10-Q

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

/x/
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2001

OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-28774

WILLIS LEASE FINANCE CORPORATION
(Exact name of registrant as specified in its charter)

Delaware	68-0070656
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
2320 Marinship Way, Suite 300
Sausalito, CA (Address of principal executive offices)	94965 (Zip Code)

Registrant's telephone number, including area code (415) 331-5281

    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/  No / /

    Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

Title of Each Class	Outstanding at May 3, 2001
Common Stock, $0.01 Par Value	8,723,836

WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES

INDEX

		Page No.
PART I	FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
	Consolidated Balance Sheets As of March 31, 2001 and December 31, 2000	3
	Consolidated Statements of Income Three months ended March 31, 2001 and 2000	4
	Consolidated Statements of Shareholders' Equity Year ended December 31, 2000 and three months ended March 31, 2001	5
	Consolidated Statements of Cash Flows Three months ended March 31, 2001 and 2000	6
	Notes to Consolidated Financial Statements	7
Item 2. Management's Discussion and Analysis of Financial Condition                 and Results of Operations		11
Item 3. Quantitative and Qualitative Disclosures About Market Risk		16
PART II	OTHER INFORMATION
Item 6.	Exhibits and Reports on Form 8-K	18

2

WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)

	March 31, 2001			December 31, 2000
ASSETS
Cash and cash equivalents including restricted cash of $27,485 and $16,666 at March 31, 2001 and December 31, 2000 respectively		35,648			25,371
Equipment held for operating lease, less accumulated depreciation of $30,033 and $27,296 at March 31, 2001 and December 31, 2000, respectively		436,763			408,814
Net investment in direct finance lease		7,724			7,910
Operating lease related receivable		2,930			4,143
Net assets of discontinued operations		3,332			3,841
Investments		1,480			780
Other assets		7,232			5,071
Total assets	$	495,109		$	455,930
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses		5,726			6,353
Swap liabilities		1,975			—
Deferred income taxes		17,789			17,076
Notes payable		332,848			301,346
Residual share payable		2,738			2,630
Maintenance reserves		26,970			24,452
Security deposits		4,243			4,251
Unearned lease revenue		5,807			4,132
Total liabilities		398,096			360,240
Shareholders' equity:
Preferred stock ($0.01 par value, 5,000,000 shares authorized; none outstanding)		—			—
Common stock ($0.01 par value, 20,000,000 shares authorized; 8,713,836 and 8,704,638 shares issued and outstanding as of March 31, 2001 and December 31, 2000 respectively)		87			87
Paid-in capital in excess of par		60,979			60,771
Retained earnings		37,152			34,832
Accumulated other comprehensive income		(1,205	)		—
Total shareholders' equity		97,013			95,690
Total liabilities and shareholders' equity	$	495,109		$	455,930

See accompanying notes to the consolidated financial statements

3

WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except share data)
(Unaudited)

	Three months ended March 31,
	2001			2000
REVENUE
Lease revenue		14,522			11,942
Gain on sale of leased equipment		2,575			2,005
Total revenue		17,097			13,947
EXPENSES
Depreciation expense		3,648			3,008
General and administrative		3,214			2,683
Total expenses		6,862			5,691
Earnings from operations		10,235			8,256
Interest expense		6,285			5,760
Interest income		(255	)		(218	)
Residual share		108			188
Net interest and finance costs		6,138			5,730
Income from continuing operations before income taxes		4,097			2,526
Income taxes		(1,598	)		(985	)
Income from continuing operations		2,499			1,541
DISCONTINUED OPERATIONS:
Income from discontinued operations (net of income tax of $21 and $90 for periods ended March 31, 2001 and 2000 respectively)		33			141
Loss on disposal of discontinued operations (net of income tax of $136 for period ended March 31, 2001)		(212	)		—
		(179	)		141
Net income	$	2,320		$	1,682
Basic earnings per common share:
Income from continuing operations	$	0.29		$	0.21
Discontinued operations		(0.02	)		0.02
Net income	$	0.27		$	0.23
Diluted earnings per common share:
Income from continuing operations	$	0.28		$	0.20
Discontinued operations	$	(0.02	)	$	0.02
Net income	$	0.26		$	0.22
Average common shares outstanding		8,709			7,402
Diluted average common shares outstanding		8,883			7,484

See accompanying notes to the consolidated financial statements

4

WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Year Ended December 31, 2000 and Three Months Ended March 31, 2001
(In thousands)
(Unaudited)

		Issued and outstanding shares of common stock	Common Stock		Paid-in Capital in Excess of par		Retained earnings		Accumulated Other Comprehensive Income			Total shareholders' equity
Balances at December 31, 1999		7,398	$	74	$	42,446	$	27,018		—		$	69,538
Net income		—		—		—		7,814		—			7,814
Shares issued		1,307		13		15,004		—		—			15,017
Options Granted		—		—		3,321		—		—			3,321
Balances at December 31, 2000		8,705		87		60,771		34,832		—			95,690
Net Income		—		—		—		2,320		—			2,320
Other comprehensive income
	Transition adjustment as of January 1, 2001 (net of tax of $290)	—		—		—		—		(453	)		(453	)
	Net loss on cashflow hedging instruments (net of tax of $480)	—		—		—		—		(752	)		(752	)
Total comprehensive income		—		—		—		—		—			1,115
Shares issued		9		—		208		—					208
Balances at March 31, 2001		8,714	$	87	$	60,979	$	37,152	$	(1,205	)	$	97,013

See accompanying notes to the consolidated financial statements

5

WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

			Three Months Ended March 31,
			2001			2000
Cash flows from operating activities:
Net income			$	2,320		$	1,682
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation expense				3,853			3,449
Stock option compensation				162			—
Gain on sale of leased equipment				(2,575	)		(2,005	)
Loss on sale of discontinued operations				348			—
Loss from unconsolidated affiliate				—			430
Changes in assets and liabilities:
	Receivables			1,619			(2,838	)
	Other assets			(2,205	)		1,070
	Accounts payable and accrued expenses			(627	)		(1,216	)
	Deferred income taxes			1,483			1,075
	Residual share payable			108			(1,286	)
	Unearned lease revenue			1,573			(138	)
	Maintenance reserves			2,517			487
	Security deposits			(8	)		(852	)
Net cash provided by (used in) operating activities				8,568			(142	)
Cash flows from investing activities:
Proceeds from sale of equipment held for operating lease (net of selling expenses)				12,975			7,595
Adjustment to proceeds from sale of discontinued operations				(348	)		—
Purchase of equipment held for operating lease				(41,947	)		(11,658	)
Purchase of property, equipment and furnishings				(6	)		(121	)
Investment at cost				(700	)		(1,270	)
Principal payments received on direct finance lease				186			171
Net cash used in investing activities				(29,840	)		(5,283	)
Cash flows from financing activities:
Proceeds from issuance of notes payable				43,175			16,420
Proceeds from issuance of common stock				46			23
Principal payments on notes payable				(11,672	)		(7,839	)
Principal payments on capital lease obligation				—			(2,489	)
Net cash provided by financing activities				31,549			6,115
Increase in cash and cash equivalents				10,277			690
Cash and cash equivalents at beginning of period including restricted cash of $16,666 and $15,992 at December 31, 2000 and 1999 respectively				25,371			25,468
Cash and cash equivalents at end of period including restricted cash of $27,485 and $16,666 at March 31, 2001 and December 31, 2000 respectively.			$	35,648		$	26,158
Supplemental information:
Net cash paid for:
		Interest	$	6,437		$	6,432
		Income Taxes	$	59			—

See accompanying notes to the consolidated financial statements

6

WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Basis of Presentation

Consolidated Financial Statements

    The accompanying unaudited consolidated financial statements of Willis Lease Finance Corporation and its subsidiaries (the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Pursuant to such rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The accompanying unaudited interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. In addition, certain amounts in the prior period's financial statements have been reclassified to conform to the current period's presentation.

    In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal and recurring adjustments) necessary to present fairly the financial position of the Company as of March 31, 2001 (unaudited), and December 31, 2000, and the unaudited results of its operations for the three month periods ended March 31, 2001 and 2000 and its cash flows for the three month periods ended March 31, 2001 and 2000. The results of operations and cash flows for the period ended March 31, 2001 are not necessarily indicative of the results of operations or cash flows which may be reported for the remainder of 2001.

    Management considers the continuing operations of the Company to operate in one reportable segment.

2.  Management Estimates

    The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

3.  Commitments

    The Company has one lease for its office space. The annual lease rental commitment is $325,000 and the lease expires on May 31, 2003. The Company also leases, on a month-to-month basis, office space from its former parts subsidiary in San Diego.

    The Company has committed to purchase, during the remainder of 2001, one additional used engine for its operations, for not more than $4.5 million.

    Under the terms of the Sichuan Snecma joint venture (see note 4 below), the Company is committed to fund up to an additional $1.5 million to the joint venture over the next three years.

4.  Investments

    In July 1999, the Company entered into an agreement to participate in a joint venture formed as a limited company—Sichuan Snecma Aero-engine Maintenance Co. Ltd. Sichuan Snecma will focus on providing maintenance services for CFM56 series engines. Other participants in the joint venture are

7

China Southwest Airlines, Snecma Services and Beijing Kailan Aviation Technology Development and Services Corporation. The Company's investment in Sichuan Snecma at March 31, 2001 is $1.5 million having contributed an additional $0.7 million in the three months ended March 31, 2001. This investment represents approximately a 7% interest in the venture. The investment is recorded at cost and reviewed for impairment quarterly. No adjustment to the carrying value is required at March 31, 2001.

5.  Discontinued Operations

    On November 7, 2000, the Company entered into agreements for a series of strategic transactions, each of which closed on November 30, 2000, with Flightlease AG, a corporation organized under the laws of Switzerland ("Flightlease"), SR Technics Group, a corporation organized under the laws of Switzerland ("SRT"), FlightTechnics, LLC, a Delaware limited liability company ("FlightTechnics") and SR Technics Group America, Inc., a Delaware corporation ("SRT Group America"), each of which are affiliated companies.

    The Company sold its membership interests in its engine maintenance, repair and testing joint venture with Chromalloy Gas Turbine Corporation, Pacific Gas Turbine Center LLC ("PGTC"), to SRT Group America. Also, the Company sold its aircraft parts and components subsidiary, Willis Aeronautical Services, Inc. ("WASI"), to SRT Group America.

    As part of the transaction, the Company agreed to retain the lease portfolio of engines maintained and managed by WASI. Certain of these engines will not be retained in the lease portfolio and either will be sold or are subject to put option arrangements where, at the option of the Company, these engines can be sold to SRT Group America for part-out.

    To the extent that the engines in the portfolio retained are subject to put options or are identified as likely to be sold, the assets and the results of operation are included in discontinued operations.

    Net earnings from discontinued operations for the three months ended March 31, 2001 and 2000 are as follows (in thousands of dollars):

		2001			2000
Revenue:
	Operating lease income	$	284		$	684
	Spare parts sales		—			7,087
	Other income		—			15
	Total Revenue	$	284		$	7,786
Expenses:
	Depreciation expense	$	205		$	440
	Cost of spare parts sales		—			5,359
	General and administrative		—			852
	Total expenses	$	205		$	6,651
Earnings from operations:		$	79		$	1,135
	Net interest and finance cost		25			474
	Loss from unconsolidated affiliate		—			430
	Earnings before income taxes	$	54		$	231
	Income taxes		(21	)		(90	)
	Net earnings from discontinued operations	$	33		$	141

8

    During the three months ended March 31, 2001, proceeds for the sale of PGTC were adjusted after audit by the buyer and a loss (net of tax) of $212,000 was recorded.

    Net assets of discontinued operations on the balance sheet as of March 31, 2001 and December 31, 2000 are as follows (in thousands of dollars):

	2001			2000
Receivables (net)	$	288		$	694
Equipment held for operating lease (net of accumulated depreciation of $2,662 and $2,457)		3,000			3,205
Inventory		150			150
Unearned lease revenue		(106	)		(208	)
Net assets of discontinued operations	$	3,332		$	3,841

6.  Notes Payable

    At March 31, 2001 notes payable consists of bank loans totaling $332.8 million payable over periods of 1 to 5 years with current interest rates varying between approximately 6.8% and 11.7%.

    At March 31, 2001, the Company had a $144.5 million revolving credit facility to finance the acquisition of aircraft engines, aircraft and spare parts for lease as well as for general working capital purposes. As of March 31, 2001, this facility was fully drawn. The facility had a revolving period which ended September 2000 and was extended to January 29, 2001, followed by a term-out period ending September 2004. The interest rate on this facility at March 31, 2001 is LIBOR plus 2.25%.

    At March 31, 2001, the Company had a $180.0 million debt warehouse facility (increased from $125.0 million at December 31, 2000). The facility is available to a wholly-owned special purpose finance subsidiary of the Company, WLFC Funding Corporation, for the financing of jet aircraft engines acquired by or transferred to such finance subsidiary by the Company. The facility is renewable annually. This facility's structure facilitates public or private securitized note issuances by the special purpose finance subsidiary. The subsidiary is consolidated for financial statement presentation purposes. The facility has an eight-year initial term with a revolving period to February 2002 followed by a seven-year amortization period. At March 31, 2001, the interest rate was a commercial paper based rate plus a spread of 1.55%. The Company has guaranteed the obligations under the facility on a limited basis, up to an amount equal to the greater of: (i) the lesser of $5.0 million and 20% of the outstanding obligations or (ii) 10% of the outstanding obligations. Assuming compliance with the facility's terms, including sufficiency of collateral, as of March 31, 2001, $51.0 million was available under this facility.

    At March 31, 2001 the Company had a $28.2 million term loan facility available to a wholly-owned consolidated special purpose subsidiary of the Company, WLFC AC1 Corporation, for the financing of jet aircraft engines transferred by the Company to such subsidiary. The facility is a five year term loan with final maturity of June 30, 2005. The interest rate is currently LIBOR plus 2.05%. This facility is fully drawn.

9

    The following is a summary of the aggregate maturities of notes payable on March 31, 2001 (dollars in thousands)

Year Ending December 31,
2001	$	28,594
2002		47,258
2003		46,474
2004		99,232
2005		40,600
2006 and thereafter		70,690
	$	332,848

7.  Derivative Instruments

    The Company holds a number of interest rate swaps to mitigate its exposure to changes in interest rates, in particular LIBOR, as a large portion of the Company's borrowings are at variable rates. In addition, WLFC Funding Corporation is required under its credit agreements to hedge a portion of its borrowings.

    The Company adopted SFAS 133 "Accounting for Derivative Instruments and Hedging Activities" (as amended by SFAS 137) in the current quarter. Under this Statement the Company's interest rate swaps were designated as cash flow hedges.

    The Company reviews the effectiveness of these hedges on a quarterly basis and adjusts the fair value of the swaps through either Other Comprehensive Income and/or Earnings for the period. On January 1, 2001 upon adoption of the standard the Company recorded a transition adjustment of $453,000 (net of tax of $290,000). For the three months ended March 31, 2001, the change in fair value of the swaps recorded to Other Comprehensive Income was $752,000 (net of tax of $480,000) and there was no change in fair value recognized in earnings. Interest expense for the three month period ended March 31, 2001 was increased by the Company's interest rate hedges by approximately $50,000. Reclassification into earnings in future periods may occur if the effectiveness of the interest rate swaps is reduced or they are terminated ahead of their maturity. It is not possible to ascertain the effect on earnings for the remainder of 2001 of a reduction in effectiveness at this time and it is the Company's intention to hold the swaps until their maturity.

10

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

    The Company's core business is acquiring and leasing, primarily pursuant to operating leases, commercial aircraft spare engines and related aircraft equipment. In addition, the Company engages in the selective purchase, sale and resale of commercial aircraft engines.

    Revenue consists primarily of lease revenue and income from the sale of engines and equipment.

Results of Operations

Three months ended March 31, 2001 compared to the three months ended March 31, 2000:

    Leasing Related Activities.  Lease related revenue for continuing operations for the quarter ended March 31, 2001 increased 22% to $14.5 million from $11.9 million for the comparable period in 2000. This increase reflects an increase in the lease portfolio. The aggregate of net book value of leased equipment and net investment in direct finance lease at March 31, 2001 and 2000 was $444.5 million and $339.1 million, respectively.

    During the quarter ended March 31, 2001, 8 engines were added to the Company's lease portfolio at a total cost of $41.9 million. Two engines from the lease portfolio were sold. The engines sold from the lease portfolio had a total net book value of $10.4 million and were sold for a gain of $2.6 million.

    During the quarter ended March 31, 2000, 3 engines were added to the Company's lease portfolio at a cost of $11.7 million. The Company sold, or transferred to its former parts subsidiary, 8 engines and 2 aircraft from the lease portfolio. The engines sold from the lease portfolio had a net book value of $5.6 million and were sold for a gain of $2.0 million.

    Depreciation Expense.  Depreciation expense for continuing operations increased 21% to $3.6 million for the quarter ended March 31, 2001 from the comparable period in 2000 mainly due to the increase in the lease portfolio.

    General and Administrative Expenses.  General and administrative expenses increased 20% to $3.2 million for the quarter ended March 31, 2001, from the comparable period in 2000 mainly due to increased staffing costs and marketing expenses together with non-capitalizable engine repairs.

    Interest Expense and Finance Costs.  Interest expense related to continuing operations increased 9% to $6.3 million for the quarter ended March 31, 2001 from the comparable period in 2000, due to an increase in average debt. Residual sharing expense related to debt decreased 43% to $0.1 million for the quarter ended March 31, 2001 from $0.2 million for the comparable period in 2000. Residual sharing arrangements apply to two of the Company's engines as of March 31, 2001 and are a function of the difference between the debt associated with the residual sharing arrangement and estimated residual proceeds. The Company accrues for its residual sharing obligations using net book value as an estimate for residual proceeds. Interest income for the quarter ended March 31, 2001 was $0.3 million compared to $0.2 million for the comparable period in 2000. Interest is earned on cash, deposits held and notes receivable.

    Income Taxes.  Income tax expense for continuing operations for the quarter ended March 31, 2001 was $1.6 million compared to $1.0 million for the comparable period in 2000. The effective tax rate for the quarters ended March 31, 2001 and 2000 was 39%.

    Discontinued Operations.  During the three months ended March 31, 2001, proceeds for the sale of PGTC were adjusted after audit by the buyer and a loss (net of tax) of $212,000 was recorded.

11

Accounting Pronouncements

    In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, by requiring that an entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value.

    SFAS No. 137, "Accounting for Derivatives, Instruments and Hedging Activities—Deferral of the Effective Date of FASB Statement No. 133, an amendment of FASB Statement No. 133," issued in June 1999, defers the effective date of SFAS No. 133. SFAS No. 133, as amended, is now effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company adopted the requirements of SFAS 133 in the first quarter of 2001. On January 1, 2001 upon adoption of the standard the Company recorded a transition adjustment of $453,000 (net of tax of $290,000). For the three months ended March 31, 2001, the change in fair value of the swaps recorded to Other Comprehensive Income was $752,000 (net of tax of $480,000) and there was no change in fair value recognized in earnings. Interest expense for the three month period ended March 31, 2001 was increased by the Company's interest rate hedges by approximately $50,000.

    In September 2000 FASB issued SFAS No. 140, "Accounting for transfers and servicing of financial assets and extinguishment of liabilities, an amendment of FASB Statement No. 125." Statement 140 provides guidance on the following topics: securitization transactions involving financial assets, sales of financial assets such as receivables, loans and securities, collateralized borrowing arrangements, repurchase agreements, and extinguishments of liabilities. The provisions of Statement 140 will become effective for transactions entered into after March 31, 2001. The Company is currently evaluating the impact of SFAS 140 on the Company's consolidated financial statements.

Liquidity and Capital Resources

    Historically, the Company has financed its growth through borrowings secured by its equipment lease portfolio, operating cash flow and the issuance of stock. Cash of approximately $43.2 million and $16.4 million, in the three month periods ended March 31, 2001 and 2000, respectively, was derived from borrowings. Cash flow from operating activities provided $8.6 million and used $0.1 million in the three month periods ended March 31, 2001 and 2000, respectively. In these same time periods, $11.7 million and $10.3 million, respectively, of cash was used to repay debt.

    The Company's primary use of funds is for the purchase of equipment for lease. Approximately $41.9 million and $11.7 million of funds were used for this purpose in the three month periods ended March 31, 2001 and 2000, respectively.

    At March 31, 2001, the Company had a $144.5 million credit facility to finance the acquisition of aircraft engines, aircraft and spare parts for lease as well as for general working capital purposes. As of March 31, 2001, this facility was fully drawn. The facility had a revolving period which ended September 2000 and was extended to January 29, 2001, followed by a term-out period ending September 2004. The interest rate on this facility at March 31, 2001 is LIBOR plus 2.25%.

    At March 31, 2001, the Company had a $180.0 million debt warehouse facility (increased from $125.0 million at December 31, 2000). The facility is available to a wholly-owned special purpose finance subsidiary of the Company, WLFC Funding Corporation, for the financing of jet aircraft engines acquired by or transferred to such finance subsidiary by the Company. The facility is renewable annually. This facility's structure facilitates public or private securitized note issuances by the special purpose finance subsidiary. The subsidiary is consolidated for financial statement presentation purposes. The facility has an eight-year initial term with a revolving period to February 2002 followed by a seven-year amortization period. At March 31, 2001, the interest rate was a commercial paper based rate

12

plus a spread of 1.55%. The Company has guaranteed the obligations under the facility on a limited basis, up to an amount equal to the greater of: (i) the lesser of $5.0 million and 20% of the outstanding obligations or (ii) 10% of the outstanding obligations. Assuming compliance with the facility's terms, including sufficiency of collateral, as of March 31, 2001, $51.0 million was available under this facility.

    At March 31, 2001 the Company had a $28.2 million term loan facility available to a wholly-owned consolidated special purpose subsidiary of the Company, WLFC AC1 Corporation, for the financing of jet aircraft engines transferred by the Company to such subsidiary. The facility is a five year term loan with final maturity of June 30, 2005. The interest rate is currently LIBOR plus 2.05%. This facility is fully drawn.

    The Company believes that its current equity base, internally generated funds and existing debt facilities are sufficient to maintain the Company's current level of operations. A decline in the level of internally generated funds or the availability under the Company's existing debt facilities would impair the Company's ability to sustain its current level of operations. The Company is currently discussing additions to its debt and equity capital bases with its commercial and investment banks. If the Company is not able to access additional debt and equity capital, its ability to continue to grow its asset base consistent with historical trends will be impaired and its future growth limited to that which can be funded from internally generated capital.

    Certain of the Company's engines have been financed under floating rate facilities. Accordingly, the Company is subject to interest rate risk, since the underlying lease revenue is fixed. See "Management of Interest Rate Exposure" below.

    The Company has committed to purchase, during the remainder of 2001, one additional used engine for its operations for not more than $4.5 million.

Management of Interest Rate Exposure

    At March 31, 2001, $302.4 million of the Company's borrowings were on a variable rate basis at various interest rates tied to LIBOR, the commercial paper rate, or the prime rate. The Company's equipment leases are generally structured at fixed rental rates for specified terms. Increases in interest rates could narrow or eliminate the spread, or result in a negative spread, between the rental revenue the Company realizes under its leases and the interest rate that the Company pays under its borrowings.

    To mitigate exposure to interest rate changes, the Company has entered into interest rate swap agreements which have notional outstanding amounts of $95.0 million, with average remaining terms of 16 to 23 months and average fixed rates of 6.02% to 6.2%.

    Interest expense for the three month period ended March 31, 2001 was increased by the Company's interest rate hedges by approximately $50,000. The Company will be exposed to risk in the event of non-performance of the interest rate hedge counter parties. The Company anticipates that it will hedge additional amounts of its floating rate debt during the next several months.

Factors That May Affect Future Results

    Except for historical information contained herein, the discussion in this report contains forward-looking statements that involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. The Company's actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include those discussed below as well as those discussed elsewhere herein and in the Company's report on Form 10-K for the year ended December 31, 2000. The cautionary statements made in this report should be read as being

13

applicable to all related forward-looking statements wherever they appear in this report or in other written or oral statements by the company.

    The business in which the Company is engaged is a capital intensive business. Accordingly, the Company's ability to successfully execute its business strategy and to sustain its operations is dependent, in large part, on the availability of debt and equity capital. There can be no assurance that the necessary amount of such capital will continue to be available to the Company on favorable terms or at all. If the Company is not successful in obtaining sufficient capital, the Company's ability to: (i) add new aircraft engines, aircraft and spare parts packages to its portfolio, (ii) fund its working capital needs and (iii) finance possible future acquisitions, would be impaired. The Company's inability to obtain sufficient capital would have a material adverse effect on the Company's business, financial condition and/or results of operations.

    The Company retains title to the aircraft engines, aircraft and parts packages that it leases to third parties. Upon termination of a lease, the Company will seek to re-lease or sell the aircraft equipment. The Company also engages in the selective purchase and resale of commercial aircraft engines. On occasion, the Company purchases engines without having a firm commitment for their sale. Numerous factors, many of which are beyond the Company's control, may have an impact on the Company's ability to re-lease or sell aircraft equipment on a timely basis, including the following: (i) general market conditions, (ii) the condition of the aircraft equipment upon termination of the lease, (iii) the maintenance services performed during the lease term and, as applicable, the number of hours remaining until the next major maintenance is required, (iv) regulatory changes (particularly those imposing environmental, maintenance and other requirements on the operation of aircraft engines), (v) changes in the supply or cost of aircraft engines, and (vi) technological developments. There is no assurance that the Company will be able to re-lease or sell aircraft equipment on a timely basis or on favorable terms. The failure to re-lease or sell aircraft equipment on a timely basis or on favorable terms could have a material adverse effect on the Company's business, financial condition and/or results of operations.

    The Company experiences fluctuations in its operating results. Such fluctuations may be due to a number of factors, including: (i) general economic conditions, (ii) the timing of sales of engines, (iii) financial difficulties experienced by airlines, (iv) interest rates, (v) fuel costs, (vi) downturns in the air transportation industry, (vii) increased fare competition, (viii) decreases in growth of air traffic, (ix) unanticipated early lease termination or a default by a lessee, (v) the timing of engine acquisitions, (xi) engine marketing activities, (xii) fluctuations in market prices for the Company's assets. The Company anticipates that fluctuations from period to period will continue in the future. As a result, the Company believes that comparisons to results of operations for preceding periods are not necessarily meaningful and that results of prior periods should not be relied upon as an indication of future performance.

    A lessee may default in performance of its lease obligations and the Company may be unable to enforce its remedies under a lease. The Company's inability to collect receivables due under a lease or to repossess aircraft equipment in the event of a default by a lessee could have a material adverse effect on the Company's business, financial condition and/or results of operations. Various airlines have experienced financial difficulties in the past, certain airlines have filed for bankruptcy and a number of such airlines have ceased operations. In most cases where a debtor seeks protection under Chapter 11 of Title 11 of the United States Bankruptcy Code, creditors are automatically stayed from enforcing their rights. In the case of United States certified airlines, Section 1110 of the Bankruptcy Code provides certain relief to lessors of aircraft equipment. The scope of Section 1110 has been the subject of significant litigation and there is no assurance that the provisions of Section 1110 will protect the Company's investment in an aircraft, aircraft engines or parts in the event of a lessee's bankruptcy. In addition, Section 1110 does not apply to lessees located outside of the United States and applicable foreign laws may not provide comparable protection. Leases of spare parts may involve additional risks. For example, it is likely to be more difficult to recover parts in the event of a lessee default and the residual value of parts may be less ascertainable than the engine.

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    The Company's leases are generally structured at fixed rental rates for specified terms while many of the Company's borrowings are at a floating rate. Increases in interest rates could narrow or eliminate the spread, or result in a negative spread, between the rental revenue the Company realizes under its leases and the interest rate the Company pays under its borrowings, and have a material adverse effect on the Company's business, financial condition and/or results of operations.

    During the three month period ended March 31, 2001, 78% of the Company's lease revenue was generated by leases to foreign customers. Such international leases may present greater risks to the Company because certain foreign laws, regulations and judicial procedures may not be as protective of lessor rights as those which apply in the United States. The Company is subject to the timing and access to courts and the remedies local laws impose in order to collect its lease payments and recover its assets. In addition, political instability abroad and changes in international policy also present risk of expropriation of the Company's leased engines. Furthermore, many foreign countries have currency and exchange laws regulating the international transfer of currencies.

    The Company has experienced significant growth in lease revenues recently. The Company's growth has placed, and is expected to continue to place, a significant strain on the Company's managerial, operational and financial resources. There is no assurance that the Company will be able to effectively manage the expansion of its operations, or that the Company's systems, procedures or controls will be adequate to support the Company's operations, in which event the Company's business, financial condition and/or results of operations could be adversely affected. The Company may also acquire businesses that would complement or expand the Company's existing businesses. Any acquisition or expansion made by the Company may result in one or more of the following events: (i) the incurrence of additional debt, (ii) future changes to earnings related to the amortization of goodwill and other intangible assets, (iii) difficulties in the assimilation of operations, services, products and personnel, (iv) an inability to sustain or improve historical revenue levels, (v) diversion of management's attention from ongoing business operations, and (iv) potential loss of key employees. Any of the foregoing factors could have a material adverse effect on the Company's business, financial condition and/or results of operations.

    The markets for the Company's products and services are extremely competitive, and the Company faces competition from a number of sources. These include aircraft and aircraft part manufacturers, aircraft and aircraft engine lessors, airline and aircraft service companies. Certain of the Company's competitors have substantially greater resources than the Company, including greater name recognition, a broader range of material, complementary lines of business and greater financial, marketing and other resources. In addition, equipment manufacturers and other aviation aftermarket suppliers may vertically integrate into the markets that the Company serves, thereby significantly increasing industry competition. There can be no assurance that competitive pressures will not materially and adversely affect the Company's business, financial condition and/or results of operations.

    The Company's leasing activities generate significant depreciation allowances that provide the Company with substantial tax benefits on an ongoing basis. In addition, the Company's lessees currently enjoy favorable accounting and tax treatment by entering into operating leases. Any change to current tax laws or accounting principles that make operating lease financing less attractive or affect the Company's recognition of revenue or expense would have a material impact on the Company's business, financial condition and/or results of operations.

    The Company obtains a substantial portion of its portfolio of aircraft and engines from airlines and other suppliers. There is no organized market for aircraft and engines, and the Company must rely on field representatives and personnel, advertisements and its reputation as a buyer of surplus inventory in order to generate opportunities to purchase such equipment. The market for bulk sales of surplus aircraft and engines is highly competitive, in some instances involving a bidding process. While the Company has been able to purchase surplus inventory in this manner successfully in the past, there

15

is no assurance that surplus aircraft and engines of the type required by the Company's customers will be available on acceptable terms when needed in the future or that the Company will continue to compete effectively in the purchase of such surplus equipment.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

    The Company's primary market risk exposure is that of interest rate risk. A change in the U.S. prime interest rate, LIBOR rate, or cost of funds based on commercial paper market rates, would affect the rate at which the Company could borrow funds under its various borrowing facilities. Increases in interest rates to the Company, which may cause the Company to raise the implicit rates charged to its customers, could result in a reduction in demand for the Company's leases. Certain of the Company's warehouse credit facilities are variable rate debt. The Company estimates a one percent increase or decrease in the Company's variable rate debt would result in an increase or decrease (net of hedges), respectively, in interest expense of $2.4 million per annum. The Company estimates a two percent increase or decrease in the Company's variable rate debt would result in an increase or decrease (net of hedges), respectively, in interest expense of $4.0 million per annum. The foregoing effect of interest rate changes, net of interest rate hedges, on per annum interest expense is estimated as constant due to the terms of the Company's variable rate borrowings, which generally provide for the maintenance of borrowing levels given adequacy of collateral and compliance with other loan conditions.

    The Company hedges a portion of its borrowings, effectively fixing the rate of these borrowings. The Company is currently required to hedge a portion of debt of the WLFC Funding Corporation facility. Such hedging activities may limit the Company's ability to participate in the benefits of any decrease in interest rates, but may also protect the Company from increases in interest rates. A portion of the Company's leases provides that lease payments be adjusted based on changes in interest rates. Furthermore, since lease rates tend to vary with interest rate levels, it is likely that the company can adjust lease rates for the effect of change in interest rates at the termination of leases. Other financial assets and liabilities are at fixed rates.

    The Company is also exposed to currency devaluation risk. During the nine month period ended March 31, 2001, 78% of the Company's total lease revenues came from non-United States domiciled lessees. All of the leases require payment in United States (U.S.) currency. If these lessees' currency devalues against the U.S. dollar, the lessees could potentially encounter difficulty in making the U.S. dollar denominated lease payments.

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SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: May 11, 2001

Willis Lease Finance Corporation
By:	/s/ NICHOLAS J. NOVASIC Nicholas J. Novasic Chief Financial Officer

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PART II

Item 6. Exhibits and Reports on Form 8-K

(a)

Exhibits

Exhibit Number	Description
3.1	Certificate of Incorporation, filed on March 12, 1998 together with Certificate of Amendment of Certificate of Incorporation filed on May 6, 1998. Incorporated by reference to Exhibits 4.01 and 4.02 of the Company's report on Form 8-K filed on June 23, 1998.
3.2	Bylaws. Incorporated by reference to Exhibit 4.03 of the Company's report on Form 8-K filed on June 23, 1998.
4.1	Specimen of Common Stock Certificate. Incorporated by reference to Exhibit 4.1 of the Company's report on Form 10-Q for the quarter ended June 30, 1998.
4.2	Rights Agreement dated September 30, 1999, by and between the Company and American Stock Transfer and Trust Company, as Rights Agent. Incorporated by reference to Exhibit 4.1 of the Company's report on Form 8-K filed on October 4, 1999.
4.3	First Amendment to Rights Agreement, dated as of November 30, 2000, by and between the Company and American Stock Transfer and Trust Company. Incorporated by reference to Exhibit 10.1 of the Company's report on form 8-K filed December 15, 2000.
10.1	Form of Indemnification Agreement entered into between the Company and its directors and officers. Incorporated by reference to Exhibit 10.3 to Registration Statement No. 333-5126-LA filed on June 21, 1996.
10.2	Employment Agreement between the Company and Charles F. Willis IV dated November 7, 2000. Incorporated by reference to Exhibit 10.2 of the Company's report on Form 10-K for the year ended December 31, 2000.
10.3	Employment Agreement between the Company and Donald A. Nunemaker dated November 21, 2000. Incorporated by reference to Exhibit 10.3 of the Company's report on Form 10-K for the year ended December 31, 2000.
10.4	Employment contract for Nicholas J. Novasic dated June 15, 2000. Incorporated by reference to Exhibit 10.3 of the Company's report on Form 10-Q for the quarter ended September 30, 2000.
10.5	Separation Agreement dated May 24, 2000 between the Company and James D. McBride. Incorporated by reference to Exhibit 10.5 of the Company's report on Form 10-K for the year ended December 31, 2000.
10.6	Settlement Agreement dated August 10, 2000 between the Company and Robert Rau. Incorporated by reference to Exhibit 10.6 of the Company's report on Form 10-K for the year ended December 31, 2000.
10.7*	Indenture dated as of September 1, 1997, between WLFC Funding Corporation and The Bank of New York, as Indenture Trustee. Incorporated by reference to Exhibit 10.16 to the Company's Report on Form 10-K for the year ended December 31, 1997.

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10.8	Note Purchase Agreement (Series 1997-1 Notes) dated February 11, 1999. Incorporated by reference to Exhibit 10.1 of the Company's report on Form 10-Q for the quarter ended March 31, 1999.
10.9*	Amended and Restated Series 1997-1 Supplement dated February 11, 1999. Incorporated by reference to Exhibit 10.2 to the Company's report on Form 10-Q for the quarter ended March 31, 1999.
10.10*	Administration Agreement dated as of September 1, 1997 between WLFC Funding Corporation, the Company, First Union Capital Markets Corp. and The Bank of New York. Incorporated by reference to Exhibit 10.19 to the Company's Report on Form 10-K for the year ended December 31, 1997.
10.11	The Company's 1996 Stock Option/Stock Issuance Plan, as amended and restated as of April 24, 2000. Incorporated by reference to the Company's Proxy Statement dated April 27, 2000.
10.12*	Operating Agreement of PGTC LLC dated May 28, 1999 among the Company, Chromalloy Gas Turbine Corporation and Pacific Gas Turbine Center, Incorporated. Incorporated by reference to Exhibit 10.1 to the Company's Report on Form 10-Q for the quarter ended June 30, 1999.
10.13*	Contribution and Assumption Agreement dated May 28, 1999 among Pacific Gas Turbine Center Incorporated, the Company and Pacific Gas Turbine Center LLC. Incorporated by reference to Exhibit 10.2 to the Company's Report on Form 10-Q for the quarter ended June 30, 1999.
10.14*	Second Amendment to Amended and Restated Series 1997-1 Supplement. Incorporated by reference to Exhibit 10.1 of the Company's report on Form 10-Q for the quarter ended March 31, 2000.
10.15	Amended and Restated Credit Agreement as of February 10, 2000. Incorporated by reference to Exhibit 10.2 of the Company's report on Form 10-Q for the quarter ended March 31, 2000.
10.16	Investment Agreement, dated as of November 7, 2000, by and among the Company, FlightTechnics LLC, Flightlease AG, SR Technics Group and SR Technics Group America, Inc. Incorporated by reference to Exhibit 10.1 of the Company's report on Form 8-K filed on November 13, 2000.
10.17	Membership Interest Purchase Agreement, dated as of November 7, 2000, by and between the Company and SR Technics Group America, Inc. Incorporated by reference to Exhibit 10.3 of the Company's report on Form 8-K filed on November 13, 2000.
10.18	Share Purchase Agreement, dated as of November 7, 2000, by and between the Company and SR Technics Group America, Inc. Incorporated by reference to Exhibit 10.4 of the Company's report on Form 8-K filed on November 13, 2000.
10.19*	Cooperation Agreement, dated as of November 7, 2000, by and among the Company, Flightlease AG and SR Technics Group. Incorporated by reference to Exhibit 10.6 of the Company's report on Form 8-K filed on November 13, 2000.
10.20	Stockholders' Agreement, dated as of November 7, 2000, by and among the Company, Charles F. Willis, IV, CFW Partners, L.P., Austin Chandler Willis 1995 Irrevocable Trust and FlightTechnics LLC. Incorporated by reference to Exhibit 10.8 on Form 8-K filed on November 13, 2000.

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10.21	Third Amendment to Note Purchase Agreement dated February 7, 2001.
10.22*	Third Amendment to Amended and Restated Series 1997-1 Supplement dated February 7, 2001.
11.1	Statement regarding computation of per share earnings.

*

Portions of this exhibit have been omitted pursuant to a request for confidential treatment and the redacted material has been filed separately with the Commission.

(b)

Reports on Form 8-K

No reports were filed under Form 8-K during the period.

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QuickLinks

WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES
INDEX
WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except share data) (Unaudited)
WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES Consolidated Statements of Income (In thousands, except share data) (Unaudited)
WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES Consolidated Statements of Shareholders' Equity Year Ended December 31, 2000 and Three Months Ended March 31, 2001 (In thousands) (Unaudited)
WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) (Unaudited)
WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk

SIGNATURES
PART II

Item 6. Exhibits and Reports on Form 8-K

EX-10.21

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Exhibit 10.21

THIRD AMENDMENT TO
NOTE PURCHASE AGREEMENT

    THIS THIRD AMENDMENT TO NOTE PURCHASE AGREEMENT, dated as of February 7, 2001 (this "Third Amendment"), is entered into by and among WLFC FUNDING CORPORATION, as issuer (the "Issuer"), WILLIS LEASE FINANCE CORPORATION, as servicer (the "Servicer"), VARIABLE FUNDING CAPITAL CORPORATION, as a purchaser ("VFCC"), the Investors, FIRST UNION SECURITIES, INC. (f/k/a First Union Capital Markets Corp.), as deal agent (the "Deal Agent") and FIRST UNION NATIONAL BANK, as liquidity agent ("FUNB"). Capitalized terms used and not otherwise defined herein are used as defined in the Agreement (as defined below).

    WHEREAS, the parties hereto entered into that certain Note Purchase Agreement, dated as February 11, 1999, as amended by the First Amendment, dated as of May 12, 1999, and a Second Amendment, dated as of February 9, 2000 (the "Agreement"); and

    WHEREAS, the parties hereto desire to amend the Agreement in certain respects as provided herein;

    NOW THEREFORE, in consideration of the premises and the other mutual covenants contained herein, the parties hereto agree as follows:

    SECTION 1.  Amendments.

(a)

The definition of "Commitment Termination Date" in Section 1.1 of the Agreement is hereby modified, amended and restated to read in its entirety as follows:

"Commitment Termination Date: February 6, 2002 or such later date to which the Commitment Termination Date may be extended (if extended) in the sole discretion of the Purchasers in accordance with the terms of Section 2.3(b)."

(2)

The following definition is hereby added in its entirety to Section 1.1 of the Agreement:

"Third Amendment Date: The date on which the Third Amendment to the Agreement shall become effective."

(c)

The first sentence of Section 2.1 of the Agreement is hereby amended and restated to read in its entirety as follows:

"On the basis of the representations and warranties and subject to the terms and conditions herein set forth, the Issuer agrees to deliver to the Deal Agent on behalf of the Purchasers on the Third Amendment Date, the Class A Note with a maximum principal amount of $180,000,000, which Class A Note shall be duly executed by the Issuer, duly authenticated by the Indenture Trustee and registered in the name of the Deal Agent on behalf of the Purchasers."

    SECTION 2.  Agreement in Full Force and Effect as Amended.  Except as specifically amended hereby, the Agreement shall remain in full force and effect. All references to the agreement shall not constitute a novation of the Agreement, but shall constitute an amendment thereof. The parties hereto agree to be bound by the terms and conditions of the Agreement, as amended by this Third Amendment, as though such terms and conditions were set forth herein.

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    SECTION 3.  Miscellaneous.

    (a) This Third Amendment may be executed in any number of counterparts, and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instrument but all of which together shall constitute one and the same agreement.

    (b) The descriptive headings of the various sections of this Third Amendment are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof.

    (c) This Third Amendment may not be amended or otherwise modified except as provided in the Agreement.

    (d) THIS THIRD AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS CONFLICT OF LAWS PROVISIONS.

[Remainder of Page Intentionally left Blank]

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IN WITNESS WHEREOF, the parties have caused this Third Amendment to the Agreement to be executed by their respective officers thereunto duly authorized as, of the date first above written.

THE ISSUER:	WLFC FUNDING CORPORATION
	By:	/s/ NICHOLAS J. NOVASIC
	Title:	Chief Financial Officer
THE SERVICER:	WILLIS LEASE FINANCE CORPORATION
	By:	/s/ NICHOLAS J. NOVASIC
	Title:	Chief Financial Officer
THE INVESTOR:	FIRST UNION NATIONAL BANK
	By:	/s/ BILL A. SHIRLEY
	Title:	Senior Vice President
		First Union National Bank One First Union Center, TW-9 Charlotte, North Carolina 28288 Attention: Credit Administration Facsimile No.: (704) 374-6355 Confirmation No.: (704) 374-4001
VFCC:	VARIABLE FUNDING CAPITAL CORPORATION
	By:	FIRST UNION SECURITIES, INC., as attorney-in-fact
	By:	DOUGLAS R. WILSON, SR.
	Title:	Vice President
		Variable Funding Capital Corporation c/o First Union Securities, Inc. One First Union Center, TW-9 Attention: Conduit Administration Facsimile No.: (704) 383-6036 Confirmation No.: (704) 383-9343

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with a copy to:		Lord Securities Corp. 2 Wall Street, 19th Floor New York, New York Attention: Vice President Facsimile No.: (212) 346-9012 Confirmation No.: (212) 346-9008
THE DEAL AGENT:	FIRST UNION SECURITIES, INC.
	By:	/s/ LEAH W. FORSTNER
	Title:	Director
		First Union Securities, Inc. One First Union Center, TW-9 Charlotte, North Carolina 28288 Attention: Conduit Administration Facsimile No.: (704) 383-6036 Telephone No.: (704) 383-9343
THE LIQUIDITY AGENT:	FIRST UNION NATIONAL BANK
	By:	/s/ BILL A. SHIRLEY
	Title:	Senior Vice President
		First Union National Bank One First Union Center, TW-9 Charlotte, North Carolina 28288 Attention; Credit Administration Facsimile No.: (704) 374-6355 Telephone No.: (704) 374-4001

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THIRD AMENDMENT TO NOTE PURCHASE AGREEMENT

EX-10.22

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Exhibit 10.22

THIRD AMENDMENT TO
AMENDED AND RESTATED SERIES 1997-1(*)
SUPPLEMENT

    THIS THIRD AMENDMENT TO AMENDED AND RESTATED SERIES 1997-1 SUPPLEMENT, dated as of February 7, 2001 (this "Third Amendment"), is entered into by and among WLFC FUNDING CORPORATION, as issuer (the "Issuer") and THE BANK OF NEW YORK, as indenture trustee (the "Indenture"). Capitalized terms used and not otherwise defined herein are used as defined in the Supplement (as defined below).

    WHEREAS, the parties hereto entered into that certain Amended and Restated Series 1997-1 Supplement, dated as of February 11, 1999, as amended by the First Amendment, dated as of May 12, 1999 and a Second Amendment dated as of February 9, 2000 (the "Supplement"); and

    WHEREAS, the parties hereto desire to amend the Supplement in certain respects as provided herein;

    NOW THEREFORE, in consideration of the premises and the other mutual covenants contained herein, the parties hereto agree as follows:

Amendments.

    (1) The definition of "Conversion Date" in Section 1.1 of the Supplement is hereby amended and restated to read in its entirety as follows:

"Conversion Date" means the Payment Date occurring on February 6, 2002; provided, however, that such Conversion Date may be extended annually by the Issuer for one year periods if approved by all of the Holders of the Class A Notes.

    (2) Clause (1) of the definition of "Eligible Engine" in Section 1.1 of the Supplement is modified to read in its entirety as follows:

"(1) Eligible Lease. Each Engine is subject to an Eligible Lease on the related Transfer Date; provided that an Engine shall not be required to be subject to an Eligible Lease on the related Transfer Date so long as, after giving effect to the transfer of all Engines which are transferred on any Transfer Date, the On-Lease Percentage of all Eligible Engines as of such Transfer Date shall not be less than the Applicable Percentage."

    (3) The definition of "Guaranty" in Section 1.1 of the Supplement is hereby amended and restated to read in its entirety as follows:

"Guaranty" means the Third Amended and Restated Guaranty dated as of February 7, 2001 made by the Guarantor in favor of FUNB, together with its successors and assigns.

(*)

Portions of the material in this Exhibit have been redacted pursuant to a request for confidential treatment and the redacted material has been filed separately with the Commission. An asterisk has been placed in the precise places in this Agreement where we have redacted information and the asterisk is keyed to a legend which states that the material has been omitted pursuant to a request for confidential treatment.

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    (4) The definition of "Issuer Fee Letter" in Section 1.1 of the Supplement is hereby amended and restated to read in its entirety as follows:

"Issuer Fee Letter" means the Second Amended and Restated Issuer Fee Letter, dated as of February 7, 2001, between the Issuer and the Deal Agent.

    (5) The following definition is hereby added in its entirety to Section 1.1 of the Supplement:

"Revolving Credit Agreement" means that certain Amended and Restated Credit Agreement, dated as of February 10, 2000, as amended and supplemented from time to time, entered into by and among Willis Lease Finance Corporation, a Delaware corporation (successor by merger to Willis Lease Finance Corporation, a California corporation), the banking institutions signatories thereto and named in Exhibit A attached thereto and such other institutions that become a "Bank" pursuant to Section 11.4 thereof, First Union National Bank, a national banking association, as Co-Arranger and as Administrative Agent for the Banks under the Revolving Credit Agreement, Banc of America Securities LLC, (formerly NationsBanc Montgomery Securities LLC) as Co-Arranger and Syndication Agent, and Bank of America, N.A., (formerly NationsBank, N.A.) a national banking association, as Appraisal Agent.

    (6) The following definition is hereby added in its entirety to Section 1.1 of the Supplement:

"SRT" means SR Technics Switzerland, a Swiss corporation.

    (7) The following definition is hereby added in its entirety to Section 1.1 of the Supplement:

"Third Amendment Date" shall mean the date on which the Third Amendment to this Supplement shall become effective.

    (8) Section 4.7 of the Supplement is hereby amended and restated to read in its entirety as follows:

"Section 4.7 Lessee Acknowledgment.

    Within 90 days of the Closing Date or the Transfer Date with respect to any Engine, the Lessee under the Lease Agreement relating to such Engine, if any, shall have executed and delivered to the Deal Agent a written agreement, substantially in the form attached hereto as Exhibit C."

    (9) Section 5.2(m) of the Supplement is hereby amended and restated to read in its entirety as follows:

"Lessee Acknowledgment. The Lessee under the Lease Agreement relating to an Engine, if any, shall have received a written agreement for such Lessee's signature, substantially in the form attached hereto as Exhibit C."

   (10) Section 5.2(n) of the Supplement is hereby deleted in its entirety.

   (11) Section 5.2(s) of the Supplement is hereby amended and restated to read in its entirety as follows:

"Concentration of Engines for Wide Body Aircraft. After giving effect to the transfer of all Engines which are transferred on any Transfer Date,

(i)

the sum of the Net Book Values of all Eligible Engines designed to power Wide Body Aircraft (excluding such Eligible Engines which are on-lease to SRT) shall not exceed an amount equal to the product of (A) the Wide Body Aircraft Percentage and (B) the Aggregate Net Book Value and

26

(ii)

the sum of the Net Book Values of all Eligible Engines designed to power Wide Body Aircraft (including such Eligible Engines which are on-lease to SRT) shall not exceed the product of (A)       percent (  %)(*) and (B) the Aggregate Net Book Value."

   (12) Section 5.2(x) of the Supplement is hereby deleted in its entirety.

   (13) Section 5.2(y) of the Supplement is hereby amended and restated to read in its entirety as follows:

"PW4000 Engines. No PW4000 Series engine with a 94" fan (PW4052-PW4062) (or Beneficial Interest in any Owner Trust which owns such Engine) may be transferred on any Transfer Date if such Engine has more than 800 cycles since the last high pressure compressor maintenance."

   (14) Section 7.1(8) of the Supplement is hereby amended and restated to read in its entirety as follows:

(8)

Outstandings exceed(*) of the aggregate Appraised Values of each Eligible Engine.

   (15) Exhibit C to the Supplement is deleted and Exhibit C to this Third Amendment is substituted in place thereof.

   (16) Schedule 1 to the Supplement is deleted and Schedule 1 to this Third Amendment is substituted in place thereof.

    Supplement in Full Force and Effect as Amended.  Except as specifically amended hereby, the Supplement shall remain in full force and effect. All references to the Supplement shall be deemed to mean the Supplement as modified hereby. This Third Amendment shall not constitute a novation of the Supplement, but shall constitute an amendment thereof. The parties hereto agree to be bound by the terms and conditions of the Supplement, as amended by this Third Amendment, as though such terms and conditions were set forth herein.

    Effectiveness of Third Amendment.  This Third Amendment shall become effective on the date (the "Third Amendment Date") when all conditions set forth in Annex I hereto have been met.

Miscellaneous.

    (17) This Third Amendment may be executed in any number of counterparts, and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instrument but all of which together shall constitute one and the same agreement.

    (18) The descriptive headings of the various sections of this Third Amendment are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof.

    (19) This Third Amendment may not be amended or otherwise modified except as provided in the Supplement.

    (20) THIS THIRD AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS CONFLICT OF LAWS PROVISIONS.

    (21) First Union Securities, Inc. certifies by acknowledgment hereof that it is the sole Noteholder.

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the parties have caused this Third Amendment to the Amended and Restated Series 1997-1 Supplement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

WLFC FUNDING CORPORATION
By:	/s/ Nicholas J. Novasic
Name:	Nicholas J. Novasic
Title:	Chief Financial Officer
THE BANK OF NEW YORK, as Indenture Trustee
By:	/s/ Mauro Palladino
Name	Mauro Palladino
Title:	Vice President
THE BANK OF NEW YORK, as Securities Intermediary
By:	/s/ Mauro Palladino
Name:	Mauro Palladino
Title:	Vice President

Consented and agreed to:
FIRST UNION SECURITIES, INC.,
	as the sole Noteholder on behalf of the Purchasers
By:	/s/ Leah W. Torstrick
Name:	Leah W. Torstrick
Title:	Director

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SCHEDULE 1

Section 1: Definitions

"Applicable Percentage" means            percent (  %)(*).

"Class A Note Commitment" means an amount not to exceed $180,000,000.00, subject to the terms and conditions set forth herein, 100% of which is to be allocated between VFCC and the Investors (as defined in the Class A Note Purchase Agreement) as determined at any time by the Deal Agent in its sole discretion; provided, however, that at no time shall the Class A Note Principal Balance exceed the Asset Base for this Series 1997-1.

"Developed Asia/Pacific Rim" means the following countries: Australia, Fiji, Hong Kong, Japan, New Zealand, Singapore and Taiwan.

"Developed Europe" means the following countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Malta, Norway, Portugal, Spain, Sweden, Switzerland, The Netherlands and the United Kingdom.

"Emerging Africa/Middle East/Europe" means the following countries: Hungary, Poland, Bahrain, Israel, Qatar, South Africa and Turkey.

"Emerging Asia" means the following countries: China, Indonesia, Korea, Malaysia, Philippines and Thailand.

"Emerging Latin/South America" means the following countries: Argentina, Aruba, Brazil, Chile, Columbia, Jamaica and Mexico.

"Emerging Market" means Emerging Latin/South America, Emerging Asia and Emerging Africa/Middle East/Europe.

"Servicing Fee" means for any Payment Date an amount equal to the product of (x) five percent (5%) and (y) the aggregate amount of Engine Revenues with respect to the Series 1997-1 Engines during the immediately preceding Collection Period.

"Single Lessee Percentage" means            percent (  %)(*); provided, however that with respect to SRT as lessee, the Single Lessee Percentage shall mean            percent (  %)(*); provided, further, that with respect to any lessee which is located in an Emerging Market the Single Lessee Percentage shall mean            percent (  %)(*).

"Target EBIT Ratio" means 1.20:1.0.

"Target One Year Lease Expiry Concentration Percentage" means            percent (  %)(*).

"Target Two Year Lease Expiry Concentration Percentage" means            percent (  %)(*).

"Three Lessee Percentage" means            percent (  %)(*); provided, however that if at any time when SRT is one of the three largest lessees with respect to aggregate Net Book Values then Three Lessee Percentage shall mean             percent (  %)(*).

"Weighted Average Lease Rate Percentage" means one percent (1.0%).

"Wide Body Aircraft Percentage" means            percent (  %)(*).

Section 2: Certain Additional Terms.

    Administrative Agent Fee.  The Issuer shall pay on each quarterly Payment Date, beginning with the third Payment Date, an Administrative Agent Fee to the Deal Agent an amount equal to the product of (x) .075%, (y) one-fourth and (2) the Class A Note Principal Balance. Such Administrative Agent

29

Fee shall be payable on each quarterly Payment Date from amounts then on deposit in the Series 1997-1 Series Account in accordance with Section 3.02 of the Supplement.

    Interest Rate Hedge Agreements.  Beginning on March 31, 1999, the Issuer at all times shall have Interest Rate Hedge Agreements in effect, each of which has an aggregate notional amount of not less than 50% of the Outstanding Obligations of the, Series 1997-1 Notes.

Section 3: Geographic Concentration Table.(*)

    "Section 3: Geographic Concentration Table"

Geographic Region	Maximum Geographic Percentage
Emerging Africa/Middle East/Europe	%
Emerging Asia	%
China	%
Developed Asia/Pacific Rim	%
Developed Europe	%
North America	%
Emerging Latin/South America	%
Emerging Markets	%

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THIRD AMENDMENT TO AMENDED AND RESTATED SERIES 1997-1(*) SUPPLEMENT
SCHEDULE 1

EX-11.1

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Exhibit 11.1

Computation of Earnings Per Share

			Three Months Ended March 31
			2001			2000
			(in thousands, except per share data)
Basic
	Earnings:
		Income from continuing operations	$	2,499		$	1,541
		Discontinued operations	$	(179	)	$	141
		Net earnings	$	2,320		$	1,682
	Shares:
		Average common shares outstanding		8,709			7,402
Basic earnings per common share:
Income from continuing operations			$	0.29		$	0.21
Discontinued operations			$	(0.02	)	$	0.02
Net earnings			$	0.27		$	0.23
Assuming Full Dilution
	Earnings:
		Income from continuing operations	$	2,499		$	1,541
		Discontinued operations	$	(179	)	$	141
		Net earnings	$	2,320		$	1,682
	Shares:
		Diluted average common shares outstanding		8,883			7,484
Earnings per common share assuming full dilution:
Income from continuing operations			$	0.28		$	0.20
Discontinued operations			$	(0.02	)	$	0.02
Net earnings			$	0.26		$	0.22

Supplemental information:
Difference between average common shares outstanding to calculate basic and assuming full dilution is due to options outstanding under the 1996 Stock Options/Stock Issuance Plan and warrants issued in conjunction with the initial public offering

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Computation of Earnings Per Share