WILLIS LEASE FINANCE CORP (WLFC) stock intrinsic value fair value estimate & owner earnings analysis

Willis Lease Finance leases commercial jet engines (and some airframes) to airlines and engine-repair shops, sells engines out of its portfolio, manages engines for third parties, and sells used spare parts. It buys engines with borrowed money, collects lease rent and maintenance deposits, and periodically sells engines, usually for more than their book value. In 2025 revenue was $730 million (up 28%), 38 engines were sold for a $54 million gain, fleet utilization was about 85%, and roughly 70% of lease rent came from outside the United States (Europe, India and Asia-Pacific are the largest foreign regions; the United States was $89 million of rent, Europe $60 million, India $53 million). The company split its stock 3-for-1 effective July 17, 2026; every per-share figure here is on the new, post-split share count of about 22 million. Our earlier published figures were built on a different basis and are not comparable. How we measured earning power. We started with cash from operations and removed swings in working capital (receivables, parts inventory, deposits, unearned rent and the maintenance reserves tenants pay in), then charged stock-based compensation in full (it was $45 million in 2025). For the engines themselves, we treated depreciation as the yearly spending needed to keep the fleet's earning power intact and counted the rest of engine purchases as growth. We tested the alternative, spending net of engine-sale proceeds, and it swings from $3 million to $561 million a year with no relationship to need, so it is not usable. We did not credit the $54 million of gains on engine sales to earnings, which roughly offsets $33 million of equipment write-downs that accounting adds back. Because Willis borrows to buy engines, we measured the cash the business produces before paying lenders (adding back the $132 million of interest paid in 2025), valued that, and then subtracted what the company owes. On that basis the business produced about $251 million in 2024 and $241 million in 2025. The window we used. We anchored on 2024 and 2025 (about $246 million, or about $11.20 a share), because debt rose from $1.8 billion to $2.7 billion and revenue from $419 million to $730 million between 2023 and 2025; earlier years describe a much smaller fleet. In 2025 this cash flow slipped 4% from 2024, so we started the first year of the forecast 4% lower, not higher. Early 2026 supports that: first-half revenue rose 10%, but operating cash flow fell 7.6% and the second quarter's revenue was flat on a year earlier. An accounting judgment that matters. About $46 million of 2025's cash earnings (and $39 million in 2024) came from taxes deferred rather than paid; the company paid only about $3 million in cash taxes against a $47 million tax charge. That deferral exists because the company keeps buying engines faster than it depreciates them. Since we credit no fleet growth, we let this benefit fade to about $12 million a year (its ten-year median) over the first three years in the base case. This lowers the base value by roughly $21 a share; keeping it would put the base case near $80. What the debt looks like. At June 30, 2026, Willis owed about $2.35 billion in principal (down from $2.73 billion at year-end as it applied cash it held at that date), plus $65 million of 8.35% Series A preferred stock that ranks ahead of the common shares, and a further $35 million of 8.09% Series B preferred sold to the Development Bank of Japan on September 29, 2026. Cash was only $11 million. We counted all of that as owed ($2.44 billion net) and gave no credit for the new preferred cash, which is earmarked for a planned engine-repair center in Malaysia that we do not value. Interest cost averaged about 5.3% in 2025. Maturities at year-end 2025 were $110 million in 2026, $213 million in 2027, $262 million in 2028, $1.09 billion in 2029 (including the $650 million drawn on the revolving credit facility due October 2029) and $1.06 billion after 2029. The 2029 block is the main refinancing event. Base case. Cash generation starts at $243 million, eases to $233 million, and settles at about $223 million a year, flat from there on. That level continues because the engines are long-lived, the company has sold engines above book value every year for ten years, and replacing engines out of its own cash flow and sale proceeds is a process it has run for decades. We credit no new fleet growth, no new products and no higher utilization. The business is worth about $3.74 billion, it owes about $2.44 billion, leaving about $1.30 billion, or about $59 a share. Bear case. We repeated the 2020-2021 aviation collapse, using the company's own record: its business cash flow fell 32% in 2020, was 56% below its 2019 level in 2021, was still 40% below in 2022, and returned to within 6% in 2023. We start it in the second year, assume the recovery stalls at a level 10% lower permanently (engine write-downs, weaker lease rates), and assume the 2029 maturities are refinanced about two points more expensively, as the company's 8.00% notes sold in 2023 show is possible. Cash flow falls to $98 million in the worst year, below the roughly $132 million annual interest bill for one year, which the company would have to bridge with engine sales. The business is worth about $3.19 billion, it owes about $2.44 billion plus about $89 million of extra refinancing cost, leaving about $660 million, or about $30 a share. Bull case. The company keeps its recent record: the tax deferral continues because it keeps replacing and modestly adding engines, and engine-sale gains stay near $30 million a year for five years before settling at $12 million. That requires a continued tight market for used engines like the one of 2024-2025; we gave no credit for the Malaysian repair center or higher utilization. The business is worth about $4.38 billion, it owes about $2.44 billion, leaving about $1.94 billion, or about $88 a share. Why the margin-of-safety price is $31. We are fairly sure of the level of cash the existing fleet has produced (our figures tie to reported cash flow within 0.03%), and less sure how much persists: we already strip out about $30 million a year of tax deferral and about $43 million a year of the recent engine-sale gains because both depend on continued fleet purchases and a tight engine market. The most plausible bad outcome is another aviation shock arriving with $2.4 billion of debt and $1.1 billion maturing in 2029; the assets are hard (engines have repeatedly sold above book, and most debt is long-dated and secured by engines), so we expect the company to survive, but common shareholders are a thin layer: every 10% change in annual cash flow moves the common's value by about $17 a share. If we are wrong about replacement cost (for example, engines costing $17 million a year more to replace than depreciation implies), the base value falls by about $13 a share. The price assumes about a five-year holding period. Over that period the business pays only a small common dividend (about $0.40 a share) but retains roughly $90 to $110 million a year of cash earnings after interest, which pays down debt. At about $31 the price is also just below the roughly $32 a share of book equity at June 30, 2026, and a base-case outcome would take the shares to about $79 in five years, which implies around 20% a year. What could make this wrong. The biggest judgment is treating depreciation as the cost of keeping the fleet's earning power intact: if replacement engines cost materially more than book value implies, true earnings are lower. Second, the tax deferral may last longer than we assume if the company keeps growing, which would make our estimate too low. Third, a downturn deeper than 2020 or a covenant tripped on engine values would hurt a company with this much debt. Finally, the company's second-quarter report and committed purchases ($244.5 million of new engines committed for 2026 as of year-end 2025) were available for this analysis only in summarized form, so we could not rebuild first-half 2026 working capital or the engine purchases still outstanding at June 30 line by line.