10-Q

f

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended September 30, 2016

OR

☐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 ☒  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):

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☐
(Do not check if a smaller reporting company)

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

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

Title of Each Class	Outstanding at November 2, 2016
Common Stock, $0.01 par value per share	6,489,618

WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES

INDEX

PART I.	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements (Unaudited)	3
	Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015	3
	Consolidated Statements of Income for the three and nine months ended September 30, 2016 and 2015	4
	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2016 and 2015	5
	Consolidated Statements of Shareholders’ Equity for the nine months ended September 30, 2016 and 2015	6
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015	7
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26
PART II.	OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 6.	Exhibits	27

2

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,		December 31,
	2016		2015 (1)
ASSETS
Cash and cash equivalents	$	10,653	$	9,732
Restricted cash		28,217		33,026
Equipment held for operating lease, less accumulated depreciation of $350,595 and $316,366 at September 30, 2016 and December 31, 2015, respectively		1,118,202		1,109,168
Maintenance rights		16,774		12,140
Equipment held for sale		13,899		23,454
Operating lease related receivables, net of allowances of $761 and $912 at September 30, 2016 and December 31, 2015, respectively		12,128		13,626
Spare parts inventory		19,235		20,826
Investments		43,314		41,295
Property, equipment & furnishings, less accumulated depreciation of $5,512 and $11,102 at September 30, 2016 and December 31, 2015, respectively		16,545		20,247
Intangible assets, net		758		932
Other assets		11,603		9,839
Total assets (2)	$	1,291,328	$	1,294,285
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued expenses	$	15,700	$	21,665
Deferred income taxes		102,788		96,154
Notes payable		885,643		866,089
Maintenance reserves		61,160		71,054
Security deposits		24,530		25,010
Unearned lease revenue		5,033		5,090
Total liabilities (3)		1,094,854		1,085,062
Shareholders’ equity:
Common stock ($0.01 par value, 20,000,000 shares authorized; 6,576,369 and 7,548,395 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively)		66		75
Paid-in capital in excess of par		5,940		28,720
Retained earnings		192,311		180,949
Accumulated other comprehensive loss, net of income tax benefit of $974 and $275 at September 30, 2016 and December 31, 2015, respectively.		(1,843)		(521)
Total shareholders’ equity		196,474		209,223
Total liabilities and shareholders’ equity	$	1,291,328	$	1,294,285
(1) Certain amounts include adjustments to prior periods see "Note 1. Summary      of Significant Accounting Policies (c) Correction of Immaterial Errors -          Consolidated Financial Statements" for further disclosure.
(2) Total assets at September 30, 2016 and December 31, 2015 include the       following assets of a variable interest entity (VIE) that can only be used       to settle the liabilities of the VIE:  Cash, $28,427 and $33,776; Equipment,       $316,206 and $328,118; and Other, $3,901 and $6,329 respectively.
(3) Total liabilities at September 30, 2016 and December 31, 2015 include      the following liabilities of a VIE for which the VIE creditors do not have      recourse to Willis Lease Finance Corporation: Notes payable, $278,426      and $293,331, respectively.

3

See accompanying notes to the unaudited consolidated financial statements.

WILLIS LEASE FINANCE CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Income

(In thousands, except per share data, unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015 (1)		2016		2015 (1)
REVENUE
Lease rent revenue	$	31,270	$	28,055	$	88,727	$	79,197
Maintenance reserve revenue		14,229		16,119		45,562		39,035
Spare parts and equipment sales		4,160		9,133		10,465		15,000
Gain on sale of leased equipment		180		3,804		3,430		7,666
Other revenue		1,622		619		3,614		1,978
Total revenue		51,461		57,730		151,798		142,876
EXPENSES
Depreciation and amortization expense		16,628		17,102		49,235		52,390
Cost of spare parts and equipment sales		3,066		5,919		7,785		10,219
Write-down of equipment		1,995		5,498		5,924		8,580
General and administrative		12,257		11,742		34,694		30,826
Technical expense		1,414		3,570		4,913		7,836
Net finance costs:
Interest expense		10,230		9,805		30,635		29,232
Loss (gain) on debt extinguishment		—		—		137		(1,151)
Total net finance costs		10,230		9,805		30,772		28,081
Total expenses		45,590		53,636		133,323		137,932
Earnings from operations		5,871		4,094		18,475		4,944
Earnings from joint ventures		631		558		874		1,127
Income before income taxes		6,502		4,652		19,349		6,071
Income tax expense		2,517		2,101		7,987		2,648
Net income	$	3,985	$	2,551	$	11,362	$	3,423
Basic earnings per common share:	$	0.63	$	0.33	$	1.69	$	0.44
Diluted earnings per common share:	$	0.62	$	0.32	$	1.66	$	0.43
Average common shares outstanding		6,307		7,839		6,711		7,843
Diluted average common shares outstanding		6,448		7,963		6,849		8,011
(1) Certain amounts include adjustments to prior periods see "Note 1.  Summary of Significant Accounting Policies (c) Correction of Immaterial Errors - Consolidated Financial Statements" for further disclosure.

See accompanying notes to the unaudited consolidated financial statements.

4

WILLIS LEASE FINANCE CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands, unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015 (1)		2016		2015 (1)
Net income	$	3,985	$	2,551	$	11,362	$	3,423
Other comprehensive income:
Currency translation adjustment		(2,547)		(304)		(2,021)		(304)
Tax benefit  related to items of other comprehensive income		881		104		699		104
Other comprehensive income		(1,666)		(200)		(1,322)		(200)
Total comprehensive income	$	2,319	$	2,351	$	10,040	$	3,223
(1) Certain amounts include adjustments to prior periods see "Note 1.      Summary of Significant Accounting Policies (c) Correction of      Immaterial Errors - Consolidated Financial Statements" for further disclosure.

See accompanying notes to the unaudited consolidated financial statements.

5

WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity
Nine months Ended September 30, 2016 and 2015
(In thousands, unaudited)

	Issued and
	Outstanding					Accumulated
	Shares of			Paid-in		Other				Total
	Common	Common		Capital in		Comprehensive		Retained		Shareholders’
	Stock	Stock		Excess of par		Income		Earnings (1)		Equity
Balances at December 31, 2014	8,346	$	83	$	42,076	$	—	$	174,489	$	216,648
Net income	—		—		—		—		3,423		3,423
Net unrealized loss from currency translation adjustment, net of tax benefit of $104	—		—		—		(200)		—		(200)
Shares repurchased	(208)		(2)		(3,648)		—		—		(3,650)
Shares issued under stock compensation plans	207		3		516		—		—		519
Cancellation of restricted stock in satisfaction of withholding tax	(64)		(1)		(1,100)		—		—		(1,101)
Stock-based compensation, net of forfeitures	—		—		2,961		—		—		2,961
Tax benefit on disqualified disposition of shares	—		—		75		—		—		75
Balances at September 30, 2015	8,281	$	83	$	40,880	$	(200)	$	177,912	$	218,675
Balances at December 31, 2015	7,548	$	75	$	28,720	$	(521)	$	180,949	$	209,223
Net income	—		—		—		—		11,362		11,362
Net unrealized loss from currency translation adjustment, net of tax benefit of $699	—		—		—		(1,322)		—		(1,322)
Shares repurchased	(1,058)		(10)		(25,012)		—		—		(25,022)
Shares issued under stock compensation plans	127		1		154		—		—		155
Cancellation of restricted stock in satisfaction of withholding tax	(41)		—		(866)		—		—		(866)
Stock-based compensation, net of forfeitures	—		—		2,755		—		—		2,755
Tax benefit on disqualified disposition of shares	—		—		189		—		—		189
Balances at September 30, 2016	6,576	$	66	$	5,940	$	(1,843)	$	192,311	$	196,474
(1) Certain amounts include adjustments to prior periods see "Note 1. Summary      of Significant Accounting Policies (c) Correction of Immaterial Errors -      Consolidated Financial Statements" for further disclosure.

See accompanying notes to the unaudited consolidated financial statements.

6

WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands, unaudited)

	Nine Months Ended September 30,
	2016		2015 (1)
Cash flows from operating activities:
Net income	$	11,362	$	3,423
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		49,235		52,390
Write-down of equipment		5,924		8,580
Stock-based compensation expenses		2,755		2,961
Amortization of deferred costs		3,231		3,254
Allowances and provisions		(597)		181
Gain on sale of leased equipment		(3,430)		(7,666)
Loss (gain) on extinguishment of debt		137		(1,151)
Income from joint ventures		(874)		(1,127)
Deferred income taxes		7,332		2,429
Changes in assets and liabilities:
Receivables		2,094		(8,049)
Spare parts inventory		1,116		1,843
Other assets		(664)		(1,221)
Accounts payable and accrued expenses		(1,729)		(7,740)
Restricted cash		3,409		10,238
Maintenance reserves		(9,895)		3,315
Security deposits		(479)		5,204
Unearned lease revenue		(57)		773
Net cash provided by operating activities		68,870		67,637
Cash flows from investing activities:
Proceeds from sale of equipment (net of selling expenses)		61,825		39,300
Restricted cash for investing activities		55		(11,222)
Capital contribution to joint ventures		(5,545)		(630)
Distributions received from joint ventures		1,167		1,304
Maintenance rights payments received		—		1,709
Purchase of equipment held for operating lease		(113,249)		(137,959)
Purchase of maintenance rights		(4,634)		5,802
Purchase of property, equipment and furnishings		(357)		(3,734)
Net cash used in investing activities		(60,738)		(105,430)
Cash flows from financing activities:
Proceeds from issuance of notes payable		87,000		140,700
Debt issuance cost		(3,808)		(13)
Restricted cash from financing activities		1,345		25,359
Proceeds from shares issued under stock compensation plans		155		519
Cancellation of restricted stock units in satisfaction of withholding tax		(866)		(1,101)
Excess tax benefit from stock-based compensation		189		75
Repurchase of common stock		(25,022)		(3,650)
Principal payments on notes payable		(66,204)		(128,344)
Net cash provided by (used in) financing activities		(7,211)		33,545
Increase in cash and cash equivalents		921		(4,248)
Cash and cash equivalents at beginning of period		9,732		13,493
Cash and cash equivalents at end of period	$	10,653	$	9,245
Supplemental disclosures of cash flow information:
Net cash paid for:
Interest	$	27,855	$	26,637
Income Taxes	$	137	$	99
(1) Certain amounts include adjustments to prior periods see "Note 1. Summary of Signaficant Accounting Policies (c) Correction of Immaterial Errors - Consolidated Financial Statements"  for further disclosure.
Supplemental disclosures of non-cash investing activities:
During the nine months ended September 30, 2016 and 2015, liabilities of $3,089 and $3,260, respectively, were incurred but not paid in connection with our purchase of aircraft and engines.
During the nine months ended September 30, 2016 and 2015, engines and equipment totaling $9,266 and $19,654, respectively, were transferred, net from Held for Operating Lease to Held for Sale.
During the nine months ended September 30, 2016, an aircraft of $2,925 was transferred from Property, equipment and furnishings to Assets Held for Lease.

See accompanying notes to the unaudited consolidated financial statements.

7

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, 2015.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly our financial position as of September 30, 2016 and December 31, 2015, and the results of our operations for the three and nine months ended September 30, 2016 and 2015, and our cash flows for the nine months ended September 30, 2016 and 2015. The results of operations and cash flows for the period ended September 30, 2016 are not necessarily indicative of the results of operations or cash flows which may be reported for the remainder of 2016.

(b)    Principles of Consolidation:

We evaluate all entities in which we have an economic interest firstly to determine whether for accounting purposes the entity is a variable interest entity or voting interest entity. If the entity is a variable interest entity we consolidate the financial statements of that entity if we are the primary beneficiary of the entities’ activities. If the entity is a voting interest entity we consolidate the entity when we have a majority of voting interests. All inter-company balances are eliminated upon consolidation.

(c)   Correction of Immaterial Errors – Consolidated Financial Statements:  

During the second quarter of 2016 the Company determined that its financial statements for the years ended December 31, 2015, 2014 and 2013 and for prior years and for the quarter ended March 31, 2016 contained errors resulting from the incorrect accounting for equipment purchased with in-place leases. The Company previously did not identify, measure and account for maintenance rights acquired.   The Company’s accounting policy for maintenance rights is described below as note 1(d).  Management evaluated the materiality of the errors described above from a qualitative and quantitative perspective in accordance with the requirements of the Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 99, Materiality (SAB 99).  Based on such evaluation, we have concluded that these corrections would not be material to any individual prior period and have corrected such balances herein.

The associated correcting entries were recorded in the respective period starting with the opening consolidated balance sheet of December 31, 2015.  The Consolidated Balance Sheet as of December 31, 2015 presented herein has been revised as follows: decrease in Equipment Held for Operating Lease by $13.7 million, increase in Maintenance Rights by $12.1 million, decrease in Deferred Income Taxes by $0.6 million and decrease in retained earnings by $1.1 million as of December 31, 2015.

8

The adjustments to the previously reported Consolidated Statement of Income for the three and nine month periods ending September 30, 2015 were as follows: a decrease in Maintenance Reserve Revenue of nil and $1.7 million, respectively;  a decrease in Gain on Sale of Leased Equipment of nil and $34,000, respectively;  an increase (decrease) in Depreciation and Amortization expense of $13,000 and ($72,000), respectively; and a decrease in Income Tax Expense of $15,000 and $0.5 million, a decrease in net income of $26,000 and $1.0 million, respectively; and a decrease in basic and diluted earnings per share of nil and $0.12, respectively.

The adjustments to the previously reported Consolidated Statement of cash flows for the nine month periods ending September 30, 2015 were as follows: a decrease in cash provided by operating income of $1.7 million; and a decrease in the cash used by investing activities of $1.7 million.

There were other immaterial out of period adjustments recorded that affected lease rent revenue, spare part sales revenue and expense and general and administrative expenses for the nine month months ended September 30, 2016 and 2015.

(d) Maintenance rights

We identify, measure and account for maintenance right assets and liabilities associated with acquisitions of equipment with in-place leases. A maintenance right asset represents the fair value of the contractual right under a lease to receive equipment in an improved maintenance condition as compared to the maintenance condition on the acquisition date. A maintenance right liability represents the Company's obligation to pay the lessee for the difference between the lease-end contractual maintenance condition of the equipment and the actual maintenance condition of the equipment on the acquisition date.  The equipment condition at the end of the lease term may result in either overhaul work being performed by the lessee to meet the required return condition or a financial settlement.

When a capital event is performed on the equipment by the lessee, which satisfies their maintenance right obligation, the maintenance rights are added to the equipment basis and depreciated to the next capital event.  When equipment is sold before the end of the pre-existing lease, the maintenance rights are applied against any accumulated maintenance reserves, if paid by the lessee, and the remaining balance is applied to the disposition gain or loss.  When a lease terminates, an end of lease true-up is performed and the maintenance right is applied against the accumulated maintenance reserves or, for non-reserve lessees the final settlement payment, and any remaining net maintenance right is recorded in the income statement.

Maintenance right assets were $16.8 million and $12.1 million as of September 30, 2016 and December 31, 2015, respectively.

(e)    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. We use a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, 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.

9

Assets Measured and Recorded at Fair Value on a Nonrecurring Basis

We determine 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 during the nine months ended September 30, 2016 and 2015, and the losses recorded during the nine months ended September 30, 2016 and 2015 on those assets:

	Assets at Fair Value																Total Losses
	September 30, 2016								September 30, 2015								Nine Months Ended September 30,
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		2016		2015
	(in thousands)																(in thousands)
Equipment held for lease	$	337	$	—	$	337	$	—	$	1,555	$	—	$	1,555	$	—	$	(1,893)	$	(1,936)
Equipment held for sale		589		—		589		—		7,477		—		7,477		—		(3,556)		(6,644)
Spare parts inventory		1,731		—		1,731		—		—		—		—		—		(475)		—
Total	$	2,657	$	—	$	2,657	$	—	$	9,032	$	—	$	9,032	$	—	$	(5,924)	$	(8,580)

At September 30, 2016, the Company used Level 2 inputs to measure equipment held for sale.  Level 2 inputs include quoted prices for similar assets in inactive markets.

An impairment charge is recorded when the carrying value of the asset exceeds its fair value. A write-down of equipment totaling $5.9 million was recorded during the nine months ended September 30, 2016, of which $2.0 million was recorded due to a management decision to consign one engine for part-out and sale, in which the asset’s net book value exceeded the estimated proceeds.  An additional asset write-down of $2.0 million was recorded in the nine months ended September 30, 2016 based upon a comparison of the asset net book values with the revised net proceeds expected from part sales arising from consignment of the parts.A further writedown of $1.9 million was recorded due to the adjustment of the carrying value for an impaired engine within the portfolio to reflect estimated market value.  

A write-down of equipment totaling $5.5 million was recorded in the nine month period ended September 30, 2015 due to a management decision to consign four engines for part-out and sale, in which the assets net book value exceeds the estimated proceeds from part-out. A further write-down of equipment totaling $3.1 million was recorded in the three months ended September 30, 2015 to adjust the carrying value of engine parts held on consignment for which market conditions for the sale of parts has changed.

(f)    Reclassifications:

Reclassifications have been made to our consolidated financial statements for the prior periods to conform to classifications used during the three and nine months ended September 30, 2016. 

(g)    Foreign Currency Translation:

The Company’s foreign investments have been converted at rates of exchange at September 30, 2016. The changes in exchange rates in our foreign investments reported under the equity method are included in stockholders’ equity as accumulated other comprehensive income.

10

(h)    Recent Accounting Pronouncements:

In March 2016, the FASB issued ASU  No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The update to the standard is effective for the Company beginning January 1, 2017, with early application permitted. The Company is currently evaluating the impact that the guidance will have on the Consolidated Financial Statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (topic 842).  Under the new standard, the accounting for leases by lessors would basically remain unchanged from the existing concepts in ASC 840, Leases. In addition, FASB has decided that lessors would be precluded from recognizing selling profit and revenue at lease commencement for any sales-type or direct finance lease that does not transfer control of the underlying asset to the lessee. The standard will be effective for public business entities for annual periods (including interim periods), beginning after December 15, 2018, and early adoption will be permitted. The Company is currently evaluating the potential impact the adoption of the standard will have on its consolidated financial condition, results of operations or cash flows.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which simplifies the measurement of inventory by requiring certain inventory to be measured at the lower of cost or net realizable value. The amendments in this ASU are effective for fiscal years beginning after December 15, 2016 and for interim periods therein. We are evaluating the impact that this new guidance will have on our consolidated financial position.

In April 2015, the FASB issued ASU. 2015-03, "Simplifying the Presentation of Debt Issuance Costs".  ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with the accounting treatment for debt discounts. We have adopted ASU 2015-03 during the nine-month period ended September 30, 2016. Other assets and Long-term debt, net of discount have been revised as of December 31, 2015 to reflect the retroactive reclassification of $12.6 million of debt issuance costs that have been reclassified from Other assets to Notes payable.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes previous revenue recognition guidance. The new standard requires that a company recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. Companies will need to use more judgment and estimates than under the guidance currently in effect, including estimating the amount of variable revenue to recognize over each identified performance obligation. Additional disclosures will be required to help users of financial statements understand the nature, amount and timing of revenue and cash flows arising from contracts. In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). Early adoption is permitted to the original effective date of December 15, 2016 (including interim reporting periods within those periods). The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.

2.  Management Estimates

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

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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 our estimates, including those related to residual values, estimated asset lives, impairments, maintenance rights and bad debts. We base our estimates 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.

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.  Investments

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 (“WMES”) for the purpose of acquiring and leasing jet engines. Each partner holds a fifty percent interest in the joint venture and the Company uses the equity method in recording investment activity. The investment has increased to $31.4 million as of September 30, 2016 as a result of the Company making $5.5 million in capital contributions to WMES, receiving $1.2 million in distributions, recording $1.2 million as deferred gain as a result of the Company selling four engines to WMES and the Company’s share of WMES reported income of $0.9 million during the nine months ended September 30, 2016.

On June 3, 2014 we entered into an agreement with China Aviation Supplies Import & Export Corporation Limited (“CASC”) to participate in a joint venture named CASC Willis Engine Lease Company Limited (“CASC Willis”), a new joint venture based in Shanghai, China. Each partner holds a fifty percent interest in the joint ventureand the Company uses the equity method in recording investment activity. In October 2014, each partner made a $15.0 million initial capital contribution representing the up-front funding for the new joint venture.  The new company will acquire and lease jet engines to Chinese airlines and will concentrate on meeting the fast growing demand for leased commercial aircraft engines and aviation assets in the People’s Republic of China.   The investment has decreased to $11.9 million as of September 30, 2016 as a result of a foreign currency translation adjustment of $2.0 million and by the Company’s share of CASC Willis reported loss of $0.1 million during the nine months ended September 30, 2016.         

Nine Months Ended September 30, 2016	WMES		CASC		Total
	(in thousands)
Investment in joint ventures as of December 31, 2015	$	27,272	$	14,023	$	41,295
Capital contribution		5,545		—		5,545
Earnings from joint venture		929		(55)		874
Deferred gain on engine sale		(1,212)		—		(1,212)
Distribution		(1,167)		—		(1,167)
Foreign currency translation adjustment		—		(2,021)		(2,021)
Investment in joint ventures as of September 30, 2016	$	31,367	$	11,947	$	43,314

“Other revenue” on the Consolidated Statement of Income includes management fees earned of $0.5 million and $0.4 million during the three months ended September 30, 2016 and 2015, respectively, related to the

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servicing of engines for the WMES lease portfolio.   “Other revenue” on the Consolidated Statement of Income includes management fees earned of $1.3 million and $1.2 million during the nine months ended September 30, 2016 and 2015, respectively, related to the servicing of engines for the WMES lease portfolio.   “Gain on sale of leased equipment” on the Consolidated Statement of Income includes $1.2 million for the nine months ended September 30, 2016 related to the sale of four engines to WMES for $46.1 million.  As 50% owners of WMES, we deferred an incremental $1.2 million gain to our investment which is being amortized over a 15-year period to a 55% residual value. 

Summarized financial information for 100% of WMES is presented in the following tables:

	Three Months Ended September 30,
	2016		2015
	(in thousands)
Revenue	$	8,549	$	7,067
Expenses		7,496		6,302
WMES net income	$	1,053	$	765
	Nine Months Ended September 30,
	2016		2015
	(in thousands)
Revenue	$	25,547	$	19,997
Expenses		23,886		18,052
WMES net income	$	1,661	$	1,945
		September 30,		December 31,
		2016		2015
	(in thousands)
Total assets	$	292,412	$	256,126
Total liabilities		221,127		195,258
Total WMES net equity	$	71,285	$	60,868

4.  Notes Payable

Notes payable consisted of the following:

	September 30,		December 31,
	2016		2015
	(in thousands)
Credit facility at a floating rate of interest of LIBOR plus 2.75%, secured by engines. The facility has a committed amount of $890.0 million at September 30, 2016, which revolves until the maturity date of April 2021.	$	588,000	$	549,000
WEST II Series 2012-A term notes payable at a fixed rate of interest of 5.50%, maturing in September 2037. Secured by engines.		284,549		300,467
Note payable at fixed interest rates ranging from 2.60% to 2.97%, maturing in July 2024. Secured by an aircraft.		14,879		16,135
Note payable at a variable interest rate of LIBOR plus 2.25%, maturing in January 2018. Secured by engines.		12,052		13,082

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Notes payable		899,480		878,684
Less: unamortized debt issuance costs		(13,837)		(12,595)
Total notes payable	$	885,643	$	866,089

We maintain a revolving credit facility to finance the acquisition of aircraft engines for lease as well as for general working capital purposes.  On April 20, 2016 we entered into a Third Amended and Restated Credit Agreement which increased the revolving credit facility to $890.0 million from $700.0 million and extended the term to April 2021.  This $890 million revolving credit facility has an accordion feature which would expand the entire credit facility up to $1 billion.  The initial interest rate on the facility is LIBOR plus 2.75%.  The interest rate is adjusted quarterly, based on the Company’s leverage ratio, as calculated under the terms of the revolving credit facility.

For further information on our debt instruments, see the "Notes Payable" note in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2015.

The following is a summary of the aggregate maturities of our long-term debt at September 30, 2016:

Year	(in thousands)
2016	$	5,777
2017		23,624
2018		33,294
2019		23,430
2020		23,031
Thereafter		790,324
	$	899,480

5.  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, available in the form of either restricted stock or stock options.  On May 28, 2015, the Company’s shareholders authorized an increase in the number of shares of Common Stock available for grant by 800,000 shares bringing the total to 2,800,000 shares authorized.  2,400,357 shares of restricted stock were granted under the 2007 Stock Incentive Plan by September 30, 2016. Of this amount, 155,579 shares of restricted stock were cancelled and returned to the pool of shares which could be granted under the 2007 Stock Incentive Plan resulting in a net number of 555,222 shares which were available as of September 30, 2016 for future issuance under the 2007 Incentive Plan. The fair value of the restricted stock awards equaled the stock price at the date of grants.  The following table summarizes restricted stock activity during the year ended December 31, 2015 and the nine months ended September 30, 2016.

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	Shares
Restricted stock at December 31, 2014	525,356
Granted in 2015 (vesting over 3 years)	125,000
Granted in 2015 (vesting over 4 years)	5,000
Granted in 2015 (vesting on first anniversary from date of issuance)	16,440
Vested in 2015	(275,201)
Restricted stock at December 31, 2015	396,595
Granted in 2016 (vesting over 1 year)	18,395
Granted in 2016 (vesting over 2 years)	20,000
Granted in 2016 (vesting over 3 years)	75,000
Granted in 2016 (vesting over 4 years)	23,250
Vested in 2016	(146,190)
Cancelled in 2016	(20,211)
Restricted stock at September 30, 2016	366,839

All cancelled shares have returned 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. At September 30, 2016, the stock compensation expense related to the restricted stock awards that will be recognized over the average remaining vesting period of 1.6 years totals $4.7 million. At September 30, 2016, the intrinsic value of unvested restricted stock awards is $8.7 million. The 2007 Plan terminates on May 24, 2017.

6.  Income Taxes

Income tax expense for the three and nine months ended September 30, 2016 was $2.5 million and $8.0 million, respectively.  Income tax expense for the three and nine months ended September 30, 2015 was $2.1 million and $2.6 million respectively.  The effective tax rates for the three month and nine months ended September 30, 2016 were 38.7% and 41.3%, respectively.  The effective tax rate for the three and nine months ended September 30, 2015 was 45.2% and 43.6%, respectively. The decrease in the effective tax rate was primarily due to the impact of the IRS code 162(m) calculation for executive compensation for the three months ended September 30, 2016.

The Company records tax expense or benefit for unusual or infrequent items discretely in the period in which they occur.  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.

7.  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, 2016 and December 31, 2015 was estimated to have a fair value of approximately $877.8 million and $890.1 million, respectively, based on the fair value of estimated future payments calculated using the prevailing interest rates at each period end.

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8. Operating Segments

The Company operates in two business segments: (i) Leasing and Related Operations which involves acquiring and leasing, primarily pursuant to operating leases, commercial aircraft, aircraft engines and other aircraft equipment and the selective purchase and resale of commercial aircraft engines and other aircraft equipment and (ii) Spare Parts Sales which involves the purchase and resale of after-market engine and airframe parts, whole engines, engine modules and portable aircraft components and leasing of engines destined for disassembly and sale of parts.

The Company evaluates the performance of each of the segments based on profit or loss after general and administrative expenses and inter-company allocation of interest expense. While the Company believes there are synergies between the two business segments, the segments are managed separately because each requires different business strategies.

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The following tables present a summary of the operating segments (amounts in thousands):

	Leasing and
For the three months ended September 30, 2016	Related Operations		Spare Parts Sales		Eliminations (1)		Total
Revenue:
Lease rent revenue	$	31,270	$	—	$	—	$	31,270
Maintenance reserve revenue		14,229		—		—		14,229
Spare parts and equipment sales		900		3,260		—		4,160
Gain on sale of leased equipment		180		—		—		180
Other revenue		1,487		786		(651)		1,622
Total revenue		48,066		4,046		(651)		51,461
Expenses:
Depreciation and amortization expense		16,541		87		—		16,628
Cost of spare parts and equipment sales		640		2,426		—		3,066
General and administrative		11,500		757		—		12,257
Net finance costs		10,116		114		—		10,230
Other expense		2,934		475		—		3,409
Total expenses		41,731		3,859		—		45,590
Earnings from operations	$	6,335	$	187	$	(651)	$	5,871
	Leasing and
For the nine months ended September 30, 2016	Related Operations		Spare Parts Sales		Eliminations (1)		Total
Revenue:
Lease rent revenue	$	88,727	$	—	$	—	$	88,727
Maintenance reserve revenue		45,562		—		—		45,562
Spare parts and equipment sales		1,800		8,665		—		10,465
Gain on sale of leased equipment		3,430		—		—		3,430
Other revenue		3,392		1,734		(1,512)		3,614
Total revenue		142,911		10,399		(1,512)		151,798
Expenses:
Depreciation and amortization expense		48,981		254		—		49,235
Cost of spare parts and equipment sales		1,288		6,497		—		7,785
General and administrative		32,438		2,256		—		34,694
Net finance costs		30,443		329		—		30,772
Other expense		10,362		475		—		10,837
Total expenses		123,512		9,811		—		133,323
Earnings from operations	$	19,399	$	588	$	(1,512)	$	18,475
(1) Represents revenue generated between our  operating segments

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	Leasing and
For the three months ended September 30, 2015	Related Operations		Spare Parts Sales		Eliminations (1)		Total
Revenue:
Lease rent revenue	$	28,055	$	—	$	—	$	28,055
Maintenance reserve revenue		16,119		—		—		16,119
Spare parts and equipment sales		4,600		4,533		—		9,133
Gain on sale of leased equipment		3,804		—		—		3,804
Other revenue		597		135		(113)		619
Total revenue		53,175		4,668		(113)		57,730
Expenses:
Depreciation and amortization expense		17,035		67		—		17,102
Cost of spare parts and equipment sales		2,461		3,458		—		5,919
General and administrative		10,948		794		—		11,742
Net finance costs		9,707		98		—		9,805
Other expense		9,068		—		—		9,068
Total expenses		49,219		4,417		—		53,636
Earnings from operations	$	3,956	$	251	$	(113)	$	4,094
	Leasing and
For the nine months ended September 30, 2015	Related Operations		Spare Parts Sales		Eliminations (1)		Total
Revenue:
Lease rent revenue	$	79,197	$	—	$	—	$	79,197
Maintenance reserve revenue		39,035		—		—		39,035
Spare parts and equipment sales		5,450		9,550		—		15,000
Gain on sale of leased equipment		7,666		—		—		7,666
Other revenue		1,796		531		(349)		1,978
Total revenue		133,144		10,081		(349)		142,876
Expenses:
Depreciation and amortization expense		52,179		211		—		52,390
Cost of spare parts and equipment sales		3,081		7,138		—		10,219
General and administrative		28,751		2,075		—		30,826
Net finance costs		27,789		292		—		28,081
Other expense		16,416		—		—		16,416
Total expenses		128,216		9,716		—		137,932
Earnings from operations	$	4,928	$	365	$	(349)	$	4,944
(1) Represents revenue generated between our  operating segments
Total assets as of September 30, 2016	$	1,266,245	$	25,083	$	—	$	1,291,328
Total assets as of December 31, 2015	$	1,267,414	$	26,871	$	—	$	1,294,285

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9.  Subsequent Events

Preferred Stock

On October 11, 2016, the Company entered into a Stock Purchase Agreement with Development Bank of Japan Inc., relating to the sale and issuance of an aggregate of 1,000,000 shares of the Company’s 6.5% Series A Preferred Stock, $0.01 par value per share (the “Series A Preferred Stock”) at a purchase price of $20.00 per share.

The Series A Preferred Stock carries a quarterly dividend at the rate per annum of 6.5% per share, with a $20.00 liquidation preference per share. The purchase and sale of the Series A Preferred Stock closed on October 14, 2016 and the first dividend is expected to be paid on January 16, 2017. The net proceeds to the Company after deducting investor fees were $19.8 million.

Total Engine Support Limited Acquisition

On October 26, 2016, the Company announced the purchase of the business and assets of Total Engine Support Limited (“TES”).  TES has been the engine management and consulting business of the TES Aviation Group. TES has approximately 500 engines under management.Pro forma results of operations for this acquisition have not been presented because it was not material to the consolidated results of operations.

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”).  In 2013, we launched Willis Aeronautical Services, Inc. (“Willis Aero”), a wholly-owned subsidiary, whose primary focus is the sale of aircraft engine parts and materials through the acquisition or consignment of aircraft and engines from third parties.

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 2015 Form 10-K.

Results of Operations

Three months ended September 30, 2016, compared to the three months ended September 30, 2015:

Lease Rent Revenue. Lease rent revenue for the three months ended September 30, 2016 increased 11.5% to $31.3 million from the comparable period in 2015. This increase reflects an increase in our net book value of leased equipmentas well as an increase in lease rate factor on our leased equipment in the current period, which translated into higher lease rent revenue. The aggregate net book value of lease equipment at September 30, 2016 and 2015 was $1,118.2 million and $1,087.6 million, respectively, an increase of 2.8%. The average utilization for the three months ended September 30, 2016 and 2015 was 91% and 91%, respectively. At September 30, 2016 and 2015, approximately 92% and 92%, respectively, of equipment held for lease by book value was on lease.

During the three months ended September 30, 2016, we added $44.4 million of equipment and capitalized costs to the lease portfolio. During the three months ended September 30, 2015, we added $54.1 million of equipment and capitalized costs to the lease portfolio.

Maintenance Reserve Revenue. Our maintenance reserve revenue for the three months ended September 30, 2016 decreased 11.7% to $14.2 million from $16.1 million for the comparable period in 2015. $2.3 million of the

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decrease was due to lower maintenance reserve revenues as three engines came off lease generating $2.0 million of long term maintenance revenues compared to $4.3 million of long term maintenance revenues generated in the comparable prior period by two engines coming off long term lease.  This was partially offset by an increase of $0.4 million in short term maintenance revenue reflecting increased usage of engines under lease resulting from higher portfolio utilization in the three months ended September 30, 2016 than in the year ago period. 

Spare Parts and Equipment Sales. Spare parts and equipment sales for the three months ended September 30, 2016 were $4.2 million, a $5.0 million decrease as  compared to $9.1 million for the three months ended September 30 2015.  Equipment sales were $0.9 million for the three months ended September 30, 2016 reflecting the sale of one airframe as compared to equipment sales of $4.6 million for the three months ended September 30, 2015 reflecting the sale of one airframe.  Spare parts sales for the three months ended September 30, 2016 were $2.8 million compared to $2.9 million in the comparable period in 2015.

Gain on Sale of Leased Equipment. During the three months ended September 30, 2016, we sold one engine and other related equipment generating a net gain of $0.2 million. During the three months ended September 30, 2015, we sold one engine and sold other related equipment generating a net gain of $3.8 million.

Other Revenue. Our other revenue consists of management fee income, lease administration fees, foreign operation subsidies and third party consignment commissions earned by Willis Aero.  Other revenue increased to $1.6 million from $0.6 million for the comparable period in 2015 due to an increase in fees earned related to engines managed on behalf of third parties as well as $0.6 million foreign subsidy recognized in the period.  The foreign subsidy was received from the People’s Republic of China resulting from our China subsidiary operating in the Shanghai free trade zone.

Depreciation and Amortization Expense. Depreciation and amortization expense decreased 2.8% to $16.6 million for the three months ended September 30, 2016 from $17.1 million in the comparable period in 2015, due to a change in the portfolio mix, and the related depreciation, associated with our ongoing portfolio management efforts.  As of July 1, 2016, we adjusted the depreciation for certain older engine types. It is our policy to review estimates regularly to reflect the cost of equipment over the useful life of these engines. The 2016 change in depreciation estimate increased depreciation expense by $0.7 million for the three months ended September 30, 2016.

Cost of Spare Parts and Equipment Sales. Cost of spare parts and equipment sales were $3.1 million and $5.9 million for the three months ended September 30, 2016 and 2015, respectively. Cost of equipment sales were $0.6 million and $3.1 million for the three months ended September 30, 2016 and 2015, respectively.   Cost of spare parts sales for the three months ended September 30, 2016 were $2.4 million compared to $3.5 million in the comparable period in 2015.   Gross margin on parts sales for the three months ended September 30, 2016 quarter was 25.6% compared to 23.7% for the comparable period in 2015 primarily due to a change in the mix of parts sold in 2016.

Write-down of Equipment.   Write-down of equipment was $2.0 million and $5.5 million in the three months ended September 30, 2016 and 2015, respectively.  A writedown of $2.0 million was recorded in the three months ended September 30, 2016 to adjust the carrying value of engine parts held on consignment for which market conditions for the sale of parts has changed.

A write-down of equipment totaling $2.5 million was recorded in the three months ended September 30, 2015 due to a management decision to consign two engines for part-out and sale, in which the assets’ net book value exceeded the estimated proceeds. A further write-down of equipment totaling $3.0 million was recorded in the three months ended September 30, 2015 to adjust the carrying value of engine parts held on consignment for which market conditions for the sale of parts has changed.

General and Administrative Expenses. General and administrative expenses increased 4.4% to $12.3 million for the three months ended September 30, 2016, from $11.7 million in the comparable period in 2015, due primarily

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to a higher contingency bonus accrual of $0.6 million, when compared to the prior period, resulting from improved operating profits.

Technical Expense. Technical expenses consist of the cost of engine repairs, engine thrust rental fees, outsourced technical support services, engine storage and freight costs. These expenses decreased 60.4% to $1.4 million for the three months ended September 30, 2016 compared to the year ago period due to lower engine maintenance expense ($1.8 million) due to lower engine shop visits, and lower thrust lease rental fees ($0.3 million) and reduced engine freight expense ($0.1 million) due to less engines off lease.

Net Finance Costs. Net finance costs increased 4.3% to $10.2 million for the three months ended September 30, 2016, from $9.8 million in the comparable period in 2015, due primarily to higher interest expense due to higher average debt balances in the current quarter compared to the year ago period. The average notes payable balances at September 30, 2016 and 2015, were $891.9 million and $860.1 million, respectively, an increase of 3.7%. As of September 30, 2016, $600.1 million of our debt is tied to one-month U.S. dollar LIBOR which increased from an average of 0.1% for the three months ended September 30, 2015 to an average of 0.51% for the three months ended September 30, 2016 (average of month-end rates). As of September 30, 2016 and 2015, one-month LIBOR was 0.53% and 0.19%, respectively.

Income Tax Expense. Income tax expense for the three months ended September 30, 2016 and 2015 was $2.5 million and $2.1 million, respectively. The effective tax rates for the three months ended September 30, 2016 and 2015 were 38.7% and 45.2%, respectively.  This decrease was due to lower forecasted permanent non-deductible expenses for executive compensation (IRS code 162(m) calculation) during the three months ended September 30, 2016.

The Company records tax expense or benefit for unusual or infrequent items discretely in the period in which they occur. 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, 2016, compared to the nine months ended September 30, 2015:

Lease Rent Revenue. Lease rent revenue for the nine months ended September 30, 2016 increased 12.0% to $88.7 million from the comparable period in 2015. This increase primarily reflects a higher average portfolio utilization in the current period, which translated into a higher percentage of lease rent revenue earning assets. The aggregate net book value of lease equipment at September 30, 2016 and 2015 was $1,118.2 million and $1,087.6 million, respectively, an increase of 2.8%. The average utilization for the nine months ended September 30, 2016 and 2015 was 90% and 85%, respectively. At September 30, 2016 and 2015, approximately 92% and 92%, respectively, of equipment held for lease by book value was on lease.

During the nine months ended September 30, 2016, we added $108.6 million of equipment and capitalized costs to the lease portfolio. During the nine months ended September 30, 2015, we added $124.8 million of equipment and capitalized costs to the lease portfolio.

Maintenance Reserve Revenue. Our maintenance reserve revenue for the nine months ended September 30, 2016 increased 16.7% to $45.6 million from $39.0 million for the comparable period in 2015. The increase was due to both higher utilization, driving a $4.7 million increase in short term maintenance revenues as well as $1.8 million of higher maintenance reserve revenues related to the termination of long term leases in the nine months ended September 30, 2016 than in the year ago period. 

Spare Parts and Equipment Sales. Spare parts and equipment sales for the nine months ended September 30, 2016 were $10.5 million compared to $15.0 million in the comparable period in 2015.  Equipment sales were $1.8 million for the sale of two airframes during the nine months ended September 30, 2016.  Equipment sales were $5.5 million for the sale of one airframe and one engine for the nine months ended September 30, 2015.   Spare

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parts sales for the nine months ended September 30, 2016 were $8.7 million compared to $9.6 million in the comparable period in 2015. 

Gain on Sale of Leased Equipment. During the nine months ended September 30, 2016, we sold one airframe, seven engines and other related equipment generating a net gain of $3.4 million. During the nine months ended September 30, 2015, we sold one engine and sold other related equipment generating a net gain of $7.7 million.

Other Revenue. Our other revenue consists primarily of management fee income, lease administration fees, foreign operation subsidies and third party consignment commissions earned by Willis Aero.  Other revenue increased to $3.6 million from $2.0 million for the comparable period in 2015 due to an increase in fees earned related to engines managed on behalf of third partiesas well as a $0.6 million foreign subsidy recognized in the period.The foreign subsidy was received from the People’s Republic of China resulting from our China subsidiary operating in the Shanghai free trade zone.

Depreciation and Amortization Expense. Depreciation and amortization expense decreased 6.0% to $49.2 million for the nine months ended September 30, 2016 from $52.4 million in the comparable period in 2015, due to a change in portfolio mix,and the related depreciation, associated with our ongoing portfolio management efforts.    As of July 1, 2016, we adjusted the depreciation for certain older engine types. It is our policy to review estimates regularly to reflect the cost of equipment over the useful life of these engines. The 2016 change in depreciation estimate increased depreciation expense by $0.7 million for the nine months ended September 30, 2016.

Cost of Spare Parts and Equipment Sales. Cost of spare parts and equipment sales was $7.8 million for the nine months ended September 30, 2016 compared to $10.2 million for the comparable period in 2015. Cost of equipment sales was $1.3 million and $3.1 million in the nine months ended September 30, 2016 and 2015, respectively.   Cost of spare parts sales for the nine months ended September 30, 2016 were $6.5 million compared to $7.1 million in the comparable period in 2015.   Gross margin on parts sales for the nine months ended September 30, 2016 quarter was 25.2% compared to 25.3% for the comparable period in 2015 primarily due to a change in the mix of parts sold in 2016.

Write-down of Equipment.   Write-down of equipment was $5.9 million and $8.6 million in the nine months ended September 30, 2016 and 2015, respectively.  A write-down of equipment totaling $2.0 million was recorded in the nine months ended September 30, 2016 due to a management decision to consign one engine for part-out and sale, in which the asset’s net book value exceeded the estimated proceeds.  A further writedown of $1.9 million was recorded due to the adjustment of the carrying value for an impaired engine within the portfolio to reflect estimated market value.   An additional writedown of $2.0 million was recorded in the nine months ended September 30, 2016 to adjust the carrying value of engine parts held on consignment for which market conditions for the sale of parts has changed.

A write-down of equipment totaling $5.6 million was recorded in the nine month period ended September 30, 2015 due to a management decision to consign four engines for part-out and sale, in which the assets net book value exceeds the estimated proceeds from part-out. A further write-down of equipment totaling $3.0 million was recorded in the three months ended September 30, 2015 to adjust the carrying value of engine parts held on consignment for which market conditions for the sale of parts has changed.

General and Administrative Expenses. General and administrative expenses increased 12.5% to $34.7 million for the nine months ended September 30, 2016, from $30.8 million in the comparable period in 2015, due primarily to higher  contingency bonus accrual ($2.5 million) resulting from improved operating profits, increased legal expense ($0.9 million), and higher salary expense ($0.9 million) due to increased head count.

Technical Expense. Technical expenses consist of the cost of engine repairs, engine thrust rental fees, outsourced technical support services, engine storage and freight costs. These expenses decreased 37.3% to $4.9 million for the nine months ended September 30, 2016 compared to the year ago period due to lower engine

22

maintenance expense ($1.8 million) due to reduced engine shop visits, lower engine thrust rental fees ($0.6 million), and lower engine technical services expense ($0.4 million) due to decreased engine returns.

Net Finance Costs. Net finance costs increased 9.6% to $30.8 million for the nine months ended September 30, 2016, from $28.1 million in the comparable period in 2015, due primarily to a gain on the extinguishment of debt of $1.2 million recorded during the nine months ended September 30, 2015 and higher interest expense due to higher average debt balances in the nine months ended September 30, 2016 compared to the year ago period. The average notes payable balances at September 30, 2016 and 2015, were $885.6 million and $851.0 million, respectively, an increase of 4.1%. As of September 30, 2016, $600.1 million of our debt is tied to one-month U.S. dollar LIBOR which increased from an average of 0.18% for the nine months ended September 30, 2015 to an average of 0.47% for the nine months ended September 30, 2016 (average of month-end rates). As of September 30, 2016 and 2015, one-month LIBOR was 0.53% and 0.19%, respectively.

Income Tax Expense. Income tax expense for the nine months ended September 30, 2016 and 2015 was $8.0 million and $2.6 million, respectively. The effective tax rates for the nine months ended September 30, 2016 and 2015 were 41.3% and 43.6%, respectively.  This decrease was due to lower forecasted permanent non-deductible expenses for executive compensation (IRS code 162(m) calculation) during the nine months ended September 30, 2016.

Liquidity and Capital Resources

We finance our growth through borrowings secured by our equipment lease portfolio. Cash of approximately $87.0 million and $140.7 million in the nine-month periods ended September 30, 2016 and 2015, respectively, was derived from this activity. In these same time periods, $66.2 million and $128.3 million, respectively, was used to pay down related debt. Cash flow from operating activities was $68.9 million and $67.6 million in the nine-month periods ended September 30, 2016 and 2015, respectively.

At September 30, 2016, $5.6 million in cash and cash equivalents and restricted cash were held in foreign subsidiaries. We do not intend to repatriate the funds held in foreign subsidiaries to the United States. In the event that we decide to repatriate these funds to the United States, we would be required to accrue and pay taxes upon the repatriation.

Our primary use of funds is for the purchase of equipment for lease. Purchases of equipment (including capitalized costs) totaled $113.2 million and $138.0 million for the nine-month periods ended September 30, 2016 and 2015, respectively.

Cash flows from operations are driven significantly by payments made under our lease agreements, which comprise lease rent revenue, security deposits and maintenance reserves, and are offset by net finance costs and general and administrative costs. Note that cash received from maintenance reserve arrangements for some of our engines on lease are restricted per our WEST II debt agreement. Cash from WEST II engine maintenance reserve payments, that can be used to fund future maintenance events, are held in the restricted cash account equal to the maintenance obligations projected for the subsequent nine months, and are subject to a minimum balance of $9.0 million. The lease revenue stream, in the short-term, is at fixed rates while a portion of our debt is at variable rates. If interest rates increase, it is unlikely we could increase lease rates in the short term and this would cause a reduction in our earnings and operating cash flows. Lease rent revenue and maintenance reserves are also affected by the amount of equipment off-lease. Approximately 92% and 90%, by book value, of our assets were on lease at September 30, 2016 and December 31, 2015, respectively. The average utilization rate was 90% and 85% for the nine-month periods ended September 30, 2016 and September 30, 2015, respectively.  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.

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Notes payable consisted of the following:

	September 30,		December 31,
	2016		2015
	(in thousands)
Credit facility at a floating rate of interest of LIBOR plus 2.75%, secured by engines. The facility has a committed amount of $890.0 million at September 30, 2016, which revolves until the maturity date of April 2021.	$	588,000	$	549,000
WEST II Series 2012-A term notes payable at a fixed rate of interest of 5.50%, maturing in September 2037. Secured by engines.		284,549		300,467
Note payable at fixed interest rates ranging from 2.60% to 2.97%, maturing in July 2024. Secured by an aircraft.		14,879		16,135
Note payable at a variable interest rate of LIBOR plus 2.25%, maturing in January 2018. Secured by engines.		12,052		13,082
Notes payable		899,480		878,684
Less: unamortized debt issuance costs		(13,837)		(12,595)
Total notes payable	$	885,643	$	866,089

We have a revolving credit facility to finance the acquisition of aircraft engines for lease as well as for general working capital purposes.  On April 20, 2016 we entered into a Third Amended and Restated Credit Agreement which increased the revolving credit facility to $890.0 million from $700.0 million and extended the term to April 2021.    This $890 million revolving credit facility has an accordion feature which would expand the entire credit facility up to $1 billion.  The initial interest rate on the facility is LIBOR plus 2.75%.  Quarterly, the interest rate is adjusted based on the Company’s leverage ratio, as calculated under the terms of the revolving credit facility.

Virtually all of the above debt is subject to our ongoing compliance 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 up to 85% of an engine’s net book value and 65% of spare part’s net book value. 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 against other facilities. If we do not comply with the covenants or eligibility requirements, we may not be permitted to borrow additional funds and accelerated payments may become necessary. Additionally, much of the above debt is secured by engines to the extent that engines are sold, repayment of that portion of the debt could be required.

At September 30, 2016, we are in compliance with the covenants specified in the revolving credit facility, including the Interest Coverage Ratio requirement of at least 2.25 to 1.00, and the Total Leverage Ratio requirement to remain below 4.25 to 1.00. As defined in the revolving credit facility Credit Agreement, the Interest Coverage Ratio is the ratio of Earnings before Interest, Taxes, Depreciation and Amortization and other one-time charges (EBITDA) to Consolidated Interest Expense and the Total Leverage Ratio is the ratio of Total Indebtedness to Tangible Net Worth. At September 30, 2016, we are in compliance with the covenants specified in the WEST II indenture and servicing agreement.

For further information on our debt instruments, see the "Notes Payable" note in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2015.

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Approximately $23.5 million of our debt is repayable during the next 12 months. Such repayments consist of scheduled installments due under term loans. Repayments are funded by the use of unrestricted cash reserves and from cash flows from ongoing operations. The table below summarizes our contractual commitments at September 30, 2016:

			Payment due by period (in thousands)
			Less than						More than
	Total		1 Year		1-3 Years		3-5 Years		5 Years
Long-term debt obligations	$	899,480	$	23,455	$	57,013	$	634,145	$	184,867
Interest payments under long-term debt     obligations		132,575		36,620		63,948		22,487		9,520
Operating lease obligations		2,089		712		1,280		97		-
Total	$	1,034,144	$	60,787	$	122,241	$	656,729	$	194,387

We have estimated the interest payments due under long-term debt by applying the interest rates applicable at September 30, 2016 to the remaining debt, adjusted for the estimated debt repayments identified in the table above. Actual interest payments made will vary due to changes in leverage and in the rates for one-month LIBOR.

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, resulting from an increase in the amount of equipment off-lease or a decrease in availability under our existing debt facilities, would impair our ability to sustain our level of operations. We continually discuss additions to our capital base with our commercial and investment banks. If we are not able to access additional capital, our ability 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.

Cash flow provided from operating activities was $68.9 million and $67.6 million in the nine-month periods ended September 30, 2016 and 2015, respectively.  The increase was primarily due to the increase in net income and income from joint ventures.

Cash flow used by investing activities was $60.7 million and $105.4 million in the nine-month periods ended September 30, 2016 and 2015, respectively.  The decrease was primarily due to the increase in proceeds from the sale of equipment and change in restricted cash.

Cash flow provided (used) from financing activities was ($7.2 million) and $33.5 million in the nine-month periods ended September 30, 2016 and 2015, respectively.  The decrease was primarily due to the increase in the repurchase of common stock.

Recent Accounting Pronouncements

A discussion of recent accounting pronouncements is included in the Notes to Condensed Consolidated Financial Statements of this Form 10-Q in “Note 1. Summary of Significant Accounting Policies” under the heading "Recent Accounting Pronouncements" and is incorporated herein by reference.

Management of Interest Rate Exposure

At September 30, 2016, $600.1 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 result in a negative spread, between the rental revenue we realize under our leases and the interest rate that we pay under our borrowings. We periodically enter into interest rate derivative instruments to mitigate our exposure to interest rate risk and not to speculate or trade in these derivative products. We currently have no interest rate swap agreements in place.

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Item 3.Quantitative and Qualitative Disclosures about Market Risk

Our primary market risk exposure is that of interest rate risk. A change in LIBOR rates would affect our cost of borrowing. Increases in interest rates, 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. As of September 30, 2016, $600.1 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, our annual interest expense would increase or decrease $6.0 million.

We are also exposed to currency devaluation risk. Most of our leases require payment in U.S. dollars. During the nine months ended September 30, 2016, 90% of our lease rent revenues came from non-United States domiciled lessees.  If these lessees’ currency devalues against the U.S. dollar, the lessees could potentially encounter difficulty in making their lease payments.

No customer accounted for more than 10% of total lease rent revenue during the nine months ended September 30, 2016 and 2015.

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, 2016 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.

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(c) Issuer Purchases of Equity Securities. On September 27, 2012, the Company announced that its Board of Directors has authorized a plan to repurchase up to $100.0 million of its common stock over the next 5 years. The Board of Directors reaffirmed the repurchase plan on April 21, 2015.  This plan extends the previous plan authorized on December 8, 2009, and increases the number of shares authorized for repurchase to up to $100.0 million.

Common stock repurchases, under our authorized plan, in the three months ended September 30, 2016 were as follows:

							Approximate
					Total Number of		Dollar Value of
				Average	Shares Purchased		Shares that May
	Total Number of			Price	as Part of Publicly		Yet be Purchased
Period	Shares Purchased			per Share	Announced Plans		Under the Plans
	(in thousands, except per share data)
July 1, 2016 - July 31, 2016		—	$	—		—	$	39,444
August 1, 2016 - August 31, 2016		—	$	—		—	$	39,444
September 1, 2016 - September 30, 2016		116	$	22.63		116	$	36,821
Total		116	$	22.63		116	$	36,821

ITEM 5.OTHER INFORMATION

None

Item 6.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, (3) Amendment to Bylaws, dated September 28, 2010, and (4) Amendment to Bylaws, dated August 5, 2013 (incorporated by reference to Exhibit 3.1 to our report on Form 8-K filed on August 9, 2013).
4.1	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 our report on Form 8-K filed on October 4, 1999).
4.2	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).
4.3	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).
4.4	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).

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4.5	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 our report on 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	Amended and Restated 2007 Stock Incentive Plan (incorporated by reference to the Registrant’s Proxy Statement for 2015 Annual Meeting of Stockholders filed on April 28, 2015).
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 our report on 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 Scott B. Flaherty dated May 20, 2016 (incorporated by reference to Exhibit 10.1 to our report on Form 8-K filed on May 25, 2016).
10.8	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).
10.9	Employment Agreement between the Registrant and Dean M. Poulakidas dated March 31, 2013 (incorporated by reference to Exhibit 10.23 to our report on Form 8-K filed on June 19, 2013).
10.10*	Indenture dated as of September 14, 2012 among Willis Engine Securitization Trust II, Deutsche Bank Trust Company Americas, as trustee, the Registrant and Crédit Agricole Corporate and Investment Bank (incorporated by reference to Exhibit 10.14 to our report on Form 10-Q filed on November 9, 2012).
10.11*	Security Trust Agreement dated as of September 14, 2012 by and among Willis Engine Securitization Trust II, Willis Engine Securitization (Ireland) Limited, the Engine Trusts listed on Schedule V thereto, each of the additional grantors referred to therein and from time to time made a party thereto and Deutsche Bank Trust Company Americas, as trustee (incorporated by reference to Exhibit 10.15 to our report on Form 10-Q filed on November 9, 2012).
10.12*	Note Purchase Agreement dated as of September 6, 2012 by and among Willis Engine Securitization Trust II, the Registrant, Credit Agricole Securities (USA) Inc. and Goldman, Sachs & Co. (incorporated by reference to Exhibit 10.16 to our report on Form 10-Q filed on November 9, 2012).
10.13*	Servicing Agreement dated as of September 17, 2012 between Willis Engine Securitization Trust II, the Registrant and the entities listed on Appendix A thereto (incorporated by reference to Exhibit 10.17 to our report on Form 10-Q filed on November 9, 2012).
10.14*	Administrative Agency Agreement dated as of September 17, 2012 among Willis Engine Securitization Trust II, the Registrant, Deutsche Bank Trust Company Americas, as trustee, and the entities listed on Appendix A thereto (incorporated by reference to Exhibit 10.18 to our report on Form 10-Q filed on November 9, 2012).
10.15*	Third Amended and Restated Credit Agreement, dated as of April 20, 2016, among the Company, MUFG Union Bank, N.A. as administrative agent and security agent, and certain other lenders and financial institutions named therein(incorporated by reference to Exhibit 10.15 to our report on Form 10-Q filed on August 16, 2016).
10.16	Employment Agreement between the Company and Brian R. Hole dated January 14, 2016 (incorporated by reference to Exhibit 10.1 to our report on Form 8-K filed on February 16, 2016).
10.17	Employment Agreement between the Company and Austin C. Willis dated February 9, 2016 (incorporated by reference to Exhibit 10.2 to our report on Form 8-K filed on February 16, 2016).

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10.18	Trust Amendment No. 2 dated as of September 9, 2016 to Amended and Restated Trust Agreement of Willis Engine Securitization Trust II dated as of September 14, 2012 (incorporated by reference to Exhibit 10.1 to our report on Form 8-K filed September 20, 2016).
10.19	General Supplement 2016-1 dated as of September 9, 2016 to Trust Indenture dated as of September 14, 2012 (incorporated by reference to Exhibit 10.2 to our report on Form 8-K filed September 20, 2016).
10.20	Series A Preferred Stock Purchase Agreement dated as of October 11, 2016 (incorporated by reference to Exhibit 10.1 to our report on Form 8-K filed October 18, 2016).
10.21	Amended and Restated Certificate of Designations, Preferences, and Relative Rights and Limitations of Series A Cumulative Redeemable Preferred Stock dated as of October 13, 2016 (incorporated by reference to Exhibit 10.2 to our report on Form 8-K filed October 18, 2016).
10.22	Certificate Eliminating Series I Junior Participating Preferred Stock of Willis Lease Finance Corporation dated as of October 7, 2016 (incorporated by reference to Exhibit 10.3 to our report on Form 8-K filed October 18, 2016).
11.1	Statement re Computation of Per Share Earnings.
14.1	Code of Ethics (incorporated by reference to Exhibit 14.1 to our report on Form 10-K filed on March 11, 2016).
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 Scott B. Flaherty, 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.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Labels Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

*Confidential treatment has been requested for certain portions of this exhibit. These portions have been omitted and filed separately with the SEC.

29

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, 2016

Willis Lease Finance Corporation
By:	/s/ Scott B. Flaherty
	Scott B. Flaherty Chief Financial Officer (Principal Accounting Officer)

30

EX-11.1

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,
	2016		2015		2016		2015
Basic
Earnings:
Net income	$	3,985	$	2,551	$	11,362	$	3,423
Shares:
Average common shares outstanding		6,307		7,839		6,711		7,843
Basic earnings per common share	$	0.63	$	0.33	$	1.69	$	0.44
Assuming full dilution
Earnings:
Net income	$	3,985	$	2,551	$	11,362	$	3,423
Shares:
Average common shares outstanding		6,307		7,839		6,711		7,843
Potentially dilutive common shares outstanding		141		124		138		168
Diluted average common shares outstanding		6,448		7,963		6,849		8,011
Diluted earnings per common share	$	0.62	$	0.32	$	1.66	$	0.43

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.

EX-31.1

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:

a)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;

b)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;

c)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

d)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):

a)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

b)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, 2016	/s/ Charles F. Willis, IV
		Charles F. Willis, IV
		Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Scott B. Flaherty, 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:

a)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;

b)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;

c)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

d)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):

a)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

b)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, 2016	/s/ Scott B. Flaherty
		Scott B. Flaherty Chief Financial Officer

EX-32

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, 2016 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, 2016

/s/ Charles F. Willis, IV

Chief Executive Officer

/s/ Scott B. Flaherty

 Chief Financial Officer

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Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 02, 2016
Document and Entity Information
Entity Registrant Name	WILLIS LEASE FINANCE CORP
Entity Central Index Key	0001018164
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		6,489,618
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3

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Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
ASSETS
Cash and cash equivalents	$ 10,653	$ 9,732
Restricted cash	28,217	33,026
Equipment held for operating lease, less accumulated depreciation of $350,595 and $316,366 at September 30, 2016 and December 31, 2015, respectively	1,118,202	1,109,168
Maintenance rights	16,774	12,140
Equipment held for sale	13,899	23,454
Operating lease related receivables, net of allowances of $761 and $912 at September 30, 2016 and December 31, 2015, respectively	12,128	13,626
Spare parts inventory	19,235	20,826
Investments	43,314	41,295
Property, equipment & furnishings, less accumulated depreciation of $5,512 and $11,102 at September 30, 2016 and December 31, 2015, respectively	16,545	20,247
Other intangible assets, net	758	932
Other assets	11,603	9,839
Total assets	1,291,328	1,294,285
Liabilities:
Accounts payable and accrued expenses	15,700	21,665
Deferred income taxes	102,788	96,154
Notes payable	885,643	866,089
Maintenance reserves	61,160	71,054
Security deposits	24,530	25,010
Unearned lease revenue	5,033	5,090
Total liabilities	1,094,854	1,085,062
Shareholders' equity:
Common stock ($0.01 par value, 20,000,000 shares authorized; 6,576,369 and 7,548,395 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively)	66	75
Paid-in capital in excess of par	5,940	28,720
Retained earnings	192,311	180,949
Accumulated other comprehensive loss, net of income tax benefit of $974 and $275 at September 30, 2016 and December 31, 2015, respectively.	(1,843)	(521)
Total shareholders' equity	196,474	209,223
Total liabilities and shareholders' equity	$ 1,291,328	$ 1,294,285

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Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Equipment held for operating lease, accumulated depreciation (in dollars)	$ 350,595	$ 316,366
Operating lease related receivable, allowances (in dollars)	761	912
Property, equipment & furnishings, accumulated depreciation (in dollars)	$ 5,512	$ 11,102
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	6,576,369	7,548,395
Common stock, shares outstanding	6,576,369	7,548,395
Accumulated other comprehensive loss, income tax benefit (in dollars)	$ 974	$ 275
Other assets	11,603	9,839
Notes payable	885,643	866,089
Variable Interest Entity [Member]
Cash	28,427	33,776
Equipment	316,206	328,118
Other assets	3,901	6,329
Notes payable	$ 278,426	$ 293,331

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Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
REVENUE
Lease rent revenue	$ 31,270	$ 28,055	$ 88,727	$ 79,197
Maintenance reserve revenue	14,229	16,119	45,562	39,035
Spare parts and equipment sales	4,160	9,133	10,465	15,000
Gain on sale of leased equipment	180	3,804	3,430	7,666
Other revenue	1,622	619	3,614	1,978
Total revenue	51,461	57,730	151,798	142,876
EXPENSES
Depreciation and amortization expense	16,628	17,102	49,235	52,390
Cost of spare parts and equipment sales	3,066	5,919	7,785	10,219
Write-down of equipment	1,995	5,498	5,924	8,580
General and administrative	12,257	11,742	34,694	30,826
Technical expense	1,414	3,570	4,913	7,836
Net finance costs:
Interest expense	10,230	9,805	30,635	29,232
Loss (gain) on debt extinguishment			137	(1,151)
Total net finance costs	10,230	9,805	30,772	28,081
Total expenses	45,590	53,636	133,323	137,932
Earnings from operations	5,871	4,094	18,475	4,944
Earnings from joint ventures	631	558	874	1,127
Income before income taxes	6,502	4,652	19,349	6,071
Income tax expense	2,517	2,101	7,987	2,648
Net income	$ 3,985	$ 2,551	$ 11,362	$ 3,423
Basic earnings per common share: (in dollars per share)	$ 0.63	$ 0.33	$ 1.69	$ 0.44
Diluted earnings per common share: (in dollars per share)	$ 0.62	$ 0.32	$ 1.66	$ 0.43
Average common shares outstanding (in shares)	6,307	7,839	6,711	7,843
Diluted average common shares outstanding (in shares)	6,448	7,963	6,849	8,011

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Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Consolidated Statements of Comprehensive Income
Net income	$ 3,985	$ 2,551	$ 11,362	$ 3,423
Other comprehensive income:
Currency translation adjustment	(2,547)	(304)	(2,021)	(304)
Tax benefit related to items of other comprehensive income	881	104	699	104
Other comprehensive income	(1,666)	(200)	(1,322)	(200)
Total comprehensive income	$ 2,319	$ 2,351	$ 10,040	$ 3,223

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Consolidated Statements of Shareholders' Equity - USD ($) shares in Thousands, $ in Thousands	Common Stock	Paid-in Capital in Excess of par	Accumulated Other Comprehensive Income	Retained Earnings	Total
Balances at Dec. 31, 2014	$ 83	$ 42,076		$ 174,489	$ 216,648
Balances (in shares) at Dec. 31, 2014	8,346
Increase (Decrease) in Shareholders' Equity
Net income				3,423	3,423
Net unrealized loss from derivative instruments, net of tax benefit			$ (200)		(200)
Shares repurchased	$ (2)	(3,648)			(3,650)
Shares repurchased (in shares)	(208)
Shares issued under stock compensation plans	$ 3	516			519
Shares issued under stock compensation plans (in shares)	207
Cancellation of restricted stock units in satisfaction of withholding tax	$ (1)	(1,100)			(1,101)
Cancellation of restricted stock units in satisfaction of withholding tax (in shares)	(64)
Stock-based compensation, net of forfeitures		2,961			2,961
Tax benefit on disqualified disposition of shares		75			75
Balances at Sep. 30, 2015	$ 83	40,880	(200)	177,912	218,675
Balances (in shares) at Sep. 30, 2015	8,281
Balances at Dec. 31, 2015	$ 75	28,720	(521)	180,949	209,223
Balances (in shares) at Dec. 31, 2015	7,548
Increase (Decrease) in Shareholders' Equity
Net income				11,362	11,362
Net unrealized loss from derivative instruments, net of tax benefit			(1,322)		(1,322)
Shares repurchased	$ (10)	(25,012)			(25,022)
Shares repurchased (in shares)	(1,058)
Shares issued under stock compensation plans	$ 1	154			155
Shares issued under stock compensation plans (in shares)	127
Cancellation of restricted stock units in satisfaction of withholding tax		(866)			(866)
Cancellation of restricted stock units in satisfaction of withholding tax (in shares)	(41)
Stock-based compensation, net of forfeitures		2,755			2,755
Tax benefit on disqualified disposition of shares		189			189
Balances at Sep. 30, 2016	$ 66	$ 5,940	$ (1,843)	$ 192,311	$ 196,474
Balances (in shares) at Sep. 30, 2016	6,576

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Consolidated Statements of Shareholders' Equity (Parenthetical) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Consolidated Statements of Shareholders' Equity
Net unrealized loss from derivative instruments, tax benefit	$ 699	$ 104

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash flows from operating activities:
Net income	$ 11,362	$ 3,423
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	49,235	52,390
Write-down of equipment	5,924	8,580
Stock-based compensation expenses	2,755	2,961
Amortization of deferred costs	3,231	3,254
Allowances and provisions	(597)	181
Gain on sale of leased equipment	(3,430)	(7,666)
Loss (gain) on extinguishment of debt	137	(1,151)
Income from joint ventures	(874)	(1,127)
Deferred income taxes	7,332	2,429
Changes in assets and liabilities:
Receivables	2,094	(8,049)
Spare parts inventory	1,116	1,843
Other assets	(664)	(1,221)
Accounts payable and accrued expenses	(1,729)	(7,740)
Restricted cash	3,409	10,238
Maintenance reserves	(9,895)	3,315
Security deposits	(479)	5,204
Unearned lease revenue	(57)	773
Net cash provided by operating activities	68,870	67,637
Cash flows from investing activities:
Proceeds from sale of equipment (net of selling expenses)	61,825	39,300
Restricted cash for investing activities	55	(11,222)
Capital contribution to joint ventures	(5,545)	(630)
Distributions received from joint ventures	1,167	1,304
Maintenance rights payments received		1,709
Purchase of equipment held for operating lease	(113,249)	(137,959)
Purchase of maintenance rights	(4,634)	5,802
Purchase of property, equipment and furnishings	(357)	(3,734)
Net cash used in investing activities	(60,738)	(105,430)
Cash flows from financing activities:
Proceeds from issuance of notes payable	87,000	140,700
Debt issuance cost	(3,808)	(13)
Restricted cash from financing activities	1,345	25,359
Proceeds from shares issued under stock compensation plans	155	519
Cancellation of restricted stock units in satisfaction of withholding tax	(866)	(1,101)
Excess tax benefit from stock-based compensation	189	75
Repurchase of common stock	(25,022)	(3,650)
Principal payments on notes payable	(66,204)	(128,344)
Net cash provided by (used in) financing activities	(7,211)	33,545
Increase in cash and cash equivalents	921	(4,248)
Cash and cash equivalents at beginning of period	9,732	13,493
Cash and cash equivalents at end of period	10,653	9,245
Net cash paid for:
Interest	27,855	26,637
Income Taxes	137	99
Supplemental disclosures of non-cash investing activities:
Purchase of aircraft and engines, liability incurred but not paid	3,089	3,260
Engines and equipment, transferred from Held for Operating Lease to Held for Sale but not settled	9,266	$ 19,654
Transfer from property, equipment and furnishings to assets held for lease	$ 2,925

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2016

Summary of Significant Accounting Policies

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, 2015.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly our financial position as of September 30, 2016 and December 31, 2015, and the results of our operations for the three and nine months ended September 30, 2016 and 2015, and our cash flows for the nine months ended September 30, 2016 and 2015. The results of operations and cash flows for the period ended September 30, 2016 are not necessarily indicative of the results of operations or cash flows which may be reported for the remainder of 2016.

(b)    Principles of Consolidation:

We evaluate all entities in which we have an economic interest firstly to determine whether for accounting purposes the entity is a variable interest entity or voting interest entity. If the entity is a variable interest entity we consolidate the financial statements of that entity if we are the primary beneficiary of the entities’ activities. If the entity is a voting interest entity we consolidate the entity when we have a majority of voting interests. All inter-company balances are eliminated upon consolidation.

(c)   Correction of Immaterial Errors – Consolidated Financial Statements:  

During the second quarter of 2016 the Company determined that its financial statements for the years ended December 31, 2015, 2014 and 2013 and for prior years and for the quarter ended March 31, 2016 contained errors resulting from the incorrect accounting for equipment purchased with in-place leases. The Company previously did not identify, measure and account for maintenance rights acquired.   The Company’s accounting policy for maintenance rights is described below as note 1(d).  Management evaluated the materiality of the errors described above from a qualitative and quantitative perspective in accordance with the requirements of the Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 99, Materiality (SAB 99).  Based on such evaluation, we have concluded that these corrections would not be material to any individual prior period and have corrected such balances herein.

The associated correcting entries were recorded in the respective period starting with the opening consolidated balance sheet of December 31, 2015.  The Consolidated Balance Sheet as of December 31, 2015 presented herein has been revised as follows: decrease in Equipment Held for Operating Lease by $13.7 million, increase in Maintenance Rights by $12.1 million, decrease in Deferred Income Taxes by $0.6 million and decrease in retained earnings by $1.1 million as of December 31, 2015.

The adjustments to the previously reported Consolidated Statement of Income for the three and nine month periods ending September 30, 2015 were as follows: a decrease in Maintenance Reserve Revenue of nil and $1.7 million, respectively;  a decrease in Gain on Sale of Leased Equipment of nil and $34,000, respectively;  an increase (decrease) in Depreciation and Amortization expense of $13,000 and ($72,000), respectively; and a decrease in Income Tax Expense of $15,000 and $0.5 million, a decrease in net income of $26,000 and $1.0 million, respectively; and a decrease in basic and diluted earnings per share of nil and $0.12, respectively.

The adjustments to the previously reported Consolidated Statement of cash flows for the nine month periods ending September 30, 2015 were as follows: a decrease in cash provided by operating income of $1.7 million; and a decrease in the cash used by investing activities of $1.7 million.

There were other immaterial out of period adjustments recorded that affected lease rent revenue, spare part sales revenue and expense and general and administrative expenses for the nine month months ended September 30, 2016 and 2015.

 (d) Maintenance rights

We identify, measure and account for maintenance right assets and liabilities associated with acquisitions of equipment with in-place leases. A maintenance right asset represents the fair value of the contractual right under a lease to receive equipment in an improved maintenance condition as compared to the maintenance condition on the acquisition date. A maintenance right liability represents the Company's obligation to pay the lessee for the difference between the lease-end contractual maintenance condition of the equipment and the actual maintenance condition of the equipment on the acquisition date.  The equipment condition at the end of the lease term may result in either overhaul work being performed by the lessee to meet the required return condition or a financial settlement.

When a capital event is performed on the equipment by the lessee, which satisfies their maintenance right obligation, the maintenance rights are added to the equipment basis and depreciated to the next capital event.  When equipment is sold before the end of the pre-existing lease, the maintenance rights are applied against any accumulated maintenance reserves, if paid by the lessee, and the remaining balance is applied to the disposition gain or loss.  When a lease terminates, an end of lease true-up is performed and the maintenance right is applied against the accumulated maintenance reserves or, for non-reserve lessees the final settlement payment, and any remaining net maintenance right is recorded in the income statement.

Maintenance right assets were $16.8 million and $12.1 million as of September 30, 2016 and December 31, 2015, respectively.

(e)    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. We use a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, 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 Measured and Recorded at Fair Value on a Nonrecurring Basis

We determine 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 during the nine months ended September 30, 2016 and 2015, and the losses recorded during the nine months ended September 30, 2016 and 2015 on those assets:

	Assets at Fair Value																Total Losses
	September 30, 2016								September 30, 2015								Nine Months Ended September 30,
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		2016		2015
	(in thousands)																(in thousands)
Equipment held for lease	$	337	$	—	$	337	$	—	$	1,555	$	—	$	1,555	$	—	$	(1,893)	$	(1,936)
Equipment held for sale		589		—		589		—		7,477		—		7,477		—		(3,556)		(6,644)
Spare parts inventory		1,731		—		1,731		—		—		—		—		—		(475)		—
Total	$	2,657	$	—	$	2,657	$	—	$	9,032	$	—	$	9,032	$	—	$	(5,924)	$	(8,580)

At September 30, 2016, the Company used Level 2 inputs to measure equipment held for sale.  Level 2 inputs include quoted prices for similar assets in inactive markets. 

An impairment charge is recorded when the carrying value of the asset exceeds its fair value. A write-down of equipment totaling $5.9 million was recorded during the nine months ended September 30, 2016, of which $2.0 million was recorded due to a management decision to consign one engine for part-out and sale, in which the asset’s net book value exceeded the estimated proceeds.  An additional asset write-down of $2.0 million was recorded in the nine months ended September 30, 2016 based upon a comparison of the asset net book values with the revised net proceeds expected from part sales arising from consignment of the parts.A further writedown of $1.9 million was recorded due to the adjustment of the carrying value for an impaired engine within the portfolio to reflect estimated market value.  

A write-down of equipment totaling $5.5 million was recorded in the nine month period ended September 30, 2015 due to a management decision to consign four engines for part-out and sale, in which the assets net book value exceeds the estimated proceeds from part-out. A further write-down of equipment totaling $3.1 million was recorded in the three months ended September 30, 2015 to adjust the carrying value of engine parts held on consignment for which market conditions for the sale of parts has changed.

(f)    Reclassifications:

Reclassifications have been made to our consolidated financial statements for the prior periods to conform to classifications used during the three and nine months ended September 30, 2016.    

(g)    Foreign Currency Translation:

The Company’s foreign investments have been converted at rates of exchange at September 30, 2016. The changes in exchange rates in our foreign investments reported under the equity method are included in stockholders’ equity as accumulated other comprehensive income.

(h)    Recent Accounting Pronouncements:

In March 2016, the FASB issued ASU  No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The update to the standard is effective for the Company beginning January 1, 2017, with early application permitted. The Company is currently evaluating the impact that the guidance will have on the Consolidated Financial Statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (topic 842).  Under the new standard, the accounting for leases by lessors would basically remain unchanged from the existing concepts in ASC 840, Leases. In addition, FASB has decided that lessors would be precluded from recognizing selling profit and revenue at lease commencement for any sales-type or direct finance lease that does not transfer control of the underlying asset to the lessee. The standard will be effective for public business entities for annual periods (including interim periods), beginning after December 15, 2018, and early adoption will be permitted. The Company is currently evaluating the potential impact the adoption of the standard will have on its consolidated financial condition, results of operations or cash flows.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which simplifies the measurement of inventory by requiring certain inventory to be measured at the lower of cost or net realizable value. The amendments in this ASU are effective for fiscal years beginning after December 15, 2016 and for interim periods therein. We are evaluating the impact that this new guidance will have on our consolidated financial position.

In April 2015, the FASB issued ASU. 2015-03, "Simplifying the Presentation of Debt Issuance Costs".  ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with the accounting treatment for debt discounts. We have adopted ASU 2015-03 during the nine-month period ended September 30, 2016. Other assets and Long-term debt, net of discount have been revised as of December 31, 2015 to reflect the retroactive reclassification of $12.6 million of debt issuance costs that have been reclassified from Other assets to Notes payable.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes previous revenue recognition guidance. The new standard requires that a company recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. Companies will need to use more judgment and estimates than under the guidance currently in effect, including estimating the amount of variable revenue to recognize over each identified performance obligation. Additional disclosures will be required to help users of financial statements understand the nature, amount and timing of revenue and cash flows arising from contracts. In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). Early adoption is permitted to the original effective date of December 15, 2016 (including interim reporting periods within those periods). The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.

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Management Estimates

9 Months Ended

Sep. 30, 2016

Management Estimates

Management Estimates

2.  Management Estimates

These 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 our estimates, including those related to residual values, estimated asset lives, impairments, maintenance rights and bad debts. We base our estimates 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.

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.

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Investments

9 Months Ended

Sep. 30, 2016

Investments

Investments

3.  Investments

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 (“WMES”) for the purpose of acquiring and leasing jet engines. Each partner holds a fifty percent interest in the joint venture and the Company uses the equity method in recording investment activity. The investment has increased to $31.4 million as of September 30, 2016 as a result of the Company making $5.5 million in capital contributions to WMES, receiving $1.2 million in distributions, recording $1.2 million as deferred gain as a result of the Company selling four engines to WMES and the Company’s share of WMES reported income of $0.9 million during the nine months ended September 30, 2016.

On June 3, 2014 we entered into an agreement with China Aviation Supplies Import & Export Corporation Limited (“CASC”) to participate in a joint venture named CASC Willis Engine Lease Company Limited (“CASC Willis”), a new joint venture based in Shanghai, China. Each partner holds a fifty percent interest in the joint ventureand the Company uses the equity method in recording investment activity. In October 2014, each partner made a $15.0 million initial capital contribution representing the up-front funding for the new joint venture.  The new company will acquire and lease jet engines to Chinese airlines and will concentrate on meeting the fast growing demand for leased commercial aircraft engines and aviation assets in the People’s Republic of China.   The investment has decreased to $11.9 million as of September 30, 2016 as a result of a foreign currency translation adjustment of $2.0 million and by the Company’s share of CASC Willis reported loss of $0.1 million during the nine months ended September 30, 2016.         

Nine Months Ended September 30, 2016	WMES		CASC		Total
	(in thousands)
Investment in joint ventures as of December 31, 2015	$	27,272	$	14,023	$	41,295
Capital contribution		5,545		—		5,545
Earnings from joint venture		929		(55)		874
Deferred gain on engine sale		(1,212)		—		(1,212)
Distribution		(1,167)		—		(1,167)
Foreign currency translation adjustment		—		(2,021)		(2,021)
Investment in joint ventures as of September 30, 2016	$	31,367	$	11,947	$	43,314

“Other revenue” on the Consolidated Statement of Income includes management fees earned of $0.5 million and $0.4 million during the three months ended September 30, 2016 and 2015, respectively, related to the servicing of engines for the WMES lease portfolio.   “Other revenue” on the Consolidated Statement of Income includes management fees earned of $1.3 million and $1.2 million during the nine months ended September 30, 2016 and 2015, respectively, related to the servicing of engines for the WMES lease portfolio.   “Gain on sale of leased equipment” on the Consolidated Statement of Income includes $1.2 million for the nine months ended September 30, 2016 related to the sale of four engines to WMES for $46.1 million.  As 50% owners of WMES, we deferred an incremental $1.2 million gain to our investment which is being amortized over a 15-year period to a 55% residual value. 

Summarized financial information for 100% of WMES is presented in the following tables:

	Three Months Ended September 30,
	2016		2015
	(in thousands)
Revenue	$	8,549	$	7,067
Expenses		7,496		6,302
WMES net income	$	1,053	$	765
	Nine Months Ended September 30,
	2016		2015
	(in thousands)
Revenue	$	25,547	$	19,997
Expenses		23,886		18,052
WMES net income	$	1,661	$	1,945
		September 30,		December 31,
		2016		2015
	(in thousands)
Total assets	$	292,412	$	256,126
Total liabilities		221,127		195,258
Total WMES net equity	$	71,285	$	60,868

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Notes Payable

9 Months Ended

Sep. 30, 2016

Notes Payable

Notes Payable

4.  Notes Payable

Notes payable consisted of the following:

	September 30,		December 31,
	2016		2015
	(in thousands)
Credit facility at a floating rate of interest of LIBOR plus 2.75%, secured by engines. The facility has a committed amount of $890.0 million at September 30, 2016, which revolves until the maturity date of April 2021.	$	588,000	$	549,000
WEST II Series 2012-A term notes payable at a fixed rate of interest of 5.50%, maturing in September 2037. Secured by engines.		284,549		300,467
Note payable at fixed interest rates ranging from 2.60% to 2.97%, maturing in July 2024. Secured by an aircraft.		14,879		16,135
Note payable at a variable interest rate of LIBOR plus 2.25%, maturing in January 2018. Secured by engines.		12,052		13,082
Notes payable		899,480		878,684
Less: unamortized debt issuance costs		(13,837)		(12,595)
Total notes payable	$	885,643	$	866,089

We maintain a revolving credit facility to finance the acquisition of aircraft engines for lease as well as for general working capital purposes.  On April 20, 2016 we entered into a Third Amended and Restated Credit Agreement which increased the revolving credit facility to $890.0 million from $700.0 million and extended the term to April 2021.  This $890 million revolving credit facility has an accordion feature which would expand the entire credit facility up to $1 billion.  The initial interest rate on the facility is LIBOR plus 2.75%.  The interest rate is adjusted quarterly, based on the Company’s leverage ratio, as calculated under the terms of the revolving credit facility.

For further information on our debt instruments, see the "Notes Payable" note in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2015.

The following is a summary of the aggregate maturities of our long-term debt at September 30, 2016:

Year	(in thousands)
2016	$	5,777
2017		23,624
2018		33,294
2019		23,430
2020		23,031
Thereafter		790,324
	$	899,480

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Stock-Based Compensation Plans

9 Months Ended

Sep. 30, 2016

Stock-Based Compensation Plans

Stock-Based Compensation Plans

5.  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, available in the form of either restricted stock or stock options.  On May 28, 2015, the Company’s shareholders authorized an increase in the number of shares of Common Stock available for grant by 800,000 shares bringing the total to 2,800,000 shares authorized.  2,400,357 shares of restricted stock were granted under the 2007 Stock Incentive Plan by September 30, 2016. Of this amount, 155,579 shares of restricted stock were cancelled and returned to the pool of shares which could be granted under the 2007 Stock Incentive Plan resulting in a net number of 555,222 shares which were available as of September 30, 2016 for future issuance under the 2007 Incentive Plan. The fair value of the restricted stock awards equaled the stock price at the date of grants.  The following table summarizes restricted stock activity during the year ended December 31, 2015 and the nine months ended September 30, 2016.

	Shares
Restricted stock at December 31, 2014	525,356
Granted in 2015 (vesting over 3 years)	125,000
Granted in 2015 (vesting over 4 years)	5,000
Granted in 2015 (vesting on first anniversary from date of issuance)	16,440
Vested in 2015	(275,201)
Restricted stock at December 31, 2015	396,595
Granted in 2016 (vesting over 1 year)	18,395
Granted in 2016 (vesting over 2 years)	20,000
Granted in 2016 (vesting over 3 years)	75,000
Granted in 2016 (vesting over 4 years)	23,250
Vested in 2016	(146,190)
Cancelled in 2016	(20,211)
Restricted stock at September 30, 2016	366,839

All cancelled shares have returned 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. At September 30, 2016, the stock compensation expense related to the restricted stock awards that will be recognized over the average remaining vesting period of 1.6 years totals $4.7 million. At September 30, 2016, the intrinsic value of unvested restricted stock awards is $8.7 million. The 2007 Plan terminates on May 24, 2017.

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Income Taxes

9 Months Ended

Sep. 30, 2016

Income Taxes

Income Taxes

6.  Income Taxes

Income tax expense for the three and nine months ended September 30, 2016 was $2.5 million and $8.0 million, respectively.  Income tax expense for the three and nine months ended September 30, 2015 was $2.1 million and $2.6 million respectively.  The effective tax rates for the three month and nine months ended September 30, 2016 were 38.7% and 41.3%, respectively.  The effective tax rate for the three and nine months ended September 30, 2015 was 45.2% and 43.6%, respectively. The decrease in the effective tax rate was primarily due to the impact of the IRS code 162(m) calculation for executive compensation for the three months ended September 30, 2016.

The Company records tax expense or benefit for unusual or infrequent items discretely in the period in which they occur.  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.

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Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2016

Fair Value of Financial Instruments

Fair Value of Financial Instruments

7.  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, 2016 and December 31, 2015 was estimated to have a fair value of approximately $877.8 million and $890.1 million, respectively, based on the fair value of estimated future payments calculated using the prevailing interest rates at each period end.

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Operating Segments

9 Months Ended

Sep. 30, 2016

Operating Segments

Operating Segments

8. Operating Segments

The Company operates in two business segments: (i) Leasing and Related Operations which involves acquiring and leasing, primarily pursuant to operating leases, commercial aircraft, aircraft engines and other aircraft equipment and the selective purchase and resale of commercial aircraft engines and other aircraft equipment and (ii) Spare Parts Sales which involves the purchase and resale of after-market engine and airframe parts, whole engines, engine modules and portable aircraft components and leasing of engines destined for disassembly and sale of parts.

The Company evaluates the performance of each of the segments based on profit or loss after general and administrative expenses and inter-company allocation of interest expense. While the Company believes there are synergies between the two business segments, the segments are managed separately because each requires different business strategies.

The following tables present a summary of the operating segments (amounts in thousands):

	Leasing and
For the three months ended September 30, 2016	Related Operations		Spare Parts Sales		Eliminations (1)		Total
Revenue:
Lease rent revenue	$	31,270	$	—	$	—	$	31,270
Maintenance reserve revenue		14,229		—		—		14,229
Spare parts and equipment sales		900		3,260		—		4,160
Gain on sale of leased equipment		180		—		—		180
Other revenue		1,487		786		(651)		1,622
Total revenue		48,066		4,046		(651)		51,461
Expenses:
Depreciation and amortization expense		16,541		87		—		16,628
Cost of spare parts and equipment sales		640		2,426		—		3,066
General and administrative		11,500		757		—		12,257
Net finance costs		10,116		114		—		10,230
Other expense		2,934		475		—		3,409
Total expenses		41,731		3,859		—		45,590
Earnings from operations	$	6,335	$	187	$	(651)	$	5,871
	Leasing and
For the nine months ended September 30, 2016	Related Operations		Spare Parts Sales		Eliminations (1)		Total
Revenue:
Lease rent revenue	$	88,727	$	—	$	—	$	88,727
Maintenance reserve revenue		45,562		—		—		45,562
Spare parts and equipment sales		1,800		8,665		—		10,465
Gain on sale of leased equipment		3,430		—		—		3,430
Other revenue		3,392		1,734		(1,512)		3,614
Total revenue		142,911		10,399		(1,512)		151,798
Expenses:
Depreciation and amortization expense		48,981		254		—		49,235
Cost of spare parts and equipment sales		1,288		6,497		—		7,785
General and administrative		32,438		2,256		—		34,694
Net finance costs		30,443		329		—		30,772
Other expense		10,362		475		—		10,837
Total expenses		123,512		9,811		—		133,323
Earnings from operations	$	19,399	$	588	$	(1,512)	$	18,475
(1) Represents revenue generated between our  operating segments

	Leasing and
For the three months ended September 30, 2015	Related Operations		Spare Parts Sales		Eliminations (1)		Total
Revenue:
Lease rent revenue	$	28,055	$	—	$	—	$	28,055
Maintenance reserve revenue		16,119		—		—		16,119
Spare parts and equipment sales		4,600		4,533		—		9,133
Gain on sale of leased equipment		3,804		—		—		3,804
Other revenue		597		135		(113)		619
Total revenue		53,175		4,668		(113)		57,730
Expenses:
Depreciation and amortization expense		17,035		67		—		17,102
Cost of spare parts and equipment sales		2,461		3,458		—		5,919
General and administrative		10,948		794		—		11,742
Net finance costs		9,707		98		—		9,805
Other expense		9,068		—		—		9,068
Total expenses		49,219		4,417		—		53,636
Earnings from operations	$	3,956	$	251	$	(113)	$	4,094
	Leasing and
For the nine months ended September 30, 2015	Related Operations		Spare Parts Sales		Eliminations (1)		Total
Revenue:
Lease rent revenue	$	79,197	$	—	$	—	$	79,197
Maintenance reserve revenue		39,035		—		—		39,035
Spare parts and equipment sales		5,450		9,550		—		15,000
Gain on sale of leased equipment		7,666		—		—		7,666
Other revenue		1,796		531		(349)		1,978
Total revenue		133,144		10,081		(349)		142,876
Expenses:
Depreciation and amortization expense		52,179		211		—		52,390
Cost of spare parts and equipment sales		3,081		7,138		—		10,219
General and administrative		28,751		2,075		—		30,826
Net finance costs		27,789		292		—		28,081
Other expense		16,416		—		—		16,416
Total expenses		128,216		9,716		—		137,932
Earnings from operations	$	4,928	$	365	$	(349)	$	4,944
(1) Represents revenue generated between our  operating segments
Total assets as of September 30, 2016	$	1,266,245	$	25,083	$	—	$	1,291,328
Total assets as of December 31, 2015	$	1,267,414	$	26,871	$	—	$	1,294,285

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Subsequent Events

9 Months Ended

Sep. 30, 2016

Subsequent Events

Subsequent Events

9.  Subsequent Events

Preferred Stock

On October 11, 2016, the Company entered into a Stock Purchase Agreement with Development Bank of Japan Inc., relating to the sale and issuance of an aggregate of 1,000,000 shares of the Company’s 6.5% Series A Preferred Stock, $0.01 par value per share (the “Series A Preferred Stock”) at a purchase price of $20.00 per share.

The Series A Preferred Stock carries a quarterly dividend at the rate per annum of 6.5% per share, with a $20.00 liquidation preference per share. The purchase and sale of the Series A Preferred Stock closed on October 14, 2016 and the first dividend is expected to be paid on January 16, 2017. The net proceeds to the Company after deducting investor fees were $19.8 million.

Total Engine Support Limited Acquisition

On October 26, 2016, the Company announced the purchase of the business and assets of Total Engine Support Limited (“TES”).  TES has been the engine management and consulting business of the TES Aviation Group. TES has approximately 500 engines under management.Pro forma results of operations for this acquisition have not been presented because it was not material to the consolidated results of operations.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2016

Summary of Significant Accounting Policies

Basis of Presentation:

(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, 2015.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly our financial position as of September 30, 2016 and December 31, 2015, and the results of our operations for the three and nine months ended September 30, 2016 and 2015, and our cash flows for the nine months ended September 30, 2016 and 2015. The results of operations and cash flows for the period ended September 30, 2016 are not necessarily indicative of the results of operations or cash flows which may be reported for the remainder of 2016.

Principles of Consolidation

(b)    Principles of Consolidation:

We evaluate all entities in which we have an economic interest firstly to determine whether for accounting purposes the entity is a variable interest entity or voting interest entity. If the entity is a variable interest entity we consolidate the financial statements of that entity if we are the primary beneficiary of the entities’ activities. If the entity is a voting interest entity we consolidate the entity when we have a majority of voting interests. All inter-company balances are eliminated upon consolidation.

Correction of Immaterial Errors – Consolidated Financial Statements

(c)   Correction of Immaterial Errors – Consolidated Financial Statements:  

During the second quarter of 2016 the Company determined that its financial statements for the years ended December 31, 2015, 2014 and 2013 and for prior years and for the quarter ended March 31, 2016 contained errors resulting from the incorrect accounting for equipment purchased with in-place leases. The Company previously did not identify, measure and account for maintenance rights acquired.   The Company’s accounting policy for maintenance rights is described below as note 1(d).  Management evaluated the materiality of the errors described above from a qualitative and quantitative perspective in accordance with the requirements of the Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 99, Materiality (SAB 99).  Based on such evaluation, we have concluded that these corrections would not be material to any individual prior period and have corrected such balances herein.

The associated correcting entries were recorded in the respective period starting with the opening consolidated balance sheet of December 31, 2015.  The Consolidated Balance Sheet as of December 31, 2015 presented herein has been revised as follows: decrease in Equipment Held for Operating Lease by $13.7 million, increase in Maintenance Rights by $12.1 million, decrease in Deferred Income Taxes by $0.6 million and decrease in retained earnings by $1.1 million as of December 31, 2015.

The adjustments to the previously reported Consolidated Statement of Income for the three and nine month periods ending September 30, 2015 were as follows: a decrease in Maintenance Reserve Revenue of nil and $1.7 million, respectively;  a decrease in Gain on Sale of Leased Equipment of nil and $34,000, respectively;  an increase (decrease) in Depreciation and Amortization expense of $13,000 and ($72,000), respectively; and a decrease in Income Tax Expense of $15,000 and $0.5 million, a decrease in net income of $26,000 and $1.0 million, respectively; and a decrease in basic and diluted earnings per share of nil and $0.12, respectively.

The adjustments to the previously reported Consolidated Statement of cash flows for the nine month periods ending September 30, 2015 were as follows: a decrease in cash provided by operating income of $1.7 million; and a decrease in the cash used by investing activities of $1.7 million.

There were other immaterial out of period adjustments recorded that affected lease rent revenue, spare part sales revenue and expense and general and administrative expenses for the nine month months ended September 30, 2016 and 2015.

Maintenance rights

(d) Maintenance rights

We identify, measure and account for maintenance right assets and liabilities associated with acquisitions of equipment with in-place leases. A maintenance right asset represents the fair value of the contractual right under a lease to receive equipment in an improved maintenance condition as compared to the maintenance condition on the acquisition date. A maintenance right liability represents the Company's obligation to pay the lessee for the difference between the lease-end contractual maintenance condition of the equipment and the actual maintenance condition of the equipment on the acquisition date.  The equipment condition at the end of the lease term may result in either overhaul work being performed by the lessee to meet the required return condition or a financial settlement.

When a capital event is performed on the equipment by the lessee, which satisfies their maintenance right obligation, the maintenance rights are added to the equipment basis and depreciated to the next capital event.  When equipment is sold before the end of the pre-existing lease, the maintenance rights are applied against any accumulated maintenance reserves, if paid by the lessee, and the remaining balance is applied to the disposition gain or loss.  When a lease terminates, an end of lease true-up is performed and the maintenance right is applied against the accumulated maintenance reserves or, for non-reserve lessees the final settlement payment, and any remaining net maintenance right is recorded in the income statement.

Maintenance right assets were $16.8 million and $12.1 million as of September 30, 2016 and December 31, 2015, respectively.

Fair Value Measurements

(e)    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. We use a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, 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 Measured and Recorded at Fair Value on a Nonrecurring Basis

We determine 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 during the nine months ended September 30, 2016 and 2015, and the losses recorded during the nine months ended September 30, 2016 and 2015 on those assets:

	Assets at Fair Value																Total Losses
	September 30, 2016								September 30, 2015								Nine Months Ended September 30,
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		2016		2015
	(in thousands)																(in thousands)
Equipment held for lease	$	337	$	—	$	337	$	—	$	1,555	$	—	$	1,555	$	—	$	(1,893)	$	(1,936)
Equipment held for sale		589		—		589		—		7,477		—		7,477		—		(3,556)		(6,644)
Spare parts inventory		1,731		—		1,731		—		—		—		—		—		(475)		—
Total	$	2,657	$	—	$	2,657	$	—	$	9,032	$	—	$	9,032	$	—	$	(5,924)	$	(8,580)

At September 30, 2016, the Company used Level 2 inputs to measure equipment held for sale.  Level 2 inputs include quoted prices for similar assets in inactive markets. 

An impairment charge is recorded when the carrying value of the asset exceeds its fair value. A write-down of equipment totaling $5.9 million was recorded during the nine months ended September 30, 2016, of which $2.0 million was recorded due to a management decision to consign one engine for part-out and sale, in which the asset’s net book value exceeded the estimated proceeds.  An additional asset write-down of $2.0 million was recorded in the nine months ended September 30, 2016 based upon a comparison of the asset net book values with the revised net proceeds expected from part sales arising from consignment of the parts.A further writedown of $1.9 million was recorded due to the adjustment of the carrying value for an impaired engine within the portfolio to reflect estimated market value.  

A write-down of equipment totaling $5.5 million was recorded in the nine month period ended September 30, 2015 due to a management decision to consign four engines for part-out and sale, in which the assets net book value exceeds the estimated proceeds from part-out. A further write-down of equipment totaling $3.1 million was recorded in the three months ended September 30, 2015 to adjust the carrying value of engine parts held on consignment for which market conditions for the sale of parts has changed.

Reclassifications

(f)    Reclassifications:

Reclassifications have been made to our consolidated financial statements for the prior periods to conform to classifications used during the three and nine months ended September 30, 2016.

Foreign Currency Translation

(g)    Foreign Currency Translation:

The Company’s foreign investments have been converted at rates of exchange at September 30, 2016. The changes in exchange rates in our foreign investments reported under the equity method are included in stockholders’ equity as accumulated other comprehensive income.

Recent Accounting Pronouncements

(h)    Recent Accounting Pronouncements:

In March 2016, the FASB issued ASU  No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The update to the standard is effective for the Company beginning January 1, 2017, with early application permitted. The Company is currently evaluating the impact that the guidance will have on the Consolidated Financial Statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (topic 842).  Under the new standard, the accounting for leases by lessors would basically remain unchanged from the existing concepts in ASC 840, Leases. In addition, FASB has decided that lessors would be precluded from recognizing selling profit and revenue at lease commencement for any sales-type or direct finance lease that does not transfer control of the underlying asset to the lessee. The standard will be effective for public business entities for annual periods (including interim periods), beginning after December 15, 2018, and early adoption will be permitted. The Company is currently evaluating the potential impact the adoption of the standard will have on its consolidated financial condition, results of operations or cash flows.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which simplifies the measurement of inventory by requiring certain inventory to be measured at the lower of cost or net realizable value. The amendments in this ASU are effective for fiscal years beginning after December 15, 2016 and for interim periods therein. We are evaluating the impact that this new guidance will have on our consolidated financial position.

In April 2015, the FASB issued ASU. 2015-03, "Simplifying the Presentation of Debt Issuance Costs".  ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with the accounting treatment for debt discounts. We have adopted ASU 2015-03 during the nine-month period ended September 30, 2016. Other assets and Long-term debt, net of discount have been revised as of December 31, 2015 to reflect the retroactive reclassification of $12.6 million of debt issuance costs that have been reclassified from Other assets to Notes payable.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes previous revenue recognition guidance. The new standard requires that a company recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. Companies will need to use more judgment and estimates than under the guidance currently in effect, including estimating the amount of variable revenue to recognize over each identified performance obligation. Additional disclosures will be required to help users of financial statements understand the nature, amount and timing of revenue and cash flows arising from contracts. In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). Early adoption is permitted to the original effective date of December 15, 2016 (including interim reporting periods within those periods). The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2016

Summary of Significant Accounting Policies

Schedule of fair value hierarchy of assets measured on nonrecurring basis and gain (losses) recorded

	Assets at Fair Value																Total Losses
	September 30, 2016								September 30, 2015								Nine Months Ended September 30,
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		2016		2015
	(in thousands)																(in thousands)
Equipment held for lease	$	337	$	—	$	337	$	—	$	1,555	$	—	$	1,555	$	—	$	(1,893)	$	(1,936)
Equipment held for sale		589		—		589		—		7,477		—		7,477		—		(3,556)		(6,644)
Spare parts inventory		1,731		—		1,731		—		—		—		—		—		(475)		—
Total	$	2,657	$	—	$	2,657	$	—	$	9,032	$	—	$	9,032	$	—	$	(5,924)	$	(8,580)

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Investments (Tables)

9 Months Ended

Sep. 30, 2016

Investments

Schedule of investments

Nine Months Ended September 30, 2016	WMES		CASC		Total
	(in thousands)
Investment in joint ventures as of December 31, 2015	$	27,272	$	14,023	$	41,295
Capital contribution		5,545		—		5,545
Earnings from joint venture		929		(55)		874
Deferred gain on engine sale		(1,212)		—		(1,212)
Distribution		(1,167)		—		(1,167)
Foreign currency translation adjustment		—		(2,021)		(2,021)
Investment in joint ventures as of September 30, 2016	$	31,367	$	11,947	$	43,314

Summarized financial information

	Three Months Ended September 30,
	2016		2015
	(in thousands)
Revenue	$	8,549	$	7,067
Expenses		7,496		6,302
WMES net income	$	1,053	$	765
	Nine Months Ended September 30,
	2016		2015
	(in thousands)
Revenue	$	25,547	$	19,997
Expenses		23,886		18,052
WMES net income	$	1,661	$	1,945
		September 30,		December 31,
		2016		2015
	(in thousands)
Total assets	$	292,412	$	256,126
Total liabilities		221,127		195,258
Total WMES net equity	$	71,285	$	60,868

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Notes Payable (Tables)

9 Months Ended

Sep. 30, 2016

Notes Payable

Schedule of notes payable

	September 30,		December 31,
	2016		2015
	(in thousands)
Credit facility at a floating rate of interest of LIBOR plus 2.75%, secured by engines. The facility has a committed amount of $890.0 million at September 30, 2016, which revolves until the maturity date of April 2021.	$	588,000	$	549,000
WEST II Series 2012-A term notes payable at a fixed rate of interest of 5.50%, maturing in September 2037. Secured by engines.		284,549		300,467
Note payable at fixed interest rates ranging from 2.60% to 2.97%, maturing in July 2024. Secured by an aircraft.		14,879		16,135
Note payable at a variable interest rate of LIBOR plus 2.25%, maturing in January 2018. Secured by engines.		12,052		13,082
Notes payable		899,480		878,684
Less: unamortized debt issuance costs		(13,837)		(12,595)
Total notes payable	$	885,643	$	866,089

Schedule or principal outstanding

Year	(in thousands)
2016	$	5,777
2017		23,624
2018		33,294
2019		23,430
2020		23,031
Thereafter		790,324
	$	899,480

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Stock-Based Compensation Plans (Tables)

9 Months Ended

Sep. 30, 2016

Stock-Based Compensation Plans

Summary of activity under the 2007 Plan

	Shares
Restricted stock at December 31, 2014	525,356
Granted in 2015 (vesting over 3 years)	125,000
Granted in 2015 (vesting over 4 years)	5,000
Granted in 2015 (vesting on first anniversary from date of issuance)	16,440
Vested in 2015	(275,201)
Restricted stock at December 31, 2015	396,595
Granted in 2016 (vesting over 1 year)	18,395
Granted in 2016 (vesting over 2 years)	20,000
Granted in 2016 (vesting over 3 years)	75,000
Granted in 2016 (vesting over 4 years)	23,250
Vested in 2016	(146,190)
Cancelled in 2016	(20,211)
Restricted stock at September 30, 2016	366,839

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Operating Segments (Tables)

9 Months Ended

Sep. 30, 2016

Operating Segments

Summary of the operating segments

The following tables present a summary of the operating segments (amounts in thousands):

	Leasing and
For the three months ended September 30, 2016	Related Operations		Spare Parts Sales		Eliminations (1)		Total
Revenue:
Lease rent revenue	$	31,270	$	—	$	—	$	31,270
Maintenance reserve revenue		14,229		—		—		14,229
Spare parts and equipment sales		900		3,260		—		4,160
Gain on sale of leased equipment		180		—		—		180
Other revenue		1,487		786		(651)		1,622
Total revenue		48,066		4,046		(651)		51,461
Expenses:
Depreciation and amortization expense		16,541		87		—		16,628
Cost of spare parts and equipment sales		640		2,426		—		3,066
General and administrative		11,500		757		—		12,257
Net finance costs		10,116		114		—		10,230
Other expense		2,934		475		—		3,409
Total expenses		41,731		3,859		—		45,590
Earnings from operations	$	6,335	$	187	$	(651)	$	5,871
	Leasing and
For the nine months ended September 30, 2016	Related Operations		Spare Parts Sales		Eliminations (1)		Total
Revenue:
Lease rent revenue	$	88,727	$	—	$	—	$	88,727
Maintenance reserve revenue		45,562		—		—		45,562
Spare parts and equipment sales		1,800		8,665		—		10,465
Gain on sale of leased equipment		3,430		—		—		3,430
Other revenue		3,392		1,734		(1,512)		3,614
Total revenue		142,911		10,399		(1,512)		151,798
Expenses:
Depreciation and amortization expense		48,981		254		—		49,235
Cost of spare parts and equipment sales		1,288		6,497		—		7,785
General and administrative		32,438		2,256		—		34,694
Net finance costs		30,443		329		—		30,772
Other expense		10,362		475		—		10,837
Total expenses		123,512		9,811		—		133,323
Earnings from operations	$	19,399	$	588	$	(1,512)	$	18,475
(1) Represents revenue generated between our  operating segments

	Leasing and
For the three months ended September 30, 2015	Related Operations		Spare Parts Sales		Eliminations (1)		Total
Revenue:
Lease rent revenue	$	28,055	$	—	$	—	$	28,055
Maintenance reserve revenue		16,119		—		—		16,119
Spare parts and equipment sales		4,600		4,533		—		9,133
Gain on sale of leased equipment		3,804		—		—		3,804
Other revenue		597		135		(113)		619
Total revenue		53,175		4,668		(113)		57,730
Expenses:
Depreciation and amortization expense		17,035		67		—		17,102
Cost of spare parts and equipment sales		2,461		3,458		—		5,919
General and administrative		10,948		794		—		11,742
Net finance costs		9,707		98		—		9,805
Other expense		9,068		—		—		9,068
Total expenses		49,219		4,417		—		53,636
Earnings from operations	$	3,956	$	251	$	(113)	$	4,094
	Leasing and
For the nine months ended September 30, 2015	Related Operations		Spare Parts Sales		Eliminations (1)		Total
Revenue:
Lease rent revenue	$	79,197	$	—	$	—	$	79,197
Maintenance reserve revenue		39,035		—		—		39,035
Spare parts and equipment sales		5,450		9,550		—		15,000
Gain on sale of leased equipment		7,666		—		—		7,666
Other revenue		1,796		531		(349)		1,978
Total revenue		133,144		10,081		(349)		142,876
Expenses:
Depreciation and amortization expense		52,179		211		—		52,390
Cost of spare parts and equipment sales		3,081		7,138		—		10,219
General and administrative		28,751		2,075		—		30,826
Net finance costs		27,789		292		—		28,081
Other expense		16,416		—		—		16,416
Total expenses		128,216		9,716		—		137,932
Earnings from operations	$	4,928	$	365	$	(349)	$	4,944
(1) Represents revenue generated between our  operating segments
Total assets as of September 30, 2016	$	1,266,245	$	25,083	$	—	$	1,291,328
Total assets as of December 31, 2015	$	1,267,414	$	26,871	$	—	$	1,294,285

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Summary of Significant Accounting Policies (Details) - USD ($)	3 Months Ended	9 Months Ended		12 Months Ended
	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Decrease in deferred income taxes		$ (7,332,000)	$ (2,429,000)
Maintenance Rights		$ 16,774,000		$ 12,140,000
Restatement adjustment
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Decrease in equipment held for operating lease				13,700,000
Increase maintenance rights				12,100,000
Decrease in net income	$ 26,000		1,000,000
Decrease in deferred income taxes				600,000
Decrease in retained earnings				$ 1,100,000
Decrease in maintenance reserve revenue	0		(1,700,000)
Increase (decrease) in gain on sale of leased equipment			34,000
Decrease in depreciation and amortization expense	13,000		(72,000,000,000)
Increase in income tax benefit	$ 15,000,000,000
Decrease in income tax expense			$ 500,000
Decrease in basic and diluted earnings per share	$ 0.00		$ 0.12
Decrease in cash provided by operating income			$ 1,700,000
Decrease in the cash used by investing activities			$ 1,700,000

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Summary of Significant Accounting Policies - Fair Value on a Nonrecurring Basis (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Assets at fair value and gains (losses) recorded
Equipment held for sale	$ 13,899		$ 13,899		$ 23,454
Total losses on equipment held for lease			(1,893)	$ (1,936)
Total losses on equipment held for sale			(3,556)	(6,644)
Total losses on spare parts inventory			(475)
Total losses on assets			(5,924)	(8,580)
Asset write-down	1,995	$ 5,498	5,924	8,580
Additional write-down			2,000
Unamortized debt issuance cost	12,600		12,600
Level 1
Assets at fair value and gains (losses) recorded
Equipment held for lease
Equipment held for sale
Spare parts inventory
Assets at fair value
Nonrecurring
Assets at fair value and gains (losses) recorded
Equipment held for lease	337	1,555	337	1,555
Equipment held for sale	589	7,477	589	7,477
Spare parts inventory	1,731		1,731
Assets at fair value	2,657	9,032	2,657	9,032
Nonrecurring | Level 2
Assets at fair value and gains (losses) recorded
Equipment held for lease	337	1,555	337	1,555
Equipment held for sale	589	7,477	589	7,477
Spare parts inventory	1,731		1,731
Assets at fair value	$ 2,657	$ 9,032	$ 2,657	$ 9,032

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Investments (Details) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended		9 Months Ended
	Oct. 31, 2014	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015	Jun. 03, 2014
Investments
Capital contribution				$ 5,545	$ 630
Investment in WMES joint ventures at beginning of the period				41,295
Earnings from joint venture				874
Deferred gain on engine sale				(1,212)
Distribution				(1,167)
Foreign currency translation adjustment		$ (2,547)	$ (304)	(2,021)	(304)
Investment in WMES joint ventures at end of the period		43,314		43,314
Management fees		$ 500	$ 400	$ 1,300	$ 1,200
WMES
Investments
Ownership interest (as a percent)		100.00%	50.00%	100.00%	50.00%
Capital contribution				$ 5,545
Investment in WMES joint ventures at beginning of the period				27,272
Earnings from joint venture				929
Deferred gain on engine sale				(1,212)
Distribution				(1,167)
Investment in WMES joint ventures at end of the period		$ 31,367		31,367
Gain on sale of equipemnt				$ 1,200
Amortized Gain Period				15 years
Amortized Gain Residual Value Percent				55.00%
Consolidated Statements of Income
Revenue		8,549	$ 7,067	$ 25,547	$ 19,997
Expenses		7,496	6,302	23,886	18,052
WMES net income		1,053	$ 765	1,661	$ 1,945
Consolidated Balance Sheets
Total assets		292,412		292,412		$ 256,126
Total liabilities		221,127		221,127		195,258
Total WMES net equity		71,285		71,285		$ 60,868
CASC
Investments
Ownership interest (as a percent)							50.00%
Capital contribution	$ 15,000
Investment in WMES joint ventures at beginning of the period				14,023
Earnings from joint venture				(55)
Foreign currency translation adjustment				(2,021)
Investment in WMES joint ventures at end of the period		$ 11,947		$ 11,947

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Notes Payable (Details) - USD ($) $ in Thousands		9 Months Ended
	Apr. 20, 2016	Sep. 30, 2016	Sep. 30, 2015	Apr. 19, 2016	Dec. 31, 2015
Principal outstanding repayable
2016		$ 5,777
2017		23,624
2018		33,294
2019		23,430
2020		23,031
Thereafter		790,324
Notes payable		899,480			$ 878,684
Notes payable		899,480			878,684
Less: unamortized debt issuance costs		(13,837)			(12,595)
Total notes payable		885,643			866,089
Notes payable		885,643			$ 866,089
Net proceeds received from notes issued and sold		$ 87,000	$ 140,700
WEST II Series 2012-A term notes payable at a fixed rate of interest maturing in September 2037. Secured by engines | WEST II
Long Term Debt
Fixed rate (as a percent)		5.50%			5.50%
Principal outstanding repayable
Notes payable		$ 284,549			$ 300,467
Notes payable		284,549			300,467
Note payable at fixed interest rates ranging from 2.60% to 2.97%, maturing in July 2024. Secured by an aircraft
Principal outstanding repayable
Notes payable		14,879			16,135
Notes payable		$ 14,879			16,135
Note payable at fixed interest rates ranging from 2.60% to 2.97%, maturing in July 2024. Secured by an aircraft | Minimum
Long Term Debt
Fixed rate (as a percent)		2.60%
Note payable at fixed interest rates ranging from 2.60% to 2.97%, maturing in July 2024. Secured by an aircraft | Maximum
Long Term Debt
Fixed rate (as a percent)		2.97%
Note payable at a fixed interest rate of 2.25%, maturing in January 2018, secured by engines
Principal outstanding repayable
Notes payable		$ 12,052			13,082
Notes payable		$ 12,052			13,082
Note payable at a fixed interest rate of 2.25%, maturing in January 2018, secured by engines | LIBOR
Long Term Debt
Basis spread on variable rate (as a percent)		2.25%
Revolving credit facility
Long Term Debt
Basis spread on variable rate (as a percent)	2.75%
Maximum borrowing capacity under credit facility	$ 890,000			$ 700,000
Amount of debt available under accordion feature	$ 1,000,000
Credit facility at a floating rate of interest of LIBOR plus 2.75%, secured by engines
Long Term Debt
Maximum borrowing capacity under credit facility		$ 890,000
Principal outstanding repayable
Notes payable		588,000			549,000
Notes payable		$ 588,000			$ 549,000
Credit facility at a floating rate of interest of LIBOR plus 2.75%, secured by engines | LIBOR
Long Term Debt
Basis spread on variable rate (as a percent)		2.75%

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Stock-Based Compensation Plans (Details) - The 2007 plan - shares	9 Months Ended
	Sep. 30, 2016	May 28, 2015	May 24, 2007
Stock-based compensation plans
Number of shares authorized	2,800,000	800,000	2,000,000
Options cancelled (in shares)	155,579
Outstanding at the end of the period (in shares)	555,222
Restricted stock
Stock-based compensation plans
Number of shares authorized	2,400,357

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Stock-Based Compensation Plans - Restricted stock activity (Details) - The 2007 plan - USD ($) $ in Millions	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Number Outstanding
Balance at the beginning of the period (in shares)	396,595	525,356
Shares vested	(146,190)	(275,201)
Shares cancelled	(20,211)
Balance at the end of the period (in shares)	366,839	396,595
Restricted stock
Number Outstanding
Remaining average vesting period for recognition of unrecognized compensation expense	1 year 7 months 6 days
Unrecognized compensation expense (in dollars)	$ 4.7
Intrinsic value of unvested awards (in dollars)	$ 8.7
Restricted stock | Awards vesting on first anniversary
Number Outstanding
Shares granted		16,440
Restricted stock | Awards Vesting Over One Year [Member]
Number Outstanding
Shares granted	18,395
Vesting period	1 year
Restricted stock | Awards Vesting Over Two Year Member
Number Outstanding
Shares granted	20,000
Vesting period	2 years
Restricted stock | Awards Vesting Over Three Years [Member]
Number Outstanding
Shares granted	75,000	125,000
Vesting period	3 years	3 years
Restricted stock | Awards vesting over four years [Member]
Number Outstanding
Shares granted	23,250	5,000
Vesting period	4 years	4 years

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Income Taxes
Income tax expense	$ 2,517	$ 2,101	$ 7,987	$ 2,648
Effective tax rate (as a percent)	38.70%	45.20%	41.30%	43.60%

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Fair Value of Financial Instruments (Details) - USD ($) $ in Millions	Sep. 30, 2016	Dec. 31, 2015
Level 3
Fair value of financial instruments
Fair value of notes payable	$ 877.8	$ 890.1

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Operating Segments (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($) segment	Sep. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)
Operating segments
Number of operating segments | segment			2
Revenue:
Lease rent revenue	$ 31,270	$ 28,055	$ 88,727	$ 79,197
Maintenance reserve revenue	14,229	16,119	45,562	39,035
Spare parts sales	4,160	9,133	10,465	15,000
Gain on sale of leased equipment	180	3,804	3,430	7,666
Other revenue	1,622	619	3,614	1,978
Total revenue	51,461	57,730	151,798	142,876
Expenses:
Depreciation and amortization expense	16,628	17,102	49,235	52,390
Cost Of Spare Parts and Equipment Sales	3,066	5,919	7,785	10,219
General and administrative	12,257	11,742	34,694	30,826
Net finance costs	10,230	9,805	30,772	28,081
Other expense	3,409	9,068	10,837	16,416
Total expenses	45,590	53,636	133,323	137,932
Earnings from operations	5,871	4,094	18,475	4,944
Total assets	1,291,328		1,291,328		$ 1,294,285
Operating Segments [Member] | Leasing and Related Operations
Revenue:
Lease rent revenue	31,270	28,055	88,727	79,197
Maintenance reserve revenue	14,229	16,119	45,562	39,035
Spare parts sales	900	4,600	1,800	5,450
Gain on sale of leased equipment	180	3,804	3,430	7,666
Other revenue	1,487	597	3,392	1,796
Total revenue	48,066	53,175	142,911	133,144
Expenses:
Depreciation and amortization expense	16,541	17,035	48,981	52,179
Cost Of Spare Parts and Equipment Sales	640	2,461	1,288	3,081
General and administrative	11,500	10,948	32,438	28,751
Net finance costs	10,116	9,707	30,443	27,789
Other expense	2,934	9,068	10,362	16,416
Total expenses	41,731	49,219	123,512	128,216
Earnings from operations	6,335	3,956	19,399	4,928
Total assets	1,266,245		1,266,245		1,267,414
Operating Segments [Member] | Spare Parts Sales
Revenue:
Spare parts sales	3,260	4,533	8,665	9,550
Other revenue	786	135	1,734	531
Total revenue	4,046	4,668	10,399	10,081
Expenses:
Depreciation and amortization expense	87	67	254	211
Cost Of Spare Parts and Equipment Sales	2,426	3,458	6,497	7,138
General and administrative	757	794	2,256	2,075
Net finance costs	114	98	329	292
Other expense	475		475
Total expenses	3,859	4,417	9,811	9,716
Earnings from operations	187	251	588	365
Total assets	25,083		25,083		$ 26,871
Intersegment Eliminations [Member]
Revenue:
Other revenue	(651)	(113)	(1,512)	(349)
Total revenue	(651)	(113)	(1,512)	(349)
Expenses:
Earnings from operations	$ (651)	$ (113)	$ (1,512)	$ (349)

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Subsequent Event - Preferred Stock (Details) - Subsequent event - Series A Preferred Stock - Development Bank of Japan Inc. $ / shares in Units, $ in Millions	Oct. 11, 2016 USD ($) $ / shares shares
Subsequent events
Sale and issuance of shares | shares	1,000,000
Dividend rate (as a percent)	6.50%
Preferred stock, par value (in dollars per share)	$ 0.01
Purchase price (in dollars per share)	20.00
Preferred stock liquidation preference (in dollars per share)	$ 20.00
Net proceeds from preferred stock | $	$ 19.8

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Subsequent Event - Total Engine Support limited Acquisition (Details)	Oct. 26, 2016 engine
Subsequent event | TES
Subsequent events
Number of engines	500