WILLIS LEASE FINANCE CORP (WLFC)

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 2025 Form 10-K. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs, including the potential impact of changes in interest rates or inflation, as well as the impact of new or increased tariffs on our business, results of operations and financial condition. Our actual results may differ materially from those contained in or implied by any forward-looking statements. The financial information included in this discussion and in our consolidated financial statements may not be indicative of our consolidated financial position, operating results, changes in equity and cash flows in the future. See “Special Note Regarding Forward-Looking Statements” included earlier in this report.

Overview

Our core business is acquiring and leasing commercial aircraft and aircraft engines and related aircraft equipment pursuant to operating leases, all of which we sometimes collectively refer to as “equipment.” As of June 30, 2026, the majority of our leases were operating leases, with the exception of certain sale-leaseback transactions that do not meet lease criteria and are therefore classified as notes receivable under the guidance provided by Accounting Standards Codification (“ASC”) 842, Leases, and investments in sales-type leases. As of June 30, 2026, we had 73 lessees in 42 countries. Our portfolio is continually changing due to equipment acquisitions and sales. As of June 30, 2026, we had $2,783.4 million of equipment held in our operating lease portfolio, $89.3 million of notes receivable, and $83.6 million of maintenance rights, which represented 334 engines, 22 aircraft, one marine vessel, and other leased parts and equipment. As of June 30, 2026, we also managed 145 engines, one airframe, and related equipment on behalf of other parties.

Willis Aeronautical Services, Inc. is a wholly-owned and vertically-integrated subsidiary whose primary focus is the sale of aircraft engine parts and materials through the acquisition or consignment of aircraft and engines. Additionally, through Willis Engine Repair Center®, Jet Centre by Willis, and Willis Aviation Services Limited, the Company’s service offerings include Part 145 engine maintenance, aircraft line and base maintenance, aircraft disassembly, parking and storage, airport fixed base operator (“FBO”) and ground and cargo handling services.

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 IV commercial jet engines manufactured by CFMI, General Electric, Pratt & Whitney, Rolls Royce and International Aero Engines.

Risks and Uncertainties

Given the uncertainty surrounding future changes in interest rates, inflation, potential new or increased tariffs, and broader macroeconomic and geopolitical conditions, the Company will continue to evaluate the nature and extent of such impacts on its business, results of operations, and financial condition. The ultimate extent of any such impacts will depend on future developments that are highly uncertain and not reasonably estimable at this time, and such impacts could persist for an extended period. Currently, we do not believe these tariffs have a material impact on our business.

Recent Developments

On July 10, 2026, a subsidiary of the Company entered into an agreement to acquire 100% of the equity interests in WNG II Aircraft Leasing (Cayman) Ltd. and WNG Aircraft Management 3, LLC from WNG Capital affiliates for a base purchase price of approximately $379.3 million, which amount will be adjusted downward to take into account basic rent received, maintenance reserves received, cash security deposits and other revenue received from and after an agreed upon historical economic closing date, in addition to other potential purchase price adjustments. The transaction includes a portfolio of commercial aircraft and spare aircraft engines. Completion of the acquisition is subject to the satisfaction or waiver of customary closing conditions, and no assurances can be given that all such conditions will be met.

On July 17, 2026, the Company effected a three-for-one forward stock split through an amendment to its Certificate of Incorporation. Trading on a split-adjusted basis commenced on July 21, 2026. All information in this Quarterly Report on 10-Q has been adjusted for the stock split.

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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 2025 Form 10-K.

Results of Operations

Three months ended June 30, 2026 compared to the three months ended June 30, 2025

Revenue is summarized as follows:

Lease Rent Revenue. Lease rent revenue consists of rental income from long-term and short-term engine leases, aircraft leases, and other leased parts and equipment. Lease rent revenue increased by $4.9 million, or 6.7%, to $77.1 million in the three months ended June 30, 2026, from $72.3 million for the three months ended June 30, 2025. The increase is due to an increase in the average size of the portfolio as compared to that of the prior year period.

At June 30, 2026, the Company had $2,783.4 million of equipment held in our operating lease portfolio, $89.3 million of notes receivable, and $83.6 million of maintenance rights. At June 30, 2025, the Company had $2,606.6 million of equipment held in our operating lease portfolio, $171.8 million of notes receivable, $34.7 million of maintenance rights, and $16.8 million of investments in sales-type leases. Average utilization (based on net book value of equipment held for operating lease, maintenance rights, and notes receivable and investments in sales-type leases net of allowances) was approximately 85.0% and 87.2% for the three months ended June 30, 2026 and 2025, respectively.

Two customers accounted for approximately 11%, each, of the Company’s total lease rent revenue during the three months ended June 30, 2026, and two customers accounted for approximately 13% and 10%, each, of the Company’s total lease rent revenue during the three months ended June 30, 2025.

Maintenance Reserve Revenue. Maintenance reserve revenue decreased $4.3 million, or 8.4%, to $46.5 million for the three months ended June 30, 2026, from $50.7 million for the three months ended June 30, 2025. We recognized $7.5 million in long-term maintenance revenue for the three months ended June 30, 2026, compared to $0.5 million in long-term maintenance revenue recognized in the prior comparable period as the maintenance reserves and end-of-lease payments for engines coming off lease exceeded those in the prior comparable period. Long-term maintenance revenue is influenced by end-of-lease compensation and the realization of long-term maintenance reserves associated with engines coming off lease. Engines on lease with “non-reimbursable” usage fees generated $39.0 million of short-term maintenance revenues, compared to $50.2 million in the comparable prior period. Short-term maintenance revenues are a proxy for flight time of our portfolio of engines.

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Spare Parts and Equipment Sales. Spare parts and equipment sales decreased by $9.2 million, or 30.2%, to $21.2 million for the three months ended June 30, 2026, compared to $30.4 million for the three months ended June 30, 2025. Spare parts sales were $11.1 million and $9.2 million for the three months ended June 30, 2026 and 2025, respectively, an increase of $1.8 million, or 19.7%, compared to the same period in 2025. The increase in spare parts sales reflects variations in the timing of sales to third-party customers and is not reflective of intra-company sales as the parts business provides used serviceable material across the broader Willis platform. Equipment sales for the three months ended June 30, 2026 were $10.1 million for the sale of two engines and one airframe. The trading profit on the sales of these engines was $5.0 million, representing a 49% margin. Equipment sales for the three months ended June 30, 2025 were $21.1 million for the sale of one engine.

Interest Revenue. Interest revenue decreased by $2.5 million, or 67.6%, for the three months ended June 30, 2026, as compared to that of the three months ended June 30, 2025. The decrease was due to a lower balance of notes receivable and sales-type leases outstanding during the respective periods, partially attributable to the Company’s sale of 12 notes receivable and sales-type leases to the Company’s investment fund partnership with Liberty Mutual Investments (“LMI”) (“LMI Fund”) during the six months ended June 30, 2026.

Gain on Sale of Leased Equipment. During the three months ended June 30, 2026, we sold 21 engines and other parts and equipment from the lease portfolio for $224.8 million less economic closing adjustments, resulting in a net gain of $32.0 million. During the three months ended June 30, 2025, we sold 14 engines, two airframes, and other parts and equipment from the lease portfolio for $91.1 million less economic closing adjustments, resulting in a net gain of $27.6 million.

Gain on Sale of Financial Assets. During the three months ended June 30, 2026, we sold one note receivable to the LMI Fund, for a net gain of $0.2 million. There was no gain on sale of financial assets during the three months ended June 30, 2025.

Maintenance Services Revenue. Maintenance services revenue predominantly represent fleet management, engine and aircraft storage and repair services, and revenue related to FBO services provided to third parties, such as refueling, maintenance, and hangar services. Maintenance services revenue increased by $1.0 million, or 11.9%, to $9.0 million for the three months ended June 30, 2026, from $8.0 million for the three months ended June 30, 2025. The increase reflects growth in engine and aircraft storage and repair services partially offset by the lack of fleet management revenues in the current period due to the sale of that business in 2025.

Management and Advisory Fees. Management and advisory fees increased by $2.9 million to $5.5 million for the three months ended June 30, 2026, from $2.6 million for the three months ended June 30, 2025, primarily driven by $2.8 million of fees earned from the LMI Fund and the Blackstone Credit & Insurance (“BXCI”) (“BXCI Fund”) in the Company’s role as general partner

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ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations (the “MD&A”) is intended to help the reader understand the results of operations and financial condition of the Company. The MD&A is provided as a supplement to, and should be read in conjunction with, the consolidated financial statements and related notes included in Part IV of this Annual Report on Form 10-K and incorporated herein by reference.

A discussion of our results of operations for our fiscal year ended December 31, 2024 compared to the year ended December 31, 2023 is included our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on March 11, 2025 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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Forward-Looking Statements. This Annual Report on Form 10-K, including the MD&A, includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding prospects or future results of operations or financial position, made in this Annual Report on Form 10-K are forward-looking. We use words such as anticipates, believes, expects, future, intends, and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Actual results could differ materially for a variety of reasons, including, among others: the effects on the airline industry and the global economy of events such as the current high interest rate and inflationary environment; changes in oil prices and other disruptions to the world markets; trends in the airline industry and our ability to capitalize on those trends, including growth rates of markets and other economic factors; risks associated with our growth strategies and strategic priorities; risks associated with owning and leasing jet engines and aircraft; our ability to successfully negotiate equipment purchases, sales and leases, to collect outstanding amounts due and to control costs and expenses; managing the risks and impacts of potential and actual security breaches, cyberattacks, privacy breaches or data breaches, including business, service, or operational disruptions, the unauthorized access to or disclosure of data, financial loss, reputational damage, increased response and remediation costs, legal and regulatory proceedings or other unfavorable outcomes; changes in interest rates and availability of capital, both to us and our customers; our ability to continue to meet the changing customer demands; regulatory changes affecting airline operations, aircraft maintenance, accounting standards and taxes; the market value of engines and other assets in our portfolio; and the impact of pandemics or other public health crises on our business, financial condition, and results of operations. These risks and uncertainties, as well as other risks and uncertainties that could cause our actual results to differ significantly from management’s expectations, are described in greater detail in Item 1A “Risk Factors” of Part I which, along with the other discussion in this report, describes some, but not all, of the factors that could cause actual results to differ significantly from management’s expectations.

OVERVIEW

General. Our core business is acquiring and leasing commercial aircraft and aircraft engines and related aircraft equipment pursuant to operating leases, all of which we sometimes collectively refer to as “equipment.” As of December 31, 2025, the majority of our leases were operating leases with the exception of certain failed sale-leaseback transactions classified as notes receivable under the guidance provided by ASC 842 and investments in sales-type leases. As of December 31, 2025, we had 69 lessees in 37 countries. Our portfolio is continually changing due to acquisitions and sales. As of December 31, 2025, we had $2,801.7 million of equipment held in our operating lease portfolio, $139.9 million of notes receivable, $30.6 million of maintenance rights, and $16.6 million of investments in sales-type leases, which represented, in aggregate, 363 engines, 20 aircraft, one marine vessel and other leased parts and equipment. As of December 31, 2025, we also managed 116 engines and related equipment on behalf of third parties.

Willis Aero is a wholly-owned and vertically-integrated subsidiary whose primary focus is the sale of aircraft engine parts and materials through the acquisition or consignment of aircraft engines. As of December 31, 2025, we had $56.6 million in spare parts inventory.

In 2011 we entered into an agreement with Mitsui & Co., Ltd. to participate in a joint venture formed as a Dublin-based Irish limited company, WMES, for the purpose of acquiring and leasing jet engines. Each partner holds a 50% interest in the joint venture. WMES owned a lease portfolio of 65 engines, one aircraft, and other parts and equipment with a net book value of $575.3 million at December 31, 2025. Our investment in the joint venture was $78.9 million as of December 31, 2025.

In 2014 we entered into an agreement with CASC to participate in CASC Willis, a joint venture based in Shanghai, China. Each partner holds a 50% interest in the joint venture. CASC Willis acquires and leases jet engines to Chinese airlines and concentrates on meeting the fast-growing demand for leased commercial aircraft engines and aviation assets in the People’s Republic of China. CASC Willis owned a lease portfolio of six engines with a net book value of $50.4 million as of December 31, 2025. Our investment in the joint venture was $21.6 million as of December 31, 2025.

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 IV 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, Bombardier, and Embraer aircraft.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to residual values, estimated asset lives, impairments, bad debts, and credit losses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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We believe the following critical accounting policies, grouped by our activities, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

Leasing-Related Activities. Revenue from leasing of aircraft equipment is recognized as operating lease revenue on a straight-line basis over the terms of the applicable lease agreements. Where collection cannot be reasonably assured, for example, upon a lessee bankruptcy, we do not recognize revenue until cash is received. We also estimate and charge to income provisions for bad debts and credit losses based on our experience in the business and with each specific customer and the level of past due accounts. The financial condition of our customers may deteriorate and result in actual losses exceeding the estimated allowances. In addition, any deterioration in the financial condition of our customers may adversely affect future lease revenues. As of December 31, 2025, the majority of our leases were operating leases with the exception of certain failed sale-leaseback transactions classified as notes receivable under the guidance provided by ASC 842 and investments in sales-type leases. Under these leases, we retain title to the leased equipment, thereby retaining the potential benefit and assuming the risk of the residual value of the leased equipment.

We generally depreciate engines on a straight-line basis over 15 years to a 55% residual value. Aircraft and airframes are generally depreciated on a straight-line basis over 13 to 20 years to a 17% residual value. The marine vessel is depreciated on a straight-line basis over an estimated useful life of 18 years to a 15% residual value. Other leased parts and equipment are generally depreciated on a straight-line basis over 14 to 15 years to a 25% residual value. When we pay for major overhauls, which improve functionality or extend the original useful life, they are capitalized and depreciated over the shorter of the estimated period to the next overhaul (“deferral method”) or the remaining useful life of the equipment. We do not accrue for planned major maintenance. For equipment which is unlikely to be repaired at the end of its current expected life, and is likely to be disassembled upon lease termination, we depreciate the equipment over its estimated life to a residual value based on an estimate of the wholesale value of the parts after disassembly. As of December 31, 2025, 19 engines having a net book value of $34.3 million were depreciated under this policy with estimated remaining useful lives up to 51 months.

Asset Valuation. Long-lived assets and certain identifiable intangibles to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable, and long-lived assets and certain identifiable intangibles to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. When a long-lived asset is written down and moved to equipment held for sale from equipment held for lease, it is no longer depreciated.

On a quarterly basis, management monitors the lease portfolio for events which may indicate that a particular asset may need to be evaluated for potential impairment. These events may include a decision to part-out or sell an asset, knowledge of specific damage to an asset, or supply/demand events which may impact the Company’s ability to lease an asset in the future. On an annual basis, even absent any such ‘triggering event’, we evaluate the carrying value of the assets in our lease portfolio to determine if any impairment exists.

Impairment may be identified by several factors, including, comparison of estimated sales proceeds or forecasted undiscounted cash flows over the life of the asset with the asset’s book value, as well as appraisals from third parties. If the forecasted undiscounted cash flows are less than the book value, the asset is written down to its fair value. When evaluating for impairment, we test at the individual asset level (e.g., engine or aircraft), as each asset generates its own stream of cash flows, including lease rents, maintenance reserves and repair costs.

We must make assumptions which underlie the most significant and subjective estimates in determining whether any impairment exists.  Those estimates, and the underlying assumptions, are as follows:

•Fair value – we determine fair value by reference to independent appraisals, quoted market prices (e.g., an offer to purchase) and other factors, including but not limited to current data from airlines, engine manufacturers and MRO providers, as well as specific market sales and repair cost data.

•Future cash flows – when evaluating the future cash flows that an asset will generate, we make assumptions regardi

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