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0001193125-11-304158.txt : 20111109 0001193125-11-304158.hdr.sgml : 20111109 20111109140203 ACCESSION NUMBER: 0001193125-11-304158 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20110930 FILED AS OF DATE: 20111109 DATE AS OF CHANGE: 20111109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WILLIS LEASE FINANCE CORP CENTRAL INDEX KEY: 0001018164 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MACHINERY, EQUIPMENT & SUPPLIES [5080] IRS NUMBER: 680070656 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15369 FILM NUMBER: 111190878 BUSINESS ADDRESS: STREET 1: 773 SAN MARIN DRIVE STREET 2: SUITE 2215 CITY: NOVATO STATE: CA ZIP: 94998 BUSINESS PHONE: 4154084700 MAIL ADDRESS: STREET 1: 773 SAN MARIN DRIVE STREET 2: SUITE 2215 CITY: NOVATO STATE: CA ZIP: 94998 10-Q 1 d237207d10q.htm FORM 10-Q Form 10-Q

UNITED STATES

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 September 30, 2011

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

Commission File Number: 001-15369

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.)

773 San Marin Drive, Suite 2215, Novato, CA		94998
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (415) 408-4700

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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

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 November 8, 2011
Common Stock, $0.01 par value per share		9,135,173

WILLIS LEASE FINANCE CORPORATION

AND SUBSIDIARIES

INDEX


PART I.	FINANCIAL INFORMATION	3

Item 1.	Consolidated Financial Statements (Unaudited)	3

	Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010	3

	Consolidated Statements of Income for the three and nine months ended September 30, 2011 and 2010	4

	Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the nine months ended September 30, 2011 and 2010	5

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010	6

	Notes to Unaudited Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22

Item 4.	Controls and Procedures	22

PART II.	OTHER INFORMATION	24

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 5.	Exhibits	24

PART I — FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements (Unaudited)

WILLIS LEASE FINANCE CORPORATION

AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except share data, unaudited)


	September 30, 2011			December 31, 2010
ASSETS
Cash and cash equivalents	$	6,007		$	2,225
Restricted cash		80,273			77,013
Equipment held for operating lease, less accumulated depreciation of $221,488 and $192,377 at September 30, 2011 and December 31, 2010, respectively		960,504			998,001
Equipment held for sale		4,501			7,418
Operating lease related receivable, net of allowances of $310 and $423 at September 30, 2011 and December 31, 2010, respectively		6,844			8,872
Notes receivable		587			747
Investments		15,037			9,381
Property, equipment & furnishings, less accumulated depreciation of $4,626 and $3,984 at September 30, 2011 and December 31, 2010, respectively		7,040			6,971
Equipment purchase deposits		3,376			2,769
Other assets, net		11,141			12,565

Total assets	$	1,095,310		$	1,125,962


LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued expenses	$	16,079		$	18,099
Liabilities under derivative instruments		14,958			14,274
Deferred income taxes		84,002			75,645
Notes payable, net of discount of $2,212 and $2,617 at September 30, 2011 and December 31, 2010, respectively		684,084			731,632
Maintenance reserves		53,341			50,442
Security deposits		5,946			5,726
Unearned lease revenue		4,870			3,174

Total liabilities		863,280			898,992


Shareholders’ equity:
Preferred stock ($0.01 par value, 5,000,000 shares authorized; 3,475,000 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively)		31,915			31,915
Common stock ($0.01 par value, 20,000,000 shares authorized; 9,154,200 and 9,181,365 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively)		92			92
Paid-in capital in excess of par		56,781			60,108
Retained earnings		153,838			145,324
Accumulated other comprehensive loss, net of income tax benefit of $6,160 and $6,087 at September 30, 2011 and December 31, 2010, respectively		(10,596	)		(10,469	)

Total shareholders’ equity		232,030			226,970

Total liabilities and shareholders’ equity	$	1,095,310		$	1,125,962

See accompanying notes to the unaudited consolidated financial statements.

WILLIS LEASE FINANCE CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Income

(In thousands, except share data, unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
REVENUE
Lease rent revenue	$	26,458		$	25,090		$	79,419		$	76,422
Maintenance reserve revenue		8,962			9,739			27,319			23,721
Gain on sale of leased equipment		3,637			5,224			11,231			7,533
Other income		423			138			1,015			992

Total revenue		39,480			40,191			118,984			108,668


EXPENSES
Depreciation expense		12,456			13,021			38,716			36,078
Write-down of equipment		2,306			2,659			2,306			2,659
General and administrative		8,684			7,282			26,108			20,334
Technical expense		1,270			2,041			5,737			6,390
Net finance costs:
Interest expense		8,876			10,362			26,908			31,268
Interest income		(42	)		(66	)		(127	)		(162	)

Total net finance costs		8,834			10,296			26,781			31,106


Total expenses		33,550			35,299			99,648			96,567


Earnings from operations		5,930			4,892			19,336			12,101

Earnings from joint ventures		232			283			858			818


Income before income taxes		6,162			5,175			20,194			12,919
Income tax expense		(3,846	)		(2,092	)		(9,334	)		(4,879	)

Net income	$	2,316		$	3,083		$	10,860		$	8,040

Preferred stock dividends paid and accumulated-Series A		782			782			2,346			2,346


Net income attributable to common shareholders	$	1,534		$	2,301		$	8,514		$	5,694


Basic earnings per common share:	$	0.18		$	0.27		$	1.01		$	0.66


Diluted earnings per common share:	$	0.17		$	0.25		$	0.96		$	0.62


Average common shares outstanding		8,397			8,683			8,423			8,691
Diluted average common shares outstanding		8,811			9,080			8,903			9,256

See accompanying notes to the unaudited consolidated financial statements.

WILLIS LEASE FINANCE CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity and Comprehensive Income

Nine months Ended September 30, 2011 and 2010

(In thousands, unaudited)


	Preferred Stock		Issued and Outstanding Shares of Common Stock			Common Stock			Paid-in Capital in Excess of par			Accumulated Other Comprehensive Income/(Loss)			Retained Earnings			Total Shareholders’ Equity
Balances at December 31, 2009	$	31,915		9,182		$	92		$	60,671		$	(8,287	)	$	136,402		$	220,793
Net income		—		—			—			—			—			8,040			8,040
Unrealized loss from derivative instruments, net of tax benefit of $3,776		—		—			—			—			(6,542	)		—			(6,542	)

Total comprehensive income																			1,498
Preferred stock dividends paid		—		—			—			—			—			(2,346	)		(2,346	)
Shares repurchased		—		(178	)		—			(1,777	)		—			—			(1,777	)
Shares issued under stock compensation plans		—		363			2			594			—			—			596
Stock-based compensation expense		—		—			—			1,870			—			—			1,870
Excess tax benefit from stock-based compensation		—		—			—			341			—			—			341

Balances at September 30, 2010	$	31,915		9,367		$	94		$	61,699		$	(14,829	)	$	142,096		$	220,975

Balances at December 31, 2010	$	31,915		9,181		$	92		$	60,108		$	(10,469	)	$	145,324		$	226,970

Net income		—		—			—			—			—			10,860			10,860
Unrealized loss from derivative instruments, net of tax benefit of $73		—		—			—			—			(127	)		—			(127	)

Total comprehensive income																			10,733
Preferred stock dividends paid		—		—			—			—			—			(2,346	)		(2,346	)
Shares repurchased		—		(410	)		(4	)		(5,380	)		—			—			(5,384	)
Cash settlement of stock options		—		(172	)		(2	)		(1,260	)		—			—			(1,262	)
Shares issued under stock compensation plans		—		555			6			109			—			—			115
Stock-based compensation expense		—		—			—			2,301			—			—			2,301
Excess tax benefit from stock-based compensation		—		—			—			903			—			—			903

Balances at September 30, 2011	$	31,915		9,154		$	92		$	56,781		$	(10,596	)	$	153,838		$	232,030

See accompanying notes to the unaudited consolidated financial statements.

WILLIS LEASE FINANCE CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands, unaudited)


	Nine Months Ended September 30,
	2011			2010
Cash flows from operating activities:
Net income	$	10,860		$	8,040
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense		38,716			36,078
Write-down of equipment		2,306			2,659
Stock-based compensation expense		2,301			1,870
Amortization of deferred costs		3,414			3,976
Amortization of loan discount		405			451
Amortization of interest rate derivative cost		483			2,282
Allowances and provisions		(113	)		151
Other non-cash items		(1,113	)		—
Gain on sale of leased equipment		(11,231	)		(7,533	)
Income from joint ventures, net of distributions		(283	)		(102	)
Deferred income taxes		9,334			4,884
Changes in assets and liabilities:
Receivables		2,141			265
Notes receivable		160			(74	)
Other assets		(1,490	)		(1,521	)
Accounts payable and accrued expenses		(4,481	)		411
Restricted cash		44			(36,074	)
Maintenance reserves		2,899			2,347
Security deposits		220			(129	)
Unearned lease revenue		1,696			(469	)

Net cash provided by operating activities		56,268			17,512


Cash flows from investing activities:
Proceeds from sale of equipment held for operating lease (net of selling expense)		109,789			62,815
Restricted cash for investing activities		(3,304	)		—
Investment in joint venture		(8,943	)		—
Purchase of equipment held for operating lease		(92,888	)		(55,197	)
Purchase of property, equipment and furnishings		(710	)		(370	)

Net cash provided by investing activities		3,944			7,248


Cash flows from financing activities:
Proceeds from issuance of notes payable		74,409			117,841
Debt issuance cost		(503	)		(268	)
Preferred stock dividends		(2,346	)		(2,346	)
Proceeds from shares issued under stock compensation plans		115			596
Excess tax benefit from stock-based compensation		903			341
Repurchase of common stock		(5,384	)		(1,777	)
Cash settlement of stock options		(1,262	)		—
Principal payments on notes payable		(122,362	)		(139,190	)

Net cash used in financing activities		(56,430	)		(24,803	)

Increase/(Decrease) in cash and cash equivalents		3,782			(43	)
Cash and cash equivalents at beginning of period		2,225			2,056

Cash and cash equivalents at end of period	$	6,007		$	2,013

Supplemental disclosures of cash flow information:
Net cash paid for:
Interest	$	15,271		$	13,214

Income Taxes	$	150		$	297

See accompanying notes to the unaudited consolidated financial statements.

Notes to Unaudited Consolidated Financial Statements

1. Summary of Significant Accounting Policies

(a) Basis of Presentation: Our unaudited consolidated financial statements include the accounts of Willis Lease Finance Corporation and its subsidiaries (“we” or the “Company”) and 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 note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The accompanying unaudited interim consolidated 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 our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

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 our financial position as of September 30, 2011 and December 31, 2010, and the results of our operations for the nine months ended September 30, 2011 and 2010, and our cash flows for the nine months ended September 30, 2011 and 2010. The results of operations and cash flows for the period ended September 30, 2011 are not necessarily indicative of the results of operations or cash flows which may be reported for the remainder of 2011.

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

(b) Fair Value Measurements:

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs, to the extent possible. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

We measure the fair value of our interest rate swaps of $375.0 million (notional amount) based on Level 2 inputs, due to the usage of inputs that corroborate observable market data. We estimate the fair value of derivative instruments using a discounted cash flow technique. Fair value may depend on the credit rating and risk of the counterparties of the derivative contracts. We have interest rate swap agreements which have a cumulative net liability fair value of $15.0 million and $14.3 million as of September 30, 2011 and December 31, 2010, respectively. For the nine months ended September 30, 2011 and September 30, 2010, $8.8 million and $14.5 million, respectively, was realized as interest expense on the Consolidated Statements of Income.

The following table shows by level, within the fair value hierarchy, the Company’s assets and liabilities at fair value as of September 30, 2011 and December 31, 2010:


	Assets and (Liabilities) at Fair Value
	September 30, 2011										December 31, 2010
	Total			Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3
	(in thousands)
Liabilities under derivative instruments	$	(14,958	)	$	—	$	(14,958	)	$	—	$	(14,274	)	$	—	$	(14,274	)	$	—

Total	$	(14,958	)	$	—	$	(14,958	)	$	—	$	(14,274	)	$	—	$	(14,274	)	$	—

During the nine months ended September 30, 2011 and year ended December 31, 2010, all hedges were effective and no change in fair value was recorded in earnings.

Assets Measured and Recorded at Fair Value on a Nonrecurring Basis

We determine the fair value of long-lived assets held and used, such as Equipment held for operating lease and Equipment held for sale, by reference to independent appraisals, quoted market prices (e.g. an offer to purchase) and other factors. An impairment charge is recorded when the carrying value of the asset exceeds its fair value.

The following table shows by level, within the fair value hierarchy, the Company’s assets measured at fair value on a nonrecurring basis as of September 30, 2011 and 2010, and the gains (losses) recorded during the three and nine months ended September 30, 2011 and 2011 on those assets:


	Assets at Fair Value (in thousands)								Total Losses			Total Losses
									Three Months Ended			Nine Months Ended
	Total		Level 1		Level 2		Level 3		September 30, 2011			September 30, 2011
									(in thousands)
Balance at September 30, 2011
Equipment held for sale	$	4,501	$	—	$	4,169	$	332	$	(2,306	)	$	(2,306	)

Total	$	4,501	$	—	$	4,169	$	332	$	(2,306	)	$	(2,306	)


	Assets at Fair Value (in thousands)								Total Losses			Total Losses
									Three Months Ended			Nine Months Ended
	Total		Level 1		Level 2		Level 3		September 30, 2010			September 30, 2010
									(in thousands)
Balance at September 30, 2010
Equipment held for sale	$	7,847	$	—	$	6,878	$	969	$	(2,659	)	$	(2,659	)

Total	$	7,847	$	—	$	6,878	$	969	$	(2,659	)	$	(2,659	)

At September 30, 2011, the Company used Level 2 inputs and, due to a portion of the valuations requiring management judgment due to the absence of quoted market prices, Level 3 inputs to measure the fair value of engines that were held as consignment inventory with third parties. An asset write-down of $2.3 million was recorded in the three and nine months ended September 30, 2011, based upon a comparison of the asset net book values with the revised net proceeds expected from part sales arising from consignment of the engines. At September 30, 2010, the Company used Level 2 inputs and, due to a portion of the valuations requiring management judgment due to the absence of quoted market prices, Level 3 inputs to measure the fair value of engines that were held as consignment inventory with third parties. An asset write-down of $2.7 million was recorded in the three and nine months ended September 30, 2010, based upon a comparison of the asset net book values with the revised net proceeds expected from part sales arising from consignment of the engines.

(c) Notes receivable: Notes receivable are recorded net of any unamortized fees, incremental direct costs and allowance for uncollectible amounts. Amortization of any fees is recorded over the term of the related loan. As applicable, interest income on the notes receivable is accrued as earned. We evaluate the collectability of both interest and principal for each note receivable to determine whether it is impaired, based on current information and events. Once collectability is not reasonably assured, interest income is recognized on a cash basis, unless we determine the note should be on the cost recovery method, and any cash payments received would then be reflected as a reduction of principal.

(d) Subsequent Events: We have reviewed and evaluated material subsequent events through the date the financial statements were issued.

2. Management Estimates

These consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States.

The preparation of consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate estimates, including those related to residual values, estimated asset lives, bad debts, income taxes, contingencies and litigation. On July 1, 2010 and again on July 1, 2011, we adjusted the depreciation for certain older engine types within the portfolio. It is our policy to review estimates regularly to reflect the cost of equipment over the useful life of these engines. We base our estimate on historical experience and on various other assumptions that are believed to be reasonable under the circumstances for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Long-lived assets and certain identifiable intangibles to be held and used by an entity are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and long-lived assets to be disposed of generally are reported at the lower of carrying amount or fair value less cost to sell.

Management believes that the accounting policies on revenue recognition, maintenance reserves and expenditures, useful life of equipment, asset residual values, asset impairment and allowance for doubtful accounts are critical to the results of operations. If the useful lives or residual values are lower than those estimated by us, upon sale of the asset a loss may be realized. Significant management judgment is required in the forecasting of future operating results, which are used in the preparation of projected undiscounted cash-flows and should different conditions prevail, material impairment write-downs may occur.

3. Commitments, Contingencies, Guarantees and Indemnities

Our principal offices are located in Novato, California. We occupy space in Novato under a lease that expires February 28, 2015. The remaining lease rental commitment is approximately $1.8 million. Equipment leasing, financing, sales and general administrative activities are conducted from the Novato location. We also sub-lease office and warehouse space for our operations at San Diego, California. This lease expires October 31, 2013 and the remaining lease commitment is approximately $0.3 million. We also lease office space in Shanghai, China, London, United Kingdom, Blagnac, France and Dublin, Ireland. The total lease rental commitment for our international locations is less than $0.3 million.

We made purchase commitments to secure the purchase of four engines for a gross purchase price of $36.0 million. One engine is scheduled for delivery in 2011, one engine is for delivery in 2012, one is for delivery in 2013 and one is for delivery in 2014. As of September 30, 2011, non-refundable deposits paid related to this purchase commitment were $2.8 million. In October 2006, we entered into an agreement with CFM International (“CFM”) to purchase new spare aircraft engines. The agreement specifies that, subject to availability, we may purchase up to a total of 45 CFM56-7B and CFM56-5B spare engines over a five year period, with options to acquire up to an additional 30 engines. Our purchase orders with CFM for three engines represent deferral of engine deliveries originally scheduled for 2009 and are included in our commitments to purchase in 2012 to 2014. In September 2010, we signed a Memorandum of Understanding to purchase six Sukhoi Superjet (SSJ) 100 aircraft and options for four additional aircraft, with the first aircraft delivery scheduled for September 2012. As this agreement is non-binding, the future aircraft deliveries have not been included in our commitments to purchase.

4. Investments

We hold a fifty percent interest in a joint venture, WOLF A340, LLC, a Delaware limited liability company, (“WOLF”). On December 30, 2005, WOLF completed the purchase of two Airbus A340-313 aircraft from Boeing Aircraft Holding Company for a purchase price of $96.0 million. The purchase was funded by four term notes with one financial institution totaling $76.8 million, with interest payable at LIBOR plus 1.0% to 2.5% and maturing in 2013. These aircraft are currently on lease to Emirates until 2013. Our investment in the joint venture is $9.8 million and $9.3 million as of September 30, 2011 and 2010, respectively.

On May 25, 2011, we entered into an agreement with Mitsui & Co., Ltd. to participate in a joint venture formed as a Dublin-based Irish limited company – Willis Mitsui & Company Engine Support Limited (“JVCO”) for the purpose of acquiring and leasing IAE V2500-A5 and General Electric CF34-10E jet engines. Each partner holds a fifty percent interest in the joint venture. The initial capital contribution by the Company for its investment in JVCO was $8.0 million. The Company provided the initial lease portfolio by transferring seven V2500 engines to the joint venture in June 2011. The $70.0 million proceeds received upon the transfer of the engines was recorded as Other debt. In September 2011, the Company amended the joint venture agreement allowing for a sale treatment related to these seven engines and extinguishment of Other debt. In addition, the Company made a $1.0 million capital contribution to JVCO for an engine purchase in September 2011, resulting in a total of eight engines in the lease portfolio. The $9.0 million of capital contributions has been partially offset by $3.6 million, resulting in a net investment of $5.4 million. The $3.6 million reduction in investment represents 50% of the $7.2 million gain related to the sale by the Company of the seven engines to JVCO. JVCO executed a loan agreement with JA Mitsui Leasing, Ltd., establishing a credit facility of up to $120.0 million for the purposes of acquiring the initial engines as well as providing funding for future engine acquisitions.


Nine Months Ended September 30, 2011 (in thousands)	WOLF			JVCO			Total
Investment in joint ventures, as of December 31, 2010	$	9,381		$	—		$	9,381
Investment		—			5,373			5,373
Earnings/(Losses) from joint ventures		956			(98	)		858
Distribution		(575	)		—			(575	)

Investment in joint ventures, as of September 30, 2011	$	9,762		$	5,275		$	15,037

5. Long Term Debt

At September 30, 2011, notes payable consists of loans totaling $684.1 million (net of discount of $2.2 million), payable over periods of three months to fourteen years with interest rates varying between approximately 1.5% and 8.0% (excluding the effect of our interest rate derivative instruments). At September 30, 2011, we had revolving credit facilities totaling approximately $285.0 million with $105.0 million in funds available to us. Our significant debt instruments are discussed below:

At September 30, 2011, we had a $285.0 million revolving credit facility to finance the acquisition of aircraft engines for lease as well as for general working capital purposes. We closed on this facility on November 20, 2009 and the proceeds of the new facility, net of $3.5 million in debt issuance costs, was used to pay off the balance remaining from our prior revolving facility. Effective January 21, 2011, we exercised our option under the facility to increase the size of this facility to $285.0 million from the original $240.0 million. As of September 30, 2011, $105.0 million was available under this facility. The revolving facility ends in November 2012. The interest rate on this facility at September 30, 2011 was one-month LIBOR plus 3.50%. Under the revolver facility, all subsidiaries except Willis Engine Securitization Trust (“WEST”) and WEST Engine Funding LLC jointly and severally guarantee payment and performance of the terms of the loan agreement. The guarantee would be triggered by a default under the agreement.

On September 30, 2011, we closed on a term loan for a three year term totaling $4.0 million. Interest is payable at a fixed rate of 3.94% and principal and interest is paid monthly. The loan is secured by our corporate aircraft. The funds were used to refinance the loan for our corporate aircraft. The balance outstanding on this loan is $4.0 million as of September 30, 2011.

On January 11, 2010, we closed on a term loan for a four year term totaling $22.0 million. Interest is payable at a fixed rate of 4.50% and principal and interest is paid quarterly. The loan is secured by three engines. The funds were used to pay down our revolving credit facility. The balance outstanding on this facility is $19.2 million as of September 30, 2011.

At September 30, 2011, we had $448.5 million of WEST term notes outstanding. Included in the term notes outstanding are the Series 2007-A2 and Series 2007-B2 warehouse notes that converted to term notes effective February 14, 2011. The term notes are divided into $103.6 million Series 2005-A1 notes, $165.8 million Series 2007-A2 notes, $23.9 million Series 2007-B2 notes and $155.2 million Series 2008-A1 notes. At September 30, 2011, the interest rate on the Series 2005-A1 notes is one-month LIBOR plus a margin of 1.25%. At September 30, 2011, the interest rate on the Series 2007-A2 notes is one-month LIBOR plus a margin of 1.75%. At September 30, 2011, the interest rate on the Series 2007-B2 notes is one-month LIBOR plus a margin of 3.75%. At September 30, 2011, the interest rate on the Series 2008-A1 notes is one-month LIBOR plus a margin of 1.50%. The Series 2005-A1 and 2008-A1 term notes expected maturity is July 2018 and March 2021, respectively. The Series 2007-A2 and 2007-B2 notes expected maturity is January 2024 and January 2026, respectively.

On June 30, 2008, we purchased the WEST Series 2008-B1 notes for $19.8 million (the unpaid principal amount of the 2008-B1 notes at that date) with the proceeds of a $20.0 million term loan made by an affiliate of the prior note holder. This term loan is secured by a pledge of the WEST Series 2008-B1 notes to the lender. The term loan was originally for a term of two years with maturity on July 1, 2010 with no amortization with all amounts due at maturity. On May 3, 2010, the Company extended the maturity date from July 1, 2010 to December 31, 2010 and amended the covenants for this term loan to conform to that of the $285.0 million revolving credit facility. On December 29, 2010, the Company further extended the maturity date from December 31, 2010 to December 31, 2011 and increased the interest rate for the term loan from one-month LIBOR plus 3.50% to one-month LIBOR plus 4.00%. Additionally, this term loan will now amortize on a monthly basis, with a $15.2 million bullet payment required at the December 31, 2011 maturity date. The balance outstanding on this term loan is $16.5 million as of September 30, 2011. We are currently discussing a further extension of the term of this loan with our investment banker.

On January 18, 2011, we purchased the WEST Series 2005-B1 notes for $17.9 million (the unpaid principal amount of the 2005-B1 notes at that date) with the proceeds of a term loan made by the bank which was the prior note holder. This term loan is secured by a pledge of the WEST Series 2005-B1 notes to the lender. The interest rate on this term loan is one-month LIBOR plus a margin of 3.00%. The term of this loan is five years and the loan amortization is consistent with the amortization on the underlying WEST Series 2005-B1 notes, with a bullet payment required at the end of the five year term. The balance outstanding on this term loan is $16.7 million as of September 30, 2011.

WEST’s ability to make distributions and pay dividends to the Company is subject to the prior payments of its debt and other obligations and WEST’s maintenance of adequate reserves and capital. Under WEST, cash is collected in a restricted account, which is used to service the debt and any remaining amounts, after debt service and defined expenses, are distributed to the Company. Additionally, maintenance reserve payments and lease security deposits are accumulated in restricted accounts and are not available for general use. Cash from maintenance reserve payments are held in the restricted cash account and are subject to a minimum balance established annually based on an engine portfolio maintenance reserve study provided by a third party. Any excess maintenance reserve amounts remain within the restricted cash accounts and are utilized for the purchase of new engines.

The assets of WEST, WEST Engine Funding LLC and any associated Owner Trust are not available to satisfy the Company’s obligations or the obligations of any of our affiliates. WEST is consolidated for financial statement presentation purposes.

The Company and its subsidiaries are required to comply with various financial covenants such as minimum tangible net worth, maximum balance sheet leverage and various interest coverage ratios. The Company also has certain negative financial covenants such as liens, advances, change in business, sales of assets, dividends and stock repurchase. These covenants are tested quarterly and the Company was in full compliance with all covenant requirements at September 30, 2011.

At September 30, 2011 and 2010, one-month LIBOR was 0.24% and 0.26%, respectively.

The following is a summary of the aggregate maturities of notes payable at September 30, 2011:


Year Ending December 31,	(in thousands)
2011 (3 months remaining including $16.5 million for senior term loan)	$	29,251
2012 (includes $180.0 million outstanding on revolving credit facility)		231,070
2013		52,619
2014		65,821
2015		48,488
2016 and thereafter		259,047

	$	686,296

6. Derivative Instruments

We hold a number of interest rate derivative instruments to mitigate exposure to changes in interest rates, in particular one-month LIBOR, as all but $24.7 million of our borrowings are at variable rates. As a matter of policy, we do not use derivatives for speculative purposes. In addition, WEST is required under its credit agreement to hedge a portion of its borrowings. At September 30, 2011, we were a party to interest rate swap agreements with notional outstanding amounts of $375.0 million, remaining terms of between six and forty-three months and fixed rates of between 2.10% and 5.05%. The net fair value of these swaps at September 30, 2011 was negative $15.0 million, representing a net liability for us. This represents the estimated amount we would be required to pay if we terminated the swaps.

The Company estimates the fair value of derivative instruments using a discounted cash flow technique and, as of September 30, 2011, has used creditworthiness inputs that corroborate observable market data regarding the Company’s and counterparties’ risk of non-performance. Valuation of the derivative instruments requires certain assumptions for underlying variables and the use of different assumptions would result in a different valuation. Management believes it has applied assumptions consistently during the period. We apply hedge accounting and account for the change in fair value of our cash flow hedges through other comprehensive (loss) income for all derivative instruments.

Based on the implied forward rate for LIBOR at September 30, 2011, we anticipate that net finance costs will be increased by approximately $8.1 million for the 12 months ending September 30, 2012 due to the interest rate derivative contracts currently in place.

Fair Values of Derivative Instruments in the Consolidated Balance Sheets

The following table provides information about the fair value of our derivatives, by contract type:

Derivatives

Fair Value

Derivates Designated as

Hedging Instruments

Balance Sheet Location

September 30,
2011

December 31,
2010

(in thousands)

Interest rate contracts

Liabilities under derivative instruments

14,958

14,274

Earnings Effects of Derivative Instruments on the Consolidated Statements of Income

The following table provides information about the income effects of our cash flow hedging relationships for the three and nine months ended September 30, 2011 and 2010:


		Amount of Loss Recognized on Derivatives in the Statements of Income
		Three Months Ended September 30,
Derivates in Cash Flow Hedging Relationships	Location of Loss Recognized on Derivatives in the Statements of Income	2011		2010
		(in thousands)
Interest rate contracts	Interest expense	$	2,631	$	4,670

Total		$	2,631	$	4,670


		Amount of Loss Recognized on Derivatives in the Statements of Income
		Nine Months Ended September 30,
Derivates in Cash Flow Hedging Relationships	Location of Loss Recognized on Derivatives in the Statements of Income	2011		2010
		(in thousands)
Interest rate contracts	Interest expense	$	8,815	$	14,473

Total		$	8,815	$	14,473

Our derivatives are designated in a cash flow hedging relationship with the effective portion of the change in fair value of the derivative reported in the cash flow hedges subaccount of accumulated other comprehensive income.

Effect of Derivative Instruments on Cash Flow Hedging

The following tables provide additional information about the financial statement effects related to our cash flow hedges for the three and nine months ended September 30, 2011 and 2010:


	Amount of Loss Recognized in OCI on Derivatives (Effective Portion)							Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)
Derivatives in Cash Flow Hedging Relationships	Three Months Ended September 30,						Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Three Months Ended September 30,
Derivatives in Cash Flow Hedging Relationships	2011			2010				2011			2010
	(in thousands)							(in thousands)
Interest rate contracts*	$	(1,236	)	$	(4,109	)	Interest Expense	$	(2,631	)	$	(4,670	)

Total	$	(1,236	)	$	(4,109	)	Total	$	(2,631	)	$	(4,670	)


	Amount of Loss Recognized in OCI on Derivatives (Effective Portion)							Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)
Derivatives in Cash Flow Hedging Relationships	Nine Months Ended September 30,						Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Nine Months Ended September 30,
Derivatives in Cash Flow Hedging Relationships	2011			2010				2011			2010
	(in thousands)							(in thousands)
Interest rate contracts**	$	(683	)	$	(12,600	)	Interest Expense	$	(8,815	)	$	(14,473	)

Total	$	(683	)	$	(12,600	)	Total	$	(8,815	)	$	(14,473	)

*	These amounts are shown net of $2.6 million and $3.4 million of interest payments and interest expense amortization for the terminated interest rate contracts reclassified to the income statement during the three months ended September 30, 2011 and 2010, respectively.

**	These amounts are shown net of $8.3 million and $10.3 million of interest payments reclassified to the income statement terminated interest rate contracts reclassified to the income statement during the nine months ended September 30, 2011 and 2010, respectively.

The effective portion of the change in fair value on a derivative instrument designated as a cash flow hedge is reported as a component of other comprehensive income and is reclassified into earnings in the period during which the transaction being hedged affects earnings. The ineffective portion of the hedges is recorded in earnings in the current period. However, these are highly effective hedges and no significant ineffectiveness occurred in either period presented.

Counterparty Credit Risk

The Company evaluates the creditworthiness of the counterparties under its hedging agreements, all of which are large financial institutions in the United States, Switzerland and Germany with investment grade credit ratings. Based on those ratings, the Company believes that the counterparties are currently creditworthy and that their continuing performance under the hedging agreements is probable, and has not required those counterparties to provide collateral or other security to the Company. As of September 30, 2011, no hedging agreements exist under which the counterparties would owe the Company compensation upon termination due to their failure to perform under the applicable agreements.

7. Stock-Based Compensation Plans

Our 2007 Stock Incentive Plan (the 2007 Plan) was adopted on May 24, 2007. Under this 2007 Plan, a total of 2,000,000 shares are authorized for stock based compensation in the form of either restricted stock or stock options. There have been 1,407,116 shares of restricted stock awarded to date. Two types of restricted stock were granted in 2007: 239,952 shares vesting over 4 years and 15,452 shares vesting on the first anniversary date from date of issuance. Three types of restricted stock were granted in 2008: 248,964 shares vesting over 4 years, 308,018 shares vesting over 5 years and 17,476 shares vesting on the first anniversary date from date of issuance. Two types of restricted stock were granted in 2009: 10,000 shares vesting over 4 years and 18,220 shares vesting on the first anniversary date from date of issuance. Two types of restricted stock have been granted in 2010: 190,375 shares vesting over 4 years and 21,635 shares vesting on the first anniversary date from date of issuance. Two types of restricted stock have been granted in 2011: 314,924 shares vesting over 4 years and 22,100 shares vesting on the first anniversary date from date of issuance. The fair value of the restricted stock awards equaled the stock price at the date of grants. There were 33,043 shares of restricted stock awards granted in 2007 and 2008 that were cancelled during 2008 and 27,477 shares of restricted stock awards granted in 2007-2010 that were cancelled during 2011. The shares have reverted to the share reserve and are available for issuance at a later date, in accordance with the 2007 Plan.

Our accounting policy is to recognize the associated expense of such awards on a straight-line basis over the vesting period. Approximately $2.3 million in stock compensation expense was recorded in the nine months ended September 30, 2011. The stock compensation expense related to the restricted stock awards will be recognized over the average remaining vesting period of 2.8 years and totals $6.2 million. At September 30, 2011, the intrinsic value of unvested restricted stock awards issued through September 30, 2011 is $8.5 million. The 2007 Plan terminates on May 24, 2017.

In the nine months ended September 30, 2011, 360,823 options under the 1996 Stock Options/Stock Issuance Plan were exercised. A portion of these exercises, representing 150,000 options from an executive officer of the Company, were cash settled for a net payment of $1.1 million during the 3 months ended September 30, 2011. There are 452,068 stock options remaining under the 1996 Stock Options/Stock Issuance Plan which have an intrinsic value of $2.2 million.

8. Income Taxes

Income tax expense for the nine months ended September 30, 2011 and 2010 was $9.3 million and $4.9 million, respectively. The effective tax rate for the nine months ended September 30, 2011 and 2010 was 46.2% and 37.8%, respectively. The Company experienced a higher effective tax rate during 2011 primarily as a result of the tax consequences of the transfer of engines to JVCO, which required recognition of $1.3 million tax expense on the entire gain, while only 50% of the gain was recorded for book purposes given our ongoing ownership interest in JVCO (see Note 4). Our tax rate is subject to change based on changes in the mix of assets leased to domestic and foreign lessees, the proportions of revenue generated within and outside of California, the amount of executive compensation exceeding $1.0 million as defined in IRS code 162(m) and numerous other factors, including changes in tax law.

9. Related Party and Similar Transactions

Gavarnie Holding, LLC, a Delaware limited liability company (“Gavarnie”) owned by Charles F. Willis, IV, purchased the stock of Aloha Island Air, Inc., a Delaware Corporation, (“Island Air”) from Aloha AirGroup, Inc. (“Aloha”) on May 11, 2004. Charles F. Willis, IV is the CEO and Chairman of our Board of Directors and owns approximately 31% of our common stock. As of September 30, 2011, Island Air leases three DeHaviland DHC-8-100 aircraft and four spare engines from us. The aircraft and engines on lease to Island Air have a net book value of $3.2 million at September 30, 2011.

Effective January 2, 2011 we converted the operating leases with Island Air to a finance lease, with a principal amount of $7.0 million, under which they have resumed monthly payments. Revenue is recorded throughout the lease term as cash is received, with $0.4 million and $1.1 million recorded as lease rent revenue in the three and nine-month periods ended September 30, 2011, respectively.

Beginning in 2006 Island Air experienced cash flow difficulties, which affected their payments to us due to a fare war commenced by a competitor, their dependence on tourism which has suffered from the current economic environment as well as volatile fuel prices. The Board of Directors approved lease rent deferrals which were accounted for as a reduction in lease revenue in the applicable periods. Because of the question regarding collectability of amounts due under these leases, lease rent revenue for these leases have been recorded on a cash basis until such time as collectability becomes reasonably assured. After taking into account the deferred amounts, Island Air owed us $2.9 million in overdue rent and late charges. Effective as of May 3, 2011 we entered into a Settlement Agreement with Island Air which was approved by the Board of Directors, which provides that the overdue rent and late charges will be settled by the Company forgiving 65% of the claim and Island Air paying the remaining 35% of the claim as follows: $0.1 million on signing and $1.0 million over 60 months at 5% interest. A note receivable in the amount of $1.0 million and offsetting reserve was established. As cash is collected on this note, revenue will be recorded, with $0.1 million received in the nine months ended September 30, 2011. The Settlement Agreement is dependent on Island Air obtaining substantially similar concessions from their other major creditors which have been obtained.

We entered into a Consignment Agreement dated January 22, 2008, with J.T. Power, LLC (“J.T. Power”), an entity whose majority shareholder, Austin Willis, is the son of our Chief Executive Officer, and directly and indirectly, a shareholder of ours as well as a Director of the Company. According to the terms of the Consignment Agreement, J.T. Power is responsible to market and sell parts from the teardown of three engines with a book value of $4.2 million. Under this agreement, J.T. Power provides a minimum guarantee of net consignment proceeds of $3.3 million by January 22, 2012. Based on current estimated consignment proceeds, J.T. Power would be obligated to pay $1.3 million under the guarantee in January 2012. On September 7, 2011 JT Power notified us that it, “Doesn’t have the cash to make a onetime payment to Willis for the shortfall in the guarantee” and proposing a payment plan over time. As a result of this notice we have reduced the carrying value of the consigned assets in the amount of $0.9 million with a remaining carrying value of the consigned assets of $1.0 million. The independent members of our Board of Directors are reviewing this proposal. On November 17, 2008, we entered into a Consignment Agreement with J.T. Power in which they are responsible to market and sell parts from the teardown of one engine with a book value of $1.0 million. On February 25, 2009, we entered into a Consignment Agreement with J.T. Power in which they are responsible to market and sell parts from the teardown of one engine with a book value of $0.1 million. On July 31, 2009, we entered into a Consignment Agreement with J.T. Power in which they are responsible to market and sell parts from the teardown of one engine with a book value of $0.5 million. On July 27, 2006, we entered into an Aircraft Engine Agency Agreement with J.T. Power, in which we will, on a non-exclusive basis, provide engine lease opportunities with respect to available spare engines at J.T. Power. J.T. Power will pay us a fee based on a percentage of the rent collected by J.T. Power for the duration of the lease including renewals thereof. During the nine months ended September 30, 2011, sales of consigned parts by J.T. Power were $0.1 million.

10. Fair Value of Financial Instruments

The carrying amount reported in the Consolidated Balance Sheets for Cash and cash equivalents, Restricted cash, Operating lease related receivable and Accounts payable approximates fair value because of the immediate or short-term maturity of these financial instruments.

The carrying amount of the Company’s outstanding balance on its Notes payable as of September 30, 2011 was estimated to have a fair value of approximately $630.7 million based on the fair value of estimated future payments calculated using the prevailing interest rates.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Our core business is acquiring and leasing, primarily pursuant to operating leases, commercial aircraft engines and related aircraft equipment; and the selective purchase and sale of commercial aircraft engines (collectively “equipment”).

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 Critical Accounting Policies and Estimates included in our 2010 Form 10-K.

Results of Operations

Three months ended September 30, 2011, compared to the three months ended September 30, 2010:

Lease Rent Revenue. Lease rent revenue for the three months ended September 30, 2011 increased 5.5% to $26.5 million from $25.1 million for the comparable period in 2010. The slight increase primarily reflects growth in the size of the lease portfolio for the current period. The aggregate of net book value of lease equipment at September 30, 2011 and 2010 was $960.5 million and $940.6 million, respectively, an increase of 2.1%. The average utilization for each of the three months ended September 30, 2011 and 2010 was 86%. At September 30, 2011 and 2010, approximately 86% and 89% of equipment held for lease by book value was on-lease, respectively.

During the three months ended September 30, 2011, we added $21.3 million of equipment and capitalized costs to the lease portfolio. During the three months ended September 30, 2010, we added $2.9 million of equipment and capitalized costs to the lease portfolio.

Maintenance Reserve Revenue. Our maintenance reserve revenue for the three months ended September 30, 2011 decreased 8.0% to $9.0 million from $9.7 million for the comparable period in 2010. The decrease was due to the maturity of a lower number of long term leases in the current period. One long term lease terminated in the three months ended September 30, 2011 compared to two long term lease terminations in the year ago period. The decrease was partially offset by higher maintenance reserve revenues generated for engines on short term leases, for which usage was higher in the three months ended September 30, 2011 than in the year ago period.

Gain on Sale of Leased Equipment. During the three months ended September 30, 2011, we sold seven engines and other related equipment generating a net gain of $3.6 million, which represents 50% of the total $7.2 million gain related to the sale by the Company of seven engines to JVCO in the period, as described in footnote 4. During the three months ended September 30, 2010, we sold four engines and other related equipment generating a net gain of $5.2 million.

Other Income. Our other income consists primarily of management fee income and lease administration fees. Other income increased to $0.4 million from $0.1 million for the comparable period in 2010 due to an increase in the number of engines managed on behalf of third parties.

Depreciation Expense. Depreciation expense decreased 4.3% to $12.5 million for the three months ended September 30, 2011 from the comparable period in 2010, due to changes in estimates of useful life and changes in residual values on certain older engine types. As of July 1, 2011, we adjusted the depreciation for certain older engine types within the portfolio, with the result being a slight decrease of less than $0.1 million for the three months ended September 30, 2011. The net effect of the change in depreciation estimate had no significant impact to the net income and diluted earnings per share for the three months ended September 30, 2011 over what net income would have otherwise been had the change in depreciation estimate not been made.

General and Administrative Expenses. General and administrative expenses increased 19.3% to $8.7 million for the three months ended September 30, 2011, from the comparable period in 2010, due mainly to increases in employment related costs ($1.4 million) and legal and accounting fees ($0.1 million), which was partially offset by a decrease in bad debt expense ($0.2 million).

Technical Expense. Technical expenses consist of the cost of engine repairs, engine thrust rental fees, outsourced technical support services, sublease engine rental expense, engine storage and freight costs. These expenses decreased 37.8% to $1.3 million for the three months ended September 30, 2011, from the comparable period in 2010 due mainly to a decrease in engine maintenance costs due to lower repair activity ($0.4 million), lower sublease rental expense due to the termination of a sublease rental program in June 2011 ($0.2 million) and a reduction in engine freight costs ($0.1 million).

Net Finance Costs. Net finance costs include interest expense and interest income. Interest expense decreased 14.3% to $8.9 million for the three months ended September 30, 2011, from the comparable period in 2010, due primarily to a decrease in the average debt outstanding, as well as a decrease in interest rate swap costs resulting from a reduction in the notional value of swaps in place during the current quarter. Notes payable balance at September 30, 2011 and 2010, was $684.1 million and $705.3 million, respectively, a decrease of 3.0%. All but $24.7 million of our debt is tied to one-month U.S. dollar LIBOR which decreased from an average of 0.27% for the three months ended September 30, 2010 to an average of 0.22% for the three months ended September 30, 2011 (average of month-end rates). At September 30, 2011 and 2010, one-month LIBOR was 0.24% and 0.26%, respectively.

To mitigate exposure to interest rate changes, we have entered into interest rate swap agreements. As of September 30, 2011, such swap agreements had notional outstanding amounts of $375.0 million, remaining terms of between six and forty-three months and fixed rates of between 2.10% and 5.05%. As of September 30, 2010, such swap agreements had notional outstanding amounts of $490.0 million, average remaining terms of between one and fifty-four months and fixed rates of between 2.10% and 5.05%. In the three months ended September 30, 2011 and 2010, $2.6 million and $4.7 million was realized through the income statement as an increase in interest expense, respectively, as a result of these swaps.

Interest income for the three months ended September 30, 2011, decreased from $0.1 million for the three months ended September 30, 2010 due to a decrease in interest rates on our deposit balances from the year ago period.

Income Tax Expense. Income tax expense for the three months ended September 30, 2011 and 2010 was $3.8 million and $2.1 million, respectively. The effective tax rate for the three months ended September 30, 2011 and 2010 was 62.4% and 40.4%, respectively. The Company experienced a higher effective tax rate during 2011 primarily as a result of the tax consequences of the transfer of engines to JVCO, which required recognition of $1.3 million tax expense on the entire gain, while only 50% of the gain was recorded for book purposes given our ongoing ownership interest in JVCO (see Note 4). Our tax rate is subject to change based on changes in the mix of assets leased to domestic and foreign lessees, the proportions of revenue generated within and outside of California, the amount of executive compensation exceeding $1.0 million as defined in IRS code 162(m) and numerous other factors, including changes in tax law.

Nine months ended September 30, 2011, compared to the nine months ended September 30, 2010:

Lease Rent Revenue. Lease rent revenue for the nine months ended September 30, 2011 increased 3.9% to $79.4 million from $76.4 million for the comparable period in 2010. This increase primarily reflects growth in the size of the lease portfolio which translated into a higher amount of equipment on lease. The aggregate of net book value of lease equipment at September 30, 2011 and 2010 was $960.5 million and $940.6 million, respectively, an increase of 2.1%. The average utilization for the nine months ended September 30, 2011 and 2010 was 86% and 85%, respectively. At September 30, 2011 and 2010, approximately 86% and 89% of equipment held for lease by book value was on-lease, respectively.

During the nine months ended September 30, 2011, we added $93.6 million of equipment and capitalized costs to the lease portfolio. During the nine months ended September 30, 2010, we added $49.9 million of equipment and capitalized costs to the lease portfolio.

Maintenance Reserve Revenue. Our maintenance reserve revenue for the nine months ended September 30, 2011, increased 15.2% to $27.3 million from $23.7 million for the comparable period in 2010. The increase was due to higher maintenance reserve revenues generated for engines on short term leases, for which usage was higher in the nine months ended September 30, 2011 than in the year ago period, partially offset by a lower number of long term leases terminating in the current period, with four long term leases terminating in the nine months ended September 30, 2011 compared with the termination of five long term leases in the year ago period.

Gain on Sale of Equipment. During the nine months ended September 30, 2011, we sold eleven engines and other related equipment generating a net gain of $11.2 million. During the nine months ended September 30, 2010, we sold seven engines and other related equipment generating a net gain of $7.5 million.

Other Income. Our other income consists primarily of management fee income and lease administration fees. Other income remained fairly consistent for the nine months ended September 30, 2011 and 2010 at $1.0 million.

Depreciation Expense. Depreciation expense increased 7.3% to $38.7 million for the nine months ended September 30, 2011 from the comparable period in 2010, due to increased portfolio value and changes in estimates of useful life and residual values on certain older engine types.

General and Administrative Expenses. General and administrative expenses increased 28.4% to $26.1 million for the nine months ended September 30, 2011, from the comparable period in 2010, mainly due to increases in employment related costs ($4.4 million), corporate travel ($0.5 million), legal and accounting fees ($0.6 million) and insurance expense ($0.1 million).

Technical Expense. Technical expenses consist of the cost of engine repairs, engine thrust rental fees, outsourced technical support services, sublease engine rental expense, engine storage and freight costs. These expenses decreased 10.2% to $5.7 million for the nine months ended September 30, 2011, from the comparable period in 2010 mainly due to a decrease in engine thrust rental fees due to a decrease in the number of engines being operated at higher thrust levels under the CFM thrust rental program ($0.4 million) and lower sublease rental expense due to the termination of a sublease rental program in June 2011 ($0.2 million).

Net finance costs. Net finance costs include interest expense and interest income. Interest expense decreased 13.9% to $26.9 million for the nine months ended September 30, 2011, from the comparable period in 2010, due primarily to a decrease in one-month LIBOR, decreased interest rate swap costs resulting from a reduction in the notional value of swaps in place during the current period and a decrease in the average debt outstanding compared to the year ago period. Notes payable balance at September 30, 2011 and 2010, was $684.1 million and $705.3 million, respectively, a decrease of 3%. All but $24.7 million of our debt is tied to one-month US dollar LIBOR which decreased from an average of 0.28% for the nine months ended September 30, 2010 to an average of 0.22% for the nine months ended September 30, 2011 (average of month-end rates). At September 30, 2011 and 2010, one-month LIBOR was 0.24% and 0.26%, respectively.

To mitigate exposure to interest rate changes, we have entered into interest rate swap agreements. As of September 30, 2011, such swap agreements had notional outstanding amounts of $375.0 million, average remaining terms of between six and forty-three months and fixed rates of between 2.10% and 5.05%. As of September 30, 2010, such swap agreements had notional outstanding amounts of $490.0 million, average remaining terms of between one and fifty-four months and fixed rates of between 2.10% and 5.05%. In the nine months ended September 30, 2011 and 2010, $8.8 million and $14.5 million was realized through the income statement as an increase in interest expense, respectively, as a result of these swaps.

Interest income for the nine months ended September 30, 2011, decreased to $0.1 million from $0.2 million for the nine months ended September 30, 2010, due to a decrease in interest rates on our deposit balances from the year ago period.

Income Taxes. Income tax expense for the nine months ended September 30, 2011 and 2010 was $9.3 million and $4.9 million, respectively. The effective tax rate for the nine months ended September 30, 2011 and 2010 was 46.2% and 37.8%, respectively. The Company experienced a higher effective tax rate during 2011 primarily as a result of the tax consequences of the transfer of engines to JVCO, which required recognition of $1.3 million tax expense on the entire gain, while only 50% of the gain was recorded for book purposes given our ongoing ownership interest in JVCO (see Note 4). Our tax rate is subject to change based on changes in the mix of assets leased to domestic and foreign lessees, the proportions of revenue generated within and outside of California, the amount of executive compensation exceeding $1.0 million as defined in IRS code 162(m) and numerous other factors, including changes in tax law.

Recent Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”). This ASU clarifies the concepts related to highest and best use and valuation premise, blockage factors and other premiums and discounts, the fair value measurement of financial instruments held in a portfolio and of those instruments classified as a component of shareholder’s equity. The guidance includes enhanced disclosure requirements about recurring Level 3 fair value measurements, the use of nonfinancial assets, and the level in the fair value hierarchy of assets and liabilities not recorded at fair value. The guidance provided in ASU 2011-04 is effective for interim and annual periods beginning on or after December 15, 2011 and is applied prospectively. We do not expect the adoption of these provisions to have a material impact on our Consolidated Financial Statements.

In June 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-05, “Presentation of Comprehensive Income” (“ASU 2011-05”). This ASU intends to enhance comparability and transparency of other comprehensive income components. The guidance provides an option to present total comprehensive income, the components of net income and the components of other comprehensive income in a single continuous statement or two separate but consecutive statements. This ASU eliminates the option to present other comprehensive income components as part of the Statement of Shareholder’s Equity and Comprehensive Income. The guidance provided in ASU 2011-05 is effective for interim and annual period beginning on or after December 15, 2011 and should be applied retrospectively. We do not expect the adoption of this ASU to have a material impact on our Consolidated Financial Statements.

Liquidity and Capital Resources

Historically, we have financed our growth through borrowings secured by our equipment lease portfolio. Cash of approximately $74.4 million and $117.8 million, in the nine-month periods ended September 30, 2011 and 2010, respectively, was derived from this activity. In these same time periods $122.4 million and $139.2 million, respectively, was used to pay down related debt. Cash flow from operating activities was $56.3 million and $17.5 million in the nine-month periods ended September 30, 2011 and 2010, respectively. Cash receipts resulting from WEST engine sales have increased the restricted cash balance at September 30, 2011 and have reduced cash flows from investing activities by $3.3 million for the nine-month period ended September 30, 2011. Cash receipts from maintenance reserve payments received from WEST lessees and those resulting from WEST engine sales increased the restricted cash balance at September 30, 2010 and have reduced cash flows from operating activities by $12.6 million and $18.3 million, respectively, for the nine-month period ended September 30, 2010.

Our primary use of funds is for the purchase of equipment for lease. Purchases of equipment (including capitalized costs) totaled $92.9 million and $55.2 million for the nine-month periods ended September 30, 2011 and 2010, respectively.

Cash flows from operations are driven significantly by payments received under our lease agreements, which comprise lease revenue and maintenance reserves, and are offset by general and administrative expenses and interest expense. Note that cash received from maintenance reserve arrangements for some of our engines on lease are restricted per our debt arrangements. The lease revenue stream, in the short-term, is at fixed rates while virtually all 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. Revenue and maintenance reserves are also affected by the amount of equipment off lease. Approximately 86% and 89%, by book value, of our assets were on-lease at September 30, 2011 and at September 30, 2010, respectively. The average utilization rate for the nine months ended September 30, 2011, was 86% compared to 85% in the prior year. If there is any 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.

At September 30, 2011, Notes payable consists of loans totaling $684.1 million (net of discount of $2.2 million), payable over periods of three months to fourteen years with interest rates varying between approximately 1.5% and 8.0% (excluding the effect of our interest rate derivative instruments). Our significant debt instruments are discussed below:

On June 30, 2008, we purchased the WEST Series 2008-B1 notes for $19.8 million (the unpaid principal amount of the 2008-B1 notes at that date) with the proceeds of a $20.0 million term loan made by an affiliate of the prior note holder. This term loan is secured by a pledge of the WEST Series 2008-B1 notes to the lender. The term loan was originally for a term of two years with maturity on July 1, 2010 with no amortization with all amounts due at maturity. On May 3, 2010, the Company extended the maturity date from July 1, 2010 to December 31, 2010 and amended the covenants for this term loan to conform to that of the $240.0 million revolving credit facility. On December 29, 2010, the Company further extended the maturity date from December 31, 2010 to December 31, 2011 and increased the interest rate for the term loan from one-month LIBOR plus 3.50% to one-month LIBOR plus 4.00%. Additionally, this term loan will now amortize on a monthly basis, with a $15.2 million bullet payment required at the December 31, 2011 maturity date. The balance outstanding on this term loan is $16.5 million as of September 30, 2011. We are currently discussing a further extension of the term of this loan with our investment banker. In case the term loan is not extended, we have sufficient availability currently under our other debt facilities to repay the loan.

At September 30, 2011 and December 31, 2010, we had warehouse and revolving credit facilities totaling approximately $285.0 million and $440.0 million, respectively. At September 30, 2011 and December 31, 2010, respectively, approximately $105.0 million and $54.2 million were available under these combined facilities.

At September 30, 2011 and 2010, one-month LIBOR was 0.24% and 0.26%, respectively.

Approximately $680.8 million of the above debt is subject to our continuing to comply with the covenants of each financing, including debt/equity ratios, minimum tangible net worth and minimum interest coverage ratios, and other eligibility criteria including customer and geographic concentration restrictions. In addition, under these facilities, we can typically borrow 70% to 83% of an engine purchase and approximately 70% of spare parts purchases. Therefore we must have other available funds for the balance of the purchase price of any new equipment to be purchased or we will not be permitted to draw on these facilities. The facilities are also cross-defaulted. 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, debt is secured by engines on lease to customers and to the extent that engines are returned from lease early or are sold, repayment of that portion of the debt could be accelerated. We were in compliance with all covenants at September 30, 2011.

Approximately $67.5 million of our debt is repayable during the next 12 months, which includes $16.5 million owed under our senior term loan. Such repayments consist of scheduled installments due under term loans. The table below summarizes our contractual commitments at September 30, 2011.


			Payment due by period (in thousands)
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Long-term debt obligations	$	686,296	$	67,549	$	299,090	$	104,203	$	215,454
Interest payments under long - term debt obligations		57,520		16,649		16,845		10,638		13,388
Operating lease obligations		2,395		899		1,266		230		—
Purchase obligations		36,000		18,200		17,800		—		—

Total	$	782,211	$	103,297	$	335,001	$	115,071	$	228,842

During the remainder of 2011, we have commitments to purchase one engine and related equipment for a gross purchase price of $9.3 million. As at September 30, 2011, non-refundable deposits paid related to this purchase commitment were $1.4 million. In October 2006, we entered into an agreement with CFM International (“CFM”) to purchase new spare aircraft engines. The agreement specifies that, subject to availability, we may purchase up to a total of 45 CFM56-7B and CFM56-5B spare engines over a five year period, with options to acquire up to an additional 30 engines. Our 2011 purchase orders with CFM for three engines represent deferral of engine deliveries originally scheduled for 2009 and are included in our commitments to purchase in 2012 to 2014. As at September 30, 2011, non-refundable deposits paid related to this purchase commitment were $1.4 million.

In September 2010, we signed a Memorandum of Understanding to purchase six Sukhoi Superjet (SSJ) 100 aircraft and options for four additional aircraft, with the first aircraft delivery scheduled for September 2012. As this agreement is non-binding, the future aircraft deliveries have not been included in our commitments to purchase.

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. A decline in the level of internally generated funds, such as could result if the amount of equipment off-lease increases or there is a decrease in availability under our existing debt facilities, would impair our ability to sustain our level of operations. 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 limited to that which can be funded from internally generated capital.

Management of Interest Rate Exposure

At September 30, 2011, all but $24.7 million of our borrowings were on a variable rate basis at various interest rates tied to one-month LIBOR. Our 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 we realize under our leases and the interest rate that we pay under our borrowings.

To mitigate exposure to interest rate changes, we have entered into interest rate swap agreements, which have notional outstanding amounts of $375.0 million, with remaining terms of between six and forty-three months and fixed rates of between 2.10% and 5.05%. The net fair value of these swaps at September 30, 2011 was negative $15.0 million, representing a net liability for us.

The realized amount on these derivative instrument arrangements increased expense by $8.8 million and $14.5 million for the nine months ended September 30, 2011 and September 30, 2010, respectively. This incremental cost for the swaps effective for hedge accounting was included in interest expense for the respective periods. For further information see Note 6 to the unaudited consolidated financial statements. We will be exposed to risk in the event of non-performance of the interest rate derivative instrument counterparties. Management assesses counterparty risk on a periodic basis and, based on current information, has concluded that the hedge counterparties are credit worthy.

Related Party and Similar Transactions

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Our primary market risk exposure is that of interest rate risk. A change in the LIBOR rates would affect our cost of borrowing. Increases in interest rates to us, which may cause us to raise the implicit rates charged to our customers, could result in a reduction in demand for our leases. Alternatively, we may price our leases based on market rates so as to keep the fleet on-lease and suffer a decrease in our operating margin due to interest costs that we are unable to pass on to our customers. All but $24.7 million of our outstanding debt is variable rate debt. We estimate that for every one percent increase or decrease in interest rates on our variable rate debt (net of derivative instruments), annual interest expense would increase or decrease $2.9 million (in 2010, $2.0 million per annum).

We hedge a portion of our borrowings, effectively fixing the rate of these borrowings. This hedging activity helps protect us against reduced margins on longer term fixed rate leases. Based on the implied forward rates for one-month LIBOR, we expect interest expense will be increased by approximately $11.4 million for the year ending December 31, 2011, as a result of our hedges. Such hedging activities may limit our ability to participate in the benefits of any decrease in interest rates, but may also protect us from increases in interest rates. Furthermore, since lease rates tend to vary with interest rate levels, it is possible that we 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.

We are also exposed to currency devaluation risk. During the nine months ended September 30, 2011, 81% of our total lease revenues came from non-United States domiciled lessees. All of our leases require payment in U.S. dollars. If these lessees’ currency devalues against the U.S. dollar, the lessees could potentially encounter difficulty in making their lease payments.

Our largest customer accounted for approximately 12.7% and 14.6% of total lease rent revenue during the nine months ended September 30, 2011 and 2010, respectively. No other customer accounted for greater than 10% of total lease rent revenue during these periods.

Item 4.

Controls and Procedures

(a) Evaluation of disclosure controls and procedures. Based on management’s evaluation (with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO)), as of the end of the period covered by this report, our CEO and CFO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Inherent Limitations on Controls

Management, including the CEO and CFO, does not expect that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

(b) Changes in internal control over financial reporting. There has been no change in our internal control over financial reporting during our fiscal quarter ended September 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(a) None.

(b) None.

(c) Issuer Purchases of Equity Securities. On December 8, 2009, the Company’s Board of Directors authorized a plan to repurchase up to $30.0 million of the Company’s common stock, depending upon market conditions and other factors, over the next three years. The repurchased shares are to be subsequently retired.

Common stock repurchases, under our authorized plan, in the three months ended September 30, 2011 were as follows:


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans		Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans
	(in thousands, except per share data)
July 1, 2011 - July 31, 2011		—		—		—	$	20,507
August 1, 2011 - August 31, 2011		—		—		—	$	20,507
September 1, 2011 - September 30, 2011		7	$	11.78		7	$	20,419

		7	$	11.78		7	$	20,419

Item 5.

Exhibits

(a) Exhibits.

EXHIBITS


Exhibit Number		Description

3.1		Certificate of Incorporation, dated March 12, 1998, as amended by the Certificate of Amendment of Certificate of Incorporation, dated May 6, 1998 (incorporated by reference to Exhibit 3.1 to our report on Form 10-K filed on March 31, 2009).

3.2		Bylaws, dated April 18, 2001 as amended by (1) Amendment to Bylaws, dated November 13, 2001, (2) Amendment to Bylaws, dated December 16, 2008, and (3) Amendment to Bylaws, dated September 28, 2010 (incorporated by reference to Exhibit 3.2 to our report on Form 10-Q filed on November 8, 2010).

4.1		Specimen of Series A Cumulative Redeemable Preferred Stock Certificate (incorporated by reference to Exhibit 4.1 to Form S-1 Registration Statement Amendment No. 2 filed on January 27, 2006).

4.2		Form of Certificate of Designations of the Registrant with respect to the Series A Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 4.2 to Form S-1 Registration Statement Amendment No. 2 filed on January 27, 2006).

4.3		Form of Amendment No. 1 to Certificate of Designations of the Registrant with respect to the Series A Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 4.3 to our report on Form 10-K filed on March 31, 2009).

4.4		Rights Agreement dated as of September 24, 1999, by and between Willis Lease Finance Corporation and American Stock Transfer and Trust Company, as Rights Agent (incorporated by reference to Exhibit 4.1 to Form 8-K filed on October 4, 1999).

4.5		Second Amendment to Rights Agreement dated as of December 15, 2005, by and between Willis Lease Finance Corporation and American Stock Transfer and Trust Company, as Rights Agent (incorporated by reference to Exhibit 4.5 to our report on Form 10-K filed on March 31, 2009).

4.6		Third Amendment to Rights Agreement dated as of September 30, 2008, by and between Willis Lease Finance Corporation and American Stock Transfer and Trust Company, as Rights Agent (incorporated by reference to Exhibit 4.6 to our report on Form 10-K filed on March 31, 2009).



4.7		Form of Certificate of Designations of the Registrant with respect to the Series I Junior Participating Preferred Stock (formerly known as “Series A Junior Participating Preferred Stock”) (incorporated by reference to Exhibit 4.7 to our report on Form 10-K filed on March 31, 2009).

4.8		Form of Amendment No. 1 to Certificate of Designations of the Registrant with respect to Series I Junior Participating Preferred Stock (incorporated by reference to Exhibit 4.8 to our report on Form 10-K filed on March 31, 2009).

10.1		Form of Indemnification Agreement entered into between the Registrant and its directors and officers (incorporated by reference to Exhibit 10.1 to Form 8-K filed on October 1, 2010).

10.2		1996 Stock Option/Stock Issuance Plan, as amended and restated as of March 1, 2003 (incorporated by reference to Exhibit 99.1 to Form S-8 filed on September 26, 2003).

10.3		2007 Stock Incentive Plan (incorporated by reference to the Registrant’s Proxy Statement for 2007 Annual Meeting of Stockholders filed on April 30, 2007).

10.4		Amended and Restated Employment Agreement between the Registrant and Charles F. Willis IV dated as of December 1, 2008 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on December 22, 2008).

10.5		Employment Agreement between the Registrant and Donald A. Nunemaker dated November 21, 2000 (incorporated by reference to Exhibit 10.3 to our report on Form 10-K filed on April 2, 2001).

10.6		Amendment to Employment Agreement between Registrant and Donald A. Nunemaker dated December 31, 2008 (incorporated by reference to Exhibit 10.6 to our report on Form 10-Q filed on May 9, 2011).

10.7		Employment Agreement between the Registrant and Thomas C. Nord dated September 19, 2005 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on September 23, 2005).

10.8		Amendment to Employment Agreement between Registrant and Thomas C. Nord dated December 31, 2008 (incorporated by reference to Exhibit 10.8 to our report on Form 10-Q filed on May 9, 2011).

10.9		Employment Agreement between the Registrant and Bradley S. Forsyth dated February 20, 2007 (incorporated by reference to Exhibit 10.2 to Form 8-K filed on February 21, 2007).

10.10		Amendment to Employment Agreement between Registrant and Bradley S. Forsyth dated December 31, 2008 (incorporated by reference to Exhibit 10.10 to our report on Form 10-Q filed on May 9, 2011).

10.11		Employment Offer Letter to Jesse V. Crews dated July 15, 2009 (incorporated by reference to Exhibit 10.33 to our report on Form 10-Q filed on November 12, 2009).

10.12		Loan and Aircraft Security Agreement dated September 30, 2011 between Banc of America Leasing & Capital, LLC and Willis Lease Finance Corporation.

10.13		Series 2005-A1 Note Purchase Agreement, dated as of July 28, 2005, among the Registrant, Willis Engine Securitization Trust, UBS Securities LLC and UBS Limited (incorporated by reference to Exhibit 10.35 to our report on Form 10-Q filed on November 29, 2005).

10.14		Series 2005-B1 Note Purchase Agreement, dated as of August 9, 2005, among the Registrant, Willis Engine Securitization Trust, Fortis Capital and HSH Nordbank AG (incorporated by reference to Exhibit 10.36 to our report on Form 10-Q filed on November 29, 2005).

10.15		Series 2007-A2 Note Purchase and Loan Agreement dated as of December 13, 2007, among Willis Engine Securitization Trust, Willis Lease Finance Corporation and the initial Series 2007-A2 Holders (incorporated by reference to Exhibit 10.59 to our report on Form 10-K filed on March 31, 2008).

10.16		Series 2007-B2 Note Purchase and Loan Agreement dated as of December 13, 2007 among Willis Engine Securitization Trust, Willis Lease Finance Corporation and the initial Series 2007-B2 Holders (incorporated by reference to Exhibit 10.60 to our report on Form 10-K filed on March 31, 2008).

10.17		Series 2008-A1 Note Purchase and Loan Agreement dated as of March 25, 2008, among Willis Engine Securitization Trust, Willis Lease Finance Corporation and the initial Series 2008-A1 Holders (incorporated by reference to Exhibit 10.16 to our report on Form 10-K filed on March 31, 2009).

10.18		Series 2008-B1 Note Purchase and Loan Agreement dated as of March 25, 2008, among Willis Engine Securitization Trust, Willis Lease Finance Corporation and the initial Series 2008-B1 Holders (incorporated by reference to Exhibit 10.17 to our report on Form 10-K filed on March 31, 2009).



10.19^*		Amended and Restated Indenture, dated December 13, 2007, by and between Willis Engine Securitization Trust and Deutsche Bank Trust Company Americas (incorporated by reference to Exhibit 10.18 to our report on Form 10-K filed on March 31, 2009).

10.20		Series A1 Indenture Supplement, dated August 9, 2005, by and between Willis Engine Securitization Trust and Deutsche Bank Trust Company Americas (incorporated by reference to Exhibit 10.40 to our report on Form 10-Q filed on November 29, 2005).

10.21		Series B1 Indenture Supplement, dated August 9, 2005, by and between Willis Engine Securitization Trust and Deutsche Bank Trust Company Americas (incorporated by reference to Exhibit 10.41 to our report on Form 10-Q filed on November 29, 2005).

10.22		Series 2007-A2 Supplement, dated as of December 13, 2007, by and between Willis Engine Securitization Trust and Deutsche Bank Trust Company Americas (incorporated by reference to Exhibit 10.21 to our report on Form 10-K filed on March 31, 2009).

10.23		Series 2007-B2 Supplement, dated as of December 13, 2007, by and between Willis Engine Securitization Trust and Deutsche Bank Trust Company Americas (incorporated by reference to Exhibit 10.22 to our report on Form 10-K filed on March 31, 2009).

10.24		Series 2008-A1 Supplement, dated as of March 28, 2008, by and between Willis Engine Securitization Trust and Deutsche Bank Trust Company Americas (incorporated by reference to Exhibit 10.23 to our report on Form 10-K filed on March 31, 2009).

10.25		Series 2008-B1 Supplement, dated as of March 28, 2008, by and between Willis Engine Securitization Trust and Deutsche Bank Trust Company Americas (incorporated by reference to Exhibit 10.24 to our report on Form 10-K filed on March 31, 2009).

10.26		General Supplement 2008-1 dated as of March 28, 2008 (incorporated by reference to Exhibit 10.25 to our report on Form 10-K filed on March 31, 2009).

10.27		General Supplement 2009-1 dated as of March 20, 2009 (incorporated by reference to Exhibit 10.26 to our report on Form 10-K filed on March 31, 2009).

10.28		Servicing Agreement, dated as of August 9, 2005, among the Registrant, Willis Engine Securitization Trust, WEST Engine Funding and 59 engine owning trusts named therein (incorporated by reference to Exhibit 10.44 to our report on Form 10-Q filed on November 29, 2005).

10.29		Administrative Agency Agreement, dated as of August 9, 2005, among the Registrant, Willis Engine Securitization Trust, WEST Engine Funding and 59 engine owning trusts named therein (incorporated by reference to Exhibit 10.45 to our report on Form 10-Q filed on November 29, 2005).

10.30		Limited Liability Company Agreement of WOLF A340 LLC, dated as of December 8, 2005, between Oasis International Leasing (USA), Inc. and the Registrant (incorporated by reference to Exhibit 10.49 to Form S-1 Registration Statement Amendment No. 1 filed on January 9, 2006).

10.31*		Credit Agreement, dated as of November 18, 2009, among Willis Lease Finance Corporation, Union Bank, N.A., as security agent and administrative agent, and certain lenders named therein (incorporated by reference to Exhibit 10.31 to our report on Form 10-K filed on March 16, 2010).

11.1		Statement re Computation of Per Share Earnings.

21.1		Subsidiaries of the Registrant.

31.1		Certification of Charles F. Willis, IV, pursuant to Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Bradley S. Forsyth, pursuant to Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101+		The following materials from the Company’s report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Shareholder’s Equity and Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, and (v) Notes to Unaudited Consolidated Financial Statements.

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

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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: November 9, 2011


Willis Lease Finance Corporation

By:		/s/ Bradley S. Forsyth
		Bradley S. Forsyth
		Senior Vice President
		Chief Financial Officer
		(Principal Accounting Officer)

EX-10.12 2 d237207dex1012.htm LOAN AND AIRCRAFT SECURITY AGREEMENT Loan and Aircraft Security Agreement

Exhibit 10.12

LOAN AND AIRCRAFT SECURITY AGREEMENT (S/N 3004)

THIS LOAN AND AIRCRAFT SECURITY AGREEMENT (S/N 3004) (together with all Addenda, Riders and Annexes hereto, this “Agreement”) is dated as of September 30, 2011 (the “Closing Date”), by and between WILLIS LEASE FINANCE CORPORATION (“Customer”), and BANC OF AMERICA LEASING & CAPITAL, LLC (“Lender”).

In consideration of the mutual agreements contained herein, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

Capitalized terms used but not otherwise defined in this Agreement and CTC Terms shall have the meanings ascribed to them in Annex A attached hereto and made a part hereof.

SECTION 1. TERMS OF LOAN.

1.1 Loan and Use of Proceeds. Subject to the terms and conditions of this Agreement, Lender agrees to make a loan to Customer in the principal amount set forth in Annex B attached hereto and made a part hereof (the “Loan”). Customer shall use the proceeds of the Loan to finance or refinance the costs of the acquisition of the Aircraft.

1.2 Repayment and Prepayment. Customer’s obligation to repay the Loan shall be evidenced by a Promissory Note dated the Closing Date, payable by Customer to the order of Lender in the original principal amount of the Loan (as amended, restated, extended and renewed from time to time, the “Note”). The Loan shall bear interest and be repaid by Customer at the times and in the manner set forth in the Note. The Loan may be prepaid only in the manner and subject to terms and conditions set forth in the Note and, if applicable, Section 4.7 hereof.

SECTION 2. CONDITIONS OF BORROWING. Lender’s obligation to make the Loan shall be both subject to and conditioned upon the satisfaction of all of the conditions precedent specified in the Closing Terms Addendum attached to and made a part of this Agreement (the “Closing Terms Addendum”).

SECTION 3. REPRESENTATIONS AND WARRANTIES. In order to induce Lender to enter into this Agreement and to make the Loan herein provided for, Customer represents, warrants and covenants to Lender that:

(a) (i) Customer (A) is duly qualified to do business in each jurisdiction in which the conduct of its business or the ownership or operation of its assets requires such qualification; (B) has the necessary authority and power to own and operate the Aircraft and its other assets and to transact the business in which it is engaged; (C) is a “citizen of the United States” within the meaning of the Transportation Code; and (D) has the form of business organization set forth in Annex B hereto and is, and will remain, duly organized, validly existing and in good standing under the laws of the state of its organization set forth in Annex B hereto, and its state-issued organizational identification number (if any), federal taxpayer identification number, chief executive office and principal place of business address are all as set forth on Annex B hereto; and (ii) its name as shown in the preamble of this Agreement is its exact legal name as shown on its Organizational Documents, each as amended as of the Closing Date;

(b) (i) Customer’s execution and delivery of, and performance of its obligations under and with respect to, each of the Loan Documents (including its borrowing the amounts constituting the Loan, granting the Lender’s Lien against the Aircraft and other Collateral and participating in the other transactions contemplated herein and therein), (A) have been duly authorized by all necessary action on the part of Customer consistent with its form of organization, (B) do not contravene or constitute a default under any Applicable Law, any of Customer’s Organizational Documents or any agreement, indenture, or other instrument to which Customer is a party or by which it may be bound, (C) do not require the approval of or notice to (1) any Governmental Authority, except for the filings and registrations specified in


2388218				(LOAN AGREEMENT)

the Closing Terms Addendum, all of which shall have been duly effected prior to or concurrently with Lender making the Loan, or (2) any other Person (including any trustees or holders of indebtedness), and (D) will not result in the creation or imposition of any Lien on any of the assets of Customer other than the Lender’s Lien created hereby and by the other Loan Documents with respect to the Collateral; (ii) each of the Transaction Documents referenced in the Closing Terms Addendum has been duly executed and delivered by an authorized representative of each of the Transaction Parties, and constitutes the legal, valid and binding obligation of each of the Transaction Parties thereto, enforceable against each of them in accordance with the respective terms of such Transaction Documents (including, without limitation, the grant of the Lender’s Lien); and (iii) without limiting the foregoing, upon Lender’s advancing the Loan on the Closing Date, (A) Customer will have satisfied or complied with all conditions precedent and requirements as set forth in the Loan Documents required to have been satisfied or complied with concurrently with or prior to such advance and (B) no Default or Event of Default shall be then existing;

(c) there are no proceedings pending or, so far as the officers, managers, or members of Customer know, threatened against or affecting Customer or any of its property before any Governmental Authority that could impair Customer’s title to the Aircraft or any of the other Collateral, or that, if decided adversely, could materially affect the financial condition or operations of Customer or its ability to perform its obligations under any of the Loan Documents;

(d) (i) Customer has, and shall continue to have, good and marketable title to the Collateral, free and clear of Liens, except Permitted Liens; (ii) the Lender’s Lien in the Airframe, the Engines and the other Collateral is and shall remain validly created and perfected, and has and shall continue to have first priority over any other Liens pursuant to all Applicable Laws; and (iii) all filings, recordings, registrations or other actions necessary or desirable in order to vest such title in Customer, and establish, perfect and give first priority to Lender’s Lien and other rights and interests in, against or with respect to the Collateral, have been duly effected, and all Impositions in connection therewith have been duly paid;

(e) without limiting any of the other representations and warranties in this Agreement, for the purposes of the Cape Town Convention and any other Applicable Law, (i) upon Customer’s grants and assignments, and any Permitted Third Party Agreement (if constituting a lease), contemplated in the Loan Documents or other Transaction Documents, Customer and (if constituting a lease) any Interested Third Party shall be situated in, and Customer shall cause the Aircraft to remain registered in, the United States of America (which is a contracting state), (ii) with respect to any of the Transaction Documents relating to the Airframe or Engines, each of the respective parties thereto has power to dispose of the Airframe and Engines, as contemplated therein by way of the relevant Transaction Document, and (iii) the Loan Documents and, if constituting a lease, any Permitted Third Party Agreement are effective to constitute international interests in the Airframe and Engines and security assignments of the related associated rights and transfer of the related international interests, as contemplated therein, and each such Registerable Interest will be effective against third parties upon registration at the International Registry, without any further filings or registrations (except as contemplated in the Loan Documents);

(f) (i) all financial statements of Customer, copies of which have been heretofore delivered to Lender, are complete and correct, have been prepared in accordance with GAAP and present fairly the financial position of Customer as at the date thereof and the results of its operations for the period ended on said date and there has been no material adverse change in the financial condition, business or operations of Customer since the date thereof; and (ii) Customer has filed all Federal, state and local income tax returns that are required to be filed and has paid all taxes as shown on said returns and all assessments received by it to the extent that such taxes and assessments have become due, except where the failure to do so would not have a material adverse effect on the financial condition or operations of Customer or on its ability to perform its obligations under any of the Loan Documents, and Customer does not have any knowledge of any actual or proposed deficiency or additional assessment in connection therewith; and

(g) (i) the Aircraft (A) is in Customer’s possession, (B) is in good working order, repair and condition and fully equipped to operate for its intended purpose, (C) is in conformity with the requirements of the Applicable Standards, (D) is currently certified under the FARs and any other Applicable Laws and


2388218		2		(LOAN AGREEMENT)

is airworthy in all respects, and (E) is and will remain primarily hangared at the Primary Hangar Location; and (ii) without limiting the foregoing, (A) solely as between Lender and Customer (and without prejudicing Customer’s rights against any other Person, which rights are not being disclaimed hereby), Customer has no pending claims and has no knowledge of any facts upon which a future claim may be based, against any prior owner, the seller, manufacturer or supplier of the Aircraft or any of the other Collateral, for breach of warranty or otherwise, and (B) all of the information contained in Annex C attached hereto and made a part hereof, including the registration number of the Aircraft, and the serial numbers, manufacturer and model numbers of the Airframe, Engines and APU, are true and accurate in all respects.

SECTION 4. COVENANTS. Customer covenants and agrees that from and after the Closing Date and so long as any of the Obligations are outstanding:

4.1 Notices; Financial Information; and Further Assurances. Customer shall, at its sole expense:

(a) promptly give written notice to Lender of (i) the occurrence of any Default or Event of Default; (ii) the occurrence of any Event of Loss or event of which Customer may be aware that could become an Event of Loss; (iii) the commencement or threat of any material litigation or proceedings affecting Customer or any material litigation or proceedings affecting the Aircraft or any of the other Collateral, or the ability of Customer to comply with its obligations under the Loan Documents; and (iv) any dispute between Customer or any Interested Third Party and any Governmental Authority or other Person that involves the Aircraft or any of the other Collateral or that might materially interfere with the normal business operations of Customer;

(b) furnish to Lender (i) within ninety (90) days of the close of each fiscal year of Customer beginning with December 31, 2011, Customer’s consolidated (and, if applicable, consolidating) balance sheet and statements of shareholders’ or members’ equity, cash flows and operations as of the end of and for such fiscal year all on a comparative basis with the prior fiscal year and prepared in accordance with GAAP, certified by a recognized firm of certified public accountants, (ii) within ninety (90) days of the close of each fiscal quarter of Customer beginning with September 30, 2011, Customer’s quarterly consolidated (and, if applicable, consolidating), balance sheet and statements of shareholders’ or member’s equity, cash flows and operations as of the end of and for such fiscal quarter, all on a comparative basis with the similar fiscal quarter of the previous year and prepared in accordance with GAAP, certified by the chief financial officer of Customer; provided that Customer shall be deemed to have satisfied the financial reporting requirements herein if, within the time frames specified in clause (b)(i) and (b)(ii), Customer files with the SEC its Forms 10K and 10Q or makes such forms publicly available in electronic format; and (iii) promptly, such additional financial and other information as Lender may from time to time reasonably request; and

(c) promptly execute and deliver to Lender such further instruments, UCC, FAA and other Applicable Aviation Authority filings (including an IDERA) and other documents, make, cause to be made and/or consent to all registrations (including any discharges and subordinations, or as to the prospective or actual sale of, and any international interest in, the Engines) with the International Registry, and take such further action, as Lender may from time to time reasonably request in order to further carry out the intent and purpose of the Loan Documents and to establish, protect and enforce the rights, interests, remedies and Liens (including the first priority thereof) created, or intended to be created, in favor of Lender thereby.

4.2 General Obligations.

(a) Customer shall (i) duly observe and conform to all requirements of Applicable Law relating to the conduct of its business and/or the Aircraft, (ii) remain a “citizen of the United States” within the meaning of the Transportation Code, (iii) obtain and keep in full force and effect (A) all rights, franchises, licenses and permits that are necessary to the proper conduct of its business, and (B) all approvals by any Governmental Authority required with respect to the performance of its obligations


2388218		3		(LOAN AGREEMENT)

under the Loan Documents and the operation of the Aircraft and its business, (iv) cause the Aircraft to remain primarily hangared at the Primary Hangar Location and duly registered in Customer’s name under the Transportation Code (including, by making all necessary reports, re-registering its ownership of the Aircraft, and taking all other actions required by Applicable Law), and (v) pay and perform all of its obligations and liabilities when due.

(b) Customer shall (i) within thirty (30) days of any change in its presently existing legal name or its form or state of organization, give written notice thereof to Lender, (ii) if its presently existing state organizational identification number changes on or at any time after the Closing Date, immediately notify Lender thereof, and (iii) not change its presently existing mailing, chief executive office and/or principal place of business address on or after the Closing Date, without giving Lender thirty (30) days’ prior written notice of the same.

4.3 Taxes.

(a) Customer shall file with all appropriate taxing authorities (i) all Federal, state and local income tax returns that are required to be filed, except where the failure to do so would not have a material adverse effect on the financial condition or operations of Customer or on its ability to perform its obligations under any of the Loan Documents, and (ii) all registrations, declarations, returns and other documentation with respect to any personal property taxes (or any other taxes in the nature of or imposed in lieu of property taxes) due or to become due with respect to the Aircraft or any of the other Collateral.

(b) Customer shall (i) pay on or before the date when due all taxes as shown on said returns and all taxes assessed, billed or otherwise payable with respect to the Aircraft or any of the other Collateral directly to the appropriate taxing authorities; and (ii) pay when due all license and/or registration or filing fees, assessments, governmental charges and sales, use, property, excise, privilege, value added and other taxes (including any related interest or penalties) or other charges or fees now or hereafter imposed by any governmental body or agency upon Customer or the Aircraft or any of the other Collateral, with respect to the landing, airport use, manufacturing, ordering, shipment, purchase, ownership, delivery, installation, leasing, chartering, operation, possession, use or disposition of the Aircraft or any of the other Collateral, or any interest therein (the items referred to in (i) and (ii) above being referred to herein collectively, as “Impositions”).

4.4 No Disposition of Collateral or Liens; Title and Security Interest.

(a) Customer shall not sell, assign, enter into any Third Party Agreement (except as expressly permitted by the terms hereof), convey, mortgage, exchange or otherwise transfer or relinquish possession of (including by any seizure or other taking by any foreign or domestic governmental authority) or dispose of the Airframe, the Engines, the APU, any Part, any related associated rights, international interests or prospective international interests, any proceeds or any of the other Collateral, or attempt or offer to do, or suffer or permit any of the foregoing. Customer shall be permitted, however, to deliver possession of the Airframe, Engines, APU or any Part to another Person for testing, service, repair, maintenance, overhaul, alteration or modification and to enter into Permitted Third Party Agreements, in each case, if and to the extent consistent with the provisions of the Loan Documents. Customer shall warrant and defend its good and marketable title to the Airframe, the Engines and the other Collateral, and the validity, perfection and first priority of Lender’s Lien in the Collateral, against all other Liens, claims and demands whatsoever, except Permitted Liens; and without limiting the foregoing, Customer shall (i) not create, assume or suffer to exist any Liens on or with respect to the Airframe, the Engines, or any of the other Collateral, or Customer’s interest therein (other than Permitted Liens); and (ii) promptly take such action as directed by Lender to duly discharge any such Liens (other than Permitted Liens).


2388218		4		(LOAN AGREEMENT)

(b) So long as no Default or Event of Default exists, Customer may enter into and remain a party to Third Party Agreements, in each such case, subject to the satisfaction of, and compliance by Customer and each Interested Third Party with, all of the following throughout the term of such arrangement:

(i) each such Interested Third Party shall, if engaged by Customer as a manager, while so engaged, have a recognized favorable reputation as a manager of aircraft similar to the Aircraft, and be providing management services for other aircraft owners similar to the services contemplated therein;

(ii) any operation of the Aircraft pursuant to any such Third Party Agreement shall be limited to (A) if by Customer, any time sharing agreements (as defined in Section 91.501(c)(1) of the FARs) complying with Part 91 of the FARs and all other Applicable Standards, or (B) if such Third Party Agreement is a “dry lease” by Customer, as lessor, to an Affiliate or other Interested Third Party permitted pursuant hereto, as lessee, operation by such lessee complying with (1) Part 91 and any other applicable provision of the FARs, and all other Applicable Standards, and (2) the provisions hereof and of the other Loan Documents pertinent to the operation of the Aircraft (whether by Customer or any permitted Interested Third Party);

(iii) the related Third Party Agreement shall (A) be and remain, subject and subordinate to Lender’s Lien in and with respect to the Collateral, and Lender’s rights and remedies under the Loan Documents (and such subordination shall be expressly acknowledged therein), (B) not convey any Lien on, or other property interest in or against the Airframe, the Engines or any of the other Collateral, except for a Permitted Lien (but, without giving effect to clause (a) of the definition of such term), (C) not permit any further disposition of or Lien (other than a Permitted Lien) against the Aircraft or any of the other Collateral by any of the Interested Parties thereto or any other Person, or any change in registration or unpermitted change in hangaring of the Aircraft, (D) not contain provisions that are inconsistent with the provisions of any of the Loan Documents or cause Customer to breach any of its representations, warranties or agreements under any of the Loan Documents, (E) be in conformity with all requirements of the FARs and other Applicable Laws, and (F) otherwise conform to any Operating Consent required by Lender with respect thereto.

(iv) Customer shall have given Lender at least thirty (30) Business Days’ prior written notice of its intention to enter into a Third Party Agreement with respect to which Customer shall be relinquishing possession or control of the Airframe or Engines (unless such Third Party Agreement is specified on Annex B hereto), and no later than the effective date thereof, Customer shall comply with, and at all times thereafter remain in compliance with, any related requirements by Lender, including (1) entering into, and causing any related Interested Third Parties to enter into, an Operating Consent, (2) causing Lender to be covered by the Required Coverages (which, for the purposes hereof, may include insurance coverages obtained and maintained by an Interested Third Party, conforming to the insurance requirements herein and in any of the other Loan Documents), and (3) entering into or delivering, or causing to be entered into and delivered, all such other documents, filings and assurances, making or causing to be made such filings and registrations, and taking or causing to be taken all such other actions, in each case as may be required by Lender, and (4) paying or reimbursing Lender for any related costs or expenses;

(v) Lender shall have the right, but not the obligation, to (A) require reasonable evidence that any Interested Third Party satisfies the requirements provided herein, and (B) review any such Third Party Agreement, as from time to time supplemented and amended, to determine its conformity with the provisions hereof, but without assuming any responsibility with respect thereto; and

(vi) Customer shall neither make, nor permit to be made, any filing or registration with respect to any Permitted Third Party Agreement, unless so directed by Lender pursuant to Section 5.2 hereof or otherwise.

(c) With respect to any Third Party Agreements complying with all of the provisions of Section 4.4(b) hereof (each a “Permitted Third Party Agreement”), although certain of the duties and obligations of Customer under the Loan Documents may be performed by one or more of the Interested Third Parties, (i) no such Permitted Third Party Agreement shall reduce any of Customer’s obligations, or Lender’s rights, under any of the Loan Documents, (ii) all of Customer’s obligations under the Loan Documents shall be and remain primary and continue in full force and effect as the obligations of a principal and not of a guarantor or surety, and (iii) Lender is not waiving the right to require full and timely


2388218		5		(LOAN AGREEMENT)

performance of any such obligations in strict accordance with the provisions hereof and of the other Loan Documents. By way of clarification and not limitation, with respect to any provisions of this Agreement or any of the other Loan Documents requiring Customer to take or refrain from taking an action relating to the Aircraft or any of the other Collateral, such provision may also be read to mean that Customer shall cause the same to be done in accordance therewith, if at that time the Aircraft or such other Collateral is in the possession or control of an Interested Third Party pursuant to a Permitted Third Party Agreement.

4.5 Use of Aircraft; Maintenance; Modifications; Security.

(a) Customer shall operate the Aircraft under and in compliance with Part 91, any other applicable provision of the FARs and all other Applicable Standards. Customer shall not operate or permit the Aircraft to be operated for air taxi operations or otherwise under Part 135 of the FARs. Unless otherwise expressly permitted hereunder, (ii) Customer shall at all times have, and maintain, “operational control” of the Aircraft (as such term is then interpreted by the FAA or such other applicable Governmental Authority), and no other Person shall operate the Aircraft. The Aircraft at all times will be operated by duly qualified pilots having satisfied all requirements established and specified by the FAA, the TSA, any other applicable Governmental Authority and the Required Coverages.

(b) Customer may fly the Aircraft temporarily to any country in the world, provided that the Aircraft (i) shall at all times be based at the Primary Hangar Location; and (ii) shall not be flown, operated, used or located in, to or over any such country or area (temporarily or otherwise) (A) that is excluded from the Required Coverages (or specifically not covered by the Required Coverages), (B) with which the United States of America does not maintain favorable diplomatic relations (which as of the date hereof is any country or jurisdiction listed and starred with an “*” on the list maintained by the U.S. Department of State, at http://www.state.gov/s/inr/rls/4250.htm), or (C) in violation of any of the Loan Documents or any Applicable Standards. Customer shall adopt, implement and comply with all security measures required by any Applicable Law or by any Required Coverages, or that are necessary or appropriate for the proper protection of the Aircraft (whether on the ground or in flight) against theft, vandalism, hijacking, destruction, bombing, terrorism or similar acts.

(c) Customer agrees that, with respect to the Airframe, the Engines, the APU and each Part, Customer shall, at its own expense, (i) maintain, inspect, service, repair, overhaul and test the same in accordance with Applicable Standards; (ii) make any alterations or modifications that may at any time be required to comply with Applicable Standards, and to cause the Aircraft to remain airworthy; (iii) furnish all required parts, replacements, mechanisms, devices and servicing so that the condition and operating efficiency thereof will at all times be no less than its condition and operating efficiency as and when delivered to Customer, ordinary wear and tear from proper use alone excepted; (iv) promptly replace all Parts (A) that become worn out, lost, stolen, taken, destroyed, damaged beyond repair or permanently rendered or declared unfit for use for any reason whatsoever, or (B) if not previously replaced pursuant to clause (A), as and when required by any Applicable Standards, including any applicable life limits; and (v) maintain (in English) all Records in accordance with Applicable Standards. All maintenance procedures shall be performed by properly trained, licensed, and certified maintenance sources and personnel utilizing replacement parts approved by the FAA and the manufacturer of (as applicable) the Airframe, the Engines, the APU or any Part. Without limiting the foregoing, Customer shall comply with all mandatory service bulletins and airworthiness directives by causing compliance to such bulletins and/or directives to be completed through corrective modification in lieu of operating manual restrictions.

(d) Customer shall not make or authorize any improvement, change, addition or alteration to the Aircraft that will impair the originally intended function or use of the Aircraft, diminish the value of the Aircraft as it existed immediately prior thereto, or violate any Applicable Standard. All repairs, parts, replacements, mechanisms and devices added by Customer or on its behalf shall immediately, without further act, become part of the Aircraft and subject to the Lender’s Lien granted under this Agreement.


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4.6 Insurance.

(a) Customer shall maintain at all times, at its sole cost and expense, with insurers of recognized reputation and responsibility satisfactory to Lender (but in no event having an A.M. Best or comparable agency rating of less than “A-”):

(i) (A) comprehensive aircraft liability insurance against bodily injury or property damage claims including, without limitation, contractual liability, premises liability, death and property damage liability, public and passenger legal liability coverage, and sudden accident pollution coverage, in an amount not less than $150,000,000.00, and (B) personal injury liability in an amount not less than $25,000,000.00; but, in no event shall the amounts of coverage required by sub-clauses (A) and (B) be less than the coverage amounts as may then be required by Applicable Law;

(ii) “all-risk” ground, taxiing, and flight hull insurance on an agreed-value basis, covering the Aircraft, provided that such insurance shall at all times be in an amount not less than the greater of (1) the full replacement value of the Aircraft (as determined by Lender), or (2) the unpaid principal amount of the Note (each such amount re-determined as of each anniversary of the Closing Date for the next succeeding year throughout the term of this Agreement); and

(iii) war risk and allied perils (including confiscation, appropriation, expropriation, terrorism and hijacking insurance) in the amounts required in paragraphs (i) and (ii), as applicable.

(b) Any policies of insurance carried in accordance with this Section 4.6 and any policies taken out in substitution or replacement of any such policies shall (i) be endorsed to name Lender as an additional insured as its interests may appear (but without responsibility for premiums), (ii) provide, with respect to insurance carried in accordance with Section 4.6(a)(ii) or (a)(iii) above, that any amount payable thereunder shall be paid directly to Lender as sole loss payee and not to Lender and Customer jointly, (iii) provide for thirty (30) days’ (seven (7) days’ in the case of war, hijacking and allied perils) prior written notice by such insurer of cancellation, material change, or non-renewal, (iv) include a severability of interest clause providing that such policy shall operate in the same manner as if there were a separate policy covering each insured, (v) waive any right of set-off against Lender, and any rights of subrogation against Lender, (vi) provide that in respect of the interests of Lender in such policies, that the insurance shall not be invalidated by any action or inaction of Customer or any other Person operating or in possession of the Aircraft, regardless of any breach or violation of any warranties, declarations or conditions contained in such policies by or binding upon Customer or any other Person operating or in possession of the Aircraft, and (vii) be primary, not subject to any co-insurance clause and shall be without right of contribution from any other insurance.

(c) Customer shall not self-insure (by deductible, premium adjustment, or risk retention arrangement of any kind) with respect to any of the risks required to be insured pursuant to this Section 4.6. Customer shall obtain and maintain such other insurance coverages, or cause adjustments to be made to the scope, amount or other aspects of the existing insurance coverages, promptly upon Lender’s request, as and when Lender deems such additional insurance coverages or modifications to be appropriate in light of any changes in Applicable Law, prudent industry practices, the insurance market, Customer’s anticipated use of the Aircraft or other pertinent circumstances. All of the coverages required herein shall be in full force and effect worldwide throughout any geographical areas to, in or over which the Aircraft is operated. All insurance proceeds payable under the requisite policies shall be payable in U.S. Dollars.

(d) At least ten (10) days prior to the policy expiration date for any insurance coverage required by this Section 4.6, Customer shall furnish to Lender evidence (having the form and substance consistent with Section 1(e) of the Closing Terms Addendum) of the renewal or replacement of such coverage, complying with the terms hereof, for a twelve (12) month or greater period commencing from and after such expiration date.


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4.7 Event of Loss; Loaner Engines.

(a) Upon the occurrence of any Event of Loss with respect to the Aircraft and/or the Airframe, Customer shall notify Lender of any such Event of Loss within five (5) days of the date thereof. Customer shall pay the then Outstanding Balance promptly upon its receipt of insurance proceeds relating to such Event of Loss, but in no event later than sixty (60) days after the occurrence of such Event of Loss (irrespective as to whether any or all of such proceeds have been received). Upon Lender’s receipt in good and indefeasible funds of all of the amounts required to be paid pursuant to the preceding sentence (whether by applying Customer’s payment of such amounts, or any such insurance proceeds, or both) the Aircraft shall be released from the Lender’s Lien, and Lender shall remit to Customer any such insurance proceeds so received by Lender, to the extent then remaining.

(b) Upon an Event of Loss with respect to an Engine or APU (as applicable, a “Lost Item”) under circumstances in which there has not occurred an Event of Loss with respect to the Airframe, Customer shall, within thirty (30) days after the occurrence of such Event of Loss, replace such Lost Item, with a Permitted Replacement. A “Permitted Replacement” shall be an engine or auxiliary power unit (i) of the same make and model number as the Lost Item, (ii) free and clear of all Liens, and (iii) having a value, utility and useful life at least equal to, and be in as good an operating condition as, the Lost Item, assuming such Lost Item was in the condition and repair required by the terms hereof immediately prior to the occurrence of such Event of Loss. Customer, at its own cost and expense, shall (i) furnish Lender with such documents to evidence such conveyance, (ii) cause the Permitted Replacement to be subject to the Lender’s Lien under this Agreement, and (iii) take such other actions as may be required by Lender to cause the Lender’s Lien therein to be validly created, perfected and have first priority, including as evidenced on the Registry, the International Registry, and any other recording office. Each such Permitted Replacement shall, after such conveyance, be deemed an “Engine” or “APU” (as defined herein), as applicable, and shall be deemed part of the same Aircraft as was the Lost Item replaced thereby.

(c) In the event an Engine is damaged and is being repaired, or is being inspected or overhauled, Customer, at its option, may temporarily substitute another engine during the period of such repair or overhaul, so long as such engine is of the same make and model as the Engine being repaired or overhauled, is free and clear of any Lien that might impair Lender’s rights or interests in the Airframe and is maintained in accordance herewith (any such substitute engine being hereinafter referred to as a “Loaner Engine”). Customer shall (i) cause such Loaner Engine to be installed and removed, as applicable, by a maintenance facility certified by the FAA and manufacturer with respect to the Aircraft, and (ii) cause the repaired or overhauled original Engine to be reinstalled on the Airframe promptly upon completion of the repair or overhaul, but in no event later than the earlier of one hundred twenty (120) days after removal or the occurrence of an Event of Default.

(d) So long as no Default or Event of Default then exists and no Event of Loss with respect to the Airframe has occurred, any loss or damage proceeds of the Required Coverages received by Lender shall be released by Lender to Customer to reimburse Customer for paying the costs actually incurred with respect to repairs made to the Aircraft so as to restore it to the condition required by this Agreement, or for the purchase of a Permitted Replacement pursuant to Section 4.7(b) above, or shall be disbursed by Lender as otherwise required by this Agreement.

4.8 Aircraft Registration. Customer shall remain solely responsible pursuant to the applicable provisions of this Agreement to cause the Aircraft to be effectively and validly registered in Customer’s name on the Registry, and the U.S. registration number then currently assigned to the Aircraft to remain authorized for use by Customer on the Aircraft, in each case, accordance with the Registration Requirements; and without limiting the foregoing or any other provision of this Agreement, Customer shall:

(a) cause the Registration Certificate to be maintained within the Aircraft and cause the U.S. registration number then currently assigned to the Aircraft to remain authorized for use by Customer on the Aircraft; including by (A) notifying Lender immediately of any event or circumstance with respect to


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which the Registration Requirements require further action by Customer, the Registry or any other Governmental Authority or other Person, (B) immediately upon receipt, placing the original, replacement or renewal Registration Certificate on the Aircraft prior to the expiration or other invalidation of any previously issued Registration Certificate (whether the certificate or any other document constituting the Registration Certificate as defined herein) under the Registration Requirements, and (C) complying with any and all of the other Registration Requirements relating to such Registration Certificate, and to the Registration Certificate replaced thereby (including any of the same relating to the destruction or return thereof, as the case may be); and

(b) upon the occurrence, and at all times thereafter, of any Defective Registration (and without waiving Customer’s responsibility to avoid such circumstance), if the operation of the Aircraft is no longer authorized by the Registration Requirements, Customer shall (A) neither operate nor permit or suffer the operation of the Aircraft without a currently effective and otherwise valid Registration Certificate (and shall cause the pilots to be made aware of the Defective Registration), and otherwise comply with the FARs and other Applicable Laws relating to such Defective Registration, (B) ground and store the Aircraft in a manner reasonably acceptable to Lender, and (C) inform the insurer or insurers thereof and obtain and maintain adjustments to the Required Coverages that may be necessary or desirable to Lender so as to reflect any changes in the insurable risks relating to any Defective Registration.

4.9 IOM Registration Option. Lender agrees that the Aircraft may be de-registered from the Registry and re-registered on the Isle of Man Aircraft Registry under the laws of the Isle of Man, provided that (a) Lender receives at least thirty (30) days’ prior written notice of such proposed re-registration; (b) no Default or Event of Default exists at the time of such de-registration and re-registration or occurs as a result of such re-registration; (c) Lender’s Lien in the Aircraft is duly registered or recorded under the laws of the Isle of Man so that Lender has a legal, valid, perfected, first priority mortgage, charge and Lien on the Collateral; (d) Customer either transfers title to the Aircraft to an Affiliate qualified to hold ownership in an aircraft registered in the Isle of Man or the Aircraft is chartered by demise to an Affiliate so qualified; (e) Customer promptly executes and delivers, or causes to be executed and delivered, to Lender and Aviation Counsel such documents, instruments and Applicable Aviation Authority filings, and makes or causes to be made and/or consents to, or causes to be consented to, all registrations with the International Registry, and takes, or causes to be take, such further action, as Lender may from time to time reasonably request, in order to further carry out the intent and purpose of the Loan Documents and to establish, protect and enforce the rights, interests, remedies and Liens (including the first priority thereof) created, or intended to be created, in favor of Lender thereby; (f) all Required Coverages shall be in full force and effect before, at the time of, and after such change in registration; and (g) Customer pays upon demand all fees, costs, expenses, Impositions and other charges incurred in connection with such de-registration and re-registration and the creation, perfection, preservation and protection of the Collateral and Lender’s Lien therein, including, without limitation, (i) all expenses and costs of Lender (including, but not limited to, attorneys’ fees and expenses and Isle of Man counsel), and (ii) any filing, de-registration, registration or recordation fees, expenses, Impositions and other charges.

SECTION 5. SECURITY INTEREST; POWER OF ATTORNEY; INSPECTION.

5.1 Grant of Security Interest. As collateral security for the prompt and complete payment and performance as and when due of all of the Obligations and in order to induce Lender to enter into this Agreement and make the Loan to Customer in accordance with the terms hereof, Customer hereby grants, pledges and assigns to Lender a first priority security interest, collateral assignment, international interest, prospective international interest, security assignment, prospective security assignment and Lien, in, against, under and with respect to (the “Lender’s Lien”) all of Customer’s right, title and interest in, to and under all of the following collateral, whether now existing or hereafter acquired (collectively, the “Collateral”): (i) the Aircraft, including the Airframe, the Engines, the APU and the Records, and the Parts; (ii) any and all present and future Third Party Agreements; (iii) any and all other associated rights secured by or associated with the Airframe and/or the Engines, together with any related international interests and prospective international interests; (iv) any collateral described in the other Loan Documents (including in any Operating Consent); and (v) all proceeds of the foregoing. By way of clarification and not limitation, the foregoing grant of the Lender’s Lien shall include, as applicable (and in each case,


2388218		9		(LOAN AGREEMENT)

being validly registered and having first priority), an international interest in the Airframe and in each Engine. Notwithstanding the foregoing, (i) Customer shall not enter into any Third Party Agreement that is not a Permitted Third Party Agreement, and (ii) Lender is not assuming, nor shall it be responsible for, any obligations, liabilities or duties of any kind whatsoever of Customer (and/or of any other Person) relating to the Collateral. Customer shall perform and procure performance in accordance with any Third Party Agreement or other agreement or instrument giving rise to any associated rights that are or may become subjected to the Lender’s Lien.

5.2 UCCs, Registrations, Etc.; Lender as Attorney-in-Fact. Customer hereby irrevocably:

(a) authorizes Lender to prepare and file any UCC financing statements, amendments, continuations, terminations, assignments and other filings, or take such other actions for the purpose of perfecting, affording first and exclusive priority to or otherwise relating to the Lender’s Lien under this Agreement or the other Loan Documents;

(b) consents to, and authorizes its professional user entity to consent to, the registration of each Registerable Interest requested by Lender or its Assignee, or otherwise required by the provisions of this Agreement or any of the other Loan Documents, including any subordination, amendment, assignment, discharge or undertaking permitted by the Cape Town Convention with respect thereto; and

(c) constitutes and appoints Lender (including any Person acting on Lender’s behalf), as its true and lawful attorney-in-fact with full power and authority in the place and stead of Customer and in the name of Customer or in its own name, for the purpose of carrying out the terms of this Agreement; which authority shall include the following undertakings that may be exercisable by Lender in its sole discretion at any time, and from time to time, if an Event of Default is then existing: (i) in Customer’s name, file and/or record, such further instruments, filings and other documents, make, cause to be made and/or consent to all registrations with the International Registry, and take such further action, to establish and protect Lender’s rights, interests and remedies created, or intended to be created, pursuant to the Loan Documents; (ii) endorse Customer’s name on any checks, notes, drafts or any other payments or instruments, or set off, apply, or take such other actions with respect to any funds relating to the Collateral that come into Lender’s possession or control; and (iii) to settle, adjust, receive payment and make claim or proof of loss, and take such other actions relating to the Required Coverages. This appointment is coupled with an interest, is irrevocable and shall terminate only upon indefeasible payment and performance in full of all of the Obligations. The powers conferred on Lender hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Lender shall be accountable only for amounts that it actually receives in good and indefeasible funds as a result of the exercise of such powers, and neither it nor any of its officers, directors, employees or agents shall be responsible to Customer for any act or failure to act. Without limiting the foregoing, Customer agrees that within five (5) Business Days of Lender’s request, Customer shall enter into an irrevocable power-of-attorney authorizing Aviation Counsel or Lender’s other designee as Customer’s professional user entity and administrator for the purpose of discharging any Registerable Interests as and when directed to do so by Lender in connection with its exercise of its rights and remedies under the Loan Documents.

5.3 Inspection. Lender or its authorized representatives shall have the right, but not the duty, to inspect the Aircraft, any part thereof and/or the Records, at its own cost, at any reasonable time and from time to time, wherever located, upon reasonable prior notice to Customer; except that so long as a Default or an Event of Default exists, such inspection may be conducted at any time without prior notice and at Customer’s sole expense, and it shall pay Lender promptly upon demand any inspection costs incurred by Lender. Upon the request of Lender, Customer shall promptly confirm to Lender the location of the Aircraft or any of the other Collateral.

SECTION 6. EVENTS OF DEFAULT. The term “Event of Default”, wherever used herein, shall mean:

(a) Customer shall fail to pay any Obligation within ten (10) days after the same shall become due and payable (whether at the stated maturity, by acceleration, upon demand or otherwise); or


2388218		10		(LOAN AGREEMENT)

(b) (i) Customer shall default in the payment or performance of any indebtedness, liability or obligation to Lender or any Affiliate of Lender under any note, security agreement, lease, title retention or conditional sales agreement or any other instrument or agreement; or (ii) Customer shall be in default in any payment or other obligation to any Person other than Lender or its Affiliates, the amount of which, whether accelerated or otherwise, is in excess of $2,500,000.00, and any applicable grace period with respect thereto has expired; or

(c) (i) any of the Required Coverages are not kept in full force and effect or a breach or violation shall exist with respect to any provisions thereof; or the Aircraft is operated in a manner, at a time or in or over or located at a place with respect to which such Required Coverages shall not be in effect; (ii) Customer shall fail to cause the Airframe or the Engines to be used, operated, maintained or otherwise kept in a condition so as to be in compliance with all Applicable Laws; or (iii) Customer shall fail to comply with any provision of any of the Loan Documents restricting Liens and other dispositions relating to either the Collateral or any rights or obligations under any of the Transaction Documents (including Section 4.4 hereof), or (iv) the occurrence of any Defective Registration; or

(d) (i) any representation or warranty made by Customer in any of the Loan Documents or in any related agreement, document or certificate shall prove to have been incorrect, misleading, or inaccurate in any material respect when made or given (or, if a continuing representation or warranty, at any time); or (ii) Customer shall fail to (A) perform or observe any other agreement (other than those specifically referred to in this Section 6) required to be performed or observed by it under this Agreement or in any of the other Loan Documents, and such failure shall continue uncured for thirty (30) days after the earlier of written notice thereof from Lender to Customer or Customer’s actual knowledge thereof (but such notice and cure period will not be applicable unless such breach is curable by practical means within such notice period) or (B) notify Lender of any Default or Event of Default within ten (10) Business Days of its occurrence; or

(e) Customer shall (A) generally fail to pay its debts as they became due, admit its inability to pay its debts or obligations generally as they fall due, or shall file a voluntary petition in bankruptcy or a voluntary petition or an answer seeking reorganization in a proceeding under any bankruptcy laws or other insolvency laws, or an answer admitting the material allegations of such a petition filed against Customer in any such proceeding; or (B) by voluntary petition, answer or consent, seek relief under the provisions of any other bankruptcy or other insolvency or similar law providing for the reorganization or liquidation of corporations, or providing for an assignment for the benefit of creditors, or providing for an agreement, composition, extension or adjustment with its creditors; or (ii) a petition against Customer in a proceeding under applicable bankruptcy laws or other insolvency laws, as now or hereafter in effect, shall be filed and shall not be withdrawn or dismissed within sixty (60) days thereafter, or if, under the provisions of any law providing for reorganization or liquidation of business entities that may apply to Customer, any court of competent jurisdiction shall assume jurisdiction, custody or control of Customer or of any substantial part of its property and such jurisdiction, custody or control shall remain in force unrelinquished, unstayed or unterminated for a period of sixty (60) days after the filing date; or

(f) (i) there is a material adverse change in the business, operations or financial condition of Customer or in Customer’s ability to comply with the Loan Documents since June 30, 2011, as determined by Lender, in its sole discretion and in good faith; or (ii) the occurrence of any of the following events with respect to Customer: (A) it enters into any transaction of merger, consolidation or reorganization, unless Customer is the surviving entity; (B) it ceases to do business as a going concern, liquidates, or dissolves, or sells, transfers or otherwise disposes of all or substantially all of its assets or properties (in one or more transactions); (C) it becomes the subject of, or engages in, a leveraged buy out; (D) it changes the form of organization of its business; or (E) any change so that it is no longer subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or no longer registered under Section 12 of the Securities Act of 1933, as amended; or

(g) (i) the conviction of or guilty plea by Customer with respect to any criminal act constituting a felony, (ii) any repudiation by Customer of its obligation for the payment or performance of the Obligations, or (iii) any allegation or judicial determination that any of the Loan Documents is unenforceable in any material respect; or


2388218		11		(LOAN AGREEMENT)

(h) any event or condition constituting a breach or other default under any Operating Consent.

SECTION 7. REMEDIES.

7.1 Acceleration; Termination of Commitment. If any Event of Default shall occur, Lender, in its sole discretion, may (a) declare the Obligations to be immediately due and payable, and upon such declaration, the Obligations (including, without limitation, the Outstanding Balance), shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Loan Documents to the contrary notwithstanding, (b) terminate any then outstanding commitment whether to Customer or any Affiliate of Customer to make the Loan or any advance thereof, or any other financial accommodations, whether related to the Loan or otherwise, and/or (c) pursue and enforce any of Lender’s rights and remedies under this Section 7; provided, however, if an Event of Default specified in Section 6(e) above shall occur, the Obligations shall become immediately due and payable, all such commitments shall terminate, and Lender shall have all such other rights and remedies contemplated in the preceding clauses (a), (b) and (c), automatically, and without any notice or other action by Lender.

7.2 Additional Remedies. If an Event of Default occurs, in addition to all other rights and remedies granted to it in this Agreement and in the other Loan Documents, Lender may exercise all rights and remedies of a secured party under the UCC or as a creditor, chargee or security assignee under the Cape Town Convention (including any and all remedies thereunder requiring agreement by Customer), or otherwise available to Lender under any other Applicable Law. Without limiting the generality of the foregoing, Customer agrees that upon the occurrence of an Event of Default, Lender, without demand or notice of any kind (except as specified below) to or upon Customer or any other Person, in its sole discretion, may exercise any one or more of the following remedies:

(a) (i) enter the premises where the Aircraft, the Engines, or any other Collateral is located, take immediate possession of, remove (or disable in place), or otherwise take control or custody of the Airframe, the Engines or any other Collateral (whether or not then attached to the Airframe) by self-help, summary proceedings or otherwise without liability, (ii) preserve the Airframe, the Engines or the other Collateral, and their respective value (but without any obligation to do so), and immobilize or keep idle the Airframe or Engines, and/or (iii) use Customer’s premises for storage without liability; and Customer shall, at Lender’s request, assemble the Collateral and make it available to Lender at such places as Lender shall reasonably select, whether at Customer’s premises or elsewhere;

(b) (i) terminate the right of any Interested Third Party and any other Person to use, possess or control the Airframe, the Engines or any of the other Collateral, including under any Permitted Third Party Agreement or other Third Party Agreement, without regard as to the existence of any event of default thereunder, (ii) recover from Customer, any Interested Third Party and any other Person, and/or cause Customer, any Interested Third Party and any other Person to relinquish possession and return, the Airframe, the Engines and any other Collateral pursuant to this Section 7, and/or (iii) exercise any and all other remedies under any Operating Consents in Customer’s stead, to the extent provided for under, or otherwise available to Customer in connection with any related Permitted Third Party Agreement or such other Third Party Agreement;

(c) (i) manage, sell, lease, assign or otherwise dispose of the Airframe, the Engines or any other Collateral, in whole or in part, whether or not in Lender’s possession, in one or more parcels or transactions, at public or private sale or sales, with or without notice to Customer (except as required by Applicable Law, and in furtherance thereof, Lender agrees that it shall give Customer no less than ten (10) working days’ prior notice of any proposed sale or lease of the Airframe or Engines, which Customer acknowledges as constituting “reasonable prior notice” for the purposes of the Cape Town Convention) at such prices as Lender may deem best, and/or (ii) purchase the Collateral, in whole or in part, upon any public sale or sales, and to the extent permitted by Applicable Law upon any private sale or sales, free of any right or equity of redemption in Customer, which right or equity of redemption is hereby expressly released;


2388218		12		(LOAN AGREEMENT)

(d) (i) collect, receive, appropriate and realize upon the Collateral, or any part thereof, including by applying any deposit or other cash collateral, or collecting or receiving, appropriating and realizing upon any income, profits or other proceeds arising from the management or use of the Airframe, the Engines or any of the other Collateral, and applying the same (after deducting all taxes, costs, expenses and other reductions of every kind incurred in connection therewith) to the payment in whole or in part of the Obligations, in such order and manner as Lender may elect; and (ii) after making such application, (A) remitting to Customer or to such other Person any excess then remaining, as and to the extent Lender is required by Applicable Law to make such remittance and (B) demanding, collecting and receiving from Customer any deficiency then remaining (and Customer shall remain liable for, and pay upon demand, the full amount of any such deficiency);

(e) (i) demand and obtain from any court speedy relief pending final determination available at law (including, possession, control, custody or immobilization of the Airframe and Engines, or preservation of the Airframe and the Engines and their respective value), (ii) procure the deregistration and/or export and physical transfer of the Airframe from the territory in which it is then situated (including pursuant to an IDERA, if any, executed by Customer), and/or (iii) otherwise proceed at law or in equity, to enforce specifically Customer’s performance or to recover damages; and/or

(f) exercise any and all other rights and remedies under or with respect to the Loan Documents or Applicable Law, including the Cape Town Convention and the UCC.

7.3 No Waiver: Cumulative Remedies. No right or remedy is exclusive. Customer hereby acknowledges that none of the provisions of this Section 7, including any remedies set forth or referenced herein, is “manifestly unreasonable” for the purposes of the Cape Town Convention. Each may be used successively and cumulatively and in addition to any other right or remedy referred to above or otherwise available to Lender at law or in equity, but in no event shall Lender be entitled to recover any amount in excess of the maximum amount recoverable under Applicable Law with respect to any Event of Default. No express or implied waiver by Lender of any Default or Event of Default hereunder shall in any way be, or be construed to be, a waiver of any future or subsequent Default or Event of Default. The failure or delay of Lender in exercising any rights granted it hereunder upon the occurrence of any of the contingencies set forth herein shall not constitute a waiver of any such right upon the continuation or reoccurrence of any such contingencies or similar contingencies, and any single or partial exercise of any particular right by Lender shall not exhaust the same or constitute a waiver of any other right provided for or otherwise referred to herein. After the occurrence of any Default or Event of Default, the acceptance by Lender of any payment or performance of any of the Obligations, including the payment of any installment of principal and/or interest or of any other sum owing hereunder or under the other Loan Documents shall not constitute a waiver of such Default or Event of Default, regardless of Lender’s knowledge or lack of knowledge thereof at the time of acceptance of any such payment or performance and shall not constitute a reinstatement of any of the Loan Documents, unless Lender shall have agreed in writing to reinstate the same and waive the Default or Event of Default. To the extent permitted by Applicable Law, Customer waives any rights now or hereafter conferred thereby, that (a) limit or modify any of Lender’s rights or remedies under this Agreement or any of the other Loan Documents, including, without limitation, the provisions of Article 13(2) of the Convention, or (b) would otherwise entitle Customer to (i) receive notices or demands as a condition to Lender’s exercise of any rights or remedies, except as expressly required above or (ii) make claims, damages and demands against Lender arising out of the repossession, retention, sale or other disposition of the Collateral.

SECTION 8. MISCELLANEOUS.

8.1 Notices. All communications and notices provided for herein shall be in writing and shall be deemed to have been duly given or made (i) upon hand delivery, or (ii) upon delivery by an overnight delivery service, or (iii) two (2) Business Days after being deposited in the U.S. mail, return receipt requested, first class postage prepaid, and addressed to Lender or Customer at their respective


2388218		13		(LOAN AGREEMENT)

addresses set forth under their signatures hereto or such other address as either party may hereafter designate by written notice to the other, or (iv) when sent by telecopy (with customary confirmation of receipt of such telecopy) on the Business Day when sent or upon the next Business Day if sent on other than a Business Day.

8.2 Expenses and Fees; Indemnity; Performance of Customer’s Obligations.

(a) On the Closing Date, Customer shall pay to Lender the Origination Fee set forth in Annex B hereto in good and immediately available funds. Customer shall also pay to Lender upon demand all fees, costs and expenses incurred by or on behalf of Lender at any time in connection with (i) the negotiation, preparation, execution, delivery and enforcement of the Loan Documents and the collection of the Obligations (both before and after the occurrence of a Default or Event of Default), (ii) the creation, preservation and protection of the Collateral and the perfection, first priority and enforcement of Lender’s Lien, or (iii) Customer’s exercise of any right granted under, or any amendment or other modification to any of, the Loan Documents. Such fees, costs and expenses shall include, without limitation, appraisal and inspection fees, the fees and expenses of Aviation Counsel and of Lender’s counsel, consultants and brokers, UCC, FAA, International Registry and other applicable title, interest and lien searches, and costs and expenses relating to recovery, repossession, storage, insurance, transportation, repair, refurbishment, advertising, sale and other disposition of the Aircraft or any of the other Collateral. Customer shall also pay all fees (including license, filing and registration fees), Impositions and other charges of whatever kind or nature that may be payable or determined to be payable in connection with (A) the execution, delivery, recording or performance of this Agreement or any of the other Loan Documents, or any modification thereof, and (B) the filings, registrations and other undertakings relating thereto.

(b) Customer hereby further agrees, whether or not the transactions contemplated by this Agreement shall be consummated, to pay, indemnify, and hold Lender and its Affiliates and all of Lender’s and such Affiliates’ respective directors, shareholders, members, officers, employees, agents, predecessors, attorneys-in-fact, lawyers, successors and assigns (collectively, the “Indemnified Parties”) harmless, on a net after-tax basis, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, out of pocket costs, attorneys’ fees, expenses or disbursements of any kind or nature whatsoever (“Claims”) arising with respect to or in connection with (i) the Airframe, Engines, APU or any Parts, or any of the other Collateral, including (whether by or through Customer, any Interested Third Party, or any other Person), the manufacture, inspection, ownership, re-registration, lease, sublease, management, pooling, interchange, time sharing, chartering, possession, use, operation, maintenance, security, condition (whether prior to, upon or after delivery or acceptance of any of the same), repossession, storage, sale or other disposition of any of the same, or any accident in connection therewith, including Claims involving or alleging environmental damage, criminal acts, hijacking, acts of terrorism or similar acts, product liability or strict or absolute liability in tort, latent and other defects (whether or not discoverable) and for any other risk or matter, including any of the same that result in injuries, death, destruction, or other harm or loss to persons or property, or (ii) any of the Loan Documents, Third Party Agreements or other Transaction Documents, or the performance, breach (including any Default or Event of Default) or enforcement of any of the terms hereof or thereof, provided, that Customer shall have no obligation to indemnify an Indemnified Party with respect to Claims directly arising from the gross negligence or willful misconduct of such Indemnified Party (unless if imputed by Applicable Law). If any Claim is made against any Indemnified Party, the party receiving notice or otherwise becoming aware of such Claim shall promptly notify the other, but the failure of the party having knowledge of a Claim to so notify the other party shall not relieve Customer of any obligation hereunder.

(c) If Customer fails to perform or comply with any of its agreements contained herein or in the other Loan Documents, including, without limitation, its obligations to keep the Collateral free of Liens (other than the Permitted Liens), comply with Applicable Standards, or obtain the Required Coverages, Lender shall have the right, but shall not be obligated, to effect such performance or compliance, with such agreement. Any expenses of Lender incurred in connection with effecting such performance or compliance, together with interest thereon at the default rate of interest provided for in the Note from the date incurred until reimbursed, shall be payable by Customer to Lender promptly on demand and until such payment shall constitute part of the Obligations secured hereby. Any such action shall not be a cure or waiver of any Default or Event of Default hereunder.


2388218		14		(LOAN AGREEMENT)

8.3 Entire Agreement; Modifications. This Agreement and the other Loan Documents constitute the entire understanding and agreement of the parties hereto with respect to the matters contained herein and therein, and shall completely and fully supersede all other prior agreements (including any proposal letter, commitment letter, and/or term sheet), both written and oral, between Lender and Customer relating to the Obligations. Neither this Agreement, nor any terms hereof, may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of a change, waiver, discharge or termination is sought.

8.4 Construction of this Agreement and Related Matters. All representations and warranties made in this Agreement and in the other Loan Documents shall survive the execution and delivery of this Agreement and the making of the Loan hereunder. Customer’s obligations contained in this Section 8 shall survive the payment and performance of the Obligations, the termination of this Agreement, and the release of the Collateral. This Agreement may be executed by the parties hereto on any number of separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. The headings of the Sections hereof are for convenience only, are not part of this Agreement and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Time is of the essence in the payment and performance of all of Customer’s obligations under this Agreement. Any provision of this Agreement that may be determined to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective in such jurisdiction to the extent thereof without invalidating the remaining provisions of this Agreement, which shall remain in full force and effect.

8.5 Lender’s Assignment. Lender, may at any time, with notice to Customer, freely grant a security interest in, sell, assign, participate or otherwise transfer (an “Assignment”) all or any part of its interest in this Agreement and the other Loan Documents (including all associated rights associated with or secured thereby and the related international interests) or any amount due or to become due hereunder or thereunder, and Customer shall perform all of its obligations under the Loan Documents, to the extent so transferred, for the benefit of the beneficiary of such Assignment (such beneficiary, including any successors and assigns, an “Assignee”). Customer hereby waives any right to assert, and agrees not to assert, against any Assignee any abatement, reduction, defense, setoff, recoupment, claim or counterclaim that Customer may have against Lender. Upon the assumption by such Assignee of Lender’s obligations hereunder, Lender shall be relieved of any such assumed obligations. Customer hereby consents to any such assignment, grant, sale or transfer, including, without limitation, for purposes of the Cape Town Convention. If so directed in writing, Customer shall pay all amounts due or to become due under the Loan Documents, including any of the same constituting associated rights or proceeds directly to the Assignee or any other party designated in writing by Lender or such Assignee. Customer acknowledges and agrees that Lender’s right to enter into an Assignment is essential to Lender and, accordingly, waives any restrictions under Applicable Law with respect to an Assignment and any related remedies. Upon the request of Lender or any Assignee, Customer shall (a) promptly execute and deliver, and cause to be executed and delivered by any Transaction Party, to Lender or to such Assignee an acknowledgment of assignment in form and substance satisfactory to the requesting party, an insurance certificate naming Assignee as additional insured and loss payee and otherwise evidencing the Required Coverages, an IDERA in favor of Assignee, and such other documents and assurances reasonably requested by Lender or Assignee, (b) make, or cause to be made, all registrations (including all assignments and subordinations) and all amendments, extensions and discharges with the International Registry reasonably requested by Lender or Assignee (and give or obtain any necessary consent thereto, as well as renew any authorization required by the International Registry in connection therewith, including renewing its transacting user entity status and re-designating a professional user entity, if necessary in Lender’s judgment), and (c) comply with any and all other reasonable requirements of any such Assignee in connection with any such Assignment. Upon receipt of Lender’s notice of an Assignment, Customer may, within ten (10) Business Days after receipt of such notice, elect to refinance the Loan with another financial institution. If Customer so elects, such refinancing must be consummated within sixty (60) days after receipt of Lender’s notice of an Assignment.


2388218		15		(LOAN AGREEMENT)

8.6 Jurisdiction. Customer hereby irrevocably consents and agrees that any legal action, suit or proceeding arising out of or in any way in connection with this Agreement or any of the other Loan Documents may be instituted or brought in the courts of the State of New York or in the United States Courts for the Southern District of New York, as Lender may elect or in any other state or Federal court as Lender shall deem appropriate, and by execution and delivery of this Agreement, Customer hereby irrevocably accepts and submits to, for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of any such court, and to all proceedings in such courts. Customer irrevocably consents to service of any summons and/or legal process by first class, certified United States air mail, postage prepaid, to Customer at the address set forth below its signature hereto, such method of service to constitute, in every respect, sufficient and effective service of process in any such legal action or proceeding. Nothing in this Agreement or in any of the other Loan Documents shall affect the right to service of process in any other manner permitted by law or limit the right of Lender to bring actions, suits or proceedings in the courts of any other jurisdiction. Customer further agrees that final judgment against it in any such legal action, suit or proceeding shall be conclusive and may be enforced in any other jurisdiction, within or outside the United States of America, by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence of the fact and the amount of the liability. Notwithstanding anything in the foregoing to the contrary, Lender and Customer may bring a judicial proceeding in the Republic of Ireland, solely with respect to matters relating to the International Registry.

8.7 Governing Law; Binding Effect. This Agreement shall be construed and enforced in accordance with, and the rights of both parties shall be governed by, the internal laws of the State of New York (without regard to the conflict of laws principles of such state, except as to the effect of Title 14, Section 5-1401 of the New York General Obligations Law), including all matters of construction, validity, and performance. This Agreement shall be binding upon and inure to the benefit of Customer and Lender and their respective successors and assigns (but without limiting the provisions of Section 8.5 hereof); except that Customer may not assign or transfer its rights or obligations hereunder or under any other Loan Document, or any interest herein or therein; and any such purported or attempted assignment or transfer by Customer shall be null and void.

8.8 Jury Waiver. CUSTOMER HEREBY KNOWINGLY AND FREELY WAIVES ITS RIGHTS TO A JURY TRIAL IN ANY ACTION, SUIT OR PROCEEDING RELATING TO, ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE NOTE OR ANY OF THE OTHER LOAN DOCUMENTS.

[SIGNATURES ON NEXT PAGE]


2388218		16		(LOAN AGREEMENT)

IN WITNESS WHEREOF, the parties hereto have caused this Loan and Aircraft Security Agreement to be duly executed and delivered by their proper and duly authorized officers as of the date first above written.


BANC OF AMERICA LEASING & CAPITAL, LLC		WILLIS LEASE FINANCE CORPORATION

By:	/s/ Rhonda Maggiacomo	By:	/s/ Bradley S. Forsyth
Name:	Rhonda Maggiacomo	Name:	Bradley S. Forsyth
Title:	Senior Vice President	Title:	Senior Vice President
			Chief Financial Officer

Notice Address:		Notice Address:

One Financial Plaza, 5^th Floor		773 San Marin Drive, Suite 2215
Providence, Rhode Island 02903		Novato, CA 94998
Attention: Director of Aircraft Operations		Attn: General Counsel
Telephone: 800-238-3737		Telephone: 415-408-4712
		Facsimile: 415-408-4701


2388218		17		(LOAN AGREEMENT)

ANNEX A

DEFINITIONS

The following terms shall have the following meanings for all purposes of this Agreement:

A. Rules of Interpretation. (1) The following terms shall be construed as follows: (a) “herein,” “hereof,” “hereunder,” etc.: means in, of, under, etc. this Agreement as a whole (and not merely in, of, under, etc. the section or provision where the reference occurs); (b) “including”: means including without limitation unless such term is followed by the words “and limited to,” or similar words; and (c) “or”: means at least one, but not necessarily only one, of the alternatives enumerated. (2) Any defined term used in the singular preceded by “any” indicates any number of the members of the relevant class. (3) Except as otherwise indicated, all the agreements and instruments defined herein or in this Agreement shall mean such agreements and instruments as the same may from time to time be supplemented or amended, or as the terms thereof may be expressly waived or modified to the extent permitted by, and in accordance with, the terms thereof. (4) The terms defined in this Agreement shall, for purposes of this Agreement and the addenda, annexes, schedules, and exhibits thereto, have the meanings assigned to them and shall include the plural as well as the singular as the context requires.

B. CTC Terms. Certain of the terms used in this Agreement (“CTC Terms”) have the meaning set forth in and/or intended by the “Cape Town Convention”, which term means, collectively, (i) the official English language text of the Convention on International Interests in Mobile Equipment, adopted on 16 November 2001 at a diplomatic conference held in Cape Town, South Africa, as the same may be amended or modified from time to time (the “Convention”), (ii) the official English language text of the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment, adopted on 16 November 2001 at a diplomatic conference held in Cape Town, South Africa, as the same may be amended or modified from time to time (the “Protocol”), and (iii) the related procedures and regulations for the International Registry of Mobile Assets located in Dublin, Ireland and established pursuant to the Cape Town Convention, along with any successor registry (the “International Registry”), issued by the applicable supervisory authority pursuant to the Convention and the Protocol, as the same may be amended or modified from time to time. By way of example, but not limitation, these CTC Terms include, “administrator”, “associated rights”, “contract of sale”, “sale”, “prospective sale”, “proceeds”, “international interests”, “prospective international interest”, “security assignment”, “transfer”, “working days”, “consent”, “final consent”, “priority search certificate”, “professional user entity”, “transacting user entity” and “contract”; except “proceeds” shall also have the meaning set forth below.

C. Other Defined Terms.

Affiliate shall mean, with respect to any Person, any Person controlling, controlled by or under common control with such Person, and for this purpose, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of any such Person, whether through the legal or beneficial ownership of voting securities, by contract or otherwise.

Aircraft shall mean (i) the Airframe, (ii) the Engines, (iii) the APU, and (iv) the Records, and all accessories, additions, accessions, alterations, modifications, Parts, repairs and attachments now or hereafter affixed thereto or used in connection therewith, and all Permitted Replacements and all other replacements, substitutions and exchanges (including trade-ins) for any of the foregoing.

Airframe shall mean (i) the airframe described in Annex C hereto, and shall not include the Engines or APU, and (ii) any and all related Parts.

Applicable Aviation Authority shall mean any nation or government or national or governmental authority of any nation, state, province or other political subdivision thereof, and any agency, department, regulator, airport authority, civil aviation authority, air navigation authority or other Person exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government in respect of the regulation of civil aviation or having jurisdiction over the registration, airworthiness or


2388218		18		(LOAN AGREEMENT)

operation of, or other matters relating to the Aircraft, including, without limitation, the United Kingdom Civil Aviation Authority, the Joint Aviation Authorities, an associated body of the European Civil Aviation Conference, or any successor to such organization and the European Aviation Safety Agency, an agency of the European Union (“EASA”), or any successor to such organization.

Applicable Law shall mean all applicable laws, statutes, treaties, conventions, judgments, decrees, injunctions, writs and orders of any Governmental Authority and rules, regulations, orders, directives, licenses and permits of any Governmental Authority, as amended and revised, and any judicial or administrative interpretation of any of the same, including the airworthiness certificate issued with respect to the Aircraft, the Cape Town Convention, the UCC, the Transportation Code, all TSA regulations, all FARs, airworthiness directives, and/or any of the same relating to the Collateral generally or to noise, the environment, security, public safety, insurance, taxes and other Impositions, exports or imports or contraband.

Applicable Standards shall mean (i) Applicable Law; (ii) the requirements of the Required Coverages; and (iii), with respect to the Airframe, Engines, APU or Parts, all compliance requirements set forth in or under (A) all maintenance manuals initially furnished with respect thereto, including any subsequent amendments or supplements to such manuals issued by the manufacturer or supplier thereof from time to time, (B) all mandatory service bulletins issued, supplied, or available by or through the applicable manufacturer with respect thereto, (C) all applicable airworthiness directives issued by the FAA or other Applicable Aviation Authorities, (D) all conditions to the enforcement of any warranties pertaining thereto, and (E) Customer’s FAA approved maintenance program with respect to the Airframe, Engines, APU or Parts.

APU shall mean (i) the auxiliary power unit described in Annex C hereto, whether or not hereafter installed on the Aircraft or any other airframe from time to time; and (ii) any auxiliary power unit constituting a Permitted Replacement that may from time to time be substituted, pursuant to the applicable terms of this Agreement, for an APU; in each case, together with any and all related Parts.

Assignee shall have the meaning set forth in Section 8.5 hereof.

Aviation Counsel shall mean such counsel as Lender may designate from time to time.

Business Day shall mean any day other than a Saturday, Sunday or other day on which banks located in Providence, Rhode Island or San Francisco, California are closed or are authorized to close.

Closing Date shall have the meaning set forth in the preamble of this Agreement.

Collateral shall have the meaning set forth in Section 5.1 hereof.

Default shall mean an event or circumstance that, after the giving of notice or lapse of time, or both, would become an Event of Default.

Defective Registration means any failure to cause the Aircraft to be effectively and validly registered with the Registry in the name of Customer in accordance with the Registration Requirements, for any reason whatsoever, including should such registration be revoked, canceled or expired or otherwise deemed to have ended or been invalidated pursuant to the Registration Requirements.

Engine shall mean (i) each of the engines described in Annex C hereto, whether or not hereafter installed on the Airframe or any other airframe from time to time; and (ii) any engine constituting a Permitted Replacement that may from time to time be substituted, pursuant to the applicable terms of this Agreement, for an Engine; in each case, together with any and all related Parts.

Event of Default shall have the meaning set forth in Section 6 hereof.


2388218		19		(LOAN AGREEMENT)

Event of Loss with respect to the Aircraft, the Airframe, an Engine, or the APU shall mean any of the following events: (i) loss of such property or the use thereof due to theft, disappearance, destruction, damage beyond repair or rendition of such property permanently unfit for normal use for any reason whatsoever; (ii) any damage to such property that results in an insurance settlement with respect to such property on the basis of a total loss or constructive total loss; (iii) the condemnation, confiscation or seizure of, or requisition of title to or use of, such property by the act of any foreign or domestic Governmental Authority (“Requisition of Use”); (iv) as a result of any rule, regulation, order or other action by any foreign or domestic Governmental Authority (including, without limitation, the FAA or any similar foreign Governmental Authority) having jurisdiction, (A) the use of such property shall have been prohibited, or such property shall have been declared unfit for use, for a period of six (6) consecutive months, unless Customer, prior to the expiration of such six-month period, shall have undertaken and, in the opinion of Lender, shall be diligently carrying forward all steps that are necessary or desirable to permit the normal use of such property by Customer or, in any event, if use shall have been prohibited, or such property shall have been declared unfit for use, for a period of twelve (12) consecutive months, (B) Customer shall be required to divest itself of its rights, title or interest in such property, or (C) the then actual hour or cycle limits with respect to such property shall equal or exceed any mandatory hour and cycle limits with respect to such property, beyond which it cannot be operated; (v) with respect to an Engine or the APU, the removal thereof from the Airframe for a period of six (6) consecutive months or longer, whether or not such Engine or APU is operational; or (vi) an Engine or APU is returned to the manufacturer thereof, other than for modification in the event of patent infringement or for repair or replacement (any such return being herein referred to as a “Return to Manufacturer”). The date of such Event of Loss shall be the date of such theft, disappearance, destruction, damage, Requisition of Use, prohibition, unfitness for use for the stated period, removal for the stated period or Return to Manufacturer.

FAA shall mean the United States Federal Aviation Administration and/or the Administrator of the Federal Aviation Administration and the Department of Transportation, or any Person or Governmental Authority succeeding the functions of any of the foregoing, including, where applicable, the TSA.

FARs shall mean the Federal Aviation Regulations and any Special Federal Aviation Regulations (Title 14 C.F.R. Part 1 et seq.), together with all successor regulations thereto.

GAAP shall mean generally accepted accounting principles consistently applied.

Governmental Authority shall mean any court, governmental or administrative body, instrumentality, department, bureau, commission, agency or authority.

IDERA shall mean the Irrevocable De-Registration and Export Request Authorization, prepared by Lender or an Assignee pursuant to the Protocol, and executed by Customer.

Impositions shall have the meaning set forth in Section 4.3 hereof.

Interested Third Party shall mean any manager, operator, lessee, time share party, service provider or other Person permitted to have those certain rights and interests, and having such related responsibilities, all as more particularly described in the Operating Consents.

Lender’s Lien shall have the meaning set forth in Section 5.1 hereof.

Liens shall mean all liens, claims, demands, charges, security interests, leaseholds, international interests and other Registerable Interests and encumbrances of every nature and description whatever, including, without limitation, any rights of third parties under Third Party Agreements and any registrations on the International Registry without regard to whether such registrations are valid.

Loan shall have the meaning set forth in Section 1.1 hereof.


2388218		20		(LOAN AGREEMENT)

Loan Documents shall mean this Agreement, the Note, any Operating Consents, any hypothecation or other collateral pledge or credit support, and any other documents, agreements, instruments, filings, certificates, opinions or assurances securing, evidencing or relating to the Obligations, whether entered into on or after the Closing Date.

Note shall have the meaning set forth in Section 1.2 hereof.

Obligations shall mean: (i) the unpaid principal amount of, and accrued interest on, the Note; and (ii) all other indebtedness, obligations or liabilities of any and all Customer Parties owing to Lender, or to any Affiliate of Lender, of every kind and description, direct or indirect, secured or unsecured, joint or several, absolute or contingent, due or to become due, whether for payment or performance, now existing or hereafter arising, including, but not limited to, all indebtedness, obligations or liabilities under, arising out of or in connection with this Agreement, the Note or any of the other Loan Documents.

Operating Consents shall mean any and all of the multi-party consents whether entered into on the Closing Date, or thereafter, among Customer and any Interested Third Parties, in favor of Lender; and in each case, having a form and substance, and executed, delivered, filed and registered, as may be required by Lender in its sole discretion.

Organizational Document shall mean any certificate or articles of incorporation, organization or formation, by-laws, partnership certificate or agreement, or limited liability company agreement, operating agreement or other organizational or constitutive document or agreement.

Outstanding Balance shall mean, as of the date of determination, the then outstanding principal balance of the Note, together with all then accrued interest thereon, the then applicable prepayment fee, if any, and all other amounts then due and payable by Customer under the Note, this Agreement and the other Loan Documents.

Parts shall mean all appliances, avionics, parts, instruments, appurtenances, accessories, furnishings and other equipment of whatever nature (other than a complete Engine or APU) that may from time to time be incorporated or installed in or attached to the Airframe, the Engines or the APU, and any and all such appliances, avionics, parts, instruments, appurtenances, accessories, furnishings and other equipment removed therefrom so long as the same have not been released from the Lender’s Lien pursuant to the applicable terms of this Agreement.

Permitted Liens shall mean (a) the Lender’s Lien, (b) any Permitted Third Party Agreements, (c) Liens for taxes either not yet due or being contested, and (d) inchoate materialmen’s, mechanic’s, workmen’s, repairmen’s, employee’s, or other like Liens arising in the ordinary course of business of Customer for sums not yet delinquent or being contested; except that any such contest described in clauses (c) or (d) must be conducted by Customer, in good faith, with due diligence and by appropriate proceedings, so long as such proceedings do not involve, in Lender’s sole judgment, any material danger of the sale, foreclosure, transfer, forfeiture or loss of the Collateral, or title thereto, the rights of Lender hereunder or Lender’s interest therein, and for the payment of which adequate reserves are being maintained in accordance with GAAP or other appropriate provisions satisfactory to Lender have been made; and with respect to any such Lien existing at the time the related Collateral shall become subject to Lender’s Lien, such Lien must be effectively subordinated, as and to the extent required in any of the Loan Documents. Notwithstanding the foregoing, in no event shall any Lien held by any Person (other than Lender) against or with respect to any of the Collateral at the time of the making of the Loan or any advance thereof constitute a Permitted Lien, if in the reasonable opinion of Lender such Lien would be deemed pursuant to Applicable Law to have priority over Lender’s Lien with respect to such Collateral.

Permitted Replacement shall have the meaning provided in Section 4.7(b) hereof.

Permitted Third Party Agreements shall have the meaning provided in Section 4.4(c) hereof.


2388218		21		(LOAN AGREEMENT)

Person shall mean any individual, partnership, corporation, limited liability company, trust, association, joint venture, joint stock company, or non-incorporated organization or Governmental Authority, or any other entity of any kind whatsoever.

Primary Hangar Location shall mean the location identified as such on Annex C hereto.

proceeds shall have the meaning assigned to it in the UCC, and in any event, shall include, but not be limited to, all goods, accounts, chattel paper, documents, instruments, general intangibles, investment property, deposit accounts, letter of credit rights and supporting obligations (to the extent any of the foregoing terms are defined in the UCC, any such foregoing terms shall have the meanings given to the same in the UCC), and all of Customer’s rights in and to any of the foregoing, and any and all rents, payments, charter hire and other amounts of any kind whatsoever due or payable under or in connection with the Airframe, the Engines or other Collateral, including, without limitation, (A) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to Customer from time to time, (B) any and all payments (in any form whatsoever) made or due and payable to Customer from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture by any Governmental Authority or any other Person (whether or not acting under color of any Governmental Authority), and (C) any and all other rents or profits or other amounts from time to time paid or payable.

Records shall mean any and all logs, manuals, certificates and data and inspection, modification, maintenance, engineering, technical, and overhaul records (whether in written or electronic form) with respect to the Airframe, the Engines, the APU, the Parts or any other Collateral, including, without limitation, all records (i) required to be maintained by the FAA or any other Governmental Authority having jurisdiction, or by any manufacturer or supplier with respect to the enforcement of warranties or otherwise, (ii) evidencing Customer’s compliance with Applicable Standards, or (iii) with respect to any maintenance service program.

Registerable Interests shall mean all existing and prospective international interests and other interests, rights and/or notices, sales and prospective sales, assignments, subordinations and discharges, in each case, susceptible to being registered at the International Registry pursuant to the Cape Town Convention.

Registration Certificate means (i) a currently effective Certificate of Aircraft Registration (AC Form 8050-3), or (ii) any other certificate issued to Customer evidencing the currently effective registration of the Aircraft in its name, in connection with the operation of the Aircraft in the United States of America pursuant to the Registration Requirements; or (iii) any other document as may then be required to be maintained within the Aircraft by the Registration Requirements, either together with or in lieu of such certificate.

Registration Requirements means the requirements for registering aircraft with the Registry under 49 U.S.C. 44101-44104, and 14 C.F.R. § 47 as then in effect, any successor laws, rules or regulations pertaining to applicants for and holders of a Registration Certificate, the U.S. registration number for the Aircraft, and any such other FARs and other Applicable Laws, in each case as and to the extent pertaining to the registration of Customer’s ownership of the Aircraft with the Registry, including any re-registration or renewal of such registration or replacement of any such Registration Certificate.

Registry means the FAA Civil Aviation Registry, Aircraft Registration Branch, or any successor registry having an essentially similar purpose pertinent to the ownership registration of the Aircraft pursuant to the Registration Requirements.

Required Coverages shall mean any of the insurance coverages required under this Agreement or any of the other Loan Documents, whether being provided by Customer, its Affiliate, or by any party to any Permitted Third Party Agreement or any other Third Party Agreement (other than Lender).

Third Party Agreements shall mean any and all leases, subleases, interchange agreements, management agreements, charter agreements, pooling agreements, timeshare agreements, engine, airframe or aircraft maintenance programs and any other similar agreements or arrangements of any kind whatsoever relating to the Airframe, the Engines or any of the other Collateral.


2388218		22		(LOAN AGREEMENT)

Transaction Documents shall mean, collectively, the Loan Documents, any and all Permitted Third Party Agreements, and any other document, agreement or instrument entered into for the purposes of effectuating the transactions contemplated in the Loan Documents or relating thereto.

Transaction Parties shall mean, collectively, Customer and each of the other parties to any of the Transaction Documents, other than Lender.

Transportation Code shall mean Subtitle VII of Title 49 of the United States Code, as amended and recodified.

TSA shall mean the Transportation Security Administration and/or the Administrator of the TSA, or any Person or Governmental Authority succeeding the functions of any of the foregoing.

UCC shall mean the applicable Uniform Commercial Code as then in effect in the applicable jurisdiction.


2388218		23		(LOAN AGREEMENT)

ANNEX B

LOAN AMOUNT AND CUSTOMER INFORMATION

This Annex B is attached to and a part of the Loan and Aircraft Security Agreement (3004), dated as of September 30, 2011 (the “Agreement”), between Banc of America Leasing & Capital, LLC, as Lender, and Willis Lease Finance Corporation, as Customer, for the purposes contemplated therein.


Customer’s Chief Executive Offices and Principal Place of Business:		773 San Marin Drive Suite 2215 Novato, CA 94998

Customer’s form of Organization:		Corporation

State of Organization:		Delaware

State Issued Organizational Identification Number:		2870540

Federal Taxpayer ID Number:		68-0070656

Principal Amount of the Loan:		$4,000,000.00

Origination Fee:		$5,000.00

Third Party Agreements:		Aircraft Operating Agreement between Customer and Hangar 8 Management Limited Aircraft Management and Charter Agreement dated December 10, 2004, by and between TWC Aviation, Inc. and Willis Lease Finance Corporation


2388218		24		(LOAN AGREEMENT)

ANNEX C

AIRCRAFT DESCRIPTION AND PRIMARY HANGAR LOCATION

This Annex C is attached to and a part of the Loan and Aircraft Security Agreement (3004), dated as of September 30, 2011 (the “Agreement”), between Banc of America Leasing & Capital, LLC, as Lender, and Willis Lease Finance Corporation, as Customer, for the purposes contemplated therein.

1. AIRCRAFT DESCRIPTION: The Aircraft is a Canadair Ltd. model CL600-2A12 (Challenger 601) aircraft that consists of the following components:

(a)

Airframe bearing U.S. Registration Number N45PH and manufacturer’s serial number 3004 (International Registry manufacturer CANADAIR and generic dropdown model CHALLENGER 601); and type certified by the FAA to transport at least eight (8) persons (including crew) or goods in excess of 2750 kilograms.

(b)

Two (2) General Electric model CF-34-3A aircraft engines bearing manufacturer’s serial numbers 350110 and 350115 (International Registry manufacturer GE and generic dropdown model CF34-3); each having at least 550 horsepower or 1750 lbs of thrust or its equivalent.

(c)

Garrett model GTCP36-100[E] auxiliary power unit bearing manufacturer’s serial number P-243.

(d)

Standard avionics and equipment, all other accessories, additions, modifications and attachments to, and all replacements and substitutions for, any of the foregoing, all as more particularly described below:


Avionics:

Dual Honeywell 650 Flight Directors		Dual YG1779 Laseref IRS
Sperry EDZ-801 EFIS		Voice Checklist – Heads Up Checklist
Universal MFD – 640 Multifunction		Baker Master Audio Control System
Primus 880 Digital WX Radar		Dual King KHF950 HF’s
Safeflight SCAT System		Dual Sperry AZ-800 Air Data
Safeflight Windshear Warning		F-800 Flight Data Recorder
Dual VHF20C COMM (8.33)		A-100 Cockpit Voice Recorder
Single VHF 22B COMM		Unilink UL700
Dual VIR-30 NAV (FM Immunity)		CAS 81 TCAS II (Change 7)
Dual UNS-1Fw, FMS System		AlliedSignal Mark VIII EGPWS
Enhanced Mode S Transponders		Max-Viz Infrared Imaging System
Provisions for Honeywell DBS TV System

Additional Features:

RVSM /RNP-5/MNPS		Forward Galley/Aft Lav
Aircell Axxess II SatCom		Forward/Aft Bulkhead Monitors, 17 inch
Dual DVD/CD		Deluxe Swing Arm jump Seat
Airshow 4000		Fax with Aircell Fax Adapter
Smart Parts

Interior:

Fire-blocked passenger interior in Spineybeck Leather Forte #4026. The headliner, windowline panels, lower sidewalls, seats, seat bases, cockpit sidewalls, lavatory seat, curtains and closet linings were all recovered with new material. Carpet replaced with Carousel Carpet Mill #51 Tartan. Replaced veneers on all woodwork and refinished with high gloss finish. Replaced galley and lavatory countertops. LED lighting.


2388218		25		(LOAN AGREEMENT)

Exterior:

Matterhorn white with red and black stripes.

together with all additions, accessions, modifications, improvements, replacements, substitutions, and accessories thereto and therefor, all avionics, onboard equipment, loose equipment, manuals, documentation and technical publications, now owned or hereafter acquired, and all records and logbooks (in written form or as computer data, discs or tapes, whether now existing or hereafter acquired or created, and whether in the possession of Customer or held on behalf of Customer by others). None of the same were furnished by Customer, unless expressly disclosed to Lender.

2. PRIMARY HANGAR LOCATION: The Primary Hangar Location of the Aircraft is and shall be as follows: Oxford Airport, Langford Lane, Oxford OX5 1RA, England.


2388218		26		(LOAN AGREEMENT)

CLOSING TERMS ADDENDUM (“Closing Terms Addendum”) to Loan and Aircraft Security Agreement (S/N 3004) dated as of September 30, 2011 (the “Agreement”), by and between BANC OF AMERICA LEASING & CAPITAL, LLC, as lender (“Lender”), and WILLIS LEASE FINANCE CORPORATION], as Customer (“Customer”).

All capitalized terms not defined in this Closing Terms Addendum and CTC Terms are defined in the Agreement. Execution of the Agreement by Customer and Lender shall be deemed to constitute execution and acceptance of the terms and conditions of this Closing Terms Addendum, and it shall supplement and be a part of the Agreement.

1. Closing Deliverables. Prior to making the Loan and, (if required by Lender) at least three full Business Days prior to the Closing Date, Lender shall have received all of the following, in form and substance satisfactory to Lender (the “Closing Deliverables”):

(a) the Agreement and the Note, together with any other applicable Loan Documents, each duly executed by each of the applicable Transaction Parties;

(b) a pay proceeds letter, executed by Customer, directing Lender to make disbursements of the Loan proceeds, as and to the extent so agreed by Lender, in its discretion;

(c) Certificates of good standing for Customer from its state of organization and chief executive offices and principal place of business;

(d) a certificate for Customer executed by its secretary or other authorized representative certifying: (i) that the execution, delivery and performance of the Agreement and the other Loan Documents and participation in the transactions contemplated thereby have been duly authorized, (ii) the name(s) of the person(s) authorized to execute and deliver such documents on behalf of Customer, together with specimen signature(s) of such person(s); and (iii) the completeness, accuracy and effectiveness of Customer’s Organizational Documents attached to the certificate;

(e) evidence as to the Required Coverages, including, but not limited to, a certificate of insurance, copies of endorsements (including a Lender endorsement), and, if requested by Lender, copies of applicable policies and written confirmation from the insurance underwriter or broker that the insurance coverage provided is in compliance with the requirements of Section 4.6 of the Agreement and any other applicable provisions of the Loan Documents;

(f) a copies of the Registration Certificate and the FAA Standard Airworthiness Certificate (AC Form 8100-2) for the Aircraft;

(g) an inspection report satisfactory to Lender with respect to the Aircraft prepared by inspector(s) acceptable to Lender;

(h) FAA and UCC search reports and priority search certificates from the International Registry, and if the Aircraft or any of the other Collateral is not free and clear of Liens, copies of any required subordinations, releases or terminations of any other prior Liens, and evidence of such other actions having been taken as may then be required to perfect and give first priority to the Lender’s Lien against the Aircraft and the other Collateral;

(i) regarding the International Registry, evidence that Customer (i) is a transacting user entity (and identifying the name of its administrator), (ii) has designated Aviation Counsel as its professional user entity, and (iii) has taken all other actions that may then be necessary (including, by providing all necessary authority to its administrator) so that all of the Registerable Interests, including any discharges and subordinations, required by the Agreement or the other Loan Documents can be registered with the International Registry in favor of Lender;


2388218		27		(LOAN AGREEMENT)

(j) a copy of each duly executed Permitted Third Party Agreement (including, if any of the same constitutes a lease, the only chattel paper original thereof) and the related Operating Consent;

(k) receipt of principal payment on Lender’s existing loan secured by the Aircraft; and

(l) such other documents, filings, certificates, opinions, assurances and evidence of such other matters, as Lender, Lender’s counsel or Aviation Counsel, may reasonably request.

2. Aviation Counsel’s Escrow. Prior to Lender’s making the Loan and at least one (1) Business Day prior to the Closing Date, Lender shall have received confirmation from Aviation Counsel and from any other Person holding any Closing Deliverables in escrow (each, an “Escrow Holder”), that it is holding in escrow all of the following (the “Aviation Documents”), in proper form for filing with the FAA and otherwise having a form and substance satisfactory to Aviation Counsel: (a) FAA Entry Point Filing Forms (AC Form 8050-135) pertaining to each of the required Registerable Interests (as determined by Aviation Counsel, and specified therein, the “Required Registrations”); (b) if required, executed releases and any subordinations of any Liens on the Aircraft, and all consents and other directives necessary to register any of the same; (c) such other documents, instructions and consents as are necessary, in the opinion of Lender’s counsel and/or Aviation Counsel; and (d) an executed original counterpart of the Agreement.

3. Other Closing Assurances. On the Closing Date, Lender shall have received:

(a) immediately prior to Lender’s making the Loan, (i) assurances from Aviation Counsel that upon making the filings and Required Registrations contemplated herein, (A) title to the Airframe and the Engines is vested in Customer, (B) the Airframe, the Engines, and the other Collateral, will be free and clear of all other Liens of record with the FAA and the International Registry (other than Permitted Liens), and (C) Lender’s Lien against the Airframe, the Engines and the other Collateral will be perfected and have first priority; and (ii) confirmation from (A) Customer and each such other party to any Closing Deliverables that immediately upon the disbursement of the funds being advanced or remitted in connection with the Loan in accordance with the pay proceeds letter between Lender and Customer, then automatically and without further action, (1) each Escrow Holder is deemed authorized to complete each of the Closing Deliverables, (2) all of the Closing Deliverables shall be deemed released from escrow, and (3) all of the Aviation Documents shall be filed and all Required Registrations shall be made, as contemplated in the Agreement and in the order required by Lender; and (B) Aviation Counsel, that the professional user entity for Customer, and each such other party required to initiate or consent to all of Required Registrations have so initiated or consented to the same; and

(b) promptly after Lender has made the Loan, (i) confirmation by Aviation Counsel that the filing of the Agreement, and each of the other documents referenced in Section 2 above has been made (and the filing information is reported to Lender telephonically or electronically); and (ii) priority search certificates from the International Registry evidencing that all of the Required Registrations have been duly registered and are searchable.

4. All Other Conditions Satisfied. On the Closing Date, and prior to making the Loan, (a) the representations and warranties contained in the Agreement and the other Loan Documents shall be true and correct in all respects on and as of the date of the making of the Loan or any advance thereof; and (b) any and all of the other conditions to Lender’s making the Loan have been satisfied. Customer acknowledges and agrees that Lender’s disbursement of any part or all of the Loan proceeds or its having taken any other actions in furtherance of consummating the transactions contemplated in connection with the Loan, shall not prejudice any of Lender’s rights or remedies with respect to any conditions thereto which are not fully and indefeasibly satisfied as and when required in this Closing Terms Addendum; and Lender hereby reserves all of its rights and remedies with respect thereto, unless and to the extent expressly waived in writing by Lender’s authorized officer.


2388218		28		(LOAN AGREEMENT)

EX-11.1 3 d237207dex111.htm STATEMENT RE COMPUTATION OF PER SHARE EARNINGS. Statement re Computation of Per Share Earnings.

Exhibit 11.1

WILLIS LEASE FINANCE CORPORATION

AND SUBSIDIARIES

Computation of Earnings Per Share

(In thousands, except per share data, unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Basic
Earnings:
Net income attributable to common shareholders	$	1,534	$	2,301	$	8,514	$	5,694

Shares:
Average common shares outstanding		8,397		8,683		8,423		8,691

Basic earnings per common share	$	0.18	$	0.27	$	1.01	$	0.66

Assuming full dilution
Earnings:
Net income attributable to common shareholders	$	1,534	$	2,301	$	8,514	$	5,694

Shares:
Average common shares outstanding		8,397		8,683		8,423		8,691
Potentially dilutive common shares outstanding		414		397		480		565

Diluted average common shares outstanding		8,811		9,080		8,903		9,256

Diluted earnings per common share	$	0.17	$	0.25	$	0.96	$	0.62

Supplemental information:

The 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 restricted stock issued under the 2007 Stock Incentive Plan.

The calculation of diluted earnings per share for the three months ended September 30, 2011 excluded from the denominator zero options and restricted stock awards granted to employees and directors because their effect would have been anti-dilutive. The calculation of diluted earnings per share for the three months ended September 30, 2010 excludes from the denominator 212,000 options and 190,375 restricted stock awards granted to employees and directors because their effect would have been anti-dilutive.

The calculation of diluted earnings per share for the nine months ended September 30, 2011 excluded from the denominator zero options and zero restricted stock awards granted to employees and directors because their effect would have been anti-dilutive. The calculation of diluted earnings per share for the nine months ended September 30, 2010 excludes from the denominator zero options and 4,286 restricted stock awards granted to employees and directors because their effect would have been anti-dilutive.

EX-21.1 4 d237207dex211.htm SUBSIDIARIES OF THE REGISTRANT Subsidiaries of the Registrant

Exhibit 21.1

List of Subsidiaries


Subsidiary		State or Jurisdiction of Incorporation

Willis Engine Securitization Trust		Delaware

WEST Engine Funding LLC		Delaware

WEST Engine Funding (Ireland) Limited		Rep. of Ireland

Willis Lease (Ireland) Limited		Rep. of Ireland

WLFC (Ireland) Limited		Rep. of Ireland

WLFC Funding (Ireland) Limited		Rep. of Ireland

Willis Aviation Finance Limited		Rep. of Ireland

Willis Lease France		France

EX-31.1 5 d237207dex311.htm SECTION 302 CEO CERTIFICATION Section 302 CEO Certification

Exhibit 31.1

CERTIFICATIONS

I, Charles F. Willis IV, certify that:

1. I have reviewed this report on Form 10-Q of Willis Lease Finance Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: November 9, 2011		/s/ Charles F. Willis, IV
		Charles F. Willis, IV
		Chief Executive Officer

EX-31.2 6 d237207dex312.htm SECTION 302 CFO CERTIFICATION Section 302 CFO Certification

Exhibit 31.2

CERTIFICATIONS

I, Bradley S. Forsyth, certify that:

1. I have reviewed this report on Form 10-Q of Willis Lease Finance Corporation;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: November 9, 2011		/s/ Bradley S. Forsyth
		Bradley S. Forsyth
		Senior Vice President
		Chief Financial Officer

EX-32 7 d237207dex32.htm SECTION 906 CEO AND CFO CERTIFICATION Section 906 CEO and CFO Certification

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Each of the undersigned hereby certifies, in his or her capacity as an officer of Willis Lease Finance Corporation (the “Company”), for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his or her knowledge:

•

the Quarterly Report of the Company on Form 10-Q for the period ended September 30, 2011 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

•

the information contained in such report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Dated: November 9, 2011

/s/ Charles F. Willis, IV

Chief Executive Officer

/s/ Bradley S. Forsyth

Senior Vice President and Chief Financial Officer

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3. Commitments, Contingencies, Guarantees and Indemnities Our principal offices are located in Novato, California. We occupy space in Novato under a lease that expires February 28, 2015. The remaining lease rental commitment is approximately $1.8 million. Equipment leasing, financing, sales and general administrative activities are conducted from the Novato location. We also sub-lease office and warehouse space for our operations at San Diego, California. This lease expires October 31, 2013 and the remaining lease commitment is approximately $0.3 million. We also lease office space in Shanghai, China, London, United Kingdom, Blagnac, France and Dublin, Ireland. The total lease rental commitment for our international locations is less than $0.3 million. We made purchase commitments to secure the purchase of four engines for a gross purchase price of $36.0 million. One engine is scheduled for delivery in 2011, one engine is for delivery in 2012, one is for delivery in 2013 and one is for delivery in 2014. As of September 30, 2011, non-refundable deposits paid related to this purchase commitment were $2.8 million. In October 2006, we entered into an agreement with CFM International ("CFM") to purchase new spare aircraft engines. The agreement specifies that, subject to availability, we may purchase up to a total of 45 CFM56-7B and CFM56-5B spare engines over a five year period, with options to acquire up to an additional 30 engines. Our purchase orders with CFM for three engines represent deferral of engine deliveries originally scheduled for 2009 and are included in our commitments to purchase in 2012 to 2014. In September 2010, we signed a Memorandum of Understanding to purchase six Sukhoi Superjet (SSJ) 100 aircraft and options for four additional aircraft, with the first aircraft delivery scheduled for September 2012. As this agreement is non-binding, the future aircraft deliveries have not been included in our commitments to purchase.

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<div> <div> 6. Derivative Instruments We hold a number of interest rate derivative instruments to mitigate exposure to changes in interest rates, in particular one-month LIBOR, as all but $24.7 million of our borrowings are at variable rates. As a matter of policy, we do not use derivatives for speculative purposes. In addition, WEST is required under its credit agreement to hedge a portion of its borrowings. At September 30, 2011, we were a party to interest rate swap agreements with notional outstanding amounts of $375.0 million, remaining terms of between six and forty-three months and fixed rates of between 2.10% and 5.05%. The net fair value of these swaps at September 30, 2011 was negative $15.0 million, representing a net liability for us. This represents the estimated amount we would be required to pay if we terminated the swaps. The Company estimates the fair value of derivative instruments using a discounted cash flow technique and, as of September 30, 2011, has used creditworthiness inputs that corroborate observable market data regarding the Company's and counterparties' risk of non-performance. Valuation of the derivative instruments requires certain assumptions for underlying variables and the use of different assumptions would result in a different valuation. Management believes it has applied assumptions consistently during the period. We apply hedge accounting and account for the change in fair value of our cash flow hedges through other comprehensive (loss) income for all derivative instruments. Based on the implied forward rate for LIBOR at September 30, 2011, we anticipate that net finance costs will be increased by approximately $8.1 million for the 12 months ending September 30, 2012 due to the interest rate derivative contracts currently in place. Fair Values of Derivative Instruments in the Consolidated Balance Sheets The following table provides information about the fair value of our derivatives, by contract type:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="84%" align="center"> <tr><td width="38%"> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="10" align="center">Derivatives</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">Fair Value</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom" nowrap="nowrap"> Derivates Designated as Hedging Instruments</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Balance Sheet Location</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">September 30, 2011</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">December 31, 2010</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="6" align="center">(in thousands)</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Interest rate contracts</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">Liabilities under derivative instruments</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">14,958</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">14,274</td> <td valign="bottom" nowrap="nowrap">  </td></tr></table>   Earnings Effects of Derivative Instruments on the Consolidated Statements of Income The following table provides information about the income effects of our cash flow hedging relationships for the three and nine months ended September 30, 2011 and 2010:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="84%" align="center"> <tr><td width="47%"> </td> <td valign="bottom" width="10%"> </td> <td> </td> <td valign="bottom" width="10%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="10%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">Amount of Loss Recognized on Derivatives in the Statements of Income</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">Three Months Ended September 30,</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom" nowrap="nowrap"> Derivates in Cash Flow Hedging Relationships</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" align="center">Location of Loss Recognized on Derivatives in the Statements of Income</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="6" align="center">(in thousands)</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Interest rate contracts</td> <td valign="bottom">  </td> <td valign="bottom">Interest expense</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,631</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4,670</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Total</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,631</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4,670</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td height="8"> </td> <td height="8" colspan="2"> </td> <td height="8" colspan="8"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">Amount of Loss Recognized on Derivatives in the Statements of Income</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">Nine Months Ended September 30,</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom" nowrap="nowrap"> Derivates in Cash Flow Hedging Relationships</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" align="center">Location of Loss Recognized on Derivatives in the Statements of Income</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="6" align="center">(in thousands)</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Interest rate contracts</td> <td valign="bottom">  </td> <td valign="bottom">Interest expense</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">8,815</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">14,473</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Total</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">8,815</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">14,473</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> Our derivatives are designated in a cash flow hedging relationship with the effective portion of the change in fair value of the derivative reported in the cash flow hedges subaccount of accumulated other comprehensive income. Effect of Derivative Instruments on Cash Flow Hedging The following tables provide additional information about the financial statement effects related to our cash flow hedges for the three and nine months ended September 30, 2011 and 2010:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="50%"> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">Amount of Loss Recognized in OCI on Derivatives (Effective Portion)</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">Amount of Loss Reclassified from Accumulated OCI into Income  (Effective Portion)</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom" rowspan="2" nowrap="nowrap"> Derivatives in Cash Flow Hedging Relationships</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">Three Months Ended September 30,</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" rowspan="2" align="center">Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">Three Months Ended September 30,</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="6" align="center">(in thousands)</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="6" align="center">(in thousands)</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Interest rate contracts*</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(1,236</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(4,109</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">Interest Expense</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(2,631</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(4,670</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Total</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(1,236</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(4,109</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">Total</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(2,631</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(4,670</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td height="16"> </td> <td height="16" colspan="8"> </td> <td height="16" colspan="2"> </td> <td height="16" colspan="8"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">Amount of Loss Recognized in OCI on Derivatives (Effective Portion)</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom" rowspan="2" nowrap="nowrap"> Derivatives in Cash Flow Hedging Relationships</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">Nine Months Ended September 30,</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" rowspan="3" align="center">Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">Nine Months Ended September 30,</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="6" align="center">(in thousands)</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="6" align="center">(in thousands)</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Interest rate contracts**</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(683</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(12,600</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">Interest Expense</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(8,815</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(14,473</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Total</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(683</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(12,600</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">Total</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(8,815</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(14,473</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td valign="top" width="4%" align="left">*</td> <td valign="top" align="left">These amounts are shown net of $2.6 million and $3.4 million of interest payments and interest expense amortization for the terminated interest rate contracts reclassified to the income statement during the three months ended September 30, 2011 and 2010, respectively. </td></tr></table> <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td valign="top" width="4%" align="left">**</td> <td valign="top" align="left">These amounts are shown net of $8.3 million and $10.3 million of interest payments reclassified to the income statement terminated interest rate contracts reclassified to the income statement during the nine months ended September 30, 2011 and 2010, respectively. </td></tr></table>   The effective portion of the change in fair value on a derivative instrument designated as a cash flow hedge is reported as a component of other comprehensive income and is reclassified into earnings in the period during which the transaction being hedged affects earnings. The ineffective portion of the hedges is recorded in earnings in the current period. However, these are highly effective hedges and no significant ineffectiveness occurred in either period presented. Counterparty Credit Risk The Company evaluates the creditworthiness of the counterparties under its hedging agreements, all of which are large financial institutions in the United States, Switzerland and Germany with investment grade credit ratings. Based on those ratings, the Company believes that the counterparties are currently creditworthy and that their continuing performance under the hedging agreements is probable, and has not required those counterparties to provide collateral or other security to the Company. As of September 30, 2011, no hedging agreements exist under which the counterparties would owe the Company compensation upon termination due to their failure to perform under the applicable agreements. </div></div>

14274000

14958000

2346000

782000

2346000

782000

0.66

0.27

1.01

0.18

0.62

0.25

0.96

0.17

-1262000

6390000

2041000

5737000

1270000

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4. Investments We hold a fifty percent interest in a joint venture, WOLF A340, LLC, a Delaware limited liability company, ("WOLF"). On December 30, 2005, WOLF completed the purchase of two Airbus A340-313 aircraft from Boeing Aircraft Holding Company for a purchase price of $96.0 million. The purchase was funded by four term notes with one financial institution totaling $76.8 million, with interest payable at LIBOR plus 1.0% to 2.5% and maturing in 2013. These aircraft are currently on lease to Emirates until 2013. Our investment in the joint venture is $9.8 million and $9.3 million as of September 30, 2011 and 2010, respectively. On May 25, 2011, we entered into an agreement with Mitsui & Co., Ltd. to participate in a joint venture formed as a Dublin-based Irish limited company – Willis Mitsui & Company Engine Support Limited ("JVCO") for the purpose of acquiring and leasing IAE V2500-A5 and General Electric CF34-10E jet engines. Each partner holds a fifty percent interest in the joint venture. The initial capital contribution by the Company for its investment in JVCO was $8.0 million. The Company provided the initial lease portfolio by transferring seven V2500 engines to the joint venture in June 2011. The $70.0 million proceeds received upon the transfer of the engines was recorded as Other debt. In September 2011, the Company amended the joint venture agreement allowing for a sale treatment related to these seven engines and extinguishment of Other debt. In addition, the Company made a $1.0 million capital contribution to JVCO for an engine purchase in September 2011, resulting in a total of eight engines in the lease portfolio. The $9.0 million of capital contributions has been partially offset by $3.6 million, resulting in a net investment of $5.4 million. The $3.6 million reduction in investment represents 50% of the $7.2 million gain related to the sale by the Company of the seven engines to JVCO. JVCO executed a loan agreement with JA Mitsui Leasing, Ltd., establishing a credit facility of up to $120.0 million for the purposes of acquiring the initial engines as well as providing funding for future engine acquisitions.   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="81%"> </td> <td valign="bottom" width="2%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="2%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="2%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom" nowrap="nowrap"> Nine Months Ended September 30, 2011 (in thousands)</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">WOLF</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">JVCO</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Total</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Investment in joint ventures, as of December 31, 2010</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">9,381</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">9,381</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Investment</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">5,373</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">5,373</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Earnings/(Losses) from joint ventures</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">956</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(98</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">858</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Distribution</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(575</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(575</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Investment in joint ventures, as of September 30, 2011</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">9,762</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">5,275</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">15,037</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table>

341000

903000

7533000

5224000

11231000

3637000

20334000

7282000

26108000

8684000

12919000

5175000

20194000

6162000

818000

283000

858000

232000

102000

283000

297000

150000

4879000

2092000

9334000

3846000

411000

-4481000

-265000

-2141000

-4884000

-9334000

-469000

1696000

129000

-220000

74000

-160000

1521000

1490000

36074000

-44000

31268000

10362000

26908000

8876000

13214000

15271000

162000

66000

127000

42000

9381000

15037000

898992000

863280000

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<div> 5. Long Term Debt At September 30, 2011, notes payable consists of loans totaling $684.1 million (net of discount of $2.2 million), payable over periods of three months to fourteen years with interest rates varying between approximately 1.5% and 8.0% (excluding the effect of our interest rate derivative instruments). At September 30, 2011, we had revolving credit facilities totaling approximately $285.0 million with $105.0 million in funds available to us. Our significant debt instruments are discussed below: At September 30, 2011, we had a $285.0 million revolving credit facility to finance the acquisition of aircraft engines for lease as well as for general working capital purposes. We closed on this facility on November 20, 2009 and the proceeds of the new facility, net of $3.5 million in debt issuance costs, was used to pay off the balance remaining from our prior revolving facility. Effective January 21, 2011, we exercised our option under the facility to increase the size of this facility to $285.0 million from the original $240.0 million. As of September 30, 2011, $105.0 million was available under this facility. The revolving facility ends in November 2012. The interest rate on this facility at September 30, 2011 was one-month LIBOR plus 3.50%. Under the revolver facility, all subsidiaries except Willis Engine Securitization Trust ("WEST") and WEST Engine Funding LLC jointly and severally guarantee payment and performance of the terms of the loan agreement. The guarantee would be triggered by a default under the agreement. On September 30, 2011, we closed on a term loan for a three year term totaling $4.0 million. Interest is payable at a fixed rate of 3.94% and principal and interest is paid monthly. The loan is secured by our corporate aircraft. The funds were used to refinance the loan for our corporate aircraft. The balance outstanding on this loan is $4.0 million as of September 30, 2011. On January 11, 2010, we closed on a term loan for a four year term totaling $22.0 million. Interest is payable at a fixed rate of 4.50% and principal and interest is paid quarterly. The loan is secured by three engines. The funds were used to pay down our revolving credit facility. The balance outstanding on this facility is $19.2 million as of September 30, 2011. At September 30, 2011, we had $448.5 million of WEST term notes outstanding. Included in the term notes outstanding are the Series 2007-A2 and Series 2007-B2 warehouse notes that converted to term notes effective February 14, 2011. The term notes are divided into $103.6 million Series 2005-A1 notes, $165.8 million Series 2007-A2 notes, $23.9 million Series 2007-B2 notes and $155.2 million Series 2008-A1 notes. At September 30, 2011, the interest rate on the Series 2005-A1 notes is one-month LIBOR plus a margin of 1.25%. At September 30, 2011, the interest rate on the Series 2007-A2 notes is one-month LIBOR plus a margin of 1.75%. At September 30, 2011, the interest rate on the Series 2007-B2 notes is one-month LIBOR plus a margin of 3.75%. At September 30, 2011, the interest rate on the Series 2008-A1 notes is one-month LIBOR plus a margin of 1.50%. The Series 2005-A1 and 2008-A1 term notes expected maturity is July 2018 and March 2021, respectively. The Series 2007-A2 and 2007-B2 notes expected maturity is January 2024 and January 2026, respectively.   On June 30, 2008, we purchased the WEST Series 2008-B1 notes for $19.8 million (the unpaid principal amount of the 2008-B1 notes at that date) with the proceeds of a $20.0 million term loan made by an affiliate of the prior note holder. This term loan is secured by a pledge of the WEST Series 2008-B1 notes to the lender. The term loan was originally for a term of two years with maturity on July 1, 2010 with no amortization with all amounts due at maturity. On May 3, 2010, the Company extended the maturity date from July 1, 2010 to December 31, 2010 and amended the covenants for this term loan to conform to that of the $285.0 million revolving credit facility. On December 29, 2010, the Company further extended the maturity date from December 31, 2010 to December 31, 2011 and increased the interest rate for the term loan from one-month LIBOR plus 3.50% to one-month LIBOR plus 4.00%. Additionally, this term loan will now amortize on a monthly basis, with a $15.2 million bullet payment required at the December 31, 2011 maturity date. The balance outstanding on this term loan is $16.5 million as of September 30, 2011. We are currently discussing a further extension of the term of this loan with our investment banker. On January 18, 2011, we purchased the WEST Series 2005-B1 notes for $17.9 million (the unpaid principal amount of the 2005-B1 notes at that date) with the proceeds of a term loan made by the bank which was the prior note holder. This term loan is secured by a pledge of the WEST Series 2005-B1 notes to the lender. The interest rate on this term loan is one-month LIBOR plus a margin of 3.00%. The term of this loan is five years and the loan amortization is consistent with the amortization on the underlying WEST Series 2005-B1 notes, with a bullet payment required at the end of the five year term. The balance outstanding on this term loan is $16.7 million as of September 30, 2011. WEST's ability to make distributions and pay dividends to the Company is subject to the prior payments of its debt and other obligations and WEST's maintenance of adequate reserves and capital. Under WEST, cash is collected in a restricted account, which is used to service the debt and any remaining amounts, after debt service and defined expenses, are distributed to the Company. Additionally, maintenance reserve payments and lease security deposits are accumulated in restricted accounts and are not available for general use. Cash from maintenance reserve payments are held in the restricted cash account and are subject to a minimum balance established annually based on an engine portfolio maintenance reserve study provided by a third party. Any excess maintenance reserve amounts remain within the restricted cash accounts and are utilized for the purchase of new engines. The assets of WEST, WEST Engine Funding LLC and any associated Owner Trust are not available to satisfy the Company's obligations or the obligations of any of our affiliates. WEST is consolidated for financial statement presentation purposes. The Company and its subsidiaries are required to comply with various financial covenants such as minimum tangible net worth, maximum balance sheet leverage and various interest coverage ratios. The Company also has certain negative financial covenants such as liens, advances, change in business, sales of assets, dividends and stock repurchase. These covenants are tested quarterly and the Company was in full compliance with all covenant requirements at September 30, 2011. At September 30, 2011 and 2010, one-month LIBOR was 0.24% and 0.26%, respectively. The following is a summary of the aggregate maturities of notes payable at September 30, 2011:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="68%" align="center"> <tr><td width="84%"> </td> <td valign="bottom" width="8%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom" nowrap="nowrap"> Year Ending December 31,</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">(in thousands)</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> 2011 (3 months remaining including $16.5 million for senior term loan)</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">29,251</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> 2012 (includes $180.0 million outstanding on revolving credit facility)</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">231,070</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> 2013</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">52,619</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> 2014</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">65,821</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> 2015</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">48,488</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> 2016 and thereafter</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">259,047</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">686,296</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table></div>

23721000

9739000

27319000

8962000

-24803000

-56430000

7248000

3944000

17512000

56268000

8040000

3083000

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2316000

5694000

2301000

8514000

1534000

747000

587000

12101000

4892000

19336000

5930000

76422000

25090000

79419000

26458000

12565000

11141000

6087000

6160000

-6542000

-127000

-3776000

-73000

992000

138000

1015000

423000

1113000

1777000

5384000

268000

503000

2346000

55197000

92888000

370000

710000

0.01

5000000

3475000

31915000

117841000

74409000

62815000

109789000

-3304000

2659000

2306000

6971000

7040000

192377000

221488000

998001000

960504000

151000

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<div> 9. Related Party and Similar Transactions Gavarnie Holding, LLC, a Delaware limited liability company ("Gavarnie") owned by Charles F. Willis, IV, purchased the stock of Aloha Island Air, Inc., a Delaware Corporation, ("Island Air") from Aloha AirGroup, Inc. ("Aloha") on May 11, 2004. Charles F. Willis, IV is the CEO and Chairman of our Board of Directors and owns approximately 31% of our common stock. As of September 30, 2011, Island Air leases three DeHaviland DHC-8-100 aircraft and four spare engines from us. The aircraft and engines on lease to Island Air have a net book value of $3.2 million at September 30, 2011. Effective January 2, 2011 we converted the operating leases with Island Air to a finance lease, with a principal amount of $7.0 million, under which they have resumed monthly payments. Revenue is recorded throughout the lease term as cash is received, with $0.4 million and $1.1 million recorded as lease rent revenue in the three and nine-month periods ended September 30, 2011, respectively.   Beginning in 2006 Island Air experienced cash flow difficulties, which affected their payments to us due to a fare war commenced by a competitor, their dependence on tourism which has suffered from the current economic environment as well as volatile fuel prices. The Board of Directors approved lease rent deferrals which were accounted for as a reduction in lease revenue in the applicable periods. Because of the question regarding collectability of amounts due under these leases, lease rent revenue for these leases have been recorded on a cash basis until such time as collectability becomes reasonably assured. After taking into account the deferred amounts, Island Air owed us $2.9 million in overdue rent and late charges. Effective as of May 3, 2011 we entered into a Settlement Agreement with Island Air which was approved by the Board of Directors, which provides that the overdue rent and late charges will be settled by the Company forgiving 65% of the claim and Island Air paying the remaining 35% of the claim as follows: $0.1 million on signing and $1.0 million over 60 months at 5% interest. A note receivable in the amount of $1.0 million and offsetting reserve was established. As cash is collected on this note, revenue will be recorded, with $0.1 million received in the nine months ended September 30, 2011. The Settlement Agreement is dependent on Island Air obtaining substantially similar concessions from their other major creditors which have been obtained. We entered into a Consignment Agreement dated January 22, 2008, with J.T. Power, LLC ("J.T. Power"), an entity whose majority shareholder, Austin Willis, is the son of our Chief Executive Officer, and directly and indirectly, a shareholder of ours as well as a Director of the Company. According to the terms of the Consignment Agreement, J.T. Power is responsible to market and sell parts from the teardown of three engines with a book value of $4.2 million. Under this agreement, J.T. Power provides a minimum guarantee of net consignment proceeds of $3.3 million by January 22, 2012. Based on current estimated consignment proceeds, J.T. Power would be obligated to pay $1.3 million under the guarantee in January 2012. On September 7, 2011 JT Power notified us that it, "Doesn't have the cash to make a onetime payment to Willis for the shortfall in the guarantee" and proposing a payment plan over time. As a result of this notice we have reduced the carrying value of the consigned assets in the amount of $0.9 million with a remaining carrying value of the consigned assets of $1.0 million. The independent members of our Board of Directors are reviewing this proposal. On November 17, 2008, we entered into a Consignment Agreement with J.T. Power in which they are responsible to market and sell parts from the teardown of one engine with a book value of $1.0 million. On February 25, 2009, we entered into a Consignment Agreement with J.T. Power in which they are responsible to market and sell parts from the teardown of one engine with a book value of $0.1 million. On July 31, 2009, we entered into a Consignment Agreement with J.T. Power in which they are responsible to market and sell parts from the teardown of one engine with a book value of $0.5 million. On July 27, 2006, we entered into an Aircraft Engine Agency Agreement with J.T. Power, in which we will, on a non-exclusive basis, provide engine lease opportunities with respect to available spare engines at J.T. Power. J.T. Power will pay us a fee based on a percentage of the rent collected by J.T. Power for the duration of the lease including renewals thereof. During the nine months ended September 30, 2011, sales of consigned parts by J.T. Power were $0.1 million. </div>

139190000

122362000

77013000

80273000

145324000

153838000

108668000

40191000

118984000

39480000

5726000

5946000

1870000

2301000

9182000

9367000

9181000

9154000

1. Summary of Significant Accounting Policies (a) Basis of Presentation: Our unaudited consolidated financial statements include the accounts of Willis Lease Finance Corporation and its subsidiaries ("we" or the "Company") and 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 note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The accompanying unaudited interim consolidated 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 our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. 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 our financial position as of September 30, 2011 and December 31, 2010, and the results of our operations for the nine months ended September 30, 2011 and 2010, and our cash flows for the nine months ended September 30, 2011 and 2010. The results of operations and cash flows for the period ended September 30, 2011 are not necessarily indicative of the results of operations or cash flows which may be reported for the remainder of 2011. Management considers the continuing operations of our company to operate in one reportable segment. (b) Fair Value Measurements: Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs, to the extent possible. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following: Level 1—Quoted prices in active markets for identical assets or liabilities. Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis We measure the fair value of our interest rate swaps of $375.0 million (notional amount) based on Level 2 inputs, due to the usage of inputs that corroborate observable market data. We estimate the fair value of derivative instruments using a discounted cash flow technique. Fair value may depend on the credit rating and risk of the counterparties of the derivative contracts. We have interest rate swap agreements which have a cumulative net liability fair value of $15.0 million and $14.3 million as of September 30, 2011 and December 31, 2010, respectively. For the nine months ended September 30, 2011 and September 30, 2010, $8.8 million and $14.5 million, respectively, was realized as interest expense on the Consolidated Statements of Income.   The following table shows by level, within the fair value hierarchy, the Company's assets and liabilities at fair value as of September 30, 2011 and December 31, 2010:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="48%"> </td> <td valign="bottom" width="2%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="2%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="2%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="2%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="2%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="2%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="2%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="2%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="30" align="center">Assets and (Liabilities) at Fair Value</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="14" align="center">September 30, 2011</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="14" align="center">December 31, 2010</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Total</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 1</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 2</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 3</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Total</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 1</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 2</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 3</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="30" align="center">(in thousands)</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Liabilities under derivative instruments</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(14,958</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(14,958</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(14,274</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(14,274</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Total</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(14,958</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(14,958</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(14,274</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(14,274</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> During the nine months ended September 30, 2011 and year ended December 31, 2010, all hedges were effective and no change in fair value was recorded in earnings. Assets Measured and Recorded at Fair Value on a Nonrecurring Basis We determine the fair value of long-lived assets held and used, such as Equipment held for operating lease and Equipment held for sale, by reference to independent appraisals, quoted market prices (e.g. an offer to purchase) and other factors. An impairment charge is recorded when the carrying value of the asset exceeds its fair value. The following table shows by level, within the fair value hierarchy, the Company's assets measured at fair value on a nonrecurring basis as of September 30, 2011 and 2010, and the gains (losses) recorded during the three and nine months ended September 30, 2011 and 2011 on those assets:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="50%"> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="14" align="center">Assets at Fair Value (in thousands)</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Total Losses</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Total Losses</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Three Months Ended</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Nine Months Ended</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Total</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 1</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 2</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 3</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">September 30, 2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">September 30, 2011</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="6" align="center">(in thousands)</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Balance at September 30, 2011</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Equipment held for sale</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4,501</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4,169</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">332</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(2,306</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(2,306</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4,501</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4,169</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">332</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(2,306</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(2,306</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td height="16"> </td> <td height="16" colspan="16"> </td> <td height="16" colspan="4"> </td> <td height="16" colspan="4"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="14" align="center">Assets at Fair Value (in thousands)</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Total Losses</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Total Losses</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Three Months Ended</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Nine Months Ended</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Total</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 1</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 2</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 3</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">September 30, 2010</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">September 30, 2010</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="6" align="center">(in thousands)</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Balance at September 30, 2010</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Equipment held for sale</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">7,847</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">6,878</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">969</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(2,659</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(2,659</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">7,847</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">6,878</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">969</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(2,659</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(2,659</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> At September 30, 2011, the Company used Level 2 inputs and, due to a portion of the valuations requiring management judgment due to the absence of quoted market prices, Level 3 inputs to measure the fair value of engines that were held as consignment inventory with third parties. An asset write-down of $2.3 million was recorded in the three and nine months ended September 30, 2011, based upon a comparison of the asset net book values with the revised net proceeds expected from part sales arising from consignment of the engines. At September 30, 2010, the Company used Level 2 inputs and, due to a portion of the valuations requiring management judgment due to the absence of quoted market prices, Level 3 inputs to measure the fair value of engines that were held as consignment inventory with third parties. An asset write-down of $2.7 million was recorded in the three and nine months ended September 30, 2010, based upon a comparison of the asset net book values with the revised net proceeds expected from part sales arising from consignment of the engines. (c) Notes receivable: Notes receivable are recorded net of any unamortized fees, incremental direct costs and allowance for uncollectible amounts. Amortization of any fees is recorded over the term of the related loan. As applicable, interest income on the notes receivable is accrued as earned. We evaluate the collectability of both interest and principal for each note receivable to determine whether it is impaired, based on current information and events. Once collectability is not reasonably assured, interest income is recognized on a cash basis, unless we determine the note should be on the cost recovery method, and any cash payments received would then be reflected as a reduction of principal.   (d) Subsequent Events: We have reviewed and evaluated material subsequent events through the date the financial statements were issued.

220793000

-8287000

60671000

92000

31915000

136402000

220975000

-14829000

61699000

94000

31915000

142096000

226970000

-10469000

60108000

92000

31915000

145324000

232030000

-10596000

56781000

92000

31915000

153838000

-178000

-410000

1777000

5384000

5380000

4000

2. Management Estimates These consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States. The preparation of consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate estimates, including those related to residual values, estimated asset lives, bad debts, income taxes, contingencies and litigation. On July 1, 2010 and again on July 1, 2011, we adjusted the depreciation for certain older engine types within the portfolio. It is our policy to review estimates regularly to reflect the cost of equipment over the useful life of these engines. We base our estimate on historical experience and on various other assumptions that are believed to be reasonable under the circumstances for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Long-lived assets and certain identifiable intangibles to be held and used by an entity are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and long-lived assets to be disposed of generally are reported at the lower of carrying amount or fair value less cost to sell. Management believes that the accounting policies on revenue recognition, maintenance reserves and expenditures, useful life of equipment, asset residual values, asset impairment and allowance for doubtful accounts are critical to the results of operations. If the useful lives or residual values are lower than those estimated by us, upon sale of the asset a loss may be realized. Significant management judgment is required in the forecasting of future operating results, which are used in the preparation of projected undiscounted cash-flows and should different conditions prevail, material impairment write-downs may occur.

9256

9080

8903

8811

8691

8683

8423

8397

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data	9 Months Ended	12 Months Ended
	Sep. 30, 2011	Dec. 31, 2010
Consolidated Balance Sheets [Abstract]
Accumulated depreciation for operating lease	$ 221,488	$ 192,377
Allowances for operating lease receivable	310	423
Accumulated depreciation for property, equipment & furnishings	4,626	3,984
Discount of notes payable	2,212	2,617
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	3,475,000	3,475,000
Preferred stock, shares outstanding	3,475,000	3,475,000
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	9,154,200	9,181,365
Common stock, shares outstanding	9,154,200	9,181,365
Accumulated other comprehensive loss, income tax benefit	$ 6,160	$ 6,087

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Consolidated Statements Of Income (USD $) In Thousands, except Share data	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
REVENUE
Lease rent revenue	$ 26,458	$ 25,090	$ 79,419	$ 76,422
Maintenance reserve revenue	8,962	9,739	27,319	23,721
Gain on sale of leased equipment	3,637	5,224	11,231	7,533
Other income	423	138	1,015	992
Total revenue	39,480	40,191	118,984	108,668
EXPENSES
Depreciation expense	12,456	13,021	38,716	36,078
Write-down of equipment	2,306	2,659	2,306	2,659
General and administrative	8,684	7,282	26,108	20,334
Technical expense	1,270	2,041	5,737	6,390
Net finance costs:
Interest expense	8,876	10,362	26,908	31,268
Interest income	(42)	(66)	(127)	(162)
Total net finance costs	8,834	10,296	26,781	31,106
Total expenses	33,550	35,299	99,648	96,567
Earnings from operations	5,930	4,892	19,336	12,101
Earnings from joint ventures	232	283	858	818
Income before income taxes	6,162	5,175	20,194	12,919
Income tax expense	(3,846)	(2,092)	(9,334)	(4,879)
Net income	2,316	3,083	10,860	8,040
Preferred stock dividends paid and accumulated-Series A	782	782	2,346	2,346
Net income attributable to common shareholders	$ 1,534	$ 2,301	$ 8,514	$ 5,694
Basic earnings per common share:	$ 0.18	$ 0.27	$ 1.01	$ 0.66
Diluted earnings per common share:	$ 0.17	$ 0.25	$ 0.96	$ 0.62
Average common shares outstanding	8,397	8,683	8,423	8,691
Diluted average common shares outstanding	8,811	9,080	8,903	9,256

XML 16 R1.htm IDEA: XBRL DOCUMENT

Document And Entity Information	9 Months Ended
Document And Entity Information	Sep. 30, 2011	Nov. 08, 2011
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3
Entity Registrant Name	WILLIS LEASE FINANCE CORP
Entity Central Index Key	0001018164
Entity Filer Category	Accelerated Filer
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		9,135,173

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Long Term Debt

9 Months Ended

Sep. 30, 2011

Long Term Debt [Abstract]

Long Term Debt

5. Long Term Debt

At September 30, 2011, we had a $285.0 million revolving credit facility to finance the acquisition of aircraft engines for lease as well as for general working capital purposes. We closed on this facility on November 20, 2009 and the proceeds of the new facility, net of $3.5 million in debt issuance costs, was used to pay off the balance remaining from our prior revolving facility. Effective January 21, 2011, we exercised our option under the facility to increase the size of this facility to $285.0 million from the original $240.0 million. As of September 30, 2011, $105.0 million was available under this facility. The revolving facility ends in November 2012. The interest rate on this facility at September 30, 2011 was one-month LIBOR plus 3.50%. Under the revolver facility, all subsidiaries except Willis Engine Securitization Trust ("WEST") and WEST Engine Funding LLC jointly and severally guarantee payment and performance of the terms of the loan agreement. The guarantee would be triggered by a default under the agreement.

WEST's ability to make distributions and pay dividends to the Company is subject to the prior payments of its debt and other obligations and WEST's maintenance of adequate reserves and capital. Under WEST, cash is collected in a restricted account, which is used to service the debt and any remaining amounts, after debt service and defined expenses, are distributed to the Company. Additionally, maintenance reserve payments and lease security deposits are accumulated in restricted accounts and are not available for general use. Cash from maintenance reserve payments are held in the restricted cash account and are subject to a minimum balance established annually based on an engine portfolio maintenance reserve study provided by a third party. Any excess maintenance reserve amounts remain within the restricted cash accounts and are utilized for the purchase of new engines.

The assets of WEST, WEST Engine Funding LLC and any associated Owner Trust are not available to satisfy the Company's obligations or the obligations of any of our affiliates. WEST is consolidated for financial statement presentation purposes.

At September 30, 2011 and 2010, one-month LIBOR was 0.24% and 0.26%, respectively.

The following is a summary of the aggregate maturities of notes payable at September 30, 2011:


Year Ending December 31,	(in thousands)
2011 (3 months remaining including $16.5 million for senior term loan)	$	29,251
2012 (includes $180.0 million outstanding on revolving credit facility)		231,070
2013		52,619
2014		65,821
2015		48,488
2016 and thereafter		259,047

	$	686,296

XML 19 R17.htm IDEA: XBRL DOCUMENT

Fair Value Of Financial Instruments	9 Months Ended
Fair Value Of Financial Instruments	Sep. 30, 2011
Fair Value Of Financial Instruments [Abstract]
Fair Value Of Financial Instruments	10. Fair Value of Financial Instruments The carrying amount reported in the Consolidated Balance Sheets for Cash and cash equivalents, Restricted cash, Operating lease related receivable and Accounts payable approximates fair value because of the immediate or short-term maturity of these financial instruments. The carrying amount of the Company's outstanding balance on its Notes payable as of September 30, 2011 was estimated to have a fair value of approximately $630.7 million based on the fair value of estimated future payments calculated using the prevailing interest rates.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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XML 20 R8.htm IDEA: XBRL DOCUMENT

Summary Of Significant Accounting Policies

9 Months Ended

Sep. 30, 2011

Summary Of Significant Accounting Policies [Abstract]

Summary Of Significant Accounting Policies

1. Summary of Significant Accounting Policies

(a) Basis of Presentation: Our unaudited consolidated financial statements include the accounts of Willis Lease Finance Corporation and its subsidiaries ("we" or the "Company") and 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 note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The accompanying unaudited interim consolidated 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 our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

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

(b) Fair Value Measurements:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

The following table shows by level, within the fair value hierarchy, the Company's assets and liabilities at fair value as of September 30, 2011 and December 31, 2010:


	Assets and (Liabilities) at Fair Value
	September 30, 2011										December 31, 2010
	Total			Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3
	(in thousands)
Liabilities under derivative instruments	$	(14,958	)	$	—	$	(14,958	)	$	—	$	(14,274	)	$	—	$	(14,274	)	$	—

Total	$	(14,958	)	$	—	$	(14,958	)	$	—	$	(14,274	)	$	—	$	(14,274	)	$	—

During the nine months ended September 30, 2011 and year ended December 31, 2010, all hedges were effective and no change in fair value was recorded in earnings.

Assets Measured and Recorded at Fair Value on a Nonrecurring Basis

The following table shows by level, within the fair value hierarchy, the Company's assets measured at fair value on a nonrecurring basis as of September 30, 2011 and 2010, and the gains (losses) recorded during the three and nine months ended September 30, 2011 and 2011 on those assets:


	Assets at Fair Value (in thousands)								Total Losses			Total Losses
									Three Months Ended			Nine Months Ended
	Total		Level 1		Level 2		Level 3		September 30, 2011			September 30, 2011
									(in thousands)
Balance at September 30, 2011
Equipment held for sale	$	4,501	$	—	$	4,169	$	332	$	(2,306	)	$	(2,306	)

Total	$	4,501	$	—	$	4,169	$	332	$	(2,306	)	$	(2,306	)


	Assets at Fair Value (in thousands)								Total Losses			Total Losses
									Three Months Ended			Nine Months Ended
	Total		Level 1		Level 2		Level 3		September 30, 2010			September 30, 2010
									(in thousands)
Balance at September 30, 2010
Equipment held for sale	$	7,847	$	—	$	6,878	$	969	$	(2,659	)	$	(2,659	)

Total	$	7,847	$	—	$	6,878	$	969	$	(2,659	)	$	(2,659	)

(d) Subsequent Events: We have reviewed and evaluated material subsequent events through the date the financial statements were issued.

XML 21 R14.htm IDEA: XBRL DOCUMENT

Stock-Based Compensation Plans	9 Months Ended
Stock-Based Compensation Plans	Sep. 30, 2011
Stock-Based Compensation Plans [Abstract]
Stock-Based Compensation Plans	7. Stock-Based Compensation Plans Our 2007 Stock Incentive Plan (the 2007 Plan) was adopted on May 24, 2007. Under this 2007 Plan, a total of 2,000,000 shares are authorized for stock based compensation in the form of either restricted stock or stock options. There have been 1,407,116 shares of restricted stock awarded to date. Two types of restricted stock were granted in 2007: 239,952 shares vesting over 4 years and 15,452 shares vesting on the first anniversary date from date of issuance. Three types of restricted stock were granted in 2008: 248,964 shares vesting over 4 years, 308,018 shares vesting over 5 years and 17,476 shares vesting on the first anniversary date from date of issuance. Two types of restricted stock were granted in 2009: 10,000 shares vesting over 4 years and 18,220 shares vesting on the first anniversary date from date of issuance. Two types of restricted stock have been granted in 2010: 190,375 shares vesting over 4 years and 21,635 shares vesting on the first anniversary date from date of issuance. Two types of restricted stock have been granted in 2011: 314,924 shares vesting over 4 years and 22,100 shares vesting on the first anniversary date from date of issuance. The fair value of the restricted stock awards equaled the stock price at the date of grants. There were 33,043 shares of restricted stock awards granted in 2007 and 2008 that were cancelled during 2008 and 27,477 shares of restricted stock awards granted in 2007-2010 that were cancelled during 2011. The shares have reverted to the share reserve and are available for issuance at a later date, in accordance with the 2007 Plan. Our accounting policy is to recognize the associated expense of such awards on a straight-line basis over the vesting period. Approximately $2.3 million in stock compensation expense was recorded in the nine months ended September 30, 2011. The stock compensation expense related to the restricted stock awards will be recognized over the average remaining vesting period of 2.8 years and totals $6.2 million. At September 30, 2011, the intrinsic value of unvested restricted stock awards issued through September 30, 2011 is $8.5 million. The 2007 Plan terminates on May 24, 2017. In the nine months ended September 30, 2011, 360,823 options under the 1996 Stock Options/Stock Issuance Plan were exercised. A portion of these exercises, representing 150,000 options from an executive officer of the Company, were cash settled for a net payment of $1.1 million during the 3 months ended September 30, 2011. There are 452,068 stock options remaining under the 1996 Stock Options/Stock Issuance Plan which have an intrinsic value of $2.2 million.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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Income Taxes	9 Months Ended
Income Taxes	Sep. 30, 2011
Income Taxes [Abstract]
Income Taxes	8. Income Taxes Income tax expense for the nine months ended September 30, 2011 and 2010 was $9.3 million and $4.9 million, respectively. The effective tax rate for the nine months ended September 30, 2011 and 2010 was 46.2% and 37.8%, respectively. The Company experienced a higher effective tax rate during 2011 primarily as a result of the tax consequences of the transfer of engines to JVCO, which required recognition of $1.3 million tax expense on the entire gain, while only 50% of the gain was recorded for book purposes given our ongoing ownership interest in JVCO (see Note 4). Our tax rate is subject to change based on changes in the mix of assets leased to domestic and foreign lessees, the proportions of revenue generated within and outside of California, the amount of executive compensation exceeding $1.0 million as defined in IRS code 162(m) and numerous other factors, including changes in tax law.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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-Name Accounting Standards Codification

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-Section S99

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-Subparagraph (SX 210.4-08.(h))

-URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690

+ Details

XML 23 R13.htm IDEA: XBRL DOCUMENT

Derivative Instruments

9 Months Ended

Sep. 30, 2011

Derivative Instruments [Abstract]

Derivative Instruments

6. Derivative Instruments

The Company estimates the fair value of derivative instruments using a discounted cash flow technique and, as of September 30, 2011, has used creditworthiness inputs that corroborate observable market data regarding the Company's and counterparties' risk of non-performance. Valuation of the derivative instruments requires certain assumptions for underlying variables and the use of different assumptions would result in a different valuation. Management believes it has applied assumptions consistently during the period. We apply hedge accounting and account for the change in fair value of our cash flow hedges through other comprehensive (loss) income for all derivative instruments.

Fair Values of Derivative Instruments in the Consolidated Balance Sheets

The following table provides information about the fair value of our derivatives, by contract type:

Derivatives

Fair Value

Derivates Designated as

Hedging Instruments

Balance Sheet Location

September 30,
2011

December 31,
2010

(in thousands)

Interest rate contracts

Liabilities under derivative instruments

14,958

14,274

Earnings Effects of Derivative Instruments on the Consolidated Statements of Income

The following table provides information about the income effects of our cash flow hedging relationships for the three and nine months ended September 30, 2011 and 2010:


		Amount of Loss Recognized on Derivatives in the Statements of Income
		Three Months Ended September 30,
Derivates in Cash Flow Hedging Relationships	Location of Loss Recognized on Derivatives in the Statements of Income	2011		2010
		(in thousands)
Interest rate contracts	Interest expense	$	2,631	$	4,670

Total		$	2,631	$	4,670


		Amount of Loss Recognized on Derivatives in the Statements of Income
		Nine Months Ended September 30,
Derivates in Cash Flow Hedging Relationships	Location of Loss Recognized on Derivatives in the Statements of Income	2011		2010
		(in thousands)
Interest rate contracts	Interest expense	$	8,815	$	14,473

Total		$	8,815	$	14,473

Effect of Derivative Instruments on Cash Flow Hedging

The following tables provide additional information about the financial statement effects related to our cash flow hedges for the three and nine months ended September 30, 2011 and 2010:


	Amount of Loss Recognized in OCI on Derivatives (Effective Portion)							Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)
Derivatives in Cash Flow Hedging Relationships	Three Months Ended September 30,						Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Three Months Ended September 30,
Derivatives in Cash Flow Hedging Relationships	2011			2010				2011			2010
	(in thousands)							(in thousands)
Interest rate contracts*	$	(1,236	)	$	(4,109	)	Interest Expense	$	(2,631	)	$	(4,670	)

Total	$	(1,236	)	$	(4,109	)	Total	$	(2,631	)	$	(4,670	)


	Amount of Loss Recognized in OCI on Derivatives (Effective Portion)							Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)
Derivatives in Cash Flow Hedging Relationships	Nine Months Ended September 30,						Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Nine Months Ended September 30,
Derivatives in Cash Flow Hedging Relationships	2011			2010				2011			2010
	(in thousands)							(in thousands)
Interest rate contracts**	$	(683	)	$	(12,600	)	Interest Expense	$	(8,815	)	$	(14,473	)

Total	$	(683	)	$	(12,600	)	Total	$	(8,815	)	$	(14,473	)

*	These amounts are shown net of $2.6 million and $3.4 million of interest payments and interest expense amortization for the terminated interest rate contracts reclassified to the income statement during the three months ended September 30, 2011 and 2010, respectively.

**	These amounts are shown net of $8.3 million and $10.3 million of interest payments reclassified to the income statement terminated interest rate contracts reclassified to the income statement during the nine months ended September 30, 2011 and 2010, respectively.

Counterparty Credit Risk

- Definition

The entire disclosure for the entity's entire derivative instruments and hedging activities. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising therefrom, and the amounts of and methodologies and assumptions used in determining the amounts of such items.

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XML 24 R6.htm IDEA: XBRL DOCUMENT

Consolidated Statements Of Shareholders' Equity And Comprehensive Income (Parenthetical) (USD $) In Thousands	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Consolidated Statements Of Shareholders' Equity And Comprehensive Income [Abstract]
Unrealized loss from derivative instruments, tax benefit	$ 73	$ 3,776

XML 25 R9.htm IDEA: XBRL DOCUMENT

Management Estimates

9 Months Ended

Sep. 30, 2011

Management Estimates [Abstract]

Management Estimates

2. Management Estimates

These consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States.

XML 26 R10.htm IDEA: XBRL DOCUMENT

Commitments, Contingencies, Guarantees And Indemnities

9 Months Ended

Sep. 30, 2011

Commitments, Contingencies, Guarantees And Indemnities [Abstract]

Commitments, Contingencies, Guarantees And Indemnities

3. Commitments, Contingencies, Guarantees and Indemnities

We made purchase commitments to secure the purchase of four engines for a gross purchase price of $36.0 million. One engine is scheduled for delivery in 2011, one engine is for delivery in 2012, one is for delivery in 2013 and one is for delivery in 2014. As of September 30, 2011, non-refundable deposits paid related to this purchase commitment were $2.8 million. In October 2006, we entered into an agreement with CFM International ("CFM") to purchase new spare aircraft engines. The agreement specifies that, subject to availability, we may purchase up to a total of 45 CFM56-7B and CFM56-5B spare engines over a five year period, with options to acquire up to an additional 30 engines. Our purchase orders with CFM for three engines represent deferral of engine deliveries originally scheduled for 2009 and are included in our commitments to purchase in 2012 to 2014. In September 2010, we signed a Memorandum of Understanding to purchase six Sukhoi Superjet (SSJ) 100 aircraft and options for four additional aircraft, with the first aircraft delivery scheduled for September 2012. As this agreement is non-binding, the future aircraft deliveries have not been included in our commitments to purchase.

- Definition

The entire disclosure for commitments and contingencies.

+ References

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Investments

9 Months Ended

Sep. 30, 2011

Investments [Abstract]

Investments

4. Investments

We hold a fifty percent interest in a joint venture, WOLF A340, LLC, a Delaware limited liability company, ("WOLF"). On December 30, 2005, WOLF completed the purchase of two Airbus A340-313 aircraft from Boeing Aircraft Holding Company for a purchase price of $96.0 million. The purchase was funded by four term notes with one financial institution totaling $76.8 million, with interest payable at LIBOR plus 1.0% to 2.5% and maturing in 2013. These aircraft are currently on lease to Emirates until 2013. Our investment in the joint venture is $9.8 million and $9.3 million as of September 30, 2011 and 2010, respectively.

On May 25, 2011, we entered into an agreement with Mitsui & Co., Ltd. to participate in a joint venture formed as a Dublin-based Irish limited company – Willis Mitsui & Company Engine Support Limited ("JVCO") for the purpose of acquiring and leasing IAE V2500-A5 and General Electric CF34-10E jet engines. Each partner holds a fifty percent interest in the joint venture. The initial capital contribution by the Company for its investment in JVCO was $8.0 million. The Company provided the initial lease portfolio by transferring seven V2500 engines to the joint venture in June 2011. The $70.0 million proceeds received upon the transfer of the engines was recorded as Other debt. In September 2011, the Company amended the joint venture agreement allowing for a sale treatment related to these seven engines and extinguishment of Other debt. In addition, the Company made a $1.0 million capital contribution to JVCO for an engine purchase in September 2011, resulting in a total of eight engines in the lease portfolio. The $9.0 million of capital contributions has been partially offset by $3.6 million, resulting in a net investment of $5.4 million. The $3.6 million reduction in investment represents 50% of the $7.2 million gain related to the sale by the Company of the seven engines to JVCO. JVCO executed a loan agreement with JA Mitsui Leasing, Ltd., establishing a credit facility of up to $120.0 million for the purposes of acquiring the initial engines as well as providing funding for future engine acquisitions.


Nine Months Ended September 30, 2011 (in thousands)	WOLF			JVCO			Total
Investment in joint ventures, as of December 31, 2010	$	9,381		$	—		$	9,381
Investment		—			5,373			5,373
Earnings/(Losses) from joint ventures		956			(98	)		858
Distribution		(575	)		—			(575	)

Investment in joint ventures, as of September 30, 2011	$	9,762		$	5,275		$	15,037

- Definition

The entire disclosure for equity investment, or group of investments, for which combined disclosure is appropriate, including: (a) the name of each investee and percentage of ownership of common stock, (b) accounting policies for investments in common stock, (c) difference between the amount at which the investment is carried and the amount of underlying equity in net assets and the accounting treatment of the difference, (d) the total fair value of each identified investment for which a market value is available, (e) summarized information as to assets, liabilities, and results of operations of the investees (for investments in unconsolidated subsidiaries, common stock of joint ventures, or other investments using the equity method), and (f) material effects of possible conversions, exercises, or contingent issuances of the investee. Other disclosures include (a) the names of any investee in which the investor owns 20 percent or more of the voting stock and investment is not accounted for using the equity method, and the reasons why not, and (b) the names of any investee in which the investor owns less than 20 percent of the voting stock and the investment is accounted for using the equity method, and the reasons why it is.

+ References+ Details

XML 29 R5.htm IDEA: XBRL DOCUMENT

Consolidated Statements Of Shareholders' Equity And Comprehensive Income (USD $) In Thousands	Preferred Stock [Member]	Common Stock [Member]	Paid-In Capital In Excess Of Par [Member]	Accumulated Other Comprehensive Income/(Loss) [Member]	Retained Earnings [Member]	Total
Balances at Dec. 31, 2009	$ 31,915	$ 92	$ 60,671	$ (8,287)	$ 136,402	$ 220,793
Balances, shares at Dec. 31, 2009		9,182
Net income					8,040	8,040
Unrealized loss from derivative instruments, net of tax benefit				(6,542)		(6,542)
Total comprehensive income						1,498
Preferred stock dividends paid					(2,346)	(2,346)
Shares repurchased			(1,777)			(1,777)
Shares repurchased, shares		(178)
Shares issued under stock compensation plans		2	594			596
Shares issued under stock compensation plans, shares		363
Stock-based compensation expense			1,870			1,870
Excess tax benefit from stock-based compensation			341			341
Balances at Sep. 30, 2010	31,915	94	61,699	(14,829)	142,096	220,975
Balances, shares at Sep. 30, 2010		9,367
Balances at Dec. 31, 2010	31,915	92	60,108	(10,469)	145,324	226,970
Balances, shares at Dec. 31, 2010		9,181
Net income					10,860	10,860
Unrealized loss from derivative instruments, net of tax benefit				(127)		(127)
Total comprehensive income						10,733
Preferred stock dividends paid					(2,346)	(2,346)
Shares repurchased		(4)	(5,380)			(5,384)
Shares repurchased, shares		(410)
Cash settlement of stock options		(2)	(1,260)			(1,262)
Cash settlement of stock options, shares		(172)
Shares issued under stock compensation plans		6	109			115
Shares issued under stock compensation plans, shares		555
Stock-based compensation expense			2,301			2,301
Excess tax benefit from stock-based compensation			903			903
Balances at Sep. 30, 2011	$ 31,915	$ 92	$ 56,781	$ (10,596)	$ 153,838	$ 232,030
Balances, shares at Sep. 30, 2011		9,154

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Consolidated Statements Of Cash Flows (USD $) In Thousands	9 Months Ended
Consolidated Statements Of Cash Flows (USD $) In Thousands	Sep. 30, 2011	Sep. 30, 2010
Cash flows from operating activities:
Net income	$ 10,860	$ 8,040
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	38,716	36,078
Write-down of equipment	2,306	2,659
Stock-based compensation expense	2,301	1,870
Amortization of deferred costs	3,414	3,976
Amortization of loan discount	405	451
Amortization of interest rate derivative cost	483	2,282
Allowances and provisions	(113)	151
Other non-cash items	(1,113)
Gain on sale of leased equipment	(11,231)	(7,533)
Income from joint ventures, net of distributions	(283)	(102)
Deferred income taxes	9,334	4,884
Changes in assets and liabilities:
Receivables	2,141	265
Notes receivable	160	(74)
Other assets	(1,490)	(1,521)
Accounts payable and accrued expenses	(4,481)	411
Restricted cash	44	(36,074)
Maintenance reserves	2,899	2,347
Security deposits	220	(129)
Unearned lease revenue	1,696	(469)
Net cash provided by operating activities	56,268	17,512
Cash flows from investing activities:
Proceeds from sale of equipment held for operating lease (net of selling expense)	109,789	62,815
Restricted cash for investing activities	(3,304)
Investment in joint venture	(8,943)
Purchase of equipment held for operating lease	(92,888)	(55,197)
Purchase of property, equipment and furnishings	(710)	(370)
Net cash provided by investing activities	3,944	7,248
Cash flows from financing activities:
Proceeds from issuance of notes payable	74,409	117,841
Debt issuance cost	(503)	(268)
Preferred stock dividends	(2,346)	(2,346)
Proceeds from shares issued under stock compensation plans	115	596
Excess tax benefit from stock-based compensation	903	341
Repurchase of common stock	(5,384)	(1,777)
Cash settlement of stock options	(1,262)
Principal payments on notes payable	(122,362)	(139,190)
Net cash used in financing activities	(56,430)	(24,803)
Increase/(Decrease) in cash and cash equivalents	3,782	(43)
Cash and cash equivalents at beginning of period	2,225	2,056
Cash and cash equivalents at end of period	6,007	2,013
Supplemental disclosures of cash flow information:
Interest	15,271	13,214
Income Taxes	$ 150	$ 297

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Related Party And Similar Transactions	9 Months Ended
Related Party And Similar Transactions	Sep. 30, 2011
Related Party And Similar Transactions [Abstract]
Related Party And Similar Transactions	9. Related Party and Similar Transactions Gavarnie Holding, LLC, a Delaware limited liability company ("Gavarnie") owned by Charles F. Willis, IV, purchased the stock of Aloha Island Air, Inc., a Delaware Corporation, ("Island Air") from Aloha AirGroup, Inc. ("Aloha") on May 11, 2004. Charles F. Willis, IV is the CEO and Chairman of our Board of Directors and owns approximately 31% of our common stock. As of September 30, 2011, Island Air leases three DeHaviland DHC-8-100 aircraft and four spare engines from us. The aircraft and engines on lease to Island Air have a net book value of $3.2 million at September 30, 2011. Effective January 2, 2011 we converted the operating leases with Island Air to a finance lease, with a principal amount of $7.0 million, under which they have resumed monthly payments. Revenue is recorded throughout the lease term as cash is received, with $0.4 million and $1.1 million recorded as lease rent revenue in the three and nine-month periods ended September 30, 2011, respectively. Beginning in 2006 Island Air experienced cash flow difficulties, which affected their payments to us due to a fare war commenced by a competitor, their dependence on tourism which has suffered from the current economic environment as well as volatile fuel prices. The Board of Directors approved lease rent deferrals which were accounted for as a reduction in lease revenue in the applicable periods. Because of the question regarding collectability of amounts due under these leases, lease rent revenue for these leases have been recorded on a cash basis until such time as collectability becomes reasonably assured. After taking into account the deferred amounts, Island Air owed us $2.9 million in overdue rent and late charges. Effective as of May 3, 2011 we entered into a Settlement Agreement with Island Air which was approved by the Board of Directors, which provides that the overdue rent and late charges will be settled by the Company forgiving 65% of the claim and Island Air paying the remaining 35% of the claim as follows: $0.1 million on signing and $1.0 million over 60 months at 5% interest. A note receivable in the amount of $1.0 million and offsetting reserve was established. As cash is collected on this note, revenue will be recorded, with $0.1 million received in the nine months ended September 30, 2011. The Settlement Agreement is dependent on Island Air obtaining substantially similar concessions from their other major creditors which have been obtained. We entered into a Consignment Agreement dated January 22, 2008, with J.T. Power, LLC ("J.T. Power"), an entity whose majority shareholder, Austin Willis, is the son of our Chief Executive Officer, and directly and indirectly, a shareholder of ours as well as a Director of the Company. According to the terms of the Consignment Agreement, J.T. Power is responsible to market and sell parts from the teardown of three engines with a book value of $4.2 million. Under this agreement, J.T. Power provides a minimum guarantee of net consignment proceeds of $3.3 million by January 22, 2012. Based on current estimated consignment proceeds, J.T. Power would be obligated to pay $1.3 million under the guarantee in January 2012. On September 7, 2011 JT Power notified us that it, "Doesn't have the cash to make a onetime payment to Willis for the shortfall in the guarantee" and proposing a payment plan over time. As a result of this notice we have reduced the carrying value of the consigned assets in the amount of $0.9 million with a remaining carrying value of the consigned assets of $1.0 million. The independent members of our Board of Directors are reviewing this proposal. On November 17, 2008, we entered into a Consignment Agreement with J.T. Power in which they are responsible to market and sell parts from the teardown of one engine with a book value of $1.0 million. On February 25, 2009, we entered into a Consignment Agreement with J.T. Power in which they are responsible to market and sell parts from the teardown of one engine with a book value of $0.1 million. On July 31, 2009, we entered into a Consignment Agreement with J.T. Power in which they are responsible to market and sell parts from the teardown of one engine with a book value of $0.5 million. On July 27, 2006, we entered into an Aircraft Engine Agency Agreement with J.T. Power, in which we will, on a non-exclusive basis, provide engine lease opportunities with respect to available spare engines at J.T. Power. J.T. Power will pay us a fee based on a percentage of the rent collected by J.T. Power for the duration of the lease including renewals thereof. During the nine months ended September 30, 2011, sales of consigned parts by J.T. Power were $0.1 million.

- Definition

The entire disclosure for related party transactions, including the nature of the relationship(s), a description of the transactions, the amount of the transactions, the effects of any change in the method of establishing the terms of the transaction from the previous period, stated interest rate, expiration date, terms and manner of settlement per the agreement with the related party, and amounts due to or from related parties. If the entity and one or more other entities are under common ownership or management control and this control affects the operating results or financial position, disclosure includes the nature of the control relationship even if there are no transactions between the entities. Disclosure may also include the aggregate amount of current and deferred tax expense for each statement of earnings presented where the entity is a member of a group that files a consolidated tax return, the amount of any tax related balances due to or from affiliates as of the date of each statement of financial position presented, the principal provisions of the method by which the consolidated amount of current and deferred tax expense is allocated to the members of the group and the nature and effect of any changes in that method. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

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Consolidated Balance Sheets (USD $) In Thousands	Sep. 30, 2011	Dec. 31, 2010
ASSETS
Cash and cash equivalents	$ 6,007	$ 2,225
Restricted cash	80,273	77,013
Equipment held for operating lease, less accumulated depreciation of $221,488 and $192,377 at September 30, 2011 and December 31, 2010, respectively	960,504	998,001
Equipment held for sale	4,501	7,418
Operating lease related receivable, net of allowances of $310 and $423 at September 30, 2011 and December 31, 2010, respectively	6,844	8,872
Notes receivable	587	747
Investments	15,037	9,381
Property, equipment & furnishings, less accumulated depreciation of $4,626 and $3,984 at September 30, 2011 and December 31, 2010, respectively	7,040	6,971
Equipment purchase deposits	3,376	2,769
Other assets, net	11,141	12,565
Total assets	1,095,310	1,125,962
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses	16,079	18,099
Liabilities under derivative instruments	14,958	14,274
Deferred income taxes	84,002	75,645
Notes payable, net of discount of $2,212 and $2,617 at September 30, 2011 and December 31, 2010, respectively	684,084	731,632
Maintenance reserves	53,341	50,442
Security deposits	5,946	5,726
Unearned lease revenue	4,870	3,174
Total liabilities	863,280	898,992
Shareholders' equity:
Preferred stock ($0.01 par value, 5,000,000 shares authorized; 3,475,000 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively)	31,915	31,915
Common stock ($0.01 par value, 20,000,000 shares authorized; 9,154,200 and 9,181,365 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively)	92	92
Paid-in capital in excess of par	56,781	60,108
Retained earnings	153,838	145,324
Accumulated other comprehensive loss, net of income tax benefit of $6,160 and $6,087 at September 30, 2011 and December 31, 2010, respectively	(10,596)	(10,469)
Total shareholders' equity	232,030	226,970
Total liabilities and shareholders' equity	$ 1,095,310	$ 1,125,962

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Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company