WILLIS LEASE FINANCE CORP (Form: 10-Q, Received: 05/10/2018 15:27:26)

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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 March 31, 2018

☐ 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 website, 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”, “smaller reporting company” and “emerging growth 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)

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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 May 7, 2018
Common Stock, $0.01 par value per share		6,358,663

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WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES

INDEX


PART I.	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3

	Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017	3

	Condensed Consolidated Statements of Income for the three months ended March 31, 2018 and 2017	4

	Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and 2017	5

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22

Item 4.	Controls and Procedures	22

PART II.	OTHER INFORMATION	22

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23

Item 5.	Other Information	23

Item 6.	Exhibits	24

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PART I — FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES

Condensed Consolidated Balance Sheet s

(In thousands, except per share data)

(Unaudited)


	March 31,		December 31,
	2018		2017
ASSETS
Cash and cash equivalents	$	12,662	$	7,052
Restricted cash		44,511		40,272
Equipment held for operating lease, less accumulated depreciation of $380,108 and $368,683 at March 31, 2018 and December 31, 2017, respectively		1,466,144		1,342,571
Maintenance rights		14,763		14,763
Equipment held for sale		23,671		34,172
Operating lease related receivables, net of allowances of $1,046 and $949 at March 31, 2018 and December 31, 2017, respectively		24,630		18,848
Spare parts inventory		24,070		16,379
Investments		51,250		50,641
Property, equipment & furnishings, less accumulated depreciation of $7,812 and $7,374 at March 31, 2018 and December 31, 2017, respectively		25,927		26,074
Intangible assets, net		1,626		1,727
Other assets		35,251		50,932
Total assets (1)	$	1,724,505	$	1,603,431

LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued expenses	$	36,800	$	22,072
Deferred income taxes		81,053		78,280
Debt obligations		1,179,657		1,085,405
Maintenance reserves		85,278		75,889
Security deposits		26,340		25,302
Unearned revenue		9,268		8,102
Total liabilities (2)		1,418,396		1,295,050

Redeemable preferred stock ($0.01 par value, 2,500 shares authorized; 2,500 shares issued and outstanding at March 31, 2018 and December 31, 2017)		49,491		49,471

Shareholders’ equity:
Common stock ($0.01 par value, 20,000 shares authorized; 6,116 and 6,419 shares issued at March 31, 2018 and December 31, 2017, respectively)		61		64
Paid-in capital in excess of par		—		2,319
Retained earnings		255,020		256,301
Accumulated other comprehensive income, net of income tax expense of $441 and $83 at March 31, 2018 and December 31, 2017, respectively.		1,537		226
Total shareholders’ equity		256,618		258,910
Total liabilities, redeemable preferred stock and shareholders' equity	$	1,724,505	$	1,603,431

(1) Total assets at March 31, 2018 and December 31, 2017, respectively, include the following assets of variable interest entities (VIEs) that can only be used to settle the liabilities of the VIEs: Cash, $595 and $130; Restricted Cash $44,511 and $40,272; Equipment, $653,809 and $657,333; and Other, $1,230 and $20,090, respectively.
(2) Total liabilities at March 31, 2018 and December 31, 2017, respectively, include the following liabilities of VIEs for which the VIEs' creditors do not have recourse to Willis Lease Finance Corporation: Debt obligations, $568,618 and $577,056, respectively.

See accompanying notes to the unaudited condensed consolidated financial statements.

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WILLIS LEASE FINANCE CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of Incom e

(In thousands, except per share data)

(Unaudited)


	Three Months Ended March 31,
	2018		2017
REVENUE
Lease rent revenue	$	39,644	$	30,233
Maintenance reserve revenue		15,440		31,961
Spare parts and equipment sales		6,286		12,596
Gain on sale of leased equipment		640		983
Other revenue		1,882		2,173
Total revenue		63,892		77,946

EXPENSES
Depreciation and amortization expense		17,355		16,628
Cost of spare parts and equipment sales		4,783		10,318
Write-down of equipment		—		12,091
General and administrative		15,611		13,201
Technical expense		3,677		2,292
Interest expense		13,595		10,865
Total expenses		55,021		65,395

Earnings from operations		8,871		12,551
Earnings from joint ventures		747		1,854
Income before income taxes		9,618		14,405
Income tax expense		2,536		6,238
Net income		7,082		8,167
Preferred stock dividends		801		321
Accretion of preferred stock issuance costs		20		7
Net income attributable to common shareholders	$	6,261	$	7,839

Basic weighted average earnings per common share	$	1.03	$	1.28
Diluted weighted average earnings per common share	$	1.00	$	1.25

Basic weighted average common shares outstanding		6,104		6,114
Diluted weighted average common shares outstanding		6,256		6,263

See accompanying notes to the unaudited condensed consolidated financial statements.

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WILLIS LEASE FINANCE CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Incom e

(In thousands)

(Unaudited)


	Three Months Ended
	March 31,
	2018		2017
Net income	$	7,082	$	8,167
Other comprehensive income:
Currency translation adjustment		585		99
Unrealized gain on derivative instruments		1,031		335
Net gain recognized in other comprehensive income		1,616		434
Tax expense related to items of other comprehensive income		(365)		(150)
Impact from adoption of ASU 2018-02 (1)		59		—
Other comprehensive income		1,310		284
Total comprehensive income	$	8,392	$	8,451

(1)

Reflects the stranded tax effects from change in tax rate as a result of the early adoption of ASU 2018-02 which has been reclassified to retained earnings.

See accompanying notes to the unaudited condensed consolidated financial statements.

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WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flow s

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2018		2017
Cash flows from operating activities:
Net income	$	7,082	$	8,167
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		17,355		16,628
Write-down of equipment		—		12,091
Stock-based compensation expenses		925		874
Amortization of deferred costs		1,433		1,198
Allowances and provisions		242		563
Gain on sale of leased equipment		(640)		(983)
Income from joint ventures		(747)		(1,854)
Deferred income taxes		2,300		6,181
Changes in assets and liabilities:
Receivables		(6,026)		4,150
Spare parts inventory		(2,944)		968
Other assets		284		(791)
Accounts payable and accrued expenses		(484)		3,834
Maintenance reserves		9,389		(4,340)
Security deposits		1,038		(160)
Unearned revenue		1,166		(580)
Net cash provided by operating activities		30,373		45,946

Cash flows from investing activities:
Proceeds from sale of equipment (net of selling expenses)		23,309		26,711
Deposit received for proposed sale of equipment		3,400		—
Distributions received from joint ventures		—		1,880
Purchase of equipment held for operating lease and for sale		(138,626)		(35,304)
Purchase of property, equipment and furnishings		(290)		(199)
Net cash used in investing activities		(112,207)		(6,912)

Cash flows from financing activities:
Proceeds from issuance of debt obligations		123,000		18,000
Principal payments on debt obligations		(29,779)		(46,847)
Proceeds from shares issued under stock compensation plans		118		94
Repurchase of common stock		(74)		(884)
Preferred stock dividends		(917)		(305)
Payments of tax withholdings for stock-based awards		(665)		(270)
Net cash provided by (used in) financing activities		91,683		(30,212)

Increase in cash, cash equivalents and restricted cash		9,849		8,822
Cash, cash equivalents and restricted cash at beginning of period		47,324		32,374
Cash, cash equivalents and restricted cash at end of period	$	57,173	$	41,196

Supplemental disclosures of cash flow information:
Net cash paid for:
Interest	$	12,187	$	9,485
Income Taxes	$	71	$	75

Supplemental disclosures of non-cash activities:
Purchase of aircraft and engines	$	3,762	$	623
Transfers from Equipment held for operating lease to Equipment held for sale	$	7,889	$	37,883
Transfers from Equipment held for sale to Spare parts inventory	$	5,345	$	—
Transfers from Property, equipment and furnishings to Equipment held for lease	$	—	$	2,925
Accrued preferred stock dividends	$	667	$	—
Accrued share repurchases	$	10,109	$	—
				-

See accompanying notes to the unaudited condensed consolidated financial statements.

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WILLIS LEASE FINANCE CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2018

(Unaudited)

1. Summary of Significant Accounting Policies

The significant accounting policies of Willis Lease Finance Corporation and its subsidiaries (collectively, the “Company”) were described in Note 1 to the audited consolidated financial statements included in the Company’s 2017 Annual Report on Form 10-K (“2017 Form 10-K”). There have been no significant changes in the Company’s significant accounting policies for the three months ended March 31, 2018.

(a) Basis of Presentation

The accompanying Unaudited Condensed Consolidated Financial Statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. Therefore, they do not include all information and footnotes normally included in annual consolidated financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the 2017 Form 10-K. In the opinion of management, the Unaudited Condensed Consolidated Financial Statements contain all adjustments (consisting principally of normal recurring accruals) necessary for a fair presentation of the condensed consolidated balance sheets, statements of income, statements of comprehensive income and statements of cash flows for such interim periods presented. Additionally, operating results for interim periods are not necessarily indicative of the results that can be expected for a full year.

In accordance with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. These estimates and judgments are based on historical experience and other assumptions that management believes are reasonable. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ materially from these estimates. The significant estimates made in the accompanying Unaudited Condensed Consolidated Financial Statements include certain assumptions related to goodwill, intangible assets, long-lived assets, assets held for sale, estimated tax liabilities and stock-based compensation. Actual results may differ from these estimates under different assumptions or conditions.

(b) Reclassifications

In conjunction with our review of the fourth quarter of 2017, the Company reclassified scrap inventory write-offs and inventory lower of cost or market write-downs that were previously presented within Write-down of equipment to the Cost of spare parts and equipment sales line item. The first quarter of 2017 was impacted by an adjustment of $0.9 million and is reflected as an increase to Cost of spare parts and equipment sales and a decrease to Write-down of equipment. These reclassified items had no effect on the reported results of operations, financial condition or statements of cash flows.

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, including variable interest entities (“VIEs”) where the Company is the primary beneficiary in accordance with consolidation guidance. The Company evaluates all entities in which it has 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 VIE the Company consolidates the financial statements of that entity if it is the primary beneficiary of the entities’ activities. If the entity is a voting interest entity the Company consolidates the entity when it has a majority of voting interests. Intercompany transactions and balances have been eliminated in consolidation.

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(d) Recent Accounting Pronouncements

Recent Accounting Pronouncements Adopted by the Company

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 amends the accounting guidance on revenue recognition. The amendments in this accounting standard update are intended to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices, and improve disclosure requirements. Under the new standard, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. The principles in the standard should be applied using a five-step model that includes 1) identifying the contract(s) with a customer, 2) identifying the performance obligations in the contract, 3) determining the transaction price, 4) allocating the transaction price to the performance obligations in the contract, and 5) recognizing revenue when (or as) the performance obligations are satisfied. The standard also requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In addition, the standard amends the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (for example, sales of real estate) to be consistent with the standard’s guidance on recognition and measurement (including the constraint on revenue). The FASB also subsequently issued several amendments to the standard, including clarification on principal versus agent guidance, identifying performance obligations, and immaterial goods and services in a contract.

The Company adopted ASU 2014-09 and its related amendments (collectively known as Accounting Standards Codification (“ASC”) 606) effective on January 1, 2018 using the modified retrospective approach applied only to contracts not completed as of the date of adoption . Please see Note 2 "Revenue from Contracts with Customers" for the required disclosures related to the impact of adopting this standard and a discussion of the Company's updated policies related to revenue recognition and accounting for costs to obtain and fulfill a customer contract.

In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” that eliminates “Step 2” from the goodwill impairment test. The Company has made the election to early adopt ASU 2017-04 as of January 1, 2018 and the standard was applied on a prospective basis, as required. The adoption of this standard did not have an impact on the consolidated financial statements or the related disclosures.

In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,” that provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The new guidance became effective for the Company on January 1, 2018 and was applied on a prospective basis, as required. The adoption of this standard did not have an impact on the consolidated financial statements or the related disclosures.

In February 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” to address stakeholder concerns about the guidance in current GAAP that requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The ASU must be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Act is recognized. The Company has made the election to early adopt ASU 2018-02 as of January 1, 2018 (the period of adoption) and recorded a reclassification of $59 thous and between Other comprehensive income and Retained earnings as of January 1, 2018.

Recent Accounting Pronouncements To Be Adopted by the Company

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The FASB issued ASU 2016-02 to increase transparency and comparability among organizations recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under ASU 2016-02, lessors will account for leases using an approach that is substantially equivalent to existing GAAP for sales-type leases, direct financing leases and operating leases. Unlike current guidance, however, a lease with collectability uncertainties may be classified as a sales-type lease. If collectability of lease payments, plus any amount necessary to

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satisfy a lessee residual value guarantee, is not probable, lease payments received will be recognized as a deposit liability and the underlying assets will not be derecognized until collectability of the remaining amounts becomes probable. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted, and must be adopted using a modified retrospective transition. The Company plans to adopt this guidance effective January 1, 2019 and is currently evaluating the potential impact adoption will have on the consolidated financial statements and related disclosures.

2. Revenue from Contracts with Customers

As of January 1, 2018, the Company adopted ASU 2014-09 and all subsequent ASUs that modified ASC 606. While only a portion of the Company’s revenues is impacted by this guidance as it does not apply to contracts falling under the leasing standard, as part of the implementation process the Company performed an analysis to identify accounting policies that needed to change and additional disclosures that are required. The Company considered factors such as customer contracts with unique revenue recognition considerations, the nature and type of goods and services offered, the degree to which contracts include multiple performance obligations or variable consideration, and the pattern in which revenue is currently recognized, among other things. All revenue streams applicable to the new standard (Spare parts and equipment sales and Managed services which is reflected within Other revenue) were evaluated by management. The Company considered recognition under the new standard and concluded the timing of the Company’s revenue recognition will remain the same. The Company has also evaluated the changes in controls and processes that are necessary to implement the new standard, and no material changes were required.

The following table disaggregates revenue by major source for the three months ended March 31, 2018 (in thousands):


	Leasing and
	Related Operations		Spare Parts Sales		Eliminations (1)		Total

Leasing revenue (2)	$	56,014	$	—	$	—	$	56,014
Gain on sale of leased equipment (3)		640		—		—		640
Spare parts and equipment sales		—		6,286		—		6,286
Managed services		921		—		—		921
Other revenue		—		1,113		(1,082)		31
Total revenue	$	57,575	$	7,399	$	(1,082)	$	63,892

(1)

Represents revenue generated between our reportable segments.

(2)

Leasing revenue is recognized under the lease accounting guidance in ASC 840 Leases, and therefore qualifies for the scope exception under ASC 606.

(3)

Gain on sale of leased equipment is accounted for under ASC 610-20, Gains and losses from the derecognition of nonfinancial assets.

Leasing revenue

Revenue from leasing of engines, aircraft and related parts and equipment is recognized as operating lease revenue on a straight-line basis over the terms of the applicable lease agreements. Revenue is not recognized when cash collection is not reasonably assured. When collectability is not reasonably assured, the customer is placed on non-accrual status and revenue is recognized when cash payments are received.

Under the terms of some of the Company’s leases, the lessees pay use fees (also known as maintenance reserves) to the Company based on usage of the leased asset, which are designed to cover expected future maintenance costs. Some of these amounts are reimbursable to the lessee if they make specifically defined maintenance expenditures. Use fees received are recognized in revenue as maintenance reserve revenue if they are not reimbursable to the lessee. Use fees that are reimbursable are recorded as a maintenance reserve liability until they are reimbursed to the lessee or the lease terminates, at which time they are recognized in revenue as maintenance reserve revenue.

Certain lessees may be significantly delinquent in their rental payments and may default on their lease obligations. As of March 31, 2018, the Company had an aggregate of approximately $3.1 million in lease rent and $4.9 million in maintenance reserve receivables more than 30 days past due. Inability to collect receivables or to repossess engines or other leased equipment in the event of a default by a lessee could have a material adverse effect on the Company. The Company estimates an allowance for doubtful accounts for lease receivables it does not consider fully collectible.

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The allowance for doubtful accounts includes the following: (1) specific reserves for receivables which are impaired for which management believes full collection is doubtful; and (2) a general reserve for estimated losses based on historical experience.

Gain on sale of leased equipment

The Company regularly sells equipment from its lease portfolio. This equipment may or may not be subject to a lease at the time of sale. The gain or loss on such sales is recognized as revenue and consists of proceeds associated with the sale less the net book value of the asset sold and any direct costs associated with the sale. To the extent that deposits associated with the engine are not included in the sale, any such amount is included in the calculation of gain or loss.

Spare parts sales

The Spare Parts Sales reportable segment primarily engages in the sale of aircraft engine parts and materials through the acquisition or consignment of engines from third parties. The parts are sold at a fixed price with no right of return and are shipped “FOB shipping point.” In determining the performance obligation, management has identified the promise in the contract to be the shipment of the spare parts to the customer. When the spare parts are shipped FOB shipping point, title passes to the buyer when the goods are shipped, and the buyer is responsible for any loss in transit, and the Company has a legal right to payment for the spare parts. Management has determined that physical acceptance of the spare parts to be a formality in accordance with ASC 606-10-5-86 and as the Company is not obliged to perform additional services under these arrangements, the shipment of the spare parts is the performance obligation.

The spare parts transaction price is a fixed dollar amount and is stated on each purchase order for a fixed amount by total number of parts. Spare parts revenue is based on a set price for a set number of parts as defined in the purchase order. There is one performance obligation identified, as discussed above, which is the shipment of the parts and as a result, all of the transaction price is allocated to that performance obligation. Management has determined that it is appropriate for the Company to recognize spare parts sales at a point in time (i.e., on the shipment date) under ASC 606. Additionally, there is no impact to the timing and amounts of revenue recognized for spare parts sales related to the implementation of ASC 606.

Equipment Sales

Equipment sales reflects sales of airframes and engines classified as held-for-sale. The Company and customer enter into an agreement which outlines the place and date of sale, purchase price, payment terms, condition of the asset, bill of sale, and the assignment of rights and warranties from the Company to the customer. Management has identified the promise in the equipment sale contract to be the transfer of ownership of the asset. Management believes the asset holds standalone value to the customer as it is not dependent on any other services for functionality purposes and therefore is distinct within the context of the contract and as described in ASC 606-10. As such, management has identified the transfer of the asset as the performance obligation. The transaction price is set at a fixed dollar amount per fixed quantity (number of assets) and is explicitly stated in each contract. Equipment sales revenue is based on a set price for a set number of assets, which is allocated to the performance obligation discussed above, in its entirety. The Company has determined the date of transfer to the customer to be the date the customer obtains control and title over the asset and the date which revenue is to be recognized and payment is due. As such, there is no impact to the timing and amounts of revenue recognized for equipment sales related to the implementation of ASC 606.

Managed Services

Managed Services revenue predominantly represents fleet management and engine storage services which may be combined on a single contract with a customer. Fleet management services are performed for a stated fixed fee as agreed upon in the services agreement. Engine storage services are for a fixed monthly fee. For a contract containing more than one performance obligation, the allocation of the transaction price is generally performed on the basis of the relative stand-alone selling price of each distinct good or service in the contract. The result of allocation consideration on this basis is consistent with the overall core principal of ASC 606 (to recognize revenue in an amount that depicts the consideration to which the Company expects to be entitled in exchange for the promised goods or services). As each of the services provided within the contract have separate prices, the Company allocates the stated price to its related performance obligation described above. Management has determined each of the revenue elements

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contain performance obligations that are satisfied over time and therefore recognizes revenue over time in accordance with ASC 606-10-25-27. The company will continue utilizing the percentage-of-completion method (input method) for recognizing Fleet Management services and will calculate revenues based on labor hours incurred. Additionally, as is required by ASC 606-10-25-35, as circumstances change over time, the Company will update its measure of progress to reflect any changes in the outcome of the performance obligation. Engine storage services will continue to be recognized on a monthly basis utilizing the input method of days passed. Therefore, there is no impact to the timing and amounts of revenue recognized for Managed Services related to the implementation of ASC 606.

Amounts owed for Managed services are typically billed upon contract completion. At January 1, 2018, $0.4 million of unbilled revenue associated with outstanding contracts was reported in Other Assets, $0.3 million of which was recognized during the first quarter of 2018 and the remaining $0.1 million is expected to be recognized by December 31, 2018. At March 31, 2018, unbilled revenue was $0.5 million and the Company expects it to be fully recognized by December 31, 2018. Additionally, Managed services are presented within the Other revenue line in our condensed consolidated statements of income.

3. Investments

The Company is a partner with Mitsui & Co., Ltd. in a joint venture based in Dublin, Ireland — Willis Mitsui & Company Engine Support Limited (“WMES”) which acquires and leases jet engines. Each partner holds a fifty percent interest in the joint venture and the Company uses the equity method in recording investment activity. WMES owned a lease portfolio of 34 engines and one aircraft with a net book value of $268.5 million as of March 31, 2018.

The Company is a partner with China Aviation Supplies Company Ltd. (“CASC”) in a joint venture named CASC Willis Engine Lease Company Limited (“CASC Willis”), which is based in Shanghai, China. The Company holds a fifty percent interest in the joint venture and uses the equity method in recording investment activity. CASC Willis acquires and leases jet engines to Chinese airlines and concentrates on the demand for leased commercial aircraft engines and aviation assets in the People’s Republic of China. CASC Willis owned a lease portfolio of 4 engines with a net book value of $58.8 million as of March 31, 2018.


Three Months Ended March 31, 2018	WMES		CASC Willis		Total
	(in thousands)
Investment in joint ventures as of December 31, 2017	$	36,014	$	14,627	$	50,641
Earnings from joint venture		390		357		747
Deferred gain on engine sale		(723)		—		(723)
Foreign Currency Translation Adjustment		—		585		585
Investment in joint ventures as of March 31, 2018	$	35,681	$	15,569	$	51,250

“Other revenue” on the Consolidated Statement of Income includes management fees earned of $0.7 million and $0.8 million during the three months ended March 31, 2018 and 2017, respectively, related to the servicing of engines for the WMES lease portfolio.

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


	Three Months Ended March 31,
	2018		2017
	(in thousands)
Revenue	$	7,606	$	11,661
Expenses		6,904		8,430
WMES income before income taxes	$	702	$	3,231

	March 31,			December 31,
	2018			2017
	(in thousands)
Total assets	$	273,952	$	246,309
Total liabilities		192,169		165,228
Total WMES net equity	$	81,783	$	81,081

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4. Debt Obligations

Debt obligations consisted of the following:


	March 31,		December 31,
	2018		2017
	(in thousands)
Credit facility at a floating rate of interest of one-month LIBOR plus 2% at March 31, 2018, secured by engines. The facility has a committed amount of $890.0 million at March 31, 2018, which revolves until the maturity date of April 2021	$	604,000	$	491,000
WEST III Series A 2017-1 term notes payable at a fixed rate of interest of 4.69%, maturing in August 2042, secured by engines		285,990		289,295
WEST III Series B 2017-1 term notes payable at a fixed rate of interest of 6.36%, maturing in August 2042, secured by engines		40,898		41,370
WEST II Series 2012-A term notes payable at a fixed rate of interest of 5.50%, maturing in September 2037, secured by engines		253,798		259,022
Note payable at fixed interest rates ranging from 2.60% to 2.97%, maturing in July 2024, secured by an aircraft		12,278		12,720
Note payable at a variable interest rate of one-month LIBOR plus 2.25%, matured in January 2018, secured by engines		—		10,336
		1,196,964		1,103,743
Less: unamortized debt issuance costs		(17,307)		(18,338)
Total debt obligations	$	1,179,657	$	1,085,405

Principal outstanding at March 31, 2018, is repayable as follows:


Year	(in thousands)
2018	$	28,622
2019		38,537
2020		38,137
2021 (includes $604 million outstanding on revolving credit facility)		642,374
2022		190,889
Thereafter		258,405
Total	$	1,196,964

Virtually all of the above debt requires 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. The Company also has certain negative financial covenants such as liens, advances, change in business, sales of assets, dividends and stock repurchases. These covenants are tested either monthly or quarterly and the Company was in full compliance with all financial covenant requirements at March 31, 2018.

The Company maintains a revolving credit facility to finance the acquisition of aircraft engines for lease as well as for general working capital purposes. The $890 million revolving credit facility has an accordion feature which would expand the entire credit facility up to $1 billion. The interest rate is adjusted quarterly, based on the Company’s leverage ratio, as calculated under the terms of the revolving credit facility .

5. Derivative Instruments

The Company periodically holds interest rate derivative instruments to mitigate exposure to changes in interest rates, in particular one-month LIBOR, with $604.0 million and $501.3 million of borrowings at March 31, 2018 and December 31, 2017, respectively, at variable rates. As a matter of policy, management does not use derivatives for speculative purposes . During 2016, the Company entered into one interest rate swap agreement which has a notional outstanding amount of $100.0 million, with a remaining term of 37 months as of March 31, 2018. The fair value of the swap at March 31, 2018 and December 31, 2017 was $2.2 million and $1.1 million, respectively, representing a net asset. The Company recorded a $24 thousand and $0.2 million expense to net finance costs during the three months ended March 31, 2018 and 2017, respectively, from derivative instruments.

The Company estimates the fair value of derivative instruments using a discounted cash flow technique and has used creditworthiness inputs that corroborate observable market data evaluating the Company’s and counterparty’s

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risk of non-performance. Valuation of the derivative instruments requires certain assumptions for underlying variables and the use of different assumptions would result in a different valuation. Management believes it has applied assumptions consistently during the period. The Company applies hedge accounting and accounts for the change in fair value of its cash flow hedges through other comprehensive income for all derivative instruments.

Effect of Derivative Instruments on Earnings in the Statements of Income and on Comprehensive Income

The following tables provide additional information about the financial statement effects related to the cash flow hedges for the three months ended March 31, 2018 and 2017:


	Amount of Gain Recognized				Location of Loss	Amount of Loss Recognized
	in OCI on Derivatives				Reclassified from	from Accumulated OCI into Income
Derivatives in	(Effective Portion)				Accumulated OCI into	(Effective Portion)
Cash Flow Hedging	Three Months Ended March 31,				Income	Three Months Ended March 31,
Relationships	2018		2017		(Effective Portion)	2018		2017
	(in thousands)					(in thousands)
Interest rate contracts	$	1,031	$	335	Interest expense	$	24	$	226
Total	$	1,031	$	335	Total	$	24	$	226

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

The effective portion of the change in fair value on a derivative instrument designated as a cash flow hedge is reported as a component of other comprehensive income and is reclassified into earnings in the period during which the transaction being hedged affects earnings or it is probable that the forecasted transaction will not occur. The ineffective portion of the hedges is recorded in earnings in the current period. However, these are highly effective hedges and no significant ineffectiveness occurred in the periods presented.

Counterparty Credit Risk

The Company evaluates the creditworthiness of the counterparties under its hedging agreements. The counterparty for the interest rate swap in place during 2018 was a large financial institution in the United States that possessed an investment grade credit rating. Based on this rating, the Company believes that the counterparty was creditworthy and that their continuing performance under the hedging agreement was probable, and did not require the counterparty to provide collateral or other security to the Company.

6. Income Taxes

Income tax expense for the three months ended March 31, 2018 and 2017 was $2.5 million and $6.2 million, respectively. The effective tax rates for the three months ended March 31, 2018 and 2017 were 26.4% and 43.3%, respectively. The 2018 tax rate reflects the enactment of the Tax Cuts and Jobs Act of 2017 (the “Act”) which made significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017.

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

The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of judgment, and therefore cannot be determined with precision.

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Accounting standards define fair value as the price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting standards establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and also establishes the following three levels of inputs that may be used to measure fair value:

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.

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:

Cash and cash equivalents, restricted cash, operating lease related receivables, and accounts payable : The amounts reported in the accompanying Consolidated Balance Sheets approximate fair value due to their short-term nature.

Debt obligations : The carrying amount of the Company’s outstanding balance on its Debt obligations as of March 31, 2018 and December 31, 2017 was estimated to have a fair value of approximately $1,038.9 million and $1,090.0 million, respectively, based on the fair value of estimated future payments calculated using interest rates that approximate prevailing market rates at each period end (Level 2 inputs).

Assets Measured and Recorded at Fair Value on a Recurring Basis

As of March 31, 2018 and December 31, 2017, the Company measured the fair value of its interest rate swap of $100.0 million (notional amount) based on Level 2 inputs, due to the usage of inputs that can be corroborated by observable market data. The Company estimates the fair value of derivative instruments using a discounted cash flow technique and has used creditworthiness inputs that corroborate observable market data evaluating the Company’s and counterparties’ risk of non-performance. The interest rate swap agreement had a net fair value of $2.2 million and $1.1 million as of March 31, 2018 and December 31, 2017, respectively. For the three months ended March 31, 2018 and 2017, $24 thousand and $0.2 million, respectively, was realized through the income statement as an increase in interest expense.

Assets Measured and Recorded at Fair Value on a Nonrecurring Basis

The Company determines 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 Company used Level 2 inputs to measure write-downs of equipment held for lease, equipment held for sale and spare parts inventory as of March 31, 2018 and December 31, 2017.


	Assets at Fair Value																Total Losses
	March 31, 2018								December 31, 2017								March 31,
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		2018		2017
	(in thousands)																(in thousands)
Equipment held for lease	$	—	$	—	$	—	$	—	$	—	$	23,255	$	—	$	23,255	$	—	$	(9,020)
Equipment held for sale		—		—		—		—		—		39,261		—		39,261		—		(3,071)
Spare parts inventory		—		464		—		464		—		5,336		—		5,336		(530)		(918)
Total	$	—	$	464	$	—	$	464	$	—	$	67,852	$	—	$	67,852	$	(530)	$	(13,009)

There were no write-downs of equipment to their estimated fair values for the three months ended March 31, 2018. An asset write-down of $0.5 million was recorded in the three months ended March 31, 2018 based upon a comparison of the spare parts net book values with the revised net proceeds expected from part sales.

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A write-down of $12.1 million was recorded during the three months ended March 31, 2017 for four engines and two aircraft for which their leases ended or were modified in the period. Management evaluated the equipment return condition, end of lease compensation, accumulated maintenance reserves and expected future proceeds from part out and sale to record its initial best estimate of impairment. An additional asset write-down of $0.9 million was recorded in the three months ended March 31, 2017 based upon a comparison of the spare parts net book values with the revised net proceeds expected from part sales.

8. Earnings Per Share

Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Treasury stock is excluded from the weighted average number of shares of common stock outstanding. Diluted earnings per share attributable to common stockholders is computed based on the weighted average number of shares of common stock and dilutive securities outstanding during the period. Dilutive securities are common stock equivalents that are freely exercisable into common stock at less than market prices or otherwise dilute earnings if converted. The net effect of common stock equivalents is based on the incremental common stock that would be issued upon the vesting of restricted stock using the treasury stock method. Common stock equivalents are not included in diluted earnings per share when their inclusion is antidilutive. Additionally, redeemable preferred stock is not convertible and does not affect dilutive shares.

The computations of diluted weighted average earnings per common share do not include approximately 275 and 700 restricted shares for the periods ended March 31, 2018 and March 31, 2017, respectively, as the effect of their inclusion would have been antidilutive to earnings per share. The difference between average common shares outstanding to calculate basic and assuming full dilution is due to restricted stock issued under the 2007 Stock Incentive Plan.

The following table presents the calculation of basic and diluted EPS:


	Three Months Ended March 31,
	2018		2017
	(in thousands)
Net income attributable to common shareholders	$	6,261	$	7,839

Basic weighted average common shares outstanding		6,104		6,114
Potentially dilutive common shares		152		149
Diluted weighted average common shares outstanding		6,256		6,263

Basic weighted average earnings per common share	$	1.03	$	1.28
Diluted weighted average earnings per common share	$	1.00	$	1.25

9. Equity

Common Stock Repurchase

In September 2012, the Company announced that its Board of Directors 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 in October 2016 and extended the plan to December 31, 2018. Repurchased shares are immediately retired. During the three months ended March 31, 2018, the Company repurchased 297,367 shares of common stock for approximately $10.2 million under this program, at a weighted average price of $34.24 per share. At March 31, 2018, approximately $19.2 million is available to purchase shares under the plan.

Redeemable Preferred Stock

Dividends: The Company’s Series A-1 Preferred Stock and Series A-2 Preferred Stock accrue quarterly dividends at the rate per annum of 6.5% per share. During the three months ended March 31, 2018, the Company paid total dividends of $0.9 million on the Series A-1 and Series A-2 Preferred Stock. For additional disclosures on the Company’s Redeemable Preferred Stock, refer to Note 10 in the 2017 Form 10-K.

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10. Stock-Based Compensation Plans

The components of stock-based compensation expense for the three months ended March 31, 2018 and 2017 were as follows:


	March 31,
	2018		2017
	(in thousands)
2007 Stock Incentive Plan	$	905	$	865
Employee Stock Purchase Plan		20		9
Total Stock Compensation Expense	$	925	$	874

The 2007 Stock Incentive Plan (the “2007 Plan”) was adopted on May 24, 2007. Under this 2007 Plan, a total of 2,800,000 shares are authorized for stock based compensation available in the form of either restricted stock awards (“RSA’s”) or stock options. The RSA’s are subject to service-based vesting, typically between one and four years, where a specific period of continued employment must pass before an award vests. The expense associated with these awards is recognized on a straight-line basis over the respective vesting period, with forfeitures accounted for as they occur. For any vesting tranche of an award, the cumulative amount of compensation cost recognized is equal to the portion of the grant‑date fair value of the award tranche that is actually vested at that date.

As of March 31, 2018, the Company has granted 2,628,960 RSA’s under the 2007 Plan. Of this amount, 166,744 shares were cancelled and returned to the pool of shares which could be granted under the 2007 Plan resulting in a net number of 337,784 shares available for future issuance. The fair value of the restricted stock awards equaled the stock price at the grant date. There are no stock options outstanding under the 2007 Plan.

The following table summarizes restricted stock activity during the three months ended March 31, 2018:


		Shares
Restricted stock at December 31, 2017		328,122
Shares granted		13,000
Shares forfeited		—
Shares vested		(92,730)
Restricted stock at March 31, 2018		248,392

Under the Employee Stock Purchase Plan (“ESPP”), as amended and restated effective May 20, 2010, 250,000 shares of common stock have been reserved for issuance. Eligible employees may designate not more than 10% of their cash compensation to be deducted each pay period for the purchase of common stock under the Purchase Plan. Participants may purchase not more than 1,000 shares or $25,000 of common stock in any one calendar year. Each January 31 and July 31 shares of common stock are purchased with the employees’ payroll deductions from the immediately preceding six months at a price per share of 85% of the lesser of the market price of the common stock on the purchase date or the market price of the common stock on the date of entry into an offering period. In the first quarter of 2018 and 2017, respectively, 5,497 and 6,065 shares of common stock were issued under the ESPP. The Company issues new shares through its transfer agent upon employee stock purchase.

11. Reportable Segments

The Company has two reportable 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 other related businesses 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.

The Company evaluates the performance of each of the segments based on profit or loss after general and administrative expenses. 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 reportable segments (in thousands):


	Leasing and
Three months ended March 31, 2018	Related Operations		Spare Parts Sales		Eliminations (1)		Total
Revenue:
Lease rent revenue	$	39,644	$	—	$	—	$	39,644
Maintenance reserve revenue		15,440		—		—		15,440
Spare parts and equipment sales		—		6,286		—		6,286
Gain on sale of leased equipment		640		—		—		640
Other revenue		1,851		1,113		(1,082)		1,882
Total revenue		57,575		7,399		(1,082)		63,892

Expenses:
Depreciation and amortization expense		17,269		86		—		17,355
Cost of spare parts and equipment sales		—		4,783		—		4,783
Write-down of equipment		—		—		—		—
General and administrative		14,495		1,116		—		15,611
Technical expense		3,677		—		—		3,677
Interest expense		13,595		—		—		13,595
Total expenses		49,036		5,985		—		55,021
Earnings from operations	$	8,539	$	1,414	$	(1,082)	$	8,871

	Leasing and
Three months ended March 31, 2017	Related Operations		Spare Parts Sales		Eliminations (1)		Total
Revenue:
Lease rent revenue	$	30,233	$	—	$	—	$	30,233
Maintenance reserve revenue		31,961		—		—		31,961
Spare parts sales and equipment sales		6,425		6,171		—		12,596
Gain on sale of leased equipment		983		—		—		983
Other revenue		2,125		175		(127)		2,173
Total revenue		71,727		6,346		(127)		77,946

Expenses:
Depreciation and amortization expense		16,540		88		—		16,628
Cost of spare parts and equipment sales (2)		4,705		5,613		—		10,318
Write-down of equipment (2)		12,091		—		—		12,091
General and administrative		12,414		787		—		13,201
Technical expense		2,292		—				2,292
Interest expense		10,865		—		—		10,865
Total expenses		58,907		6,488		—		65,395
Earnings (loss) from operations	$	12,820	$	(142)	$	(127)	$	12,551

(1) Represents revenue generated between our operating segments.
(2) The amounts herein include reclassifications of scrap inventory write-offs and lower of cost or market write-downs that were previously presented within Write-down of equipment to the Costs of spare parts and equipment sales expense line item. The three months ended March 31, 2017 was impacted by a $0.9 million reclassification, reflected as an increase to Cost of spare parts and equipment sales and a decrease to Write-down of equipment.

Total assets as of March 31, 2018	$	1,693,802	$	30,703	$	—	$	1,724,505
Total assets as of December 31, 2017	$	1,580,094	$	23,337	$	—	$	1,603,431

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

The following discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and notes thereto included under Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, reference should be made to our audited Consolidated Financial Statements and notes thereto and related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2017 Annual Report on Form 10-K (“2017 Form 10-K”).

Overview

Our core business is acquiring and leasing commercial aircraft and aircraft engines and related aircraft equipment pursuant to operating leases, and the selective sale of such aircraft, engines and related equipment, all of which we sometimes collectively refer to as “equipment.” As of March 31, 2018, all of our leases were operating leases. As of March 31, 2018, we had 83 lessees in 43 countries. Our portfolio is continually changing due to acquisitions and sales. As of March 31, 2018, our lease portfolio consisted of 243 engines and related equipment, 15 aircraft and 9 other leased parts and equipment with an aggregate net book value of $1,466.1 million. As of March 31, 2018, we also managed 436 engines, aircraft and related equipment on behalf of other parties.

Our wholly owned subsidiary Willis Asset Management Limited (“Willis Asset Management”) is focused on the engine management and consulting business. Willis Aeronautical Services, Inc. (“Willis Aero”) is 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.

We actively manage our portfolio and structure our leases to maximize the residual values of our leased assets. Our leasing business focuses on popular Stage III commercial jet engines manufactured by CFMI, General Electric, Pratt & Whitney, Rolls Royce and International Aero Engines. These engines are the most widely used engines in the world, powering Airbus, Boeing, McDonnell Douglas, Bombardier and Embraer aircraft. Also, on a more limited basis, we lease aircraft that typically utilize the engines that are in our portfolio.

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2017 Form 10-K.

Results of Operations

Three months ended March 31, 2018 compared to the three months ended March 31, 2017 :

Lease Rent Revenue. Lease rent revenue increased by $9.4 million or 31.1% to $39.6 million in the three months ended March 31, 2018 from $30.2 million for the three months ended March 31, 2017. Lease rent revenue consists of rental income from long-term and short-term engine leases, aircraft leases, and other leased parts and equipment. The increase is primarily driven by an increase in lease rates and increased net book value of the leased assets. During the three months ended March 31, 2018, 20 engines were purchased for our lease portfolio at a total cost of $154.9 million (including capitalized costs). During the three months ended March 31, 2017, 4 engines and 2 aircraft were purchased for our lease portfolio at a total cost of $40.3 million (including capitalized costs).

The aggregate net book value of equipment held for lease at March 31, 2018 and March 31, 2017, was $1,466.1 million and $1,094.7 million, respectively, an increase of 33.9%. Average utilization (based on net book value) for the three months ended March 31, 2018 decreased to approximately 86% from 89% for the three months ended March 31, 2017. Utilization was influenced by the Company’s acquisition of new equipment.

Maintenance Reserve Revenue . Maintenance reserve revenue decreased $16.5 million, or 51.7%, to $15.4 million for the three months ended March 31, 2018 from $32.0 million for the three months ended March 31, 2017. During the first three months of 2018, we recognized $13.0 million Maintenance reserve revenue on our short-term, non-reimbursable leases, compared to $10.5 million in the prior year period.

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During the first three months of 2018, one non-reimbursable lease modification resulting in the recognition of $2.4 million in Maintenance reserve revenue. Comparatively, during the first three months of 2017, five non-reimbursable leases terminated resulting in the recognition of $21.5 million in Maintenance reserve revenue.

Spare Parts and Equipment Sales . Spare parts and equipment sales decreased by $6.3 million, or 50.1%, to $6.3 million for the three months ended March 31, 2018 compared to $12.6 million for the three months ended March 31, 2017. Spare parts sales remained steady quarter over quarter and for the three months ended March 31, 2018 were $6.3 million compared to $6.2 million in the comparable period in 2017. There were no equipment sales in the first quarter of 2018, compared to the sale of three airframes for $6.4 million in the first quarter of 2017.

Gain on Sale of Leased Equipment. Gain on sale of leased equipment decreased by $0.3 million, or 34.9% to $0.6 million in the three months ended March 31, 2018 from $1.0 million in the three months ended March 31, 2017 . The $0.6 million as of March 31, 2018 reflects the sale of one engine and one aircraft. During the first quarter of 2017, we sold three engines generating a net gain of $1.0 million.

Other Revenue . Other revenue decreased by $0.3 million, or 13.4%, to $1.9 million in the three months ended March 31, 2018 from $2.2 million in the three months ended March 31, 2017. During the three months ended March 31, 2018 and 2017, other revenue primarily reflected fees earned related to engines managed on behalf of third parties and service fee revenue.

Depreciation and Amortization Expense. Depreciation and amortization expense increased by $0.7 million, or 4.4%, to $17.4 million for the three months ended March 31, 2018 compared to $16.6 million for the three months ended March 31, 2017. The increase reflects the larger net book value of the lease portfolio, and the change in mix of portfolio, as compared to the prior year period.

Cost of Spare Parts and Equipment Sales . C ost of spare parts and equipment sales decreased by $5.5 million, or 53.6%, to $4.8 million for the three months ended March 31, 2018 compared to $10.3 million for the three months ended March 31, 2017. Cost of spare parts for three months ended March 31, 2018 were $4.8 million compared to $5.6 million in the prior year period. Cost of spare parts sales for the first quarter of 2017 include $0.9 million of reclassifications of scrap inventory write-offs and lower of cost or market write-downs that were previously presented within the Write-down of equipment expense line item. The reclassification is reflected as an increase to Cost of spare parts and equipment sales and a decrease to Write-down of equipment.

There were no equipment sales in the first quarter of 2018, compared to $4.7 million for the costs of sale of three airframes in the first quarter of 2017.

Write-down of Equipment. There were no write-downs of equipment in the three months ended March 31, 2018. A write-down of $12.1 million was recorded during the three months ended March 31, 2017 for four engines and two aircraft for which their leases ended or were modified in the period.

General and Administrative Expenses. General and administrative expenses increased by $2.4 million, or 18.3%, to $15.6 million for the three months ended March 31, 2018 compared to $13.2 million for the three months ended March 31, 2017. The increase, when compared to the prior year period, primarily reflects additional expenses associated with the transition of personnel to our new Coconut Creek facility, as well as other transition related expenses.

Technical Expense. Technical expense increased by $1.4 million, or 60.4%, to $3.7 million for the three months ended March 31, 2018 compared to $2.3 million for the three months ended March 31, 2017. Technical expense consists of the cost of engine repairs, engine thrust rental fees, outsourced technical support services, sublease engine rental expense, engine storage and freight costs. This increase primarily reflects an increase of $1.0 million in engine maintenance costs and an increase of $0.4 million in engine freight costs.

Interest Expense. Interest expense increased to $13.6 million for the three months ended March 31, 2018 compared to $10.9 million for the three months ended March 31, 2017. This increase is a result of higher debt obligation balances and increased borrowing cost in 2018 associated with our LIBOR based borrowings and our WEST III notes. Debt obligations outstanding, net of unamortized debt issuance costs, as of March 31, 2018 and 2017, were $1,179.7 million and $1,085.4 million, respectively, of which $604.0 million and $596.4, respectively, was tied to one-month LIBOR. As of March 31, 2018 and 2017, one-month LIBOR was 1.88% and 0.98%, respectively.

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Income Tax Expense. Income tax expense was $2.5 million for the three months ended March 31, 2018 compared to $6.2 million for the three months ended March 31, 2017. The effective tax rate for the first quarter of 2018 was 26.4% compared to 43.3% in the prior year period. This decrease was predominantly due to the Tax Cuts and Jobs Act of 2017 (the “Act”) that was signed into law making significant changes to the Internal Revenue Code, decreasing federal corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017, lower forecasted permanent non-deductible expenses for executive compensation (IRS code 162(m) calculation) and changes in the proportions of revenue generated within and outside of California during 2017.

Financial Position, Liquidity and Capital Resources

At March 31, 2018, the Company had $57.2 million of cash, cash equivalents and restricted cash. We finance our growth through borrowings secured by our equipment lease portfolio. Cash of approximately $123.0 million and $18.0 million in the three months ended March 31, 2018 and 2017, respectively, was derived from this activity. In these same time periods, $29.8 million and $46.8 million, respectively, was used to pay down related debt.

Cash Flows Discussion

Cash flows provided by operating activities was $30.4 million and $45.9 million in the three months ended March 31, 2018 and 2017, respectively. The decrease was primarily due to a change in operating lease related receivables and spare parts inventory.

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 interest expense and general and administrative costs. Cash received from maintenance reserve arrangements and lease security deposits for some of our engines on lease are restricted per our WEST II and WEST III debt agreements. 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 88% and 91%, by book value, of our lease assets were on lease at March 31, 2018 and December 31, 2017, respectively. The average utilization rate was approximately 86% and 89% for the three months ended March 31, 2018 and 2017, respectively. The decline in percentage quarter over quarter is a direct result of purchases made in the first quarter of 2018, a large portion of which were off-lease. 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.

Cash flows used in investing activities was $112.2 million and $6.9 million in the three months ended March 31, 2018 and 2017, respectively. Our primary use of funds is for the purchase of equipment for operating lease. Purchases of equipment held for operating lease and for sale (including capitalized costs and prepaid deposits made in the period) totaled $138.6 million and $35.3 million for the three months ended March 31, 2018 and 2017, respectively.

Cash flows provided by financing activities was $91.7 million for the three months ended March 31, 2018 and primarily reflected $123.0 million in proceeds from the issuance of notes payable, slightly offset by $29.8 million in principal payments. Cash flows used in financing activities of $30.2 million in the three months ended March 31, 2017 was primarily due to principal payments on notes payable.

Debt Obligations and Covenant Compliance

At March 31, 2018, Debt obligations consist of loans totaling $1,179.7 million payable with interest rates varying between approximately 2.6% and 6.4%. Substantially all of our assets are pledged to secure our obligations to creditors. For further information on our debt instruments, see the "Debt Obligations" Note 4 in Part I, Item 1 of this Form 10-Q.

Virtually all of the Company’s debt requires 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. Under our revolving credit facility, we can borrow no more than 85% of an engine’s net book value and 65% of an airframe’s or spare parts inventory’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 our revolver. The facilities are also cross-defaulted against other

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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 debt is secured by engines and aircraft to the extent that engines or aircraft are sold, repayment of that portion of the debt could be required.

At March 31, 2018, 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 March 31, 2018, we are in compliance with the covenants specified in the WEST II and WEST III indentures, servicing and other related agreements.

Contractual Obligations and Commitments

Repayments of our gross debt obligations primarily consist of scheduled installments due under term loans and are funded by the use of unrestricted cash reserves and from cash flows from ongoing operations. The table below summarizes our contractual commitments at March 31, 2018:


			Payment due by period (in thousands)
			Less than						More than
	Total		1 Year		1-3 Years		3-5 Years		5 Years
Debt obligations	$	1,196,964	$	38,291	$	76,557	$	827,997	$	254,119
Interest payments under debt obligations		256,587		55,365		104,820		42,736		53,666
Operating lease obligations		5,909		1,578		1,584		1,174		1,573
Purchase obligations		195,526		195,526		-		-		-
Total	$	1,654,986	$	290,760	$	182,961	$	871,907	$	309,358

We have estimated the interest payments due under debt obligations by applying the interest rates applicable at March 31, 2018 to the remaining debt, adjusted for the estimated debt repayments identified in the table above. Actual interest payments made will vary due to changes in the rates for one-month LIBOR.

We believe our equity base, internally generated funds and existing debt facilities are sufficient to maintain our level of operations through the next twelve months. However, a decline in the level of internally generated funds or an inability to obtain lease commitments for our off-lease engines (including new engines from manufacturers), would limit availability of funding under our existing debt facilities, and/or result in a significant step-up in borrowing costs. Such limits on availability of funding and increased borrowing costs would impair our ability to sustain our level of operations. We continue to discuss additions to our capital base with our commercial and investment banks. If we are not able to access additional capital, our ability to continue to grow our asset base consistent with historical trends could be constrained and our future growth limited to that which can be funded from internally generated capital.

For any interest rate swaps that we enter into, we will be exposed to risk in the event of non-performance of the interest rate hedge counter-parties. We anticipate that we may hedge additional amounts of our floating rate debt in the future.

Recent Accounting Pronouncements

The most recent adopted accounting pronouncements and accounting pronouncements to be adopted by the Company are described in Note 1 to our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.

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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 March 31, 2018, $604.0 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 $5.0 million.

We hedge a portion of our borrowings from time to time, effectively fixing the rate of these borrowings. This hedging activity helps protect us against reduced margins on longer term fixed rate leases. Such hedging activities may limit our ability to participate in the benefits of any decrease in interest rates, but may also protect us from increases in interest rates. Furthermore, since lease rates tend to vary with interest rate levels, it is possible that we can adjust lease rates for the effect of change in interest rates at the termination of leases. Other financial assets and liabilities are at fixed rates.

We are also exposed to currency devaluation risk. Most of our leases require payment in U.S. dollars. During the three months ended March 31, 2018, 77% 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 three months ended March 31, 2018 and 2017, respectively.

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 March 31, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1A. Risk Factors

From time to time we enter into large contractual commitments to purchase engines directly from the Original Equipment Manufacturer (“OEM”). Newly purchased engines may, at time of purchase, be off lease. Our ability to

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lease these engines on favorable terms, if at all, may be adversely affected by risks to the commercial airline industry as a whole. If we are unable to place new equipment on lease, we will be subject to several potential risks, including:

forfeiting advance deposits, as well as incurring certain significant costs, such as contractual damages and legal, accounting and financial advisory expenses;

defaulting on any future lease commitments we may have entered into with respect to these engines, which could result in monetary damages and strained relationships with lessees;

failing to realize the benefits of purchasing and leasing the engines; and

risking harm to our business reputation, which would make it more difficult to purchase and lease engines in the future on favorable terms, if at all.

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

(a) None.

(b) None.

(c) Issuer Purchases of Equity Securities. In September 2012, the Company announced that its Board of Directors 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 in October 2016 and extended the plan to December 31, 2018.

Common stock repurchases, under our authorized plan, in the three months ended March 31, 2018 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)
January 2018		—	$	—		—	$	29,339
February 2018		—	$	—		—	$	29,339
March 2018		297,367	$	34.24		297,367	$	19,157
Total		297,367	$	34.24		297,367	$	19,157

Item 5. Other Information

None.

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Item 6.

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, (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), and (5) Amendment to Bylaws, dated October 7, 2016 (incorporated by reference to Exhibit 10.1 to our report on Form 8-K filed on October 18, 2016).
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).
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).
4.6*		Trust Indenture dated as of August 4, 2017 among Willis Engine Structured Trust III, Deutsche Bank Trust Company Americas, as trustee, the Registrant and BNP Paribas (incorporated by reference to Exhibit 4.6 to our report on Form 10-Q filed on November 9, 2017).
4.7		Second Amended and Restated Certificate of Designations, Preferences, and Relative Rights and Limitations of Series A Cumulative Redeemable Preferred Stock dated as of September 25, 2017 (incorporated by reference to Exhibit 10.2 to our report on Form 8-K filed on September 28, 2017).
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 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).
10.6		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).
10.7		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).
10.8		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).

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10.9*		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).
10.10*		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).
10.11*		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).
10.12*		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).
10.13		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).
10.14		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).
10.15		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 on September 20, 2016).
10.16		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 on September 20, 2016).
10.17		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 on October 18, 2016).
10.19		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 on October 18, 2016).
10.20*		Asset Purchase Agreement dated as of August 4, 2017 between the Registrant and Willis Engine Structured Trust III (incorporated by reference to Exhibit 10.20 to our report on Form 10-Q filed on November 9, 2017).
10.21*		Security Trust Agreement dated as of August 4, 2017 among Willis Engine Structured Trust III, each Grantor referred to therein and from time to time made a party thereto and Deutsche Bank Trust Company Americas, as trustee (incorporate by reference to Exhibit 10.21 to our report on Form 10-Q filed on November 9, 2017).
10.22*		Servicing Agreement dated as of August 4, 2017 among Willis Engine Structured Trust III, the Registrant and each Service Group Member referred to therein and from time to time made a party thereto (incorporated by reference to Exhibit 10.22 to our report on Form 10-Q filed on November 9, 2017).
10.23*		Administrative Agency Agreement dated as of August 4, 2017 among Willis Engine Structured Trust III, the Registrant, Deutsche Bank Trust Company Americas, as trustee, and each Managed Group Member referred to therein and from time to time made a party thereto (incorporated by reference to Exhibit 10.23 to our report on Form 10-Q filed on November 9, 2017).
10.24*		Revolving Credit Agreement dated as of August 4, 2017 among Willis Engine Structured Trust III, BNP Paribas and the Registrant (incorporated by reference to Exhibit 10.24 to our report on Form 10-Q filed on November 9, 2017).
10.25		Series A-2 Preferred Stock Purchase Agreement dated as of September 22, 2017 (incorporated by reference to Exhibit 10.1 to our report on Form 8-K filed on September 28, 2017).
10.26*		General Terms Agreement No. CFM-1-1028985 dated December 22, 2017 between CFM International, Inc. and Willis Lease Finance Corporation (incorporated by reference to Exhibit 10.26 to our report on Form 10-K filed on March 15, 2018).
10.27*		Letter Agreement No. 1 to GTA No. 1-1028985 dated December 22, 2017 between CFM International, Inc. and Willis Lease Finance Corporation (incorporated by reference to Exhibit 10.27 to our report on Form 10-K filed March 15, 2018).

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10.28*		General Terms Agreement No. GE-1-2299982290-2 dated May 26, 2010 by and amongst General Electric Company, GE Engine Services Distribution, LLC, Willis Lease Finance Corporation and WEST Engine Funding LLC (incorporated by reference to Exhibit 10.28 to our report on Form 10-K filed March 15, 2018).
10.29*		Letter Agreement No. 3 to GTA No. 1-2299982290 dated December 22, 2017 between General Electric Corporation and Willis Lease Finance Corporation (incorporated by reference to Exhibit 10.29 to our report on Form 10-K filed March 15, 2018).
10.30*		Amendment No. 2 to General Terms Agreement No. GE-1-2299982290-2 dated December 22, 2017 between General Electric Company and Willis Lease Finance Corporation (incorporated by reference to Exhibit 10.30 to our report on Form 10-K filed March 15, 2018).
10.31*		Agreement by and between IAE International Aero Engines AG and Willis Lease Finance Corporation, dated March 16, 2018, to purchase spare engines
10.32		Redemption Agreement to purchase 294,787 shares of common stock dated as of March 29, 2018 between Willis Lease Finance Corporation and M3 Partners, LP.
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.

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SIGNATURES

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

Date: May 10, 2018


	Willis Lease Finance Corporation

	By:	/s/ Scott B. Flaherty
		Scott B. Flaherty
		Chief Financial Officer
		(Principal Accounting Officer)

Exhibit 10.31

AGREEMENT TO PURCHASE [*] SPARE ENGINES

BETWEEN

IAE INTERNATIONAL AERO ENGINES AG

AND

WILLIS LEASE FINANCE CORPORATION,

for itself and as Servicer

DATED MARCH 16, 2018

This document contains proprietary information of IAE International Aero Engines AG (“IAE”). IAE offers the information contained in this document on the condition that you not disclose or reproduce the information in contravention of Section 8.4 of this Contract. Neither receipt nor possession of this document, from any source, constitutes IAE’s permission. Possessing, using, copying or disclosing this document to or for the benefit of any third party without IAE’s written consent may result in criminal and/or civil liability.

This document does not contain any export regulated technical data.

NOTE: Certain Confidential Information in this document (indicated by [*]) has been omitted and filed

separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

TABLE OF CONTENTS


1.	DEFINITIONS	3

2.	SPARE ENGINE AND ACCESSORIES PURCHASE COMMITMENT	4

3.	WARRANTIES, GUARANTEES AND LIABILITIES	8

4.	SUBJECT TO PRIOR SALE	10

5.	SALE AND PART OUT	10

6.	EVENTS OF DEFAULT AND TERMINATION	11

7.	COMPLIANCE WITH LAW, GOVERNING LAW AND FORUM	12

8.	MISCELLANEOUS	13

LIST OF APPENDICES

	Appendix 1	[*] Engine Model Specification

	Appendix 2	Delivery Schedule and Pricing

	Appendix 3	[*] Engine and Parts Service Policy

	Appendix 4	Spare Engine Shipping Pro Forma

	Appendix 5	Form of Warranty Bill of Sale

	Appendix 6	List of Permitted Affiliates

IAE Proprietary - Subject to the Restrictions on the Front Page

This document does not contain any export regulated technical data.

NOTE: Certain Confidential Information in this document (indicated by [*]) has been omitted and filed

separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

Page 2

THIS CONTRACT is made this 16 th day of March, 2018 (this “ Contract ”),

BETWEEN

IAE INTERNATIONAL AERO ENGINES AG

a joint stock company organized and existing under the laws of Switzerland, with a place of business located at 400 Main Street, East Hartford, Connecticut 06118, United States of America (hereinafter called “ IAE ”); and

WILLIS LEASE FINANCE CORPORATION

a corporation organized and existing under the laws of the State of Delaware, with a place of business located at 773 San Marin Drive, Suite 2215, Novato, California 94998, United States of America (for itself and in its capacity as Servicer on behalf of the Permitted Affiliates (as defined below), hereinafter called “ Willis ”).

IAE and Willis hereinafter are referred to individually as a “ Party ” and collectively as the “ Parties ”.

WHEREAS:

Willis desires to purchase from IAE, and IAE desires to sell to Willis, twelve (12) new [*] Spare Engines, which will be operated by one or more lessee of Willis to support such lessee’s [*] aircraft powered by [*] engines; and

The Parties hereby set out the terms on which Willis will purchase the twelve (12) Spare Engines from IAE and IAE will sell the twelve (12) Spare Engines to Willis.

NOW THEREFORE, THE PARTIES AGREE AS FOLLOWS:

1. DEFINITIONS

In this Contract unless the context otherwise requires:

1.1 “ Aircraft ” means an [*] aircraft operated by a lessee of Willis.

1.2 “ Certification Authority ” means the United States Federal Aviation Administration.

1.3 “ Delivery ” or “ Delivered ”, as the context may require, means the time at which Willis obtains title to each Spare Engine, Engine Bag and Engine Stand in accordance with Section 2.5.1.

IAE Proprietary - Subject to the Restrictions on the Front Page

This document does not contain any export regulated technical data.

NOTE: Certain Confidential Information in this document (indicated by [*]) has been omitted and filed

separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

Page 3

1.4 “ Delivery Date ” means the date set forth in Appendix 2 for each Spare Engine, subject to adjustment as set forth therein.

1.5 “ Delivery Location ” means IAE’s facility in [*].

1.6 “ Engine Bag ” means a new IAE-approved engine moisture and vapour proof storage bag.

1.7 “ Engine Stand ” means a new IAE-approved engine transportation stand.

1.8 “ Permitted Affiliates ” means, collectively, those parties set forth in Appendix 6 attached hereto, or such other parties as consented to in writing by IAE, such consent not to be unreasonably withheld or delayed; provided, however, that if (i) any such party at any time becomes subject to any event described in Sections 6.1.1(a) – 6.1.1(d), or (ii) IAE is legally prohibited from doing business with such party, then such party shall cease to be a Permitted Affiliate.

1.9 “ Spare Engine ” means, individually or collectively as the context requires, the twelve (12) [*] engines that are the subject of this Contract, as specified in Appendix 2 and described in the corresponding Specification. Each Spare Engine is [*].

1.10 “ Spare Engine Part ” means any part in a Spare Engine that is manufactured and sold by IAE and delivered new in a Spare Engine.

1.11 “ Spare Engine Purchase Price ” has the meaning assigned to it in Section 2.3.

1.12 “ Specification ” means the IAE Engine Specifications attached as Appendix 1.

2. SPARE ENGINE AND ACCESSORIES PURCHASE COMMITMENT

2.1 Agreement to Purchase Spare Engines from IAE

2.1.1 Subject to Willis’s payment of the Spare Engine Purchase Price pursuant to Section 2.4 and Article 4 herein, IAE hereby agrees to sell to Willis, and Willis hereby agrees to purchase from IAE, the Spare Engines to be delivered on each Spare Engine’s Delivery Date.

2.1.2 Each Spare Engine delivery requires one (1) Engine Bag and one (1) Engine Stand. IAE shall provide Willis with an Engine Bag and an Engine Stand [*], to be delivered with each Spare Engine according to the schedule set forth in Appendix 2.

IAE Proprietary - Subject to the Restrictions on the Front Page

This document does not contain any export regulated technical data.

NOTE: Certain Confidential Information in this document (indicated by [*]) has been omitted and filed

separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

Page 4

2.2 Specification and Type Approval

2.2.1 The Specification complies with the requirements of the Certification Authority and the official interpretations of such requirements (such requirements and interpretations hereinafter referred to as the “ Certification Authority Rules ”) in existence as of the date of this Contract.

2.2.2 The Spare Engines will be manufactured to the standards set forth in the Specification. Subject to Section 2.2.3, IAE may from time to time deviate from the standards set forth in the Specification by written change orders (each, a “ Change Order ”), setting forth in detail:

a. the changes to be made to the Spare Engine(s); and

b. the effect (if any) of such changes on (i) the Specification (including but not limited to performance and weight), (ii) interchangeability of the Spare Engine(s) in the airframe, and (iii) the price and Delivery Date of the Spare Engine(s).

Subject to Section 2.2.3, IAE will also issue a Change Order in respect of any changes to the Spare Engine(s) due to any changes in the Certification Authority Rules that affect the Specification. Change Orders are not binding on either Party until agreed to in writing signed by IAE and Willis.

2.2.3 Notwithstanding the foregoing, IAE may make any changes in the Spare Engine(s) that do not adversely affect the Specification (including but not limited to performance and weight), interchangeability of the Spare Engine(s) in the airframe, prices or dates of delivery of the Spare Engine(s), without issuing a Change Order.

2.2.4 Willis will pay for all costs and expenses incurred in connection with each Change Order other than costs and expenses incurred to conform to the Certification Authority Rules in effect at Delivery. IAE will pay for all costs and expenses incurred to conform to the Certification Authority Rules in effect at Delivery.

2.2.5 IAE ensures that at Delivery there will exist an FAA-issued “ Type Approval Certificate ” for the Spare Engine(s) in accordance with the provisions of the Specification.

2.3 Purchase Price

The purchase price for each Spare Engine equals the applicable unit basic purchase price of such Spare Engine, as set forth in Appendix 2, as may be amended pursuant to Section 2.2 above (the “ Spare Engine Purchase Price ”).

IAE Proprietary - Subject to the Restrictions on the Front Page

This document does not contain any export regulated technical data.

NOTE: Certain Confidential Information in this document (indicated by [*]) has been omitted and filed

separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

Page 5

2.4 Payment

2.4.1 Willis hereby agrees to make [*] payments for each Spare Engine and other associated equipment in accordance with the following payment schedule:

a. [*]

b. [*]

c. [*]

2.4.2 All payments under this Contract must be made in United States Dollars, without any withholdings or deductions whatsoever, by wire transfer to the following account:

[*]

or at such other account as IAE may notify Willis from time to time.

2.4.3 All payments hereunder will be deemed to have been made only to the extent cleared or good value funds are received by IAE at a bank account in accordance with Section 2.4.2 above. [*] and provided that Willis submits the preliminary version of the form attached as Appendix 4 in accordance with Section 2.5.2, then, at least [*] prior to the due date of any payment hereunder, IAE will provide Willis with an invoice therefor. In respect of [*], IAE will provide Willis with an invoice therefor promptly upon execution of this Contract.

2.4.4 Without prejudice to IAE's rights or remedies in equity or at law, all past due payments hereunder will accrue interest at an annual rate equal to [*], in either case from the date the payment was due until the date such payment is received in full by IAE, provided that Willis shall not be liable for any interest accrued in respect of any overdue amount which is being contested in good faith and is ultimately decided in Willis’s favor.

2.5 Delivery, Shipping, Title and Risk of Loss or Damage

2.5.1 Subject to Section 2.6, and following Willis‘s payment in accordance with Section 2.4, IAE will deliver to Willis the Spare Engine(s) (installed inside the Engine Bag and on the Engine Stand, and with a Warranty Bill of Sale in the form of Appendix 5 attached hereto) Ex-Works (INCOTERMS 2010) the Delivery Location, at which time the title to and risk of loss of the Spare Engine(s), Engine Bag and Engine Stand will pass to Willis. Willis must arrange for transportation of the Spare Engine(s) from the Delivery Location at its sole cost.

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2.5.2 No less than (i) [*] for the preliminary version and (ii) [*] for the final version, in each case prior to the Delivery Date, Willis must provide IAE with instructions as to the marking and transportation details for each Spare Engine by completing the required portions of the form attached as Appendix 4. The Parties recognize that notwithstanding Section 2.5.2(ii) above, Willis shall be entitled to adjust [*] prior to the Delivery Date without any impact to the Delivery Date; provided, however, that if Willis makes any change to [*], or to [*], in each case within [*] of the Delivery Date, the Parties agree that IAE shall be entitled to up to [*] to process such adjustment and the Delivery Date will be extended accordingly without any liability to either Party.

2.5.3 Provided that Willis complies with Section 2.5.2 above, IAE will provide Willis with the Spare Engine serial number no later than [*] prior to the Delivery Date.

2.6 Conditions Precedent

Without prejudice to Article 6, IAE’s obligation to deliver, or cause to be delivered, the Spare Engine(s), Engine Bag(s) and Engine Stand(s) is subject to the non-existence of the following events, the existence of which will excuse IAE from delivering, or causing to be delivered, the Spare Engine(s), Engine Bag(s) or Engine Stand(s) until such time as the event is cured (provided that such event is capable of being cured):

2.6.1 a continuing event of default (taking into account any applicable grace period) by Willis in any payment due under this Contract (including any Appendix or amendments hereto); or

2.6.2 any event that is a Termination Event (as defined below) or would constitute a Termination Event, but for lapse of time, has occurred and is continuing.

2.7 Documentation, Inspection and Acceptance

2.7.1 IAE will ensure that the Spare Engines conform to the Specification through the maintenance of procedures, systems and records approved by the Certification Authority, and that a duly signed FAA-issued Authorized Release Certificate (FAA Form 8130-3, Airworthiness Approval Tag) or Certificate of Conformity (as the case may be) is issued for such purposes. In addition, and subject to Section 7.1 herein, IAE will provide Willis with a video borescope inspection in respect of each Spare Engine on or before the Delivery Date thereof.

2.7.2 IAE shall, upon written request from Willis, arrange for Willis to have reasonable access to the appropriate premises in order to examine the Spare Engine prior to the issuance of the conformance documentation and

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to witness the Spare Engine acceptance tests. The foregoing is subject to: (i) the permission of the appropriate governmental authorities; (ii) Willis’s compliance with all applicable laws, including export laws; (iii) Willis’s compliance with applicable IAE policies and posted rules; and (iv) Willis maintaining the following insurance with respect to any visiting employee or representative: (a) Workers Compensation insurance and (b) Automobile Liability insurance for property damage and bodily injuries, including accidental death. Willis will at all times remain responsible for any employees or representatives on IAE’s premises, and Willis agrees to indemnify and hold harmless IAE and its shareholders from any claims, allegations, suits (and the like) for personal injury or property damage relating to Willis’s access to IAE’s facilities (“Claims”); provided, however, that the foregoing will not apply to the extent any Claims are related to the gross negligence or willful misconduct of IAE.

2.7.3 The Spare Engines will be accompanied by all of its related documentation on the Delivery Date. As soon as practicable, but in any event (i) within [*] for a preliminary version and (ii) within [*] for the final version, in each case following Delivery, the VSL Report link within the IAE customer portal will be uploaded with an electronic copy of all such documentation. In addition to the foregoing, IAE will, on or before the Delivery Date for each Spare Engine and for a period of [*] thereafter, use its best efforts to arrange discussions between [*] and Willis regarding Willis obtaining access to, either as a part of a QEC sale or otherwise, the Power Plant Build Up Manual in respect of such Spare Engine.

2.7.4 If Willis refuses, is unable to accept, or otherwise hinders delivery, or if IAE at Willis’s written request agrees to delay delivery of any Spare Engine, Willis will nevertheless pay to IAE or cause IAE to be paid therefore as if, for the purposes of payment only, such undelivered Spare Engine had been Delivered on the Delivery Date. Willis will also pay to IAE such reasonable sums as IAE may require for storing, maintaining and insuring such undelivered Spare Engine from the Delivery Date until the date that Willis takes delivery of such Spare Engine.

3. WARRANTIES, GUARANTEES AND LIABILITIES

3.1 IAE warrants to Willis that, at the time of Delivery, the Spare Engines will be free of defects in material and manufacture and will substantially conform to the Specification. IAE's liability and Willis’s remedy under this warranty are limited to the repair or replacement, at IAE's election, of the relevant Spare Engine or any Spare Engine Part thereof; provided that (a) such Spare Engine or Spare Engine Part, as applicable, is returned in accordance with IAE’s written shipping instructions, (b) such Spare Engine or Spare Engine Part is determined to be defective by IAE, and (c) that written notice of the defect is given by Willis to IAE no later than the earlier of (i) [*] after the first operation or use of such Spare Engine, (ii) if such Spare Engine is installed in an Aircraft, [*] after such installation, and (iii) if not so operated or installed, [*] after the date of delivery of

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such Spare Engine to Willis. If such Spare Engine or Spare Engine Part is returned in accordance with IAE’s written shipping instructions, and determined by IAE in its sole discretion to have been defective at the time of Delivery, IAE will bear the cost of round-trip transportation of such Spare Engine or Spare Engine Part and the risk of loss thereof. Except as expressly set forth below, IAE makes no warranty and disclaims all liability for goods, equipment and parts, whether supplied by IAE or not, that were not originally manufactured by or on behalf of IAE, though IAE will, to the extent it has a right to do so, make available to Willis the benefit of any warranty provided by the original manufacturer of such good, equipment or part (including, without limitation, in respect of the Engine Bag and Engine Stand). IAE warrants to Willis and its successors and permitted assigns that, at the time of conveyance to Willis, IAE will convey good and marketable title to the Spare Engines, the Engine Bags and the Engine Stands, free and clear of all liens, claims, charges and encumbrances whatsoever (collectively, “Liens”), and to the extent such title is not good and marketable or any Spare Engine, Engine Bag or Engine Stand is not free and clear of all Liens as warranted herein, IAE will address and defend all claims and demands to ensure conveyance of good and marketable title to, and the removal of any Liens against, the Spare Engines, the Engine Bags and the Engine Stands, and will indemnify and hold Willis harmless in connection therewith. In addition, IAE grants and Willis accepts the [*] Engine and Parts Service Policy as set forth in Appendix 3 attached hereto (the warranties collectively stated in this Section 3.1, the “ Warranties ”).

3.2 The Warranties may not be assigned without the prior written consent of IAE (such consent not to be unreasonably withheld). Notwithstanding the foregoing, Willis may assign the Warranties to any Permitted Affiliate without IAE’s consent provided that Willis provides IAE with a notice of such assignment to [*] that (i) identifies the Permitted Affiliate; (ii) identifies the relevant Spare Engine serial number(s); and (iii) waives Willis’s right to receive any further benefits under the Warranties with respect to the relevant Spare Engine(s). Any assignment made in violation of this Section 3.2 is null and void.

3.3 The Warranties provide specified benefits or remedies to Willis as a result of specified events. Under no circumstances will duplicate benefits or remedies be provided to Willis by IAE or any other source (e.g., an equipment manufacturer) as a result of the same event or cause. Therefore, notwithstanding any terms of the Warranties to the contrary, Willis waives its eligibility to receive benefits or remedies from IAE if it is eligible to receive or has received duplicative benefits or remedies from IAE or any other source as a result of the same event or cause.

3.4 IAE makes no representation or warranty and IAE accepts no obligation whatsoever, except to the extent set forth in Section 8.15, with respect to any events, occurrences or circumstances arising after Delivery, or any actions of Willis at any time, that might directly or indirectly affect in any way the title of any Spare Engine. Moreover, with the exception of the express Warranties set forth in this Contract, IAE does not make any express or implied warranty, guarantee or representation with respect to the Spare Engines, Engine Bags or Engine Stands, and hereby EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES,

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INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, and, except to the extent expressly assumed by IAE in the express Warranties, Willis assumes all liability for and all damages of any kind or nature whatsoever arising from the use of the Spare Engines, Engine Bags or Engine Stands by Willis or a third party.

3.5 Willis accepts that the Warranties granted to Willis hereunder, together with the express remedies provided herein, are expressly in lieu of, and Willis hereby waives, all other remedies, conditions, guarantees and warranties, whether expressed or implied, including without limitation ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, and all other obligations and liabilities whatsoever of IAE and of its shareholders whether in contract, in tort or otherwise, for any defect, deficiency, failure, malfunction or failure to function of any Spare Engines or of the equipment referred to herein, howsoever and whenever acquired by Willis from whatever source. Neither IAE nor any of its shareholders will be liable to Willis upon any claim therefor or upon any claim howsoever arising from the manufacture, supply or inspection by IAE or any of its shareholders of any Spare Engine, Engine Bag, Engine Stand or any other item of whatever nature, whether in contract, tort or otherwise, except (i) as expressly provided in the Warranties or (ii) any liability arising from IAE’s gross negligence or willful misconduct, and Willis assumes all risk and liability whatsoever not expressly assumed by IAE in the Warranties. In no event will IAE be liable to Willis for special, incidental, indirect or consequential damages arising in connection with or related to this Contract or the subject of this Contract, including but not limited to damage to, loss of use, revenue or profit, relating to any Spare Engine, any Aircraft on which a Spare Engine is installed, or any Engine Bag or Engine Stand.

3.6 This Article 3 has been the subject of discussion and negotiation and is fully understood by the Parties. The purchase prices of the Spare Engines, and the agreements of the Parties set forth in this Contract, are derived in consideration of:

3.6.1 the express Warranties of IAE and Willis’s rights thereunder; and

3.6.2 the exclusions, waivers and limitations set forth in Section 3.5.

4. SUBJECT TO PRIOR SALE

The Parties acknowledge that the Delivery Dates set forth in this contract are tentative and will only be confirmed (thereby triggering IAE’s obligation to satisfy its obligations to Deliver) upon Willis’s payment of [*] in accordance with Section 2.4 and submission of a complete purchase order with IAE for each of the Spare Engines, subject to Section 6.

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5. SALE AND PART OUT

5.1 Intentionally Omitted.

5.2 Covenant Against Spare Engine Part-Out

Willis will not dissemble, and will contractually prohibit its customers (including any subsequent purchaser of any Spare Engine) from disassembling, the Spare Engines into parts to be used or sold separately for a period equal to the later of (i) not less than [*] from the Delivery Date and (ii) [*] flight hours of operation. In the event that Willis sells or otherwise transfers a Spare Engine prior to the period set forth above, Willis will ensure that each of Willis and any subsequent transferee applies the restriction of this Section 5.2 to the transferee in the applicable transfer agreement and names IAE as the intended third-party beneficiary of such provision.

Willis’s failure to comply with this Section 5.2 is a material breach of this Contract.

6. EVENTS OF DEFAULT AND TERMINATION

6.1 Termination Events

6.1.1 Each of the following constitutes a “ Termination Event ” under this Contract:

a. Willis commences any case, proceeding or action with respect to it or its property in any jurisdiction relating to bankruptcy, insolvency, reorganization, dissolution, liquidation, winding-up, or otherwise relating relief from or readjustment of any of its debts or obligations (excluding refinancing of its debt facilities); or

b. Willis seeks the appointment of a receiver, trustee, custodian or other similar official for it or for all or substantially all of its assets, or makes a general assignment for the benefit of its creditors; or

c. Willis otherwise becomes subject to any case, proceeding or action of the type referred to in Sections 6.1.1a. or 6.1.1b. that is not stayed, dismissed or discharged within [*] of the filing thereof; or

d. An action is commenced against Willis seeking issuance of a warrant of attachment, execution, distraint or similar process against all or substantially all of its assets that is not stayed, dismissed or discharged within [*] of the filing thereof; or

e. Willis’s failure to pay when due any amount owed hereunder within [*] following such due date; or

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f. Willis’s breach of Section 5.2 or Section 7.1, or a material breach of any other provision hereunder.

6.1.2 This Contract will automatically terminate upon the occurrence of any Termination Event specified in Sections 6.1.1a through 6.1.1d above, upon which time all amounts then outstanding hereunder and which Willis is obligated to pay hereunder will become immediately due and payable to IAE, in addition to any and all other remedies available to IAE under applicable law. Upon the occurrence of any other Termination Event, IAE may, at its option, exercise any and all remedies available to it under applicable law, including, without limitation, the right by written notice, effective immediately, to unilaterally terminate this Contract, upon which time all amounts then outstanding hereunder and which Willis is obligated to pay hereunder will become immediately due and payable to IAE. In the event of any Termination Event, all payments previously made by Willis hereunder are non-refundable.

6.2 Effect of Termination

Upon the expiration or termination of this Contract, all rights and obligations of the Parties, including without limitation IAE’s obligation to deliver goods not yet delivered, will terminate. Notwithstanding the foregoing, any liabilities and obligations (including payment obligations and the Warranties) that have accrued and have not been previously paid, executed or discharged prior to expiration or termination will survive.

7. COMPLIANCE WITH LAW, GOVERNING LAW AND FORUM

7.1 Compliance with Export/Import Laws and Regulations

Willis agrees that it will not directly or indirectly sell, export, re-export, transfer, divert, or otherwise dispose of any goods, software, technical data (including products derived from or based on such technical data), or services received directly or indirectly from IAE to any Prohibited Party (as defined below) without obtaining prior authorization from the relevant government authorities as required pursuant to applicable export laws.

“ Prohibited Parties ” means, collectively, those countries and persons to whom the sale, export, re-export, transfer, diversion or other disposition of any goods, software, technical data or services is prohibited by the applicable export laws and related regulations of the United States or European Union Governments.

Willis’s failure to strictly comply with this Section 7.1 is a material breach of this Contract.

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7.2 Governing Law and Forum

7.2.1 This Contract is governed by and construed and enforced in accordance with the substantive laws of the State of New York, United States of America, without regard to principles of conflicts of law. The United Nations Convention of Contracts for the International Sale of Goods shall not apply.

7.2.2 The Parties irrevocably submit to the non-exclusive jurisdiction of the state and federal courts sitting in the State of New York, Borough of Manhattan, United States of America, in connection with any suit, action or proceeding (including, without limitation, arbitration) arising out of or relating to this Contract and IRREVOCABLY WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION OR DEFENSE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY SUCH COURT OR ANY CLAIM THAT ANY SUIT, ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. FURTHER, THE PARTIES HERETO AGREE TO WAIVE ANY RIGHTS EITHER OF THEM MAY HAVE TO A JURY TRIAL IN CONNECTION WITH ANY SUCH SUIT, ACTION OR PROCEEDING. In the event of any dispute, the Parties will attempt to amicably resolve any controversy, dispute, claim, difference or matter arising out of this Contract (“ Dispute ”). If those efforts prove unsuccessful within [*] from notice of such Dispute, then the Parties will participate in two phases of dispute resolution, each phase to be conducted solely in English. Phase one will be high level management meetings to be held within [*] after written request by either Party, which will not exceed [*] in duration. Phase two will be binding arbitration which will take place in the State of New York, Borough of Manhattan, United States of America, in accordance with the then-current Commercial Rules of the American Arbitration Association , before three (3) arbitrators. Each Party will pick one (1) arbitrator and the Parties will agree on the third (3rd) arbitrator. If the Parties are unable to agree on the third (3rd) arbitrator, then the two (2) individually-chosen arbitrators will agree on a third (3rd) arbitrator. Each arbitrator must be an attorney who is actively engaged in the practice of arbitration, specializing in either general commercial litigation or general corporate or commercial matters. The language to be used in the arbitral proceedings shall be English. Reasonable examination of opposing witnesses in oral hearing will be permitted. Each Party will bear its own costs of presenting or defending its position in the arbitration. The final award of the arbitrator shall be final, binding and non-appealable and judgment may be entered thereon in any court having jurisdiction thereof.

7.2.3 Notwithstanding the foregoing, neither Party is prohibited from bringing an action to enforce an arbitral award or seek injunctive or equitable relief. The Parties hereby consent to the non-exclusive jurisdiction of the state and federal courts of general jurisdiction of the State of New York,

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Borough of Manhattan for such purposes. THE PARTIES WAIVE THE RIGHT OF JURY TRIAL, IF APPLICABLE.

7.2.4 Each Party will comply with all applicable United States of America laws, rules and regulations in exercising its rights and performing its obligations hereunder.

7.2.5 The Parties agree that all controversies, disputes, claims, differences or matters that arise from this Contract and any arbitration that arise thereof are subject to the provisions set forth in Section 8.4.

8. MISCELLANEOUS

8.1 Delay in Delivery

8.1.1 If IAE is hindered or prevented from performing any obligation hereunder, including but not limited to delivering any Spare Engine by its Delivery Date by reason of:

a. any cause beyond the reasonable control of IAE, or

b. fires, industrial disputes or introduction of essential modifications ((a) and (b) together, “ Force Majeure ”);

the Delivery Date will be extended by a period equal to the period for which delivery was so hindered or prevented, and IAE will have no liability whatsoever in respect of such delay. Notwithstanding the foregoing, If IAE is hindered or prevented, or if IAE determines that it will be hindered or prevented, from Delivering any Spare Engine to Willis due to Force Majeure for a period longer than the earlier to occur of (a) [*] after the Delivery Date set forth in Appendix 2 or (b) [*] (a “Force Majeure Delay”), both Parties shall meet to discuss in good faith an extension of the applicable Delivery Date or another amendment to this Contract. If the Parties do not agree on such extension or amendment, then Willis shall be entitled to terminate its obligation to purchase the Spare Engine(s) affected by such Force Majeure Delay, with immediate effect and without judicial recourse, by giving IAE a written notice of its intention to do so, without liability resulting from such Force Majeure Delay for either Party; provided, however, that IAE will promptly return [*] for such Spare Engine(s).

8.1.2 If, by reason of any of the causes set forth in Section 8.1.1 above, IAE is hindered or prevented from delivering any goods (including any Spare Engines) to purchasers (including Willis), then IAE shall have the right to allocate, in good faith and in its own discretion, such goods as they become available among all such purchasers and IAE shall have no liability whatsoever to Willis for any delay in delivery resulting from such

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allocation. The Delivery Date will be extended by a period equal to the period of delay resulting from such allocation by IAE.

8.1.3 If IAE is hindered or prevented from Delivering any Spare Engine to Willis due to a reason other than Force Majeure for a period longer than the earlier to occur of (a) [*] after the Delivery Date set forth in Appendix 2 or (b) [*] (an “ Inexcusable Delay ”), both Parties shall meet to discuss in good faith an extension of the applicable Delivery Date or another amendment to this Contract. If the Parties do not agree on such extension or amendment, then Willis shall be entitled to terminate its obligation, at its option, to purchase either (i) the Spare Engine(s) affected by such Inexcusable Delay, or (ii) any undelivered Spare Engine(s) remaining under the Contract, with immediate effect and without judicial recourse, by giving IAE a written notice of its intention to do so, without liability resulting from such Inexcusable Delay for either Party; provided, however, that IAE will promptly return [*]) for such Spare Engine(s).

8.2 Patents

8.2.1 Subject to the conditions set forth in this Section 8.2 and as the sole liability of IAE in respect of any claims for infringement of intellectual property rights, IAE will indemnify Willis against any claims alleging that the use of the Spare Engines by Willis within any country subject to Article 27 of the Convention on International Civil Aviation of 7th December 1944 (The Chicago Convention) at the date of such claim infringes any patent, design, or model duly granted or registered. Notwithstanding the foregoing, IAE will not incur any liability to Willis for any consequential damages or any loss of use of any Spare Engine or of the Aircraft on which a Spare Engine is installed arising directly or indirectly as a result of such claim.

8.2.2 Willis will promptly give IAE written notice of any infringement claim whereupon IAE will have the right in its sole discretion to assume the defense of, or dispose or settle such claim at its own expense. Willis will assist IAE in all reasonable respects in connection with IAE’s defense, disposition or settlement of such claim. Willis will not perform any act or omission that may directly or indirectly prejudice IAE in connection with the matters set forth in this Section 8.2.

8.2.3 IAE may, at its discretion, provide a substantially equivalent non-infringing Spare Engine of equal or greater value in substitution for any alleged infringing Spare Engine.

8.2.4 Section 8.2.1 will not apply to claims for infringement in respect of (i) any good manufactured to the specific design instructions of Willis; (ii) any good not designed, manufactured or supplied by IAE (IAE will in the event of any claim for infringement assign to Willis the benefits of any indemnity given to IAE by the designer, manufacturer or supplier of such good to the

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extent IAE has the right to do so); (iii) the manner or method in which any Spare Engine is installed on an Aircraft; or (iv) any combination of a Spare Engine with any other item or items other than an Aircraft.

8.3 Right of Setoff

IAE reserves its right to set off any credits issued to Willis under the Spare Engine Warranties against any of Willis‘s outstanding payment obligations to IAE under this Contract or any other agreement solely between IAE and Willis.

8.4 Non-Disclosure and Non-Use

8.4.1 Subject to Section 8.4.3 below, Willis agrees to not disclose to any third party (other than the Permitted Affiliates in connection with the potential or actual assignment of this Contract, together with Willis’s or such Permitted Affiliates’ employees, directors, officers, financiers and professional advisers, provided that each such person or entity has a need to know and further provided that each such person or entity is bound by non-disclosure requirements at least as restrictive as those contained herein) any Information that it acquires directly or indirectly from IAE and agrees not to use the same other than for the purpose for which it was disclosed, or to the extent permitted under Section 8.4.5, without the written approval of IAE. For purposes of this Section 8.4, “ Information ” includes but is not limited to all oral or written information, know-how, data, reports, drawings and specifications, and all provisions of this Contract.

8.4.2 Willis is responsible for the observance of the provisions of Section 8.4.1 above by its employees, professional advisers, and any parties to which Willis discloses Information in accordance herewith.

8.4.3 Section 8.4.1 above does not apply to information that is or becomes generally known in the aero engine industry nor prevent disclosure of Information solely to the extent necessary for Willis to lease, sell or maintain the Spare Engine (i.e. Spare Engine records).

8.4.4 Willis will obtain and maintain at all times all required authorizations, including without limitation all export licenses, import licenses, exchange permits and any other governmental authorizations required in connection with the transactions contemplated under this Contract. Willis will restrict disclosure of any and all Information in obtaining such licenses, permits, or authorizations. Willis will ship, deliver or otherwise convey, as applicable, the Spare Engines and Information only to those destinations permitted under such licenses, permits, or authorizations.

8.4.5 If Willis is required to disclose any Information through a valid governmental, judicial or regulatory agency order, including any applicable stock exchange rules, Willis will: (i) provide IAE with prompt written notice

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of such requirement, together with a full and complete copy of such governmental, judicial or regulatory agency order, so that IAE may seek a protective order or any other remedy, or waive compliance with the terms of this Contract to the extent necessary to allow Willis to comply with such governmental, judicial or regulatory agency order; and (ii) take all available actions to resist or narrow the required disclosure to only such Information as is specifically required to respond to such order, and to maintain the confidentiality of all such other undisclosed Information to the fullest extent permitted by law. If Willis is required to disclose this Contract as a “material definitive agreement” under Securities and Exchange Commission (“SEC”) regulations, the Parties agree as follows, in each case, to the extent permitted by such regulations and any determination of the SEC: (i) in its 8-K filing, Willis will not disclose the Spare Engine models that are the subject of this Contract and will only disclose the extended list price of all of the Spare Engines, and (ii) with respect to the 10-Q filing that will attach this Contract, Willis will allow IAE to provide, and will consider, its determination of what portions of the Contract can be redacted and filed separately with the SEC provided that such determination is provided in a timely manner.

8.5 Taxes

8.5.1 Subject to Section 8.5.2 below, IAE will pay all imposts, duties, fees, taxes and other like charges levied against IAE by any tax authority or any agency thereof in connection with each Spare Engine prior to its delivery to Willis.

8.5.2 All amounts payable by Willis pursuant to this Contract exclude value added tax, sales tax or taxes on turnover. In the event that the supply of goods under this Contract is subject to value added tax, sales tax or taxes on turnover, such tax will be borne by Willis. If applicable, Willis will no later than [*] following the execution hereof notify IAE in writing of its European Community value added tax code.

8.5.3 Willis will pay all other imposts, duties, fees, taxes and other like charges by whomsoever levied.

8.6 Amendment

This Contract may be amended only by written agreement by the Parties.

8.7 Assignment

Willis may not assign this Contract or any of its obligations hereunder, whether in whole or part, without the prior written consent of IAE. Notwithstanding the foregoing, Willis may, upon prior written notice to IAE, assign this Contract or any

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of its obligations hereunder, whether in whole or part, to any Permitted Affiliate(s), without the prior written consent of IAE.

IAE may, without recourse, assign this Contract or any of its rights and/or delegate any of its obligations hereunder (a) to any subsidiary or affiliate of IAE or United Technologies Corporation, or (b) in connection with any merger, consolidation, reorganization, or voluntary sale or transfer of its assets; provided that such assignee and/or delegate is: (i) solvent at the time of such transfer; and (ii) to the extent required by law, authorized by the applicable regulatory authorities to perform or procure the performance of all obligations being delegated and/or assigned.

Any assignment made in violation of this Section 8.7 will be null and void.

8.8 Severability and Invalidity

If any provision of this Contract or the application thereof to either Party is or becomes invalid, illegal or unenforceable to any extent, the remainder of this Contract and the application thereof will not be affected and will be enforceable to the fullest extent permitted by law.

8.9 Appendices

In the event of any unresolved conflict or discrepancy between the Appendices (which are hereby expressly made a part of this Contract) and the terms contained within the body of this Contract, the terms contained within the body of this Contract will control.

8.10 Headings

The Section headings and the Table of Contents are for informational purposes only, do not form a part of this Contract, and shall not govern or affect the interpretation of this Contract.

8.11 Notices

Except as expressly agreed in this Contract, all notices hereunder will be in English and sent by certified mail or recognized international carrier to:

In the case of IAE:

IAE International Aero Engines AG

400 Main Street

Mail Stop 121-10

East Hartford, Connecticut 06118

United States of America

Attention:

IAE Proprietary - Subject to the Restrictions on the Front Page

This document does not contain any export regulated technical data.

NOTE: Certain Confidential Information in this document (indicated by [*]) has been omitted and filed

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Page 18

In the case of Willis:

Willis Lease Finance Corporation

773 San Marin Drive

Suite 2215

Novato, California 94998

United States of America

Attention:

or in each case to such other address as may be notified from time to time by either Party in accordance with this Section 8.11.

8.12 Exclusion of Other Provisions and Previous Understandings

8.12.1 This Contract (including all Appendices) expresses the complete and exclusive agreement of the Parties relating to the subject matter hereof and applies to the exclusion of all other provisions on or attached to or otherwise forming part of any order form of Willis, or any acknowledgment or acceptance by IAE, or of any other document relating to the subject matter hereof.

8.12.2 Neither Party has relied on any representations, agreements, statements or understandings made prior to the execution of this Contract, whether orally or in writing, relating to the subject matter hereof, other than those expressly incorporated in this Contract. This Contract represents the entire agreement between the Parties relating to the subject matter hereof and supersedes all prior representations, agreements, statements and understandings.

8.13 No Construction Against Drafter

This Contract has been the subject of negotiation between the Parties. If an ambiguity or question of intent arises with respect to any provision herein, this Contract will be construed as if drafted jointly by IAE and Willis and no presumption or burden of proof will arise favoring or disfavoring either Party by virtue of authorship of any of the provisions of this Contract.

8.14 [*]

8.14.1 [*] The Parties further agree to amend [*] to incorporate the applicable serial numbers and thrust rating of each such Spare Engine in [*] and [*] after the Delivery of the final Spare Engine, provided that such amendment will not impact each such Spare Engines treatment as a [*] thereunder.

8.14.2 [*] The Parties further agree to amend [*] to incorporate the applicable serial numbers and thrust rating of each such Spare Engine in [*] and [*]

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Page 19

after the Delivery of the final Spare Engine, provided that such amendment will not impact each such Spare Engines treatment as a [*] thereunder.

8.15 International Registry

IAE acknowledges and agrees that it will cooperate with Willis in order to register the Warranty Bill of Sale for each Spare Engine Delivered under this Contract as a Contract of Sale on the International Registry within [*] following the transfer of title of each Spare Engine.

8.16 Technical Training

IAE will credit Willis’s account with the IAE-designated customer training center in East Hartford, Connecticut (“CTC”), [*], an amount equal to [*] Student-Days of technical training for each Spare Engine Delivered (the “Training Credits”). The Training Credits may be used towards any [*]-related training courses detailed in CTC’s training catalog. As used herein, “ Student-Days ” equals the number of students multiplied by the number of class days. All training credits provided under this Section 8.16 must be taken within [*] after delivery of the last Spare Engine.

8.17 Acceptance, Execution and Enforceability

This Contract is available for the Parties’ consideration until March 16, 2018. Should the terms and conditions of this Contract be acceptable to Willis, please indicate such acceptance by having a duly authorized official of Willis sign two (2) duplicate originals and return a copy via email in PDF format to [*] at [*] by March 16, 2018, with both signed originals to promptly follow via certified mail or recognized international carrier to [*] by March 16, 2018.

This Contract may be executed in one or more counterparts, each of which will for all purposes be deemed to be an original and all of which when taken together will constitute one and the same instrument.

Upon the full execution of this Contract, this document will become enforceable and will be deemed executed in the State of New York, U.S.A. After acceptance by IAE, IAE will return one (1) fully executed duplicate original to Willis. The Parties agree that facsimile or PDF format signatures are deemed to be of the same force and effect as an original executed document.

[Remainder of page intentionally blank. Signatures on following page.]

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IN WITNESS WHEREOF, the Parties have caused this Contract to be duly executed as of the date first stated above and deem that it is executed in the State of New York, U.S.A.


IAE International Aero Engines AG

By:

Name:

Title:


Willis Lease Finance Corporation,
for itself and as Servicer

By:

Name:

Title:

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Page 21

APPENDIX 1

[*] ENGINE MODEL SPECIFICATION

[See Attached]

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[*] Engine Model Specification

[*]

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[*] Engine Model Specification

[*]

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APPENDIX 2

DELIVERY SCHEDULE AND PRICING


Spare Engine Rank	Spare Engine Model 1	Delivery Date 2	Spare Engine Purchase Price 3
1	[*]	[*]
2	[*]	[*]
3	[*]	[*]
4	[*]	[*]
5	[*]	[*]
6	[*]	[*]	See below
7	[*]	[*]
8	[*]	[*]
9	[*]	[*]
10	[*]	[*]
11	[*]	[*]
12	[*]	[*]
1 Willis will notify IAE no later than [] prior to the Delivery Date whether Willis requires that the Spare Engine be delivered in []. 2 IAE will be obligated to deliver each Spare Engine by []. Notwithstanding the foregoing, IAE and Willis agree to meet [] to discuss in good faith the potential acceleration of one or more Delivery Dates within []. Should the Parties agree in writing to accelerate one or more Delivery Dates, such accelerated date(s) will become the Delivery Date(s) for all purposes of this Contract. 3 Spare Engine Purchase Price : [] [*]

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APPENDIX 3

[*] ENGINE AND PARTS SERVICE POLICY

[See attached]

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IAE

INTERNATIONAL AERO ENGINES AG

[*] ENGINE AND PARTS SERVICE POLICY

Issued: [*]

Revised: [*]

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IAE

INTERNATIONAL AERO ENGINES AG

[*] ENGINE AND PARTS SERVICE POLICY

This Engine and Parts Service Policy (“ Service Policy ”) is a statement of the terms and conditions under which IAE International Aero Engines AG (“ IAE ”) will grant the Operators of new [*] Engines certain Credit Allowances and adjustments in the event that Parts of such Engines suffer Failure in Commercial Aviation Use, or in the event that a Parts Life Limit is established or reduced. This Service Policy becomes effective on the acceptance of the Operator's first new [*] Engine.

This Service Policy is divided into seven sections:


Section I	describes the Credit Allowances which will be granted should the Engine suffer a Failure.	Page 29

Section II	describes the Credit Allowances which will be granted should a Primary Part Suffer a Failure.	Page 31

Section III	lists the Class Life for those Primary Parts for which Credit Allowances will be granted.	Page 31

Section IV	describes the Credit Allowances which will be granted when the establishment or reduction of a Parts Life Limit is mandated.	Page 32

Section V	describes the Credit Allowances and adjustments which will be granted when IAE declares a Campaign Change.	Page 33

Section VI	contains the definitions of certain words and terms used throughout this Service Policy. These words and terms are identified in the text of this Service Policy by the use of initial capital letters for such words and terms.	Page 34

Section VII	contains the general conditions governing the application of this Service Policy.	Page 40

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I. ENGINE FAILURE CREDIT ALLOWANCES

A. First Run Engine, Module and Part

1. A First Run Engine is an Engine with [*] hours (or cycles, whichever comes first) or less Engine Time, a First Run Module is a Module with [*] hours (or cycles, whichever comes first) or less Module Time, and a First Run Part is a Part with [*] hours (or cycles, whichever comes first) or less Parts Time operating in a First Run Engine or a First Run Module.

2. If a First Run Part suffers Direct Damage or Resultant Damage, and provided that the Part causing Resultant Damage is also a First Run Part, IAE will grant to the Operator:

a. A [*] percent Parts Credit Allowance for any First Run Part Scrapped, or

b. A [*] percent Labor Credit Allowance for any First Run Part Repaired.

3. If such Damage of a First Run Part requires the removal of the Engine or a Module from the Aircraft, IAE will, in addition to Subparagraph A.2. above, grant to the Operator:

a. A [*] percent Labor Credit Allowance for disassembly, reassembly and necessary testing of the Engine or Module requiring Reconditioning as a result of such Damage of the First Run Part, and

b. A [*] percent Parts Credit Allowance for those Expendable Parts required in the Reconditioning of the Engine or Module.

4. If such Damage of a First Run Part requires the removal of the Engine or a Module from the Aircraft, IAE will arrange, upon request by the Operator, to Recondition the Engine or Module or accomplish the Parts Repair at no charge to the Operator rather than providing the above Credit Allowances. Such work will be accomplished at a [*] Maintenance Center designated by IAE. Transportation charges to and from the Maintenance Center shall be paid by the Operator.

B. Extended First Run Engine, Module and Part

1. An Extended First Run Engine is an Engine with more than [*] hours (or cycles, whichever comes first) Engine Time but not more than [*] hours (or cycles, whichever comes first) Engine Time, an Extended Run Module is a Module with more than [*] hours (or cycles, whichever comes first) Module Time, but not more than [*] hours (or cycles, whichever comes first) Module Time, and an Extended First Run Part is a Part with [*] hours (or

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Page 29

cycles, whichever comes first) or less Parts Time operating in an Extended First Run Engine or an extended First Run Module.

2. If an Extended First Run Part suffers Direct Damage or Resultant Damage, and provided that the Part causing Resultant Damage is also an Extended First Run Part, IAE will grant to the Operator:

a. A pro rata Parts Credit Allowance for any Extended First Run Part Scrapped, or

b. A pro rata Labor Credit Allowance for any Extended First Run Part Repaired.

If the Extended First Run Part is a Primary Part (Section III), the pro rata Credit Allowances will be based on [*] percent at [*] hours (or cycles, whichever comes first) Engine Time which then decreases, pro rata, to [*] percent at [*] hours (or cycles, whichever comes first) Engine Time, or, [*] percent to [*] hours Parts Time which then decreases, pro rata, to [*] percent at the end of its Class Life (Section III), whichever is greater.

If the Extended First Run Part is not a Primary Part, the pro rata Credit Allowances will be based on [*] percent at [*] hours (or cycles, whichever comes first) Engine Time which then decrease, pro rata, to [*] percent at [*] hours (or cycles, whichever comes first) Engine Time.

3. If such Damage of an Extended First Run Part requires the removal of the Engine or a Module from the Aircraft, IAE will, in addition to Subparagraph B.2. above, grant to the Operator:

a. A pro rata Labor Credit Allowance for disassembly, reassembly and necessary testing of the Engine or Module requiring Reconditioning as a result of such Damage of the Extended First Run Part, and

b. A pro rata Parts Credit Allowance for those Expendable Parts required in the Reconditioning of the Engine or Module.

The pro rata Credit Allowances will be based on [*] percent at [*] hours (or cycles, whichever comes first) Engine Time, which then decreases, pro rata, to [*] percent at [*] hours (or cycles, whichever comes first) Engine Time.

Note: Section VI, Paragraph D. contains the formulas to be used for computing the Credit Allowances described above.

C. Engine or Module Failure Credit Allowances Illustration

[*]

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Note: The Primary Parts Credit Allowances Illustration (Section II, Paragraph B) is also applicable to the Credit Allowances which are based on Parts Time as described in Section I, Subparagraph B.2.

II. PRIMARY PARTS CREDIT ALLOWANCE

A. Primary Parts Other Than First Run Parts or Extended First Run Parts

1. Primary Parts are limited to those Parts listed in Section III while such Parts are within the Class Life indicated in Section III.

2. The Primary Parts Credit Allowances described in Subparagraph A.3 below will be based on [*] percent to [*] hours total Parts Time which then decreases, pro rata, to [*] percent at the end of the applicable hourly Class Life.

3. If a Primary Part which is not a First Run Part or an Extended First Run Part suffers Direct Damage or Resultant Damage, and provided that the Part causing Resultant Damage is also a Primary Part, IAE will grant to the Operator:

a. A Parts Credit Allowance for any Primary Part Scrapped, or

b. A Labor Credit Allowance for any Primary Part Repaired in accordance with a Parts Repair designated in writing by IAE as being eligible for a Credit Allowance under this Section II, Paragraph A.

Note: Section VI, Paragraph D. contains the formulas to be used for computing the Credit Allowances described above.

B. Primary Parts Credit Allowances Illustration

[*]

A = CLASS A PRIMARY PARTS (Page 35)

B = CLASS B PRIMARY PARTS (Page 36)

C = CLASS C PRIMARY PARTS (Page 36)

III. IDENTIFICATION OF PRIMARY PARTS

The following Parts are defined as Primary Parts while such Parts are within the Class Life indicated. Class Life is the period, expressed in either hours or Parts Time or number of Parts Cycles during which IAE will grant Credit Allowances for Primary Parts which suffer Direct Damage or Resultant Damage, or for which a Parts Life Limit is established or reduced.

CLASS A ([*] HOURS PARTS TIME)

[*]

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CLASS B ([*] HOURS PARTS TIME)

[*]

CLASS C ([*] HOURS PARTS TIME FOR DAMAGE,

[*] PARTS CYCLES FOR LIFE LIMIT REDUCTION)

[*]

IV. PARTS LIFE LIMIT ALLOWANCES

A. A Parts Life Limit is the maximum allowable Parts Time or Parts Cycles for specific Parts as established by IAE and the United States Federal Aviation Administration.

B. Credit Allowances

1. Class A and Class B Primary Parts

If a Parts Life Limit is established which results in Part Scrappage at less than [*] hours Parts Time for a Class A Primary Part or less than [*] hours Parts Time for a Class B Primary Part, IAE will grant for each such Primary Part Scrapped as a result thereof, a Parts Credit Allowance based on [*] percent to [*] hours total Parts Time which then decreases, pro rata, to [*] percent at the end of [*] hours total Parts Time for a Class A Primary Part or [*] hours total Parts Time for a Class B Primary Part.

2. Class C Primary Parts

If a Parts Life Limit is established for a Class C Primary Part which results in Part Scrappage in less than [*] total Parts Cycles, IAE will grant for each such Primary Part Scrapped as a result thereof, a Parts Credit Allowance based on [*] percent at [*] total Parts Cycles which then decreases, pro rata, to [*] percent at [*] total Parts Cycles.

In addition, IAE will grant a similarly calculated Labor Credit Allowance and Parts Credit Allowance for that labor and those Expendable Parts which are solely related to the removal and replacement of such Class C Primary Parts and is additional to other maintenance being performed on the Engine or Module.

Note: Section VI, Paragraph D. contains the formulas to be used for computing the Credit Allowances described above.

C. Parts Life Limit Credit Allowances Illustrations

[*]

A = CLASS A PRIMARY PARTS (Page 35)

B = CLASS B PRIMARY PARTS (Page 36)

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[*]

C = CLASS C PRIMARY PARTS (Page 36)

V. CAMPAIGN CHANGE CREDIT ALLOWANCES AND ADJUSTMENTS

A. In the event of a Campaign Change IAE will grant the Credit Allowances and Adjustments specified in this Section V to the Operator when Campaign Change recommendations are complied with by the Operator.

B. Standard Allowances

1. A [*] percent Parts Credit Allowance for the replacing Parts specified in the Campaign Change for installed Parts or serviceable shelf stock Parts which are Scrapped with [*] hours (or cycles, whichever comes first) or less total Parts Time.

2. A pro rata Parts Credit Allowance for the replacing Parts specified in the Campaign Change for installed Parts or serviceable shelf stock Parts which are Scrapped with more than [*] hours (or cycles, whichever comes first) total Parts Time but less than [*] hours (or cycles, whichever comes first) total Parts Time. The pro rata Parts Credit Allowance will be based on [*] percent at [*] hours (or cycles, whichever comes first) total Parts Time which then decreases, pro rata, to [*] percent at [*] hours (or cycles, whichever comes first) total Parts Time.

3. A [*] percent Parts Credit Allowance for the replacing Parts specified in the Campaign Change for installed Parts or serviceable shelf stock Parts which are Scrapped with more than [*] hours (or cycles, whichever comes first) total Parts Time.

4. A [*] percent Labor Credit Allowance for Reoperation of installed Parts or serviceable shelf stock Parts with [*] hours (or cycles, whichever comes first) or less total Parts Time which are Reoperated in accordance with the Campaign Change.

5. A pro rata Labor Credit Allowance for Reoperation of installed Parts or serviceable shelf stock Parts with more than [*] hours (or cycles, whichever comes first) total Parts Time but less than [*] hours (or cycles, whichever comes first) total Parts Time which are Reoperated in accordance with the Campaign Change. The pro rata Labor Credit Allowance will be based on [*] percent at [*] hours (or cycles, whichever comes first), total Parts Time which then decreases, pro rata, to [*] percent at [*] hours (or cycles, whichever comes first) total Parts Time.

6. A [*] percent Labor Credit Allowance for Reoperation of installed Parts or serviceable shelf stock Parts with more than [*] hours (or cycles, whichever comes first) total Parts Time which are Reoperated in accordance with the Campaign Change.

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7. A [*] percent Labor Credit Allowance for disassembly and reassembly of the Engine or Module, if the disassembly of the Engine or Module is recommended by IAE for accomplishment of the Campaign Change and such disassembly is performed solely for the purpose of accomplishing the Campaign Change.

Note: Section VI, Paragraph D. contains the formulas to be used for computing the Credit Allowances described above.

C. Campaign Change Credit Allowances Illustration

[*]

Note: The Labor Credit Allowance for Engine or Module disassembly and reassembly remains at [*].

D. Optional Credit Allowances and Adjustments

1. When IAE declares a Campaign Change, IAE at its sole option, may grant to the Operator Credit Allowances and adjustments, such as, but not necessarily limited to:

a. No Charge material;

b. Specifically priced material;

c. Single credit settlements for the Operators' fleet;

d. Fixed Credit Allowance support for each Engine.

2. These optional Credit Allowances and Adjustments may be provided:

a. Instead of the standard Credit Allowances of Section V, Paragraph B;

b. In addition to the standard Credit Allowances of Section V, Paragraph B; or

c. As a portion of the standard Credit Allowances of Section V, Paragraph B.

3. In no event shall the value to the Operator, as reasonably determined by IAE, be less than the amount that would have been granted to the Operator as a standard Campaign Change Credit Allowance, per Section V, Paragraph B. In considering the use of these optional Credit Allowances and adjustments, IAE will consider the financial and administrative impact on the Operator.

VI DEFINITIONS

A. CAMPAIGN CHANGE is an IAE program expressly referencing this Service Policy and so designated in writing, for the Reoperation, replacement, addition or deletion of Part(s) and is characterized by the granting of certain Credit Allowances to the

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Operator when such program recommendations are complied with by the Operator.

B. CLASS LIFE is the period, expressed in either hours of Part Time or number of Parts Cycles, during which IAE will grant Credit Allowances for Primary Parts which suffer Direct Damage or Resultant Damage, or for which a Parts Life Limit is established or reduced.

C. COMMERCIAL AVIATION USE is the operation of Engines in Aircraft used for commercial, corporate or private transport purposes. The operation of Engines by government agencies or services is normally excluded except that IAE will consider written requests for the inclusion of such Engines under the provisions of this Service Policy.

D. CREDIT ALLOWANCES

1. PARTS CREDIT ALLOWANCE is an amount determined in accordance with the following formulas:

a. [*] percent Parts Credit Allowance = [*]

b. [*] percent Parts Credit Allowance = [*]

c. Pro rata Parts Credit Allowance =

(1) For a Class A, Class B or Class C Primary Part which suffers Direct or Resultant Damage, or a Class A or Class B Primary Part for which a Parts Life Limit is established:

[*]

(2) For a Class C Primary Part for which a Parts Life Limit is established:

[*]

(3) For replacement of a Part because of a Campaign Change, when such a Part has more than [*] hours (or cycles, whichever comes first) Parts Time but less than [*] hours (or cycles, whichever comes first) Parts Time:

[*]

d. Extended First Run Parts Credit Allowance =

[*] or [*]

2. LABOR CREDIT ALLOWANCE is an amount determined in accordance with the following formulas, except that in no event shall the amount to be

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granted for repair of Parts exceed the amount of the Parts Credit Allowance which would have been granted if the Part had been Scrapped:

a. [*] percent Labor Credit Allowance = [*]

b. [*] percent Labor Credit Allowance = [*]

c. Pro rata Labor Credit Allowance =

(1) For a Class A, Class B or Class C Primary Part which suffers Direct or Resultant Damage, or a Class A or Class B Primary Part for which a Parts Life Limit is established:

[*]

(2) For a Class C Primary Part for which a Parts Life Limit is established:

[*]

(3) For replacement of a Part because of a Campaign Change, which such a Part has more than [*] hours (or cycles, whichever comes first) Parts Time but less than [*] hours (or cycles, whichever comes first) Parts Time:

[*]

d. Extended First Run Labor Credit Allowance =

[*] or [*]

3. The variables used in calculating the above allowances are defined as:

P = a. For a Part Scrapped because of Direct Damage, Resultant Damage or a Parts Life Limit being established, the IAE commercial price of the Part Scrapped current at the time of either the Engine removal or Part removal, whichever occurs sooner, or

b. For replacement of a Part because of a Campaign Change, the IAE commercial price of the replacing Part specified in the Campaign Change current at the time of notification to the Operator of the Campaign Change.

T = a. For a Primary Part which has suffered Direct Damage or Resultant Damage, the actual Parts Time on the Part minus [*] hours, or

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b. For a Class A or Class B Primary Part for which a Parts Life Limit is established, the actual Parts Time on the Part minus [*] hours, or the Parts Life Limit minus [*] hours, whichever is greater, or

c. For replacement of a Part because of a Campaign Change, when such a Part has more than [*] hours (or cycles, whichever comes first), Parts Time but less than [*] hours (or cycles, whichever comes first) Parts Time, the actual Parts Time on the Part.

C = For a Class C Primary Part for which a Parts Life Limit of [*] Cycles is established the actual Parts Cycles on the Part.

L _t = Either:

a. For a Primary Part which has suffered Direct Damage or Resultant Damage, the hours indicated in Section III minus [*] hours, or

b. For a Class A or Class B Primary Part for which a Parts Life Limit is established, the hours indicated in Section III minus [*] hours.

L _c = For a Class C Primary Part for which a Parts Life Limit is established at [*] total Parts Cycle.

H = The man-hours required to accomplish the work as established in writing by IAE.

R = The labor rate, expressed in U.S. Dollars per hour, which will be determined as follows:

a. If the labor is performed at the Operator's facility or its subcontractor's facility, the labor rate will be the greater of the Operator's labor rate or the subcontractor’s labor rate where the labor rates were determined and agreed in writing by IAE in accordance with IAE Labor Estimate Form, or

b. If the labor is performed by IAE, the labor rate will be the then-current designated warranty labor rate as determined by IAE.

E = Actual Engine Time on an Extended First Run Engine.

E. DIRECT DAMAGE is the damage suffered by a Part itself upon its Failure.

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F. ECONOMICALLY REPAIRABLE shall generally mean that the cost of the repair of a Part as determined by IAE, exclusive of modification and transportation costs, will be equal to or less than [*] percent of the IAE commercial price of the Part at the time the repair is considered, or, shall be as otherwise reasonably determined by IAE.

G. ENGINE(S) means those [*] Engine(s), as described by IAE Specifications, sold by IAE for Commercial Aviation Use, whether installed as new equipment in aircraft by the manufacturer thereof and delivered to the Operator or delivered directly to the Operator from IAE for use as a spare Engine. An Engine which has been converted or upgraded in accordance with IAE instructions shall continue to qualify for Credit Allowances and Adjustments under the provisions of this Service Policy.

H. ENGINE OR MODULE TIME is the total number of flight hours of operation of an Engine or a Module.

I. EXPENDABLE PARTS means those nonreusable Parts, as determined by IAE, which are required to be replaced during inspection or Reconditioning, regardless of the condition of the Part.

J. EXTENDED FIRST RUN ENGINE OR MODULE is an Engine or Module with more than [*] hours (or cycles, whichever comes first) Engine or Module Time but not more than [*] hours (or cycles, whichever comes first) Engine or Module Time.

K. EXTENDED FIRST RUN PART means a Part with [*] hours (or cycles, whichever comes first) or less Parts Time operating in an Extended First Run Engine.

L. FAILURE (FAILED) is the breakage, injury, or malfunction of a Part rendering it unserviceable and incapable of continued operation without corrective action.

M. FIRST RUN ENGINE OR FIRST RUN MODULE is an Engine or Module with [*] hours (or cycles, whichever comes first), or less Engine or Module Time.

N. FIRST RUN PART is an Engine Part with [*] hours (or cycles, whichever comes first), or less Parts Time operating in a First Run Engine.

O. MAINTENANCE CENTER means the IAE shareholder maintenance center designated by IAE from time to time to perform services under this Service Policy.

P. MODULE(S) means any one or more of the following assemblies of Parts:

Fan Assembly and Low Pressure Compressor Assembly

High Pressure Compressor Assembly

High Pressure Turbine Assembly

Low Pressure Turbine Assembly

Main gearbox

Any other Assembly of Parts so designated by IAE

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Q. OPERATOR is the owner of one or more Engines operated for Commercial Aviation Use, the lessee if such Engine(s) is the subject of a long-term financing lease or as otherwise reasonably determined by IAE.

R. PART(S) means Engine parts sold by IAE and delivered to the Operator as original equipment in an Engine or Engine parts sold and delivered by IAE to the Operator as new spare parts in support of an Engine.

S. PARTS CYCLE(S) means the aggregate total number of times a Part completes an Aircraft takeoff and landing cycle, whether or not thrust reverser is used on landing. As pilot training will involve extra throttle transients such as touch and go landings and takeoffs, IAE shall evaluate such transients for Parts Cycle determination.

T. PARTS LIFE LIMIT is the maximum allowable total Parts Time or total Parts Cycles for specific Parts, including Reoperation if applicable, as established by IAE or by the United States Federal Aviation Administration. Parts Life Limits are published in the Time Limits Section (Chapter 05) of the applicable [*] Engine Manual.

U. PARTS REPAIR means the IAE designated restoration of Failed Parts to functional serviceable status, excluding repair of normal wear and tear, as determined by IAE.

V. PARTS TIME is the total number of flight hours of operation of a Part.

W. PRIMARY PART(S) are limited to those Parts listed in Section III while such Parts are within the Class Life indicated in Section III.

X. RECONDITIONING means the restoration of an Engine or Module allowing substitution of new or serviceable used Parts, to the extent necessary for continued operation of the Engine or Module as a serviceable unit. When such Reconditioning is performed by IAE, the Parts Time or Parts Cycles, as applicable, of the replaced Part shall, for the purpose of this Service Policy, be applicable to the substituted new or serviceable used Part. Said replaced Part shall become the property of IAE.

Y. REOPERATION is the alteration to or modification of a Part.

Z. RESULTANT DAMAGE is the damage suffered by a Part because of the Failure of another Part within the same Engine.

AA. SCRAPPED PARTS (SCRAP, SCRAPPED, SCRAPPAGE) shall mean those Parts determined by IAE to be unserviceable and not Economically Repairable. The Operator shall cause such Parts to be mutilated or disposed of in such a manner as to preclude any possible further use as an Engine Part and, if requested by IAE, provide scrap tags to IAE for such Parts.

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VII GENERAL CONDITIONS

The following general conditions govern the application of this Service Policy:

A. Records and Audit

The Operator shall maintain adequate records for the administration of this Service Policy and shall permit IAE to audit such records at reasonable intervals.

B. Scrapping of Parts

1. Scrappage Verification

Any Part for which a Parts Credit Allowance is requested shall be verified in writing by the IAE Field Representative or another IAE designee as Scrap, prior to the issuance of the Parts Credit Allowance. Operator shall provide sufficient information to identify the Part, the Engine from which the Part was removed and the reason for Scrappage.

2. Return of Parts

IAE, at its sole option, may require the Operator to return to IAE any Part for which a Parts Credit Allowance is requested. Such return shall be a condition for the issuance of a Parts Credit Allowance.

3. Transportation Expenses

Transportation expenses shall be at the expense of the Operator if such Parts are shipped to and from IAE for examination and verification; except that IAE shall pay the expense if such Parts are shipped at the request of IAE.

4. Title

Title to such Parts returned to IAE shall vest in IAE:

a. Upon determination by IAE that the Operator is eligible for a Parts Credit Allowance. If it is determined that the Parts are scrapped Parts but are not eligible for Service Policy coverage, the Operator will be notified of the decision and the Parts returned at the Operator's expense if the Operator so requests; otherwise, the Parts will be disposed of by IAE without any type of adjustment, or

b. Upon shipment, when such Parts are determined to be Scrap at the Operator's facility and are shipped to IAE at the request of IAE.

C. Repairability Requirements

The Operator shall set aside and exclude from the operation of this Service Policy for a period of [*] any Part for which IAE states it has, or plans to initiate, an active

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program to achieve a repair, corrective Reoperation or Parts Life Limit extension. In the event IAE has not released a repair procedure, corrective Reoperation, or Parts Life Limit extension by the expiration of this [*] period, such Part shall be retained by the Operator and excluded from the operation of this Service Policy for additional periods beyond the expiration of said [*] period only if agreed to by the Operator.

D. Exclusions from Service Policy

This Service Policy will not apply to any Engine, Module or Part if it has been determined to the reasonable satisfaction of IAE that said Engine, Module or Part has Failed because it:

1. Has not been properly installed or maintained in accordance with IAE recommendations unless such improper installation or maintenance was performed by IAE, or

2. Has been used contrary to the operating and maintenance instructions or recommendations authorized or issued by IAE and current at the time, or

3. Has been repaired or altered other than by an IAE designated [*] Maintenance Center in such a way as to impair its safety, operation or efficiency, or

4. Has been subjected to:

a. Misuse, neglect, or accident, or

b. Ingestion of foreign material, or

5. Has been affected in any way by a part not defined as a Part herein, or

6. Has been affected in any way by a repair or maintenance practice not approved by IAE, or

7. Has been affected in any way by occurrences not associated with ordinary use, such as, but not limited to, acts of war, rebellion, seizure or other belligerent acts.

E. Payment Options

IAE at its option may grant any Parts Credit Allowance as either a credit to the Operator's account with IAE or as a Part replacement.

F. Presentation of Claims

Any request for a Credit Allowance must be presented to IAE not later than [*] after the removal from service of the Engine or Part for which the Credit Allowance is requested. If IAE disallows the request, written notification will be provided to the Operator. The Operator shall have [*] from such notification to request a

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reconsideration of the request for Credit Allowance. IAE shall have the right to refuse any request for a Credit Allowance which is not submitted within the stated time periods.

G. Duration of Service Policy

This Service Policy will normally cease to apply to all Parts in any Engine that is more than [*] as measured from the date of shipment of the Engine from the factory. Unless advised to the contrary by IAE, this Service Policy shall, however, continue to be applicable to individual Engines after the expiration of the [*] period on a [*] basis so that the Operator may continue to receive the benefits of the Service Policy on the Parts in these Engines.

H. General Administration

On matters concerning this Service Policy, the Operator is requested to address all correspondence to:

IAE International Aero Engines AG

400 Main Street

Mail Stop 121-10

East Hartford, CT 06108

Attention:

I. Limitation of Liability

1. The express provisions of this Service Policy set forth the maximum liability of IAE with respect to any claims relating to this Service Policy. In the event of any conflict or inconsistency between the express provisions of this Service Policy and any Illustrations contained herein, the express provisions shall govern.

2. Except to the extent that the Credit Allowances and adjustments expressly set forth in this Service Policy may exceed the limitations of the corresponding portions of any warranties or representations included in any sales agreements, the provisions of this Service Policy do not modify, enlarge or extend in any manner the conditions governing the sale of its Engines and Parts by IAE.

3. IAE reserves the right to change or retract this Service Policy at any time at its sole discretion. No such retraction or change shall diminish the benefits which the Operator may be entitled to receive with respect to Engines for which an acceptable order has been placed with IAE or with respect to aircraft with installed Engines for which a firm unconditional order has been placed with the aircraft manufacturer prior to the announcement of any such retraction or change.

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J. Assignment of Service Policy

This Service Policy shall not be assigned, either in whole or in part, by either party. IAE will, however, upon the written request of the Operator consider an extension of Service Policy Credit Allowances and adjustments to Engines, Modules and Parts sold or leased by an Operator to another Operator, to the extent only, however, that such Credit Allowances and adjustments exist at the time of such sale or lease and subject to the terms and conditions of the Service Policy. IAE shall not unreasonably withhold such extension of such Credit Allowances.

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APPENDIX 4

[*] SPARE ENGINE SHIPPING PRO FORMA

ITEM	Customer to fill in items [*]	CFD to fill in items [*]
1	CUSTOMER NAME (purchaser)
2	END USER NAME & ADDRESS (may be different than purchaser)
3	SHIP TO ADDRESS
3A.	PAPERWORK SHIP TO ADDRESS & CONTACT NAME/NUMBER (if different than engine)
4	SHIPPING AGENT CONTACT PERSON, ADDRESS, & PHONE NUMBER Contractual details: Customer arranges ☒ or Provided per contract ☐
5	TRANSPORTATION EQUIPMENT REQUIREMENTS Contractual details: Customer purchase ☐ or Provided per contract ☒	Shipping Stand P/N: [] S/N (base / cradle): [] Bag: [*]
6	ENGINE SERIAL #
7	MODEL [] ☐ [] ☐ [*] ☐	[*] , subject to Contract terms and conditions
8	QUANTITY	1
9	CUSTOMS VALUE (USD)
10	MAIN CONTACT PERSON FOR LOGISTICS PROVIDER TO CONTACT IN ORDER TO SCHEDULE PICK UP	[*]
11	ENGINE CENTER TO IMS1/ RECONCILE BEFORE FINANCIAL CLEARANCE
12	SPECIAL INSTRUCTIONS	[*]

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APPENDIX 5

FORM OF WARRANTY BILL OF SALE

Warranty Bill of Sale

IAE International Aero Engines AG (“ IAE ”), a joint stock company organized and existing under the laws of Switzerland and having an office and place of business at 400 Main Street, East Hartford, Connecticut 06118, United States of America (“ Seller ”), is the owner of the full legal and beneficial title to the following equipment (collectively, the “ Engine ”):

1. One [*] model [*] spare engine bearing manufacturer’s serial number _______ [*];

2. One new IAE-approved engine moisture and vapour proof storage bag;

3. One new IAE-approved engine transportation stand model number _______________ cradle with ________________ base;

4. All appliances, parts, instruments, appurtenances, accessories, furnishings or other equipment or property installed in or attached to the Engine, to which Seller holds title; and

5. All records applicable to such Engine.

For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Seller does hereby sell, grant, transfer, sell, deliver and set over to _____________________________, a ___________________ organized and existing under the laws of ________________, with a place of business at ___________________ (“ Buyer ”) and its successors and assignees forever all right, title and interest in and to the Engine, to have and to hold the Engine for its and their use forever.

This Warranty Bill of Sale is made and delivered pursuant to the provisions of the Agreement to Purchase [*] Spare Engines between Seller and Willis Lease Finance Corporation (for itself and as Servicer) dated March 16, 2018, and shall be governed by and construed in accordance with the laws of the State of New York.

IN WITNESS WHEREOF, Seller has caused this Warranty Bill of Sale to be executed and delivered as of this ____ day of _____________, 20__.

IAE INTERNATIONAL AERO ENGINES AG


By:
Name:
Title:

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APPENDIX 6

LIST OF PERMITTED AFFILIATES

WEST Engine Acquisition LLC, a limited liability company organized and existing under the laws of the State of Delaware

Willis Engine Structured Trust III, a statutory trust organized and existing under the laws of the State of Delaware

Willis Mitsui & Co Engine Support Limited, a limited company organized and existing under the laws of Ireland

CASC Willis Engine Lease Company Limited, a Sino-foreign equity joint venture organized and existing under the laws of China (Shanghai) Pilot Free Trade Zone, People’s Republic of China

Wells Fargo Bank Northwest, National Association (or Wells Fargo Trust Company, N.A., as applicable), a national banking association organized and existing under the laws of the United States of America, or US Bank National Association, a national banking association organized and existing under the laws of the United States of America, in each case, not in its individual capacity but solely as Owner Trustee for the benefit of any of the foregoing

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Exhibit 10.32

REDEMPTION AGREEMENT

THIS REDEMPTION AGREEMENT (this “ Agreement ”), dated as of March 29, 2018, by and between Willis Lease Finance Corporation, a Delaware Corporation (the “ Company ”) and M3 Partners, LP, a Delaware Limited Partnership (the “ Seller ”).

RECITALS

WHEREAS , on September 27, 2012, the Company’s Board of Directors approved and on April 21, 2015 its Board of Directors reapproved a stock repurchase program of up to $100 million, capped at $20 million per year (the “ Repurchase Program ”).

WHEREAS , the Seller desires to sell 294,787 shares of common stock, par value $0.01, of the Company (“ Common Stock ”), owned by the Seller and has approached the Company to determine whether the Company would redeem such shares (the “ Redeemed Shares ”).

WHEREAS , the Company’s Board of Directors approves the redemption of the Redeemed Shares under the Repurchase Program.

WHEREAS , Seller and the Company have agreed to redemption of the Redeemed Shares on the terms and conditions set forth herein.

NOW, THEREFORE , in consideration of the premises, and of the representations, warranties, covenants and agreements set forth herein, the parties agree as follows:

ARTICLE I

CERTAIN DEFINITIONS AND CONSTRUCTION

Section 1.1 Certain Definitions . As used in this Agreement, the following terms have the meanings set forth below:

“ Affiliate ” of any particular Person means any other Person controlling, controlled by or under common control with such particular Person. For the purposes of this definition, “control” means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through the ownership of voting securities, Contract or otherwise and “controlling” and “controlled” shall have the meanings correlative thereto.

“ Business Day ” means any day, other than a Saturday or Sunday, on which commercial banks are not required or authorized to close in San Francisco, California.

“ Contract ” means any agreement, obligation, contract, license, arrangement, understanding, commitment, indenture or instrument, in each case, whether written or oral.

“ Encumbrance ” means any lien, pledge, charge, encumbrance, security interest, option, mortgage, easement, restriction (including restrictive covenants or deed restrictions in connection with environmental or remedial obligations), lease, sublease, right of way, right of refusal or offer, claim, restriction on transfer, disposition or sale (including any restrictive legend

contained on a certificate representing shares of Common Stock), restriction on voting or other similar restriction, including any voting agreement or proxy.

“ Governmental Entity ” means any United States or foreign (i) federal, state, local, municipal or other government, (ii) governmental or quasi‑governmental entity of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal) or (iii) body exercising or entitled to exercise any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature, including any arbitral tribunal.

“ Law ” means any law, statute, ordinance, rule, regulation, directive, code, decision, Order or other requirement enacted, issued, promulgated, enforced or entered by any Governmental Entity.

“ Person ” means an individual, a corporation, a general or limited partnership, an association, a Corporation, a Governmental Entity, a trust or other entity or organization.

“ Proceeding ” means any suit, action, proceeding, arbitration, mediation, audit, hearing, inquiry or, to the knowledge of the Person in question, investigation (in each case, whether civil, criminal, administrative, investigative, formal or informal) commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Entity.

Section 1.2 Additional Definitions .


Agreement	Preamble
Bankruptcy and Equity Limitation	Section 3.1(b)
Chosen Courts	Section 6.4
Closing	Section 2.2
Common Stock	Recitals
Company	Recitals
DWAC	Section 2.2
Order	Section 5.1(a)
Pricing Date	Section 2.1
Purchase Price	Section 2.1
Redeemed Shares	Recitals
Repurchase Program	Preamble
Seller	Preamble
Transaction	Section 2.1

Section 1.3 Headings . The headings in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

Section 1.4 Construction . Unless the context otherwise requires, as used in this Agreement: (i) “or” is not exclusive; (ii) “including” and its variants mean “including, without limitation” and its variants; (iii) words defined in the singular have the parallel meaning in the plural and vice versa; (iv) references to “written” or “in writing” include in visual electronic form; (v) words of one gender shall be construed to apply to each gender; (vi) the term “Section” refers to the specified Section of this Agreement; (vii) the terms “Dollars” and “$” mean United States

Dollars; and (viii) the word “extent” in the phrase “to the extent” shall mean the degree to which a subject or other thing extends and such phrase shall not mean simply “if”.

Section 1.5 Joint Drafting . The parties hereto have been represented by counsel in the negotiations and preparation of this Agreement; therefore, this Agreement will be deemed to be drafted by each of the parties hereto, and no rule of construction will be invoked respecting the authorship of this Agreement.

ARTICLE II

THE TRANSACTION; THE CLOSING

Section 2.1 The Transaction . On the terms and subject to the conditions set forth herein, the Seller agrees to sell, and Company agrees to purchase, the Redeemed Shares for an aggregate purchase price (the “ Purchase Price ”) equal to the product of: (i) $34.28, the agreed upon price per share, equal to the price per share of the Company’s common stock as quoted on NASDAQ at 4PM, Eastern Time, on March 29, 2018 (the “ Pricing Date ”), multiplied by (ii) 294,787 (the “ Transaction ”). The aggregate purchase price equates to $10,105,298.36.

Section 2.2 The Closing . The closing of the Transaction (the “ Closing ”) shall take place within three business days following the Pricing Date, upon completion of the Deposit /Withdrawal at Custodian (" DWAC ") settlement, subject to satisfaction (or waiver) of the conditions in Article V hereof (the “ Closing Date ”).

Section 2.3 Deliveries by Company . The Company shall deliver funds by wire transfer and the Transaction will be settled using a DWAC settlement procedure.

Section 2.4 Deliveries by Seller . The Seller will deliver the shares using a DWAC settlement procedure.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

Section 3.1 Representations and Warranties of each Seller . The Seller hereby represents and warrants to the Company as follows:

(a) Power and Authority . The Seller has the requisite power and authority to enter into, execute and deliver this Agreement and to perform his obligations hereunder and has taken all necessary action required for the due authorization, execution, delivery and performance by him under this Agreement.

(b) Execution and Delivery . This Agreement has been duly and validly executed and delivered by the Seller and constitutes a valid and binding obligation, enforceable against the Seller in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or similar Laws relating to or affecting

generally the enforcement of creditors’ interests and (ii) the availability of equitable remedies (whether in a Proceeding in equity or at Law) (collectively, the “ Bankruptcy and Equity Limitation ”).

(c) Ownership of Shares . The Seller holds and has good and valid title to the Redeemed Shares free and clear of all Encumbrances. Following payment of the Purchase Price, good and valid title to, or a valid security entitlement in, the Redeemed Shares will pass to Company, free and clear of all Encumbrances.

(d) No Conflict . The execution and delivery of this Agreement and the performance by the Seller of his obligations hereunder and compliance by the Seller with all of the provisions hereof and the consummation of the Transaction (i) shall not conflict with, or result in a breach or violation of, any of the terms or provisions of, or constitute a default under, or result in the acceleration of, or the creation of any Encumbrance under, or give rise to any termination right under, any material Contract to which any Seller is a party, (ii) shall not conflict with or result in any violation of, or any termination or material impairment of any rights under, any statute or any license, authorization, Order, rule or regulation of any Governmental Entity having jurisdiction over the Seller or any of Seller’s properties or assets, and (iii) shall not result in the creation of any Encumbrance upon any of the properties or assets of the Seller (including the Redeemed Shares).

(e) Contracts . There is no existing option, warrant, call, right or other Contract of any character to which the Seller is a party requiring, and there are no securities outstanding which upon conversion or exchange would require, the sale or transfer of (or the making of an offer to sell or transfer of) the Redeemed Shares. The Seller is not party to any Contract (i) with respect to the voting, redemption, sale, transfer or disposition of, or any other similar Contract with respect to, the Redeemed Shares, except for this Agreement, or (ii) with the Company or any of its Affiliates with respect to acquiring, holding, voting or disposing of any stock or securities of the Company other than the Redeemed Shares pursuant to this Agreement.

(f) Consents and Approvals . No consent, approval, Order, authorization, registration or qualification of or with any Governmental Entity having jurisdiction over the Seller is required in connection with the execution and delivery by the Seller of this Agreement or the consummation of the Transaction.

(g) Legal Proceedings . As of the date hereof, there are no legal, governmental or regulatory Proceedings pending or, to the knowledge of the Seller, threatened against the Seller which, individually or in the aggregate, if determined adversely to a Seller, would materially and adversely affect the ability of the Seller to perform its obligations under this Agreement.

(h) No Broker’s Fees . No broker, finder, financial advisor, investment banker or other Person is entitled to any broker’s, finder’s, financial advisor’s, investment banker’s fee or commission or other similar payment in connection with this Agreement or the Transaction based upon arrangements made by or on behalf of the Seller.

(i) Sophisticated Seller . The Seller is sophisticated and capable of understanding and appreciating, and does understand and appreciate, that future events may occur that could increase the price of the Redeemed Shares, and that by selling the Redeemed

Shares to the Company the Seller will be deprived of the opportunity to participate in any such gain.

(j) Fair Market Value . The Seller acknowledges and agrees that the Company has made no representations or warranties to the Seller regarding the fair market value of the Redeemed Shares.

(k) No Other Representations or Warranties . Other than as set forth in this Agreement, neither the Company, nor any of its affiliates, attorneys, accountants or advisors, has made any representations or warranties to the Seller.

Section 3.2 Representations and Warranties of the Company . The Company represents and warrants to the Seller as follows:

(a) Organization . The Company is a corporation, duly organized and is validly existing and in good standing under the Laws of the State of Delaware.

(b) Power and Authority . The Company has the requisite power and authority to enter into, execute and deliver this Agreement and to perform its obligations hereunder and has taken all necessary action required for the due authorization, execution, delivery and performance by it under this Agreement.

(c) Execution and Delivery . This Agreement has been duly and validly executed and delivered by the Company and constitutes a valid and binding obligation, enforceable the Company in accordance with its terms, subject to the Bankruptcy and Equity Limitation.

(d) No Conflict . The execution and delivery of this Agreement and the performance by the Company of its obligations hereunder and compliance by the Company with all of the provisions hereof and the consummation of the Transaction (i) shall not conflict with, or result in a breach or violation of, any of the terms or provisions of, or constitute a default under, or result in the acceleration of, or the creation of any Encumbrance under, or give rise to any termination right under, any material Contract to which the Company is a party, (ii) shall not result in any violation or breach of any provisions of the organizational documents of the Company and (iii) shall not conflict with or result in any violation of, or any termination or material impairment of any rights under, any statute or any license, authorization, Order, rule or regulation of any Governmental Entity having jurisdiction over the Company or its properties or assets, except with respect to each of (i), (ii) and (iii), such conflicts, violations or defaults as would not be reasonably expected to have a material adverse effect on the ability of the Company to consummate the Transaction.

(e) Consents and Approvals . No consent, approval, order, authorization, registration or qualification of or with any Governmental Entity having jurisdiction over the Company is required in connection with the execution and delivery by the Company of this Agreement or the consummation of the Transaction.

(f) Legal Proceedings . As of the date hereof, there are no legal, governmental or regulatory Proceedings pending or, to the knowledge of the Company, threatened against the

Company which, individually or in the aggregate, if determined adversely to the Company, would materially and adversely affect the ability of the Company to perform its obligations under this Agreement.

(g) No Broker’s Fees . No broker, finder, financial advisor, investment banker or other Person is entitled to any broker’s, finder’s, financial advisor’s, investment banker’s fee or commission or other similar payment in connection with this Agreement or the Transaction based upon arrangements made by or on behalf of the Company.

ARTICLE IV

COVENANTS

Section 4.1 Further Assurances . The Seller agrees to use its reasonable best efforts to execute and deliver, or cause to be executed and delivered, including causing the Company to execute and deliver, such further instruments or documents or take such other action (including providing instructions to the Depository Trust Company or other custodians of the Redeemed Shares so as to facilitate the Redeemed Shares being held by the Company in the facilities of the Depositary Trust Company) as may be reasonably necessary (or as reasonably requested by the Company) to consummate the Transaction.

ARTICLE V

CONDITIONS TO CLOSING

Section 5.1 Conditions to Each Party’s Obligation to Consummate the Transaction . The respective obligation of each party hereto to consummate the Transaction is subject to the satisfaction or waiver of the following condition:

(a) No Injunction . No judgment, injunction, decree or other legal restraint (each, an “ Order ”) prohibiting the consummation of the Transaction shall have been issued by any Governmental Entity and be continuing in effect, there shall be no pending Proceeding commenced by a Governmental Entity seeking an Order that would prohibit the Transaction, and the consummation of the Transaction shall not have been prohibited or rendered illegal under any applicable Law.

Section 5.2 Conditions to the Seller’s Obligation to Consummate the Transaction . The obligation of the Seller to consummate the Transaction are subject to the satisfaction or waiver of each of the following conditions:

(a) Representations and Warranties . The representations and warranties of the Company set forth in Section 3.2 shall be true and correct in all material respects as of the date hereof and as of the Closing Date as if made on and as of the Closing Date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty shall be true and correct as of such earlier date).

(b) Covenants . Each of the covenants and agreements of the Company contained in this Agreement that are to be performed at or prior to the Closing shall have been duly performed in all respects.

Section 5.3 Conditions to Company’s Obligation to Consummate the Transaction . The obligation of the Company to consummate the Transaction is subject to the satisfaction or waiver of each of the following conditions:

(a) Representations and Warranties . The representations and warranties of the Seller set forth in Section 3.1 (other than Section 3.1(c)) shall be true and correct in all material respects as of the date hereof and as of the Closing Date as if made on and as of the Closing Date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty shall be true and correct as of such earlier date). The representations and warranties of the Seller set forth in Section 3.1(c) shall be true and correct in all respects as of the date hereof and as of the Closing Date as if made on and as of the Closing Date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty shall be true and correct as of such earlier date).

(b) Covenants . Each of the covenants and agreements of the Seller contained in this Agreement, including without limitation, delivery of the Redeemed Shares pursuant to Section 2.4, that are to be performed at or prior to the Closing shall have been duly performed in all respects.

(c) Form W-9 . At or prior to the Closing, the Seller shall have delivered to the Company a properly executed and completed IRS Form W-9 with respect to the Seller.

ARTICLE VI

MISCELLANEOUS

Section 6.1 Notices . All notices and other communications in connection with this Agreement shall be in writing and shall be considered given if given in the manner, and be deemed given at times, as follows: (w) on the date delivered, if personally delivered; (x) on the day of transmission if sent via facsimile transmission to the facsimile number given below, and telephonic confirmation of receipt is obtained after completion of transmission; (y) on the day of transmission if sent via email to the email address given below (provided that the party delivering notice by email obtains confirmation of receipt of such electronic mail); or (z) on the next Business Day after being sent by recognized overnight mail service specifying next business day delivery, in each case with delivery charges pre-paid and addressed to the following addresses:

(a) If to the Company, to:

Willis Lease Finance Corporation
773 San Marin Drive, Suite 2215
Novato, CA 94998

Attn: Dean Poulakidas
Facsimile: (415) 408-4701

Email: dpoulakidas@willislease.com

with a copy (which shall not constitute notice) to:

Perkins Coie LLP
505 Howard Street, #1000
San Francisco, CA 94105
Attn: Edward Wes
Facsimile: (650) 838-4350

Email: wesed@perkinscoie.com

(b) If to Seller to:

M3 Partners, LP

10 Exchange Place, Suite 510
Salt Lake City, UT 84111
email: info@m3funds.com

Section 6.2 Assignment; Third Party Beneficiaries . Neither this Agreement nor any of the rights, interests or obligations under this Agreement may be assigned by any party without the prior written consent of the other party. Notwithstanding the previous sentence, this Agreement, or the Company’s rights, interests or obligations hereunder (including, without limitation, the right to receive any of the Redeemed Shares pursuant to this Agreement), may be assigned or transferred, in whole or in part, by the Company to one or more of its Affiliates; provided that no such assignment shall release the Company from its obligations hereunder to be performed by Company on or prior to the Closing. This Agreement (including the documents and instruments referred to in this Agreement) is not intended to and does not confer upon any person other than the parties hereto any rights or remedies under this Agreement.

Section 6.3 Prior Negotiations; Entire Agreement . This Agreement (including the exhibits hereto and the documents and instruments referred to in this Agreement) constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements, arrangements or understandings, whether written or oral, between the parties with respect to the subject matter hereof.

Section 6.4 Governing Law . THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Each party hereto agrees that it shall bring any Proceeding in respect of any claim arising out of or related to this Agreement or the Transaction exclusively in the courts of the State of California and the Federal courts of the United States, in each case, located in the City and County of San Francisco, California (the “ Chosen Courts ”). Solely in connection with claims arising under this Agreement or the Transaction, each party hereto (i) irrevocably submits to the exclusive jurisdiction of the Chosen Courts, (ii) waives any objection to laying venue in any such Proceeding in the Chosen Courts, (iii) waives any objection that the Chosen Courts are an inconvenient forum or do not have jurisdiction over any party hereto and (iv) agrees that service of process upon such party in any

such Proceeding shall be effective if notice is given in accordance with Section 6.1 of this Agreement. EACH PARTY HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTION.

Section 6.5 Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or scanned pages shall be effective as delivery of a manually executed counterpart to this Agreement.

Section 6.6 Expenses . Each party shall bear its own costs and expenses incurred in connection with this Agreement and the Transaction.

Section 6.7 Waivers and Amendments . This Agreement may be amended, modified, superseded, cancelled, renewed or extended, and the terms and conditions of this Agreement may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege pursuant to this Agreement shall operate as a waiver thereof, nor shall any waiver of the part of any party of any right, power or privilege pursuant to this Agreement, nor shall any single or partial exercise of any right, power or privilege pursuant to this Agreement, preclude any other or further exercise thereof or the exercise of any other right, power or privilege pursuant to this Agreement. The rights and remedies provided pursuant to this Agreement are cumulative and are not exclusive of any rights or remedies which any party otherwise may have at Law or in equity.

Section 6.8 Specific Performance . The parties agree that irreparable damage may occur in the event that any of the provisions of this Agreement with respect to the Transaction were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that, in addition to any other applicable remedies at Law or equity, the parties shall be entitled to seek an injunction or injunctions, without proof of damages, to prevent a breach of this Agreement and to specifically enforce the terms and provisions of this Agreement.

Section 6.9 Additional Documents . Each party agrees to execute any additional documents and to take any further action as may be necessary or desirable in order to implement the transactions contemplated by this Agreement.

[Signature Page Follows]

IN WITNESS WHEREOF, this Agreement is executed as of the day and year first above written.

	WILLIS LEASE FINANCE CORPORATION

	By:	/s/ Scott B. Flaherty
	Name:	Scott B. Flaherty
	Title:	SVP & Chief Financial Officer


	M3 PARTNERS, LP

	By:	/s/ Jason A. Stock
	Name:	Jason A. Stock
	Title:	Managing Member of General Partner


	By:	/s/ William C. Waller
	Name:	William C. Waller
	Title:	Managing Member of General Partner

[Signature Page to Redemption Agreement]

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:	May 10, 2018	/s/ Charles F. Willis, IV
		Charles F. Willis, IV
		Chief Executive Officer

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;

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:	May 10, 2018	/s/ Scott B. Flaherty
		Scott B. Flaherty Chief Financial Officer

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 March 31, 2018 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: May 10, 2018


/s/ Charles F. Willis, IV
Chief Executive Officer


/s/ Scott B. Flaherty
Chief Financial Officer