Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Willis Lease Finance Corp (WLFC, Financial) reported record earnings before tax (EBT) of $57.9 million in Q2 2024, a 205% increase from the same quarter in 2023.
- The company has successfully leveraged supply chain constraints to increase lease rates, benefiting from the demand for spare engines.
- WLFC's diversified services, including engine repair shops and a consulting business, provide a competitive advantage and greater control over asset life cycles.
- The company paid a one-time dividend of $1 per share and announced a recurring dividend policy, reflecting strong financial health.
- WLFC's strategic investments in modernizing its engine portfolio with new technology engines like GTF and LEAP are expected to drive future growth.
Negative Points
- The company's gain on sale of $14 million in Q2 2024 may not be sustainable as it was significantly influenced by current market conditions.
- Supply chain issues, particularly with new technology engines, continue to pose challenges, requiring more frequent off-wing maintenance.
- Increased general and administrative expenses, driven by personnel costs and incentive compensation, could impact profitability.
- Net finance costs rose to $24.6 million in Q2 2024 due to increased indebtedness and higher average cost of debt.
- Uncertainty remains regarding the recovery of assets tied up in Russia, with ongoing discussions with insurance companies.
Q & A Highlights
Q: Can you compare your business model with Fortress, another engine leasing company?
A: Austin Willis, CEO: While I won't comment on Fortress specifically, our business is about 50% short-term and 50% long-term leasing. Our short-term leasing allows us to be active in programmatic business, like ConstantThrust, where we do sale leasebacks and exchange engines as needed. We have two repair stations and a parts business that help us repair and lease engines quickly and cost-effectively. Our consulting business forecasts engine maintenance needs, enhancing our leasing products by saving customers money on maintenance and planning.
Q: How do you view your order book in light of current manufacturing backlogs?
A: Austin Willis, CEO: We have a strong order book and have taken delivery of several engines this year, with more expected. Our order book is a significant part of our pipeline, but we also pursue transactions from the market. We work closely with OEMs to provide aftermarket services, which differentiates us from aircraft lessors.
Q: What is your perspective on using modules for engine overhauls?
A: Austin Willis, CEO: We do module swaps occasionally, having done about 20 this past year, but it's not our core focus. We explore various ways to manage maintenance costs effectively. High-pressure turbine modules are hard to obtain, so we evaluate each engine individually to decide if module swaps are appropriate.
Q: Why have you invested in next-gen engines like LEAP and GTF, unlike some competitors?
A: Austin Willis, CEO: It's part of modernizing our portfolio. Historically, we've transitioned from older engines to newer ones. We believe GTF and LEAP engines will drive future aviation for the 737 MAX and A320neo. Short-term maintenance issues with these engines create leasing opportunities, making them a good investment both short and long term.
Q: Can you discuss the sustainability of gains on engine sales and the value of your portfolio?
A: Austin Willis, CEO: Our portfolio is undervalued relative to market value, reflected in our gain on sales. Current gains are higher than historical averages, but we typically see a run rate in the mid-low teens. Once the market normalizes, we expect gains to return to that level.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
