the short term, is at fixed rates while a portion of our debt is at variable rates. If interest rates increase, it is unlikely we could increase lease rates in the short term, and this would cause a reduction in our earnings and operating cash flows. Revenue and maintenance reserves are also affected by the amount of equipment off lease. The average utilization rate (based on net book value of equipment held for operating lease, maintenance rights, and notes receivable and investments in sales-type leases net of allowances) for the nine months ended September 30, 2025 and 2024 was approximately 84.4% and 83.3%, respectively. If there is an increase in off-lease rates or deterioration in lease rates that are not offset by reductions in interest rates, there will be a negative impact on earnings and cash flows from operations.
Cash flows used in investing activities were $108.2 million for the nine months ended September 30, 2025 and primarily reflected $310.6 million for the purchase of equipment held for operating lease and for sale (including capitalized costs and prepaid deposits made in the period) and $23.2 million for the purchase of property, equipment and furnishings, which was primarily related to leasehold improvements, partially offset by proceeds from sale of equipment (net of selling expenses) of $194.3 million and proceeds from sale of business of $21.9 million. Cash flows used in investing activities were $455.0 million for the nine months ended September 30, 2024 and primarily reflected $488.4 million for the purchase of equipment held for operating lease (including capitalized costs and prepaid deposits made in the period) and $89.6 million related to leases entered into which were classified as notes receivable under ASC 842, partly offset by proceeds from sale of equipment (net of selling expenses) of $117.9 million.
Cash flows used in financing activities were $62.4 million for the nine months ended September 30, 2025 and primarily reflected $1,029.8 million in principal payments and $18.7 million in cancellation of restricted stock in satisfaction of withholding tax, partially offset by $1,005.1 million in proceeds from debt obligations. Cash flows provided by financing activities were $175.6 million for the nine months ended September 30, 2024 and primarily reflected $518.9 million in proceeds from debt obligations and $13.1 million in proceeds from issuance of preferred stock, partially offset by $331.2 million in principal payments, $8.9 million in cash dividends paid to shareholders of common stock, and $7.2 million in cancellation of restricted stock in satisfaction of withholding tax.
Cash Dividends
During the nine months ended September 30, 2025 and September 30, 2024, the Company paid cash dividends of $5.7 million and $8.9 million, respectively, to shareholders of common stock.
Preferred Stock Dividends
In September 2024, the Company entered into a Series A Preferred Stock Purchase Agreement with Development Bank of Japan Inc. (the "Stock Purchase Agreement"), which refinanced and expanded the Company's Series A-1 and Series A-2 Preferred Stock into one $65.0 million Series A Preferred Stock series (the "Series A Preferred Stock"), which accrues quarterly dividends at the rate per annum of 8.35% per share.
Prior to the Stock Purchase Agreement, the Company's Series A-1 Preferred Stock accrued quarterly dividends at the rate per annum of 8.5% per share, and the Series A-2 Preferred Stock accrued quarterly dividends at the rate per annum of 6.5% per share. During each of the nine months ended September 30, 2025 and 2024, the Company paid total preferred stock dividends of $4.3 million and $3.4 million, respectively.
Debt Obligations and Covenant Compliance
At September 30, 2025, debt obligations consisted of loans totaling $2,239.5 million, net of unamortized issuance costs and note discounts, payable with interest rates varying between approximately 3.1% and 8.0%. Substantially all of our assets are pledged to secure our obligations to creditors. For further information on our debt instruments, see Note 4 "Debt Obligations" in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Virtually all of our debt requires our ongoing compliance with certain financial covenants including debt/equity ratios, minimum tangible net worth and minimum interest coverage ratios, and other eligibility criteria including customer and geographic concentration restrictions. Under our revolving credit facility, we can borrow no more than 85% of an engine's net book value and 65% of the net book value of an airframe, spare parts or other assets. Therefore, we must have other available funds for the balance of the purchase price of any new equipment to be purchased. Our revolving credit facility, certain indentures and other debt related agreements also contain cross-default provisions. If we do not comply with the covenants or eligibility requirements, we may not be permitted to borrow additional funds and accelerated payments may become necessary. Additionally, much of the debt is secured by engines and aircraft, and to the extent that engines or aircraft are sold, repayment of that portion of the debt could be required.
At September 30, 2025, we were in compliance with the covenants specified in our revolving credit facility, including the Interest Coverage Ratio requirement of at least 2.25 to 1.00, and the Total Leverage Ratio requirement of not greater than 4.00 to 1.00. The Interest Coverage Ratio, as defined in the credit facility, is the ratio of earnings before interest, taxes, depreciation and amortization and other one-time charges to consolidated interest expense. The Total Leverage Ratio, as defined in the credit facility, is the ratio of total indebtedness to tangible net worth. At September 30, 2025, we were in compliance with the covenants specified in the WEST III, WEST IV, WEST V, WEST VI, WEST VII, WEST VIII, and WWFL indentures and servicing and other debt related agreements.
Off-Balance Sheet Arrangements
As of September 30, 2025, we had no material off-balance sheet arrangements or obligations that have or are reasonably likely to have a current or future effect on our financial condition, change in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.
Contractual Obligations and Commitments
Repayments of our gross debt obligations primarily consist of scheduled installments due under term loans and are funded by the use of unrestricted cash reserves and from cash flows from ongoing operations. The table below summarizes our contractual commitments at September 30, 2025:
Payment due by period (in thousands)
Total Less than
1 Year 		1-3 Years 3-5 Years More than
5 Years
Debt obligations $ 2,267,951 $ 120,769 $ 462,064 $ 1,065,103 $ 620,015
Interest payments under debt obligations 394,407 99,918 179,200 98,522 16,767
Purchase obligations 1,040,692 235,689 395,485 303,286 106,232
Operating lease obligations 17,662 3,771 5,259 2,691 5,941
Total $ 3,720,712 $ 460,147 $ 1,042,008 $ 1,469,602 $ 748,955
From time to time we enter into contractual commitments to purchase engines directly from original equipment manufacturers. We are currently committed to purchasing 30 additional new LEAP-1A engines and 21 additional new LEAP-1B engines for an aggregate total of $912.6 million by 2030. Further, we are currently committed to purchasing five engines for approximately $22.6 million in 2025 and six engines for $105.5 million in 2026. The purchase obligations are subject to escalation based on the closing date of each transaction. Our purchase agreements generally contain terms that allow the Company to defer or cancel purchase commitments in certain situations. These deferrals or conversions would not result in penalties or increased costs other than any potential increase due to the normal year-over-year change in engine list prices, which is akin to ordinary inflation.
In December 2020, we entered into definitive agreements for the purchase of 25 Pratt & Whitney aircraft engines. As part of the purchase, we have committed to certain future overhaul and maintenance services which are anticipated to range between $97.1 million and $126.8 million by 2030.
We have estimated the interest payments due under debt obligations by applying the interest rates applicable at September 30, 2025 to the remaining debt, adjusted for the estimated debt repayments identified in the table above. Actual interest payments made will vary due to changes in the rates.
We believe our equity base, internally generated funds and existing debt facilities are sufficient to maintain our level of operations for the next twelve months. The level of internally generated funds could decline if the amount of equipment off-lease increases, there is a decrease in availability under our existing debt facilities, or there is a significant increase in borrowing costs. Such decline would impair our ability to sustain our current level of operations. We continue to discuss additions to our capital base with our commercial and investment banks. If we are not able to access additional capital, our ability to continue to grow our asset base consistent with historical trends will be impaired and our future growth would be limited to that which can be funded from internally generated capital.
Recent Accounting Pronouncements
The most recent adopted accounting pronouncements and accounting pronouncements to be adopted by the Company are described in Note 1 to our Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
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