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CORRESP
1
filename1.htm

May 9,
2008

Mr. Rufus
Decker

Accounting
Branch Chief

United
States Securities and Exchange Commission

100
F Street, N.E.

Washington,
D.C.  20549-7010

  RE:

  Willis
  Lease Finance Corporation

  Form 10-K
  for the Fiscal Year Ended December 31, 2007

  File
  No. 1-15369

Dear
Mr. Decker:

We,
Willis Lease Finance Corporation (“Willis” or the “Company”), are responding to
your letter dated April 25, 2008.
For ease of reference, the numbered paragraphs below correspond to the
numbered comments of your letter, with your comments in bold italics.

Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations, page 18

2.                                      On
page 18, you indicate that beginning July 1, 2006 you changed the
depreciation estimate related to the residual value of certain engines for
which marketability has improved in the prior year. You also indicate that
beginning April 1, 2007 you changed the depreciation estimate related to
certain older engine types in your portfolio. Please revise your disclosure to
include the effect on net income and any related per share amounts of the
current period as required by paragraph 22 of SFAS 154.

Response:

The
net effect of these changes in depreciation estimates is a reduction in 2007
net income of $0.4 million or $0.05 in diluted earnings per share over what net
income would have otherwise been had these changes in depreciation estimates
not been made.
Because we do not consider the effect of these changes to be material,
we do not believe it is necessary to file an amended form 10-K report for
2007.  However, we will revise our
disclosure in future filings to include the effect on net income and any
related per share amounts of the current period.

Item
9A – Controls and Procedures, page 25

3.                                      Please
state your conclusion about the effectiveness of disclosure controls and
procedures while providing the complete definition of disclosure controls and

procedures. Alternatively, you may simply state
that your disclosure controls and procedures are effective, or not effective,
without providing any part of the definition of disclosure controls and
procedures that is included in Exchange Act Rules 13a-15(e) and
15d-15(e).

Response:

We
will revise our disclosure in future filings to simply state that our
disclosure controls and procedures are effective, without providing any part of
the definition of disclosure controls and procedures.

Financial
Statements

(1) Organization
and Summary of Significant Accounting Policies, page 36

(c) Accounting
for Planned Major Maintenance Activities, page 36

4.                                      Through
2006, use fees received were recorded as a maintenance reserve liability until
such time as maintenance costs were reimbursed to the lessee or incurred by you
after the end of the lease. Commencing in 2007 and applied retrospectively, use
fees received are recognized in revenue as maintenance reserve revenue if they
are not reimbursable to the lessee. Your expenditures for maintenance are
expensed as incurred. The change in accounting policy resulted in a revision of
depreciation estimates for some engines. Please help us further understand your
accounting for use fees. Please
address the following:

·                  Your disclosures indicate that the change in accounting of use
fees received is related to your adoption of FSP AUG AIR-1.  Please help us understand how the guidance in
this FSP led to your change in accounting;

·                  Please
help us understand how the change in accounting policy led to a revision of
depreciation estimates for some engines; and

·                  Please
tell us which accounting literature you used through 2006 as well as which
accounting literature you are currently using to determine the appropriate
accounting for use fees.  Please provide
us with a comprehensive explanation of how your accounting complies with the
corresponding accounting literature.  The
explanation for your accounting should address how you determined it was
appropriate to present these amounts as revenue as well as the timing of when
you record these amounts as revenue.

Response:

You have asked for clarification of the
Company’s previous accounting recognition and presentation for engine leasing
activities and how the FSP AUG AIR-1 (FSP) impacted the accounting
treatment.  Please note that upon
implementing the FSP, all periods presented in our 2007 Annual Report on Form 10-K
were recast to conform to the revised accounting policy and its impacts on the
Company’s financial reporting for leasing activities disclosed.

Financial
Statement Recognition and Presentation Prior to Adoption of the FSP

Aircraft
engines have long useful lives but do require substantial periodic maintenance
and parts replacement in order to comply with FAA standards and achieve their
useful lives.  The Company’s business
model and lease agreements are generally designed to achieve a rate of return
on its asset’s cost (base lease rent) and to have the lessees be contractually
responsible for maintenance based on usage (similar to a “triple net lease” in
real estate).  The lessee’s maintenance
responsibility was achieved through a “return condition” contractual
requirement and payment of monthly use fees based on activity that created “maintenance
reserves” to ensure lessee performance of its maintenance obligations.

Historically,
the majority of the Company’s leases were of a long term nature and required
lessees to pay both a base lease rent and a use fee based on rates in the lease
and extent of usage of the engine.  Even
though the lease terms sometimes varied as to when and how lessee-funded
maintenance was to accrue and reimbursements were to be processed, all use fees
were recorded as maintenance reserves.
The establishment of these maintenance reserves effectively resulted in “accrue
in advance” maintenance accounting as the amount recorded was established based
on the expected cost of the maintenance even though it was cash funded by
lessee use fees.  The maintenance
reserves were generally sufficient to cover the maintenance performed by the
lessee or the Company such that the Company suffered no “net” maintenance
expense.  The base lease rent amounts
were always recorded as revenue based on the terms of the lease and SFAS No. 13
and the balance of the maintenance reserve was considered to be the appropriate
accrual for future engine maintenance until the maintenance was performed or
the engine was sold.

Impact of FSP AUG AIR-1 on Accounting for Lease Activity and Related
Maintenance

In
September 2006, the FASB issued the FSP which prohibits the accrual of
maintenance costs for planned maintenance events as the accrual does not meet
the Concept Statement No. 6 definition of a liability- there is no
contractual obligation to pay maintenance when such accruals are made.

When
considering the maintenance reserve liability after the implementation date of
the FSP, the Company had to bifurcate leases into two groups as there was no
longer a basis under GAAP to retain a liability on the balance sheet representing
un-contracted maintenance.

One
group of leases contained contractual rights for the lessee to be reimbursed
for maintenance out of amounts it paid to the Company as use fees.  Those payments continue to be accounted for
as deferred revenue (maintenance reserves) until the right to reimbursement is
contractually terminated.  The other
group does not contain reimbursement rights and therefore the Company
recognizes the use fees as revenue as earned and no longer recognizes a
maintenance liability under the application of the FSP.  The Company considers this to be compliant
with SAB 104. Where receipts from customers are subject to refund, it is
appropriate to not recognize revenue until the refund period ended. As a
result, we concluded that deferral on the balance sheet as a liability appears
appropriate during the term of a lease, until such time that the lessee undertakes
a maintenance event during the lease and is reimbursed for the amount spent, or
the lease comes to an end, at which time any amount remaining is released to
maintenance reserve revenue.

The
adoption of the FSP and the change to accounting for maintenance reserves
impacted our accounting for depreciation as the implementation of the FSP
required a revision to the calculation of asset impairment in prior years.  Prior to the adoption of the FSP, maintenance
reserves were considered in the impairment calculation.  After adopting the FSP, to the extent that
maintenance reserves were no longer recorded, some additional impairments were
required which resulted in depreciation to be recalculated in the income
statement.

We
believe the above discussion is responsive to the clarification you
requested.  In summary, the Company
believes it captured the interaction between revenue recognition and engine
maintenance under its various lease agreements in accordance with GAAP both pre
and post FSP.

(i) Property,
Equipment and Furnishings, page 39

5.                                      You
indicate that leasehold improvements are recorded at cost and depreciated by
the straight-line method over the lease term. Please confirm that leasehold
improvements are depreciated over the shorter of the lease term or useful life
of the leasehold.

Response:

We
confirm that leasehold improvements are depreciated over the shorter of the
lease term or useful life of the leasehold and will revise our disclosure in
future filings to state this.

(1) Restricted
Cash, page 39

6.                                      It
appears that you reflect changes in restricted cash as cash flows from
operating activities as well as in cash flows from financing activities. Please
disclose how you determine which category of cash flows to reflect the change
in accordance with SFAS 95.

Response:

Restricted
cash includes amounts paid by lessees to Willis that are restricted from
general corporate use due to contractual stipulations in our lending
agreements, primarily security deposits and maintenance reserve payments received
for engines that reside within our asset backed securitization known as WEST.

Cash
from maintenance reserve payments historically was held in a restricted cash
account. However, an amendment to the WEST Indenture in December 2007
resulted in the redeployment of cash that is now available to fund future
engine purchases. The cash made available from this change in the terms of our lending
arrangements has been reflected as cash provided by financing activities in the
Statement of Cash Flows in 2007 as the cash flow was caused by a change in our
financing arrangements.

All
other activity in the period affecting the restricted cash balances represents
normal operating activities resulting from the receipt of amounts from lessees
or the payment of amounts to lessees for maintenance events under our WEST
engine lease agreements. These amounts have been reflected as cash provided by
or used in operating activities in the Statement of Cash Flows.

(4) Note
Payable, page 43

WEST
Series A2 and Series B2 notes

7.                                      Interest
on the Series A2 and Series B2 notes is determined by taking
one-month LIBOR plus a stated margin. On page 44, you indicate that on July 25,
2007, the margin on the Series A2 notes was reduced from 1.50% to 1.25%
and the Series B2 note margin was reduced from 6.00% to 2.75%. Please tell
us how you accounted for the modification of the margins for these notes.
Please tell us what consideration you gave to EITF 96-19 in your analysis of
the accounting for this modification.

Response:

As
part of the WEST refinancing, there was a change in ownership of the WEST Series 2005-A2
and Series 2005-B2 notes. As part of the change in ownership, the margin
paid on each series was reduced. These notes fund a warehouse facility, for
which there were

no
unamortized debt issuance costs remaining at July 25, 2007 when the change
in ownership took place. In addition, there were no payments to the warehouse
note holders to affect the change. As there were no costs to write off or
payments made, there is no difference in accounting treatment whether the
change in terms is accounted for as a modification or as an extinguishment.

WEST
2008 Series B1 notes

8.                                      Your
investment banker is the holder of the 2008 Series B1 notes and retains
the right to sell the notes in the open market in the event that the notes are
not re-sold to other investors prior to April 30, 2008. In the event a
sale of the notes takes place, you are obligated to pay to your investment
banker the difference between the amount paid by them for the 2008 Series B1
notes and the amount realized from the sale of the notes, net of accrued
interest. You state that this amount will be recorded as an expense in the
period. Please tell us what consideration you gave to FIN 45 in accounting for
this right held by the investment banker.

Response:

Our
investment banker is acting as our agent in placing the 2008 Series B1
notes. As part of the WEST refinancing, on March 28, 2008, our investment
banker purchased $20.3 million of B1 notes, with the intent to place them with
long term investors. Their involvement as temporary owners of the B1 notes is
part of the selling process for the notes as a result of their agent
relationship with Willis related to the WEST refinancing. The make-whole
provision in the agreement with our investment banker which provides that
Willis will make up any difference regarding the amount paid by our investment
banker and the amount ultimately received upon sale of the B1 notes supports
the determination that this is an agency arrangement. As the investment banker
is acting as an agent, there is no guarantee between the parties. Therefore,
FIN 45 in not applicable to this transaction. When the notes are placed with
long term investors, any amount paid by Willis to our investment banker would
be recorded as a purchase discount for the B1 notes. Any amounts received by
our investment banker in excess of par would be recorded as a purchase premium.
Any shortfall would be amortized over the term of the B1 notes, rather than be
expensed in the period. Please be advised that we have modified our disclosure
in the 10-Q report for the quarter ended March 31, 2008 to describe the
accounting treatment related to the proceeds received from the eventual sale of
the B1 notes, as follows:

Our investment
banker is the holder of $20.3 million of the Series 2008-B1 notes and
retains the right to sell the notes in the open market in the event that the
notes are not re-sold to other investors prior to May 30, 2008, upon prior
consent being provided by us. In the event a sale of the note takes place, we
are obligated to pay to our investment banker the difference between the amount
paid by them for the Series 2008-B1 notes and that amount realized from
the sale of the notes, net of accrued interest. This amount

would
be recorded as a loan discount and would be amortized over the 15 year term of
the B1 notes.  Any amounts received by
our investment banker in excess of par would be recorded as a purchase premium.
Alternatively, we retain the right to repurchase the notes from our investment
banker at face value.

(5) Derivative
Instruments, page 45

9.                                      On
page 38, you indicate that all of the transactions that you have
designated as hedges are cash flow hedges. Please disclose the estimated net
amount of the existing gains or losses as of the end of the period that is
expected to be reclassified into earnings within the next 12 months as required
by paragraph 45(b)(2) of SFAS 133.

Response:

We
have disclosed the following estimate under the financial statement note for
Deriv