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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
COMMISSION FILE NUMBER 33-99970
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AIRPLANES LIMITED AIRPLANES U.S. TRUST
(Exact Name of Registrants as specified in memorandum of
association or trust agreement)
JERSEY, CHANNEL ISLANDS DELAWARE
(State or other jurisdiction of incorporation or organization)
7359 13-3521640
(SIC Code) (I.R.S. Employer Identification No.)
AIRPLANES LIMITED AIRPLANES U.S. TRUST
22 GRENVILLE STREET, ST. HELIER 1100 NORTH MARKET STREET,
JERSEY, JE4 8PX RODNEY SQUARE NORTH
CHANNEL ISLANDS WILMINGTON, DELAWARE 19890-0001
(011 44 1534 609 000) (1-302-651-1000)
(Addresses and telephone numbers, including area codes, of Registrants'
principal executive offices)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None None
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT
None
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(Title of class)
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(Title of class)
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 /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 or Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
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ISSUER CLASS OUTSTANDING AT JUNE 24, 1996
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Airplanes Limited Ordinary Shares, $1.00 par value 30
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AIRPLANES LIMITED AND AIRPLANES U.S. TRUST
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business...................................................................... 2
Item 2. Properties.................................................................... 36
Item 3. Legal Proceedings............................................................. 36
Item 4. Submission of Matters to a Vote of Security-Holders........................... 37
PART II
Item 5. Market for Registrants' Common Equity and Related Stockholder Matters......... 37
Item 6. Selected Combined Financial Data.............................................. 38
Item 7. Management's Discussion and Analysis of Financial Condition and Results of 41
Operations....................................................................
Item 8. Financial Statements and Supplementary Data................................... 51
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial 51
Disclosure....................................................................
PART III
Item 10. Directors and Executive Officers of the Registrants........................... 51
Item 11. Executive Compensation........................................................ 64
Item 12. Security Ownership of Certain Beneficial Owners and Management................ 64
Item 13. Certain Relationships and Related Transactions................................ 64
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............. 64
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PART I
ITEM 1. BUSINESS
INTRODUCTION
On March 28, 1996, Airplanes Pass Through Trust (the "Trust") issued $4,048
million of Pass Through Certificates (collectively, the "Certificates") in four
classes -- Class A, Class B, Class C and Class D. The Class A Certificates were
further subdivided into five separate subclasses (A-1 through A-5). Each
Certificate represents a fractional undivided beneficial interest in two
corresponding classes or subclasses of notes (collectively, the "Notes") issued
by Airplanes Limited, a Jersey limited liability company ("Airplanes Limited"),
and Airplanes U.S. Trust, a Delaware business trust ("Airplanes Trust")
(together with, unless the context otherwise requires, each of their
subsidiaries, "Airplanes Group"). Airplanes Limited and Airplanes Trust have
each fully and unconditionally guaranteed (the "Guarantees") the other's
obligations under each class or subclass of Notes. Also on March 28, 1996,
Airplanes Group received the net proceeds from an underwritten offering of the
Certificates (the "Underwritten Offering") in exchange for the Notes and used
such net proceeds, together with approximately $604 million in aggregate
principal amount of a fifth class of Airplanes Group notes (the "Class E
Notes"), to acquire certain subsidiaries of GPA Group plc ("GPA Group" and,
together with its subsidiaries and affiliates, "GPA"). Of the $604 million of
Class E Notes issued, it is expected that approximately $13 million will be
cancelled pursuant to the purchase price adjustment provisions of the agreements
pursuant to which these subsidiaries of GPA Group were sold to Airplanes Group.
These GPA Group subsidiaries owned 229 aircraft (the "Aircraft"), related leases
to approximately 83 aircraft operators in approximately 40 different countries
as at December 31, 1995 and certain receivables relating to the Aircraft. The
acquisition of such subsidiaries and the resulting acquisition of the Aircraft,
related leases and receivables is referred to herein as the "Acquisition".
As of March 31, 1996, 218 of the Aircraft were on lease to 82 aircraft
operators based in 40 countries. Of the remaining 11 Aircraft, three were the
subject of non-binding letters of intent and five were subject to leases (with
delivery to the relevant lessees scheduled for a date after March 31, 1996). The
remaining three Aircraft were being actively re-marketed. Of the 229 Aircraft,
19 are widebody types and 210 are narrowbody types.
AIRPLANES LIMITED
Airplanes Limited is a special purpose limited liability company formed on
November 3, 1995 under the laws of Jersey, Channel Islands for an unlimited
duration for certain limited purposes, including directly or indirectly
acquiring, financing, re-financing, owning, leasing, re-leasing, maintaining and
modifying the Aircraft. In addition, within the limits set forth in the
Airplanes Limited Trust Indenture (the "Airplanes Limited Trust Indenture")
dated as of March 28, 1996 among Airplanes Limited, Airplanes Trust and Bankers
Trust Company, as Trustee (the "Airplanes Limited Indenture Trustee"), Airplanes
Limited may sell the Aircraft. Airplanes Limited may also guarantee the
obligations of Airplanes Trust and the subsidiaries of Airplanes Trust, enter
into certain hedging contracts as described in "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" and establish and
provide loans or guarantees to, or in respect of, its subsidiaries.
Airplanes Limited has one direct subsidiary, Airplanes Holdings Limited
(formerly GPA II Limited) ("Holding Co."), in which it holds 95% of the ordinary
share capital. GPA Group holds the remaining 5% of the ordinary share capital of
Holding Co. The 5% shareholding by GPA Group is intended to ensure that Holding
Co. and certain of the other Transferred Companies (as defined below) will
continue to be entitled to certain corporate tax benefits for Shannon, Ireland
certified companies. Airplanes Limited operates its business through its direct
and indirect subsidiaries. Airplanes Limited and its subsidiaries are also
permitted to lease Aircraft to or from, or sell Aircraft to or buy Aircraft
from, other members of Airplanes Group.
Airplanes Limited indirectly acquired 206 of the Aircraft and related
leases through the acquisition of the Holding Co. capital stock. On March 28,
1996, Holding Co. owned (i) 33 of the Aircraft and related leases, (ii) 13
wholly-owned, former subsidiaries of GPA Group (including Holding Co.) (the
"Aircraft Owning
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Companies") which owned 173 of the Aircraft and (iii) nine other wholly-owned,
former subsidiaries of GPA Group ("Special Lessors") which owned no aircraft and
whose business is to lease certain of the Aircraft from the Aircraft Owning
Companies and sublease such Aircraft to various aircraft operators (the Aircraft
Owning Companies, the Special Lessors, AeroUSA (as defined below) and AeroUSA 3
(as defined below) are collectively referred to as the "Transferred Companies".)
The Special Lessors are largely incorporated in various European jurisdictions.
Additional Special Lessors may be incorporated in other jurisdictions in the
future.
Airplanes Limited has a Board of Directors but has, and will have, no
employees or executive officers. Accordingly, the Board relies, for all asset
servicing, executive and administrative functions, upon (i) GE Capital Aviation
Services, Limited ("GECAS"), as Servicer (the "Servicer"), pursuant to the
Servicing Agreement (the "Servicing Agreement") dated as of March 28, 1996 among
Airplanes Limited, AeroUSA, Inc., a Connecticut corporation and wholly-owned
subsidiary of Airplanes Trust ("AeroUSA"), Holding Co., Airplanes Trust, GPA
Cash Manager Limited ("GPA Cash Manager") and GECAS; (ii) GPA Financial Services
(Ireland) Limited ("GPA Financial"), as Administrative Agent (the
"Administrative Agent"), pursuant to the Administrative Agency Agreement (the
"Administrative Agency Agreement") dated as of March 28, 1996 among GPA
Financial, GPA Group, Airplanes Limited, Holding Co., Airplanes Trust and
AeroUSA; (iii) GPA Cash Manager, as Cash Manager (the "Cash Manager"), pursuant
to the Cash Management Agreement (the "Cash Management Agreement") dated as of
March 28, 1996 among GPA Cash Manager, GPA Group, Airplanes Limited, Airplanes
Trust and Bankers Trust Company, as Indenture Trustee, (as defined below) under
each of the Trust Indentures (as defined below) and Security Trustee (the
"Security Trustee") pursuant to the Security Trust Agreement (the "Security
Trust Agreement") dated as of March 28, 1996 among Airplanes Limited, Airplanes
Trust, Mourant & Co. Secretaries Limited, the Issuer Subsidiaries listed
therein, GPA Financial, GPA Cash Manager, GPA Group, GECAS, the Indenture
Trustees (as defined below), the Reference Agent named therein and the Security
Trustee; and (iv) various other service providers.
The Airplanes Limited Board consists of five members, one of whom was
appointed by the holder or holders of a majority in aggregate principal amount
of the Class E Notes and four of whom are Independent Directors (as defined
below). Certain significant transactions or proceedings of Airplanes Limited may
only be approved by a unanimous vote of all the Directors of Airplanes Limited.
These transactions and proceedings principally relate to certain insolvency
proceedings, amendments to Airplanes Limited's Memorandum or Articles of
Association, mergers or, subject to certain exceptions, sale of all or
substantially all of Airplanes Limited's assets. The succeeding Independent
Directors (as defined below) generally will be appointed by a majority of the
then standing Directors. "Independent Directors" will not be officers, directors
or employees of GPA Group, GECAS, General Electric Capital Corporation ("GE
Capital"), any holder of the Class E Notes or any affiliate of these persons.
GE Capital has the right to acquire at any time up to and including October
29, 2001, up to 90% of the ordinary share capital of GPA Group. If GE Capital
were to exercise such option and acquire 90% of the ordinary share capital of
GPA Group, GE Capital would pay between approximately $59 million and
approximately $108 million, depending on certain events as stipulated in the
terms governing the exercise of the option. If GE Capital acquires 90% or more
of the ordinary share capital of GPA Group, the holder of a majority in
aggregate principal amount of the Class E Notes would be entitled to dismiss the
then-acting Directors of Airplanes Limited and Controlling Trustees (as defined
below) of Airplanes Trust and to appoint new Directors and Controlling Trustees
(as defined below); provided that (i) GE Capital guarantees the performance by
GECAS of its obligations under the Servicing Agreement, if GECAS is then the
Servicer, (ii) GE Capital shall then have a rating of at least Aa1 or AA+ on its
long-term, senior unsecured debt obligations from Moody's Investor Service Inc.
("Moody's") or Standard & Poor's Ratings Group ("Standard and Poor's"),
respectively, and (iii) each of Airplanes Limited and Airplanes Trust shall
continue to have at least three Independent Directors and Independent Trustees
(as defined below), as applicable, who will form a committee to review and, if
thought fit, approve, by a vote of at least two of the three committee members,
any transactions of Airplanes Group (other than as described in the next
paragraph) in which GE Capital or
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any of its affiliates is an interested party. There can be no assurance that GE
Capital will elect to exercise its rights to acquire any ordinary share capital
of GPA Group.
At such time, if any, as the Directors of Airplanes Limited and Controlling
Trustees (as defined below) of Airplanes Trust have been appointed by the holder
of a majority in aggregate principal amount of the Class E Notes, then the
Directors of Airplanes Limited and Controlling Trustees (as defined below) of
Airplanes Trust shall have the authority, acting on a simple majority vote,
without any independent committee veto rights, to cause Airplanes Group to sell,
directly or indirectly, all of the assets of the Airplanes Group, whether
through a stock or an asset sale, to any person who provides, as consideration
therefor, any combination of cash, obligations of the United States government
or of corporate issuers rated at least AA+ or its equivalent and Class E Notes
which, through the payment of interest, principal and premium, if any, in
respect thereof, will be sufficient to repay or defease, as the case may be, the
Notes in accordance with their terms, discharge any Class E Notes not so
transferred and pay, with respect to Airplanes Limited, the discounted present
value of the Annual Dividend Amount (as defined below) (the "Discounted Annual
Dividend Amount"), plus any arrears of the Annual Dividend Amount (as defined
below).
Airplanes Limited has an authorized share capital of 10,000 ordinary
shares, $1 par value per share, 30 of which have been issued. All of the issued
capital stock of Airplanes Limited is held by Juris Limited and Lively Limited,
each a Jersey company, for the benefit of certain charitable trusts (the
"Charitable Trusts") established under the laws of Jersey. The holders of the
issued capital stock of Airplanes Limited are entitled under the Articles of
Association of Airplanes Limited to an annual fixed cumulative preferential
dividend of $4,500 (the "Annual Dividend Amount"). The Annual Dividend Amount
will be paid only when Airplanes Limited has distributable profits which may
lawfully be so paid as dividends and no event of default ("Event of Default")
with respect to any class of Certificates has occurred and is continuing. An
"Event of Default" under the Certificates is defined as the occurrence and
continuance of a "Note Event of Default" under either the Airplanes Limited
Trust Indenture or the Airplanes Trust Trust Indenture (the "Airplanes Trust
Trust Indenture", together with the Airplanes Limited Trust Indenture, the
"Trust Indentures") dated as of March 28, 1996 among Airplanes Trust, Airplanes
Limited and Bankers Trust Company, as Trustee (the "Airplanes Trust Indenture
Trustee" and, together with the Airplanes Limited Indenture Trustee, the
"Indenture Trustees").
AIRPLANES TRUST
Airplanes Trust is a business trust formed pursuant to the Airplanes Trust
Agreement dated November 29, 1995 under the laws of Delaware for certain limited
purposes, including acquiring, financing, re-financing and owning the shares of
capital stock of AeroUSA. In addition, Airplanes Trust may guarantee the
obligations of Airplanes Limited, enter into certain hedging contracts and
establish and provide loans or guarantees in respect of its subsidiaries. GPA,
Inc., a wholly-owned subsidiary of GPA Group ("GPA, Inc."), holds the residual
ownership interest in all of the property of Airplanes Trust, including the
AeroUSA shares. Upon repayment in full of all indebtedness of Airplanes Trust,
the AeroUSA shares will be transferred back to GPA, Inc. pursuant to its
residual ownership interest. Airplanes Trust indirectly acquired 23 of the
Aircraft and related leases through the acquisition of all of the capital stock
of AeroUSA, which was an indirect wholly-owned aircraft-owning subsidiary of GPA
Group.
Airplanes Trust has one direct subsidiary, AeroUSA. AeroUSA itself has one
direct subsidiary, AeroUSA 3, Inc., a Connecticut corporation ("AeroUSA 3"). The
shares of AeroUSA and AeroUSA 3 are held by separate voting trusts with First
Security Bank of Utah, National Association, acting as trustee in order to
satisfy regulations of the U.S. Federal Aviation Administration regarding the
U.S. citizenship of the owners of U.S.-registered aircraft. Airplanes Trust
holds voting trust certificates representing shares of AeroUSA. Airplanes Trust
operates its business through AeroUSA. AeroUSA and its subsidiary are also
permitted to lease Aircraft to or from or sell Aircraft to, or buy aircraft
from, other members of Airplanes Group.
The trustees of Airplanes Trust consist of Wilmington Trust Company, as
Delaware Trustee, and as "Controlling Trustees", the same individuals who act as
Directors of Airplanes Limited. Airplanes Trust has
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no, and will have no, employees or executive officers. Accordingly, the
Controlling Trustees rely upon the Servicer, the Administrative Agent, the Cash
Manager and the other service providers for all asset servicing, executive and
administrative functions pursuant to the respective service provider agreements.
One member of the Board of Controlling Trustees was appointed by the holder of a
majority in aggregate principal amount of the Class E Notes and four are
Independent Trustees who were appointed by a majority of the then standing
Controlling Trustees. Any succeeding Independent Trustees will be appointed by a
majority of the then acting Independent Trustees. "Independent Trustees" will
not be officers, directors or employees of GPA Group, GECAS, GE Capital, any
holder of the Class E Notes or any affiliate of these persons. Approval of
certain significant transactions or proceedings with respect to Airplanes Trust
or AeroUSA may only be obtained by a unanimous vote of all the Controlling
Trustees of Airplanes Trust. These transactions and proceedings principally
relate to certain insolvency proceedings, amendments to Airplanes Trust's or
AeroUSA's constituent documents, mergers or, subject to certain exceptions, sale
of all or substantially all of Airplanes Trust's or AeroUSA's assets. The
composition of Airplanes Trust's Board of Controlling Trustees, and its
composition if GE Capital acquires 90% or more of the ordinary share capital of
GPA Group and elects to dismiss the then-acting Controlling Trustees, will be
determined in the same manner as the composition of the Board of Directors of
Airplanes Limited is determined. There can be no assurance that GE Capital will
elect to exercise its rights to acquire any ordinary share capital of GPA Group.
The ownership of the Aircraft by two entities reflects GPA Group's
corporate structure prior to the Acquisition. It would not be tax-efficient in
Ireland or the United States to have a single direct or indirect owner of the
Aircraft.
THE TRUST AND TRUSTEE
The Trust consists of eight separate trusts, each of which has been
organized under the laws of the State of New York pursuant to the Trust
Agreement (the "Trust Agreement") dated as of March 28, 1996 among Airplanes
Trust, Airplanes Limited and the Trustee thereunder (the "Trustee") on behalf of
the holders of each class or subclass of Certificates, for the purpose of
acquiring and holding the Notes and the Guarantees. The Trust has no significant
assets other than the Notes and the Guarantees. The Trust Agreement does not
permit the Trustee to engage in any activities with respect to any class or
subclass of Certificates other than holding the Notes and the Guarantees,
issuing the Certificates, acting as paying agent with respect thereto and
engaging in certain other activities related thereto. Bankers Trust Company is
the Trustee for each of the Trusts. The Trustee is also the Indenture Trustee
under each of the Trust Indentures pursuant to which the Notes are issued. The
Trustee and various affiliates of the Trustee have provided various services to
GPA in the past and may continue to provide services in the future.
RISK FACTORS
The following summarizes certain risks which may materially affect the
ability of Airplanes Limited and Airplanes Trust to pay the interest, principal
of, and premium, if any, on the Notes (and hence, the ability of the Trust to
pay interest, principal and premium, if any, on the Certificates) in full at or
before their respective final maturity dates. There can be no assurance that
Rental Payments (as defined below) under the leases will be adequate to pay the
interest, principal and premium, if any, on the Notes in accordance with their
terms.
RISKS RELATING TO AIRPLANES GROUP AND CERTAIN THIRD PARTIES
LIMITED RESOURCES OF THE TRUST
The Notes and the Guarantees are solely obligations of Airplanes Limited
and Airplanes Trust. The Trust does not have, nor is it expected to have, any
significant assets or sources of funds other than the Notes and the Guarantees.
Neither the Certificates nor the Notes are obligations of, or guaranteed by, the
Trustee, the Indenture Trustees, GPA Group or any affiliate of the foregoing.
Furthermore, neither the Certificates nor the Notes are obligations of, or
guaranteed by, GE Capital, GECAS or any of their affiliates.
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HOLDING ENTITY RISK
Substantially all of the assets of Airplanes Limited and Airplanes Trust
are the shares of their direct subsidiaries and loans to their direct and
indirect subsidiaries. None of the Trustee, the Indenture Trustees or the
holders of the Certificates (the "Certificateholders") has or will have any
security interest in the Aircraft, the leases or any other assets of Airplanes
Limited, Airplanes Trust, or any of their subsidiaries, other than a security
interest in one-third of the ordinary capital stock of Holding Co., certain of
its subsidiaries and the subsidiaries of Airplanes Trust and in Airplanes
Group's interests in the cash in certain bank accounts (the "Accounts") into
which Rental Payments (as defined below) and other funds relating to the leases
are paid or held (as more fully described in "Item 7: Management's Discussion
and Analysis of Financial Condition and Results of Operations -- The Accounts").
Accordingly, Airplanes Limited's and Airplanes Trust's ability to make payments
on the Notes would be affected by, inter alia, the imposition of withholding or
other taxes on payments within Airplanes Group, including payments by such
subsidiaries to Airplanes Limited and Airplanes Trust and the payment by such
subsidiaries of amounts due to other creditors, including lessees and tax
authorities. To the extent that these obligations to lessees and other creditors
significantly exceeded expectations, or to the extent that unforeseen and
significant tax liabilities arose, there may be a significant adverse impact
upon payments on the Notes. Airplanes Limited has guaranteed the obligations of
many of its subsidiaries to lessees and payments on these guarantees, which
comprise part of the expenses incurred by any Airplanes Group member in the
course of the business activities permitted to be conducted by it under the
Trust Indentures (the "Expenses"), rank senior in priority of payment to any
payments on any class of Notes.
The ability of Airplanes Limited's and Airplanes Trust's subsidiaries to
make payments on their intercompany obligations to Airplanes Limited and
Airplanes Trust, and Airplanes Limited's and Airplanes Trust's ultimate ability
to pay interest and premium, if any, on, and repay the principal of, the Notes,
is primarily dependent upon the receipt of payments under the leases and, in the
case of each of the Subclass A-1, A-2, A-3 and A-4 Notes, the ability of
Airplanes Group to refinance the outstanding principal balance of such Notes by
issuing new notes (the "Refinancing Notes") in the future. Receipt of sufficient
payments under the leases depends upon a number of factors, including without
limitation (i) the timing of receipt of rental payments (together with certain
other payments the lessees are obliged to make pursuant to the terms of the
leases, the "Rental Payments") and the ability of the lessees to make such
payments; (ii) the ability to re-lease any Aircraft upon expiration or
termination of a lease without excessive levels of downtime and at sufficient
rental rates; (iii) the possible exercise by a lessee of a purchase option or an
early termination option and (iv) future maintenance costs associated with
re-leasing Aircraft. There can be no assurance that the Rental Payments actually
received during the term of the leases will be sufficient to meet amounts due
under the Notes.
LACK OF SECURITY INTEREST
As stated above, none of the Trustee, the Indenture Trustees or the
Certificateholders has or will have any security interest, mortgage, charge or
other similar interest in any of the Aircraft or the leases. As a result, such
parties do not have available to them certain rights upon a Note Event of
Default which would have been available to them had their interests in the
Aircraft and the leases been directly secured by such assets. The Security
Trustee has been granted a security interest in one-third of the ordinary share
capital of Holding Co., certain of its subsidiaries and the subsidiaries of
Airplanes Trust. In addition, the Accounts (other than certain "Rental
Accounts") are held in the name of the Security Trustee.
POSSIBLE CONTINGENT LIABILITIES OF TRANSFERRED COMPANIES
The Aircraft and leases were acquired through the purchase by Airplanes
Limited of 95% of the issued and outstanding capital stock of Holding Co. and
the purchase by Airplanes Trust of all the issued and outstanding capital stock
of AeroUSA. Holding Co. and AeroUSA in turn own, directly and indirectly, 100%
of the ordinary share capital of the remaining Transferred Companies. Prior to
their sale, GPA Group took steps to ensure that there were no material
contingent liabilities related to any of the Transferred Companies but no
assurances can be given that pre-transfer liabilities will not be identified in
the future. GPA has indemnified Airplanes Group against certain losses, if any,
suffered by Airplanes Group (including any
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Transferred Company or any of their directors) as a result of, inter alia, the
breach of GPA's representations and warranties in the Stock Purchase Agreements,
pursuant to which the shares of Holding Co. and AeroUSA were purchased (the
"Stock Purchase Agreements"), that there were no liabilities, actual or
contingent of a Transferred Company that existed at the time of transfer but
were not disclosed in the financial statements of the relevant Transferred
Company or otherwise disclosed to Airplanes Group. Many of the representations
and warranties are qualified by standards relating to their materiality in
relation to Airplanes Group. The maximum amount that may be recovered from GPA
as a result of such indemnification or any breach of representation or warranty
contained in the Stock Purchase Agreements shall be an amount approximately
equal to the purchase price paid in the Acquisition. The representations and
warranties of GPA contained in the Stock Purchase Agreements only survive until
March 28, 1999.
AeroUSA and AeroUSA 3 will continue to file U.S. federal consolidated tax
returns and certain state and local tax returns with GPA, Inc. and its
subsidiaries (the "GPA U.S. Tax Group"). Currently, there are ongoing tax audits
by certain state and local tax authorities with respect to taxes previously
reported by the GPA U.S. Tax Group. GPA Group believes that none of these audits
will have a material adverse impact upon the financial condition or liquidity of
AeroUSA or AeroUSA 3. AeroUSA, Airplanes Trust, GPA, Inc. and GPA Group have
entered into a Tax Sharing Agreement (the "Tax Sharing Agreement") dated as of
March 28, 1996 pursuant to which GPA indemnified AeroUSA against any U.S.
federal, state or local tax liabilities ("Tax Liabilities"), if any, suffered by
AeroUSA or AeroUSA 3 that are (i) related to any tax period or portion thereof
prior to March 28, 1996 or (ii) related to any tax period or portion thereof on
or following March 28, 1996 and are Tax Liabilities that AeroUSA or AeroUSA 3
would not have incurred if they were not and never had been members of the GPA
U.S. Tax Group. Furthermore, under the Tax Sharing Agreement, with respect to
GPA U.S. Tax Group returns, (i) AeroUSA shall be liable to GPA, Inc. for its
share of Tax Liabilities based on the amount of Tax Liabilities that AeroUSA
would have incurred if it and AeroUSA 3 were not and never had been members of
the GPA U.S. Tax Group (the "Stand-alone Tax Liability") and (ii) to the extent
that any amount payable by any member of the GPA U.S. Tax Group (other than
AeroUSA or AeroUSA 3) in respect of Tax Liabilities for any tax period following
March 28, 1996 is reduced to reflect a tax asset generated by AeroUSA or AeroUSA
3, then GPA Group will pay to AeroUSA, at the time such tax savings are
realized, an amount equal to the difference between the actual taxes paid for
such tax period and the amount of taxes that would have been payable in the
absence of such tax asset. With respect to a liability of AeroUSA described in
clause (i) of the preceding sentence, AeroUSA will pay such amounts to GPA, Inc.
in cash only to the extent that payments due to taxing authorities are
attributable to the Stand-alone Tax Liability of AeroUSA and AeroUSA 3; the
remainder of any amounts payable to GPA, Inc. described in clause (i) will be
paid in the form of subordinated, non-interest paying AeroUSA notes. Tax
warranties of GPA and the indemnity of GPA for Tax Liabilities related to any
tax period or portion thereof prior to March 28, 1996 only survive until March
28, 2003.
The ability of Airplanes Group to receive amounts from GPA pursuant to
indemnities against tax and other liabilities of the Transferred Companies will
depend upon the financial condition and liquidity of GPA at the time any claim
is made. Furthermore, to the extent any tax or other claims are successfully
made against the Transferred Companies and not indemnified by GPA or paid from
Airplanes Group's available cash flow, because the Notes are not secured
directly or indirectly by the Aircraft or the leases, substantially all of the
assets of the Transferred Companies, including the Aircraft, would be available
for attachment and satisfaction of any such claim.
DELEGATION OF RESPONSIBILITIES
Except to the limited extent described herein, neither the Trustee nor any
Certificateholder has any right to participate in the management or affairs of
Airplanes Group. In particular, such parties cannot supervise the functions
relating to the leases and the re-lease of the Aircraft, which functions have
generally been delegated to the Servicer under the Servicing Agreement.
Because Airplanes Group has no, and will have no, executive management
resources of its own, Airplanes Group relies upon the Servicer, the
Administrative Agent, the Cash Manager and other service providers for all asset
servicing, executive and administrative functions pursuant to the respective
service provider
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agreements. While Airplanes Group has retained GECAS as the Servicer and
wholly-owned subsidiaries of GPA Group as the Cash Manager and Administrative
Agent, there can be no assurance that Airplanes Group will continue its
arrangements with these organizations until the Notes are paid in full or that
such organizations will continue their relationship with Airplanes Group until
such time. Failure of these foregoing organizations to perform their respective
contractual obligations to Airplanes Group could have a material adverse effect
upon Airplanes Group's operations, which could adversely affect Airplanes
Group's ability to repay the Notes and consequently affect the amount of
payments made in respect of the Certificates. In the event that the Servicer,
the Administrative Agent or the Cash Manager were to resign or have their
respective contracts terminated pursuant to their respective contractual
arrangements with, or on behalf of, Airplanes Group, there can be no assurance
that suitable replacement service providers could be found, or found in a timely
manner, and engaged on terms acceptable to Airplanes Group or that would not
cause a downgrading in the then current rating relating to the Certificates. The
loss of the Servicer, the Administrative Agent or the Cash Manager under such
circumstances could have a material adverse effect on Airplanes Group's ability
to make payments on the Notes.
In addition, in the event that either GECAS or a GPA subsidiary no longer
serves as Servicer or Administrative Agent and Cash Manager, respectively, on
behalf of Airplanes Group or either such party fails to maintain, among other
things, certain employment levels in Ireland, or GPA fails to hold 5% of the
capital stock of Holding Co., certain corporate tax and withholding tax benefits
currently afforded to Holding Co. and other Irish tax resident Transferred
Companies may be lost. The loss of such tax benefits would have a material
adverse effect on Airplanes Limited's ability to pay interest, principal and
premium, if any, on the Airplanes Limited Notes.
CONFLICTS OF INTEREST OF GECAS
In addition to acting as Servicer, GECAS also participates in the
management of certain aircraft assets owned by Aircraft Lease Portfolio
Securitization 94-1 Limited ("ALPS 94-1"), GE Capital and its affiliates and
other third parties, including GPA and its affiliates. Until June 27, 1996,
GECAS participated in the management of certain aircraft assets owned by
Aircraft Lease Portfolio Securitization 92-1 Limited ("ALPS 92-1"), the
obligations of which were refinanced on such date with an issue of securities by
ALPS 96-1 Pass Through Trust ("ALPS 96-1"). (ALPS 92-1 and ALPS 94-1 are special
purpose vehicles with investment objectives similar to those of Airplanes
Group.) GECAS will from time to time have conflicts of interest in performing
its obligations to Airplanes Group and the other entities to which it provides
management services and with respect to the aircraft for which it provides such
services. Such conflicts may be particularly acute in situations involving GE
Capital or its affiliates or investment vehicles sponsored by GE Capital or its
affiliates (collectively, "GE Group"). Under certain of GECAS's aircraft
servicing arrangements (including the ALPS 94-1 Servicing Agreement), such
conflicts will not entitle the entities to whom GECAS provides services to
replace GECAS as servicer except in certain limited circumstances.
As of December 31, 1995, the portfolio of aircraft managed by GECAS and its
affiliates (the "GECAS Managed Portfolio") comprised approximately 890 aircraft.
At such date, the owned portfolio of GE Group was comprised of 420 aircraft or
47% of the GECAS Managed Portfolio. GECAS announced in early 1996 that it had
entered into a multi-year order for five Boeing 777's and 102 Boeing 737 jet
aircraft, and options for 76 Boeing 737 jet aircraft. Under the agreement with
Boeing, GECAS also may purchase up to 76 additional Boeing 737 jet aircraft.
From time to time, GE Group is likely to acquire additional new and used
aircraft that are expected to be included in the GECAS Managed Portfolio and to
be managed by GECAS and its affiliates and, in addition, GECAS may from time to
time provide aircraft services to various third parties. GECAS also manages, and
may in the future form and sponsor, additional aircraft or equipment leasing
programs, some of which may have investment objectives that are the same as, or
similar to, those of Airplanes Group. It is likely that, at various times, the
aircraft in any such programs will compete with the Aircraft when the Aircraft
are being marketed for re-lease or sale, and such programs may create additional
conflicts of interest with respect to the marketing of the Aircraft for re-lease
or sale. Conflicts of interest may also arise that involve the provision by GE
Group of aircraft or engine financing to third parties, including Airplane
Group's lessees.
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Moreover, certain of GECAS's marketing and servicing arrangements with its
affiliates and other third parties include provisions that may have the effect,
in certain circumstances, of requiring GECAS to give preference to such
affiliates, other third parties or their respective aircraft over the Aircraft.
GECAS continues to act as servicer of 87 Stage 3 and 10 Stage 2 aircraft
(as of March 31, 1996) that continue to be owned or leased-in by GPA or its
affiliates pursuant to an amended and restated servicing agreement between GECAS
and GPA dated March 28, 1996 (the "GPA Management Agreement"). In addition, in
connection with ALPS 94-1, GECAS services 27 Stage 3 aircraft and provides
certain other services, which primarily relate to the sale and lease of aircraft
after the expiration of their initial lease terms. Finally, GECAS has agreed to
act as servicer with respect to new aircraft potentially to be acquired from The
Boeing Company ("Boeing") by a special purpose company owned beneficially by GPA
and Boeing (the "Special Purpose Company" or "SPC") pursuant to a servicing
agreement expected to be entered into shortly.
Pursuant to the terms of the Servicing Agreement, GECAS has agreed to
perform the services required thereby with reasonable care and diligence at all
times (the "GECAS Services Standard"). If a conflict of interest arises
regarding GECAS's management of two particular Aircraft, or aircraft assets
other than those owned by the Airplanes Group, on the one part, and Aircraft, on
the other part, the Servicer is required to perform the services in good faith
and to the extent that two particular Aircraft or the Aircraft and other
aircraft then managed by GECAS are substantially similar in terms of objectively
identifiable characteristics that are relevant for purposes of the particular
services to be performed, the Servicer will not discriminate, (a) among the
Aircraft or (b) between any of the Aircraft and any other aircraft then managed
by GECAS on an unreasonable basis (the "GECAS Conflicts Standard").
Under certain limited circumstances in which a conflict of interest arises
with respect to a particular Aircraft or lease that requires, in the good faith
opinion of the Servicer, an arm's-length negotiation between the Servicer or any
of its affiliates and Airplanes Group, the Servicing Agreement provides that the
Servicer shall be entitled to withdraw from acting as Servicer with respect to
such Aircraft or lease in connection with the negotiation of the issue giving
rise to such conflict of interest and Airplanes Group shall be entitled to
appoint an independent representative to act on behalf of Airplanes Group with
respect to such negotiation. The Servicer shall be entitled to act on behalf of
itself or any of its affiliates with respect to such negotiation. In the event
that the Servicer reasonably determines that certain services required to be
carried out under the Servicing Agreement would place the Servicer in a conflict
of interest such that the Servicer could not, in its good faith opinion, perform
its obligations within the requirements of the Servicing Agreement, the Servicer
may resign as Servicer for all Aircraft, or, at its election, for any affected
Aircraft, such resignation to become effective upon the appointment of a
replacement servicer.
LIMITATION OF LIABILITY ON THE PART OF THE SERVICER
Pursuant to the Servicing Agreement, the Servicer and its affiliates are
not liable or accountable to any person, other than Airplanes Limited, AeroUSA
and Holding Co., to the limited extent described below, under any circumstances,
for any liabilities, obligations, losses, damages, penalties, taxes, suits,
judgments, costs, fees, expenses and disbursements directly or indirectly
arising out of, in connection with or related to, the management by the Servicer
of the Aircraft or other aircraft assets ("Losses"), and Airplanes Limited,
AeroUSA and Holding Co. jointly and severally indemnify the Servicer and its
affiliates on an after-tax basis for any Losses, unless such Losses are finally
adjudicated to have resulted directly from the Servicer's gross negligence or
wilful misconduct in respect of its obligation to apply the GECAS Services
Standard or the GECAS Conflicts Standard in respect of its performance of the
services under the Servicing Agreement. Airplanes Limited, AeroUSA and Holding
Co. also jointly and severally indemnify the Servicer and its affiliates on an
after-tax basis for any losses that may be imposed on, incurred by or asserted
against, the Servicer and its affiliates, directly or indirectly, arising out
of, in connection with or related to, the Servicer or any of its affiliates'
involvement in connection with the structuring or implementation of any aspect
of the Acquisition, the Underwritten Offering or related transactions. Airplanes
Limited, AeroUSA and Holding Co. are entitled to terminate the Servicing
Agreement if the Servicer fails in any material respect to perform any material
service thereunder to either the GECAS Services Standard or the GECAS Conflicts
Standard and such failure has a material adverse effect on Airplanes Group taken
as a whole. The Servicer does not assume
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any liability or accountability for (i) the direct or indirect transfer of the
Aircraft, the leases related thereto, the receivables related thereto or any
other assets to any person within the Airplanes Group, (ii) the adequacy of the
terms of any lease relating to any Aircraft to the extent any such lease was
novated, amended or modified in connection with the direct or indirect transfer
of the Aircraft or the leases to or among the Transferred Companies on or prior
to March 28, 1996, (iii) the reliability or creditworthiness of any lessee with
respect to its obligations under any lease, (iv) the adequacy of the Rental
Payments derived from the leases to support the various obligations of the
Airplanes Group, (v) the adequacy of certain Maintenance Reserves (as defined
below) or security deposits relating to the Aircraft ("Security Deposits"), (vi)
the terms and conditions of the Notes or Refinancing Notes or additional Notes,
(vii) the ability of Airplanes Limited and Airplanes Trust to comply with the
terms and conditions of the Notes, the Guarantees or any Refinancing Notes or
any additional Notes and (viii) the structuring or implementation of any aspect
of the various transactions which established Airplanes Group.
The duties and obligations of the Servicer are limited to those expressly
set forth in the Servicing Agreement and the Servicer does not have any
fiduciary or other implied duties or obligations to Airplanes Group or any other
person, including any Certificateholder.
CONFLICTS OF INTEREST OF GPA
GPA currently holds substantially all of the Class E Notes issued by
Airplanes Limited, GPA Financial acts as Administrative Agent and GPA Cash
Manager acts as Cash Manager for Airplanes Group. In addition, GPA holds all of
the Class E Notes issued by ALPS 94-1 and, as a result, has certain access to
potential benefits relating to the aircraft it sold to ALPS 94-1. Finally, GPA
continues to own and lease-in a significant fleet of 111 Stage 3 aircraft and
ten Stage 2 aircraft and, through its investment in SPC, may have an interest in
any aircraft purchased by SPC. Of the 111 Stage 3 aircraft, 49 aircraft are
leased-in. See "-- The Aircraft, Related Leases and Collateral" for a definition
of the terms "Stage 2" and "Stage 3".
GPA Financial may from time to time have conflicts of interest in
performing its obligations to Airplanes Group as Administrative Agent resulting
from GPA's interests in its own aircraft and GPA's interests in ALPS 94-1 and
SPC. These conflicts may arise, for instance, when GPA Financial, as
Administrative Agent, advises Airplanes Group as to the annual budget to be
adopted for Airplanes Group and with respect to decisions by Airplanes Group to
sell Aircraft.
Pursuant to the Administrative Agency Agreement, GPA Financial is
obligated, in performing its services as Administrative Agent, to devote the
same amount of time and attention and will be required to exercise the same
level of skill, care and diligence in the performance of its services as it
would if it were administering such services on its own behalf (the
"Administrative Agent's Services Standard"). In addition, if any conflicts of
interest arise with respect to GPA Financial's role as Administrative Agent and
its other interests, the Administrative Agency Agreement requires GPA Financial
to report such conflict promptly to Airplanes Group and to act in a manner that
treats Airplanes Group equally with the entities giving rise to the conflict of
interest, does not violate the Administrative Agent's Services Standard and
would not be reasonably likely to have a material adverse effect on Airplanes
Group (the "Administrative Agent's Conflict Duties").
Given the limited discretion that may be exercised by GPA Cash Manager in
its role as Cash Manager, it is unlikely that conflicts of interest in
connection with its services in such capacity will arise relative to GPA's other
interests.
LACK OF SEPARATE REPRESENTATION
Airplanes Group and GPA Group are represented by the same Jersey, English
and United States legal counsel, and it is anticipated that such multiple
representation will continue in the future. Airplanes Group does not have
separate Irish legal counsel. Without independent legal representation, the
terms of the agreements negotiated between Airplanes Group and GPA could
disproportionately benefit one party over the other. Should a significant
dispute arise in the future between Airplanes Group and GPA or any of their
respective affiliates, Airplanes Group anticipates that it will retain separate
counsel to represent it in such matter.
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RISKS RELATING TO THE AIRCRAFT
COMPETING AIRCRAFT AVAILABLE FOR LEASE; OPERATIONAL RESTRICTIONS
In connection with re-leasing of the Aircraft, Airplanes Group may
encounter competition from, inter alia, other aircraft leasing companies
(including GPA and International Lease Finance Corporation), airlines, aircraft
manufacturers, aircraft owners, financial institutions (including GE Capital and
its affiliates), aircraft brokers, special purpose vehicles (including ALPS 92-1
and ALPS 94-1) formed for the purpose of acquiring, leasing and selling aircraft
and public and private limited partnerships and funds with investment objectives
similar to those of Airplanes Group (including investment vehicles sponsored by
GE Capital and its affiliates). Airplanes Group is subject to restrictions in
the Trust Indentures and the constituent documents of Airplanes Limited and
Airplanes Trust that will impair Airplanes Group's operational flexibility. For
instance, GPA has in the past granted concessionary rental rates to airlines in
return for equity investments in order to place aircraft on lease and minimize
the number of aircraft on the ground. GPA has also entered into similar
arrangements with troubled lessees in order to restructure the obligations of
those lessees while maximizing the number of aircraft remaining on viable leases
to such lessees and minimizing the overall cost to GPA. Further, GPA has leased
or offered lessees the ability to lease spare parts and engines, which ability
will not be available to Airplanes Group. It can be expected that Airplanes
Group will encounter similar commercial situations in the future but its ability
to offer a flexible, market-driven, response will be limited by certain
contractual constraints. In addition, certain competing aircraft lessors
(including GE Capital and its affiliates) have, or have access to, financial
resources substantially greater than those of Airplanes Group, may have a lower
overall cost of capital and may provide financial services or other inducements
to potential lessees that Airplanes Group cannot provide. Airplanes Group is
also subject to certain limitations as to eligible lessees and geographic
diversification of the lessees that must be satisfied in order to maintain the
ratings of the Certificates. Airplanes Group's competitors may not be subject to
such limitations.
SUPPLY OF AND DEMAND FOR AIRCRAFT
The aircraft leasing market is affected by such factors as manufacturer
production levels; passenger demand; retirement and obsolescence of aircraft
models; manufacturers exiting the industry or ceasing to produce aircraft types
in the portfolio of Aircraft owned by Airplanes Group (the "Portfolio"); fuel
costs; governmental regulation and air traffic control infrastructure
constraints. The effects of deregulation of commercial aviation in the United
States and the increasing trend toward deregulation in other significant
jurisdictions where lessees currently, or may in the future, operate aircraft,
may contribute to further uncertainty in the commercial aviation industry. The
availability of commercial jet aircraft for lease or sale has periodically
experienced cycles of oversupply and undersupply, primarily as a result of the
cyclicality of the world economy. The condition of the aviation industry will
vary at different points in the business cycle for lessors and sellers of
aircraft at the times when the Aircraft are being marketed for re-lease or sale,
and there can be no assurance such conditions will allow re-lease or, where
applicable, sale, on satisfactory terms. An oversupply of certain types of used
Stage 3 aircraft currently exists, including certain of the types of aircraft
included in the Portfolio such as Boeing 747s (one Aircraft or 0.85% by Initial
Appraised Value (as defined below) of the Portfolio), Airbus A300s (six Aircraft
or 1.88% by Initial Appraised Value (as defined below) of Portfolio) and DC-10s
(four Aircraft or 1.96% by Initial Appraised Value (as defined below) of the
Portfolio).
RISKS RELATING TO THE EXERCISE OF PURCHASE OPTIONS
Eight lessees with respect to 24 Aircraft, representing approximately 9% of
the Portfolio by Initial Appraised Value (as defined below), have options to
purchase Aircraft at prices below either "estimated fair market value" or
Airplanes Group's estimated net book value at the option exercise date (the
"Purchase Options"). (For the purposes of this analysis, estimated fair market
value has been arrived at by deducting the estimated depreciation (as calculated
by Airplanes Group's existing depreciation policy) from October 31, 1995 to the
option exercise date from the average of three appraisals performed by
independent appraisers as of October 31, 1995 of the Aircraft (the "Initial
Appraised Value").
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Of these options, four lessees with respect to 11 Aircraft, have rights to
purchase Aircraft at prices below Airplanes Group's estimated net book value at
the option exercise date.
In the event that a significant number of options to purchase Aircraft are
exercised at prices below "estimated fair market value" or Airplanes Group's
estimated net book value at the option exercise date, the amount and timing of
principal payments to certain Certificateholders and the average lives of the
Certificates may be adversely affected.
RISKS RELATING TO THE PURCHASE PRICE AND DECLINE IN AIRCRAFT VALUES
The purchase price for the Aircraft was calculated largely on the basis of
the Initial Appraised Value of the Aircraft, which assumes an "open,
unrestricted stable market environment with a reasonable balance of supply and
demand, and with full consideration of the Aircraft's highest and best use,
presuming an arm's length, cash transaction between willing, able and
knowledgable parties, acting prudently, with an absence of duress and with a
reasonable period of time available for marketing adjusted to account for the
maintenance status of each aircraft" (each such value so ascertained is referred
to herein as the "Base Value"). The Initial Appraised Value is more than, and is
likely to be substantially more than, the value of aircraft in the current
market, given current overcapacity in the aviation industry. Aircraft values
depend on a number of factors that are not within the control of Airplanes
Group, such as market and economic conditions (including prevailing interest
rates and the general availability of credit), the availability and cost of
competing new and used aircraft, including any effects of the ability of
manufacturers to build new aircraft at a lower cost or with less lead time, the
condition of the aircraft, the particular maintenance and operating history, the
number of operators using each type of aircraft and the supply of each type of
aircraft, whether the aircraft is subject to a lease and, if so, the identity
and creditworthiness of the lessee, the jurisdiction of registration and the
terms of and payment experience with respect to such lease and any regulatory
and legal requirements that must be satisfied before the aircraft can be sold.
Values of the Aircraft may be adversely affected by changes in the competitive
and financial position of the relevant commercial aircraft manufacturer, by the
withdrawal of such manufacturer from that market or by unexpected manufacturing
defects that may surface.
Aircraft appraisers recently reduced their appraised values for certain
Aircraft, reflecting a number of matters including recent manufacturers' price
discounting and further deterioration in values with respect to older wide
bodied aircraft. There can be no assurance that aircraft appraisers may not
further reduce their appraised values for Aircraft in the future or that
Aircraft values will not fall. In particular, if manufacturers prematurely cease
to produce aircraft types contained in the Portfolio, this could significantly
reduce the value of the aircraft type in question. In particular, the current
uncertainty regarding the future of Fokker N.V. in the commercial aircraft
manufacturing industry, following its recent filing for bankruptcy, may result
in significant reductions of values for Fokker Aircraft. Approximately 7.4% of
the Aircraft in the portfolio by Initial Appraised Value are Fokker 100s.
All of the major manufacturers are implementing programs to shorten the
lead times and reduce the cost of manufacturing commercial aircraft, including
reorganization of design and production systems and business arrangements with
suppliers which have resulted in, inter alia, reductions in the price of
aircraft and shifts in aircraft ordering patterns such that purchasers are able
to acquire aircraft at shorter lead times than previously required. Some
manufacturers are also considering the use of lower cost production locations
than those they currently use. Depending on the extent to which cost savings are
achieved and passed on to the manufacturers' customers, these factors could have
an adverse impact on the ability of Airplanes Group to re-lease or sell the
Aircraft and on the Rental Payments from future leases of the Aircraft.
Any reduction in Aircraft values may affect Airplanes Group's ability to
maintain the current rental rates and may adversely affect its ability to make
payments on the Notes.
SALES OF AIRCRAFT
Airplanes Group believes that, due to current overcapacity in the aviation
industry, the value of the Aircraft in the current market (as compared with the
"stable market environment with a reasonable balance of supply and demand" and
the other factors assumed in the determination of Base Value) is less than, and
is
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likely to be substantially less than, the Initial Appraised Value. Furthermore,
neither the Initial Appraised Value nor the value of the Aircraft in the current
market should be relied upon as a measure of the realizable value of the
Aircraft. If it were necessary to dispose of Aircraft in a distress situation,
and particularly if a large number of Aircraft were required to be sold, the
proceeds from such a sale of Aircraft would be substantially less than the value
in the current market. However, Airplanes Group does not expect to have to sell
Aircraft to provide for payment of principal and interest on the Notes, and does
not anticipate conducting any distress sales. Nevertheless, following a Note
Event of Default, there can be no assurance that Aircraft, if sold, would not be
sold at prices significantly less than the Initial Appraised Value of such
Aircraft. In addition, prior to a Note Event of Default, each Trust Indenture
permits Airplanes Group to sell Aircraft at prices below a specified target
price in certain limited circumstances and in limited aggregate amounts, which
may adversely affect the amount and timing of principal payments to certain
Certificateholders and may, in turn, affect the average lives of the
Certificates.
AIRCRAFT LIENS
Liens which secure the payment of, inter alia, airport taxes, customs
duties, air navigation charges (including charges imposed by Eurocontrol),
landing charges, crew wages, repairer's charges or salvage ("Liens") are likely,
depending on the jurisdiction in question, to attach to the Aircraft in the
normal course of operation. The sums which such Liens secure may be substantial
and may, with certain jurisdictions or limited types of Liens (particularly
fleet liens), exceed the value of the Aircraft in respect of which the Lien is
being asserted.
In some jurisdictions, aircraft Liens may give the holder thereof the right
to detain or, in limited cases, sell or cause the forfeiture of the Aircraft,
and, until discharged, such Liens could adversely affect the ability of
Airplanes Group to repossess, re-lease or sell the Aircraft. In particular,
under the laws of the United Kingdom, if a particular lessee (whether or not it
is a European operator) defaults in payments to Eurocontrol of air navigation
charges (relating to navigation services provided within European airspace by
Eurocontrol), the Civil Aviation Authority of the United Kingdom (the "CAA") has
the right to detain, pending payment, any aircraft operated by the defaulting
operator at the time of detention when a relevant Aircraft is located at any
designated airport within the United Kingdom. Furthermore, if such charges are
not paid within a specified period, the CAA has the power to sell the detained
aircraft to satisfy the outstanding charges. These charges may also relate to a
period when the detained aircraft was being operated by a prior operator. A
similar form of "fleet lien" is granted to certain airport authorities under the
laws of the United Kingdom and in Ireland in relation to unpaid airport landing
fees.
Under each of the current Airplanes Group leases, the relevant lessee is
responsible for, and required to discharge, all such Liens arising during the
term of such leases, with the exception of those arising by reason of, inter
alia, Airplanes Group's or the lessor's own acts or those created by, or arising
by reason of, debts or liabilities of Airplanes Group's predecessors in title or
any previous operator. However, there can be no assurance that future leases
will contain such conditions or that the lessees will comply with such
obligations. Any failure to remove Liens could adversely affect Airplanes
Group's ability to repossess, re-lease or sell an Aircraft if a lessee defaults.
The Servicer is not obligated under the terms of the Servicing Agreement to
remove any Liens from Aircraft.
REGISTRATION OF AIRCRAFT
All of the Aircraft which are being operated must be duly registered at all
times with an appropriate aviation authority. Generally, failure to maintain the
registration of any Aircraft which is on lease would be a default under the
applicable lease, entitling Airplanes Group to exercise its rights and remedies
thereunder. If an Aircraft were to be operated without a valid registration, the
lessee operator or, in some cases, the owner or lessor, may be subject to
penalties which could constitute or result in a Lien being placed on such
Aircraft. Loss of registration could have other adverse effects, including
inability to operate the Aircraft and loss of insurance, which in turn could
have a material adverse effect on the ability of Airplanes Group to pay interest
and principal on the Notes. However, there can be no assurance that future
leases will contain such terms or that lessees will comply with such terms.
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TECHNOLOGICAL RISKS
Airplanes Group's ability to lease or sell the Aircraft may be adversely
affected to the extent that the availability for lease or sale of newer, more
technologically advanced aircraft or the introduction of increasingly stringent
noise or emissions regulations make the Aircraft less competitive. This risk,
which is common to all aircraft lessors, is particularly significant for
Airplanes Group given its need to repay principal and interest on the Notes over
a relatively long period, which will require that many of the Aircraft be leased
or sold close to the end of their useful economic life. Furthermore, the extent
to which Airplanes Group is able to manage these technological risks through
modifications to aircraft and sale of aircraft is expected to be limited and any
sales of aircraft will depend on Airplanes Group's ability to satisfy the
criteria set forth under the Trust Indentures.
AIRCRAFT TYPE CONCENTRATIONS
At March 31, 1996, the Portfolio contained three aircraft types which each
represented over 10% of the Portfolio by Initial Appraised Value: Boeing
737-400s constituted 13.9%, McDonnell Douglas MD83s constituted 12.4% and
McDonnell Douglas DC8-71Fs constituted 11.2%. Also, at March 31, 1996,
narrowbody Aircraft (excluding turboprops) constituted 76.9% of the Portfolio by
Initial Appraised Value.
GOVERNMENT REGULATION
In addition to the general requirements regarding maintenance of the
Aircraft, aviation authorities from time to time issue Airworthiness Directives
("ADs") requiring the operators of aircraft to take particular maintenance
actions or make particular modifications with respect to all aircraft of certain
designated types. Certain manufacturer recommendations may also be issued. To
the extent that a lessee fails to perform ADs required to maintain its
Certificate of Airworthiness or other manufacturer requirements in respect of an
Aircraft (or if the Aircraft is not currently subject to a lease), Airplanes
Group may have to bear (or, to the extent required under the relevant lease,
share) the cost of compliance. Other governmental regulations relating to noise
and emissions levels may be imposed not only by the jurisdictions in which the
Aircraft are registered, possibly as part of the airworthiness requirements, but
also in other jurisdictions where the Aircraft operate. A number of
jurisdictions have adopted, or are in the process of adopting, noise regulations
which ultimately will require all aircraft to comply with the most restrictive
currently applicable standards. Such regulations restrict the future operation
of aircraft that do not meet Stage 3 (as defined in "-- The Aircraft, Related
Leases and Collateral") noise requirements and ultimately will prohibit the
operation of such aircraft in the relevant jurisdictions early in the next
century (December 31, 1999 in the case of the United States). As 6.6% of the
Aircraft by Initial Appraised Value did not meet, at March 31, 1996, the Stage 3
requirements, these regulations may adversely affect Airplanes Group.
Furthermore, there can be no assurance that no new ADs or noise or emissions
reduction requirements will not be adopted in the future that could result in
significant costs to Airplanes Group or adversely affect the value of, or its
ability to re-lease, Stage 2 or Stage 3 Aircraft. Certain organizations and
jurisdictions are currently considering tightening noise and emissions
certification requirements for newly manufactured aircraft.
RISKS RELATING TO THE LEASES
OPERATING LEASES
Most of the current Airplanes Group leases are operating leases, under
which Airplanes Group retains substantially all of the risks and rewards
associated with ownership of the Aircraft, including the Aircraft's residual
value. A few of the existing leases are finance leases, which effectively
transfer the benefits and risks of ownership of the Aircraft from Airplanes
Group to the finance lessee. The existing operating leases are "net" leases
pursuant to which the lessees are obliged to make Rental Payments and generally
assume responsibility for, inter alia, (i) maintaining the Aircraft, (ii)
ensuring proper operation of the Aircraft, (iii) providing indemnification and
insurance for losses resulting from operation of the Aircraft, (iv) paying all
costs of operating the Aircraft and keeping the Aircraft free of liens (as
defined in the relevant lease) (other than permitted liens under the relevant
lease) resulting from such operation and (v) complying with all
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governmental licensing and other requirements, including ADs (except in certain
cases where the terms of the relevant lease require the lessor to share the cost
thereof).
RE-LEASING
Upon termination of any lease, the Servicer is obligated, pursuant to the
terms of the Servicing Agreement, to use commercially reasonable efforts on
behalf of Airplanes Group to re-lease the related Aircraft. There can be no
assurance, however, that Airplanes Group will be able to obtain rental rates and
lease terms (including maintenance and redelivery condition agreements) in the
future comparable to those contained in the existing leases. Airplanes Group's
ability to re-lease Aircraft, as well as its ability to obtain such rental rates
and such terms, may be adversely affected by, inter alia, restrictions imposed
by the Trust Indentures, the economic condition of the airline industry, the
supply of competing aircraft, other matters affecting the demand for particular
aircraft types and competition from lessors offering leases on more favorable
terms than Airplanes Group.
The expected number of Aircraft that Airplanes Group must place with
lessees through December 31, 2000 is made up of the sum of (i) Aircraft in
Airplanes Group's existing Portfolio that are currently available for marketing,
and (ii) Aircraft coming to the end of their lease terms before December 31,
2000, less the aggregate of (a) Aircraft which are currently the subject of a
lease extending through December 31, 2000, (b) Aircraft which are the subject of
a non-binding letter of intent to sell or lease (see Note 2 of table below) and
(c) any Aircraft sold prior to December 31, 2000. Additional Aircraft may need
to be re-leased if such Aircraft become available through premature terminations
of leases or if letters of intent do not result in leases or if Aircraft subject
to lease agreements are not delivered. Airplanes Group's expected re-leasing
requirements from March 31, 1996 through the year 2000 are shown in the
following table:
AIRPLANES GROUP LEASE PLACEMENT REQUIREMENT
AS OF MARCH 31, 1996
<TABLE>
<CAPTION>
TO DECEMBER 31,
------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Aircraft available for marketing(1)...................... 11 -- -- -- --
Contracted lease expirations (including expirations of
leases that are assumed to result from letters of
intent)................................................ 43 41 55 31 26
Less Aircraft subject to contract or letter of
intent(2).............................................. (25) (2) (7) -- (1)
---- ---- ---- ---- ----
Placement requirement(3)(4).............................. 29 39 48 31 25
==== ==== ==== ==== ====
</TABLE>
- ---------------
(1) Aircraft available for marketing consist of those Aircraft which were not
in revenue service with lessees as of March 31, 1996.
(2) Airplanes Group's lease placement requirement assumes that letters of
intent will in due course be reflected in binding contracts. Although
letters of intent are not legally binding, most of GPA Group's letters of
intent have, historically, resulted in lease agreements between the parties
thereto.
(3) Assumes that Aircraft coming to the end of currently contracted lease terms
which are not, as of March 31, 1996, the subject of an additional agreement
or letter of intent need to be re-leased only once more before the year
2001.
(4) Assumes that no current Airplanes Group lease entered into by Airplanes
Group terminates prematurely and that there are no sales of Aircraft or
purchases of additional aircraft.
There can be no assurance that, with significant numbers of Aircraft to
re-lease in the future, Airplanes Group will be able continually to re-lease
such Aircraft without significant periods of downtime or without any adverse
effect on the rental rates it is able to obtain, especially during downturns in
demand for aircraft on operating lease and that the ability of Airplanes Group
to make payments of interest, principal and premium, if any, on the Notes will
not be adversely affected thereby.
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<PAGE> 17
REQUIREMENT FOR CERTAIN LICENSES AND APPROVALS
A number of leases require specific licenses, consents or approvals for
different aspects of the leases. These include consents from governmental or
regulatory authorities to certain payments under the leases and to the import,
re-export or de-registration of the Aircraft. No assurance can be given that
such requirements may not be increased by subsequent changes in applicable law
or administrative practice or that a consent, once given, will not be withdrawn.
Furthermore, consents needed in connection with future re-leasing or sale of an
Aircraft may not be forthcoming. Any such event could have an adverse impact on
Airplanes Group's ability to re-lease or sell aircraft.
FACTORS AFFECTING RENTAL RATES
Average rental rates for a given aircraft model in the aviation industry
worldwide depend upon a number of factors that are not within the control of
Airplanes Group, including market and economic conditions (including prevailing
interest rates and the general availability of credit), the availability and
price of competing new and used aircraft, including the degree of competition
among manufacturers, the condition and maintenance history of the Aircraft, the
number of operators using each type of aircraft and the supply of each type of
aircraft, the jurisdiction of registration and any regulatory and legislative
requirements that must be satisfied before the aircraft can be leased. Future
rental rates and/or ability to re-lease aircraft may also be adversely affected
by changes in the competitive and financial position of the relevant commercial
aircraft manufacturer, by the withdrawal of such manufacturer from the
commercial aviation market, or from the maintenance and spare parts markets, or
by unexpected manufacturing defects that may arise. The bankruptcy of Fokker
N.V., the manufacturer of 7.4% of the Aircraft by Initial Appraised Value, may
adversely affect the rental rates that Airplanes Group is able to obtain on
those Aircraft and may adversely affect its ability to make payments of interest
and premium, if any, on, and principal of, the Notes.
FUNDING OF MAINTENANCE RESERVES
The standards of maintenance observed by the various lessees and the
condition of the Aircraft at the time of sale or lease may affect the future
values and rental rates for the Aircraft. Under the leases, it is primarily the
responsibility of the relevant lessee to maintain the Aircraft and to comply
with all governmental requirements applicable to the lessee and the Aircraft,
including, without limitation, operational, maintenance, and registration
requirements and in most cases, manufacturer recommendations or ADs (although in
certain cases the relevant lessor has agreed to share the cost of complying with
certain ADs or manufacturer recommendations). Failure of a lessee to perform
required or recommended maintenance with respect to an Aircraft during the term
of the lease could result in a grounding of such Aircraft and is likely to
require Airplanes Group to incur costs, which could be substantial, to restore
such Aircraft to an acceptable maintenance condition prior to re-leasing. In
most cases, the leases contain an associated liability on the part of the lessor
to reimburse the lessee for maintenance performed on the related Aircraft,
generally to the extent of any maintenance reserve or "supplemental rent"
payments made by the lessees which serve as security for the lessee's obligation
to maintain the Aircraft. In some cases, Airplanes Group is obliged to
contribute to the cost of maintenance work performed by the lessee.
At March 31, 1996, Airplanes Group recorded $311 million of liabilities for
maintenance reserves (the "Maintenance Reserves"). Currently, Airplanes Group
holds approximately $80 million in cash (the "Maintenance Reserve Amount") in
respect of maintenance reserve liabilities which, together with projected future
maintenance reserve payments under the leases, is believed by Airplanes Group,
following consultation with the Administrative Agent, to be sufficient, based on
an analysis of anticipated future maintenance expenses, to provide Airplanes
Group with sufficient liquidity to meet its maintenance liabilities. This amount
of cash has been determined to be appropriate for the funding of Airplanes
Group's maintenance reserve liabilities based on an analysis of GPA's and
overall industry historical experience of the frequency and cost of maintenance
checks performed by lessees relative to the projected maintenance payments to be
made to Airplanes Group under the terms of the leases.
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<PAGE> 18
There can be no assurance, however, that Airplanes Group's maintenance
requirements will correspond to GPA's historical experience, or the industry's
experience overall, particularly as the Aircraft age. Furthermore, there can be
no assurance that actual maintenance reserve payments by lessees and other cash
received by Airplanes Group will not be significantly less than projected.
Actual maintenance reserve payments by lessees will depend upon numerous factors
including defaults and the ability of Airplanes Group to obtain satisfactory
maintenance terms in leases. An increasing number of leases do not provide for
any maintenance reserve payments to be made by lessees as security for their
maintenance obligations. Any significant variations in such factors may
materially adversely affect the ability of Airplanes Group to make payments of
interest, principal and premium, if any, on the Notes.
LIABILITY, LOSS AND INSURANCE
The lessees are required under Airplanes Group's current leases to
indemnify the related lessor (and generally, if different, the owner) for, and
insure against, liabilities arising out of use and operation of the Aircraft,
including third party claims for death or injury to persons and damage to
property for which Airplanes Group may be deemed liable. Any insurance proceeds
received by Airplanes Group in respect of such claims shall be paid first to the
applicable lessor in the event of loss of the Aircraft, to effect repairs or in
the case of liability insurance, for indemnification of third party liabilities,
with the balance, after deduction for all amounts due and payable by the lessee
under the applicable lease, to be paid to the lessee. The lessees are also
required to maintain public liability, property damage and hull all risks
insurance on the Aircraft at agreed levels subject to hull deductibles which
generally range from $250,000 to $1 million. Although Airplanes Group believes
that the insurance required under the leases will be adequate to cover all
likely claims, there can be no assurance that one or more catastrophic events
will not exceed coverage limits. The lessees are required under the leases to
provide evidence of insurance, and the insurers must notify Airplanes Group if
any lessee insurance is to be cancelled or terminated. In such event, the
Servicer is obligated, pursuant to the terms of the Servicing Agreement, to use
commercially reasonable efforts to procure alternative insurance coverage to the
extent commercially available in the relevant insurance market. However, any
inadequate insurance coverage or default by the lessees in fulfilling their
indemnification or insurance obligations will affect the proceeds that would be
received upon an event of loss under the respective leases or claim under the
relevant liability insurance.
With respect to certain leases, the lessor may arrange separate political
risk repossession insurance for its own benefit, covering (a) confiscation,
nationalization and requisition of title of the relevant Aircraft by the
government of the country of registry and denegation and deprivation of legal
title and rights, and (b) the failure of the authorities in that country to
allow de-registration and export of the Aircraft, subject to the conditions of
the policies. Only some of the relevant leases require the lessee to reimburse
the lessor for any political risk repossession insurance premiums.
RISKS RELATING TO THE LESSEES
LESSEE DEFAULTS
The ability of each lessee to perform its obligations under its lease will
depend primarily on such lessee's financial condition. A lessee's financial
condition may be affected by various factors beyond the control of Airplanes
Group, including competition, fare levels, passenger demand, operating costs
(including the price and availability of jet fuel and labor costs), economic
conditions in the countries in which the lessees operate and environmental and
other governmental regulation of or affecting the air transportation business.
Many of Airplanes Group's existing lessees are in a relatively weak financial
position. There can be no assurance as to the extent to which lessees will be
able to perform their financial and other obligations under the leases.
As of March 28, 1996, amounts outstanding for a period greater than 30 days
in respect of Rental Payments, Maintenance Reserves, and other miscellaneous
amounts due under the leases (excluding default interest and certain cash in
transit) amounted to approximately $15 million in respect of 21 lessees who had
a combined total of 65 Aircraft on lease at that date. Certain of these lessees,
as well as certain other lessees, have consistently been significantly in
arrears in their Rental Payments and/or are known to be currently
17
<PAGE> 19
experiencing financial difficulties. The Servicer is in restructuring
negotiations with three of these lessees accounting for $11 million of the above
amount. Eighteen lessees account for the remaining $4 million overdue and
recovery of these amounts is being actively pursued. In addition to these
amounts, three further lessees were being allowed formal deferrals of rent,
maintenance and miscellaneous payments totalling $25 million at March 28, 1996.
There can be no assurance that any such amounts can be recovered.
There can be no assurance that more lessees will not become in arrears or
in default for any reason.
LATIN AMERICAN CONCENTRATION
At March 31, 1996, the lessees with respect to 27% of the Aircraft by
Initial Appraised Value operated in Latin America, principally Mexico, Brazil,
Colombia and Chile. The prospects for lessee operations in these countries can
be expected to be dependent in part on the general level of political stability
and economic activity and policies in those countries. Although certain
countries in Latin America have experienced substantial improvement in their
economies in the past several years, which has resulted in increased political
stability, overall increased economic growth, lower inflation rates and
revitalized economies, there can be no assurance that such progress can be
maintained or that further progress will be made. Future developments in the
political systems or economies of these countries or the implementation of
future governmental policies in these countries may have a material adverse
effect on lessee operations in those countries.
The economy of the Latin American region as a whole and of particular Latin
American countries may be materially affected by developments in other countries
in Latin America. For example, in December 1994, a decrease in capital inflows
to Mexico coupled with a large current account deficit led to diminishing
foreign exchange reserves which ultimately forced Mexico to allow the peso to
float freely. The subsequent devaluation of the peso led to a currency crisis in
Mexico which dampened investor confidence and has resulted in lower levels of
foreign investment in Latin America in general. The events that occurred during
1994 have produced a continuing economic recession in Mexico, characterized by a
strong contraction in consumer demand for many products and services, reduced
availability of credit, high domestic interest rates, high inflation,
instability of foreign exchange policies, high unemployment and a loss of
international investor confidence in Mexico and consequently the region as a
whole.
Mexico is a significant market for Airplanes Group's Aircraft and at March
31, 1996, 29 Aircraft, representing 9% of the Portfolio by Initial Appraised
Value, were being operated by four Mexican aircraft operators. In the case of
one operator, the leases on two Aircraft were terminated and while both Aircraft
were ultimately re-possessed, considerable delays were experienced in enforcing
legal rights to repossess these Aircraft. Difficult market conditions and
substantial overcapacity continues to have an adverse effect on the Mexican air
transport sector and restructuring negotiations with one of Airplanes Group's
Mexican lessees are continuing, but there can be no assurance that they will be
successful.
In the past, certain of Airplanes Group's Brazilian lessees experienced
significant difficulties due to overcapacity and adverse market conditions. As
of March 31, 1996, 12 of Airplanes Group's Aircraft representing approximately
8% of the portfolio by Initial Appraised Value were being operated by four
Brazilian lessees.
NORTH AMERICAN CONCENTRATION
For the past several years, the North American air transport sector has
been undergoing a sustained period of over-capacity and consolidation. During
that period, certain North American airlines have been persistently unable to
generate sufficient earnings to cover their operating costs. Over the last
several years, nearly half of the major North American passenger airlines have
filed Chapter 11 bankruptcy proceedings and several major U.S. airlines have
ceased operations altogether. While air traffic in the region has recently
increased, increasing competition from low-cost, low-fare air carriers, in
conjunction with an inability to reduce labor and other costs to competitive
levels, continues to put pressure on North American airline margins. Several
North American carriers who are lessees or who lease aircraft retained by GPA
have recently emerged from bankruptcy and there can be no assurance that such
lessees will not re-enter, or that other lessees in this region will not enter
into, plans of reorganization or seek the protection of bankruptcy,
18
<PAGE> 20
insolvency or other similar proceedings. Such proceedings may adversely affect
the ability of such lessees to make timely and full Rental Payments under their
respective leases.
LEASE TERMINATION AND AIRCRAFT REPOSSESSION
Airplanes Group's rights and remedies in the event of a default under each
lease include the right of the relevant lessor to terminate such lease and to
repossess the related Aircraft. If a defaulting lessee contests such termination
and repossession or is bankrupt or under court protection, however, it may be
difficult, expensive and time-consuming for Airplanes Group to enforce its
rights. With the large numbers of Aircraft in its Portfolio, it is likely that
Airplanes Group will encounter enforcement delays or difficulties in various
jurisdictions. Airplanes Group may incur direct costs associated with
repossession of an Aircraft which include legal and similar costs, the direct
costs of returning the Aircraft to an appropriate jurisdiction and any necessary
maintenance to make the Aircraft available for re-leasing or sale. Maintenance
costs with respect to repossessed aircraft may be significant. Repossession does
not necessarily imply an ability to export or deregister and profitably redeploy
the Aircraft. In cases where a lessee or other operator flies only domestic
routes, repossession may be more difficult, especially if the jurisdiction
permits the lessee to resist deregistration and the Aircraft is registered in
such jurisdiction. In addition, in connection with the repossession of an
aircraft, the aircraft owner may also find it necessary to pay debts secured by
outstanding Liens as well as, in certain jurisdictions, taxes to the extent not
paid by the lessee. Significant costs may also be incurred in retrieving or
recreating aircraft records in a repossession. Aircraft records are generally
required for obtaining a Certificate of Airworthiness for the Aircraft.
Although certain letters of credit, third-party guarantees or bank
guarantees or the cash equivalent thereof required under the relevant lease (the
"Related Collateral") provided by the particular lessee and funds in certain
Accounts with respect to that lessee may be available to Airplanes Group to
reduce its losses, Airplanes Group nonetheless may suffer adverse consequences
as a result of a lessee default and the related termination of the lease and
repossession of the related Aircraft. Airplanes Group's exercise of its rights
and remedies (including repossession) upon a lessee default also may be subject
to the limitations and requirements of applicable law, including the need to
obtain a court order for repossession of the Aircraft and/or to obtain consents
or approvals for deregistration or re-export of the Aircraft. When a defaulting
lessee is the subject of a bankruptcy, protective administration, insolvency or
similar event, additional limitations and requirements may apply. Certain
jurisdictions will give rights to the trustee in bankruptcy or a similar officer
to assume or reject the lease or to assign it to a third party, or will entitle
the lessee or another third party to retain possession of the Aircraft (without
performing the obligations under the relevant lease) for a period that cannot be
determined in advance. Accordingly, in such circumstances, Airplanes Group may
be delayed in, or prevented from, enforcing certain of its rights under a lease
and in re-leasing the affected Aircraft. Further, the premature termination of
leases may, in certain circumstances, lead Airplanes Group to incur substantial
swap breakage costs under its agreements with swap providers.
RISKS RELATING TO PAYMENTS ON THE CERTIFICATES
FACTORS AFFECTING THE AMOUNT AND TIMING OF PAYMENTS UNDER THE CERTIFICATES
The ability of Airplanes Group to re-lease Aircraft upon expiration or
termination of the related leases, as well as other events outside of Airplanes
Group's control, will affect payments on, and the weighted average lives of, the
Notes and, accordingly, the Certificates, and may therefore affect the yield on
the Certificates. Early terminations, whether as a result of lessee defaults or
otherwise, may cause Aircraft to be re-leased earlier and more frequently and at
lower rental rates than expected, and could adversely affect payments on the
Certificates. The exercise of purchase options by certain lessees (the "Purchase
Options") or the occurrence of termination events cannot be predicted and may be
influenced by a variety of economic and other factors, including future interest
rates and the availability and market value of aircraft at future dates.
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<PAGE> 21
CASH FLOW FROM AIRCRAFT AND LEASES NOT PREDICTABLE; FAILURE OF ACTUAL
EXPERIENCE TO MATCH ASSUMPTIONS
The expected repayment schedules of the Notes were arrived at on the basis
of certain assumptions. It is highly unlikely that the assumptions will be
consistent with Airplanes Group's experience for numerous reasons. Any inability
of Airplanes Group to find financially able and willing lessees of the Aircraft
at acceptable rental rates will affect the timing and amount of proceeds
realized from leases of Aircraft. In addition, other economic and political
factors, such as prevailing interest rates and the availability of credit and
market demand for aircraft rentals cannot be assured. Rental Payments, insurance
recoveries, Maintenance Reserve payments, expenses and liabilities will often be
dependent upon the actions of third parties, which are difficult to predict and
are generally not within Airplanes Group's control. Accordingly, collections and
other realizations with respect to certain leases and Aircraft could occur at
substantially different times and levels than anticipated and may not occur at
all. As a result, there can be no assurance that Airplanes Group will be able to
repay the initial outstanding principal balance on any class or subclass of the
Notes.
SUBORDINATION PROVISIONS
The Expenses and certain other payments are senior in priority of payment
to the Notes and will be paid before any payments are made on the Notes. Under
certain circumstances, the rights of the Trustee, as holder of each class or
subclass of Notes, to receive payments of principal in respect of such class or
subclass of Notes and to exercise remedies upon default will be subordinated to
the rights of the Trustee with respect to the most senior class of Notes then
outstanding. Accordingly, if an Event of Default occurs and is continuing, the
holders of each class of Certificates are not permitted to enforce certain
rights with respect to such default until all amounts owing under any
Certificates outstanding ranking senior thereto and certain other amounts have
been paid in full.
EARLY REDEMPTION AND DEFEASANCE
The Notes, and the corresponding Certificates, may be redeemed on any date
on which an interest payment is due, in whole or in part, at the applicable
redemption price, plus accrued but unpaid interest; provided, however, that
there shall have been paid in full all accrued and unpaid interest and other
amounts with respect to all subclasses and classes of Notes ranking pari passu
or prior to the Notes to be redeemed on such date. In addition, each class or
subclass of Notes may be redeemed in whole but not in part on any interest
payment date, without premium, upon the occurrence of certain adverse tax events
affecting Airplanes Group. Finally, all classes and subclasses of the Notes may
be redeemed or defeased, in whole, at the applicable redemption price plus
accrued and unpaid interest in the case of any subclass or class of Notes being
redeemed, in connection with any sale of all or substantially all of the assets
of Airplanes Group. Certain classes or subclasses of the Notes may be redeemed
at such time as other classes or subclasses of the Notes are being defeased.
RISKS RELATING TO THE REFINANCING OF CERTAIN CERTIFICATES
The Subclass A-1, A-2, A-3 and A-4 Certificates and the corresponding
subclasses of Notes are expected to reach their expected final payment dates
before Airplanes Group has received sufficient funds to pay all of the principal
on such Notes and the corresponding Certificates. Airplanes Group will attempt
to refinance each of the Subclass A-1, A-2, A-3 and A-4 Certificates with the
net cash proceeds realized from public offerings and sales by a trust of
refinancing certificates (the "Refinancing Certificates"). The Refinancing
Certificates will rank pari passu with the remaining outstanding subclasses of
Class A Certificates but their interest rate, average life, principal payment
provisions, redemption provisions and other economic terms will be determined by
the Directors of Airplanes Limited and Controlling Trustees of Airplanes Trust
at the time of issuance and may be substantially different from those applicable
to the Certificates to be refinanced. No assurance can be given, however, as to
Airplanes Group's ability to refinance Certificates in this manner. Any attempt
to issue Refinancing Certificates may be adversely affected by conditions in the
capital markets generally or the market's then current perception of the
commercial aviation industry, the operating lease business or Airplanes Group in
particular. Any failure to sell Refinancing Certificates on acceptable terms at
the required times will result in failure to refinance the Subclass A-1, A-2,
A-3 and A-4 Certificates. This may
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<PAGE> 22
increase the overall cost of borrowing, may affect the liquidity and market
prices of the Certificates generally and may affect the timing of repayment of
principal on the Subclass A-5 Certificates as a result of the need to make
principal payments on the Subclass A-1, A-2, A-3 and/or A-4 Certificates.
RISKS RELATING TO THE FINANCIAL CONDITION OF GPA
Airplanes Group purchased the Transferred Companies from GPA. Although GPA
is not an obligor with respect to the payment of the Notes or the Certificates,
it was a condition to the transfer of the shares of Holding Co. to Airplanes
Limited and of the AeroUSA shares to Airplanes Trust that each of GPA Group and
GPA, Inc., respectively, certify at the time of transfer that, inter alia, it
was able to pay its debts and would not be deemed to be unable to pay its debts
as a result of the transaction or transactions contemplated. If GPA were to
become subject to a bankruptcy or insolvency proceeding, a liquidator, examiner
or creditor of GPA could challenge the validity of the sale of the Transferred
Companies. Further, if GPA becomes subject to such a proceeding, its ability to
make any payments on the indemnities contained in the Stock Purchase Agreements
and the Tax Sharing Agreement would be materially adversely affected.
In addition, GPA Financial acts as Administrative Agent and GPA Cash
Manager acts as Cash Manager to Airplanes Group. If either of them is unable to
continue to so act in those capacities because of insolvency or similar
proceedings or the financial condition of GPA, there can be no assurance that
any alternative administrative agent or cash manager would replace such entities
in a timely manner without disruption to, or adverse effect on, Airplanes Group.
Finally, if GPA Group was to be liquidated or to reduce or relocate its
operations for any reason such that it failed to maintain, among other things,
certain employment levels in Ireland, or GPA Financial was to resign or be
terminated in accordance with the terms of the Administrative Agency Agreement,
then Holding Co. (and other Irish tax resident Transferred Companies) could
become subject to Irish corporate taxation at general Irish statutory rates
(currently 38%) and may lose the ability to deduct interest payments to
Airplanes Limited from their taxable income in Ireland. This would have a
materially adverse effect on Airplanes Limited's ability to pay interest,
principal and premium, if any, on the Airplanes Limited Notes and may lead to a
downgrade in the then current rating on the Certificates.
RISKS RELATING TO TAX
Ownership of the Certificates entails certain risks with respect to the
application of Irish tax laws, United States federal tax laws, Jersey tax laws
and the tax laws of the jurisdictions in which the Transferred Companies and the
lessees are organized, reside or operate. In addition, the tax consequences of
the purchase of the Certificates depend to some extent upon an investor's
individual circumstances.
Airplanes Limited, Holding Co. and the Transferred Companies do not expect
to be subject to United States federal income tax. However, this conclusion is
based in part on the manner in which the activities of the Servicer and
Administrative Agent are performed for Airplanes Limited, Holding Co. and the
Transferred Companies and the income tax treaty currently in force between the
United States and Ireland (the "Treaty"). There can be no assurance that the
activities of the Servicer or Administrative Agent will not expose Airplanes
Limited, Holding Co. and the Transferred Companies to United States federal
income tax on their income. Further, the Treaty is currently being renegotiated
and there can be no assurance that Airplanes Limited, Holding Co. and the
Transferred Companies would not be subject to United States federal income tax
on some or all of their income under any new treaty.
Airplanes Limited, Airplanes Trust and AeroUSA do not intend to be (and
have taken steps designed to ensure that they will not be) treated as doing
business in Ireland and, therefore, do not expect to be subject to Irish income
tax. However, if the operations of Airplanes Limited, Airplanes Trust or AeroUSA
differ from those intended or expected, Airplanes Limited or Airplanes Trust
could become subject to Irish taxes.
Neither the Trustee nor Airplanes Group will make any additional payments
to Certificateholders in respect of any withholding or deduction required to be
made by applicable law with respect to payments made on either the Notes or the
Certificates. In the event that Airplanes Group is or will be required to make a
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<PAGE> 23
withholding or deduction, it will use reasonable efforts to avoid the
application of such withholding taxes and may in certain circumstances redeem
the Notes (which would result in repayment of the Certificates) in the event
such withholding taxes cannot be avoided. In the event any withholding taxes are
imposed with respect to the Notes and Airplanes Group does not redeem the Notes,
the net amount of interest received by the Trustee and passed through to the
Certificateholders will be reduced by the amount of the withholding or
deduction.
RISKS RELATING TO LOSS OF CERTAIN TAX BENEFITS
Airplanes Limited owns 95% of the capital stock of Holding Co. and the
remaining 5% is owned by GPA Group. The 5% shareholding by GPA Group is intended
to ensure that Holding Co. and certain other Transferred Companies will continue
to be entitled to certain corporate tax benefits for Shannon, Ireland certified
companies. If GPA Group were to be liquidated or GPA Group or GECAS were to
reduce or relocate their respective operations for any reason (and GECAS has not
agreed or otherwise guaranteed that such a reduction or relocation of operations
will not occur) such that either party failed to maintain, among other things,
certain employment levels in Ireland or GPA Financial or GECAS were to resign or
be terminated in accordance with the terms of the Administrative Agency
Agreement and the Servicing Agreement, respectively, then Holding Co. (and the
other Irish tax resident Transferred Companies) may become subject to Irish
corporate taxation at general Irish statutory rates (currently 38%) and may lose
the ability to deduct interest payments to Airplanes Limited from their income
in computing their liability to Irish tax. Such a loss of tax benefits would
likely lead to a downgrade in the then current rating on the Notes and would
have a materially adverse effect on Airplanes Limited's ability to pay interest,
principal and premium, if any, on the Notes issued by Airplanes Limited. In the
event that the Servicer fails to maintain such employment levels and a material
tax event occurs, Airplanes Group's sole remedy will be to terminate the
Servicing Agreement and replace GECAS as the Servicer. In such circumstances,
there is no assurance that the Airplanes Group would be able to find a servicer
to replace GECAS.
Upon the scheduled termination of the preferential tax rate on December 31,
2005, Holding Co. and the other Irish tax resident Transferred Companies may
become subject to Irish corporate tax on their net income at a much higher rate
than that which currently applies. However, assuming Holding Co. and the other
Irish tax resident Transferred Companies continue to be entitled to the benefit
of the 10% corporate tax rate for Shannon, Ireland certified companies until
December 31, 2005, they will continue to be able to deduct interest payments to
Airplanes Limited in computing their Irish income tax liability and will
continue to be in a position to make such interest payments without deduction
for withholding beyond 2005.
Further, Airplanes Group believes that it will not become subject to any
material taxes in any of the jurisdictions in which any of the lessees are
organized or operate under the present tax laws of such jurisdictions. In
addition, Airplanes Group has endeavored to structure its acquisition of the
leases in such a way that either no withholding taxes will be applicable to
payments by the lessees under the leases, or (in the event of such taxes being
or becoming applicable) the lessees will be obliged to pay such corresponding
additional amounts. However, in some cases the lessees' obligations to pay such
additional amounts may be limited to the amounts which the lessees would
otherwise have been obliged to pay if the applicable leases had not been
transferred or assigned to Airplanes Group. In addition, there can be no
assurance that other leases to which Airplanes Group may become a party as a
result of the re-leasing of the Aircraft will not result in the imposition of
withholding or other taxes.
THE AIRCRAFT, RELATED LEASES AND COLLATERAL
PORTFOLIO INFORMATION -- THE AIRCRAFT
At March 31, 1996, Aircraft representing 93.4% of the Initial Appraised
Value of the Aircraft at October 31, 1995, hold or are capable of holding a
noise certificate issued under Chapter 3 of Volume 1, Part II of Annex 16 of the
Chicago Convention (the "Chicago Convention") or have been shown to comply with
the Stage 3 noise levels set out in Section 36.5 of Appendix C of Part 36 of the
United States Federal Aviation Regulations ("Stage 3 aircraft") (assuming for
this purpose that turboprop Aircraft are Stage 3
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aircraft). The remaining 6.6% of the Aircraft by Initial Appraised Value are of
an aircraft type that holds or is capable of holding a noise certificate issued
under Chapter 2 of the Chicago Convention or has been shown to comply with the
Stage 2 noise levels ("Stage 2 aircraft") and does not comply with the
requirements for a Stage 3 aircraft.
The following table sets forth the exposure of the Portfolio to certain
individual lessees, calculated as of March 31, 1996 by reference to the Initial
Appraised Value of the Aircraft as of October 31, 1995.
<TABLE>
<CAPTION>
% OF PORTFOLIO
NUMBER OF BY INITIAL
LESSEE(1) AIRCRAFT APPRAISED VALUE
- ------------------------------------------------------------------- --------- ---------------
<S> <C> <C>
P.T. Garuda Indonesia.............................................. 3 5.86%
Aerovias de Mexico S.A. de C.V. ("Aeromexico")..................... 12 5.41
Canadian Airlines International Limited............................ 13 5.22
Turk Hava Yollari A.O.............................................. 7 4.35
Emery Worldwide Airlines, Inc...................................... 9 3.75
Burlington Air Express, Inc........................................ 9 3.72
Aerovias Nacionales de Colombia S.A., ("Avianca").................. 5 3.39
Compania Mexicana de Aviacion S.A. de C.V. ("Mexicana")............ 8 3.15
Airtours International Airways Limited............................. 6 4.14
Transbrasil........................................................ 2 2.83
Air Espana S.A. ("Air Europa")..................................... 4 2.27
Transportes Aereos Regionais S.A. ("TAM").......................... 5 2.25
Other (70 lessees)................................................. 135 50.14
Off-lease(2)....................................................... 11 3.52
--- -----------
Total............................................................ 229 100.00%
</TABLE>
- ---------------
(1) Total number of lessees = 82
(2) Of the 11 Aircraft off-lease, three were the subject of non-binding letters
of intent to lease and five were subject to lease contracts and were
scheduled for delivery to the relevant lessees after March 31, 1996.
23
<PAGE> 25
The following table sets forth the exposure of Airplanes Group's portfolio
of Aircraft by type of aircraft, calculated by reference to the number of
Aircraft at March 31, 1996 and the Initial Appraised Value of the Aircraft as of
October 31, 1995. For the purpose of the following table, turboprop Aircraft are
assumed to be Stage 3 aircraft.
<TABLE>
<CAPTION>
% OF PORTFOLIO
NUMBER OF ENGINE BY INITIAL
MANUFACTURER TYPE OF AIRCRAFT AIRCRAFT BODY TYPE STAGE APPRAISED VALUE
- -------------------------------- ------------------ --------- ----------- ------ ---------------
<S> <C> <C> <C> <C> <C>
Boeing (42.20%)................. 727-200A 2 Narrowbody 2 0.24
737-200A 30 Narrowbody 2 4.34
737-200C 2 Narrowbody 2 0.42
737-300 11 Narrowbody 3 5.92
737-400 22 Narrowbody 3 13.90
737-500 11 Narrowbody 3 5.85
747-200BC 1 Widebody 3 0.85
757-200 3 Narrowbody 3 3.07
767-200ER 1 Widebody 3 1.32
767-300ER 4 Widebody 3 6.29
McDonnell Douglas (34.80%)...... DC8-71F 27 Narrowbody 3 11.21
DC8-73CF 1 Narrowbody 3 0.51
DC9-14 2 Narrowbody 2 0.05
DC9-15 6 Narrowbody 2 0.15
DC9-32 7 Narrowbody 2 0.86
DC9-51 4 Narrowbody 2 0.50
DC10-30 2 Widebody 3 1.00
DC10-30F 2 Widebody 3 0.96
MD11 3 Widebody 3 5.86
MD82 2 Narrowbody 3 0.94
MD83 23 Narrowbody 3 12.36
MD87 1 Narrowbody 3 0.40
Airbus (10.70%)................. A300-B4-100 3 Widebody 3 0.64
A300-B4-203 2 Widebody 3 0.79
A300-C4-203 1 Widebody 3 0.45
A320-200 12 Narrowbody 3 8.82
Fokker (7.37%).................. F100 16 Narrowbody 3 7.37
Bombardier De Havilland
(4.16%)....................... DHC8-100 5 Turboprop 3 0.77
DHC8-102 1 Turboprop 3 0.13
DHC8-300 6 Turboprop 3 1.31
DHC8-300A 9 Turboprop 3 1.95
Other (0.77%)................... METRO-III 3 Turboprop 3 0.12
ATR42-300 3 Turboprop 3 0.46
ATR42-320 1 Turboprop 3 0.19
--- -------
229 100.00
=== =======
</TABLE>
24
<PAGE> 26
The following table sets forth the exposure of the Portfolio as of March
31, 1996 to countries in which lessees are domiciled, calculated by reference to
the Initial Appraised Value of the Aircraft at October 31, 1995.
<TABLE>
<CAPTION>
% OF PORTFOLIO
NUMBER OF BY INITIAL
COUNTRY(1) AIRCRAFT APPRAISED VALUE
- ------------------------------------------------------------------- --------- ---------------
<S> <C> <C>
United States...................................................... 31 12.05%
Mexico............................................................. 29 9.29
Turkey............................................................. 15 9.18
Brazil............................................................. 12 7.63
Indonesia.......................................................... 8 7.79
Spain.............................................................. 11 6.00
Canada............................................................. 13 5.22
United Kingdom..................................................... 8 4.42
Colombia........................................................... 8 4.40
Italy.............................................................. 4 3.31
China.............................................................. 6 3.35
Chile.............................................................. 10 2.90
Germany............................................................ 4 1.54
Other Countries (27 countries)..................................... 59 19.43
Off-lease(2)....................................................... 11 3.52
--- ----------
Total............................................................ 229 100.00%
</TABLE>
- ---------------
(1) Total number of countries = 40
(2) Of the 11 Aircraft off-lease, three were the subject of non-binding letters
of intent to lease and five were subject to lease contracts and were
scheduled for delivery to the relevant lessees after March 31, 1996.
The following table sets forth the exposure of the Portfolio by regions in
which lessees are domiciled, calculated by reference to number of Aircraft as of
March 31, 1996 and the Initial Appraised Value of the Aircraft as of October 31,
1995.
<TABLE>
<CAPTION>
% OF PORTFOLIO
NUMBER BY INITIAL
REGION OF AIRCRAFT APPRAISED VALUE
- ------------------------------------------------------------------- ----------- ---------------
<S> <C> <C>
Europe (excluding CIS Countries)................................... 66 34.17%
Latin America...................................................... 71 27.26
North America...................................................... 44 17.27
Asia & Far East.................................................... 25 15.24
Africa............................................................. 4 1.20
Australia & New Zealand............................................ 4 0.28
Others (including CIS Countries)................................... 4 1.06
Off-lease*......................................................... 11 3.52
----- -------
Total............................................................ 229 100.00%
===== =======
</TABLE>
- ---------------
* Of the 11 Aircraft off-lease, three were the subject of non-binding letters of
intent to lease and five were subject to lease contracts and were scheduled for
delivery to the relevant lessees after March 31, 1996.
25
<PAGE> 27
The following table sets forth the exposure of the Portfolio by year of
aircraft manufacture or conversion to freighter, calculated as of March 31, 1996
by reference to the Initial Appraised Value of the Aircraft as of October 31,
1995.
<TABLE>
<CAPTION>
% OF PORTFOLIO
NUMBER BY INITIAL
YEAR OF MANUFACTURER/FREIGHTER CONVERSION OF AIRCRAFT APPRAISED VALUE
- ------------------------------------------------------------------- ----------- ---------------
<S> <C> <C>
1988............................................................... 15 4.87%
1989............................................................... 9 4.09
1990............................................................... 21 9.77
1991............................................................... 45 22.97
1992............................................................... 55 37.49
1993............................................................... 7 3.34
1994............................................................... 6 2.85
Other.............................................................. 71 14.62
--- -------
Total............................................................ 229 100.00%
=== =======
</TABLE>
26
<PAGE> 28
Further particulars of the Portfolio as of March 31, 1996 (except for Appraised
Values which are as of October 31, 1995) are contained in the table below.
AIRPLANES GROUP PORTFOLIO ANALYSIS
<TABLE>
<CAPTION>
AIRCRAFT ENGINE SERIAL
REGION COUNTRY LESSEE TYPE CONFIGURATION NUMBER
- ---------------------------- ------------------------ ------------------------------- ----------- --------------- ------
<S> <C> <C> <C> <C> <C>
Africa Kenya Kenya Airways B737-200A JT8D-17 21193
Kenya Kenya Airways B737-200A JT8D-17 21196
Tunisia Air Liberte Tunisie MD83 JT8D-219 49442
Tunisia Air Liberte Tunisie MD83 JT8D-219 49624
Asia & Far East China China Southern B737-500 CFM56-3C1 24897
China China Southern B737-500 CFM56-3C1 25182
China China Southern B737-500 CFM56-3C1 25183
China China Southern B737-500 CFM56-3C1 25188
China China Southwest B757-200 RB211-535E4-37 26156
China Xiamen B737-200QC JT8D-17A 23066
India Archana Airways DHC8-300A PW123 230
India Archana Airways DHC8-300A PW123 242
India East West B737-200A JT8D-15 22396
India East West B737-200A JT8D-15 22633
India Jet Airways B737-400 CFM56-3C1 24345
Indonesia Garuda MD11 CF6-80C2-D1F 48499
Indonesia Garuda MD11 CF6-80C2-D1F 48500
Indonesia Garuda MD11 CF6-80C2-D1F 48501
Indonesia PT Mandala Airlines B737-200A JT8D-17A 23023
Indonesia Sempati(1) F100 TAY650-15 11266
Indonesia Sempati F100 TAY650-15 11336
Indonesia Sempati F100 TAY650-15 11339
Indonesia Sempati F100 TAY650-15 11347
Pakistan Pakistan Int. Airline A300-B4-203 CF6-50C2 269
Philippines Grand International A300-B4-100 CF6-50C2 9
Philippines Philippine Airlines A300-C4-203 CF6-50C2 83
Philippines Philippine Airlines B737-300 CFM56-3B1 24770
South Korea Asiana Airlines B737-400 CFM56-3C1 24493
South Korea Asiana Airlines B737-400 CFM56-3C1 24520
Australia & New Zealand Australia National Jet Systems DHC8-100 PW121 229
New Zealand Air Nelson METRO-III TPE331-11 705
New Zealand Air Nelson METRO-III TPE331-11 711
New Zealand Air Nelson METRO-III TPE331-11 712
Europe Austria Rheintalflug DHC8-300 PW123 307
France Air France A320-200 CFM56-5A3 203
France Air France A320-200 CFM56 220
Germany Aero Lloyd MD83 JT8D-219 49620
Germany Air Berlin B737-400 CFM56-3C1 24687
Germany Contact Air DHC8-300 PW123 334
Germany Contact Air DHC8-300A PW123 296
Greece Venus Airlines B757-200 RB2110-535E4-37 26151
Hungary Malev B737-200A JT8D-15 21735
Hungary Malev B737-200A JT8D-15 22090
Hungary Malev B737-200A JT8D-17A 22803
Hungary Malev B737-200A JT8D-17A 22804
Hungary Malev B737-200A JT8D-15 22979
Hungary Malev B737-400 CFM56-3C1 26069
Hungary Malev B737-400 CFM56-3C1 26071
Iceland Air Atlanta B737-200A JT8D-17 21192
Ireland Aer Lingus B737-400 CFM56-3C1 24690
Ireland Translift Airways A300-B4-100 CF6-50C2 20
Italy Air Europe SpA B767-300ER PW4060 25411
Italy Aliadriatica B737-300 CFM56-3C1 25187
Italy Aliadriatica B737-300 CFM56-3C1 25179
Italy Eurofly MD83 JT8D-219 49631
Netherlands Schreiner Airways DHC8-300A PW123 283
<CAPTION>
APPRAISED
DATE OF VALUE AT
MANUFACTURE/ OCTOBER 31, 1995
REGION CONVERSION (US$000'S)
- ---------------------------- ------------ ----------------
<S> <C> <C>
Africa 1-Jul-76 5,409
1-Jul-76 5,411
29-Apr-87 21,343
1-Aug-88 22,169
Asia & Far East 26-Feb-91 23,082
3-Feb-92 24,322
14-Feb-92 24,133
12-Mar-92 24,086
25-Nov-92 46,325
9-Dec-83 9,548
1-Feb-91 9,691
1-Nov-90 9,606
1-Feb-81 7,014
1-Mar-81 6,979
1-Jun-89 26,311
31-Dec-91 85,461
1-Mar-92 89,453
1-Sep-92 90,442
30-Mar-83 8,052
17-Aug-90 15,796
5-Jun-91 21,157
1-Jul-91 21,156
1-Oct-91 20,960
11-Aug-83 19,414
26-Dec-74 9,647
1-May-79 20,517
1-Oct-90 24,398
14-Jul-89 25,915
21-Dec-89 26,569
Australia & New Zealand 1-Sep-90 7,477
1-Aug-88 1,767
1-Mar-88 1,767
1-Jun-88 1,767
Europe 1-Dec-91 10,031
1-Sep-91 32,384
1-Sep-91 32,020
1-Jul-88 22,737
25-May-90 27,123
8-Oct-92 10,226
1-Oct-91 9,647
23-Jul-92 46,125
1-Jun-79 6,246
1-May-80 6,570
14-Feb-83 8,569
1-Feb-83 8,274
1-Mar-83 7,335
2-Nov-92 30,577
13-Nov-92 30,590
1-Mar-76 5,529
1-Jul-90 27,262
1-Oct-75 9,739
15-Jan-92 70,847
14-Mar-92 27,605
12-Feb-92 27,841
14-Jun-89 23,356
1-Sep-91 9,983
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
AIRCRAFT ENGINE SERIAL
REGION COUNTRY LESSEE TYPE CONFIGURATION NUMBER
- ---------------------------- ------------------------ ------------------------------- ----------- --------------- ------
<S> <C> <C> <C> <C> <C>
Netherlands Schreiner Airways DHC8-300A PW123 298
Netherlands Schreiner Airways DHC8-300A PW123 300
Netherlands Transavia B737-300 CFM56-3C1 24905
Norway Wideroe's Flyveselkap DHC8-300 PW123 293
Norway Wideroe's Flyveselkap DHC8-300 PW123 342
Spain Air Europa B737-300 CFM56-3B2 23749
Spain Air Europa B737-300 CFM56-3B2 23923
Spain Air Europa B737-400 CFM56-3C1 24906
Spain Air Europa B737-400 CFM56-3C1 24912
Spain Futura B737-400 CFM56-3C1 24689
Spain Futura B737-400 CFM56-3C1 25180
Spain IBERIA DC8-71F CFM56-2C1 45945
Spain Spanair MD83 JT8D-219 49626
Spain Spanair MD83 JT8D-219 49672
Spain Spanair MD83 JT8D-219 49709
Spain Spanair MD83 JT8D-219 49938
Sweden Nordic East Airways B737-400 CFM56-3C1 24911
Sweden Transwede F100 TAY650-15 11371
Switzerland Edelweiss Air AG MD83 JT8D-219 49935
Switzerland Edelweiss Air AG MD83 JT8D-219 49951
Turkey Istanbul B737-400 CFM56-3C1 24683
Turkey Istanbul B737-400 CFM56-3C1 24691
Turkey Pegasus B737-400 CFM56-3C1 26081
Turkey Pegasus B737-400 CFM56-3C1 24684
Turkey Sun Express B737-400 CFM56-3C1 25190
Turkey Sunways MD83 JT8D-219 49792
Turkey Sunways MD83 JT8D-219 49936
Turkey Sunways MD83 JT8D-219 49943
Turkey Turk Hava Yollari B737-400 CFM56-3C1 24917
Turkey Turk Hava Yollari B737-400 CFM56-3C1 25181
Turkey Turk Hava Yollari B737-400 CFM56-3C1 25184
Turkey Turk Hava Yollari B737-400 CFM56-3C1 25261
Turkey Turk Hava Yollari B737-400 CFM56-3C1 26065
Turkey Turk Hava Yollari B737-500 CFM56-3C1 25288
Turkey Turk Hava Yollari B737-500 CFM56-3C1 25289
United Kingdom Airtours MD83 JT8D-219 49941
United Kingdom Airtours MD83 JT8D-219 49949
United Kingdom Airtours International A320-200 CFM56 348
United Kingdom Airtours International A320-200 CFM56 301
United Kingdom Airtours International A320-200 CFM56 294
United Kingdom Airtours International A320-200 CFM56-5A3 349
United Kingdom Titan Airways ATR42-300 PW120 109
United Kingdom Titan Airways ATR42-300 PW120 113
Latin America Antigua Liat DHC8-100 PW120-A 140
Antigua Liat DHC8-100 PW120-A 144
Antigua Liat DHC8-100 PW120-A 270
Antigua Liat DHC8-102 PW120-A 113
Argentina LAPA B737-200A JT8D-15 22278
Argentina LAPA B737-200A JT8D-15 22368
Argentina LAPA B737-200A JT8D-15 22369
Aruba Air Aruba MD83 JT8D-219 49950
Brazil Rio Sul B737-500 CFM56-3C1 25186
Brazil Rio Sul B737-500 CFM56-3C1 26075
Brazil TAM F100 TAY650-15 11284
Brazil TAM F100 TAY650-15 11285
Brazil TAM F100 TAY650-15 11304
Brazil TAM F100 TAY650-15 11305
Brazil TAM F100 TAY650-15 11348
Brazil Transbrasil B767-200ER PW4056 25421
Brazil Transbrasil B767-300ER PW4060 24948
Brazil VARIG(1) B737-300 CFM56-3B2 26852
Brazil VARIG(1) DC10-30F CF6-50C2 47841
<CAPTION>
APPRAISED
DATE OF VALUE AT
MANUFACTURE/ OCTOBER 31, 1995
REGION CONVERSION (US$000'S)
- ---------------------------- ------------ ----------------
<S> <C> <C>
1-Apr-92 10,100
1-Apr-92 10,349
1-Feb-91 26,155
1-Oct-91 10,057
1-Dec-92 11,004
1-May-87 22,370
1-Apr-88 23,454
24-Feb-91 28,246
14-Jun-91 28,914
3-Jul-90 27,442
21-Jan-92 29,733
19-May-92 18,687
22-Oct-88 22,523
1-Jul-88 22,377
1-Dec-88 22,559
1-Dec-90 25,306
1-Apr-91 28,969
19-Dec-91 20,945
26-Sep-90 25,006
25-Aug-91 26,405
7-Aug-90 27,420
9-Aug-90 27,396
10-Mar-93 31,607
1-Apr-90 27,201
7-Apr-92 29,872
1-Nov-89 24,028
6-Oct-90 25,029
1-Jul-91 26,403
24-Jun-91 28,612
3-Feb-92 29,676
2-Mar-92 29,831
9-Apr-92 29,939
1-May-92 30,002
16-Jun-92 24,380
12-Jun-92 24,279
1-Dec-90 25,022
5-Aug-91 26,421
17-Jun-92 34,368
22-Apr-92 33,760
2-Apr-92 33,427
30-Oct-92 34,213
14-Oct-88 6,443
18-Nov-88 6,463
Latin America 1-Mar-89 6,242
1-Mar-89 6,433
1-May-91 7,345
1-Sep-88 5,782
19-Mar-80 7,082
1-Sep-80 6,722
1-Sep-80 6,795
1-Nov-91 26,695
11-Mar-92 23,991
23-Oct-92 24,607
31-Jul-90 19,648
1-Aug-90 19,627
27-Feb-91 20,887
19-Apr-91 20,903
6-Aug-91 20,806
14-Jan-92 59,697
19-Jul-91 68,304
20-Apr-92 23,295
3-Jul-80 21,736
</TABLE>
28
<PAGE> 30
<TABLE>
<CAPTION>
AIRCRAFT ENGINE SERIAL
REGION COUNTRY LESSEE TYPE CONFIGURATION NUMBER
- ---------------------------- ------------------------ ------------------------------- ----------- --------------- ------
<S> <C> <C> <C> <C> <C>
Brazil VARIG(1) DC10-30F CF6-50C2 47842
Chile Fast Air DC8-71F CFM56-2C1 45810
Chile Fast Air DC8-71F CFM56-2C1 45970
Chile Fast Air DC8-71F CFM56-2C1 45976
Chile Fast Air DC8-71F CFM56-2C1 45996
Chile Fast Air DC8-71F CFM56-2C1 45997
Chile Ladeco B737-200A JT8D-15 21960
Chile Ladeco B737-200A JT8D-15 22632
Chile Lan Chile Airlines B737-200A JT8D-15 22397
Chile Lan Chile Airlines B737-200A JT8D-17A 22407
Chile Lan Chile Airlines B737-200A JT8D-17A 23024
Colombia ACES ATR42-320 PW121-5A1 284
Colombia Avianca B757-200 RB211-535E4-37 26154
Colombia Avianca MD83 JT8D-219 49939
Colombia Avianca MD83 JT8D-219 49946
Colombia Avianca MD83 JT8D-219 53120
Colombia Avianca MD83 JT8D-219 53125
Colombia Tampa DC8-71F CFM56-2C1 45849
Colombia Tampa DC8-71F CFM56-2C1 46066
Jamaica Air Jamaica A300-B4-203 CF6-50C2 131
Mexico Aerocalifornia DC9-14 JT8D-7B 45736
Mexico Aerocalifornia DC9-14 JT8D-7B 45743
Mexico Aerocalifornia DC9-15 JT8D-7A 45785
Mexico Aerocalifornia DC9-15 JT8D-7B 45786
Mexico Aerocalifornia DC9-15 JT8D-7A 47059
Mexico Aerocalifornia DC9-15 JT8D-7A 47085
Mexico Aerocalifornia DC9-15 JT8D-7A 47122
Mexico Aerocalifornia DC9-15 JT8D-7A 47126
Mexico Aeromexico B767-300ER PW4060 26200
Mexico Aeromexico B767-300ER PW4060 26204
Mexico Aeromexico DC9-32 JT8D-17 47594
Mexico Aeromexico DC9-32 JT8D-17 48125
Mexico Aeromexico DC9-32 JT8D-17 48126
Mexico Aeromexico DC9-32 JT8D-17 48127
Mexico Aeromexico DC9-32 JT8D-17 48128
Mexico Aeromexico DC9-32 JT8D-17 48129
Mexico Aeromexico DC9-32 JT8D-17 48130
Mexico Aeromexico MD82 JT8D-217 49660
Mexico Aeromexico MD82 JT8D-217A 49667
Mexico Aeromexico MD87 JT8D-219 49673
Mexico Mexicana B727-200A JT8D-17R 21346
Mexico Mexicana B727-200A JT8D-17R 21600
Mexico Mexicana F100 TAY650-15 11309
Mexico Mexicana F100 TAY650-15 11319
Mexico Mexicana F100 TAY650-15 11374
Mexico Mexicana F100 TAY650-15 11375
Mexico Mexicana F100 TAY650-15 11382
Mexico Mexicana F100 TAY650-15 11384
Mexico TAESA(2) B737-500 CFM56-3C1 25185
Peru Aerosanta B737-200A JT8D-17 21206
Trinidad & Tobago BWIA International MD83 JT8D-219 49390
Trinidad & Tobago BWIA International MD83 JT8D-219 49789
North America Canada Canadian Airlines A320-200 CFM56-5A1 174
Canada Canadian Airlines A320-200 CFM56-5A1 175
Canada Canadian Airlines A320-200 CFM56-5A1 232
Canada Canadian Airlines A320-200 CFM56-5A1 284
Canada Canadian Airlines A320-200 CFM56-5A1 309
Canada Canadian Airlines A320-200 CFM56-5A1 404
Canada Canadian Airlines(1) B737-200A JT8D-9A 20922
Canada Canadian Airlines(1) B737-200A JT8D-9A 20958
Canada Canadian Airlines(1) B737-200A JT8D-9A 20959
Canada Canadian Airlines(1) B737-200A JT8D-9A 21115
<CAPTION>
APPRAISED
DATE OF VALUE AT
MANUFACTURE/ OCTOBER 31, 1995
REGION CONVERSION (US$000'S)
- ---------------------------- ------------ ----------------
<S> <C> <C>
8-Apr-80 21,736
9-Apr-92 19,053
15-Oct-92 18,793
10-Aug-91 18,933
29-Oct-92 18,797
7-Dec-93 18,787
1-Mar-80 6,529
1-Feb-82 7,531
1-Feb-81 7,556
1-Sep-80 7,281
1-May-83 7,850
1-Jan-92 8,447
22-Sep-92 46,327
26-Oct-90 25,376
18-Jul-91 26,329
29-Jul-92 27,647
2-Apr-92 27,968
9-Mar-91 18,307
24-Apr-91 18,680
7-Feb-81 16,362
1-Aug-66 1,143
1-May-66 1,043
1-Nov-66 1,096
1-Mar-67 1,190
1-May-67 1,073
1-Jul-67 1,073
1-Dec-67 1,073
1-Oct-68 1,107
1-Sep-92 72,814
1-Oct-92 72,874
1-Feb-74 4,043
1-Apr-80 5,777
1-Apr-80 5,763
1-Jul-80 5,850
1-Aug-80 5,874
1-Nov-80 5,890
1-Dec-80 5,547
1-Mar-88 21,167
21-Jan-88 21,279
1-Dec-88 18,155
1-Oct-80 5,459
1-Nov-80 5,483
16-May-91 21,123
5-Apr-91 21,243
20-Jan-92 22,314
1-Dec-92 22,356
1-Jan-93 22,372
1-Jan-93 22,379
18-Feb-92 23,903
26-Feb-76 4,961
1-Apr-86 19,999
23-Sep-89 23,626
North America 1-Apr-91 31,688
1-Apr-91 32,146
1-Oct-91 32,232
9-Mar-92 33,507
13-May-92 33,486
1-Jan-94 35,951
1-Aug-74 3,226
1-Jan-75 4,176
1-Nov-74 4,177
1-Dec-75 4,176
</TABLE>
29
<PAGE> 31
<TABLE>
<CAPTION>
AIRCRAFT ENGINE SERIAL
REGION COUNTRY LESSEE TYPE CONFIGURATION NUMBER
- ---------------------------- ------------------------ ------------------------------- ----------- --------------- ------
<S> <C> <C> <C> <C> <C>
Canada Canadian Airlines(1) B737-200A JT8D-9A 21639
Canada Canadian Airlines(1) B737-200A JT8D-9A 21712
Canada Canadian Airlines(1) B737-200A JT8D-9A 22873
United States of America Aloha Airlines B737-300 CFM56-3B1 23499
United States of America Aloha Airlines B737-300 CFM56-3B1 23500
United States of America Burlington Air Express DC8-71F CFM56-2C1 45811
United States of America Burlington Air Express DC8-71F CFM56-2C1 45813
United States of America Burlington Air Express DC8-71F CFM56-2C1 45946
United States of America Burlington Air Express DC8-71F CFM56-2C1 45971
United States of America Burlington Air Express DC8-71F CFM56-2C1 45978
United States of America Burlington Air Express DC8-71F CFM56-2C1 45993
United States of America Burlington Air Express DC8-71F CFM56-2C1 45994
United States of America Burlington Air Express DC8-71F CFM56-2C1 45998
United States of America Burlington Air Express DC8-71F CFM56-2C1 46065
United States of America Emery Worldwide DC8-71F CFM56-2C1 45812
United States of America Emery Worldwide DC8-71F CFM56-2C1 45941
United States of America Emery Worldwide DC8-71F CFM56-2C1 45947
United States of America Emery Worldwide DC8-71F CFM56-2C1 45974
United States of America Emery Worldwide DC8-71F CFM56-2C1 45975
United States of America Emery Worldwide DC8-71F CFM56-2C1 45977
United States of America Emery Worldwide DC8-71F CFM56-2C1 45983
United States of America Emery Worldwide DC8-71F CFM56-2C1 45995
United States of America Emery Worldwide DC8-71F CFM56-2C1 46039
United States of America Frontier B737-300 CFM56-3B1 23177
United States of America Hawaiian Airlines DC9-51 JT8D-17 47742
United States of America Hawaiian Airlines DC9-51 JT8D-17 47784
United States of America Hawaiian Airlines DC9-51 JT8D-17 47796
United States of America Hawaiian Airlines DC9-51 JT8D-17 48122
United States of America Idefix ATR42-300 PW120 249
United States of America SAT DC8-73CF CFM56-2C1 46091
United States of America Tower Air B747-200BC JT9D-7Q 21730
United States of America TWA MD83 JT8D-219 49575
United States of America United Parcels Service Co DC8-71F CFM56-2C1 45973
United States of America US Air Express DHC8-100 PW121 258
Others Cyprus Fornax Aircraft Leasing B737-200A JT8D-17 21685
Lithuania Lithuanian Airlines B737-200A JT8D-15 22453
Ukraine Air Ukraine Int. B737-200A JT8D-17A 22802
Ukraine Air Ukraine Int. B737-300 CFM56-3C1 24907
Off-lease Off-lease DC10-30 CF6-50C2 46976
Off-lease DC10-30 CF6-50C2 46978
Off-lease DHC8-300A PW123 276
Off-lease -- LOI Bombardier(3) DHC8-300A PW123 266
Off-lease -- LOI Bombardier(3) DHC8-300A PW123 267
Off-lease -- LOI Rio Sul(3) B737-500 CFM56-3C1 25192
Off-lease -- lease DHC8-300 PW123 232
Bombardier(4)
Off-lease -- lease DHC8-300 PW123 244
Bombardier(4)
Off-lease -- lease CNAC(4) B737-500 CFM56-3C1 25191
Off-lease -- lease LAPA(4) B737-200C JT8D-17A 23065
Off-lease -- lease Translift(4) A300 B4-100 CF6-50C2 12
<CAPTION>
APPRAISED
DATE OF VALUE AT
MANUFACTURE/ OCTOBER 31, 1995
REGION CONVERSION (US$000'S)
- ---------------------------- ------------ ----------------
<S> <C> <C>
1-Nov-78 5,682
1-Feb-79 6,190
1-Jul-82 9,551
1-Jun-86 22,840
1-Jun-86 22,823
30-May-91 18,460
28-Apr-92 18,690
23-Apr-92 18,680
13-Feb-92 18,753
23-Apr-93 18,550
23-Jun-93 18,690
1-Sep-94 19,000
21-May-93 18,800
12-Jan-92 18,760
14-Jul-94 18,537
27-Aug-91 18,887
11-Mar-94 18,667
25-Jun-91 19,473
21-Jul-92 19,167
23-Nov-90 19,040
24-Jan-94 18,197
30-Dec-94 18,750
29-Oct-90 19,010
1-Apr-86 21,085
1-Jun-77 5,129
1-May-79 5,483
1-Apr-79 5,679
26-Jan-81 6,466
1-Jun-91 8,064
1-Dec-89 22,870
7-Jun-79 38,447
1-Oct-87 21,786
27-Feb-92 19,215
1-Jan-91 7,527
Others 1-Jan-79 6,374
1-Mar-81 7,288
1-Feb-83 8,113
1-Mar-91 26,307
Off-lease 14-Dec-78 22,670
29-Nov-78 22,747
13-May-91 9,637
20-Mar-91 9,583
4-Apr-91 9,617
14-Apr-92 24,051
20-Oct-90 8,973
1-Dec-90 9,017
10-Apr-92 23,998
15-Oct-83 9,316
20-May-75 9,548
---------
4,527,040
---------
</TABLE>
- ---------------
NOTE:
(1) Aircraft Lease Receivable Book Values are used for the Aircraft subject to
finance leases (11 in total) rather than the Initial Appraised Values of
these Aircraft.
(2) At March 31, 1996, the lease with respect to this Aircraft had been
terminated and an agreement in principle to re-deliver the Aircraft had
been reached. The Aircraft was subsequently re-delivered.
(3) "LOI" denotes Aircraft subject to non-binding Letter of Intent with a
particular lessee.
(4) These Aircraft were subject to lease contracts and were scheduled for
delivery to the relevant lessees after March 31, 1996.
30
<PAGE> 32
APPRAISALS
Aircraft Information Services, Inc., BK Associates, Inc. and Airclaims
Limited have provided appraisals (the "Appraisals") (without physical
inspection) of the value of each of the Aircraft at normal utilization rates in
an open, unrestricted and stable market as of October 31, 1995, adjusted to
account for the reported maintenance standard of the Aircraft. The Appraisals do
not reflect the value of the leases, Maintenance Reserves, Security Deposits or
other Related Collateral, if any. The Appraisals explain the methodology used to
determine the values for the Aircraft. Based on the Appraisals, the aggregate
Base Values calculated by each of the three Appraisers for the Aircraft are
$4,591 million in the case of BK Associates, Inc., $4,697 million in the case of
Aircraft Information Services, Inc. and $4,351 million in the case of Airclaims
Limited. The aggregate Initial Appraised Value of the Aircraft is $4,527
million, which is approximately $19 million lower than the average of the
aggregate Base Values calculated by the three Appraisers because Aircraft
subject to finance leases have been included in the computation of the Initial
Appraised Value of the Portfolio at GPA Group's net book value (which represents
the value of amounts payable by the finance lessees) rather than the Aircraft's
Base Value. The Initial Appraised Values for the Aircraft by type and class are
set out above. Airplanes Group believes that, due to current excess supply of
aircraft in the market, the value of the Aircraft in the current market (as
compared with the "stable market environment with a reasonable balance of supply
and demand" and the other factors assumed in the determination of Base Value) is
less than, and is likely to be substantially less than, the Initial Appraised
Value. Furthermore, neither the Initial Appraised Value nor the value of the
Aircraft in the current market should be relied upon as a measure of the
realizable value of the Aircraft. If it were necessary to dispose of Aircraft in
a distress situation, and particularly if a large number of Aircraft were
required to be sold, the proceeds from such a sale would be substantially less
than even the value in the current market. However, Airplanes Group does not
expect to have to sell Aircraft to provide for payment of principal and interest
on the Notes, and does not anticipate conducting any distress sales.
Nevertheless, there can be no assurance that Airplanes Group would not have to
sell one or more Aircraft in a distress sale situation at prices significantly
less than their Initial Appraised Value.
Rental rates and aircraft values depend on a number of factors that are not
within the control of Airplanes Group, including market and economic conditions
(including prevailing interest rates and the general availability of credit),
the availability and cost of competing new and used aircraft, including any
effects of the ability of manufacturers to build new aircraft at a lower cost or
with less lead time, the condition of the aircraft, the number of operators
using each type of aircraft and the supply of each type of aircraft, whether the
aircraft is subject to a lease and, if so, the identity and creditworthiness of
the lessee, the jurisdiction of registration and the terms of and payment
experience with respect to such lease and any regulatory and legal requirements
that must be satisfied before the aircraft can be sold. The rental rates and
values of the Aircraft may be adversely affected by changes in the competitive
and financial position of the relevant commercial aircraft manufacturer, by the
withdrawal of such manufacturer from that market or by unexpected manufacturing
defects that may surface.
The standards of maintenance observed by the lessees and the condition of
the Aircraft at the time of sale may also affect the rental rates and values of
the Aircraft. Under each existing Airplanes Group lease, it is the
responsibility of the lessee to maintain the Aircraft and to comply with all
governmental requirements applicable to such lessee or the Aircraft, including,
without limitation, operational, maintenance and registration requirements, and,
in most cases, manufacturer recommendations, although in certain cases the
relevant lessor has agreed to participate in the cost of certain required
modifications to the Aircraft.
For further information relating to the Appraisals, see Exhibits 99.1, 99.2
and 99.3 to this Report on Form 10-K (such exhibits containing copies of the
actual Appraisals).
THE LEASES
GENERAL
All leases are managed by the Servicer pursuant to the Servicing Agreement.
31
<PAGE> 33
There is a reasonable degree of standardization in Airplanes Group's
existing lease documentation although variations do exist as a result of lessee
negotiation. Under the majority of the existing leases, the lessee is
responsible for all operating expenses, including maintenance, fuel, crews,
airport and navigation charges, taxes, licenses, registration and insurance,
including public liability insurance as described below.
Each Airplanes Group existing lease requires the lessee to make periodic
Rental Payments during the lease term. The majority of existing leases have an
original term in excess of five years and certain existing leases include
options for the lessee or the lessor to extend the term of the lease with Rental
Payments either similar to the rent payable during the original term or at
future market rates. Substantially all existing Airplanes Group lessees are
required to make payments to the relevant lessor without set-off or
counterclaim, and most existing leases include an obligation of the relevant
lessee to gross-up payments under such lease where payments are subject to
withholding and other taxes.
Each Airplanes Group existing lease specifies certain provisions regarding
the rights and remedies of the lessor in the event of a default by the relevant
lessee in the performance of its financial or other obligations under such
lease. These remedies include the right to terminate the lease and/or to
repossess the Aircraft. Depending on the jurisdiction, the rights of the lessor
may be significantly impaired if there is an event of default due to the
relevant lessee's bankruptcy, as a result of, inter alia, extended mandatory
waiting periods between default and repossession, or reductions in the amount
of, or delays in the receipt of, payments under the lease.
MAINTENANCE
The leases contain detailed provisions specifying maintenance standards and
the required conditions of Aircraft upon redelivery and these conditions must
generally be met at the lessee's expense. During the term of each lease,
Airplanes Group requires the lessee to maintain the applicable Aircraft in
accordance with a maintenance program approved by the state of registration.
Certain of the leases require the lessee to pay Maintenance Reserves or to
provide Security Deposits, maintenance letters of credit or guarantees. With
respect to other leases, there is a specific redelivery condition whereby the
lessor relies on the credit of the lessee and the ability of the lessee to
comply with the maintenance requirements.
Certain leases provide for the Aircraft to be redelivered in a specified
condition upon expiration of the lease and stipulate the payments to be made by
the lessee to the lessor or, in certain cases, by the lessor to the lessee to
reflect the extent to which the actual redelivery condition of the Aircraft
falls below or exceeds the redelivery condition specified in the lease.
Heavy maintenance on significant components of an Aircraft, such as the
airframe and the engines, is generally required to be performed on a cycle of
several years and the cost of such maintenance may be material in relation to
the value of the Aircraft, with the overhaul of a single such component often
exceeding $1 million. Pursuant to the leases, if and when an Aircraft is
transferred from one lessee to another between maintenance overhauls, the
transferring lessee is generally required to pay for that portion of the
succeeding overhaul that can be attributed to its use of the Aircraft under its
lease.
INDEMNIFICATION AND INSURANCE
Under the terms of each lease, the lessees are required to carry the types
of insurance which are customary in the air transportation industry, including
comprehensive liability insurance and aircraft hull insurance. The relevant
lessor (and generally, if different, the owner) is named as an additional
insured on hull and liability policies carried by the lessees. The lessees are
responsible for insurance for any liabilities arising out of the operation of
the Aircraft, including any liabilities for death or injury to persons and
damage to property that ordinarily would attach to the operator of the Aircraft,
subject to customary exclusions. The coverage is usually worldwide, subject to
limitations consistent with individual operators. Under the Servicing Agreement,
the Servicer is required to monitor the lessee's performance of their respective
obligations with the insurance provisions of the applicable leases.
32
<PAGE> 34
In certain jurisdictions, liabilities for risks for which the lessees are
required to provide insurance may also attach to the lessors and Airplanes
Group, as direct and indirect owners of the Aircraft, irrespective of fault.
Under Airplanes Group's existing leases, the lessees are currently obliged to
indemnify against such claims certain named parties and, in most cases, their
respective successors, assigns, shareholders, employees, affiliates and agents.
Under most leases, each lessee is obliged to indemnify Airplanes Limited or
Airplanes Trust, as applicable, the lessor, the relevant Aircraft Owning Company
and the Indenture Trustee as named indemnitees under the applicable lease. Most
of the leases also require the lessee to maintain the liability insurance for a
specified period between one and three years after termination of such lease to
cover liabilities that may have arisen prior to terminations but that became
known thereafter.
With respect to certain leases, the lessor may arrange separate political
risk repossession insurance for its own benefit, covering (a) confiscation,
nationalization and requisition of title of the relevant Aircraft by the
government of the country of registry and denegation and deprivation of legal
title and rights, and (b) the failure of the authorities in that country to
allow de-registration and export of the Aircraft, subject to the conditions of
the policies. Only some of the relevant leases require the lessee to reimburse
the lessor for any political risk repossession insurance premiums.
THE LESSEES
As of March 31, 1996, there were 82 lessees in 40 countries throughout the
world.
Many of the lessees are in a relatively weak financial position because of
difficult economic conditions in the civil aviation industry as a whole and
because, in general, weakly capitalized airlines are more likely to seek
operating leases. In the financial years ending March 31, 1993, 1994 and 1995,
Airplanes Group made provisions in respect of bad and doubtful debts of 8.9%,
4.4% and 6.3% of leasing revenue, respectively (excluding maintenance revenues).
These amounted to $31 million, $20 million and $33 million, respectively. The
provisions required in 1994 were primarily in respect of two North American
carriers and one Commonwealth of Independent States ("CIS") carrier who were
experiencing acute financial difficulties, whereas the most significant
provisions made in 1995 were in respect of two significant Mexican carriers and
one Brazilian carrier who continued to experience financial difficulties. In
1996, as a result of the improved payment performance of certain lessees, and
also reflecting the conclusion of restructuring arrangements with certain other
lessees, the provision required in respect of bad and doubtful debts was reduced
such that there was an overall net credit of $28 million in respect of bad and
doubtful debts for the year. This was primarily a result of a reduction in the
provisions required in respect of two Brazilian lessees and one Mexican lessee.
There can be no assurance that the rate of lessee defaults will not continue to
be significant in the future.
As of March 28, 1996, amounts outstanding for a period greater than 30 days
in respect of Rental Payments, Maintenance Reserves and other miscellaneous
amounts due under the leases (excluding amounts in respect of default interest
and certain cash in transit) amounted to $15 million in respect of 21 lessees
who had a combined total of 65 Aircraft on lease as of such date. Certain of
these lessees, as well as certain other lessees, have consistently been
significantly in arrears in their respective Rental Payments and/or are known to
be currently experiencing financial difficulties. GPA, through the efforts of
GECAS, acting in its capacity as servicer, has in the past responded, and
Airplanes Group is now responding, to the needs of lessees in financial
difficulty including, in certain instances, restructuring the applicable leases.
At March 28, 1996, Airplanes Group, through the actions of GECAS, acting in its
capacity as Servicer, was in active restructuring discussions with three of the
above lessees who owed combined balances of approximately $11 million for
periods greater than 30 days at that date. In the past, restructurings have
typically involved delaying rental payments for periods of up to 12 months. In
certain circumstances, rescheduling arrangements for periods between 12 months
and 60 months have been agreed. In addition, certain restructurings have
involved voluntary terminations of leases prior to lease expiration, the
replacement of Aircraft with less expensive aircraft and the arrangement of
sub-leases from the lessee to another aircraft operator. In other cases, GPA
repossessed Aircraft from lessees who defaulted and re-leased the Aircraft to
other lessees. The premature termination of leases may, in certain
circumstances, lead Airplanes Group to incur substantial swap breakage costs
under its agreements with swap providers ("Swap Agreements"). As of March 28,
1996, in addition to the above amounts, three further lessees were being allowed
deferrals of rent, maintenance and miscellaneous
33
<PAGE> 35
payments totalling $25 million. One Brazilian lessee and one Mexican lessee
accounted for approximately $24 million of this amount.
The most significant deferrals, rescheduled amounts and difficult accounts,
as of March 31, 1996, are referred to below.
LATIN AMERICA
Lessees with respect to approximately 28% of the Aircraft by Initial
Appraised Value operate in Latin America, principally Mexico, Brazil, Colombia
and Chile. The prospects for lessee operations in these countries can be
expected to be in part dependent on the general level of political stability and
economic activity and policies in those countries. Although certain countries in
Latin America have experienced substantial improvement in their economies in the
past several years, which has resulted in increased political stability, overall
increased economic growth, lower inflation rates and revitalized economies,
there can be no assurance that such progress can be maintained or that further
progress will be made. Future developments in the political systems or economies
of these countries or the implementation of future governmental policies in
these countries may have a material effect on lessee operations in those
countries.
The economy of the Latin American region as a whole and particular Latin
American countries may be materially affected by developments in other countries
in Latin America. For example, in December 1994, a decrease in capital inflows
to Mexico, coupled with a large current account deficit, led to diminishing
foreign exchange reserves which ultimately forced Mexico to allow the peso to
float freely. The subsequent devaluation of the peso led to a currency crisis in
Mexico which dampened investor confidence and has resulted in lower levels of
foreign investment in Latin America in general.
MEXICO
The events that occurred during 1994 have produced a continuing economic
recession in Mexico characterized by a strong contraction in consumer demand for
many products and services, reduced availability of credit, high domestic
interest rates, high inflation, instability of foreign exchange policies, high
unemployment and a loss of international investor confidence in Mexico and
consequently the region as a whole.
Mexico continues to be a significant market for aircraft, and at March 31,
1996, 29 Aircraft representing approximately 9% of the Portfolio by Initial
Appraised Value, were being operated by four Mexican aircraft operators. The
Mexican air transport sector continues to experience substantial over-capacity
and yields remain depressed. The recent economic and currency instability in the
country has exacerbated the difficult market conditions. Over approximately the
past year, and through the efforts of GECAS, GPA adopted a strategy of reducing
exposure to the Mexican aviation sector. In certain cases, this strategy has
involved use of the legal and regulatory process in Mexico and elsewhere.
GPA, acting through GECAS, has in the past, engaged in detailed
restructuring negotiations regarding Aircraft with the four Mexican lessees.
Restructuring negotiations with certain lessees have led to a combination of
significant deferrals of, or reductions in, Rental Payments, return of certain
Aircraft, variations in the lease terms and certain other revisions to the
existing contractual arrangements. There can be no assurance that such lessees
will comply with the terms of any such restructuring arrangement. Restructuring
negotiations with one of Airplanes Group's Mexican lessees are continuing, but
there can be no assurance that they will be successful. In the case of another
operator, the leases on two Aircraft were terminated and while both Aircraft
were ultimately repossessed, considerable delays were experienced in enforcing
legal rights to repossess these Aircraft.
As of March 31, 1996, provision for the excess of Rental Payments arrears
over security held at such date had been made. However, there can be no
assurance that further substantial costs and delays in recovering Aircraft will
not be experienced, particularly if Airplanes Group is ultimately required to
repossess Aircraft from any Mexican lessees.
34
<PAGE> 36
BRAZIL
At March 31, 1996, 12 Aircraft (or approximately 8% of Airplanes Group's
Portfolio by Initial Appraised Value) were leased by Brazilian lessees. In the
early 1990s, the Brazilian market experienced overcapacity. In 1994, GPA entered
into a rescheduling agreement with a Brazilian lessee to reschedule the
repayment of $14 million in arrears over a 48 month period. Airplanes Group
assumed part of GPA's rights and obligations under such agreement as part of the
Acquisition. As of March 31, 1996, the remaining amounts due under this
rescheduling agreement relating to the Aircraft amounted to $12 million.
NORTH AMERICA
North America is an important market for Airplanes Group's Aircraft with
approximately 17% of the Portfolio by Initial Appraised Value being operated in
this region. At March 31, 1996, Airplanes Group had 31 Aircraft (or
approximately 12% of the Portfolio by Initial Appraised Value) on lease to 11
U.S.-based aircraft operators and 13 Aircraft (or approximately 5% of the
Portfolio by Initial Appraised Value) on lease to one Canadian aircraft
operator. For the past several years, the North American air transport sector
has been undergoing a sustained period of over-capacity and consolidation.
During that period, certain North American aircraft operators have been
persistently unable to generate sufficient earnings to cover their operating
costs. Over the last several years, nearly half of the major North American
passenger airlines have filed Chapter 11 bankruptcy proceedings and several
major U.S. airlines have ceased operations altogether. While air traffic in the
region has recently increased, increasing competition from low-cost, low-fare
air carriers, in conjunction with an inability to reduce labor and other costs
to competitive levels, continue to put pressure on North American air carrier
margins. Several North American carriers who are lessees have recently emerged
from bankruptcy and there can be no assurance that such lessees will not
re-enter, or that other lessees in this region will not enter into, plans of
reorganization or seek the protection of bankruptcy, insolvency or other similar
proceedings. Such proceedings may adversely affect the ability of such lessees
to make timely and full Rental Payments under their relevant leases.
ASIA AND FAR EAST
As of March 28, 1996, 25 Aircraft representing approximately 15% of the
Portfolio by Initial Appraised Value were on lease to 13 aircraft operators in
this region.
At that date, eight Aircraft (or approximately 8% of the Portfolio by
Initial Appraised Value) were on lease to three aircraft operators in Indonesia.
At March 31, 1996, the Servicer was involved in comprehensive restructuring
negotiations with one of these lessees who owed approximately $6.4 million.
There can be no assurance as to the outcome of these negotiations or that such
lessee will ultimately repay all amounts owed to the Airplanes Group.
Furthermore, the Aircraft leased by this airline are F100s and Airplanes Group's
ability to release any aircraft, if re-delivered, at attractive rental rates may
be adversely affected by the current uncertainty surrounding the future of
Fokker N.V. in the commercial aircraft manufacturing industry following its
recent bankruptcy filing.
ADDITIONAL CONSIDERATIONS
In addition, certain lessees have experienced periodic difficulties in
meeting their maintenance obligations under the related leases. Such
difficulties have arisen from, inter alia, the failure of the applicable lessee
to have in place a sufficiently well established maintenance program, adverse
climate and other environmental conditions in the locations where such related
Aircraft are operated or financial and labor difficulties experienced by the
relevant lessee. A continuous failure by a lessee to meet its maintenance
obligations under the relevant lease: (a) could result in a grounding of the
Aircraft; (b) in the event of a re-lease of such Aircraft would likely cause
Airplanes Group to incur costs, which may be substantial, in restoring such
Aircraft to an acceptable maintenance condition; and (c) would be likely to
adversely affect the value of the Aircraft.
35
<PAGE> 37
DOWNTIME
The continuing difficult environment in the civil aviation industry,
exacerbated frequently by specific difficulties in the aviation industry or
economies of specific countries or regions such as those in Mexico, has resulted
in prior years in a number of Aircraft being off-lease and also in a relatively
high amount of receivables balances being outstanding. At March 31, 1996, 11
Aircraft were off-lease. Of these Aircraft, three Aircraft, reserved under
letter of intent for lease, were the subject of contractual negotiations and
five Aircraft were subject to lease contracts and were scheduled for delivery to
the relevant lessees after March 31, 1996. The remaining three Aircraft were
being actively marketed.
ACQUIRED RECEIVABLES
As part of the Acquisition, Airplanes Group acquired certain receivables
from GPA. After giving effect to certain purchase price adjustments which were
part of the terms of the Acquisition Airplanes Group will have paid cash to GPA
in an amount equal to approximately $29 million, which is the amount of the
receivables covered by security consisting of letters of credit, guarantees and
other collateral including aircraft, and Class E Notes in an aggregate principal
amount of approximately $13 million in consideration for such receivables not
covered by security. No independent third party appraised the value of the
receivables or the Related Collateral transferred to Airplanes Group.
PURCHASE OPTIONS
At March 31, 1996, lessees with respect to 63 Aircraft had the benefit of
options to purchase Aircraft at various dates between 1996 and 2002 at prices
generally at or above their estimated appraised value at the exercise date.
Airplanes Group acquired the benefit and assumed the obligations of GPA to sell
Aircraft subject to such options. Eight lessees with respect to 24 Aircraft,
representing approximately 9% of the Portfolio by Initial Appraised Value, have
options to purchase Aircraft at prices below either estimated appraised value or
Airplanes Group's estimated net book value at the option exercise date. (For the
purposes of this analysis, the estimated appraised value has been arrived at by
deducting the estimated depreciation (as calculated by Airplanes Group's
existing depreciation policy) from October 31, 1995 to the option exercise date
from the Initial Appraised Value of each Aircraft).
Four lessees with respect to 11 Aircraft, representing approximately 1.5%
of the Portfolio, have rights to purchase Aircraft at prices below Airplanes
Group's estimated net book value at the option exercise date.
ITEM 2. PROPERTIES
Airplanes Group has no ownership or leasehold interest in any real
property.
Airplanes Limited's registered and principal office is located at 22
Grenville Street, St. Helier, Jersey, JE4 8PX, Channel Islands and its telephone
number is 011-44-1534-609000.
Airplanes Trust's principal office is located at 1100 North Market Street,
Rodney Square North, Wilmington, Delaware 19890-0001, care of Wilmington Trust
Company and its telephone number is 1-302-651-1000.
For a description of Airplanes Group's interest in other property, see
"Item 1. Business -- The Aircraft, Related Leases and Collateral".
ITEM 3. LEGAL PROCEEDINGS
AeroUSA and AeroUSA 3 have in the past filed, and will continue to file,
U.S. federal consolidated tax returns and certain state and local tax returns
with GPA, Inc. and its subsidiaries. Currently, there are ongoing tax audits by
certain state and local tax authorities with respect to taxes previously
reported by GPA, Inc. and its subsidiaries. Airplanes Trust believes that none
of these audits will have a material adverse impact upon the financial position
or liquidity of AeroUSA.
36
<PAGE> 38
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The ordinary shares of Airplanes Limited are not listed on any national
exchange or traded in any established market. The beneficial ownership of the
Airplanes Limited ordinary shares as of the date of this Report on Form 10-K is
presented below.
<TABLE>
<CAPTION>
TITLE OF CLASS NAME AND ADDRESS NUMBER OF SHARES PERCENT OF CLASS
- ----------------------- --------------------------------------- ---------------- ----------------
<S> <C> <C> <C>
Common Stock........... Mourant & Co. Trustees Limited, 10 Shares 33 1/3%
as trustee of Holdings Trust I
22 Grenville Street
St. Helier
Jersey, Channel Islands
Common Stock........... Mourant & Co. Trustees Limited, 10 Shares 33 1/3%
as trustee of Holdings Trust II
22 Grenville Street
St. Helier
Jersey, Channel Islands
Common Stock........... Mourant & Co. Trustees Limited, 10 Shares 33 1/3%
as trustee of Holdings Trust III
22 Grenville Street
St. Helier
Jersey, Channel Islands
</TABLE>
Pursuant to the Shareholders Agreement between Mourant & Co. Trustees
Limited, as trustee of the Charitable Trusts (the "Charitable Trust Trustees"),
Juris Limited and Lively Limited and the Airplanes Limited Indenture Trustee
(the "Shareholders Agreement"), the Charitable Trust Trustees have agreed that,
as long as the Airplanes Limited Notes are outstanding, they will not, without
the prior written approval of the Airplanes Limited Indenture Trustee and all
the Directors of Airplanes Limited, transfer any part of the capital stock or
any interest therein unless the transferee (a) is a trustee of a trust formed
for charitable purposes substantially identical to those for which the
Charitable Trusts are established and (b) enters into an agreement substantially
identical to the Shareholders Agreement in favor of the Airplanes Limited
Indenture Trustee. Pursuant to the instruments of trust establishing Holdings
Trust I, Holdings Trust II and Holdings Trust III, a certificate given by the
Directors of Airplanes Limited to the Charitable Trust Trustees that their
voting of the capital stock in a specified manner is in the best commercial
interests of Airplanes Limited shall, for the purposes of the exercise of the
Charitable Trust Trustees' discretion, be conclusive that any such action is in
the best commercial interests of Airplanes Limited.
For additional information regarding the capital stock of Airplanes Limited
and for a discussion relating to the payment of dividends, see "Item 1. Business
- -- Airplanes Limited".
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<PAGE> 39
ITEM 6. SELECTED COMBINED FINANCIAL DATA
The selected combined financial data set out below for each of the years in
the four-year period ended March 31, 1996 have been extracted or derived from
the audited financial statements of Airplanes Limited and Airplanes Trust, which
have been audited by KPMG -- Dublin, Ireland, independent chartered accountants.
These financial statements have been prepared in accordance with generally
accepted accounting principles in the United States ("U.S. GAAP"). The audited
financial statements of Airplanes Limited and Airplanes Trust as at March 31,
1995 and 1996, and for each of the years in the three year period ended March
31, 1996 are included elsewhere in this Report on Form 10-K (the "Financial
Statements").
The selected combined financial data set forth below are presented on the
basis that the Aircraft have been operated separately from GPA within the
Airplanes Group for all periods presented or from the date of acquisition by
GPA, as appropriate. It should be noted, however, that Airplanes Group has
conducted independent business operations only since March 28, 1996.
Accordingly, adjustments and allocations have been made of, among other items,
historical indebtedness, net interest expense, selling, general and
administrative expenses and tax amounts, as further described in Note 2 to the
Financial Statements and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations". While Airplanes Group believes
that the selected combined financial data set forth below are an appropriate
presentation, such data are not necessarily indicative of the financial results
that might have occurred had Airplanes Group been an independently financed and
managed group during the periods presented. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations".
The selected combined financial data set forth below combine the operating
results, assets, liabilities and cash flows of each of Airplanes Limited and
Airplanes Trust. The separate balance sheets, statements of operations,
statements of changes in shareholders' deficit/net liabilities and statements of
cash flows of Airplanes Limited and Airplanes Trust are contained in the
Financial Statements included in Item 8 of this Report on Form 10-K, and it
should be noted that the Notes and the Guarantees comprise obligations of two
different legal entities owning different assets. The Directors of Airplanes
Limited and the Controlling Trustees of Airplanes Trust believe that a combined
presentation is most appropriate because, inter alia, the assets of Airplanes
Limited and Airplanes Trust are to be managed on the basis of one combined
aircraft fleet, and each of Airplanes Limited and Airplanes Trust has fully and
unconditionally guaranteed the performance of the other under their respective
Notes. The Guarantees have been structured to ensure that no payments are made
on a junior class of Notes of Airplanes Trust or Airplanes Limited, as the case
may be, before any amounts due and payable on a more senior class of Notes of
Airplanes Limited or Airplanes Trust, respectively, are paid pursuant to the
Guarantees.
The selected combined financial data should be read in conjunction with,
and are qualified in their entirety by reference to, the Financial Statements
included in this Report on Form 10-K.
As GPA will continue to hold substantially all of the Class E Notes through
which it will have access to certain of the benefits inherent in the Aircraft,
aircraft assets are stated on the predecessor cost basis (i.e., reflecting GPA's
historical cost less accumulated depreciation). The difference between such
predecessor cost basis and the amount of the Airplanes Group's indebtedness is a
significant component of Total Shareholders' Deficit in the Combined Balance
Sheet Data.
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<PAGE> 40
COMBINED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,(1)
-------------------------------
1993 1994 1995 1996
---- ---- ---- ----
$MILLIONS
<S> <C> <C> <C> <C>
Revenues(2)
Aircraft leasing.......................................... 413 526 608 616
Expenses
Depreciation and amortization............................. (230) (185) (208) (207)
Net interest expense(3)................................... (203) (252) (348) (368)
Provision for maintenance................................. (83) (71) (88) (97)
Bad and doubtful debts.................................... (31) (20) (33) 28
Provision for loss making leases(4) and downtime, net..... (33) (27) (5) 15
Other lease costs......................................... (28) (19) (17) (21)
Selling, general and administrative expenses.............. (22) (26) (34) (35)
Income tax benefit.......................................... 32 13 16 13
---- ---- ---- ----
Net loss.................................................... (185) (61) (109) (56)
==== ==== ==== ====
</TABLE>
COMBINED BALANCE SHEET DATA
<TABLE>
<CAPTION>
MARCH 31,(1)
----------------------------
1994 1995 1996
------ ------ ------
$MILLIONS
<S> <C> <C> <C>
Aircraft, net, and net investment in capital and sales type
leases....................................................... 4,332 4,181 3,965
------ ------ ------
Total assets................................................... 4,561 4,386 4,236
====== ====== ======
Indebtedness(3).............................................. (4,583) (4,602) (4,634)
Provision for maintenance.................................... (217) (268) (311)
Total liabilities.............................................. (5,169) (5,228) (5,252)
====== ====== ======
Net liabilities................................................ (608) (842) (1,016)
</TABLE>
COMBINED STATEMENT OF CASH FLOWS AND OTHER DATA
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,(1)
-----------------------------------
1993 1994 1995 1996
------ ---- ---- ----
$MILLIONS
<S> <C> <C> <C> <C>
Cash paid in respect of interest(3)..................... 178 222 303 323
EBITDA(5)............................................... 222 369 440 514
Net cash provided by operating activities (after payment
of interest).......................................... 164 189 177 216
Net cash (used in)/provided by investing activities..... (1,282) (514) (23) 13
Net cash (used in)/provided by financing activities..... 1,118 325 (154) (144)
------ ---- ---- ----
Net movements in cash................................... NIL NIL NIL 85
====== ==== ==== ====
</TABLE>
SELECTED RATIOS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,(1)
-----------------------------------
1993 1994 1995 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Deficiency of Combined Earnings to Combined Fixed
Charges(6)($millions)................................... (217) (74) (125) (69)
EBITDA(5) to cash paid in respect of interest(3).......... 1.25 1.66 1.45 1.59
Total indebtedness, less the Class E Note Portion, to
EBITDA(3)(5)(7)......................................... 15.10 10.51 8.85 7.87
</TABLE>
- ---------------
(1) The financial statements of Airplanes Group are stated in U.S. dollars which
is the principal operating currency of Airplanes Group and the aviation
industry.
39
<PAGE> 41
(2) Revenues include Maintenance Reserve receipts. See Note 16 to the Financial
Statements.
(3) It has been assumed that until March 28, 1996, Airplanes Group was financed
with indebtedness to GPA, as and when Airplanes Group acquired the
Aircraft, in an amount equivalent to the aggregate amount of all classes of
Notes originally expected to be issued by Airplanes Group of $4,602
million. No repayments of principal are assumed. Net interest expense is
calculated based on the assumption that all of the debt from GPA carried
interest at assumed historic rates of 6.22%, 6.27%, 7.83% and 8.25% in the
years ended March 31, 1993, 1994, 1995 and the period ended March 28, 1996,
respectively (the "Assumed Rates"). In the period from March 28, 1996 to
March 31, 1996, interest expense has been based on the terms of the Notes
issued. Interest on the Class E Notes will accrue at a significantly higher
rate than the Assumed Rates although the cash outflow associated with the
Class E Notes is initially expected to be substantially lower than the
Assumed Rates. It has been further assumed for purposes of the Statements
of Cash Flows that in each period Airplanes Group paid cash interest of
only 1% on the portion of indebtedness to GPA which was originally assumed
to be refinanced by the Class E Notes (assumed for purposes of the selected
combined financial data to represent approximately 15% of the indebtedness
to GPA until March 28, 1996). Net interest expense is stated after
crediting interest income of $6 million in 1993 and 1994, $9 million in
1995 and $8 million in 1996. It has been assumed that the indebtedness
assumed owed to GPA at March 28, 1996 was repaid from the proceeds of the
Notes issued. In addition, $50 million of Class A Notes were issued by
Airplanes Group, which Notes are not included in the assumed indebtedness
in the Financial Statements for any date or period prior to March 28, 1996
(but are reflected in Airplanes Group's actual indebtedness reported at
March 31, 1996). Assuming Airplanes Group was also financed with this
additional indebtedness and cash deposits increased by an equivalent amount
in all periods presented above, the net interest expense for each of the
years ended March 31, 1993, 1994, 1995 and 1996 would have been greater by
$0.9 million, $0.9 million, $0.6 million and $1.3 million, respectively,
and cash paid in respect of interest for each of these years would have
been greater by $3 million, $3 million, $4 million and $3 million,
respectively. Indebtedness at March 31, 1996 represents the aggregate of
the Class A-E Notes in issue, net of approximately $5 million of discounts
on issue and net of approximately $13 million of Class E Notes expected to
be cancelled after giving effect to certain purchase price adjustments
pursuant to the terms of the Acquisition.
(4) A lease agreement is deemed to be "loss making" in circumstances where the
contracted rental payments are insufficient to cover the depreciation and
allocated interest attributable to the aircraft plus certain direct costs,
such as legal fees and registration costs, attributable to the lease over
its term.
(5) EBITDA represents operating results before provision for income taxes and
before interest expense and depreciation and amortization. EBITDA is not
presented as an alternative measure of operating income or cash flow
provided by operating activities but rather to provide additional
information related to Airplanes Group's ability to service the Notes.
Airplanes Group believes that EBITDA provides significant information with
respect to Airplanes Group's capacity to make payments on the Notes because
it indicates the amount of non-cash charges against earnings, including
depreciation and amortization expenses, which would have been available to
pay Airplanes Group's obligations during the years indicated, which
information is not indicated by the "Deficiency of earnings to fixed
charges" ratio. Investors should consider carefully, however, that there
are significant uses to which Airplanes Group's cash flows will need to be
applied before any cash will be available to make payments on the Notes,
including payment of Expenses (including payments of taxes, certain
required financing costs and expenses, such as service provider fees,
trustee fees and other charges and certain investing costs), which rank
prior to the Notes. The amount of Expenses which will be incurred by
Airplanes Group cannot be estimated with certainty and there can be no
assurance that Airplanes Group will not incur Expenses to such an extent as
to jeopardize its ability to make future payments on the Notes.
(6) Represents the amount by which Airplanes Group's loss before income taxes
and fixed charges exceeded fixed charges. Fixed charges consists of
interest expense. Because Airplanes Group's fixed charges exceeded earnings
for all periods presented, a ratio of earnings to fixed charges is not
presented.
(7) The Class E Note Portion in the period until March 28, 1996 equals that
amount of Airplanes Group's total indebtedness to GPA which was expected to
be refinanced by the Class E Notes (assumed for purposes of the Financial
Statements to represent approximately 15% of the indebtedness to GPA). For
the period from March 28, 1996, the Class E Note Portion equals that amount
of the total indebtedness
40
<PAGE> 42
which is actually represented by the Class E Notes (equal to $591 million
at March 31, 1996 after giving effect to certain purchase price
adjustments).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
On March 28, 1996, the Trust issued $4,048 million of Certificates in four
classes -- Class A, Class B, Class C and Class D. The Class A Certificates were
further subdivided into five separate subclasses. Each class and subclass of the
Certificates represents a fractional undivided beneficial interest in two
corresponding classes or subclasses of Notes issued by Airplanes Limited and
Airplanes Trust. Airplanes Limited and Airplanes Trust have each fully and
unconditionally guaranteed the other's obligations under each class or subclass
of Notes. Also on March 28, 1996, Airplanes Group received the net proceeds from
the Underwritten Offering in exchange for the Notes and used such net proceeds,
together with approximately $604 million in aggregate principal amount of the
Class E Notes, to acquire certain subsidiaries of GPA Group. Of the $604 million
of Class E Notes issued, approximately $13 million are expected to be cancelled
pursuant to the terms of the Acquisition relating to certain purchase price
adjustments. The acquired subsidiaries owned 229 Aircraft and related leases to
approximately 83 aircraft operators in approximately 40 different countries as
at December 31, 1995.
The following discussion and analysis of Airplanes Group's financial
condition and results of operations is presented as though the Aircraft have
been operated and financed separately from GPA within the Airplanes Group in all
periods under review or from their date of acquisition by GPA, as appropriate.
It should be noted, however, that Airplanes Group only acquired the aircraft on
March 28, 1996 and, therefore, has not conducted any business operations in the
periods under review prior to March 28, 1996. Accordingly, adjustments and
allocations have been made with respect to, inter alia, historical indebtedness,
net interest expense, selling, general and administrative expenses and tax
amounts as further described below and in Note 2 to the Financial Statements for
periods prior to March 28, 1996. While Airplanes Group believes that the
following discussion and analysis is an appropriate presentation, it is not
necessarily indicative of the financial results that might have occurred had
Airplanes Group been an independently financed and managed group during the
relevant periods.
The following discussion and analysis is based primarily on the combined
operating results of Airplanes Limited and Airplanes Trust and not on their
results reported as individual entities. It should be noted, however, that the
Notes and the Guarantees comprise obligations of two different legal entities
owning different assets. The Directors and the Controlling Trustees believe that
a combined discussion is the most appropriate basis of presentation because,
inter alia, Airplanes Limited and Airplanes Trust are not intended to be
regarded as separate businesses but rather on the basis of one combined aircraft
fleet and each of Airplanes Limited and Airplanes Trust has fully and
unconditionally guaranteed the performance of the other under their respective
Notes. The Guarantees have been structured to ensure that no payments are made
on a junior class of Notes of Airplanes Trust or Airplanes Limited, as the case
may be, before any amounts due and payable on a more senior class of Notes of
Airplanes Limited or Airplanes Trust, respectively, are paid pursuant to the
Guarantees.
GENERAL
Substantially all of Airplanes Group's future business is expected to
consist of aircraft operating lease activities. Airplanes Group may also engage
in aircraft sales subject to certain limitations and guidelines. Airplanes
Group's revenues and operating cash flows are determined by a number of
significant factors including (i) trading conditions in the civil aviation
industry and, in particular, the market for aircraft on operating leases, (ii)
the mix, relative age and popularity of the various aircraft types in the
Portfolio and (iii) Airplanes Group's financial resources and liquidity position
relative to its competitors who may possess substantially greater financial
resources.
41
<PAGE> 43
The effect of changes in currency rates on Airplanes Group is minimal
because Airplanes Group conducts its business almost entirely in U.S. dollars.
To the extent lessees begin to make Rental Payments in currencies other than the
U.S. dollar, Airplanes Group may, subject to guidelines and limitations set
forth by the Directors of Airplanes Limited and the Controlling Trustees of
Airplanes Trust, engage in certain currency risk hedging activities.
RESULTS OF OPERATIONS -- YEAR ENDED MARCH 31, 1996 COMPARED WITH YEAR ENDED
MARCH 31, 1995
Certain of Airplanes Group's lessees continued to experience difficult
trading conditions and these had an adverse effect on Airplanes Group's
operations for the years ending March 31, 1995 and 1996. There were, however,
some signs of improvement in the industry and certain other significant lessees
recorded generally improved trading performances resulting in the reversal in
1996 of some provisions previously made in respect of bad and doubtful debts.
REVENUES
Revenues for the year ended March 31, 1996 remained relatively unchanged at
$616 million (Airplanes Limited: $556 million; Airplanes Trust: $60 million)
compared with $608 million (Airplanes Limited: $547 million; Airplanes Trust:
$61 million) for the year ended March 31, 1995, reflecting the relatively
similar portfolio in the periods. At March 31, 1996, Airplanes Group had 218
Aircraft on lease (Airplanes Limited: 197 Aircraft; Airplanes Trust: 21
Aircraft) compared with 221 Aircraft on lease at March 31, 1995 (Airplanes
Limited: 199 Aircraft; Airplanes Trust: 22 Aircraft). Maintenance Reserve
receipts, which Airplanes Group receives from certain of its lessees to provide
against the future cost of maintaining leased Aircraft, are included in
revenues.
DEPRECIATION AND AMORTIZATION
The charge for depreciation and amortization in the year ended March 31,
1996 amounted to $207 million (Airplanes Limited: $183 million; Airplanes Trust:
$24 million) compared with $208 million (Airplanes Limited: $183 million;
Airplanes Trust: $25 million) for the year ended March 31, 1995. The marginally
reduced depreciation in 1996 reflects certain additional valuation provisions
made in 1995, partly offset by depreciation costs for the full twelve month
period to March 31, 1996 in respect of Aircraft which were acquired by Airplanes
Group in 1995 (and not therefore reflected in results for the entire year ended
March 31, 1995).
NET INTEREST EXPENSE
Net interest expense has been determined on the basis set out in Note 2 to
the Financial Statements. This essentially assumes that until March 28, 1996,
Airplanes Group's debt was assumed to be owed to GPA and was approximately equal
to the appraised value of the Aircraft at October 31, 1995 plus the value of
certain receivables acquired from GPA by Airplanes Group. Debt increased to
match purchases of Aircraft by Airplanes Group during any period. No repayment
of principal was assumed but any excess cash generated in Airplanes Group's
business while part of GPA was deemed to be distributed back to GPA. At March
28, 1996, the actual aggregate amount of all classes of Notes issued was $4,652
million. Of the $604 million Class E Notes issued, approximately $13 million is
expected to be cancelled under the terms of the transaction relating to certain
purchase price adjustments. It has been assumed that the indebtedness assumed
owed to GPA at March 28, 1996 (as explained above) of $4,602 million was repaid
from the proceeds of the Notes issued. The interest charge has been calculated
until March 28, 1996 based on the assumption that all of the debt bears interest
at assumed historic rates (based on GPA's assumed average cost of debt) of 7.83%
and 8.25% in the years ended March 31, 1995 and 1996, respectively. In the
period from March 28, 1996 to March 31, 1996, interest expense has been based on
the terms of the Notes issued.
On the basis assumed, net interest expense amounted to $368 million in the
year ended March 31, 1996 (Airplanes Limited: $335 million; Airplanes Trust: $33
million) compared with $348 million for the same period ending March 31, 1995
(Airplanes Limited: $317 million; Airplanes Trust $31 million). The increase
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<PAGE> 44
in 1996 was primarily attributable to the increase in the assumed rates. The
difference in Airplanes Group's net interest expense and cash paid in respect of
interest is substantially accounted for by the assumption that Airplanes Group
paid cash interest of only 1% on the portion of indebtedness to GPA which was
originally assumed for the purposes of the Financial Statements to be refinanced
by the Class E Notes (originally assumed to represent approximately 15% of total
indebtedness to GPA in each period under review until March 28, 1996).
Following the closing of the Underwritten Offering, Airplanes Group's debt
consisted of the Class A-E Notes in the aggregate principal amount of
approximately $4,634 million (net of discounts arising on the issue of the notes
of $5 million (Airplanes Limited: $4 million; Airplanes Trust: $1 million) and
net of $13 million (Airplanes Limited: $12 million; Airplanes Trust: $1 million)
of Class E Notes expected to be cancelled, as referred to above). This actual
outstanding indebtedness is reflected in Airplanes Group's reported debt at
March 31, 1996 and in its interest charge for the period from March 28, 1996 to
March 31, 1996. To the extent that the weighted average interest cost on the
Class A-E Notes would have been higher or lower than the interest cost presented
in the Financial Statements in the periods under review had the Class A-E Notes
been in issue during the period, then Airplanes Group's actual interest charge
and cash paid in respect of interest would have been higher or lower,
respectively, than that represented in the Financial Statements. It should be
borne in mind, however, that the Class E Notes will accrue interest at a
significantly higher rate than the assumed rates although the cash outflow
associated with that debt is initially expected to be substantially lower than
the assumed rates. It should also be borne in mind that the aggregate principal
amount of the Class E Notes issued in connection with the Underwritten Offering
represents approximately 13% of the total indebtedness of Airplanes Group (and
not the 15% assumed in the Financial Statements) for all periods prior to March
28, 1996 and, as a result, actual cash paid in respect of interest would have
been higher than that represented in Airplanes Group's Financial Statements. See
Note 1 to the Financial Statements.
BAD DEBT, DOWNTIME AND LOSS-MAKING LEASE PROVISIONS
A substantial part of the balance of Airplanes Group's costs consist of
allowances for bad and doubtful debts and net provisions for downtime and "loss
making" leases. It is Airplanes Group's practice to provide specifically for any
amounts due but unpaid by lessees based primarily on an assessment of the amount
due in excess of security held. Airplanes Group provides for downtime costs
based on an estimated re-lease date of the particular Aircraft off-lease.
Downtime costs include depreciation, allocated interest (determined as set forth
below in the context of provisions for "loss-making" leases) and any other
directly attributable costs for the specific Aircraft for the estimated
off-lease period. A lease agreement is deemed to be "loss making" in
circumstances where the contracted rental payments are insufficient to cover the
depreciation and allocated interest attributable to the aircraft plus certain
direct costs, such as legal fees and registration costs, attributable to the
lease over its term. For these purposes, interest is allocated to individual
Aircraft based on the assumption that such Aircraft were financed with Notes, or
in prior periods with indebtedness from GPA equivalent to the appraised value of
such Aircraft at October 31, 1995. To the extent that the weighted average
interest cost on the Class A-E Notes would have been higher or lower than the
interest cost presented in the Financial Statements in the periods under review,
then Airplanes Group's actual provisions in respect of downtime and loss making
leases would have been higher or lower, respectively, than that represented in
the Financial Statements.
While certain of Airplanes Group's lessees continued to experience
financial difficulties in the year ended March 31, 1996, resulting in the
requirement for additional provisions in respect of bad and doubtful debts in
respect of these lessees, the credit exposure with regard to certain other major
carriers improved in the period reflecting a somewhat improved trading
environment in certain regions. Overall, as a result of the improved payment
performance of certain lessees and also reflecting the conclusion of
restructuring arrangements with certain other lessees, there was a net credit in
respect of bad and doubtful debts of $28 million (Airplanes Limited: $27
million; Airplanes Trust: $1 million) in the year ended March 31, 1996 primarily
as a result of a reduction in the significant provisions required in respect of
two Brazilian lessees and one Mexican lessee. This
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<PAGE> 45
is compared with a net charge in respect of bad and doubtful debts for the year
ended March 31, 1995 of $33 million (Airplanes Limited: $34 million; Airplanes
Trust: a credit of $1 million).
Other lease costs in the year ended March 31, 1996 amounted to $21 million
(Airplanes Limited: $20 million; Airplanes Trust: $1 million) compared with $17
million in 1995 (Airplanes Limited: $16 million; Airplanes Trust: $1 million).
This increase is substantially attributable to increased maintenance related
costs arising from default by certain lessees during 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The most significant element of selling, general and administrative
expenses is the aircraft management fees paid to GECAS. For purposes of the
Financial Statements, substantially all of these amounts represent asset based
fees calculated as an annual percentage of agreed values of Aircraft under
management. The balance of Airplanes Group's selling, general and administrative
expenses has been based on GPA's historic overhead (but excluded any of GPA's
restructuring or litigation costs) and apportioned between GPA and Airplanes
Group in the same proportion that lease rental revenues generated by the
Aircraft in the period under review bears to lease rental revenues generated by
GPA's aircraft that were not sold to Airplanes Group. On this basis, selling,
general and administrative expenses of $35 million in 1996 (Airplanes Limited:
$32 million; Airplanes Trust: $3 million) include $22 million (Airplanes Group:
$20 million; Airplanes Trust: $2 million) relating to GECAS management fees.
This is a similar charge to that incurred in the year ended March 31, 1996.
Going forward, asset based management fees will be paid by Airplanes Group
to GECAS pursuant to Airplanes Group's Servicing Agreement with GECAS. Assuming
no sales of Aircraft by Airplanes Group and without giving effect to any
inflation adjustments, Airplanes Group's annual asset based servicing fees are
expected to be equal to approximately $22 million per annum. Under the Servicing
Agreement, GECAS will also be entitled to reimbursement for expenses incurred in
connection with the performance of its services and to certain incentive fees
that are subject to an annual minimum amount of $1.5 million. A further
significant and recurring expenditure of Airplanes Group going forward will be
administrative agency and cash management fees payable to GPA which will
initially equal $9 million in aggregate.
OPERATING LOSS
The operating loss for the year ended March 31, 1996 was $69 million
(Airplanes Limited: $48 million; Airplanes Trust: $21 million) compared with an
operating loss of $125 million for the year ended March 31, 1995 (Airplanes
Limited: $112 million; Airplanes Trust: $13 million). Airplanes Limited and
Airplanes Trust expect to continue to report substantial losses in the future.
TAXES
Tax provisions and deferred tax assets and liabilities have been calculated
as if Airplanes Limited and Airplanes Trust were separate taxable entities from
GPA. There was a tax benefit of $13 million in 1996 (Airplanes Limited: $5
million; Airplanes Trust: $8 million) compared with a tax benefit of $16 million
in 1995 (Airplanes Limited: $11 million; Airplanes Trust: $5 million),
reflecting the lower operating losses in 1996.
NET LOSS
The net loss for 1996 after taxation was $56 million (Airplanes Limited:
$43 million; Airplanes Trust: $13 million) compared with a net loss for the year
ended 1995 of $109 million (Airplanes Limited: $101 million; Airplanes Trust: $8
million). The reduction in the net loss for the year ended March 31, 1996 was
significantly affected by the reduction in provisions for bad and doubtful debts
made during the period reflecting the improved trading performance of certain
lessees.
Airplanes Group, through the marketing efforts of the Servicer under the
Servicing Agreement, will continue to focus on minimizing the number of Aircraft
off-lease. Despite recent improvements in the level of
44
<PAGE> 46
downtime, there can be no certainty that an increase in non-revenue-earning
Aircraft will not occur in the future. This will depend to a large extent on the
number of Aircraft which may be redelivered to Airplanes Group from Mexican and
other aircraft operators and Airplanes Group's ability to re-lease these
Aircraft. Despite a somewhat improved operating environment, a number of lessees
continue to face financial difficulties.
There is some evidence of improved demand for certain aircraft types and,
as a consequence, rental rates have shown some signs of recovery, although they
still remain at relatively low levels. Consequently, while Airplanes Group's
operations continue to generate substantial amounts of cash, substantial numbers
of leases are and will continue to be "loss making" based on the assumptions
regarding attributable interest costs discussed above and there can be no
assurance that further significant provisions in respect of "loss making" leases
will not be required in the future or that cash flow will not be adversely
affected as a result of continuing pressure on rental rates. Certain Aircraft
have been leased on short term leases generally at lower rates than those
achievable for longer term lease and under which lessees make rental payments
according to the number of hours for which the relevant Aircraft is actually
flown. Airplanes Group's trading results and cash flow are likely to continue to
be affected by leases written during the recent and prolonged period of excess
supply.
RESULTS OF OPERATIONS -- YEAR ENDED MARCH 31, 1995 COMPARED WITH YEAR ENDED
MARCH 31, 1994
While there were some signs of recovery in the civil aviation industry,
especially toward the end of 1995, conditions remained difficult in the twelve
months to March 31, 1995. Airplanes Group's results continued to be
significantly affected by a high level of downtime costs and by provisions
against receivables and "loss making" leases entered into during 1995. All of
these reflected the poor business environment and the relatively weak financial
condition of many of Airplanes Group's lessees.
REVENUES
Revenues for 1995 increased by 16% to $608 million (Airplanes Limited: $547
million; Airplanes Trust: $61 million) from $526 million (Airplanes Limited:
$481 million; Airplanes Trust: $45 million) in 1994. The increase in revenues
largely reflected increased average numbers of aircraft on lease in 1995
compared with 1994 due to the full effect of aircraft purchased in 1994 arriving
on lease in 1995 and the effect of a rising interest rate environment, which
resulted in higher rental payments on Airplanes Group's floating rate leases. At
March 31, 1995, Airplanes Group had 221 Aircraft on lease (Airplanes Limited:
199 Aircraft; Airplanes Trust: 22 Aircraft) compared with 210 Aircraft on lease
(Airplanes Limited: 189 Aircraft; Airplanes Trust: 21 Aircraft) at March 31,
1994.
DEPRECIATION AND AMORTIZATION
The charge for depreciation and amortization in 1995 amounted to $208
million (Airplanes Limited: $183 million; Airplanes Trust: $25 million) compared
with $185 million (Airplanes Limited: $161 million; Airplanes Trust: $24
million) in 1994. This also reflected the increase in the average number of
Aircraft in Airplanes Group's portfolio during 1995 compared with 1994.
NET INTEREST EXPENSE
On the basis assumed, net interest expense recorded in Airplanes Group's
Statements of Operations was $348 million in 1995 (Airplanes Limited: $317
million; Airplanes Trust: $31 million) compared with $252 million in 1994
(Airplanes Limited: $227 million; Airplanes Trust: $25 million). The increase in
the interest charge is primarily due to higher market interest rates in 1995
combined with a higher average amount of debt outstanding. Average debt
outstanding in 1995 was $4.6 billion compared with $4.1 billion in 1994,
reflecting debt assumed to be incurred to fund the increase in the average
number of Aircraft in the Airplanes Group's Portfolio. In 1995, Airplanes Group
paid $303 million in cash in respect of interest (Airplanes Limited: $276
million; Airplanes Trust: $27 million) compared with $222 million in 1994
(Airplanes Limited: $199 million; Airplanes Trust: $23 million).
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<PAGE> 47
BAD DEBT, DOWNTIME AND LOSS MAKING LEASES
Allowances for bad and doubtful debts in 1995 amounted to $33 million
(Airplanes Limited: $34 million; Airplanes Trust: a credit of $1 million)
compared with $20 million in 1994 (Airplanes Limited: $17 million; Airplanes
Trust: $3 million). Net provisions for "loss making" leases and downtime
amounted to $5 million (Airplanes Limited: $4 million; Airplanes Trust: $1
million) compared with $27 million 1994 (Airplanes Limited: $23 million;
Airplanes Trust: $4 million). The level of bad debt and doubtful debts and the
incidence of "loss making" leases included in the Portfolio continued to be
relatively high in 1995 reflecting the poor trading environment. Poor trading
conditions, combined with the weak financial condition of a number of the
lessees (particularly in Mexico), resulted in provisions remaining at relatively
high levels in the year ended March 31, 1995. Other expenses amounted to $17
million in 1995 (Airplanes Limited: $16 million; Airplanes Trust: $1 million)
which compared with a similar level in 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Aircraft management fees paid to GECAS with respect to the Portfolio
amounted to $23 million in 1995 (Airplanes Limited: $21 million; Airplanes
Trust: $2 million) compared with $9 million for only five months of 1994
(Airplanes Limited: $8 million; Airplanes Trust: $1 million).
Airplanes Group's selling, general and administrative expenses excluding
aircraft management fees paid to GECAS decreased to $11 million in 1995
(Airplanes Limited: $10 million; Airplanes Trust: $1 million) compared with $17
million in 1994 (Airplanes Limited: $16 million; Airplanes Trust: $1 million).
The primary reason for the decrease compared with 1994 is lower salary costs
reflecting the transfer of GPA personnel to GECAS and redundancies.
OPERATING LOSS
The operating loss for 1995 was $125 million (Airplanes Limited: $112
million; Airplanes Trust: $13 million) compared with an operating loss of $74
million in 1994 (Airplanes Limited: $53 million; Airplanes Trust: $21 million).
TAXES
Tax provisions and deferred tax assets and liabilities have been calculated
as if Airplanes Limited and Airplanes Trust were separate taxable entities. The
statement of operations includes a tax benefit of $16 million in 1995 (Airplanes
Limited: $11 million; Airplanes Trust: $5 million) in respect of taxation on
profits compared with $13 million in 1994 (Airplanes Limited: $5 million;
Airplanes Trust: $8 million). The tax benefit results from decreases in net
deferred tax liabilities during the year as current operating losses create net
operating loss carryforwards which can be used to reduce income taxes payable in
future periods.
NET LOSS
The net loss for the year after taxation was $109 million (Airplanes
Limited: $101 million; Airplanes Trust: $8 million) compared with a net loss of
$61 million in 1994 (Airplanes Limited: $48 million; Airplanes Trust: $13
million).
FINANCIAL RESOURCES AND LIQUIDITY
OVERVIEW
Prior to the closing of the Underwritten Offering, Airplanes Group had not
operated as a separate business, and consequently, had not been financed as
such. GPA managed its cash resources centrally and cash generated by the
subsidiaries of Airplanes Limited and Airplanes Trust was assumed to be
transferred to GPA for the purpose of servicing GPA's indebtedness.
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LIQUIDITY
Airplanes Group's Statements of Cash Flows prior to the year ended March
31, 1996 have been prepared on the assumption that Airplanes Group maintained
constant cash balances of approximately $135 million. The actual cash balances
of Airplanes Group at March 31, 1996 amounted to $220 million (Airplanes
Limited: $214 million; Airplanes Trust: $6 million). The increase in actual cash
balances reflects primarily $50 million in additional Class A Notes being issued
on March 28, 1996 together with certain adjustments to the mix of collateral in
respect of receivables sold to Airplanes Group in the Acquisition.
OPERATING ACTIVITIES
Net cash provided by operating activities amounted to $216 million in 1996
(Airplanes Limited: $196 million; Airplanes Trust: $20 million), compared with
$177 million in 1995 (Airplanes Limited: $161 million; Airplanes Trust: $16
million). This reflects cash paid in respect of interest of $323 million in 1996
(Airplanes Limited: $294 million; Airplanes Trust: $29 million), compared with
$303 million in 1995 (Airplanes Limited: $276 million; Airplanes Trust: $27
million). See above for a discussion of the basis upon which Airplanes Group's
interest charge and cash paid in respect of interest has been calculated. In
addition, depreciation and amortization amounted to $207 million in 1996
(Airplanes Limited: $183 million; Airplanes Trust: $24 million), compared with
$208 million in 1995 (Airplanes Limited: $183 million; Airplanes Trust: $25
million).
INVESTING AND FINANCING ACTIVITIES
Cash flows from investing and financing activities in the year ended March
31, 1995 reflect the purchase of two Aircraft and an increase in debt associated
with that purchase together with the finance lease of an additional Aircraft. In
1996, Airplanes Group incurred $3 million in expenditures for Aircraft
improvements (Airplanes Trust: $3 million; Airplanes Trust: $nil). Airplanes
Group will not make any purchases of aircraft in future. As described, no use of
cash to repay indebtedness was assumed in respect of prior periods. Instead,
distributions and transfers back to GPA of cash in amounts required to restore
Airplanes Group's cash balance to $135 million in 1995 and $220 million at March
31, 1996 have been assumed as Airplanes Group was not a separately financed
entity in the periods under review. These distributions and transfers back have
been treated as increases in Airplanes Group's net liabilities and amounted to
$176 million in 1996 (Airplanes Limited: $147 million; Airplanes Trust: $29
million) and $173 million in 1995 (Airplanes Limited: $158 million; Airplanes
Trust: $15 million).
INDEBTEDNESS
Following the closing of the Underwritten Offering, Airplanes Group's
indebtedness consists of the Class A-E Notes. In order to repay principal on the
Subclass A-1, A-2, A-3 and A-4 Notes, Airplanes Group will have to refinance
such Notes in the capital markets. In order to avoid stepped up interest costs,
$850 million of Subclass A-1 Notes, $750 million of Subclass A-2 Notes, $500
million of Subclass A-3 Notes and $200 million in Subclass A-4 Notes will have
to be refinanced through the sale of further pass-through certificates in 1998,
1999, 2001 and 2003, respectively. There can be no assurance that the Trust will
be able to sell further pass-through certificates in the amounts and at the
times required and any failure to do so may have the impact of increasing
Airplanes Group's borrowing costs.
Airplanes Group did not operate as an independently financed entity prior
to the closing of the Underwritten Offering, and accordingly, individuals should
not rely on the Statements of Cash Flows as necessarily indicative of the actual
cash flows that would have been produced by Airplanes Group's operating and
financing activities in the periods under review. In particular, actual cash
flows will differ, and may differ significantly, depending on many factors
including the performance of lessees and Airplanes Group's ability to re-lease
Aircraft, whether the average cost of the Notes is greater or less than the
assumed interest rates, the efficacy of Airplanes Group's interest rate hedging
policies, the ability of Airplanes Group's swap providers to perform under the
terms of their swap and similar obligations and whether Airplanes Group will be
able to refinance maturing Notes that have not been repaid with lease cash
flows.
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<PAGE> 49
INTEREST RATE MANAGEMENT
The leasing revenues of Airplanes Group are generated primarily from lease
rental payments which are either fixed or floating. In the case of floating rate
leases, an element of the rental varies in line with changes in LIBOR, generally
six-month LIBOR. Some leases carry fixed and floating rental payments for
different rental periods. The majority of leases are floating rate leases.
In general, an interest rate exposure arises to the extent that Airplanes
Group's fixed and floating interest obligations in respect of the Class A-D
Notes do not correlate to the mix of fixed and floating rental payments for
different rental periods. This interest rate exposure can be managed through the
use of interest rate swaps. The Class A and B Notes bear floating rates of
interest and the Class C and D Notes bear fixed rates of interest. The mix of
rental payments contains a higher percentage of fixed rate payments than the
percentage of fixed rate interest payments on the Class A-D Notes. In order to
correlate the contracted fixed and floating rental payments to the fixed and
floating interest payments on the Notes, Airplanes Group initially entered into
interest rate swaps with an aggregate notional principal amount of $2.62 billion
(the "Initial Swaps"). Under these Initial Swaps, Airplanes Group will pay fixed
amounts and receive floating amounts on a monthly basis. The Initial Swaps will
amortize having regard to the minimum amortization schedule of the Class A and B
Notes, the expiry dates of the leases under which lessees make fixed rate rental
payments and the LIBOR reset dates under the floating rate leases. At least
every three months, GPA, as Airplanes Group's Administrative Agent, will seek to
enter into additional swaps or sell at market value or unwind part or all of the
initial and any future swaps in order to rebalance the fixed and floating mix of
interest obligations and the fixed and floating mix of rental payments.
Additional interest rate exposure will arise to the extent that lessees
owing fixed rate rental payments default and interest rates have declined
between the contract date of the lease and the date of default. This exposure
can be managed through the purchase of options on interest rate swaps
("Swaptions"). Airplanes Group will purchase Swaptions which, if exercised, will
allow Airplanes Group to enter into interest rate swap transactions under which
it will pay floating amounts and receive fixed amounts. These Swaptions can be
exercised in the event of defaults by lessees owing fixed rate rental payments
in circumstances where interest rates have declined since the contract date of
such leases. Because not all lessees making fixed rate rental payments are
expected to default and not all lessee defaults are expected to occur following
a decline in interest rates, Airplanes Group will purchase Swaptions in a
notional amount less than the full extent of the exposure associated with the
lessees making fixed rate rental payments. This notional amount (the "Target
Hedge") will be varied from time to time to reflect, inter alia, changes in the
mix of payments bases under future leases. From time to time, the Administrative
Agent may also sell at market value or unwind part or all of the Swaptions, for
example, to reflect any decreases in the Target Hedge.
Through the use of interest rate swaps, Swaptions and other interest rate
hedging products, it is Airplanes Group's policy not to be adversely exposed to
material movements in interest rates. There can be no assurance, however, that
Airplanes Group's interest rate risk management strategies will be effective in
this regard. If interest rates decline and remain significantly lower for a long
period of time, and if rental payments under future leases decline accordingly,
Airplanes Group's ability to make interest payments on the Class C and D Notes
may be adversely affected.
The Directors of Airplanes Limited and the Controlling Trustees of
Airplanes Trust are responsible for reviewing and approving the overall interest
rate management policy and transaction authority limits. Specific hedging
contracts are approved by officers of the Administrative Agent acting within the
overall policies and limits.
Counterparty risk is monitored on an ongoing basis. Counterparties are
subject to the prior approval of the Directors of Airplanes Limited and the
Controlling Trustees of Airplanes Trust. Airplanes Group's counterparties
consist primarily of the affiliates of major U.S. and European financial
institutions (including special purpose derivatives vehicles) whose ratings are
consistent with maintaining the ratings of the Class A Notes.
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THE ACCOUNTS
Substantially all of Airplanes Group's cash inflows and outflows occur
through certain bank accounts prescribed by the Trust Indentures and the
Security Trust Agreement, which the Cash Manager, acting on behalf of the
Security Trustee, has established. The accounts are as follows: (i) the
Collection Account, (ii) the Lessee Funded Account, (iii) the Expense Account
and (iv) the Rental Accounts. Each of the Collection Account, the Expense
Account, most of the Rental Accounts and the Lessee Funded Account have been
established at a bank having (i) a long-term unsecured debt rating of not less
than AA, or the equivalent, by certain rating agencies or (ii) a certificate of
deposit rating of A-1+ by Standard & Poor's, P-1 by Moody's and that is
acceptable to other relevant rating agencies. Where required by the terms of the
relevant leases, certain Rental Accounts may be established at banks having
ratings of less than AA, or the equivalent, by certain rating agencies or a
certificate of deposit rating of less than A-1+ by Standard & Poor's and P-1 by
Moody's. Except where local legal or regulatory reasons do not permit, all of
such accounts are held in the names of the Security Trustee, who has sole
dominion and control over the Accounts, including, inter alia, the sole power to
direct withdrawals from or transfers among such accounts. Subject to certain
conditions set forth in the Cash Management Agreement, the Security Trustee has
delegated such authority over the Accounts to the Cash Manager; provided that
the Security Trustee is not responsible for the acts or omissions of the Cash
Manager.
For as long as any Notes remain outstanding, funds on deposit in the
Accounts will be invested and reinvested at Airplanes Group's written direction
(which direction may be delegated, at Airplanes Group's discretion, to the Cash
Manager pursuant to the terms of the Cash Management Agreement) in one or more
investments permitted under the Trust Indentures, maturing, in the case of the
Collection Account and Expense Account, such that sufficient funds shall be
available to make required payments on the first succeeding scheduled interest
payment date on the Notes after such investments are made; provided that
investment and reinvestment of funds in the Lessee Funded Account must be made
in a manner and with maturities that conform to the requirements of the related
leases. Investment earnings on funds deposited in any account, net of losses and
investment expenses, will, to the extent permitted by the terms of such related
leases in the case of such funds in the Lessee Funded Account, be deposited in
the Collection Account and treated as collections.
RENTAL ACCOUNTS
The lessees make all payments under the leases directly into the applicable
Rental Accounts. Pursuant to the Cash Management Agreement, the Cash Manager
will transfer, or cause to be transferred, all funds deposited into the Rental
Accounts into the Collection Account as collections within one business day of
receipt thereof (other than certain limited amounts, if any, required to be left
on deposit for local legal or regulatory reasons).
THE COLLECTION ACCOUNT
Collections include all amounts received by Airplanes Group, including (i)
Rental Payments, (ii) payments under any letter of credit, letter of comfort,
letter of guarantee or other assurance in respect of a lessee's obligations
under a lease, (iii) the Liquidity Reserve Amount in the Collection Account,
(iv) any cash purchase price adjustment received by a member of Airplanes Group
pursuant to the Stock Purchase Agreements, (v) amounts received in respect of
claims for damages or in respect of any breach of contract for nonpayment of any
of the foregoing (including any amounts received from any Airplanes Group
subsidiary, whether by way of distribution, dividend, repayment of a loan or
otherwise and any proceeds received in connection with a lessee's
restructuring), (vi) net proceeds of any Aircraft sale or amounts received under
certain agreements or purchase options under which a person acquires or is
entitled to acquire legal title, or the economic benefits of ownership of an
Aircraft, (vii) proceeds of any insurance payments in respect of any Aircraft or
any indemnification proceeds, (viii) certain amounts transferred from the Lessee
Funded Account to the Collection Account, (ix) net payments to Airplanes Group
under any Swap Agreement, (x) investment income, if any, on all amounts on
deposit in the accounts (in each case to the extent consistent with the terms of
applicable related leases) and (xi) any other amounts received by any member of
Airplanes Group other
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<PAGE> 51
than certain funds required to be segregated from Airplanes Group's other Funds,
certain funds to be applied in connection with a redemption, certain funds
received in connection with a refinancing issue of Notes and certain amounts
required to be paid over to any third-party (collectively, the "Collections").
Collections on deposit in the Collection Account will be calculated by the
Cash Manager on the fourth business day immediately preceding each interest
payment date. The portion of the Airplanes Group Expenses that are due and
payable or anticipated to become due and payable over the next interest accrual
period on the Notes (the "Required Expense Amount") and that has not been paid
directly by the Cash Manager to Expense payees will be transferred into the
Expense Account on each interest payment date and the Cash Manager may, from
time to time, transfer other amounts into the Expense Account in respect of
unanticipated Expenses falling due and payable within such interest accrual
period. To the extent funds are available therefor on any interest payment date,
the Cash Manager will also transfer amounts in respect of expenses and costs
that are not regular, monthly recurring expenses but are anticipated to become
due and payable in any future interest accrual period ("Permitted Accruals").
Amounts received in respect of certain segregated Security Deposits and
Maintenance Reserves will be transferred directly into the Lessee Funded
Account.
LIQUIDITY RESERVE AMOUNT
All Collections received by Airplanes Group will either be transferred to
another Account as described above and below, paid to the appropriate third
party on behalf of Airplanes Group or held in the Collection Account as a part
of the "Liquidity Reserve Amount", a balance required to be held by Airplanes
Group in the Collection Account pursuant to the Cash Management Agreement and
each Trust Indenture. The Liquidity Reserve Amount is (i) the Maintenance
Reserve Amount, currently equal to $80.0 million, (ii) a "Security Deposit
Reserve Amount", currently equal to approximately $65.0 million, and (iii) a
"Miscellaneous Reserve Amount", currently equal to $40.0 million.
The Liquidity Reserve Amount is currently equal to approximately $185.0
million and may be increased or decreased from time to time by an action of the
Board of Directors or Board of Controlling Trustees in light of significant
changes in, inter alia, the condition of the Aircraft, the terms and conditions
of future leases, the financial condition of the lessees or prevailing industry
conditions; provided that the Airplanes Group will obtain confirmation in
advance in writing from the applicable rating agencies that any such proposed
reduction in the Liquidity Reserve Amount (other than a reduction attributable
solely to a decrease in the Security Deposit Reserve Amount as a result of
Airplanes Group entering into future leases requiring lower security deposits
than expired leases) will not result in a lowering or withdrawal by any such
rating agencies of their respective ratings of any class of Certificates. If the
balance of funds on deposit in the Collection Account should fall below the
Liquidity Reserve Amount at any time (including as a result of Airplanes Group's
determination that the Liquidity Reserve Amount should be increased, as required
by the applicable rating agencies or otherwise), Airplanes Group may continue to
make all payments, including required payments on the Notes, which rank prior
to, or pari passu with, payments of accrued and unpaid interest on the Class D
Notes and any Permitted Accruals, provided that the balance of funds in the
Collection Account does not fall below the sum of the Maintenance Reserve Amount
and the Miscellaneous Reserve Amount at their then current levels. However, the
balance of funds in the Collection Account may fall below the sum of the
Maintenance Reserve Amount and the Miscellaneous Reserve Amount, at their then
current levels, and Airplanes Group may continue to make payments of (i) all
accrued and unpaid interest on, and, on the final maturity date of any class or
subclass thereof, principal of such class or subclass of the most senior class
of Notes then outstanding to avoid a Note Event of Default; and (ii) payments
under Airplanes Group's swap agreements.
At such time as the aggregate outstanding principal balance of the Notes is
less than or equal to the Liquidity Reserve Amount, the balance of funds, if
any, in the Collection Account will be distributed in accordance with the
priority of payments established for the Notes.
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THE LESSEE FUNDED ACCOUNTS
Pursuant to the terms of the leases, certain lessee Security Deposits and
supplemental rent payments to provide for Maintenance Reserves may be required
to be segregated from other Airplanes Group funds. Amounts received from lessees
in respect of such Security Deposits and maintenance obligations will be held in
the Lessee Funded Account. Amounts on deposit in the Lessee Funded Account will
be accounted for, and, if required by any lease, segregated, on a per lease
basis. Funds on deposit in the Lessee Funded Account will be used to make
certain maintenance and security deposit repayment related payments (or such
other payments as may be required or permitted under the terms of the relevant
leases) or may be applied against maintenance-related payments otherwise
required to be made by the lessee during the term of the related lease and will
not be used to make payments in respect of the Notes or the Certificates at any
time, including after a Note Event of Default. In certain circumstances where
lessees relinquish their rights to receive certain maintenance and security
deposit payments upon the expiration of a lease, surplus funds may be credited
from the Lessee Funded Account to the Collection Account.
THE EXPENSE ACCOUNT
On each interest payment date on the Notes, the Cash Manager will withdraw
from the funds deposited in the Collection Account an amount equal to the
Required Expense Amount, which amount will then be used to pay the Expenses. To
the extent that the Required Expense Amount has not been paid directly by the
Cash Manager to Expense payees, the Required Expense Amount will be deposited
into the Expense Account. In addition, in the period between interest payment
dates on the Notes, the Cash Manager may make further withdrawals of cash from
the Collection Account in order to satisfy Expenses due and payable prior to the
next interest payment date on the Notes that were not previously anticipated to
become so due and payable on the previous interest payment date. If funds on
deposit in the Collection Account are less than the Required Expense Amount on
any interest payment date on the Notes, Airplanes Group will be unable to pay
the Required Expense Amount in full on such date, which may lead to a default
under one or more of Airplanes Group's various service agreements or other
contracts under which the Expenses arise.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this
report. See "Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
DIRECTORS AND CONTROLLING TRUSTEES
The Directors and the Controlling Trustees of Airplanes Limited and
Airplanes Trust, respectively, their respective ages and principal activities
are as follows:
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<TABLE>
<CAPTION>
NAME AGE OFFICES HELD WITH THE REGISTRANTS
- ------------------------- --- -----------------------------------------------------------
<S> <C> <C>
Roy M. Dantzic........... 51 Independent Director, Airplanes Limited
Controlling Trustee, Airplanes Trust
William A. Franke........ 59 Independent Director and Chairman, Airplanes Limited
Controlling Trustee and Chairman, Airplanes Trust
Hugh R. Jenkins.......... 62 Independent Director, Airplanes Limited
Controlling Trustee, Airplanes Trust
William M. McCann........ 52 Independent Director, Airplanes Limited
Controlling Trustee, Airplanes Trust
Edward J. Hansom......... 38 E Note Director, Airplanes Limited
Controlling Trustee, Airplanes Trust
</TABLE>
Certain individuals other than the Directors and Controlling Trustees
listed above serve as directors of various subsidiaries of Airplanes Group.
Roy Dantzic started his career with Coopers & Lybrand qualifying as a
chartered accountant in 1968. He left in 1970 and spent the next 10 years in
corporate advisory work, principally as a director of Samuel Montagu. In 1980,
the British Government appointed Mr. Dantzic as Finance Director of British
National Oil Corporation and he served in such capacity until 1984. Between 1985
and 1989 he was a director of the corporate broking division of Wood McKenzie.
In 1989 he joined the board of Stanhope Properties and served as its Finance
Director from 1992 until the company was acquired in 1995. In August 1995, Mr.
Dantzic became a director of the corporate broking division of Merrill Lynch
International Ltd. He has served as a non executive director on the boards of
Central Electricity Generating Board, British Nuclear Fuels Limited, Saxon Oil
Limited and Total Oil Holdings Ltd. Mr. Dantzic is currently managing director
of Port Greenwich Limited, a wholly-owned subsidiary of British Gas Plc.
William Franke joined America West Airlines Inc. ("America West") in
September 1992 as Chairman of the Board and in December 1993 was also elected
Chief Executive Officer. Mr. Franke was formerly chairman, president and chief
executive officer of Southwest Forest Industries, Inc., a Fortune 500 integrated
forest products company based in Phoenix. He was Chairman of the executive
committee at Valley National Bank (now Bank One, Arizona, N.A.) during its
management restructuring and served as Chairman of the Executive Committee,
acting Chief Executive Officer and Chairman of the special committee of
directors of The Circle K Corporation during its financial restructuring. Mr.
Franke is owner and president of Franke & Company, Inc., a financial advisory
firm. He is currently a director of Phelps Dodge Corporation, a major mining and
manufacturing company, and Central Newspapers, Inc., publisher of the Phoenix
and Indianapolis morning and evening newspapers. He is also a director of the
Air Transport Association.
Hugh Jenkins has spent over 20 years in senior investment management
positions. Most recently with the Prudential Corporation Plc, a large life
insurance company where from 1989 to December 1995 he was an Executive Director
and Chairman/Chief Executive of its investment management subsidiary with
overall responsibility for the Group's investments worldwide. His previous
appointments included: 1986-1989 Group Investment Director of Allied Dunbar
Insurance Plc, 1985-1986 Director of Heron International, N.V. and from
1973-1985 as Director-General of Investments for the pension plans of the
National Coal Board. He is currently a non-executive Director of The Rank
Organisation Plc, Thorn EMI Plc, Johnson Matthey Plc and Gartmore European
Investment Trust Plc.
William McCann, a chartered accountant, became a partner in Craig
Gardner/Price Waterhouse in 1972. From 1987 to 1995, he was the Managing Partner
of Craig Gardner/Price Waterhouse in the Republic of Ireland. From 1991 to 1995
he was a member of the Price Waterhouse World Board. Mr. McCann currently is
Chairman of the Electricity Supply Board, Ireland and a Director of the Central
Bank of Ireland. He is also a Director of Canada Life Assurance (Ireland)
Limited, Murray Global Accumulation Funds plc and is a Director of a number of
other companies. He is a Board Member of the University College Dublin Graduate
School of Business.
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On March 28, 1996, Edward Hansom was appointed a Director of Airplanes
Limited and a Controlling Trustee of Airplanes Trust by GPA Group as majority
holder of the Class E Notes. Mr. Hansom is General Manager, Treasury of GPA
Group. He joined GPA Group in December 1988 from the treasury division of
Schroders. Prior to taking up his current position in 1994, Mr. Hansom was a
General Manager of GPA Group's Capital Division and specialized in sales of
aircraft with leases in place to Asian investors and the ALPS 92-1 portfolio
aircraft sale. Mr. Hansom is also a director of ALPS 94-1.
The Board of Directors and the Controlling Trustees of Airplanes Limited
and Airplanes Trust, respectively, are non-executive Directors and Controlling
Trustees, as the case may be. Further, as is common with many other special
purpose companies, neither Airplanes Limited nor Airplanes Trust has, or will
have, any employees or executive officers. Accordingly, the Board of Directors
and the Controlling Trustees will each rely upon the Servicer, the
Administrative Agent, the Cash Manager and the other service providers for all
asset servicing, executive and administrative functions pursuant to the
respective service provider agreements.
THE SERVICER
GECAS provides various aircraft-related services to Airplanes Group as
Servicer under the Servicing Agreement.
GENERAL
GECAS and its affiliates are the world's largest managers of commercial
aircraft. As of December 31, 1995, the GECAS Managed Portfolio consisted of
approximately 890 aircraft, which are on lease to more than 157 lessees in 54
countries throughout the world. GECAS announced in early 1996 that it had
entered into a multi-year order for five Boeing 777s and 102 Boeing 737 jet
aircraft, and options for 76 Boeing 737 jet aircraft. Under the agreement with
Boeing, GECAS also may purchase up to 76 additional Boeing 737 jet aircraft. As
a global commercial aviation financial services company, GECAS and its
affiliates (i) offer a broad range of financial products to airlines and
aircraft operators, aircraft owners, lenders and investors, including financing
leases, operating leases, tax-advantaged and other incentive-based financing and
debt and equity financing, and (ii) provide asset management, marketing and
technical support services to aircraft owners, lenders and investors, including
GE Capital, GPA and their respective affiliates, ALPS 94-1 and certain third
parties. GECAS, together with GECAS, Inc., has access to approximately 228
employees worldwide and has operations in Stamford, Connecticut; Shannon,
Ireland; San Francisco, California; and a number of other locations, including
Beijing, Dallas, Hong Kong, Miami and Singapore.
GECAS is headquartered in Shannon, Ireland and at December 31, 1995 had 130
employees.
One of GECAS's principal businesses is providing a broad range of financial
products to airlines and aircraft operators and to aircraft owners, lenders and
investors throughout the world. To meet the fleet financing needs of its airline
customers, GECAS and its affiliates offer such financing options as financing
leases (including both direct financing and leveraged leases), operating leases
and other structured finance transactions, as well as general corporate
financing, including direct debt (both senior and subordinated) and equity and
debtor-in-possession financing. In conjunction with this business, GECAS and its
affiliates are responsible for developing, negotiating and consummating
aircraft-related investment opportunities in the aviation industry for its
affiliate, GE Capital, including the acquisition of aircraft for GE Capital. On
behalf of GE Capital or its affiliates, GECAS will likely offer aircraft or
engine financing to customers of the GE Aircraft Engines Division, and will also
likely offer, on behalf of GE Group, other financial products to such customers,
including in connection with a restructuring or other modification of such
customer's existing financing provided by the GE Aircraft Engines Division, or
otherwise.
With respect to its owner, lender and investor customers, GECAS intends to
continue to market a range of products that are intended to allow financial
institutions and other investors to realize the benefits of aircraft ownership
while the aircraft are managed by GECAS. GECAS expects to arrange and negotiate
the sale of aircraft with operating leases in place, rental rates, tax benefits
and related assets from the portfolio it manages, as well as structured pooled
financings and other incentive-driven transactions.
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<PAGE> 55
GECAS offers a broad range of management services to aircraft owners,
lenders and investors, including collection of rental payments, arranging and
monitoring of aircraft maintenance performed by others, limited technical
inspection of aircraft, arranging and monitoring insurance, arranging for
aircraft valuations, registration and deregistration of aircraft, monitoring
compliance with lease agreements and enforcement of lease provisions against
lessees, confirming compliance with applicable ADs and facilitating delivery and
redelivery of aircraft. GECAS devotes substantial resources to marketing for
sale and re-lease of the aircraft that it manages. Generally, to the extent an
aircraft is on lease at the time it is being marketed for sale, it is generally
a more attractive candidate to be sold to potential financial investors when
compared to an aircraft that is not currently under lease. GECAS arranges for
its customers, including GE Capital, GPA and their respective affiliates and
certain third parties, the sale of both unencumbered aircraft and aircraft that
are subject to operating leases to investors who seek a return on their
investment from a combination of future rental payments, the aircraft's residual
value and, in certain instances, tax benefits. GECAS identifies potential
purchasers, determines which aircraft satisfy the specific needs of a particular
airline or investor, negotiates commercial terms and executes the sale of such
aircraft. GECAS's lease marketing activities serve both its airline customer
base and its investor customer base. GECAS designs tax-advantaged transactions
as well as operating lease structures, both to meet the varying needs of its
customers and to facilitate the subsequent sale of the leased aircraft to
financial investors. The aircraft and lease marketing services provided by GECAS
include planning, negotiation and execution of leases and remarketing aircraft
for re-lease prior to expiration of a lease term.
The table below sets forth the different aircraft comprising the GECAS
Managed Portfolio as of December 31, 1995 by manufacturer and by whether the
aircraft are owned and managed by affiliates of GE Capital or simply managed for
third parties.
<TABLE>
<CAPTION>
GE CAPITAL OTHER MANAGED AIRPLANES
AIRCRAFT TYPE AND CLASS FLEET(1) THIRD PARTIES(2) GROUP TOTAL
- -------------------------------------------------- ---------- ---------------- --------- -----
<S> <C> <C> <C> <C>
Airbus
A300............................................ 19 4 6 29
A310............................................ 8 8
A320............................................ 12 26 12 50
Boeing
B727............................................ 29 24 2 55
B737-200........................................ 63 34 32 129
B737-300/400/500(3)............................. 121 48 44 213
B747............................................ 21 5 1 27
B757-200........................................ 25 4 3 32
B767-200ER...................................... 8 1 9
B767-300ER...................................... 26 5 4 35
McDonnell Douglas
DC8............................................. 9 2 28 39
DC9............................................. 15 40 19 74
DC10............................................ 11 5 4 20
MD11............................................ 2 3 5
MD82............................................ 19 6 2 27
MD83............................................ 7 10 23 40
MD87............................................ 1 1
MD88............................................ 14 14
Fokker
F100............................................ 15 16 31
</TABLE>
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<PAGE> 56
<TABLE>
<CAPTION>
GE CAPITAL OTHER MANAGED AIRPLANES
AIRCRAFT TYPE AND CLASS FLEET(1) THIRD PARTIES(2) GROUP TOTAL
- -------------------------------------------------- ---------- ---------------- --------- -----
<S> <C> <C> <C> <C>
Other Jets........................................ 9 3 12
Turboprops........................................ 4 8 28 40
--- --- --- ----
Total........................................ 420 241 229 890
--- --- --- ----
Body Type:
Widebody........................................ 97 22 19 138
Narrowbody...................................... 323 219 210 752
Stage Compliance:(4)
Stage 2......................................... 120 100 53 273
Stage 3......................................... 300 141 176 617
</TABLE>
- ---------------
(1) Certain aircraft included in the GE Capital fleet are owned by joint
ventures or pursuant to other arrangements in which unaffiliated parties
have interests.
(2) The third parties comprise primarily GPA, ALPS 92-1 and ALPS 94-1. As of
June 27, 1996, GECAS no longer participated in the management of the ALPS
92-1 Aircraft, which consisted of 14 Stage 3 aircraft.
(3) For purposes of this table, 11 B737 aircraft have been included in the GE
Capital fleet but both GPA and GE Capital are included in the lease chain.
(4) Turboprop aircraft have been classified as Stage 3 compliant.
THE SERVICING AGREEMENT
The Servicer and its affiliates have not assumed and are not responsible
for, or guarantors of, and shall not assume or be responsible for, or guarantors
of, any liabilities of Airplanes Limited, Airplanes Trust, Holding Co. or any of
their affiliates, including, without limitation, any payments due with respect
to the Notes.
The Servicer provides services pursuant to the terms of the Servicing
Agreement on behalf of Airplanes Group (except in certain circumstances
described below where a substitute servicer may perform such services). The
Servicing Agreement (a) sets forth the various duties of the Servicer with
respect to the management and administration of the Aircraft and the leases, (b)
sets forth certain aircraft marketing activities to be performed by the Servicer
and (c) sets forth certain Aircraft management-related obligations of the
Servicer in connection with offers and sales by Airplanes Group of Refinancing
Certificates.
The Servicer provides the services in accordance with the express terms of
the Servicing Agreement, which, inter alia, provides that the Servicer will act
in accordance with applicable law and with directions given by Holding Co., on
behalf of Airplanes Limited, AeroUSA and Holding Co., from time to time in
accordance with the Servicing Agreement. In addition, under the Servicing
Agreement, the Servicer agrees to perform its services in accordance with the
GECAS Services Standard and the GECAS Conflicts Standard.
The duties and obligations of the Servicer are limited to those expressly
set forth in the Servicing Agreement and the Servicer does not have any
fiduciary or other implied duties or obligations to the Airplanes Group or any
other person, including any Certificateholder.
In addition to managing the Aircraft, GECAS also manages aircraft assets
owned by ALPS 94-1, GE Group and other third parties, including GPA. In the
course of conducting such activities, GECAS will from time to time have
conflicts of interest in performing its obligations on behalf of Airplanes
Group. Under certain circumstances, the Servicer may resign from the performance
of its duties pursuant to the Servicing Agreement in relation to all the
Aircraft generally or, in certain circumstances, one or more Aircraft
individually, provided in either case that a replacement servicer has been
appointed that complies with certain criteria. With respect to the negotiation
of certain conflicts of interest, the Servicer may withdraw from representing
Airplanes Group, which shall be required to appoint an independent
representative to represent Airplanes Group as to such negotiation, and the
Servicer shall be entitled to act on behalf of itself or any of its affiliates
with respect to such negotiation.
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<PAGE> 57
Pursuant to the Servicing Agreement, the Servicer is not liable or
accountable to any person, other than Airplanes Limited, AeroUSA and Holding Co.
to the limited extent described below, under any circumstances, for any Losses
and Airplanes Limited, AeroUSA and Holding Co. jointly and severally indemnify
the Servicer and its affiliates on an after-tax basis for any Losses, unless
such Losses are finally adjudicated to have resulted directly from the
Servicer's gross negligence or wilful misconduct in respect of its obligation to
apply the GECAS Services Standard or the GECAS Conflicts Standard in respect of
its performance of the services under the Servicing Agreement. Airplanes
Limited, AeroUSA and Holding Co. also jointly and severally indemnify the
Servicer and its affiliates on an after-tax basis for any losses that may be
imposed on, incurred by or asserted against, the Servicer or any of its
affiliates, directly or indirectly, arising out of, in connection with or
related to, the Servicer or any of its affiliates' involvement (or alleged
involvement) in connection with the structuring or implementation of any aspect
of the Acquisition, the Underwritten Offering or related transactions. Airplanes
Limited, Holding Co. and AeroUSA are entitled jointly to terminate the Servicing
Agreement if the Servicer fails to perform in any material respect any material
service thereunder to either the GECAS Services Standard or the GECAS Conflicts
Standard and such failure has a material adverse effect on Airplanes Group taken
as a whole.
Notwithstanding anything to the contrary stated above, the Servicer is not
obligated to take or refrain from taking any action that it believes is
reasonably likely to (i) violate any applicable law with respect to GECAS or its
affiliates, (ii) violate any established written policies of GE, in effect from
time to time, applicable to GE Group related to business practices with respect
to legal, ethical and social matters ("GE Policy") or (iii) lead to an
investigation by any governmental authority.
AIRCRAFT SERVICES
Pursuant to the Servicing Agreement, the Servicer has, inter alia,
undertaken:
-- to grant Airplanes Group and its agents, including the Administrative
Agent, access to certain information and personnel of the Servicer under
specified circumstances to enable Airplanes Group to monitor the
Servicer's compliance with the Servicing Agreement and otherwise for the
purposes of Airplanes Group's business
-- not to commingle with its own funds any funds of Airplanes Group.
The main categories of services being provided by the Servicer pursuant to
the Servicing Agreement in respect of the Aircraft (the "Services") are:
-- lease marketing services, including, subject to the terms of the Trust
Indentures and the Servicing Agreement, re-marketing, lease negotiation
and execution (including, without limitation, negotiating final lease
terms)
-- Aircraft assets management services, including lease rent collection,
Aircraft maintenance, insurance, contract compliance of, and enforcement
against, lessees, and accepting delivery and re-delivery of Aircraft
-- Aircraft sales services as, when and to the extent directed by Airplanes
Group
-- monitoring of maintenance and provision of records and information with
respect to the Aircraft
-- arranging for valuations and monitoring regulatory developments
-- using commercially reasonable efforts to keep Airplanes Group in
compliance with certain covenants under the Notes directly relating to
the operation of the Aircraft
-- providing to Airplanes Group certain data and information relating to
the Aircraft
-- certain limited Aircraft-related assistance in connection with the
public or private offerings of Refinancing Certificates, including
consenting to public disclosure relating to the Servicer and its
affiliates contained in any prospectus, certain limited Aircraft-related
participation in marketing activities solely with respect to the
Aircraft and the Servicer and the Services, and providing Airplanes
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<PAGE> 58
Group, underwriters, rating agencies and/or other advisors with the
reasonable opportunity to conduct due diligence with respect to the
Servicer as it relates to the Aircraft
-- legal and other professional services in relation to the Aircraft (other
than in relation to litigation not arising in the ordinary course of the
operating lease business by or against Airplanes Group, or any of its
affiliates)
-- periodic reporting of operational information relating to the Aircraft
OPERATING GUIDELINES
Under the Servicing Agreement, the Servicer is entitled to exercise such
authority as is necessary to give it a practicable and working autonomy in
performing the Services, while at the same time Holding Co., acting on behalf of
Airplanes Group through the Administrative Agent and in its own capacity, has
established monitoring and control procedures which are expected to enable it
properly to manage the business and assets of the Airplanes Group.
Pursuant to the terms of the Servicing Agreement, the Servicer is required
to comply with the GECAS Services Standard and the GECAS Conflicts Standard in
the performance of the Services. All transactions to be entered into by the
Servicer on behalf of Airplanes Group (other than with other persons within
Airplanes Group) are required to be at arm's length and on fair market value
terms unless otherwise agreed or directed by Airplanes Group. Certain
transactions or matters with respect to Aircraft require the specific approval
of Airplanes Group, including:
-- sales of Aircraft (other than as required by a lease)
-- the entering into of any leases (including renewals or extensions,
unless any such lease had originally been approved) if the lease does
not comply with any applicable operating covenants governing the
Certificates
-- terminating any lease or leases (without substitution of, or replacement
by, another substantially similar lease) to any single lessee with
respect to Aircraft then having an aggregate depreciated net book value
in excess of $200 million
-- unless provided for in the applicable budget, entering into any contract
for the modification or maintenance of Aircraft where the costs to be
incurred (A) exceed the greater of (i) the estimated aggregate cost of a
heavy maintenance check for similar aircraft and (ii) available
Maintenance Reserves or other collateral under the related lease or (B)
are outside the ordinary course of Airplanes Group's business
-- issuing any guarantee on behalf of, or otherwise pledging the credit of,
other than with respect to trade payables in the ordinary course of
business, Airplanes Limited, Airplanes Trust, Holding Co. or any of
their subsidiaries (other than in connection with entering into a lease
with respect to an Aircraft)
-- any transaction with GE Capital or any of its affiliates not
contemplated in the Servicing Agreement.
BUDGETS
Holding Co. will adopt an annual budget each year with respect to all
Aircraft owned by Airplanes Group. Under the Servicing Agreement, the Servicer
has undertaken to use reasonable commercial efforts to attempt to achieve the
budget each year.
MANAGEMENT FEES
Airplanes Limited, AeroUSA and Holding Co. are, jointly and severally,
obligated to pay a fee (the "Asset Based Servicing Fee") to the Servicer,
pursuant to the Servicing Agreement, in a per annum amount equal to
approximately 0.495% of an agreed book value of each Aircraft, payable monthly
in arrears on a pro rata basis for the period such Aircraft is under management.
The Servicer is also reimbursed for certain expenses incurred in connection with
the Servicer's performance of the Services. These expenses include,
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<PAGE> 59
among other expenses, Aircraft maintenance costs and insurance, outside
professional advisory fees (including legal fees) and other out of pocket
expenses, all of which in the aggregate may constitute a significant additional
component of Airplanes Group's total overhead costs. The Servicer is also
entitled to certain additional fees based on (i) the aggregate annual cash flow
generated by the leases in excess of certain cash flow targets and (ii) sales of
Aircraft at the direction of Airplanes Group. Such fees are subject to a
mandatory aggregate annual minimum fee in the amount of U.S. $1.5 million.
In addition, the Servicer is entitled to certain additional fees in
connection with various Aircraft management-related services required to be
provided by the Servicer pursuant to the Servicing Agreement in connection with
any offerings and sales by the Airplanes Group of Refinancing Certificates.
TERM AND TERMINATION
The Servicing Agreement is for a non-cancellable initial term expiring on
the earlier of (i) March 28, 2014 (which is prior to the final maturity date of
certain Certificates) or (ii) payment in full of all amounts outstanding to be
paid under the Notes. Each party will have the right to terminate the Servicing
Agreement under certain circumstances. The Servicer has the right to terminate
the Servicing Agreement if, among other things:
-- Airplanes Limited, AeroUSA and/or Holding Co. fails to pay when due (i)
any servicing fees if not paid within five days of notice of such
failure, or (ii) any other amount payable by Airplanes Limited, AeroUSA
or Holding Co. to the Servicer if not paid within ten days of notice of
such failure
-- Airplanes Limited, AeroUSA, Holding Co. or any of their subsidiaries
fail to perform or observe or violate in any material respect any
material term, covenant, condition or agreement to be performed or
observed by it under the Servicing Agreement
-- any material representation or warranty by any person within the
Airplanes Group pursuant to the Servicing Agreement or any other related
document shall be false or misleading in any material respect and such
misrepresentation or breach of warranty is reasonably likely to have a
material adverse effect on the Servicer or its rights and obligations
under the Servicing Agreement
-- an involuntary proceeding is commenced in respect of Airplanes Limited,
Airplanes Trust, AeroUSA, Holding Co. or certain subsidiaries of any of
such entities under applicable bankruptcy, insolvency, receivership or
similar law, and such proceeding shall continue undismissed for 75 days
or any such person shall go into liquidation, suffer a receiver or
mortgagee to take possession of all or substantially all of its assets
or a voluntary proceeding is commenced in respect of Airplanes Limited,
Airplanes Trust, AeroUSA, Holding Co. or certain subsidiaries of any of
such entities under bankruptcy, insolvency, receivership or similar law
or any such person shall make a general assignment for the benefit of
its creditors
-- no person within Airplanes Group owns any Aircraft
-- the Trust Indentures shall cease to be in full force and effect
-- any guarantee in favor of the Servicer by any person within Airplanes
Group ceases to be legal, valid and binding.
Airplanes Limited, AeroUSA and Holding Co. have the right to terminate the
Servicing Agreement upon:
-- the Servicer ceasing to be at least 75% owned, directly or indirectly,
by GE Capital or GE
-- the Servicer failing in any material respect to perform any material
services required pursuant to the Servicing Agreement in accordance with
the GECAS Services Standard or the GECAS Conflicts Standard and such
failure having a material adverse effect on Airplanes Group taken as a
whole
-- commencement of an involuntary proceeding in respect of GE, GE Capital
or the Servicer under bankruptcy, insolvency, receivership or similar
law, if such proceeding continues undismissed for
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<PAGE> 60
75 days or any such person shall go into liquidation, suffer a receiver
or mortgagee to take possession of all or substantially all of its
assets or commencement of a voluntary proceeding in respect of GE, GE
Capital or the Servicer under bankruptcy, insolvency, receivership or
similar law or any such person shall make a general assignment for the
benefit of its creditors.
The Servicer may resign from performing the services pursuant to the
Servicing Agreement if it reasonably determines that directions given, or
services required, would, if carried out (i) be unlawful under applicable law,
(ii) be in violation of GE Policy, (iii) be likely to lead to an investigation
by any governmental authority, (iv) expose the Servicer to liabilities for which
adequate indemnity has not been provided or (v) place the Servicer in a conflict
of interest with respect to which, in the Servicer's good faith opinion, the
Servicer could not continue to perform its obligations under the Servicing
Agreement in accordance with its terms.
The Servicer may not resign from its obligations under the Servicing
Agreement nor may the Servicing Agreement be terminated, except upon expiration
of the Servicing Agreement at the end of the term thereof, unless a replacement
servicer has been appointed and accepted such appointment and the applicable
rating agencies have confirmed to Airplanes Group that no lowering or withdrawal
of the then current ratings of any Certificates will result from such
appointment. In the event that a replacement servicer has not been appointed
within 90 days after any termination of the Servicing Agreement or resignation
by the Servicer, the Servicer may petition any court of competent jurisdiction
for the appointment of a replacement servicer. Notwithstanding any other term to
the contrary, the Servicer may terminate the Servicing Agreement, whether or not
a replacement servicer has been appointed and accepted such appointment, in the
event that Airplanes Limited, AeroUSA or Holding Co. have failed, after the
applicable cure periods, to pay amounts due to the Servicer.
TAX STATUS
By virtue of GPA Group's ownership of 5% of the issued and outstanding
ordinary share capital of Holding Co. and the continued ability of GPA Group and
GECAS to satisfy certain employment levels in Shannon, Ireland, it is intended
that the Irish tax resident Transferred Companies will continue to benefit from
their status as Shannon certified companies. As a result of this status, the
Irish tax resident Transferred Companies are intended to enjoy reduced rates of
corporation tax and advance corporation tax together with improved entitlements
to capital allowances. In addition, the benefits include the right to pay
interest, in certain circumstances, without paying Irish withholding tax and to
deduct payments of interest in computing liability for corporate tax. There can
be no assurance that the future management of the Aircraft by the Servicer in
accordance with the terms of the Servicing Agreement will not expose Holding Co.
or the Irish tax resident Transferred Companies to tax liabilities outside
Ireland. The Servicing Agreement sets out certain tax-related undertakings with
respect to the Servicer which are designed to maintain a favorable tax treatment
in Ireland for Holding Co. and the Irish tax resident Transferred Companies.
These tax-related undertakings include the following:
-- maintaining minimum levels of employment in Ireland, if required for
Holding Co. or the Irish tax resident Transferred Companies to maintain
their Shannon licences and tax certification
-- holding meetings of the board of directors of the Servicer in Shannon no
less frequently than quarterly and only occasionally outside Shannon
-- the Servicer's transaction approval committee (meeting in Shannon not
less frequently than monthly and meeting outside Ireland only
occasionally) shall be comprised of at least five persons, a majority of
whom shall be employees of the Servicer, and such committee shall have
and regularly exercise the power to approve contracts
-- except in certain circumstances, contracts entered into by the Servicer
with respect to the purchase, sale, lease or other disposition of
Aircraft shall either be signed in Ireland or signed outside of Ireland
pursuant to a limited power of attorney
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-- the managing director (but not necessarily the chairman of the board of
directors) of the Servicer will be an officer and employee of the
Servicer based in Shannon
-- the Servicer shall not itself maintain an office outside Shannon
-- the Servicer shall compensate any of its affiliates for services
provided outside Ireland to the Servicer to the extent services are
provided by express agreement in respect of the Aircraft.
In the event that the Servicer breaches a tax-related undertaking as a
result of its gross negligence or wilful misconduct and Airplanes Group
experiences a material tax event (broadly defined as incurrence of aggregate
liability for taxes of $30 million in any one or more years during the term of
the Servicing Agreement, provided that, if the aggregate liability for any one
year does not exceed $4 million, it will not be taken into account), Airplanes
Group's sole remedy, upon six months' prior written notice, will be to terminate
the Servicing Agreement. Subject to compliance with certain procedural
guidelines set forth in the Servicing Agreement, the Servicer has the right for
any good faith commercial reason, as determined in its sole discretion, to
modify the tax-related undertakings. Any such modification could lead to a loss
of any favorable tax treatment afforded to Holding Co. and other Irish tax
resident Transferred Companies in Ireland.
ASSIGNMENT OF SERVICING AGREEMENT
The Servicing Agreement and the rights and obligations of the Servicer, on
the one hand, and Airplanes Limited, Holding Co. and AeroUSA, jointly and
severally, on the other hand, are not assignable by any of such parties other
than with the prior consent of the other parties. However, the Servicer may
delegate any portion, but not all, of its duties to GE Capital or GE or any 75%
or more owned subsidiary of GE Capital or GE.
PRIORITY PAYMENT OF SERVICING FEES AND REIMBURSABLE EXPENDITURES
The fees and expenses of the Servicer rank senior in priority of payment to
all payments of interest, principal and premium, if any, on the Notes.
The joint and several obligations of Airplanes Limited, Holding Co. and
AeroUSA under the Servicing Agreement have been guaranteed for the benefit of
the Servicer by each entity within Airplanes Group.
GPA AS ADMINISTRATIVE AGENT AND CASH MANAGER
INTRODUCTION TO GPA
GPA is a significant lessor of modern (post-1985) commercial aircraft and
is a major participant in the global commercial aviation industry. GPA leases
aircraft to a wide range of airlines throughout the world. GPA Group sold, or is
the parent of the seller of, each of the Transferred Companies and, through
wholly-owned subsidiaries, provides administrative, accounting, liability
management, financial consulting and cash management services to Airplanes Group
in its capacity as Administrative Agent and Cash Manager. As the majority holder
of the Class E Notes GPA Group is entitled to nominate one Director of Airplanes
Limited and one Controlling Trustee of Airplanes Trust.
At March 31, 1996, GPA had a total of 121 aircraft in its portfolio. One
hundred and fifteen of these aircraft were on lease to 45 customers in 22
countries. Of these aircraft, 109 were on operating leases and six aircraft were
classified as being on finance leases. Of the 121 aircraft, 49 were leased
in-leased out where GPA effectively assumes the credit risk of the airline by
leasing the aircraft from investors to whom it has previously sold the aircraft.
Approximately 3% of the aircraft by GPA's most recent appraised values are Stage
2 aircraft and approximately 97% are Stage 3 aircraft. At March 31, 1996,
approximately 23% of the aircraft are Airbus A320s, approximately 16% are Boeing
737-400s and approximately 14% are Boeing 737-300s, in each case calculated on
the basis of appraisals of the aircrafts' values at October 31, 1995 (determined
on the same basis as the calculation for the values of the Aircraft). At March
31, 1996, approximately 46% of GPA's aircraft were on lease to five airlines of
which approximately 21% of the aircraft were on lease to one U.S. airline,
approximately 9% were on lease to one Chinese airline, approximately 7% were on
lease to one Brazilian
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airline, approximately 5% were on lease to one South Korean airline, and
approximately 4% were on lease to one Philippine airline, in each case by
appraised value at October 31, 1995. In addition to its remaining, owned
aircraft, GPA owns all of the Class E Notes and will continue to have an
interest in the aircraft owned by ALPS 94-1 by virtue of its deeply subordinated
investments in that Company. GPA also continues to have an interest in certain
aircraft sold by it to GE Capital as part of a restructuring of GPA in October
1993, as a result of its contingent interest in any proceeds received by GE
Capital from certain resales of such aircraft. Also, because GPA has certain
access to certain potential benefits arising from the Aircraft through its
ownership of the Class E Notes (although GPA no longer owns legal title to the
Aircraft and has no rights of access to the Aircraft themselves), the Aircraft
and the Notes are consolidated with GPA's assets and liabilities on GPA's
consolidated balance sheet.
At March 31, 1996, GPA employed 43 people who perform those functions for
which GPA has not delegated responsibility to GECAS pursuant to the GPA
Management Agreement. These include, inter alia, (a) monitoring GECAS's
performance under the GPA Management Agreement, (b) decisions with respect to
GPA's orders and options for future aircraft deliveries, (c) management of all
GPA's liabilities and certain assets, (d) performance of all finance, treasury
and legal and regulatory functions not specifically provided by GECAS, (e)
performance of all corporate secretarial activities, (f) management of all
shareholder matters, (g) arrangement and procurement of all insurance other than
insurance relating to the assets managed pursuant to the GPA Management
Agreement, (h) GPA employee matters and (i) preparation and adoption of annual
budgets. Accordingly, GPA performs all accounting and financial reporting
functions for its own fleet and a wholly-owned subsidiary of GPA also performs
such functions for Airplanes Group pursuant to the Administrative Agency
Agreement.
GPA has reported significant losses in each of the three fiscal years ended
March 31, 1995. In accordance with generally accepted accounting principles in
Ireland and the United Kingdom, GPA's net losses have been $995 million, $48
million and $26 million for the fiscal years ended March 31, 1993, 1994 and 1995
and its shareholders' equity had fallen to $111 million at March 31, 1995.
REMAINING GPA INDEBTEDNESS
The Acquisition was part of a broader restructuring of GPA that involved
the refinancing of GPA indebtedness with the net proceeds of the Underwritten
Offering, the elimination or re-scheduling of GPA's aircraft and engine orders
and the settlement of certain litigation. GPA's intent was to refinance
substantially all of its bank loans and other senior, secured debt and to
enhance its ability to meet remaining secured and unsecured debt obligations as
they mature. At March 31, 1996, GPA had approximately $531 million in secured
debt and approximately $1,044 million in unsecured debt. GPA's unencumbered cash
balances (excluding balances of affiliated companies) were approximately $1,032
million at March 31, 1996. The following table indicates the maturities of GPA's
remaining indebtedness as of March 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
----------------------------------------------
1997 1998 1999 2000 THEREAFTER
---- ---- ---- ---- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Principal Maturities............................. $348 $165 $668(1) 48 $346
</TABLE>
- ---------------
(1) Of this amount, $500 million consists of GPA Delaware Inc.'s 8 3/4%
Guaranteed Notes due December 15, 1998.
GPA's ability to meet its remaining obligations as they fall due depends
upon various factors, including many of the same factors that will affect the
financial condition and business of Airplanes Group. In particular, GPA's cash
flow from operations may be adversely affected by any financial difficulties
experienced by certain of its more significant lessees. Furthermore, GPA's
ability to meet its obligations as they fall due will be adversely affected by
any inability to sell or refinance its remaining owned aircraft. There can be no
assurance that GPA Group will be able to meet its remaining obligations without
further restructuring measures. In addition, for so long as GE Capital's right
to acquire up to 90% of GPA Group's ordinary share capital remains outstanding,
GPA Group is unlikely to be able to raise additional share capital. If GPA were
to become unable to meet its obligations as they fall due or if GPA Group or any
of its affiliates were to
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become subject to a bankruptcy proceeding, a liquidator, examiner or creditor
may be able to challenge the validity of the sale of the Transferred Companies.
Furthermore, any inability of GPA, GPA Financial or GPA Cash Manager to continue
operations may adversely affect the performance of the roles of the
Administrative Agent and Cash Manager and may result in the loss by Holding Co.
and other Irish tax resident Transferred Companies of certain corporate tax
benefits for Shannon certified companies and the loss by Holding Co. and the
other Irish tax resident Transferred Companies of their ability to deduct
payments of interest on their indebtedness to Airplanes Limited for purposes of
computing their Irish tax liability.
ADMINISTRATIVE AGENT
GPA Financial acts as the Administrative Agent of Airplanes Group.
The Administrative Agent is responsible for providing administrative and
accounting services to the Directors and Controlling Trustees. The
Administrative Agent's duties include:
<TABLE>
<S> <C>
(a) monitoring the performance of the Servicer (including the Servicer's compliance
with the Servicing Agreement) and reporting on such performance to Airplanes Group;
(b) assisting Airplanes Group in establishing a program for compliance by the Servicer
with the Servicing Agreement;
(c) acting as liaison with various rating agencies to confirm the rating impact of
certain decisions and coordinating responses to rating agency questions;
(d) the maintenance on behalf of Airplanes Group of accounting ledgers and the
provision on a quarterly and annual basis of draft accounts on a combined basis for
Airplanes Group as well as, on a quarterly and annual basis, on an individual
company basis for certain companies. However, Airplanes Group retains
responsibility for the ledgers and accounts including all discretionary decisions
and judgments relating to the preparation and maintenance thereof, and Airplanes
Group retains responsibility for, and prepares, its financial statements;
(e) preparing annual budgets and presenting them to Airplanes Group for approval;
(f) authorizing payment of certain bills and expenses;
(g) to the extent required by Airplanes Group or the parties thereto, coordinating any
amendments to the transaction agreements, subject to the terms of such agreements
and approval by Airplanes Group;
(h) supervising outside counsel and coordinating legal advice received by Airplanes
Group other than with respect to the Servicer's performance under the Servicing
Agreement;
(i) preparing and coordinating reports to investors (including preparing press releases
and managing investor relations) and to the Securities and Exchange Commission with
the assistance of outside counsel and auditors, if appropriate;
(j) preparing for the approval of Airplanes Group and filing all required tax returns
with the assistance of outside counsel and auditors, if appropriate;
(k) maintaining, or monitoring the maintenance of, the books and records of Airplanes
Group other than those maintained by the Company Secretary (as defined below) and
the Delaware Trustee (as defined below);
(l) preparing an agenda and any required papers for meetings of the governing bodies of
the entities within Airplanes Group;
(m) assisting Airplanes Group in developing and implementing its interest rate
management policy and developing financial models, cash flow projections and
forecasts, to the extent required by Airplanes Group, and in making aircraft lease,
sale and capital investment decisions;
(n) advising Airplanes Group as to the appropriate levels of the Liquidity Reserve
Amount; and
(o) providing additional services upon the request of Airplanes Group upon terms to be
agreed at the time of any such request.
</TABLE>
62
<PAGE> 64
The Administrative Agent also provides other administrative services,
including (a) assistance in arranging refinancings of all or a portion of the
Subclass A-1, A-2, A-3 and A-4 Notes, and (b) undertaking an effort to avoid any
adverse change in the tax status of the various members of Airplanes Group.
Airplanes Limited, AeroUSA and Holding Co. are, jointly and severally, obligated
to pay a fee (the "Administrative Fee") to the Administrative Agent in a per
annum amount equal to $6 million, payable monthly in arrears. The Administrative
Agent is also entitled to an additional fee (the "Reducing Fee") in an amount
equal to $2 million per annum, payable monthly in arrears, which is reduced by
certain agreed amounts in the event that Airplanes Group sells, retires or
disposes of 76 or more of the Aircraft. Both the Administrative Fee and the
Reducing Fee will, from time to time, be adjusted for inflation. The
Administrative Agent is also entitled to be reimbursed for certain expenses
incurred in connection with the performance of its services under the
Administrative Agency Agreement. The Administrative Agent may resign on 60 days'
written notice in certain circumstances. Airplanes Group may remove the
Administrative Agent on 120 days' written notice with or without cause, as long
as Airplanes Group has, with the consent of the Servicer, engaged another person
or entity to perform the services that were being provided by the Administrative
Agent.
CASH MANAGER
GPA Cash Manager acts as the Cash Manager. The Cash Manager provides cash
management and related services to Airplanes Group. In the ordinary course of
Airplanes Group's business, the Cash Manager will inform the Servicer and the
Administrative Agent of the aggregate deposits in the Accounts as required and
provide such other information as shall be required in connection with the
Accounts. Subject to certain limitations and at the direction of Airplanes
Group, the Cash Manager is authorized to invest the funds held by Airplanes
Group in the Collection Account and the Lessee Funded Account in certain
prescribed investments on permitted terms. At all times, the Accounts will be
maintained in the name of the Security Trustee, except that certain Rental
Accounts which, for certain legal or other regulatory reasons, cannot be
established in the name of the Security Trustee, will be maintained in the names
of such parties as are specified in the relevant leases and maintained with
another bank that has a rating of AA or the equivalent or higher or any other
responsible or reputable bank.
In addition, the Cash Manager receives certain data provided by the
Servicer with respect to the Aircraft and leases of Airplanes Group and
calculates certain monthly payments and makes all other calculations as required
under the Cash Management Agreement. The Cash Manager also provides the Trustee
with such information as is required by the Trustee to provide its reports to
the Certificateholders.
The Cash Manager receives a fee of $1 million per annum from Airplanes
Group in respect of its services to Airplanes Group. The Cash Manager is
entitled to indemnification by Airplanes Group for, and is held harmless
against, any loss or liability incurred by the Cash Manager (other than through
its own deceit, fraud, wilful default or gross negligence (or simple negligence
in the handling of funds) or that of its officers, directors, agents and
employees).
The Cash Manager may resign on 30 days' written notice as long as Airplanes
Group has engaged another person or entity to perform the services that were
being provided by the Cash Manager. Airplanes Group may remove the Cash Manager
at any time with or without cause.
COMPANY SECRETARY
The Company Secretary (with respect to any company, the entity which
provides its secretarial services, the "Company Secretary") maintains company
books and records, including minute books and stock transfer records. It makes
available telephone, telecopy, telex and post office box facilities and
maintains a registered office in the relevant jurisdictions.
Mourant & Co. Secretaries Limited acts as Company Secretary for Airplanes
Limited.
DELAWARE TRUSTEE
Wilmington Trust Company maintains the books and records, including minute
books and records and trust certificate records, of Airplanes Trust. It makes
available telephone, telecopy, telex and post office box facilities and
maintains its principal place of business in Delaware.
63
<PAGE> 65
ITEM 11. EXECUTIVE COMPENSATION
All Directors and Controlling Trustees are compensated for travel and other
expenses incurred by them in the performance of their duties. Airplanes Limited
and Airplanes Trust pays each Independent Director and Independent Trustee, as
the case may be, an aggregate fee of $75,000 per annum for their services in
both capacities. The Chairman of Airplanes Limited and Airplanes Trust receives
an additional $50,000 per annum for his services in such capacity. Neither the
Director nor the Controlling Trustee appointed by the holder of a majority in
aggregate principal amount of the Class E Notes receives remuneration from
Airplanes Limited or Airplanes Trust for his services. In addition, Mr. Dantzic,
Mr. Jenkins and Mr. McCann receive $7,500, $2,500 and $7,500, respectively, per
annum for their services as directors of Holding Co. and certain of its
subsidiaries. Mr. Dantzic, Mr. Jenkins and Mr. McCann are also entitled to
receive an additional $1,000 in respect of each board meeting of the above
companies which they attend, subject to a maximum payment of $5,000 per annum
for each of them. Mr. Franke receives an aggregate of $2,500 per annum from
AeroUSA and AeroUSA 3 for his services as a director of those companies and is
also entitled to receive an additional $1,000 in respect of each board meeting
of these companies which he attends, subject to a maximum payment of $5,000 per
annum.
The Directors and the Controlling Trustees do not and will not receive any
additional cash or non-cash compensation (either in the form of stock options,
stock appreciation rights or pursuant to any long-term incentive plan, benefit
or actuarial plan or any other similar arrangements of any kind) as salary or
bonus for their services as Directors or Controlling Trustees. None of the
Directors or Controlling Trustees has an employment contract with either
Airplanes Limited or Airplanes Trust or serves as a member of a compensation
committee of either Airplanes Limited or Airplanes Trust. The compensation of
the Directors of Airplanes Limited is set forth in the Articles of Association
of Airplanes Limited and that of the Controlling Trustees is set forth in the
Airplanes U.S. Trust Amended and Restated Trust Agreement among GPA, Inc., as
Settlor, Wilmington Trust Company as the Delaware Trustee, and the Controlling
Trustees referred to therein. None of the Directors or Controlling Trustees has
any beneficial ownership in any of the equity securities of Airplanes Limited,
Airplanes Trust or any of the subsidiaries of Airplanes Limited or Airplanes
Trust.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Not applicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Airplanes Group has had and currently maintains various relationships with
GPA. First, GPA acted as promoter in establishing the entities that comprise
Airplanes Group. Second, Airplanes Group purchased substantially all of its
assets from GPA. See "Item 1. Business -- Introduction". Third, GPA is a holder
of 5% of the ordinary share capital of Holding Co. Fourth, subsidiaries of GPA
Group act as the Administrative Agent and Cash Manager for Airplanes Group. See
"Item 10. Directors and Executive Officers of the Registrants -- Corporate
Management". Fifth, Mr. Hansom, an employee of GPA Group, is a Director of
Airplanes Limited and a Controlling Trustee of Airplanes Trust.
Airplanes Group also maintains two relationships with America West. First,
Mr. Franke, a Director of Airplanes Limited and a Controlling Trustee of
Airplanes Trust, is a director and executive officer of America West. Second,
Airplanes Group has three Aircraft under sublease to America West.
Finally, GPA also has several relationships with America West. First, GPA
has 16 aircraft and three spare engines subleased to America West and the right,
until June 30, 1999, to require America West to lease up to four aircraft from
GPA. Second, John F. Tierney, Assistant Chief Executive and Finance Director of
GPA Group, is a director of America West.
64
<PAGE> 66
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (2). Financial Statements: the response to this portion of Item
14 is submitted as a separate section of this report beginning on page F-1.
Schedules: Schedule II is submitted as a separate section of this report
beginning on page S-1.
(a)(3) and (c). Exhibits:
<TABLE>
<S> <C>
3.1 Certificate of Incorporation of Atlanta Holdings Limited dated November 3,
1995 and Certificate of Incorporation on change of name to Airplanes Limited
dated November 29, 1995*
3.2 Memorandum and Articles of Association of Airplanes Limited**
3.3 Airplanes U.S. Trust Amended and Restated Trust Agreement among GPA, Inc., as
Settlor, Wilmington Trust Company, as the Delaware Trustee, and the
Controlling Trustees referred to therein**
4.1 Pass Through Trust Agreement dated as of March 28, 1996 among Airplanes
Limited, Airplanes U.S. Trust and Bankers Trust Company, as Trustee**
4.2 Trust Supplement No. 1 dated as of March 28, 1996 to the Pass Through Trust
Agreement**
4.3 Trust Supplement No. 2 dated as of March 28, 1996 to the Pass Through Trust
Agreement**
4.4 Trust Supplement No. 3 dated as of March 28, 1996 to the Pass Through Trust
Agreement**
4.5 Trust Supplement No. 4 dated as of March 28, 1996 to the Pass Through Trust
Agreement**
4.6 Trust Supplement No. 5 dated as of March 28, 1996 to the Pass Through Trust
Agreement**
4.7 Trust Supplement No. 6 dated as of March 28, 1996 to the Pass Through Trust
Agreement**
4.8 Trust Supplement No. 7 dated as of March 28, 1996 to the Pass Through Trust
Agreement**
4.9 Trust Supplement No. 8 dated as of March 28, 1996 to the Pass Through Trust
Agreement**
4.10 Form of Subclass A-1 Pass Through Certificate**
4.11 Form of Subclass A-2 Pass Through Certificate**
4.12 Form of Subclass A-3 Pass Through Certificate**
4.13 Form of Subclass A-4 Pass Through Certificate**
4.14 Form of Subclass A-5 Pass Through Certificate**
4.15 Form of Class B Pass Through Certificate**
4.16 Form of Class C Pass Through Certificate**
4.17 Form of Class D Pass Through Certificate**
4.18 Airplanes Limited Indenture dated as of March 28, 1996 among Airplanes
Limited, Airplanes U.S. Trust and Bankers Trust Company, as Trustee**
</TABLE>
- ---------------
* Incorporated by reference to the Registration Statement on Form S-1 (File No.
33-99970), previously filed with the Securities and Exchange Commission.
** Incorporated by reference to the Report on Form 10-Q for the quarterly period
ended December 31, 1995, previous filed with the Securities and Exchange
Commission.
(b) Reports on Form 8-K: filed for event dates May 15, 1996 and June 14,
1996 (relating to the monthly report to holders of the Certificates).
(d) Not applicable.
65
<PAGE> 67
<TABLE>
<S> <C>
4.19 Airplanes U.S. Trust Indenture dated as of March 28, 1996 among Airplanes U.S.
Trust, Airplanes Limited and Bankers Trust Company, as Trustee**
4.20 Form of Floating Rate Subclass A-1 Note**
4.21 Form of Floating Rate Subclass A-2 Note**
4.22 Form of Floating Rate Subclass A-3 Note**
4.23 Form of Floating Rate Subclass A-4 Note**
4.24 Form of Floating Rate Subclass A-5 Note**
4.25 Form of Floating Rate Class B Note**
4.26 Form of 8.15% Class C Note**
4.27 Form of 10.875% Class D Note**
4.28 Form of 20.00% (inflation adjusted) Class E Note**
10.1 Stock Purchase Agreement dated as of March 28, 1996 among GPA, Inc., GPA Group
plc and Airplanes U.S. Trust**
10.2 Stock Purchase Agreement dated as of March 28, 1996 among GPA Group plc,
Skyscape Limited and Airplanes Limited**
10.3 Administrative Agency Agreement dated as of March 28, 1996 among GPA Financial
Services (Ireland) Limited, GPA Group plc, Airplanes Limited, GPA II Limited,
Airplanes U.S. Trust and AeroUSA, Inc.**
10.4 Servicing Agreement dated as of March 28, 1996 among GE Capital Aviation
Services, Limited, Airplanes Limited, AeroUSA, Inc., GPA II Limited, Airplanes
U.S. Trust and GPA Cash Manager Limited**
10.5 Reference Agency Agreement dated as of March 28, 1996 among Airplanes Limited,
Airplanes U.S. Trust Bankers Trust Company, as Airplanes Limited Indenture
Trustee and Airplanes U.S. Trust Indenture Trustee, Bankers Trust Company, as
Reference Agent and GPA Cash Manager Limited, as Cash Manager**
10.6 Secretarial Services Agreement dated as of March 28, 1996 between Airplanes
Limited and Mourant & Co. Secretaries Limited, as Company Secretary**
10.7 Cash Management Agreement dated as of March 28, 1996 between GPA Cash Manager
Limited, as Cash Manager, GPA Group plc, Airplanes Limited, Airplanes U.S.
Trust and Bankers Trust Company, as Trustee under each of the Airplanes
Limited Indenture, the Airplanes U.S. Trust Indenture and the Security Trust
Agreement**
10.8 Form of Swap Agreement**
10.9 Security Trust Agreement dated as of March 28, 1996 among Airplanes Limited,
Airplanes U.S. Trust, Mourant & Co. Secretaries Limited, the Issuer
Subsidiaries listed therein, GPA Financial Services (Ireland) Limited, GPA
Cash Manager Limited, GPA Group plc, GE Capital Aviation Services, Limited,
Bankers Trust Company, as Airplanes U.S. Trust Indenture Trustee and Airplanes
Limited Indenture Trustee, Bankers Trust Company, as Reference Agent, and
Bankers Trust Company, as Security Trustee**
21 Subsidiaries of the Registrants
23.1 Consent of KPMG
23.2 Consent of Aircraft Information Services, Inc.
23.3 Consent of BK Associates, Inc.
23.4 Consent of Airclaims Limited
27 Financial Data Schedule
99.1 Appraisal of Aircraft Information Services, Inc. relating to the Aircraft*
99.2 Appraisal of BK Associates, Inc. relating to the Aircraft*
99.3 Appraisal of Airclaims Limited relating to the Aircraft*
</TABLE>
66
<PAGE> 68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Airplanes U.S. Trust has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
AIRPLANES U.S. TRUST
By: /s/ ROY M. DANTZIC
Roy M. Dantzic
Controlling Trustee
Dated: June 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on June 27, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------- ----------------------------
<C> <S>
/s/ HUGH R. JENKINS Controlling Trustee
- ------------------------------------- (principal executive
Hugh R. Jenkins officer)
/s/ ROY M. DANTZIC Controlling Trustee
- ------------------------------------- (principal financial
Roy M. Dantzic officer)
/s/ WILLIAM M. MCCANN Controlling Trustee
- ------------------------------------- (principal accounting
William M. McCann officer)
/s/ WILLIAM A. FRANKE Controlling Trustee
- -------------------------------------
William A. Franke
/s/ EDWARD J. HANSOM Controlling Trustee
- -------------------------------------
Edward J. Hansom
</TABLE>
67
<PAGE> 69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Airplanes Limited has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AIRPLANES LIMITED
By: /s/ ROY M. DANTZIC
Roy M. Dantzic
Director
Dated: June 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on June 27, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------- ----------------------------
<C> <S>
/s/ HUGH R. JENKINS Director
- ------------------------------------- (principal executive
Hugh R. Jenkins officer)
/s/ ROY M. DANTZIC Director
- ------------------------------------- (principal financial
Roy M. Dantzic officer)
/s/ WILLIAM M. MCCANN Director
- ------------------------------------- (principal accounting
William M. McCann officer)
/s/ WILLIAM A. FRANKE Director
- -------------------------------------
William A. Franke
/s/ EDWARD J. HANSOM Director
- -------------------------------------
Edward J. Hansom
</TABLE>
68
<PAGE> 70
AIRPLANES GROUP
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Balance Sheets........................................................................ F-3
Statements of Operations.............................................................. F-4
Statements of Changes in Shareholders' Deficit/Net Liabilities........................ F-5
Statements of Cash Flows.............................................................. F-6
Notes to the Financial Statements..................................................... F-7
</TABLE>
F-1
<PAGE> 71
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF AIRPLANES LIMITED
AND THE CONTROLLING TRUSTEES OF AIRPLANES U.S. TRUST:
We have audited the accompanying balance sheets of Airplanes Limited and
Airplanes U.S. Trust as of March 31, 1996 and 1995, and the related statements
of operations, changes in shareholders' deficit/net liabilities and cash flows
for each of the years in the three year period ended March 31, 1996. These
financial statements represent certain specified leasing operations of GPA Group
plc (as defined in Notes 1 and 2) up to March 28, 1996 and the leasing
operations of Airplanes Limited and Airplanes U.S. Trust in the period from
March 28 to March 31, 1996. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. These standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the financial position of Airplanes Limited and
Airplanes U.S. Trust as at March 31, 1996 and 1995, and the results of their
operations and cash flows for each of the years in the three year period ended
March 31, 1996, in conformity with generally accepted accounting principles in
the United States.
KPMG
Chartered Accountants
Dublin, Ireland
June 27, 1996
F-2
<PAGE> 72
AIRPLANES GROUP
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------------------------------
1995 1996
----------------------------------- -----------------------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
NOTES LIMITED TRUST COMBINED LIMITED TRUST COMBINED
----- ---------- ----------- -------- ---------- ----------- --------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash.................................. 5 123 12 135 214 6 220
Accounts receivable................... 6
Trade receivables................... 124 6 130 40 2 42
Allowance for doubtful debts........ (66) (5) (71) (12) (1) (13)
Amounts due from GPA.................. 7 -- -- -- 12 1 13
Net investment in capital and sales
type leases......................... 8 129 -- 129 113 -- 113
Aircraft, net......................... 9 3,648 404 4,052 3,471 381 3,852
Other assets.......................... 9 2 11 8 1 9
----- --- ----- --- -----
Total assets.......................... 3,967 419 4,386 3,846 390 4,236
===== === ===== ===== =====
LIABILITIES
Accrued expenses and other
liabilities......................... 11 245 18 263 163 17 180
Amounts due to GPA.................... 12 -- -- -- 12 -- 12
Indebtedness.......................... 13 4,192 410 4,602 4,221 413 4,634
Provision for maintenance............. 14 242 26 268 276 35 311
Deferred income taxes................. 19 60 35 95 67 48 115
----- --- ----- --- -----
Total liabilities..................... 4,739 489 5,228 4,739 513 5,252
----- --- ----- --- -----
Net liabilities....................... (772) (70) (842) (893) (123) (1,016)
----- --- ----- --- -----
3,967 419 4,386 3,846 390 4,236
===== === ===== ===== =====
Commitments and Contingent Liabilities
(Notes 20 and 21)
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 73
AIRPLANES GROUP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------------------------------------------------------------------------------
1994 1995 1996
--------------------------------- --------------------------------- ---------------------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES
NOTES LIMITED TRUST COMBINED LIMITED TRUST COMBINED LIMITED TRUST COMBINED
------ ---------- ----------- -------- ---------- ----------- -------- ---------- ----------- --------
($MILLIONS) ($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Aircraft
leasing........ 16 481 45 526 547 61 608 556 60 616
EXPENSES
Depreciation and
amortization... (161) (24) (185) (183) (25) (208) (183) (24) (207)
Net interest
expense........ 17 (227) (25) (252) (317) (31) (348) (335) (33) (368)
Provision for
maintenance.... (63) (8) (71) (74) (14) (88) (79) (18) (97)
Bad and doubtful
debts.......... (17) (3) (20) (34) 1 (33) 27 1 28
Provision for
loss making
leases and
downtime,
net............ (23) (4) (27) (4) (1) (5) 18 (3) 15
Other lease
costs.......... (19) -- (19) (16) (1) (17) (20) (1) (21)
Selling, general
and
administrative
expenses....... 18 (24) (2) (26) (31) (3) (34) (32) (3) (35)
----- ---- ----- ----- ---- ----- ----- ---- -----
OPERATING LOSS
BEFORE INCOME
TAXES.......... (53) (21) (74) (112) (13) (125) (48) (21) (69)
Income tax
benefit........ 19 5 8 13 11 5 16 5 8 13
----- ---- ----- ----- ---- ----- ----- ---- -----
NET LOSS......... (48) (13) (61) (101) (8) (109) (43) (13) (56)
===== ==== ===== ===== ==== ===== ===== ==== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 74
AIRPLANES GROUP
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT/NET LIABILITIES
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
AIRPLANES
AIRPLANES LIMITED TRUST COMBINED
------------------------------------------ ----------- ------------
SHARE SHAREHOLDERS
CAPITAL NET SHAREHOLDERS NET DEFICIT/NET
(NOTE 15) LIABILITIES DEFICIT LIABILITIES LIABILITIES
----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
$(MILLIONS) $(MILLIONS) $(MILLIONS) $(MILLIONS) $(MILLIONS)
BALANCE AT MARCH 31, 1993............................. -- 236 236 49 285
Net loss for the fiscal year.......................... -- 48 48 13 61
Distributions to/(Contributions from) GPA, net........ -- 303 303 (8) 295
Deferred interest on indebtedness to GPA (Note 2
(iv))............................................... -- (30) (30) (3) (33)
----------- ----- ----- ----- -----
BALANCES AT MARCH 31, 1994............................ -- 557 557 51 608
Net loss for the fiscal year.......................... -- 101 101 8 109
Distributions to/(Contributions from) GPA, net........ -- 158 158 15 173
Deferred interest on indebtedness to GPA (Note 2
(iv))............................................... -- (44) (44) (4) (48)
----------- ----- ----- ----- -----
BALANCE AT MARCH 31, 1995............................. -- 772 772 70 842
Net loss for the fiscal year.......................... -- 43 43 13 56
Distributions to/(Contributions from) GPA, net........ -- 124 124 45 169
Deferred interest on indebtedness to GPA (Note 2
(iv))............................................... -- (46) (46) (5) (51)
Ordinary shares issued, $1 par value per share (Note
15)................................................. -- -- -- -- --
----------- ----- ----- ----- -----
BALANCE AT MARCH 31, 1996............................. -- 893 893 123 1,016
========== ========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 75
AIRPLANES GROUP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996
----------------------------------- ----------------------------------- -----------------------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST COMBINED LIMITED TRUST COMBINED LIMITED TRUST COMBINED
---------- ----------- -------- ---------- ----------- -------- ---------- ----------- --------
($MILLIONS) ($MILLIONS) ($MILLIONS)
CASH FLOWS FROM
OPERATING
ACTIVITIES
Net loss........ (48) (13) (61) (101) (8) (109) (43) (13) (56)
Adjustments to
reconcile net
loss to net
cash provided
by operating
activities:
Depreciation and
amortization... 161 24 185 183 25 208 183 24 207
Aircraft
maintenance,
net........... 53 5 58 49 2 51 34 9 43
Deferred income
taxes......... (5) (8) (13) (11) (5) (16) (5) (8) (13)
Provision for
loss making
leases and
downtime...... 23 4 27 4 1 5 (18) 3 (15)
Accrued and
deferred
interest
expense....... 33 3 36 49 5 54 48 5 53
Changes in
operating
assets and
liabilities:
Accounts
receivable,
net........... (13) 5 (8) (8) 1 (7) 18 -- 18
Other accruals
and
liabilities... (26) (4) (30) (2) (4) (6) (19) -- (19)
Other assets.... (4) (1) (5) (2) (1) (3) (2) -- (2)
------- ---- ----- ----- ---- ----- ----- --- -----
NET CASH
PROVIDED BY
OPERATING
ACTIVITIES.... 174 15 189 161 16 177 196 20 216
======= ==== ====== ===== ==== ===== ===== === =====
CASH FLOWS FROM
INVESTING
ACTIVITIES
Purchase of
aircraft...... (553) (21) (574) (26) (1) (27) (3) -- (3)
Aircraft
deposits and
pre-delivery
payments...... (1) (2) (3) (10) -- (10) -- -- --
Capital and
sales type
leases........ 13 -- 13 14 -- 14 16 -- 16
Other........... 50 -- 50 -- -- -- -- -- --
------- ---- ------ ----- ---- ----- ----- --- -----
NET CASH (USED
IN)/PROVIDED
BY INVESTING
ACTIVITIES.... (491) (23) (514) (22) (1) (23) 13 -- 13
======= ==== ====== ===== ==== ===== ===== === =====
CASH FLOWS FROM
FINANCING
ACTIVITIES
Issue of A-E
notes......... -- -- -- -- -- -- 4,221 413 4,634
Increase
in/(repayment
of)
indebtedness
-- GPA........ 620 -- 620 19 -- 19 (4,192) (410) (4,602)
(Distributions
to)/Contributions
from GPA Group
plc........... (303) 8 (295) (158) (15) (173) (147) (29) (176)
------- ---- ----- ----- ---- ----- ----- --- -----
NET CASH
PROVIDED BY/
(USED IN)
FINANCING
ACTIVITIES.... 317 8 325 (139) (15) (154) (118) (26) (144)
------- ---- ----- ----- ---- ----- ----- --- -----
NET
INCREASE/(DECREASE)
IN CASH....... -- -- -- -- -- -- 91 (6) 85
Cash at
beginning of
year.......... 123 12 135 123 12 135 123 12 135
------- ---- ----- ----- ---- ----- ----- --- -----
Cash at end of
year.......... 123 12 135 123 12 135 214 6 220
======= ==== ===== ===== ==== ===== ===== === =====
CASH PAID IN
RESPECT OF:
Interest........ 199 23 222 276 27 303 294 29 323
======= ==== ===== ===== ==== ===== ===== === =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 76
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS
1. SECURITIZATION TRANSACTION
On March 28, 1996 ("THE CLOSING DATE") GPA Group plc and its subsidiary
undertakings ("GPA") refinanced on a long term basis certain indebtedness due to
commercial banks and other senior secured debt, most of which was due to mature
in September 1997. The re-financing was effected through a major aircraft
securitization transaction ("THE TRANSACTION").
Under the terms of the Transaction, a combination ("AIRPLANES GROUP")
comprising Airplanes Limited, a special purpose company formed under the laws of
Jersey, Channel Islands ("AIRPLANES LIMITED") and Airplanes U.S Trust, a trust
formed under the laws of Delaware ("AIRPLANES TRUST") together acquired directly
or indirectly from GPA a portfolio of 229 commercial aircraft (collectively the
"AIRCRAFT") and related leases (the "LEASES"). The Transaction was effected by
transferring existing subsidiaries of GPA that owned the Aircraft to Airplanes
Limited and Airplanes Trust, respectively. References to Airplanes Group in
these notes to the financial statements may relate to Airplanes Limited and
Airplanes Trust on a combined or individual basis as applicable.
Simultaneously with such transfers, Airplanes Group issued notes of $4,048
million in aggregate principal amount in four classes: Class A, Class B, Class C
and Class D ("NOTES") with approximately 90% of the principal amount of notes in
each class being issued by Airplanes Limited and 10% approximately by Airplanes
Trust. Airplanes Group also issued Class E Notes of $604 million ranking after
the Notes and these were taken up by GPA as part consideration for the transfer
of the Aircraft and certain related lease receivables. Of the $604 million Class
E Notes issued, approximately $13 million are expected to be surrendered under
the terms of the Transaction. Indebtedness at March 31, 1996 represents the
aggregate of the Class A-E Notes in issue (net of approximately $5 million of
discounts on issue and net of the $13 million of Class E Notes expected to be
surrendered as referred to above). Airplanes Limited and Airplanes Trust have
each fully and unconditionally guaranteed each other's obligations under the
relevant notes.
2. BASIS OF PREPARATION
The accompanying financial statements of Airplanes Limited, Airplanes Trust
and the combined balance sheets, statements of operations, statements of changes
in shareholders' deficit/net liabilities and cash flows of Airplanes Group
(together the "FINANCIAL STATEMENTS") have been prepared on a going concern
basis and on the bases and using the assumptions set out below and in accordance
with the accounting policies set out in Note 4 and in conformity with United
States generally accepted accounting principles:
Bases and Assumptions
(i) The financial statements are presented on an historical cost basis as
if Airplanes Limited and Airplanes Trust had been organised as single economic
entities for all periods presented.
Accordingly, the financial statements reflect, on the bases and assumptions
set out herein, the results of operations, assets and liabilities relating to
the 229 aircraft transferred to Airplanes Limited and Airplanes Trust, from the
date of original acquisition of controlling interest by GPA of each aircraft.
(ii) For the purposes of these financial statements an allocation of
certain costs such as selling, general and administrative expenses of GPA to
Airplanes Limited and Airplanes Trust has been made. The most significant
element of these costs relate to aircraft management fees, substantially all of
which are asset based fees calculated as an annual percentage of a reference net
book value of aircraft under management. The balance of such costs have been
allocated in proportion to rental revenues. Management believes that the bases
for these allocations are reasonable.
(iii) The financial statements for the years ended March 31, 1995 and in
respect of the period up to the Closing Date have been prepared assuming
Airplanes Group had been financed with indebtedness to GPA in an amount
equivalent to the aggregate amount of all classes of notes (A, B, C, D and E)
originally expected to be issued by Airplanes Group pursuant to the Transaction
of $4,602 million. It has also been assumed that
F-7
<PAGE> 77
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
2. BASIS OF PREPARATION -- (CONTINUED)
such indebtedness built up as and when Airplanes Group acquired aircraft, at an
amount equal to the appraised value (based on the value of each Aircraft given a
stable market with a reasonable balance of supply and demand and a reasonable
period of time available for marketing) of the Aircraft at October 31, 1995. In
addition, it has been assumed that no repayment of debt was made during the
period up to the Closing Date.
At the Closing Date the actual aggregate amount of all classes of notes
issued was $4,652 million. Of the $604 million Class E Notes issued,
approximately $13 million are expected to be surrendered under the terms of the
Transaction (after giving effect to certain purchase price adjustments) and
these financial statements include indebtedness in respect of the net amount of
the Class E Notes of $591 million at March 31, 1996 (approximately 13% of the
total indebtedness). It has been assumed that the indebtedness to GPA (explained
above) was repaid from the proceeds of the Notes and the Class E Notes. Details
of the terms of the various classes of Notes issued by Airplanes Group on the
Closing Date are set out in Note 13.
(iv) The interest charged on Airplanes Group's indebtedness to GPA in the
periods prior to the Closing Date is based on GPA's average cost of debt of
6.27%, 7.83% and 8.25% for the years ended March 31, 1994, 1995 and 1996,
respectively. In the period from the Closing Date to March 31, 1996 interest
expense is based on the terms of the notes issued. Details of the interest rates
applicable to the various classes of notes issued on the Closing Date are set
out in Note 13.
In respect of the portion of the indebtedness to GPA which is represented
by the E Note (assumed in these financial statements to be approximately 15% of
total indebtedness up until the Closing Date), the Statements of Cash Flows in
the periods prior to the Closing Date gives effect to cash payments for interest
of only 1% per annum and the balance is deferred and reflected as a movement in
net liabilities.
(v) Airplanes Group's cash balances were maintained throughout the period
to the Closing Date at the amount originally assumed to be retained by Airplanes
Group on completion of the securitization transaction of $135 million. Cash
generated from or absorbed by the activities of Airplanes Group during the
period up to the Closing Date is reflected as distributions to or transfers from
GPA. The cash balances as at March 31, 1996 represent the actual cash balances
held by Airplanes Group at that date.
(vi) Airplanes Group's tax provisions and deferred income tax assets and
liabilities have been determined as if the underlying taxable entities of
Airplanes Limited and Airplanes Trust were separate taxable entities from GPA.
At March 31, 1996 the deferred income tax assets and liabilities represent
the assets and liabilities of Airplanes Limited and Airplanes Trust at that
Date.
3. RELATIONSHIP WITH GPA GROUP PLC AND MANAGEMENT ARRANGEMENTS
Airplanes Group's aircraft portfolio has been acquired entirely from GPA
pursuant to the Transaction. The related leases were also transferred to
Airplanes Group.
Until October 29, 1993, the Airplanes Group's portfolio comprised part of
GPA's aircraft portfolio which was managed by GPA. In October 1993, GPA entered
into a management contract with GE Capital Aviation Services, Limited ("GECAS").
Under the management contract, GECAS provides, on an exclusive basis, and in
consideration for management fees, certain management services for aircraft
assets owned by GPA, including those assets reflected in the financial
statements. Following the Transaction, GECAS provides certain management
services directly to Airplanes Group pursuant to a new servicing agreement
entered into by GECAS with certain members of Airplanes Group and their
subsidiaries. Under certain circumstances GECAS may resign from the performance
of its duties in relation to the management of all the aircraft generally or,
the management of one or more aircraft individually, provided in either case
that a replacement
F-8
<PAGE> 78
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
3. RELATIONSHIP WITH GPA GROUP PLC AND MANAGEMENT ARRANGEMENTS -- (CONTINUED)
has been appointed to manage the aircraft. In addition, Airplanes Group will,
under certain circumstances, have the right to terminate the servicing
agreement.
As a holder of the majority of the Class E Notes, GPA has the right to
appoint one director to the board of Airplanes Limited and one of the
controlling trustees of Airplanes Trust. Airplanes Limited initially has a board
of directors of five directors, including the director appointed by the holder
of the Class E Notes. The controlling trustees of Airplanes Trust are the same
individuals. GE Capital Corporation ("GE CAPITAL"), GECAS' indirect parent, has
an option to acquire at least 90% of the ordinary shares of GPA Group at any
time up to October 29, 2001. If GE Capital acquires 90% or more of the ordinary
share capital of GPA Group and certain other conditions are met, the holder of a
majority in aggregate principal amount of the Class E Notes, will have the right
to appoint all of the directors of Airplanes Limited and the trustees of
Airplanes Trust, provided that an independent committee of at least three
directors/trustees is established and maintained to review the terms of certain
transactions between Airplanes Limited and Airplanes Trust on the one hand, and
GECAS or any of its affiliates on the other.
Certain cash management and administrative services are being provided by
GPA subsidiaries to Airplanes Group, pursuant to a cash management agreement and
administrative agency agreement entered into by a GPA subsidiary with Airplanes
Group.
Although Airplanes Group's portfolio will at all times be held in two
different entities, Airplanes Limited and Airplanes Trust, Airplanes Group is
managed and the note covenants structured on the basis of a single economic
entity owning a single aircraft portfolio.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Airplanes Group's accounting policies conform with United States generally
accepted accounting principles. The following paragraphs describe the main
accounting policies followed in these financial statements.
(a) Revenue Recognition
Revenue from aircraft on operating leases is recognized as income as it
accrues over the period of the leases.
(b) Aircraft
Aircraft including engines are stated at cost less accumulated
depreciation. Additional depreciation is charged to reduce the book value of
specific assets to fair market value where a permanent diminution in value is
considered to have occurred. Where fair market value is greater than book value
no adjustment is made.
Cost comprises the invoiced cost net of manufacturers' discounts.
Depreciation is calculated on a straight line basis. The estimates of useful
lives and residual values are reviewed periodically. The current estimates for
residual values are generally 15% of cost and for useful lives are as follows:
<TABLE>
<CAPTION>
YEARS FROM
----- -----------------
<S> <C> <C>
Stage 2 aircraft.................................. 20-25 Manufacture date
Refurbished and upgraded aircraft -- converted to
freighters...................................... 20 Conversion date
Turboprop aircraft................................ 22.5 Manufacture date
All other aircraft................................ 25 Manufacture date
</TABLE>
F-9
<PAGE> 79
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Fair market value is assessed by management, and reflects the underlying
economic value of aircraft, including engines, in normal market conditions
(where supply and demand are in reasonable equilibrium) and assumes adequate
time for a sale and a willing buyer and seller. Short term fluctuations in the
market place are disregarded and it is assumed that there is no necessity either
to dispose of a significant number of aircraft simultaneously, or to dispose of
aircraft quickly. In forming their assessment of fair market value, the
management have taken into consideration independent valuations of the aircraft
in the fleet.
(c) Net Investment in Capital and Sales Type Leases
The amounts due by lessees under capital leases, where the entire cost of
the asset is recovered, are shown in the balance sheet at the net amount
receivable under these leases. The related finance revenue is recognised as
income over the period of the lease in proportion to the amounts outstanding.
(d) Provision for Maintenance
In most lease contracts the lessee has the obligation for maintenance costs
on airframes and engines and in many lease contracts the lessee makes a full or
partial prepayment, calculated at an hourly rate, from which maintenance
expenditures for major checks are disbursed. The undisbursed portion of these
prepayments are included in the provision for maintenance.
Provision is also made to cover the risk of lessees defaulting on
obligations, which could result in Airplanes Group incurring maintenance costs
which are the lessee's primary responsibility.
(e) Allowance for doubtful debts
Allowances are made for doubtful debts where it is considered that there is
a significant risk of non recovery.
The assessment of risk of non recovery is primarily based on the extent to
which amounts outstanding exceed the expected value of security held together
with an assessment of the financial strength and condition of a lessee and the
economic conditions persisting in the lessee's operating environment.
(f) Provision for Loss Making Leases and Downtime
A lease agreement is deemed to be "Loss Making" in circumstances where the
contracted rental payments are insufficient to cover the depreciation and
allocated interest cost attributable to the relevant aircraft, together with
direct costs such as legal fees and other costs attributable to the lease over
its term. At March 31, 1996, the attributable allocated interest cost excludes
the element of the interest on the Class E Notes, 9% per annum, which is payable
only in the event that the principal amount on all the Notes is repaid.
Provision is made for the expected losses on such leases.
Downtime costs include depreciation, allocated interest cost and any other
attributable direct costs. Where aircraft are off lease and are expected to be
on the ground for a period prior to re-leasing, provision is made for downtime
costs over the period to the estimated re-lease date.
(g) Taxation
Deferred income tax assets and liabilities recognize the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred income tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or
F-10
<PAGE> 80
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
settled. The effect on deferred income tax assets and liabilities of a change in
tax rates is recognised in the period that includes the enactment date.
Income tax is provided based on the results for the year. Airplanes
Limited's underlying taxable entities in Ireland are subject to Irish Corporate
Income Tax on approved trading operations at a rate of 10% until December 31,
2005. Airplanes Trust's underlying taxable entities in the US are subject to US
Federal and State taxes on their trading operations.
(h) Concentrations of Credit Risk
Financial instruments which potentially subject Airplanes Group to
significant concentrations of credit risk consist primarily of trade accounts
receivable and interest rates swaps and similar hedging instruments. Details of
Airplanes Group's interest rate swaps and similar hedging instruments are set
out at (i) below.
Credit risk with respect to trade accounts receivable is generally
diversified due to the number of lessees comprising Airplanes Group's customer
base and the different geographic areas in which they operate. At March 31, 1996
Airplanes Group had leased aircraft to 82 lessees in 40 countries. The
geographic concentrations of leasing revenues is set out in Note 16.
Many of Airplanes Group's lessees are in a relatively weak financial
position because of the difficult economic conditions in the civil aviation
industry as a whole and because, in general, weakly capitalised airlines are
more likely to seek operating leases.
As part of GPA's historic aircraft portfolio, the exposure of Airplanes
Group's aircraft to particular countries and customers was managed partly
through concentration limits provided for in GPA's principal secured debt
facilities and through obtaining security from lessees by way of deposits,
letters of credit and guarantees. In the period after the Closing Date Airplanes
Group will continue to manage its exposure to particular countries, regions and
lessees through concentration limits. In the past GPA has, in the normal course
of its business, reached agreements with certain of its lessees to restructure
their leases and defer certain receivable balances. Details of accounts
receivable, deferred balances and provision for bad and doubtful debts are set
out in Note 6.
Mexico is a significant market for Airplanes Group's aircraft and at March
31, 1996, 29 of Airplanes Group's aircraft were being operated by four Mexican
lessees. Difficult market conditions and substantial over-capacity continue to
have an adverse effect on the Mexican air transport sector and restructuring
negotiations with certain of Airplanes Group's Mexican lessees have recently
been concluded, while negotiations with other lessees are continuing. Receivable
balances with Mexican lessees in total were $17 million at March 31, 1996, of
which $12 million has been deferred, and in respect of which allowances of $7
million for doubtful debts have been made.
Airplanes Group's Brazilian lessees also continue to experience significant
difficulties due to overcapacity and adverse market conditions. At March 31,
1996, 12 of Airplanes Group's aircraft were being operated by four Brazilian
lessees. Restructuring arrangements have been agreed with certain of the
Brazilian lessees allowing for rescheduling of balances owing to Airplanes
Group. Receivable balances with Brazilian lessees in total were $12 million at
March 31, 1996, of which $12 million has been deferred, and in respect of which
no allowances for doubtful debts have been made.
(i) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 "Disclosures about Fair
Value of Financial Instruments" defines the fair value of a financial instrument
as the amount at which the instrument could be
F-11
<PAGE> 81
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale. Fair values of financial instruments have been
determined with reference to available market information and the valuation
methodologies discussed below. However, considerable management judgement is
required in interpreting market data to arrive at estimates of fair values.
Accordingly, the estimates presented herein may not be indicative of the
amounts that Airplanes Group could realise in a current market exchange.
(i) The fair value of cash, trade receivables and trade payables
approximates the carrying amount because of the nature and short maturity
of these instruments.
(ii) The fair value of the A, B, C and D Notes issued by Airplanes
Group on the Closing Date and outstanding at March 31, 1996 was $4,055
million compared to its carrying value (before discounts) of $4,048
million. While the amount subscribed for the Class E Notes was based on the
appraised value of the aircraft at October 31, 1995, the fair value of
these notes at March 31, 1996 cannot be determined, as it represents the
holders' residual interest in the aircraft owned by Airplanes Group. The
fair value of Airplanes Group's indebtedness to GPA at March 31, 1995 is
assumed to equate to the carrying value.
(iii) As and from the Closing Date, Airplanes Group will manage its
interest rate exposure through the use of interest rate swaps and options
to enter into interest rate swaps ("Swaptions"). On the Closing Date
Airplanes Group entered into amortising interest rate swaps with an initial
aggregate notional principal amount of $2.62 billion. Under these swap
arrangements Airplanes Group will pay fixed and receive floating amounts on
a monthly basis. The objective of Airplanes Group's interest rate risk
management policy is to correlate the contracted fixed and floating rental
payments in its portfolio to the fixed and floating interest payments on
the Notes, taking into account the expected amortisation of the Class A and
Class B Notes. Due to the proximity of the Closing Date to March 31, 1996,
the fair value of these swaps at March 31, 1996 was $Nil.
Interest rate exposures, which may arise in the event that lessees paying
fixed rate rentals default, will be managed in part through the purchase of
Swaptions. While Airplanes Group had not purchased any Swaptions at March 31,
1996, it is intended that a portfolio of Swaptions will be purchased over a 24
month period following the Closing Date.
Airplanes Group is exposed to losses in the event of non-performance by
counterparties to interest rate swap agreements or in the event of defaults by
lessees. However, Airplanes Group does not anticipate non-performance by the
counterparties and other parties and accounts for hedging losses resulting from
lessee defaults as they are incurred.
Counterparty risk is monitored on an ongoing basis. Counterparties are
subject to the prior approval of the Directors of Airplanes Limited and the
Controlling Trustees of Airplanes Trust. Airplanes Group's counterparties at
March 31, 1996 comprise three major U.S./European financial institutions.
(j) Foreign Currency Transactions
Airplanes Group's foreign currency transactions are not significant, as
virtually all revenues and most costs are denominated in US dollars.
(k) New Accounting Standards
Airplanes Group will be required to adopt the provisions of SFAS 121
"Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to
be Disposed of " for the financial year ended March 31, 1997. Management
believes that the provisions of this standard, had it been adopted at March 31,
1996, would not have given rise to any adjustments to the carrying value of
Airplanes Group's assets.
F-12
<PAGE> 82
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
5. CASH
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------
1995 1996
--------------------- ---------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
($MILLIONS) ($MILLIONS)
Cash...................................................... 123 12 214 6
=== == === ==
</TABLE>
Airplanes Group's cash balances were assumed to be maintained throughout
the period to the Closing Date at $135 million. The balance as at March 31, 1996
represents the actual cash balances held by Airplanes Group at that date. The
difference between the assumed cash balances and the actual cash balances
relates to $50 million in additional Class A Notes issued at closing and an
increase in cash balances retained by Airplanes Group for working capital
purposes. The agreements in relation to the Transaction and the issue of the
Notes govern how Airplanes Group's cash balances may be utilized, including the
manner and sequence of disbursement therefrom.
6. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------
1995 1996
--------------------- ---------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
($MILLIONS) ($MILLIONS)
Trade receivables......................................... 124 6 40 2
Allowance for doubtful debts.............................. (66) (5) (12) (1)
-- --
--- ---
58 1 28 1
=== == === ==
Included in trade receivables are deferred amounts as
follows:
Gross deferred lease receivables.......................... 60 1 25 --
Allowance for doubtful debts.............................. (35) (1) (4) --
-- --
--- ---
25 -- 21 --
=== == === ==
</TABLE>
Pursuant to the Transaction, GPA retained certain receivables (including
deferred receivables) due from lessees and, accordingly, the actual amounts of
receivables reflected on the Balance Sheets at March 31, 1996 were lower than
the amounts stated in the financial statements prior to that date.
Deferred lease receivables at March 31, 1995 represent deferrals of rent,
maintenance and miscellaneous payments due from lessees. The most significant of
these lessees are located in Mexico and Brazil where the air transport sector is
suffering from substantial over capacity and the effects of difficult economic
conditions (see Note 4(h)).
Receivables include amounts classified as due after one year of $31 million
(Airplanes Limited $30 million and Airplanes Trust $1 million) at March 31, 1995
and $17 million (Airplanes Limited $17 million and Airplanes Trust $Nil) at
March 31, 1996.
F-13
<PAGE> 83
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
7. AMOUNTS DUE FROM GPA
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------
1995 1996
------------------------ ------------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
($MILLIONS) ($MILLIONS)
Amounts due from GPA................................ -- -- 12 1
== == == ==
</TABLE>
The amounts due from GPA represent cash adjustment amounts payable to
Airplanes Group related to the final amount of lease receivables and related
collateral and security deposits transferred pursuant to the terms of the
Transaction.
8. NET INVESTMENT IN CAPITAL AND SALES TYPE LEASES
The following are the components of the net investment in capital and sales
type leases of Airplanes Limited:
<TABLE>
<CAPTION>
MARCH 31,
-------------
1995 1996
---- ----
($MILLIONS)
<S> <C> <C>
Total minimum lease payments receivable........................ 128 112
Estimated residual values of leased assets..................... 45 37
Less unearned revenue.......................................... (44) (36)
--- ---
Net investment in capital and sales type leases................ 129 113
=== ===
</TABLE>
Aggregate lease rental proceeds in respect of such capital and sales type
leases for the years ended March 31, 1994, 1995 and 1996 amounted to $25
million, $26 million and $28 million respectively.
Unearned revenue of $14 million, $13 million and $8 million for the years
ended March 31, 1994, 1995 and 1996, respectively, was amortised and included in
revenue.
Minimum future payments to be received on such capital leases for aircraft
at March 31, 1996 are as follows:
<TABLE>
<CAPTION>
MINIMUM LEASE
PAYABLES RECEIVABLE
-------------------
($MILLIONS)
<S> <C>
Years ending March 31,
1997....................................................................... 29
1998....................................................................... 29
1999....................................................................... 16
2000....................................................................... 15
2001....................................................................... 13
Thereafter................................................................. 10
---
112
===
</TABLE>
F-14
<PAGE> 84
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
9. AIRCRAFT
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------
1995 1996
----------------------- -----------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
($MILLIONS) ($MILLIONS)
AIRCRAFT
Cost................................................ 4,329 510 4,332 510
Less Accumulated depreciation....................... (681) (106) (861) (129)
----- ---- ----- ----
3,648 404 3,471 381
===== ==== ===== ====
FLEET ANALYSIS
On operating lease for a further period of:
More than five years.............................. 696 4 683 --
From one to five years............................ 2,519 324 1,950 322
Less than one year................................ 369 49 722 25
Non revenue earning aircraft:
Available for lease............................... 47 27 31 25
Available for lease, subject to letters of
intent......................................... 17 -- 85 9
----- ---- ----- ----
3,648 404 3,471 381
===== ==== ===== ====
</TABLE>
Certain aircraft are subject to purchase options granted to existing lessees and
are exercisable at various dates between 1996 and 2003.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------------------------------------
1994 1995 1996
--------------------- --------------------- ---------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST LIMITED TRUST
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
($MILLIONS) ($MILLIONS) ($MILLIONS)
Depreciation expense..................... 157 23 180 24 180 23
=== == === == === ==
</TABLE>
10. AIRCRAFT DEPOSITS AND PRE-DELIVERY PAYMENTS
<TABLE>
<CAPTION>
AIRPLANES
LIMITED
-------------
MARCH 31,
-------------
1995 1996
---- ----
($MILLIONS)
<S> <C> <C>
Balance at April, 1........................................................... 30 --
Paid during year.............................................................. 10 --
Applied to aircraft purchased................................................. (40) --
--- ---
Balance at March, 31.......................................................... -- --
=== ===
</TABLE>
F-15
<PAGE> 85
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
11. ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------
1995 1996
----------------------- -----------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C>
Accrued expenses and other liabilities include:
Unearned revenue.................................... 25 2 15 2
Provisions for loss making leases and downtime...... 81 10 63 13
Interest accrued.................................... 24 3 3 --
Other accruals...................................... 36 1 26 --
Trade payables...................................... 1 -- 1 --
Deposits received................................... 78 2 55 2
-- --
--- ---
245 18 163 17
=== == === ==
Of which:
Payable within one year............................. 69 5 66 10
Payable after one year.............................. 176 13 97 7
-- --
--- ---
245 18 163 17
=== == === ==
</TABLE>
12. AMOUNTS DUE TO GPA
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------
1995 1996
----------------------- -----------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C>
Amounts due......................................... -- -- 12 --
=== == === ==
</TABLE>
The amounts due to GPA include cash balances retained by Airplanes Group on
the Closing Date in excess of those ultimately required in accordance with the
terms of the Transaction pending completion of the transfer to Airplanes Group
of certain letters of credit securing lessee obligations.
F-16
<PAGE> 86
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
13. INDEBTEDNESS
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------
1995 1996
----------------------- -----------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C>
Indebtedness in respect of notes issued:
Subclass A-1........................................ -- -- 773 77
Subclass A-2........................................ -- -- 683 67
Subclass A-3........................................ -- -- 455 45
Subclass A-4........................................ -- -- 182 18
Subclass A-5........................................ -- -- 548 50
Class B............................................. -- -- 341 34
Class C............................................. -- -- 341 34
Class D............................................. -- -- 364 36
Class E............................................. -- -- 538 53
----- --- ----- ---
-- -- 4,225 414
Discounts arising on issue of notes................. -- -- (4) (1)
----- --- ----- ---
-- -- 4,221 413
Indebtedness to GPA................................. 4,192 410 -- --
----- --- ----- ---
4,192 410 4,221 413
===== === ===== ===
</TABLE>
As explained in Note 2, Basis of Preparation, in the period up to the
Closing Date, it was assumed that Airplanes Group was financed with indebtedness
to GPA at a level equivalent to the aggregate amount of all classes of notes
originally expected to be issued by Airplanes Group pursuant to the Transaction.
It has also been assumed that the indebtedness to GPA at the Closing Date was
refinanced from the proceeds of the notes actually issued by Airplanes Group on
the Closing Date.
(a) Debt maturity
The dates on which the principal repayments on the notes will actually
occur will depend on the cash generated by Airplanes Group.
The repayment terms of the Class A, Class B, Class C and Class D Notes
(Notes) are such that certain principal amounts are expected to be repaid based
on certain assumptions, or refinanced through the issue of new Notes, by certain
specified dates (the "EXPECTED FINAL PAYMENT DATE") but are in any event
ultimately due for repayment on specified final maturity dates (the "FINAL
MATURITY DATE").
F-17
<PAGE> 87
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
13. INDEBTEDNESS -- (CONTINUED)
<TABLE>
<CAPTION>
CLASS/SUBCLASS OF NOTES PRINCIPAL AMOUNT EXPECTED FINAL PAYMENT DATE FINAL MATURITY DATE
- --------------------------------- ---------------- --------------------------- -------------------
<S> <C> <C> <C>
($ MILLIONS)
Subclass A-1 850 March 15, 1998 March 15, 2006
Subclass A-2 750 March 15, 1999 March 15, 2009
Subclass A-3 500 March 15, 2001 March 15, 2015
Subclass A-4 200 March 15, 2003 March 15, 2019
Subclass A-5 598 April 15, 1999 March 15, 2019
Class B 375 March 15, 2009 March 15, 2019
Class C 375 March 15, 2011 March 15, 2019
Class D 400 March 15, 2012 March 15, 2019
Class E 591 See (b) below See (b) below
------
4,639
======
</TABLE>
In the event that the sub-class A-1, A-2, A-3 and A-4 are not repaid or
refinanced by the Expected Final Payment Date, additional interest costs will
arise.
(b) Debt details
The components of Airplanes Group debt are analysed below;
<TABLE>
<CAPTION>
MARCH 31,
1996
-----------------------
AIRPLANES AIRPLANES
LIMITED TRUST
--------- ---------
($MILLIONS)
<S> <C> <C>
Subclass A-1 (LIBOR + .25%)............................................ 773 77
Subclass A-2 (LIBOR + .32%)............................................ 683 67
Subclass A-3 (LIBOR + .47%)............................................ 455 45
Subclass A-4 (LIBOR + .62%)............................................ 182 18
Subclass A-5 (LIBOR + .35%)............................................ 548 50
Class B (LIBOR + 1.10%)................................................ 341 34
Class C (8.15%)........................................................ 341 34
Class D (10.875%)...................................................... 364 36
Class E (see below).................................................... 538 53
------- -------
4,225 414
======= =======
</TABLE>
LIBOR on the Class A and Class B Notes equates to the London interbank
offered rate for one month US dollar deposits.
Interest on the Class C and Class D fixed rate Notes will be calculated on
the basis of a 360-day year, consisting of twelve 30-day months.
The Class E Notes will accrue interest for each Interest Accrual Period at
a rate of 20% per annum. The stated interest rate on the Class E Notes shall be
adjusted by reference to the U.S. Consumer Price Index. Except for the Class E
Note Minimum Interest Amount plus the Class E Note Supplemental Interest Amount,
each of which, to the extent payable, will be paid interest at a rate of 1% and
10% multiplied by the outstanding principal balance of the Class E Note,
respectively, no interest or principal will be payable on the
F-18
<PAGE> 88
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
13. INDEBTEDNESS -- (CONTINUED)
Class E Notes until all of the interest, principal and premium, if any, on the
Class A-D Notes have been repaid in full.
In general, the priority of the principal payments on the Notes is as set out
below;
1. Specified minimum principal amounts on the Class A and the Class B Notes in
that order.
2. Additional amounts on the Class A Notes in the event that the value of the
fleet falls below specified target amounts.
3. Scheduled principal repayments on the Class C and Class D Notes in that
order.
4. Specified additional amounts on the Class B Notes and the Class A Notes in
that order.
5. Thereafter, cash available to repay the principal on the Notes is applied
on each payment date to redeem the outstanding principal on the Class D
Notes, the Class C Notes, the Class B Notes and the Class A Notes in that
order.
The Class E Notes rank for repayment of principal only after the principal and
interest on all of the Notes and the interest on the E Notes have been paid.
14. PROVISION FOR MAINTENANCE
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------
1995 1996
--------------------- ---------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C>
Balance at April, 1....................................... 193 24 242 26
Receivable during year.................................... 74 14 78 14
Expenditure/Transfers..................................... (25) (12) (44) (5)
--
--- --- ----
Balance at March, 31...................................... 242 26 276 35
=== == === ====
</TABLE>
15. SHARE CAPITAL
<TABLE>
<CAPTION>
AIRPLANES
LIMITED
---------------------
MARCH 31,
---------------------
1995 1996
---------($)---------
<S> <C> <C>
Ordinary shares, U.S.$1 par value per share
Authorised 10,000.......................................................... -- 10,000
====== ======
Issued 30.................................................................. -- 30
====== ======
</TABLE>
F-19
<PAGE> 89
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
16. REVENUES
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------------------------------------
1994 1995 1996
--------------------- --------------------- ---------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST LIMITED TRUST
--------- --------- --------- --------- --------- ---------
($MILLIONS) ($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
The distribution of revenues by
geographic area is as follows:
Europe................................... 106 1 136 1 195 2
North America............................ 34 38 58 59 58 56
South America............................ 195 6 216 1 185 1
Asia/rest of world....................... 146 -- 137 -- 118 1
-- -- --
--- --- ---
481 45 547 61 556 60
=== == === == === ==
Of which, maintenance revenue
represents............................. 63 8 74 14 78 14
=== == === == === ==
</TABLE>
At March 31, 1996, Airplanes Group had contracted to receive the following
minimum rentals under operating leases:
<TABLE>
<CAPTION>
1996
------------------------
AIRPLANES AIRPLANES
LIMITED TRUST
---------- -----------
($MILLIONS)
<S> <C> <C>
Year ending March 31,
1997........................................ 409 46
1998........................................ 312 41
1999........................................ 230 24
2000........................................ 149 8
2001........................................ 98 1
Thereafter.................................. 103 --
----- ---
1,301 120
===== ===
</TABLE>
Each of Airplanes Limited and Airplanes Trust operates in one business
segment, the leasing of aircraft.
For Airplanes Limited no customer accounted for more than 10% of revenue in
fiscal 1994, 1995 or 1996. For Airplanes Trust: (a) four lessees each accounted
for more than 10% of leasing revenue for the year ended March 31, 1994, and
individually these lessees accounted for 28%, 24%, 13% and 12% of leasing
revenue, respectively, (b) two lessees each accounted for more than 10% of
leasing revenue for the year ended March 31, 1995, and individually these
lessees accounted for 38% and 27% of leasing revenue, respectively, and (c) two
lessees each accounted for more than 10% of leasing revenue for the year ended
March 31, 1996, and individually these lessees accounted for 32% and 31% of
leasing revenue respectively.
F-20
<PAGE> 90
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
17. NET INTEREST EXPENSE
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------------------------------------------
1994 1995 1996
------------------------ ------------------------ ------------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST LIMITED TRUST
---------- ----------- ---------- ----------- ---------- -----------
($MILLIONS) ($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Interest on GPA indebtedness..... 232 26 325 32 339 34
Interest on notes issued......... -- -- -- -- 3 --
Interest income.................. (5) (1) (8) (1) (7) (1)
-- -- --
--- --- ---
227 25 317 31 335 33
=== == === == === ==
Cash paid in respect of
interest....................... 199 23 276 27 294 29
=== == === == === ==
</TABLE>
As set out in Note 2, Basis of Preparation, interest charges included in
the Statement of Operations relating to indebtedness to GPA are based on GPA's
average cost of debt of 6.27%, 7.83% and 8.25% for the years ended March 31,
1994, 1995 and the period to March 28, 1996, respectively. In the period since
the Closing Date the interest charged on the Notes issued was $3 million
(Airplanes Limited $3 million and Airplanes Trust $Nil). The Statement of Cash
Flows gives effect to cash payments for interest only of 1% per annum on that
portion of the indebtedness to GPA assumed to be refinanced by the E Notes
(assumed in these financial statements to be approximately 15% of total
indebtedness prior to the Closing Date) and the balance is deferred and
reflected as a movement in net liabilities.
18. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------------------------------------------
1994 1995 1996
------------------------ ------------------------ ------------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST LIMITED TRUST
---------- ----------- ---------- ----------- ---------- -----------
($MILLIONS) ($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
GECAS Management fees............ 8 1 21 2 20 2
Other selling general and
administrative expenses........ 16 1 10 1 12 1
-- - -- -
24 2 31 3 32 3
== = == =
</TABLE>
19. PROVISION FOR INCOME TAXES
References to Airplanes Limited and Airplanes Trust in the context of this
footnote refer to the underlying taxable entities of Airplanes Limited
(primarily Irish entities) and Airplanes Trust (primarily U.S. entities).
Airplanes Limited
Income tax benefit of Airplanes Limited consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------
1994 1995 1996
---- ---- ----
($MILLIONS)
<S> <C> <C> <C>
Current income tax...................................... -- -- --
Deferred income tax..................................... 5 11 5
-- -- --
5 11 5
== == ==
</TABLE>
F-21
<PAGE> 91
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
19. PROVISION FOR INCOME TAXES -- (CONTINUED)
Airplanes Limited's income from approved activities in Ireland is taxable
at a rate of 10% until December 31, 2005.
There are no significant reconciling differences between the actual income
tax benefit of Airplanes Limited for 1994, 1995 and 1996 and the expected tax
benefit based on a tax rate of 10%.
Airplanes Limited has net operating loss carryforwards of approximately
$403 million as of March 31, 1996, which are available for offset against future
taxable income with no restrictions to expiration.
The deferred tax assets and liabilities of Airplanes Limited are summarised
below:
<TABLE>
<CAPTION>
MARCH 31,
-------------
1995 1996
---- ----
($MILLIONS)
<S> <C> <C>
Deferred tax assets relating to:
Net operating loss carryforwards............................................. 22 40
Deferred tax liability relating to:
Aircraft..................................................................... 82 107
-- --
Net deferred tax liability..................................................... 60 67
== ==
</TABLE>
Airplanes Trust
Income tax benefit of Airplanes Trust consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
($MILLIONS)
Current income tax:
Federal....................................................... -- -- --
State......................................................... -- -- --
--- --- ---
Total current................................................... -- -- --
--- --- ---
Deferred income tax:
Federal....................................................... 6 4 6
State......................................................... 2 1 2
--- --- ---
Total deferred.................................................. 8 5 8
--- --- ---
8 5 8
=== === ===
</TABLE>
A reconciliation of differences between actual income tax benefit of
Airplanes Trust for 1994, 1995, and 1996 and the expected tax benefit based on
the U.S. Federal statutory tax rate of 35% in 1994, 1995, and 1996 is shown
below:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------
1994 1995 1996
---- ---- ----
($MILLIONS)
<S> <C> <C> <C>
Tax benefit at statutory rate................................... 7 4 7
State taxes, net of federal tax................................. 1 1 1
--- --- ---
8 5 8
=== === ===
</TABLE>
F-22
<PAGE> 92
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
19. PROVISION FOR INCOME TAXES -- (CONTINUED)
Airplanes Trust has Federal and State tax net operating loss carryforwards
of approximately $55 million as of March 31, 1996, which expire beginning in
2007.
Deferred tax assets and liabilities of Airplanes Trust are summarised
below:
<TABLE>
<CAPTION>
YEARS ENDED
MARCH 31,
-------------
1995 1996
---- ----
($MILLIONS)
<S> <C> <C>
Deferred tax assets relating to:
Net operating loss carryforwards.................................. 10 22
Other............................................................. 2 10
Valuation allowance............................................... -- (17)
---- ----
12 15
---- ----
Deferred tax liabilities relating to:
Aircraft.......................................................... 47 63
---- ----
Net deferred tax liability.......................................... 35 48
==== ====
</TABLE>
Although all of the aircraft are owned by Airplanes Trust, for tax
purposes, certain of the aircraft are treated as being leased from third parties
under U.S. "safe-harbor lease" tax rules. Under existing tax laws, certain
events could reverse the cumulative effect of this tax treatment, in which case
Airplanes Trust would be required to make payments to the third parties under
the tax indemnification clauses included in the lease agreements. As of March
31, 1994, 1995 and 1996 the maximum potential exposure under these provisions is
$13 million, $11 million and $9 million respectively. The Trust believes that no
events have taken place which could cause such payments to become due.
Pursuant to a tax sharing agreement between Airplanes Trust and GPA,
Airplanes Trust is liable to GPA for its share of the consolidated tax liability
in years subsequent to the completion of the Transaction, in which Airplanes
Trust generates taxable income. However, Airplanes Trust shall satisfy this
liability in cash only to the extent that payments due to tax authorities from
GPA are attributable to Airplanes Trust's share of the consolidated tax
liability; the remainder will be paid in the form of subordinated notes.
Conversely, Airplanes Trust is entitled to be reimbursed by GPA for any tax
benefits provided subsequent to the completion of the Transaction, to GPA from
Airplanes Trust's tax losses. GPA has also indemnified Airplanes Trust for any
tax liabilities of AeroUSA, Inc. (a subsidiary of Airplanes Trust) that relate
to tax years prior to the completion of the Transaction.
20. COMMITMENTS
Capital Commitments
Airplanes Group did not have any material contractual commitments for
capital expenditures at March 31, 1996.
21. CONTINGENT LIABILITIES
Guarantee
Airplanes Limited and Airplanes Trust have unconditionally guaranteed each
others' obligations under all classes of notes issued by Airplanes Limited and
Airplanes Trust, respectively, pursuant to the securitization transaction,
details of which are set out in Note 1.
F-23
<PAGE> 93
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
TO THE BOARD OF DIRECTORS OF AIRPLANES LIMITED
AND THE CONTROLLING TRUSTEES OF AIRPLANES U.S. TRUST:
Under date of June 27, 1996, we reported on the balance sheets of Airplanes
Limited and Airplanes U.S. Trust as of March 31, 1996 and 1995, and the related
statements of operations, changes in shareholders' deficit/net liabilities and
cash flows for each of the years in the three year period ended March 31, 1996,
which are included in this Report on Form 10-K. In connection with our audits of
the aforementioned financial statements, we also audited the related financial
statement schedule in this Report on Form 10-K. This financial statement
schedule is the responsibility of the companies' management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
KPMG
Chartered Accountants
Dublin, Ireland
June 27, 1996
S-1
<PAGE> 94
AIRPLANES GROUP
VALUATION AND QUALIFYING ACCOUNTS
ACCOUNTS RECEIVABLE
SCHEDULE II
<TABLE>
<CAPTION>
BALANCE AT CHARGED/(RELEASED) DEDUCTION
BEGINNING TO COSTS AND (WRITE-OFFS/ BALANCE AT
AIRPLANES LIMITED OF YEAR EXPENSES TRANSFERS) END OF YEAR
- ------------------------------------------ ---------- ------------------ ------------ -----------
<S> <C> <C> <C> <C>
($MILLIONS)
Year ended March 31,
1994.................................... 25 17 (3) 39
1995.................................... 39 34 (7) 66
-- --- --- --
1996.................................... 66 (27) (27) 12
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT CHARGED/(RELEASED) DEDUCTION
BEGINNING TO COSTS AND (WRITE-OFFS/ BALANCE AT
AIRPLANES TRUST OF YEAR EXPENSES TRANSFERS) END OF YEAR
- ------------------------------------------ ---------- ------------------ ------------ -----------
<S> <C> <C> <C> <C>
($MILLIONS)
Year ended March 31,
1994.................................... 3 3 (1) 5
1995.................................... 5 (1) 1 5
-- --- --- --
1996.................................... 5 (1) (3) 1
</TABLE>
S-2
<PAGE> 95
AIRPLANES LIMITED AND AIRPLANES U.S. TRUST
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C>
3.1 Certificate of Incorporation of Atlanta Holdings Limited dated November 3, 1995 and
Certificate of Incorporation on change of name to Airplanes Limited dated November
29, 1995*
3.2 Memorandum and Articles of Association of Airplanes Limited**
3.3 Airplanes U.S. Trust Amended and Restated Trust Agreement among GPA, Inc., as
Settlor, Wilmington Trust Company, as the Delaware Trustee, and the Controlling
Trustees referred to therein**
4.1 Pass Through Trust Agreement dated as of March 28, 1996 among Airplanes Limited,
Airplanes U.S. Trust and Bankers Trust Company, as Trustee**
4.2 Trust Supplement No. 1 dated as of March 28, 1996 to the Pass Through Trust
Agreement**
4.3 Trust Supplement No. 2 dated as of March 28, 1996 to the Pass Through Trust
Agreement**
4.4 Trust Supplement No. 3 dated as of March 28, 1996 to the Pass Through Trust
Agreement**
4.5 Trust Supplement No. 4 dated as of March 28, 1996 to the Pass Through Trust
Agreement**
4.6 Trust Supplement No. 5 dated as of March 28, 1996 to the Pass Through Trust
Agreement**
4.7 Trust Supplement No. 6 dated as of March 28, 1996 to the Pass Through Trust
Agreement**
4.8 Trust Supplement No. 7 dated as of March 28, 1996 to the Pass Through Trust
Agreement**
4.9 Trust Supplement No. 8 dated as of March 28, 1996 to the Pass Through Trust
Agreement**
4.10 Form of Subclass A-1 Pass Through Certificate**
4.11 Form of Subclass A-2 Pass Through Certificate**
4.12 Form of Subclass A-3 Pass Through Certificate**
4.13 Form of Subclass A-4 Pass Through Certificate**
4.14 Form of Subclass A-5 Pass Through Certificate**
4.15 Form of Class B Pass Through Certificate**
4.16 Form of Class C Pass Through Certificate**
4.17 Form of Class D Pass Through Certificate**
4.18 Airplanes Limited Indenture dated as of March 28, 1996 among Airplanes Limited,
Airplanes U.S. Trust and Bankers Trust Company, as Trustee**
4.19 Airplanes U.S. Trust Indenture dated as of March 28, 1996 among Airplanes U.S. Trust,
Airplanes Limited and Bankers Trust Company, as Trustee**
4.20 Form of Floating Rate Subclass A-1 Note**
4.21 Form of Floating Rate Subclass A-2 Note**
4.22 Form of Floating Rate Subclass A-3 Note**
4.23 Form of Floating Rate Subclass A-4 Note**
</TABLE>
- ---------------
* Incorporated by reference to the Registration Statement on Form S-1 (File No.
33-99970), previously filed with the Securities and Exchange Commission.
** Incorporated by reference to the Report on Form 10-Q for the quarterly period
ended December 31, 1995, previous filed with the Securities and Exchange
Commission.
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C>
4.24 Form of Floating Rate Subclass A-5 Note**
4.25 Form of Floating Rate Class B Note**
4.26 Form of 8.15% Class C Note**
4.27 Form of 10.875% Class D Note**
4.28 Form of 20.00% (inflation adjusted) Class E Note**
10.1 Stock Purchase Agreement dated as of March 28, 1996 among GPA, Inc., GPA Group plc
and Airplanes U.S. Trust**
10.2 Stock Purchase Agreement dated as of March 28, 1996 among GPA Group plc, Skyscape
Limited and Airplanes Limited**
10.3 Administrative Agency Agreement dated as of March 28, 1996 among GPA Financial
Services (Ireland) Limited, GPA Group plc, Airplanes Limited, GPA II Limited,
Airplanes U.S. Trust and AeroUSA, Inc.**
10.4 Servicing Agreement dated as of March 28, 1996 among GE Capital Aviation Services,
Limited, Airplanes Limited, AeroUSA, Inc., GPA II Limited, Airplanes U.S. Trust and
GPA Cash Manager Limited**
10.5 Reference Agency Agreement dated as of March 28, 1996 among Airplanes Limited,
Airplanes U.S. Trust, Bankers Trust Company, as Airplanes Limited Indenture Trustee
and Airplanes U.S. Trust Indenture Trustee, Bankers Trust Company, as Reference Agent
and GPA Cash Manager Limited, as Cash Manager**
10.6 Secretarial Services Agreement dated as of March 28, 1996 between Airplanes Limited
and Mourant & Co. Secretaries Limited, as Company Secretary**
10.7 Cash Management Agreement dated as of March 28, 1996 between GPA Cash Manager
Limited, as Cash Manager, GPA Group plc, Airplanes Limited, Airplanes U.S. Trust and
Bankers Trust Company, as Trustee under each of the Airplanes Limited Indenture, the
Airplanes U.S. Trust Indenture and the Security Trust Agreement**
10.8 Form of Swap Agreement**
10.9 Security Trust Agreement dated as of March 28, 1996 among Airplanes Limited,
Airplanes U.S. Trust, Mourant & Co. Secretaries Limited, the Issuer Subsidiaries
listed therein, GPA Financial Services (Ireland) Limited, GPA Cash Manager Limited,
GPA Group plc, GE Capital Aviation Services, Limited, Bankers Trust Company, as
Airplanes U.S. Trust Indenture Trustee and Airplanes Limited Indenture Trustee,
Bankers Trust Company, as Reference Agent, and Bankers Trust Company, as Security
Trustee**
21 Subsidiaries of the Registrants
23.1 Consent of KPMG
23.2 Consent of Aircraft Information Services, Inc.
23.3 Consent of BK Associates, Inc.
23.4 Consent of Airclaims Limited
27 Financial Data Schedule
99.1 Appraisal of Aircraft Information Services, Inc. relating to the Aircraft*
99.2 Appraisal of BK Associates, Inc. relating to the Aircraft*
99.3 Appraisal of Airclaims Limited relating to the Aircraft*
</TABLE>
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
<TABLE>
<S> <C>
AIRPLANES LIMITED
Name: Jurisdiction of Incorporation
Airplanes Holdings Limited Ireland
AIRPLANES U.S. TRUST
Name: State of Incorporation
AeroUSA, Inc. Connecticut
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our reports included herein and to the references
to our firm in the Airplanes Limited and Airplanes U.S. Trust Report on Form
10-K for the fiscal year ended March 31, 1996.
KPMG
Chartered Accountants
Dublin, Ireland
June 27, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF APPRAISER
We consent to the use of our reports included herein and to the references
to our firm in the Airplanes Limited and Airplanes U.S. Trust Report on Form
10-K for the fiscal year ended March 31, 1996.
Date: June 26, 1996 Aircraft Information Services, Inc.
By: /s/ FRED E. BEARDEN
-------------------------------
Name: Fred E. Bearden
Title: President
<PAGE> 1
EXHIBIT 23.3
CONSENT OF APPRAISER
We consent to the use of our reports included herein and to the references
to our firm in the Airplanes Limited and Airplanes U.S. Trust Report on Form
10-K for the fiscal year ended March 31, 1996.
Date: June 26, 1996 BK Associates Inc.
By: /s/ JOHN F. KEITZ
--------------------------
Name: John F. Keitz
Title: Vice President
<PAGE> 1
EXHIBIT 23.4
CONSENT OF APPRAISER
We consent to the use of our reports included herein and to the references
to our firm in the Airplanes Limited and Airplanes U.S. Trust Report on Form
10-K for the fiscal year ended March 31, 1996.
Date: June 26, 1996 Airclaims Limited
By: /s/ EDWARD PIENIAZEK
Name: Edward Pieniazek
Title: Director, Consultancy &
Information Services,
Airclaims Limited
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001004539
<NAME> AIRPLANES LIMITED
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 214
<SECURITIES> 0
<RECEIVABLES> 40
<ALLOWANCES> 12
<INVENTORY> 0
<CURRENT-ASSETS> 243
<PP&E> 4,445
<DEPRECIATION> 861
<TOTAL-ASSETS> 3,846
<CURRENT-LIABILITIES> 137
<BONDS> 4,221
0
0
<COMMON> 0
<OTHER-SE> (893)
<TOTAL-LIABILITY-AND-EQUITY> 3,846
<SALES> 0
<TOTAL-REVENUES> 556
<CGS> 0
<TOTAL-COSTS> 264
<OTHER-EXPENSES> 32
<LOSS-PROVISION> (27)
<INTEREST-EXPENSE> 335
<INCOME-PRETAX> (48)
<INCOME-TAX> (5)
<INCOME-CONTINUING> (45)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (43)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>
5-02(13) Includes aircraft and capital and sales type leases only.
</FN>
</TABLE>
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