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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, 1997
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)
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(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 26, 1997
Airplanes Limited Ordinary Shares, $1.00 par value 30
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AIRPLANES LIMITED AND AIRPLANES U.S. TRUST
1997 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.................................................................... 38
Item 3. Legal Proceedings............................................................. 39
Item 4. Submission of Matters to a Vote of Security-Holders........................... 39
PART II
Item 5. Market for Registrants' Common Equity and Related Stockholder Matters......... 40
Item 6. Selected Combined Financial Data.............................................. 41
Item 7. Management's Discussion and Analysis of Financial Condition and Results of 44
Operations....................................................................
Item 8. Financial Statements and Supplementary Data................................... 56
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial 56
Disclosure....................................................................
PART III
Item 10. Directors and Executive Officers of the Registrants........................... 56
Item 11. Executive Compensation........................................................ 68
Item 12. Security Ownership of Certain Beneficial Owners and Management................ 69
Item 13. Certain Relationships and Related Transactions................................ 69
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............. 70
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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, $13 million were cancelled in July 1996 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") and related leases to
approximately 83 aircraft operators in approximately 40 different countries. The
acquisition of such subsidiaries and the resulting acquisition of the Aircraft
and related leases is referred to herein as the "Acquisition".
As of March 31, 1997, 223 of the Aircraft were on lease to 79 aircraft
operators based in 40 countries. Of the remaining six Aircraft, two were the
subject of non-binding letters of intent to lease, one was the subject of a
non-binding letter of intent to sell and one was subject to a lease (with
delivery to the relevant lessee scheduled for a date after March 31, 1997). The
remaining two Aircraft were being actively re-marketed. The Aircraft subject to
a non-binding letter of intent to sell was subsequently sold. Of the remaining
228 Aircraft, 18 are widebody types and 210 are narrowbody types. Of the two
Aircraft which were being actively re-marketed at March 31, 1997, one
subsequently became subject to a non-binding letter of intent to sell.
AIRPLANES LIMITED
Airplanes Limited is a special purpose limited liability company formed
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
("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) 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.
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On March 28, 1996, Airplanes Limited indirectly acquired 206 of the
Aircraft and related leases through the acquisition of the Holding Co. capital
stock. During the year to March 31, 1997, in order to facilitate the structuring
of certain leasing transactions, two Aircraft were transferred from the indirect
ownership of Airplanes Limited to AeroUSA, Inc. ("AeroUSA"), a Connecticut
corporation and a wholly-owned subsidiary of Airplanes Trust. As of March 31,
1997, Holding Co. owned (i) 31 of the Aircraft and related leases, (ii) 13
wholly-owned subsidiaries which owned 173 of the Aircraft (the "Aircraft Owning
Companies") and (iii) nine other wholly-owned subsidiaries ("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
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, as
amended, among Airplanes Limited, 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 as 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
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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 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" and, 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 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. On
March 28, 1996, 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.
During the year to March 31, 1997, in order to facilitate the structuring of
certain leasing transactions, two Aircraft were transferred from the indirect
ownership of Airplanes Limited to AeroUSA. As of March 31, 1997, Airplanes Trust
indirectly owned 25 Aircraft and related leases.
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, 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.
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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 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. 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 indirect ownership of the Aircraft by two entities (Airplanes Limited
and Airplanes Trust) 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.
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RISK FACTORS
The following summarizes certain risks which may materially affect the
ability of Airplanes Limited and Airplanes Trust to pay the interest, principal
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.
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.
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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 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"). There are ongoing tax audits by certain
state and local tax authorities with respect to tax returns previously made 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
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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 receipt by Airplanes Group from GPA of any amounts 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 neither has nor will have 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 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. (ALPS 94-1 is a special
purpose vehicle 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
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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, 1996, the portfolio of aircraft managed by GECAS and its
affiliates (the "GECAS Managed Portfolio") comprised 891 aircraft. At such date,
the owned portfolio of GE Group was comprised of 450 aircraft or 51% of the
GECAS Managed Portfolio. GECAS announced in early 1996 that it had entered into
a multi-year order for five Boeing 777 and 102 Boeing 737 jet aircraft, and
options for 76 Boeing 737 jet aircraft, of which four Boeing 737 jet aircraft
were purchased in the period up to March 31, 1997. Under the agreement with
Boeing, GECAS also may purchase up to 76 additional Boeing 737 jet aircraft. In
addition, in the same period GECAS purchased three Boeing 737 jet aircraft,
which were not included in the order announced in 1996. On July 15, 1996, GECAS
entered into an order for 40 A320 aircraft and five A340 aircraft, and options
for a further 40 A320 aircraft and five A340 aircraft. The first aircraft under
this order is due for delivery in August 1997. 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. 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 94 Stage 3 and six Stage 2 aircraft
(as of March 31, 1997) 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, Novel Leasing Limited, which is
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
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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 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, as at
April 30, 1997, GPA owned and leased-in a significant fleet of 92 Stage 3
aircraft and six Stage 2 aircraft and, through its investment in SPC, would have
an interest in any aircraft purchased by SPC. Of the 92 Stage 3 aircraft, 35
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.
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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.
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), airlines, aircraft manufacturers, aircraft owners, financial
institutions (including GE Capital and its affiliates), aircraft brokers,
special purpose vehicles (including 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 is not 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 benefits 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");
re-introduction
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into service of aircraft previously in storage; 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. Despite an increase in demand for aircraft in general, an oversupply of
certain types of used Stage 3 aircraft continues to exist, in particular, older
widebody aircraft. Also, as airlines increasingly have the option to use jet
aircraft with similar seat capacities to turboprop aircraft, the market for
turboprop aircraft, in particular ATR42-300s, remains problematic in respect of
both the lease rates achievable and used aircraft values.
At March 31, 1997, of Airplanes Group's six aircraft off lease, two were
DC10s and one was an A300. The majority of older widebody aircraft on lease at
March 31, 1997 were loss-making, with the result that approximately 41% of the
loss making lease provision required was in respect of A300s and a B747. See
"Item 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Results of Operations -- Year Ended March 31, 1997 Compared
with Year Ended March 31, 1996 -- Bad Debt, Downtime and Loss-Making Lease
Provisions". Included in the Portfolio at March 31, 1997 was a Boeing 747 (one
Aircraft or 0.82% by Appraised Value (as defined below) of the Portfolio),
Airbus A300s (six Aircraft or 1.44% by Appraised Value (as defined below) of the
Portfolio) and DC-10s (four Aircraft or 1.61% by Appraised Value (as defined
below) of the Portfolio). Subsequent to March 31, 1997, one DC-10 was sold,
another became subject to a non binding letter of intent to sell and the lessee
of the two remaining DC-10s exercised an option to purchase them in May 1998. At
March 31, 1997, the Portfolio included twenty-eight turboprops (four ATR42-300s,
21 DHC8s and three Metro-IIIs) representing approximately 5% of the Portfolio by
Appraised Value (as defined below). At March 31, 1997, while there were no
turboprops off lease, twelve turboprops had leases terminating in the period
through June 30, 1998 and represented a significant placement challenge.
RISKS RELATING TO THE EXERCISE OF PURCHASE OPTIONS
Seven lessees with respect to 22 Aircraft, representing approximately 9% of
the Portfolio by Appraised Value (as defined below), have options to purchase
Aircraft at prices below "estimated fair market 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 February
25, 1997 to the option exercise date from the average of three appraisals of the
Aircraft's Base Value (as defined below) as determined by independent appraisers
as of February 25, 1997.)
In the event that a significant number of options to purchase Aircraft are
exercised at prices below "estimated fair market 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 (the average of three appraisals performed by
independent appraisers as of October 31, 1995) 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 was more than, and
may have been substantially more than, the value of aircraft in the market at
the time of purchase, given overcapacity in the aviation industry at that time.
Aircraft values depend
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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 re-introduction into service of aircraft previously in
storage), 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.
Airplanes Group obtained updated appraisals of the Aircraft from three
independent aircraft appraisers as of February 25, 1997. On the basis of these
three updated appraisals, the average appraised Base Value of the Aircraft was
approximately $4,207 million (the "Appraised Value") compared with $4,527
million as of October 31, 1995. See "The Aircraft, Related Leases and Collateral
- -- Appraisals". This decrease was approximately $155 million more than the
expected decrease implied by the aircraft depreciation schedules that form part
of the terms of the Notes. Greater than expected decreases in value occurred
across the Portfolio, with significant percentage decreases being experienced by
the older, widebody Aircraft (A300s and DC10s), the Fokker 100s, and to a lesser
extent the MD83s and B737-500s. There can be no assurance that aircraft
appraisers will 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.
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, after allowing for the effect of inflation, 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 future 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 with respect to certain aircraft types such as certain turboprop, Stage
2 and older widebody aircraft, 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 or the Appraised Value. Furthermore, neither the Initial
Appraised Value nor the 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 or the
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.
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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.
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.
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AIRCRAFT TYPE CONCENTRATIONS
At March 31, 1997, the Portfolio contained three aircraft types which each
represented over 10% of the Portfolio by Appraised Value: Boeing 737-400s
constituted 14.3%, McDonnell Douglas MD83s constituted 12.30% and McDonnell
Douglas DC8-71Fs constituted 10.88%. Also, at March 31, 1997, narrowbody
Aircraft (excluding turboprops) constituted 77.2% of the Portfolio by 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 6.4% of the
Aircraft by Appraised Value did not meet, at March 31, 1997, 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 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
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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, 2001 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,
2001, less the aggregate of (a) Aircraft which are currently the subject of a
lease extending through December 31, 2001, (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, 2001. 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, 1997 through the year 2001 are shown in the
following table:
AIRPLANES GROUP LEASE PLACEMENT REQUIREMENT
AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
TO DECEMBER 31,
------------------------------------
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Aircraft available for marketing(1)...................... 6 -- -- -- --
Contracted lease expirations (including expirations of
leases that are assumed to result from letters of
intent)(2)............................................. 40 53 40 47 21
Less Aircraft subject to contract or letter of
intent(3).............................................. (19) (16) -- (2) --
---- ---- ---- ---- ----
Placement requirement(4)(5).............................. 27 37 40 45 21
==== ==== ==== ==== ====
</TABLE>
- ---------------
(1) Aircraft available for marketing consist of those Aircraft which were not
in revenue service with lessees as of March 31, 1997.
(2) Included in aircraft with contracted lease expirations during 1997 and 1998
are nine F100s, three A300s, (one of which is subject to a letter of intent
for lease) and two DC10s (in respect of which the lessee has exercised an
option to purchase in May 1998), all of which suffered significant
percentage decreases in Appraised Value (as defined below) in connection
with the updated February 1997 appraisals. See "Risks Relating to the
Purchase Price and Decline in Aircraft Values -- Risks Relating to the
Aircraft".
(3) 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 and
Airplanes Group's letters of intent have, historically, resulted in lease
agreements between the parties thereto.
(4) Assumes that Aircraft coming to the end of currently contracted lease terms
which are not, as of March 31, 1997, the subject of an additional agreement
or letter of intent need to be re-leased only once more before the year
2001.
(5) Assumes that no current Airplanes Group lease entered into by Airplanes
Group terminates prematurely and that there are no sales of 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.
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
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<PAGE> 18
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. Each of the bankruptcy of
Fokker N.V., the manufacturer of 7.1% of the Aircraft by Appraised Value, and
the proposed merger between Boeing and McDonnell Douglas Corporation, may
adversely affect the rental rates that Airplanes Group is able to obtain on
those Aircraft manufactured by Fokker N.V. and McDonnell Douglas Corporation,
respectively and may adversely affect its ability to make payments of interest
and premium, if any, on, and principal of, the Notes. The rental rates obtained
by Airplanes Group from Varig in respect of three MD-11 Aircraft (two of which
are on lease and the other of which is subject to a letter of intent to lease)
are approximately one third lower than the contracted rentals under the previous
lease agreements for these Aircraft and this will adversely affect Airplanes
Group's operating cash flows.
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, 1997, Airplanes Group had provisions for maintenance of $313
million (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 Airplanes
Group's, 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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There can be no assurance, however, that Airplanes Group's future
maintenance requirements will correspond to Airplanes Group's or 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. With the exception of one lease, 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 31, 1997, 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 $26 million in respect of 30 lessees who had
a combined total of 100 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
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<PAGE> 20
experiencing financial difficulties. The Servicer, on behalf of Airplanes Group,
entered into restructuring agreements with three of these lessees which account
for $7 million of the $26 million outstanding for a period greater than 30 days.
In addition, at March 31, 1997 the Servicer was negotiating restructuring
agreements with two other lessees accounting for an additional $7 million of the
$26 million outstanding for a period greater than 30 days. Twenty-five lessees
account for the remaining $12 million overdue and recovery of these amounts is
being actively pursued. In addition to these amounts, two further lessees were
being allowed formal deferrals of rent, maintenance and miscellaneous payments
totalling $18 million at March 31, 1997. 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, 1997, the lessees with respect to 29% of the Aircraft by
Appraised Value operated in Latin America, principally Brazil, Mexico, 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 and
overall increased economic growth, 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.
In the past, certain of Airplanes Group's Brazilian lessees have
experienced significant difficulties due to overcapacity and adverse market
conditions. As of March 31, 1997, 14 of Airplanes Group's Aircraft representing
approximately 10% of the portfolio by Appraised Value were being operated by
four Brazilian lessees. At March 31, 1997, Airplanes Group had four aircraft on
lease to Varig, a Brazilian Lessee, including one MD-11, two DC-10s (Varig has
exercised its option to purchase both DC-10 aircraft in May 1998) and one B737
representing in total 3.2% of the Portfolio by Appraised Value. In addition, on
April 18, 1997, a further MD-11 was delivered to Varig under a five year lease
agreement. Varig has also signed a letter of intent for the lease of a third
MD-11 Aircraft for a five year term. Assuming the third Aircraft is delivered to
Varig, it will operate six Aircraft, representing 7.3% of the Portfolio by
Appraised Value. The rental rates obtained by Airplanes Group from Varig for the
three MD-11 Aircraft are approximately one third lower than the contracted
rentals under the previous lease agreements for these Aircraft and this will
adversely affect Airplanes Group's operating cashflows. In January 1996, GPA
signed a formal deferral arrangement dated July 1994 with Varig under which all
deferred obligations are due to be repaid by April 1999. Airplanes Group assumed
part of GPA's rights and obligations under this agreement as part of the
Acquisition. At March 31, 1997, the amounts outstanding for a period greater
than 30 days in respect of Varig's deferred obligations to Airplanes Group were
approximately $8 million. Also at March 31, 1997, there were amounts outstanding
of $1 million for a period greater than 30 days in respect of two of the other
three Brazilian lessees.
Mexico is a significant market for Airplanes Group's Aircraft and at March
31, 1997, 28 Aircraft, representing 9% of the Portfolio by Appraised Value, were
being operated by three Mexican aircraft operators. In December 1996, a
restructuring was completed with one Mexican lessee, Aerocalifornia, which
operates eight Aircraft representing approximately 0.2% of the Portfolio by
Appraised Value. These Aircraft are subject to finance leases. Under the
restructuring agreement, all repayments were to be made over the six month
period ending June 30, 1997 after which title to the aircraft would transfer to
the lessee under the terms of the finance leases. To date, the lessee has failed
to comply with its obligations under this agreement. At March 31, 1997, the
amounts outstanding for a period greater than 30 days in respect of this lessee
were $3 million. In January 1996, a formal deferral arrangement was signed with
Compania Mexicana de Aviacion S.A. de C.V. ("Mexicana"), another Mexican lessee
which operates eight Aircraft representing approximately 3% of the Portfolio by
Appraised Value. Mexicana has agreed to repay its obligations over the four year
period ending December 31, 1999. At March 31, 1997, the amounts outstanding for
a period greater than 30 days in respect of Mexicana's deferred balance were $10
million.
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NORTH AMERICAN CONCENTRATION
Airline industry profitability in North America has enjoyed a sustained
improvement since 1993 due to a combination of traffic growth in line with the
overall expansion of the economy in that region and relatively small growth in
aircraft seat capacity, leading to a significant increase in load factors. In
1996 and early 1997 a number of significant new aircraft orders were announced
by North American airlines. However, even in the prevailing robust industry
environment some airlines are reporting losses or very low profits due to either
unsuccessful competitive initiatives in respect of fares and/or capacity, or
uncompetitive cost structures. In the next few years airline profit margins are
likely to come under pressure due to a combination of labour cost increases and
increased aircraft ownership costs as new aircraft are delivered and a large
number of Stage 2 aircraft are hush-kitted. In the early 1990s, several North
American airlines who are currently lessees of Airplanes Group entered into
plans of reorganization or sought the protection of bankruptcy, insolvency or
other similar proceedings. There can be no assurance that such events will not
re-occur in respect of these or other North American lessees of Airplanes Group
and adversely affect the ability of such lessees to make timely and full Rental
Payments under their respective leases.
In December 1996, Canadian Airlines, Airplanes Group's second largest
lessee at March 31, 1997 by Appraised Value, approached its creditors including
Airplanes Group, with proposals to reschedule its obligations. Canadian Airlines
indicated that this approach was part of a general plan designed to address its
financial difficulties. Airplanes Group has thirteen aircraft on lease to
Canadian Airlines, consisting of six A320s on operating leases and seven
B737-200A Aircraft on finance leases. After a series of negotiations between
GECAS, as Servicer to Airplanes Group, and Canadian Airlines, agreement in
principle has been reached on a rescheduling plan which granted Canadian
Airlines a deferral of operating lease rentals for a three month period from
December 1996 to February 1997 and a deferral of finance lease principal
payments in respect of six of the seven Aircraft on finance leases for the six
month period from December 1996 to May 1997. The deferred payments are to be
repaid with interest over a two and a half year period commencing October 1998.
The agreement in principle resulted in a loss of cashflow to Airplanes Group of
approximately $6.4 million over the six months to May 1997.
Airplanes Group has its only B747 (approximately 1% of the Portfolio by
Appraised Value) on lease to Tower Air. Subsequent to the year ended March 31,
1997, Tower Air has fallen into arrears with its rentals payments with the
result that at June 12, 1997, it had a balance of approximately $1 million
outstanding for a period greater than 30 days. A rental deferral has been agreed
with Tower Air which provides for the outstanding balance to be repaid over six
months commencing July 15, 1997.
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.
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<PAGE> 22
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.
CASH FLOW FROM AIRCRAFT AND LEASES UNPREDICTABLE; 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. Airplanes
Group obtained updated appraisals of the Aircraft from three independent
aircraft appraisers as of February 25, 1997. On the basis of these three updated
appraisals, the Appraised Value of the Aircraft was approximately $155 million
lower than the expected decrease implied by the aircraft depreciation schedules
that form part of the terms of the Notes.
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
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<PAGE> 23
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 the 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. Any such failure will 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
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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.
Whether any of Airplanes Limited, Holding Co. or the Transferred Companies
will be subject to United States federal income tax may depend 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. A revised Treaty
has been negotiated and initialed, but has not yet entered into force. Airplanes
Limited, Holding Co. and the Transferred Companies, with the support of the
Irish authorities, have sought a ruling from the United States' authorities that
if the revised Treaty enters into force, Airplanes Limited, Holding Co. and the
Transferred Companies would be deemed to meet certain requirements necessary for
eligibility for Treaty benefits. However, there can be no assurance that the
revised Treaty will enter into force in its current form and/or 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 and/or that their application to the United States authorities will be
successful.
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
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
23
<PAGE> 25
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 36%) 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.
THE AIRCRAFT, RELATED LEASES AND COLLATERAL
PORTFOLIO INFORMATION -- THE AIRCRAFT
At March 31, 1997, Aircraft representing 93.6% of the Appraised Value of
the Aircraft at February 25, 1997, 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 aircraft). The remaining 6.4%
of the Aircraft by 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.
24
<PAGE> 26
The following table sets forth the exposure of the Portfolio to certain
individual lessees, calculated as of March 31, 1997 by reference to the
Appraised Value of the Aircraft as of February 25, 1997.
<TABLE>
<CAPTION>
NUMBER OF % OF PORTFOLIO BY
LESSEE(1) AIRCRAFT APPRAISED VALUE
- --------- --------- -----------------
<S> <C> <C>
Aerovias de Mexico S.A. de C.V. ("Aeromexico").................... 12 5.46%
Canadian Airlines International Limited........................... 13 5.38
Turk Hava Yollari A.O............................................. 7 4.44
P.T. Garuda Indonesia............................................. 2 4.06
Burlington Air Express, Inc....................................... 10 4.03
Emery Worldwide Airlines, Inc..................................... 9 3.62
Aerovias Nacionales de Colombia S.A., ("Avianca")................. 5 3.40
Varig(2).......................................................... 4 3.20
Airtours International Airways Limited............................ 4 3.12
Mexicana.......................................................... 8 3.01
Transbrasil....................................................... 2 2.92
Air Espana S.A. ("Air Europa").................................... 4 2.33
Transportes Aereos Regionais S.A. ("TAM")......................... 5 2.20
Other (66 lessees)................................................ 138 51.04
Off-lease(3)...................................................... 6 1.79
--- -------
Total........................................................... 229 100.00%
</TABLE>
- ---------------
(1) Total number of lessees = 79
(2) On April 18, 1997, a further Aircraft, representing approximately 2.03% of
the Portfolio by Appraised Value, was delivered to Varig under a lease
agreement. Varig has also signed a letter of intent for the lease of
another Aircraft. Assuming the latter Aircraft is delivered, Varig will
operate six Aircraft, representing approximately 7.26% of the Portfolio by
Appraised Value.
(3) Of the six Aircraft off-lease, two were the subject of non-binding letters
of intent to lease, one was the subject of a non-binding letter of intent
to sell and one was subject to a lease contract and was scheduled for
delivery to the relevant lessee after March 31, 1997. The aircraft which
was subject to the letter of intent to sell was sold subsequent to March
31, 1997.
25
<PAGE> 27
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, 1997 and the Appraised Value of the Aircraft as of
February 25, 1997. For the purpose of the following table, turboprop Aircraft
are assumed to be Stage 3 aircraft.
<TABLE>
<CAPTION>
NUMBER OF ENGINE % OF PORTFOLIO BY
MANUFACTURER TYPE OF AIRCRAFT AIRCRAFT BODY TYPE STAGE APPRAISED VALUE
- ------------ ------------------ --------- ----------- ------ -----------------
<S> <C> <C> <C> <C> <C>
Boeing (42.95%)................ 727-200A 2 Narrowbody 2 0.23
737-200A 30 Narrowbody 2 4.22
737-200C 2 Narrowbody 2 0.41
737-300 11 Narrowbody 3 6.09
737-400 22 Narrowbody 3 14.30
737-500 11 Narrowbody 3 5.85
747-200BC 1 Widebody 3 0.82
757-200 3 Narrowbody 3 3.16
767-200ER 1 Widebody 3 1.37
767-300ER 4 Widebody 3 6.49
McDonnell Douglas (34.15%)..... DC8-71F 27 Narrowbody 3 10.88
DC8-73CF 1 Narrowbody 3 0.51
DC9-14 2 Narrowbody 2 0.05
DC9-15 6 Narrowbody 2 0.14
DC9-32 7 Narrowbody 2 0.81
DC9-51 4 Narrowbody 2 0.51
DC10-30 2 Widebody 3 0.86
DC10-30F 2 Widebody 3 0.75
MD11 3 Widebody 3 6.02
MD82 2 Narrowbody 3 0.94
MD83 23 Narrowbody 3 12.30
MD87 1 Narrowbody 3 0.39
Airbus (10.68%)................ A300-B4-100 3 Widebody 3 0.47
A300-B4-203 2 Widebody 3 0.60
A300-C4-203 1 Widebody 3 0.37
A320-200 12 Narrowbody 3 9.24
Fokker (7.14%)................. F100 16 Narrowbody 3 7.14
Bombardier De Havilland
(4.31%)...................... DHC8-100 5 Turboprop 3 0.79
DHC8-102 1 Turboprop 3 0.13
DHC8-300 6 Turboprop 3 1.36
DHC8-300A 9 Turboprop 3 2.03
Other (0.77%).................. METRO-III 3 Turboprop 3 0.12
ATR42-300 3 Turboprop 3 0.47
ATR42-320 1 Turboprop 3 0.18
--- -------
229 100.00
=== =======
</TABLE>
26
<PAGE> 28
The following table sets forth the exposure of the Portfolio as of March
31, 1997 to countries in which lessees are domiciled, calculated by reference to
the Appraised Value of the Aircraft at February 25, 1997.
<TABLE>
<CAPTION>
NUMBER OF % OF PORTFOLIO BY
COUNTRY(1) AIRCRAFT APPRAISED VALUE
- ---------- --------- -----------------
<S> <C> <C>
United States..................................................... 33 12.94%
Brazil(2)......................................................... 14 9.91
Turkey............................................................ 15 9.37
Mexico............................................................ 28 8.66
Canada............................................................ 16 6.02
Indonesia......................................................... 7 5.94
Spain............................................................. 10 5.56
Colombia.......................................................... 8 4.39
United Kingdom.................................................... 8 4.18
China............................................................. 6 3.38
Sweden............................................................ 3 3.32
Chile............................................................. 10 2.82
Italy............................................................. 4 2.26
Other Countries (27 countries).................................... 61 19.46
Off-lease(3)...................................................... 6 1.79
--- -------
Total........................................................... 229 100.00%
</TABLE>
- ---------------
(1) Total number of countries = 40
(2) On April 18, 1997, a further Aircraft, representing 2.03% of the Portfolio
by Appraised Value, was delivered to Varig, a Brazilian lessee. Varig has
also signed a letter of intent for the lease of another Aircraft. Assuming
the latter Aircraft is delivered, Varig will operate six Aircraft, such
that approximately 13.97% of the Portfolio by Appraised Value will be on
lease to lessees domiciled in Brazil.
(3) Of the six Aircraft off-lease, two were the subject of non-binding letters
of intent to lease, one was the subject of a non-binding letter of intent
to sell and one was subject to a lease contract, and was scheduled for
delivery to the relevant lessee after March 31, 1997. The aircraft which
was subject to a letter of intent to sell was sold subsequent to March 31,
1997.
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, 1997 and the Appraised Value of the Aircraft as of February 25, 1997.
<TABLE>
<CAPTION>
NUMBER % OF PORTFOLIO BY
REGION OF AIRCRAFT APPRAISED VALUE
- ------ ----------- -----------------
<S> <C> <C>
Europe (excluding CIS Countries).................................. 65 33.62%
Latin America(1).................................................. 75 29.06
North America..................................................... 49 18.96
Asia & Far East................................................... 22 14.15
Africa............................................................ 5 1.66
Australia & New Zealand........................................... 4 0.29
Others (including CIS Countries).................................. 3 0.47
Off-lease(2)...................................................... 6 1.79
--- -------
Total........................................................... 229 100.00%
==== =======
</TABLE>
- ---------------
(1) On April 18, 1997, a further Aircraft, representing approximately 2.03% of
the Portfolio by Appraised Value, was delivered to Varig, a Brazilian
lessee. Varig has also signed a letter of intent for the lease of another
Aircraft. Assuming the latter Aircraft is delivered, Varig will operate six
Aircraft, such that approximately 33.12% of the Portfolio by Appraised
Value will be on lease to lessees domiciled in Latin America.
27
<PAGE> 29
(2) Of the six Aircraft off-lease, two were the subject of non-binding letters
of intent to lease, one was the subject of a non-binding letter of intent
to sell and one was subject to a lease contract and was scheduled for
delivery to the relevant lessee after March 31, 1997. The aircraft which
was subject to a letter of intent to sell was sold subsequent to March 31,
1997.
The following table sets forth the exposure of the Portfolio by year of
aircraft manufacture or conversion to freighter, calculated as of March 31, 1997
by reference to the Appraised Value of the Aircraft as of February 25, 1997.
<TABLE>
<CAPTION>
% OF PORTFOLIO
NUMBER BY APPRAISED
YEAR OF MANUFACTURER/FREIGHTER CONVERSION OF AIRCRAFT VALUE
- ----------------------------------------- ----------- --------------
<S> <C> <C>
1988................................................................. 15 4.83%
1989................................................................. 9 4.16
1990................................................................. 21 9.92
1991................................................................. 45 23.25
1992................................................................. 55 38.07
1993................................................................. 7 3.29
1994................................................................. 6 2.86
Other................................................................ 71 13.62
--- -------
Total.............................................................. 229 100.00%
=== =======
</TABLE>
28
<PAGE> 30
Further particulars of the Portfolio as of March 31, 1997 (except for Appraised
Values which are as of February 25, 1997) 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 Nouvelair Tunisie MD83 JT8D-219 49442
Tunisia Nouvelair Tunisie MD83 JT8D-219 49624
Tunisia Nouvelair Tunisie MD83 JT8D-219 49672
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 Jet Airways B737-400 CFM56-3C1 24345
India Jet Airways B737-400 CFM56-3C1 24687
India Jet Airways B737-500 CFM56-3C1 25191
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 F100 TAY650-15 11336
Indonesia Sempati F100 TAY650-15 11339
Indonesia Sempati F100 TAY650-15 11347
Indonesia Sempati(1) F100 TAY650-15 11266
Malaysia Air Asia B737-300 CFM56-3C1 24907
Pakistan Pakistan Int. Airline A300-B4-203 CF6-50C2 269
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 Estago Anlagen-Vermietungs MD83 JT8D-219 49620
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
Ireland Aer Lingus B737-400 CFM56-3C1 24690
Ireland Translift Airways A300-B4-100 CF6-50C2 12
Ireland Translift Airways A300-B4-100 CF6-50C2 20
Italy Air One SpA B737-300 CFM56-3C1 25179
Italy Air One SpA B737-300 CFM56-3C1 25187
Italy Eurofly MD83 JT8D-219 49390
Italy Eurofly MD83 JT8D-219 49631
Netherlands Schreiner Airways DHC8-300A PW123 276
Netherlands Schreiner Airways DHC8-300A PW123 283
Netherlands Schreiner Airways DHC8-300A PW123 296
Netherlands Schreiner Airways DHC8-300A PW123 298
Netherlands Schreiner Airways DHC8-300A PW123 300
Netherlands Schreiner Airways DHC8-300 PW123 232
Netherlands Transavia B737-300 CFM56-3C1 24905
<CAPTION>
APPRAISED
DATE OF VALUE AT
MANUFACTURE/ FEBRUARY 25, 1997
REGION CONVERSION (US$000'S)
- ------ ------------ -----------------
<S> <<C> <C>
Africa 01-Jul-76 4,958
01-Jul-76 4,915
29-Apr-87 19,446
01-Aug-88 20,308
01-Jul-88 20,329
Asia & Far East 26-Feb-91 21,415
03-Feb-92 22,603
14-Feb-92 22,650
12-Mar-92 22,497
25-Nov-92 44,287
09-Dec-83 8,889
01-Jun-89 24,950
25-May-90 26,912
10-Apr-92 22,496
01-Mar-92 84,503
01-Sep-92 86,097
30-Mar-83 7,380
05-Jun-91 18,978
01-Jul-91 19,064
01-Oct-91 19,090
17-Aug-90 14,725
01-Mar-91 25,578
11-Aug-83 13,640
01-May-79 15,445
01-Oct-90 23,967
14-Jul-89 24,720
21-Dec-89 25,264
Australia & New Zealand 01-Sep-90 7,247
01-Aug-88 1,677
01-Mar-88 1,677
01-Jun-88 1,677
Europe 01-Dec-91 9,435
01-Sep-91 31,385
01-Sep-91 31,449
01-Jul-88 20,478
01-Jun-79 6,041
01-May-80 6,202
14-Feb-83 7,154
01-Feb-83 7,138
01-Mar-83 7,557
02-Nov-92 29,024
13-Nov-92 29,005
01-Jul-90 26,136
20-May-75 7,089
01-Oct-75 7,010
12-Feb-92 27,208
14-Mar-92 27,123
01-Apr-86 19,000
14-Jun-89 21,947
13-May-91 9,282
01-Sep-91 9,558
01-Oct-91 9,542
01-Apr-92 9,707
01-Apr-92 9,892
20-Oct-90 8,662
01-Feb-91 25,689
</TABLE>
29
<PAGE> 31
<TABLE>
<CAPTION>
AIRCRAFT ENGINE SERIAL
REGION COUNTRY LESSEE TYPE CONFIGURATION NUMBER
- ------ ------- ------ ----------- --------------- ------
<S> <C> <C> <C> <C> <C>
Norway Wideroe's Flyveselskap a/s DHC8-300 PW123 293
Norway Wideroe's Flyveselskap a/s 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 49709
Spain Spanair MD83 JT8D-219 49938
Sweden Blue Scandinavia AB B757-200 RB2110-535E4-37 26151
Sweden Nordic European Airlines B737-400 CFM56-3C1 24911
Sweden SAS B767-300ER PW4060 25411
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 24684
Turkey Pegasus B737-400 CFM56-3C1 26081
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 B737-500 CFM56-3C1 25288
Turkey Turk Hava Yollari B737-500 CFM56-3C1 25289
Turkey Turk Hava Yollari B737-400 CFM56-3C1 26065
United Kingdom Airtours International A320-200 CFM56 294
United Kingdom Airtours International A320-200 CFM56 301
United Kingdom Airtours International A320-200 CFM56 348
United Kingdom Airtours International A320-200 CFM56-5A3 349
United Kingdom British Midland B737-500 CFM56-3C1 25185
United Kingdom Brymon Airways DHC8-300 PW123 334
United Kingdom Titan Airways ATR42-300 PW120 109
United Kingdom Titan Airways ATR42-300 PW120 113
Latin America Antigua Liat DHC8-102 PW120-A 113
Antigua Liat DHC8-100 PW120-A 140
Antigua Liat DHC8-100 PW120-A 144
Antigua Liat DHC8-100 PW120-A 270
Argentina Aerolineas Argentinas B737-200A JT8D-17 21192
Argentina LAPA B737-200A JT8D-15 22278
Argentina LAPA B737-200A JT8D-15 22368
Argentina LAPA B737-200A JT8D-15 22369
Argentina LAPA B737-200QC JT8D-17A 23065
Aruba Air Aruba MD83 JT8D-219 49950
Brazil Rio Sul B737-500 CFM56-3C1 25186
Brazil Rio Sul B737-500 CFM56-3C1 25192
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 B767-300ER PW4060 24948
Brazil Transbrasil B767-200ER PW4056 25421
Brazil VARIG MD11 CF6-80C2-D1F 48499
Brazil VARIG(1) B737-300 CFM56-3B2 26852
<CAPTION>
APPRAISED
DATE OF VALUE AT
MANUFACTURE/ FEBRUARY 25, 1997
REGION CONVERSION (US$000'S)
- ------ ------------ -----------------
<S> <C> <C>
01-Oct-91 9,697
01-Dec-92 10,712
01-May-87 20,792
01-Apr-88 22,377
24-Feb-91 27,231
14-Jun-91 27,497
03-Jul-90 26,438
21-Jan-92 28,142
19-May-92 16,797
22-Oct-88 20,551
01-Dec-88 20,504
01-Dec-90 23,403
23-Jul-92 44,601
01-Apr-91 27,309
15-Jan-92 67,926
26-Sep-90 23,400
25-Aug-91 24,587
07-Aug-90 26,135
09-Aug-90 26,229
01-Apr-90 26,150
10-Mar-93 30,083
07-Apr-92 28,536
01-Nov-89 22,385
06-Oct-90 23,218
01-Jul-91 24,794
24-Jun-91 27,432
03-Feb-92 28,303
02-Mar-92 28,540
09-Apr-92 28,655
16-Jun-92 22,472
12-Jun-92 22,476
01-May-92 28,725
02-Apr-92 32,406
22-Apr-92 32,546
17-Jun-92 33,019
30-Oct-92 33,099
18-Feb-92 22,333
08-Oct-92 10,055
14-Oct-88 6,060
18-Nov-88 6,127
Latin America 01-Sep-88 5,477
01-Mar-89 5,887
01-Mar-89 6,080
01-May-91 6,953
01-Mar-76 4,865
19-Mar-80 6,132
01-Sep-80 6,041
01-Sep-80 6,062
15-Oct-96 8,534
01-Nov-91 24,645
11-Mar-92 22,330
14-Apr-92 22,250
23-Oct-92 22,562
31-Jul-90 18,217
01-Aug-90 18,210
27-Feb-91 18,443
19-Apr-91 18,554
06-Aug-91 19,080
19-Jul-91 65,459
14-Jan-92 57,530
31-Dec-91 82,785
20-Apr-92 20,281
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
AIRCRAFT ENGINE SERIAL
REGION COUNTRY LESSEE TYPE CONFIGURATION NUMBER
- ------ ------- ------ ---------- --------------- ------
<S> <C> <C> <C> <C> <C>
Brazil VARIG(1) DC10-30F CF6-50C2 47841
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 Lan Chile Airlines B737-200A JT8D-15 21960
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-15 22632
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 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 Mexicana B727-200A JT8D-17R 21346
Mexico Mexicana B727-200A JT8D-17R 21600
Netherlands Antilles ALM DHC8-300C PW123 242
Netherlands Antilles ALM DHC8-300C PW123 230
Peru Aerosanta B737-200A JT8D-17 21206
Trinidad & Tobago BWIA International MD83 JT8D-219 49789
North America Canada BOMBARDIER INC DHC8-300 PW123 244
Canada BOMBARDIER INC DHC8-300A PW123 266
Canada BOMBARDIER INC DHC8-300A PW123 267
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
<CAPTION>
APPRAISED
DATE OF VALUE AT
MANUFACTURE/ FEBRUARY 25, 1997
REGION CONVERSION (US$000'S)
- ------ ------------ -----------------
<S> <C> <C>
03-Jul-80 15,682
08-Apr-80 15,682
09-Apr-92 17,103
15-Oct-92 17,120
10-Aug-91 16,767
29-Oct-92 17,123
07-Dec-93 17,210
01-Mar-80 6,160
01-Feb-81 6,723
01-Sep-80 6,827
01-Feb-82 6,483
01-May-83 7,108
01-Jan-92 7,683
22-Sep-92 43,919
26-Oct-90 23,290
18-Jul-91 24,328
29-Jul-92 25,279
02-Apr-92 26,036
09-Mar-91 17,167
24-Apr-91 16,827
07-Feb-81 11,587
01-Aug-66 1,050
01-May-66 999
01-Nov-66 1,000
01-Mar-67 1,067
01-May-67 958
01-Jul-67 959
01-Dec-67 903
01-Oct-68 980
01-Sep-92 69,748
01-Oct-92 70,082
01-Feb-74 3,299
01-Apr-80 4,906
01-Apr-80 5,156
01-Jul-80 5,069
01-Aug-80 5,097
01-Nov-80 5,139
01-Dec-80 5,493
01-Mar-88 19,579
21-Jan-88 19,848
01-Dec-88 16,349
16-May-91 18,759
05-Apr-91 18,713
20-Jan-92 19,777
01-Dec-92 19,815
01-Jan-93 19,832
01-Jan-93 19,929
01-Oct-80 4,909
01-Nov-80 4,805
01-Nov-90 9,437
01-Feb-91 9,533
26-Feb-76 4,673
23-Sep-89 22,252
North America 01-Dec-90 8,723
20-Mar-91 9,213
04-Apr-91 9,227
01-Apr-91 31,302
01-Apr-91 31,282
01-Oct-91 31,533
09-Mar-92 32,722
13-May-92 32,639
01-Jan-94 35,231
</TABLE>
31
<PAGE> 33
<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 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
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 45973
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 Reno Air MD-83 JT8D-219 49941
United States of America Reno Air MD-83 JT8D-219 49949
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 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 Ukraine International B737-200A JT8D-17A 22802
Off Lease Off Lease A300-B4-100 CF6-50C2 9
Off Lease DC10-30 CF6-50C2 46978
Off Lease -- Lease TAM(2) F100 TAY650-15 11371
Off Lease -- Lease LOI B737-200A JT8D-15 22633
Aerosweet(3)
Off Lease -- Lease LOI PT B737-200A JT8D-15 22396
Mandala(3)
Off Lease -- Sale LOI DAS DC10-30 CF6-50C2 46976
Air(4)
<CAPTION>
APPRAISED
DATE OF VALUE AT
MANUFACTURE/ FEBRUARY 25, 1997
REGION CONVERSION (US$000'S)
- ------ ------------ -----------------
<S> <C> <C>
01-Aug-74 2,516
01-Jan-75 3,463
01-Nov-74 3,463
01-Dec-75 3,463
01-Nov-78 4,801
01-Feb-79 5,240
01-Jul-82 8,595
01-Jun-86 21,727
01-Jun-86 21,700
30-May-91 16,493
28-Apr-92 17,330
23-Apr-92 16,790
13-Feb-92 16,977
27-Feb-92 16,953
23-Apr-93 17,240
23-Jun-93 17,090
01-Sep-94 17,009
21-May-93 17,042
12-Jan-92 16,438
14-Jul-94 17,253
27-Aug-91 16,723
11-Mar-94 17,163
25-Jun-91 16,933
21-Jul-92 16,833
23-Nov-90 16,837
24-Jan-94 16,448
30-Dec-94 17,203
29-Oct-90 16,823
01-Apr-86 19,944
01-Jun-77 4,775
01-May-79 5,422
01-Apr-79 5,403
26-Jan-81 5,658
01-Jun-91 7,650
01-Dec-90 23,243
05-Aug-91 24,498
01-Dec-89 21,403
07-Jun-79 34,617
01-Oct-87 19,668
01-Jan-91 7,020
Others 01-Jan-79 5,546
01-Mar-81 6,444
01-Feb-83 7,540
Off Lease 26-Dec-74 5,753
29-Nov-78 17,930
19-Dec-91 19,173
01-Mar-81 7,311
01-Feb-81 6,872
14-Dec-78 18,183
-------
4,206,906
-------
</TABLE>
- ---------------
NOTE:
(1) Aircraft Lease Receivable Book Values are used for the Aircraft subject to
finance leases (11 in total) rather than the Appraised Values of these
Aircraft.
(2) These Aircraft are subject to lease contracts and are scheduled for delivery
to the relevant lessees after March 31, 1997.
(3) "Lease LOI" denotes Aircraft subject to non-binding Letter of Intent for
operating lease.
(4) "Sale LOI" denotes Aircraft subject to non-binding Letter of Intent for
sale. (This Aircraft was sold subsequent to March 31, 1997.)
32
<PAGE> 34
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 February 25, 1997, 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
$4,279 million in the case of BK Associates, Inc., $4,446 million in the case of
Aircraft Information Services, Inc. and $3,978 million in the case of Airclaims
Limited. The aggregate Appraised Value of the Aircraft is $4,207 million, which
is approximately $27 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 Appraised Value of the Portfolio at
Airplanes Group's net book value (which represents the value of amounts payable
by the finance lessees) rather than the Aircraft's Base Value. Airplanes Group
believes that, due to current excess supply of certain aircraft in the market,
including in particular certain turboprop, Stage 2 and older wide body aircraft,
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 Appraised Value. Furthermore, neither the
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 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.
THE LEASES
GENERAL
All leases are managed by the Servicer pursuant to the Servicing Agreement.
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.
33
<PAGE> 35
Each Airplanes Group current lease requires the lessee to make periodic
Rental Payments during the lease term. The majority of current leases had 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.
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,
34
<PAGE> 36
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. With the exception of one lease, the relevant leases require the
lessee to reimburse the lessor for any political risk repossession insurance
premiums.
THE LESSEES
As of March 31, 1997, there were 79 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 year ending March 31, 1995, Airplanes Group
made provisions in respect of bad and doubtful debts of 6.3% of leasing revenue
(excluding maintenance revenues) which amounted to $31 million. 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 which was
primarily a result of a reduction in the provisions required in respect of two
Brazilian lessees and one Mexican lessee. In the year to March 31, 1997, there
was no additional provision required in respect of bad and doubtful debts
primarily as a result of a release of provisions in respect of one Mexican
lessee and the use of the provision made in respect of one Indonesian lessee
under a restructuring agreement reached with that lessee during 1997. This
release and use of provisions was offset by an increase in the provisions
required in respect of one Indian lessee, one Canadian lessee and one Peruvian
lessee. There can be no assurance that the rate of lessee defaults will not
increase again in the future requiring additional provisions in respect of bad
and doubtful debts.
As of March 31, 1997, 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 $26 million in respect of 30 lessees
who had a combined total of 100 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. At March 31, 1997, Airplanes
Group, through the actions of GECAS, in its capacity as Servicer, had entered
into restructuring agreements with three of the lessees which account for $7
million of the above amount (in addition to entering into a restructuring
agreement with two lessees which had no outstanding balances at March 31, 1997).
Of these three lessees, two lessees account for approximately $6 million of the
outstanding obligation for periods greater than 30 days and the third lessee,
which had returned the aircraft at March 31, 1997, accounts for $1 million which
it has agreed to repay over an eleven month period. In addition, at March 31,
1997, the Servicer was in negotiation with two other lessees which account for
$7 million of the $26 million outstanding for a period greater than 30 days. 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, it has been necessary to repossess Aircraft from lessees who
defaulted and to re-lease 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
35
<PAGE> 37
providers ("Swap Agreements"). See "Item 7: Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Results of Operations --
Year Ended March 31, 1997 Compared with Year Ended March 31, 1996 -- Bad Debt,
Downtime and Loss-Making Lease Provisions". As of March 31, 1997, in addition to
the $26 million in amounts outstanding greater than 30 days, two further lessees
were being allowed deferrals of rent, maintenance and miscellaneous payments
totalling $18 million.
The most significant deferrals, rescheduled amounts and difficult accounts,
as of March 31, 1997, are referred to below.
LATIN AMERICA
Lessees with respect to approximately 29% of the Aircraft by Appraised
Value operate in Latin America, principally Brazil, Mexico, 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 continued to experience improvement in their economies in the past several
years, which has resulted in increased political stability and overall increased
economic growth, 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.
BRAZIL
At March 31, 1997, 14 Aircraft (or approximately 10% of Airplanes Group's
Portfolio by Appraised Value) were leased by four Brazilian lessees. In 1994,
GPA entered into a rescheduling agreement with Varig, 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 this
agreement as part of the Acquisition. GPA signed this formal deferral agreement
in January 1996, under which all deferred obligations are due to be repaid by
April 1999. At March 31, 1997, Airplanes Group had four aircraft on lease to
Varig (which included one MD11, two DC10s (subsequent to March 31, 1997 Varig
exercised its option to purchase both DC10 aircraft in May 1998) and one B737)
representing 3.2% of the Portfolio by Appraised Value. In addition, on April 18,
1997, a further MD11 was delivered under a lease agreement. Varig has also
signed a letter of intent for the lease of a third MD11. Lease terms of five
years have been obtained by Airplanes Group from Varig in respect of each of the
three MD11 Aircraft. However, the rental rates are approximately one third lower
than the contracted rentals under the previous lease agreements for these
Aircraft and this will adversely affect Airplanes Group's operating cashflows.
Assuming the third Aircraft is delivered to Varig it will operate six Aircraft,
representing 7.3% of the Portfolio by Appraised Value. At March 31, 1997, the
amounts outstanding for a period greater than 30 days in respect of Varig's
deferred obligations to Airplanes Group were approximately $8 million. Also at
March 31, 1997, there were amounts outstanding of $1 million for a period
greater than 30 days in respect of two of the other three Brazilian lessees.
MEXICO
Mexico continues to be a significant market for aircraft, and at March 31,
1997, 28 Aircraft representing approximately 9% of the Portfolio by Appraised
Value, were being operated by three Mexican aircraft operators. In December
1996, a restructuring was completed with one Mexican lessee, Aerocalifornia,
which operates eight Aircraft representing approximately 0.2% of the Portfolio
by Appraised Value. These Aircraft are subject to finance leases. Under the
restructuring agreement, all repayments were to be made over the six month
period ending June 30, 1997, after which title to the aircraft would transfer to
the lessee under the terms of the finance leases. To date, the lessee has failed
to comply with its obligations under this agreement. At March 31, 1997, amounts
outstanding for a period greater than 30 days in respect of this lessee were $3
million. In January 1996, a formal deferral arrangement was signed with
Mexicana, another Mexican lessee which operates eight Aircraft representing
approximately 3% of the Portfolio by Appraised Value. Mexicana has agreed to
repay its obligations over the four year period ending December 31, 1999. At
March 31, 1997, the amounts outstanding for a period greater than 30 days in
respect of Mexicana's deferred balance were
36
<PAGE> 38
$10 million. The third Mexican lessee has performed satisfactorily in the year
ended March 31, 1997 and had no amounts outstanding for a period greater than 30
days.
There can be no assurance that such lessees will comply with the terms of
any such restructuring agreements. As of March 31, 1997, 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.
NORTH AMERICA
North America is an important market for Airplanes Group's Aircraft with
approximately 19% of the Portfolio by Appraised Value being operated in this
region. At March 31, 1997, Airplanes Group had 33 Aircraft (or approximately 13%
of the Portfolio by Appraised Value) on lease to 11 U.S.-based aircraft
operators and 16 Aircraft (or approximately 6% of the Portfolio by Appraised
Value) on lease to two Canadian aircraft operators. Airline industry
profitability in North America has enjoyed a sustained improvement since 1993
due to a combination of traffic growth in line with the overall expansion of the
economy in that region and relatively small growth in aircraft seat capacity,
leading to a significant increase in load factors. In 1996 and early 1997 a
number of significant new aircraft orders were announced by North American
airlines. However, even in the prevailing robust industry environment some
airlines are reporting losses or very low profits due to either unsuccessful
competitive initiatives in respect of fares and/or capacity, or uncompetitive
cost structures. In the next few years airline profit margins are likely to come
under pressure due to a combination of labour cost increases and increased
aircraft ownership costs as new aircraft are delivered and a large number of
Stage 2 aircraft are hush-kitted. In the early 1990s, several North American
airlines who are currently lessees of Airplanes Group entered into plans of
reorganization or sought the protection of bankruptcy, insolvency or other
similar proceedings. There can be no assurance that such events will not re-
occur in respect of these or other North American lessees of Airplanes Group and
adversely affect the ability of such lessees to make timely and full Rental
Payments under their respective leases.
In December, 1996, Canadian Airlines, Airplanes Group's second largest
lessee at March 31, 1997 by Appraised Value, approached its creditors including
Airplanes Group with proposals to reschedule its obligations. Canadian Airlines
indicated that this approach was part of a general plan designed to address its
financial difficulties. Airplanes Group has thirteen aircraft on lease to
Canadian Airlines, consisting of six A320s on operating leases and seven
737-200A Aircraft on finance leases. After a series of negotiations between
GECAS, as Servicer to Airplanes Group, and Canadian Airlines, agreement in
principle has been reached on a rescheduling plan which granted Canadian
Airlines a deferral of operating lease rentals for a three month period from
December 1996 to February 1997 and a deferral of finance lease principal
payments in respect of six of the seven Aircraft on finance leases, for the six
month period from December 1996 to May 1997. The deferred payments are to be
repaid with interest over a two and a half year period commencing October 1998.
The agreement in principle resulted in a loss of cashflow to Airplanes Group of
approximately $6.4 million over the six months to May 1997.
Airplanes Group has its only B747 (approximately 1% of the Portfolio by
Appraised Value) on lease to Tower Air. Subsequent to the year ended March 31,
1997, Tower Air has fallen into arrears with its rentals payments with the
result that at June 12, 1997, it had a balance of approximately $1 million
outstanding for a period greater than 30 days. A rental deferral has been agreed
with Tower Air which provides for the outstanding balance to be repaid over six
months commencing July 15, 1997.
ASIA AND FAR EAST
As of March 31, 1997, 22 Aircraft representing approximately 14% of the
Portfolio by Appraised Value were on lease to eleven aircraft operators in this
region.
At that date, seven Aircraft (or approximately 6% of the Portfolio by
Appraised Value) were on lease to three aircraft operators in Indonesia. During
the year to March 31, 1997 the Servicer reached an agreement with one Indonesian
lessee who leases four Aircraft (or approximately 2% of the Portfolio by
Appraised
37
<PAGE> 39
Value) which resulted in rescheduled rentals. At March 31, 1997, the lessee was
performing satisfactorily with no amounts owing to Airplanes Group under the
rescheduled rentals. However, there can be no assurance that the lessee will
continue to perform satisfactorily. 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 and materially affected by the
bankruptcy of Fokker N.V.
At March 31, 1997, two MD11 aircraft were on lease to another Indonesian
lessee. One of these two MD11 Aircraft, representing approximately 2.0% of the
Portfolio by Appraised Value, has been on lease to Varig since April 18, 1997.
The other MD-11 Aircraft is the subject of a lease letter of intent with Varig.
At March 31, 1997, the amounts outstanding from this Indonesian lessee for a
period greater than 30 days were approximately $4 million, although Airplanes
Group held maintenance reserves in cash of $6 million.
EUROPE (EXCLUDING CIS)
As of March 31, 1997, 65 Aircraft representing approximately 33.62% of the
Portfolio by Appraised Value were on lease to twenty-eight aircraft operators in
this region. At that date, 3 MD-83 Aircraft (or approximately 1.67% of the
Portfolio by Appraised Value) were on lease to an aircraft operator in Turkey
with amounts of $0.8 million outstanding for a period of greater than 30 days.
GECAS, as Servicer, is in negotiation with this lessee with a view to resolving
this situation.
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.
DOWNTIME
At March 31, 1997, the relatively low number of six Aircraft were
off-lease. Of these Aircraft, two Aircraft, reserved under letter of intent for
lease were the subject of contractual negotiations, one was the subject of a
non-binding letter of intent to sell (and was subsequently sold after March 31,
1997) and one Aircraft was subject to a lease contract and was scheduled for
delivery to the relevant lessee after March 31, 1997. The remaining two Aircraft
were being actively marketed. Subsequent to March 31, 1997, one of these two
Aircraft became subject to a non-binding letter of intent for sale.
PURCHASE OPTIONS
At March 31, 1997, lessees with respect to 66 Aircraft had the benefit of
options to purchase Aircraft at various dates between 1997 and 2003 at prices
generally at or above their estimated appraised value at the exercise date.
Seven lessees with respect to 22 Aircraft, representing approximately 9% of the
Portfolio by Appraised Value, have options to purchase Aircraft at prices below
estimated appraised 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 February 25, 1997 to the option exercise date from the Appraised
Value of each Aircraft).
ITEM 2. PROPERTIES
Airplanes Group has no ownership or leasehold interest in any real
property.
38
<PAGE> 40
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
On November 5, 1992, GPA obtained a preliminary injunction for repossession
and export of thirteen aircraft and three spare engines (the "Repossessed
Assets") from VASP, a Brazilian airline, which had defaulted under its lease
agreement with GPA. On May 10, 1993, at a full hearing, the Brazilian courts
gave a decision fully validating the repossession injunction. VASP appealed this
decision to the High Court of the State of Sao Paolo (the "High Court"). On
December 18, 1996, the High Court found in favor of VASP in its appeal against
the court order granting GPA repossession and export of the Repossessed Assets.
GPA was instructed to return the Repossessed Assets for lease by VASP under the
terms of the original lease agreements between GPA and VASP, within thirty days
of notification by VASP that it requires return of the assets, which VASP has
not done to date. The decision of the High Court was stayed pending a number of
clarificatory motions by both sides before the same court. In responding to
those motions, the High Court granted VASP the right to seek damages against GPA
in lieu of the return of the Repossessed Assets. GPA has sought leave to appeal
the December 1996 decision and the court's responses to the clarificatory
motions to the Brazilian Superior Court of Justice and the Federal Supreme
Court. In addition, GPA is preparing a writ of mandamus to the High Court
seeking to overturn the decision of the High Court and is seeking a stay on the
decision pending its appeals.
Seven of the thirteen aircraft which were repossessed by GPA from VASP
following the 1992 injunction and the 1993 decision are in the Portfolio,
although none of them are habitually based in Brazil. However, a number of these
aircraft operate into Brazil from time to time.
The judgment of the High Court only applies to those assets which are the
subject matter of the proceedings. In the event that VASP serves thirty days
notice that it requires return of any of the Repossessed Assets, the only
immediate risk to the Repossessed Assets would arise where they are located in
Brazil and where VASP was successful in enforcing its judgment having sought
repossession rather than damages.
GPA has informed Airplanes Group that it has been advised that the decision
of the High Court in this matter is incorrect as a matter of Brazilian law. GPA
has further informed Airplanes Group that it is actively pursuing all courses of
action that may be available to it, including appeals to superior courts and
intends to defend its position vigorously and to pursue each of its claims and
counter claims against VASP. GPA has advised Airplanes Group that it believes
the outcome of these matters will not have a material adverse effect on
Airplanes Group's liquidity, results of operations or financial condition.
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. There are ongoing tax audits by certain
state and local tax authorities with respect to tax returns previously reported
by GPA, Inc. and its subsidiaries. GPA Group believes that none of these audits
will have a material adverse impact upon the liquidity results of operations or
the financial condition of AeroUSA.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
39
<PAGE> 41
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".
40
<PAGE> 42
ITEM 6. SELECTED COMBINED FINANCIAL DATA
The selected combined financial data set out below for each of the years in
the five-year period ended March 31, 1997 have been extracted 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, 1996 and
1997, and for each of the years in the three year period ended March 31, 1997
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, for prior periods 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 for the period prior to March 28, 1996 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 up to March 28, 1996. 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 Airplanes Group's indebtedness is a
significant component of Total Shareholders' Deficit in the Combined Balance
Sheet Data.
41
<PAGE> 43
COMBINED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,(1)
----------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
$MILLIONS
<S> <C> <C> <C> <C> <C>
Revenues(2)
Aircraft leasing.................................. 413 526 608 616 604
Expenses
Depreciation and amortization..................... (230) (185) (208) (207) (223)
Net interest expense(3)........................... (203) (252) (348) (368) (383)
Provision for maintenance......................... (83) (71) (88) (97) (91)
Bad and doubtful debts............................ (31) (20) (33) 28 --
Provision for loss making leases and downtime,
net(4)......................................... (33) (27) (5) 15 12
Other lease costs................................. (28) (19) (17) (21) (21)
Selling, general and administrative expenses...... (22) (26) (34) (35) (38)
Income tax benefit.................................. 32 13 16 13 10
---- ---- ---- ---- ----
Net loss............................................ (185) (61) (109) (56) (130)
==== ==== ==== ==== ====
</TABLE>
COMBINED BALANCE SHEET DATA
<TABLE>
<CAPTION>
MARCH 31,(1)
---------------------------------------
1994 1995 1996 1997
------ ------ ------ ------
$MILLIONS
<S> <C> <C> <C> <C>
Aircraft, net, and net investment in capital and sales
type leases......................................... 4,332 4,181 3,965 3,731
------ ------ ------ ------
Total assets.......................................... 4,561 4,386 4,236 4,048
====== ====== ====== ======
Indebtedness(3)..................................... (4,583) (4,602) (4,634) (4,397)
Provision for maintenance........................... (217) (268) (311) (313)
Total liabilities..................................... (5,169) (5,228) (5,252) (5,194)
====== ====== ====== ======
Net liabilities....................................... (608) (842) (1,016) (1,146)
</TABLE>
COMBINED STATEMENT OF CASH FLOWS AND OTHER DATA
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,(1)
----------------------------------------------
1993 1994 1995 1996 1997
------ ---- ---- ---- ----
$MILLIONS
<S> <C> <C> <C> <C> <C>
Cash paid in respect of interest(3)........... 178 222 303 323 265
EBITDA(5)..................................... 222 369 440 514 483
Net cash provided by operating activities
(after payment of interest)................. 164 189 177 216 224
Net cash (used in)/provided by investing
activities.................................. (1,282) (514) (23) 13 19
Net cash (used in)/provided by financing
activities.................................. 1,118 325 (154) (144) (238)
------ ---- ---- ---- ----
Net movements in cash......................... NIL NIL NIL 85 5
====== ==== ==== ==== ====
</TABLE>
SELECTED RATIOS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,(1)
---------------------------------------------
1993 1994 1995 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Deficiency of Combined Earnings to Combined Fixed
Charges(6)($millions).......................... (217) (74) (125) (69) (140)
EBITDA(5) to cash paid in respect of
interest(3).................................... 1.25 1.66 1.45 1.59 1.82
Total indebtedness, less the Class E Note
Portion, to
EBITDA(3)(5)(7)................................ 15.10 10.51 8.85 7.87 7.88
</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.
(2) Revenues include Maintenance Reserve receipts. See Note 16 to the Financial
Statements.
(3) In the period from March 28, 1996, interest expense has been based on the
terms of the Notes and the Class E notes. It has been assumed that until
March 28, 1996, Airplanes Group was financed with
42
<PAGE> 44
indebtedness to GPA, increasing as and when the Aircraft were acquired by
GPA, to an amount 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").
Interest on the Class E Notes accrues at a significantly higher rate than
the Assumed Rates although the cash outflow associated with the Class E
Notes is substantially lower than the Assumed Rates. Interest accruing on
the Class E Notes together with outstanding and unpaid E Note interest, has
been included in Accrued Expenses and other liabilities. It has been
further assumed for purposes of the Statements of Cash Flows that in the
periods to March 28, 1996 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, $8 million in 1996 and $17 million in 1997. It has been assumed that
the indebtedness assumed owed to GPA at March 28, 1996 was repaid from the
proceeds of the Notes issued. Indebtedness at March 31, 1996 represents the
aggregate of the Class A-E Notes in issue on that date, net of $5 million
of original issue discount and net of approximately $13 million of Class E
notes, which were cancelled in July 1996 under the terms of the transaction
relating to certain purchase price adjustments. Indebtedness at March 31,
1997, represents the aggregate of the Class A-E Notes in issue, net of $4
million of original issue discount.
(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. Following the adoption of SFAS 121 "Accounting for the Impairment
of Long Lived Assets to Be Disposed Of" ("FAS 121") with effect from April
1, 1996, Airplanes Group no longer makes separate provisions for downtime
costs because under FAS 121 Airplanes Group's assessment of the need for
separate downtime provisions is incorporated in its impairment assessment.
(See Note 4(b) to the Financial Statements). The net downtime provisions
released/charged in Airplanes Group were $2 million released in the year
ended March 31, 1994, a net charge of $9 million in the year ended March
31, 1995 and $7 million released in the years ended March 31, 1996 and
1997. Information for the year ended March 31, 1993 is not available.
(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) For the period from March 28, 1996, the Class E Note Portion equals that
amount of Airplanes Group's total indebtedness which is actually
represented by the Class E Notes (equal to $591 million at March 31, 1997).
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).
43
<PAGE> 45
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, $13 million were cancelled in July 1996 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 of March 31,
1997, 223 Aircraft were on lease to 79 Aircraft operators based in 40 countries.
Of the remaining six Aircraft, two were subject of non-binding letters of intent
to lease, one was the subject of a non-binding letter of intent to sell and one
was subject to a lease (with delivery to the relevant lessee scheduled for a
date after March 31, 1997.) The remaining two Aircraft were being actively
remarketed. The Aircraft which was the subject of a non-binding letter of intent
to sell at March 31, 1997 was subsequently sold.
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
period to March 28, 1996.
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.
44
<PAGE> 46
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, 1997 COMPARED WITH YEAR ENDED
MARCH 31, 1996
During the year ended March 31, 1997 there was a continuation of the
recovery in the air transport industry which had affected Airplanes Group's
results of operations positively in 1996. There was no net increase in the
provision for bad debts in the year ended March 31, 1997 and the number of
aircraft off-lease at March 31, 1997 was six compared with eleven at March 31,
1996. In general, however, in each of 1996 and 1997, there was no material
increase in lease rates. The older widebody aircraft (which include A300s, DC10s
and a B747) as well as turboprops (which include ATR42s, Metro-IIIs and DHC8s)
remain problematic in respect of the ability to place the aircraft with lessees,
the lease rates achievable and used aircraft values. At March 31, 1997, of the
six aircraft off lease, two were DC10s and one was an A300. The majority of
older widebody aircraft on lease at March 31, 1997 were loss-making, with the
result that approximately 41% of the loss making lease provision required for
Airplanes Group as a whole was in respect of four A300s and a B747. Furthermore,
the rental rates obtained by Airplanes Group from Varig for three MD-11 Aircraft
are approximately one third lower than the contracted rentals under the previous
lease agreements for these Aircraft and this will adversely affect Airplanes
Group's operating cashflows. Despite recent improvements in the level of
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 aircraft
operators and Airplanes Group's ability to re-lease these Aircraft. 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.
When comparing the results for each of the two entities of Airplanes Trust
and Airplanes Limited, it should be noted that two MD83 aircraft were
transferred from Airplanes Limited to Airplanes Trust in the quarter ending June
30, 1997.
REVENUES
There was a small reduction in revenues for the year ended March 31, 1997
which were $604 million (Airplanes Limited: $532 million; Airplanes Trust: $72
million) compared with $616 million (Airplanes Limited: $556 million; Airplanes
Trust: $60 million) for the year ended March 31, 1996. The small reduction is a
result of marginally lower interest rates in 1997 (which impacts the pricing of
certain lease rentals) partially offset by a greater number of aircraft on
lease. At March 31, 1997, Airplanes Group had 223 Aircraft on lease (Airplanes
Limited: 199 Aircraft; Airplanes Trust: 24 Aircraft) compared with 218 Aircraft
on lease at March 31, 1996 (Airplanes Limited: 197 Aircraft; Airplanes Trust: 21
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,
1997 amounted to $223 million (Airplanes Limited: $191 million; Airplanes Trust:
$32 million) compared with $207 million (Airplanes Limited: $183 million;
Airplanes Trust: $24 million) for the year ended March 31, 1996. The increased
charge is primarily as a result of additional depreciation required, as a result
of the application of FAS 121, in respect of two DC10 Aircraft. The adoption of
FAS 121 did not have a material impact on the results for the year ended March
31, 1997. Of these two DC10 Aircraft, one was sold subsequent to March 31, 1997
and the other is subject to a non-binding letter of intent to sell.
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NET INTEREST EXPENSE
Net interest expense amounted to $383 million in the year ended March 31,
1997 (Airplanes Limited: $343 million; Airplanes Trust: $40 million) compared
with $368 million for the year ended March 31, 1996 (Airplanes Limited: $335
million; Airplanes Trust: $33 million). In the period to March 28, 1996, 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. 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, $13 million were cancelled in
July 1996 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 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 accrued interest at an assumed historic rate (based on GPA's assumed
average cost of debt) of 8.2% in the year ended March 31, 1996.
The interest charge for the year ended March 31, 1997 is based on the
actual debt outstanding during the period and the actual terms of the Notes and
the Class E Notes. The weighted average interest rate on the Class A - D Notes
during the year to March 31, 1997 was 6.61% and the average principal amount of
debt in respect of the Class A - D Notes outstanding during the year was $3,936
million. The Class E Notes together with accrued and unpaid E Note interest
accrue interest at a rate of 20% per annum (as adjusted by reference to the U.S.
consumer price index).
The difference in Airplanes Group's net interest expense and cash paid in
respect of interest in the year to March 31, 1996 is substantially accounted for
by the assumption that Airplanes Group paid cash interest only at the per annum
rate of 1% on the portion of indebtedness to GPA which was assumed, for the
purpose of the financial statements, to be refinanced by the Class E Notes (the
Class E Note Portion). The Class E Note Portion was assumed to represent
approximately 15% of total indebtedness to GPA in each period under review prior
to March 28, 1996.
The difference in Airplanes Group's net interest expense and cash paid in
respect of interest in the year ended March 31, 1997 is substantially accounted
for by the fact that Airplanes Group accrues interest on the Class E Notes at a
rate substantially higher than the per annum rate of 1% actually paid in cash in
the period. Furthermore, as a result of the greater than expected decrease in
Appraised Values (as at February 25, 1997) compared to the Initial Appraised
Values, no cash interest has been paid on the Class E Notes since February 17,
1997.
Net interest expense is stated after deducting interest income earned
during the relevant period. In the year ended March 31, 1997, Airplanes Group
earned interest income (including lessee default interest) of $17 million
(Airplanes Limited: $17 million; Airplanes Trust: nil) compared with $8 million
in the year ended March 31, 1996 (Airplanes Limited: $7 million; Airplanes
Trust: $1 million). The increase is primarily attributable to cash balances in
the year ended March 31, 1997 being higher than those assumed in the period to
March 31, 1996 and a higher level of default interest being earned in the year
to March 31, 1997.
The overall increase in net interest expense for the year ended March 31,
1997, despite marginally lower interest rates, a lower average principal amount
of Class A-D Notes outstanding and higher interest income, is primarily due to
the accrual of interest on outstanding and unpaid accrued E Note interest.
BAD DEBT, DOWNTIME AND LOSS-MAKING LEASE PROVISIONS
Airplanes Group's practice with respect to bad debts is 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 and also taking into
account the financial strength and condition of a lessee and the economic
conditions existing in the lessee's operating environment. While certain of
Airplanes Group's lessees continued to experience financial difficulties in the
year ended March 31, 1997, resulting in the requirement for additional
provisions in respect
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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 there was no
charge required in respect of the provision for bad and doubtful debts in the
year ended March 31, 1997. This arose principally as a result of the release of
provisions in respect of one Mexican lessee and the use of a provision made in
respect of one Indonesian lessee following the conclusion of a restructuring
agreement with the lessee during 1997. These factors were offset by an increase
in the provisions required in respect of one Indian lessee, one Canadian lessee
and one Peruvian lessee. This is compared with a net credit in respect of bad
and doubtful debts for the year ended March 31, 1996 of $28 million (Airplanes
Limited: $27 million; Airplanes Trust $1 million), primarily as a result of a
reduction in significant provisions required in respect of two Brazilian lessees
and one Mexican lessee.
Following the adoption of FAS 121, with effect from April 1, 1996,
Airplanes Group no longer makes separate provisions in respect of downtime costs
because under FAS 121, Airplanes Group's assessment of the need for downtime
provisions is incorporated in its impairment assessment. (See Note 4(b) to the
Financial Statements). Downtime provisions at March 31, 1996 of $7 million
(Airplanes Limited: $4 million; Airplanes Trust: $3) were released during the
year to March 31, 1997. In the year to March 31, 1996 the net provision released
was also $7 million (Airplanes Limited: a release $8 million; Airplanes Trust: a
charge of $1 million).
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
weighted average interest cost of the remaining principal balance of the Class
A-E Notes (with Class E Note interest assumed to be 11%) or in periods prior to
March 28, 1996, with indebtedness from GPA equivalent to the appraised value of
such Aircraft at October 31, 1995. Due to the continuation of the recovery of
the industry during the year ended March 31, 1997, the provision for loss-making
leases at March 31, 1997 had decreased by $5 million as compared to the
provision at March 31, 1996. Overall, however, the net provision released of $5
million (Airplanes Limited: $1 million; Airplanes Trust: $4 million) in the year
to March 31, 1997, was a reduction compared to the net provision released in the
year to March 31, 1996, of $8 million (Airplanes Limited: $10 million; Airplanes
Trust a net charge of $2 million) which can be primarily attributed to the level
of provisions required in respect of two loss-making leases (one A300 and the
B747-200) signed in the year to March 31, 1997.
OTHER LEASE COSTS
Other lease costs in the year ended March 31, 1997 amounted to $21 million
(Airplanes Limited: $20 million; Airplanes Trust: $1 million) compared with $21
million in 1996 (Airplanes Limited: $20 million; Airplanes Trust: $1 million).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the year to March 31, 1997
amounted to $38 million (Airplanes Limited: $35 million; Airplanes Trust: $3
million). This is slightly higher than selling, general and administrative
expenses incurred in the year to March 31, 1996 of $35 million (Airplanes
Limited: $32 million; Airplanes Trust: $3 million).
The most significant element of selling, general and administrative
expenses is the aircraft servicing fees paid to GE Capital Aviation Services,
Limited ("GECAS"). Substantially all of these amounts represent asset based fees
calculated as an annual percentage of agreed values of Aircraft under management
pursuant to a servicing agreement. Selling, general and administrative expenses
of $38 million in the year to March 31, 1997 include $26 million (Airplanes
Limited: $24 million; Airplanes Trust: $2 million) relating to GECAS servicing
fee compared to $22 million (Airplanes Limited: $20 million; Airplanes Trust: $2
million) for the year ended March 31, 1996. The increase is largely attributable
to a cashflow incentive fee.
A further significant element of Airplanes Group's actual selling, general
and administrative expenses reported in the period to March 31, 1997 was $9
million (Airplanes Limited: $8 million; Airplanes Trust: $1) in respect of
administrative agency and cash management fees payable to GPA. Arrangements with
GPA in
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respect of administrative agency services and cash management services only
became effective on March 28, 1996.
OPERATING LOSS
The operating loss for the year ended March 31, 1997 was $140 million
(Airplanes Limited: $122 million; Airplanes Trust: $18 million) compared with an
operating loss of $69 million for the year ended March 31, 1996 (Airplanes
Limited: $48 million; Airplanes Trust: $21 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 $10 million in 1997, primarily as a result of
overprovision of deferred tax in prior years, (Airplanes Limited: $10 million;
Airplanes Trust: nil) compared with a tax benefit of $13 million in 1996
(Airplanes Limited: $5 million; Airplanes Trust: $8 million), as a result of
continuing operating losses.
NET LOSS
The net loss for 1997 after taxation was $130 million (Airplanes Limited:
$112 million; Airplanes Trust: $18 million) compared with a net loss for the
year ended 1996 of $56 million (Airplanes Limited: $43 million; Airplanes Trust:
$13 million).
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 in 1995 and to a lesser extent in 1996 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 GPA in
1995 (and not therefore reflected in results for the entire year ended March 31,
1995).
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NET INTEREST EXPENSE
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 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).
BAD DEBT, DOWNTIME AND LOSS-MAKING LEASE PROVISIONS
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 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).
Prior to the year ended March 31, 1997, Airplanes Group provided for
downtime costs based on an estimated re-lease date of the particular Aircraft
off-lease. Downtime costs included 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. Downtime provisions released for the year to March
31, 1996, were $7 million (Airplanes Limited: $8 million; Airplanes Trust: a net
charge of $1 million) as compared to the provision required of $9 million
(Airplanes Limited: $9 million; Airplanes Trust: nil) for the year to March 31,
1995. This is a reflection of the recovery of the industry during the year to
March 31, 1996.
The recovery of the air transport industry during the year ended March 31,
1996 was also reflected in the provision required for loss-making leases which
decreased by $8 million compared to the provision at March 31, 1995. The net
provision released of $8 million (Airplanes Limited: $10 million released;
Airplanes Trust: a net charge of $2 million) in the year ended March 31, 1996,
was an increase compared to the $4 million released (Airplanes Limited: $5
million released; Airplanes Trust: a net charge of $1 million) in the year ended
March 31, 1995.
OTHER LEASE COSTS
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.
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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, 1995.
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.
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.
LIQUIDITY
Airplanes Group's Statements of Cash Flows prior to the period ended March
28, 1996 have been prepared on the assumption that Airplanes Group maintained
constant cash balances of approximately $135 million. The actual cash balance at
March 31, 1997 amounted to $225 million (Airplanes Limited: $219 million;
Airplanes Trust: $6 million). The actual cash balances of Airplanes Group at
March 31, 1996 amounted to $220 million (Airplanes Limited: $214 million;
Airplanes Trust: $6 million).
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OPERATING ACTIVITIES
Operating cash flows depend on many factors including the performance of
lessees and Airplanes Group's ability to re-lease Aircraft, the average cost of
the Notes, 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 certain subclasses of Notes that have not been repaid with lease cash
flows. Net cash provided by operating activities amounted to $224 million in
1997 (Airplanes Limited: $214 million; Airplanes Trust: $10 million), compared
with $216 million in 1996 (Airplanes Limited: $196 million; Airplanes Trust: $20
million). This reflects cash paid in respect of interest of $265 million in 1997
(Airplanes Limited: $237 million; Airplanes Trust: $28 million), compared with
$323 million in 1996 (Airplanes Limited: $294 million; Airplanes Trust: $29
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 $223 million in 1997
(Airplanes Limited: $191 million; Airplanes Trust: $32 million), compared with
$207 million in 1996 (Airplanes Limited: $183 million; Airplanes Trust: $24
million). The decrease in net Aircraft maintenance cash flows (included in net
cash provided by operating activities), which were $43 million in the year ended
March 31, 1996 compared to $2 million in the year ended March 31, 1997, is
primarily attributable to a refund of $18 million of maintenance receipts to a
lessee which were replaced by letters of credit and the balance consists of
maintenance claims. The cash provided by operating activities in the year ended
March 31, 1996 reflects a decrease in accruals and other liabilities of $19
million primarily relating to the change from assumed accruals and other
liabilities in the year ended March 31, 1995 to an actual level of accruals and
other liabilities following the closing date. The cash provided by operating
activities in the year ended March 31, 1997 reflects an increase in accruals and
other liabilities of $21 million which relates primarily to an increase in
deposits, unearned revenue and other accruals due to the timing of payments
during the year ended March 31, 1997 compared to the year ended March 31, 1996.
INVESTING AND FINANCING ACTIVITIES
In the year ended March 31, 1997, Airplanes Group repaid $238 million
(Airplanes Limited: $216 million; Airplanes Trust: $22 million) of Subclass A-5
Notes and Class B Notes.
In the year ended March 31, 1996, no use of cash to repay indebtedness was
assumed other than distributions and transfers back to GPA of cash in amounts
required to restore Airplanes Group's cash balance to $220 million at March 31,
1996. 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).
INDEBTEDNESS
Airplanes Group's indebtedness consists of the Class A-E Notes in the
amount of $4,397 million (Airplanes Limited: $4,005 million; Airplanes Trust:
$392 million) at March 31, 1997 and $4,634 million (Airplanes Limited: $4,221
million; Airplanes Trust: $413 million) at March 31, 1996. Airplanes Group has
$591 million Class E Notes outstanding. In order to repay principal on the
Subclass A-1, A-2, A-3 and A-4 Notes on their expected maturity dates, 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.
Under the terms of the Notes, Airplanes Group is required annually to
commission an appraisal of the Aircraft. The purpose of the appraisal is to
redirect, when appropriate, excess cash flow to the Class A Notes and to
maintain and reduce the loan to value ratios for each Class of Notes. Reductions
in appraised values cannot affect interest payments to be made on the Class A-D
Notes, but can cause the suspension of interest
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payments on the Class E Notes. Airplanes Group obtained updated appraisals of
the Aircraft from three independent aircraft appraisers as of February 25, 1997.
On the basis of these three updated appraisals, the average appraised Base Value
of the Aircraft was approximately $4,207 million (the "Appraised Value")
compared with $4,527 million as of October 31, 1995. See "Item 1: Business --
The Aircraft, Related Leases and Collateral -- Appraisals". This decrease was
approximately $155 million more than the expected decrease implied by the
aircraft depreciation schedules that form part of the terms of the Notes.
Greater than expected decreases in value occurred across the Aircraft, with
significant percentage decreases being experienced by the older, widebody
Aircraft (A300s and DC10s), the Fokker 100s, and to a lesser extent the MD83s
and B737-500s.
However, Airplanes Group's strong operating cashflow performance since the
date of the Acquisition allowed greater than expected amortisation of the Class
A Notes. Accordingly, at March 17, 1997, Principal Adjustment Amounts of
approximately $39 million in aggregate were required to be paid under the terms
of the Notes from available cashflow and applied to reduce the outstanding
principal balance of the Subclass A-5 Notes so as to restore the loan to value
ratios. Prior to the payment to Certificateholders on June 16, 1997, Principal
Adjustment Amounts of approximately $21 million were required. Until the
required Principal Adjustment Amount payments have been made, there will be no
further interest payments on the Class E Notes and no additional payments in
respect of conversions or modifications of aircraft nor any other payments
ranking more junior than the Principal Adjustment Amounts in the priority of
payments which apply to the Notes. There can be no assurance that aircraft
appraisers will not further reduce their appraised values for Aircraft in the
future or that Aircraft values will not fall.
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
fixed and floating rental payments contains a higher percentage of fixed rate
payments than the percentage of fixed rate interest payments on the Notes,
including as a result of the fact that the reset periods on floating rental
payments are generally longer than the monthly reset periods on the floating
rate 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 pays fixed amounts and receives floating amounts on a
monthly basis. The Initial Swaps amortize having regard to the original minimum
amortization schedule of the Class A and B Notes, the expiry dates of the leases
then existing under which lessees were contracted to make fixed rate rental
payments and the LIBOR reset dates under the floating rates leases. At least
every three months, GPA Financial, as Airplanes Group's Administrative Agent
seeks to enter into additional swaps or sell at market value or unwind part or
all of the initial swaps 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. At March 31, 1997, Airplanes Group had unamortized swaps with
an aggregate notional principal balance of $2,790 million. This consisted of
$890 million in respect of the unamortized balance of the notional amount of the
Initial Swaps and $1,900 million in respect of the unamortized balance of the
notional amount of additional swaps ("additional swaps") entered into by
Airplanes Group since March 28, 1996 in order to rebalance Airplanes Group's mix
of fixed and floating interest rate obligations and the fixed and floating mix
of rental payments. None of the additional swaps have maturity dates extending
beyond November 2000. As of March 31, 1997, of the $890 million aggregate
notional amount of the unamortized balance of the Initial Swaps, an amortizing
swap with a notional amount of $70 million had a final maturity date of April
1997, an amortizing swap with a notional amount of
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$310 million had a final maturity date of October 1998 and an amortizing swap
with a notional amount of $510 million had a final maturity date of April 2001.
The fair values of the swaps at March 31, 1997 was $8.77 million.
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 is
managed through the purchase of options on interest rate swaps ("Swaptions").
Airplanes Group purchases 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 purchases 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 initial and any future Swaptions, for
example, to reflect any decreases in the Target Hedge. In the period from March
28, 1996 to March 31, 1997, Airplanes Group purchased Swaptions for interest
rate swaps with an aggregate notional principal balance of $101 million and sold
Swaptions with an aggregate notional principal balance of $25 million. The net
aggregate notional principal balance of Swaptions at March 31, 1997 therefore
amounted to $76 million. The fair value of the Swaptions at March 31, 1997 was
$0.3 million and because the Swaptions do not qualify for hedge accounting under
U.S. GAAP, this amount has been included in income for the year ended March 31,
1997.
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.
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 of the affiliates of major U.S. and European financial
institutions whose credit ratings are consistent with maintaining the ratings of
the Class A Notes.
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.
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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
transfers, or causes 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) 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), (v) 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, (vi) proceeds of any insurance payments in respect
of any Aircraft or any indemnification proceeds, (vii) certain amounts
transferred from the Lessee Funded Account to the Collection Account, (viii) net
payments to Airplanes Group under any Swap Agreement, (ix) 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 (x) any other
amounts received by any member of Airplanes Group other 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 are 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 have not been paid directly
by the Cash Manager to Expense payees is 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 also
transfers 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 are transferred
directly into the Lessee Funded Account.
LIQUIDITY RESERVE AMOUNT
All Collections received by Airplanes Group are either 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
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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 $61.2 million, and
(iii) a "Miscellaneous Reserve Amount", currently equal to $40.0 million.
The Liquidity Reserve Amount at June 16, 1997 equaled approximately $181.2
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.
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 withdraws from
the funds deposited in the Collection Account an amount equal to the Required
Expense Amount, which amount is then 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 is 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
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<PAGE> 57
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:
<TABLE>
<CAPTION>
NAME AGE OFFICES HELD WITH THE REGISTRANTS
- ---- --- -----------------------------------------------------------
<S> <C> <C>
Roy M. Dantzic........... 52 Independent Director, Airplanes Limited
Controlling Trustee, Airplanes Trust
William A. Franke........ 60 Independent Director and Chairman, Airplanes Limited
Controlling Trustee and Chairman, Airplanes Trust
Hugh R. Jenkins.......... 63 Independent Director, Airplanes Limited
Controlling Trustee, Airplanes Trust
William M. McCann........ 53 Independent Director, Airplanes Limited
Controlling Trustee, Airplanes Trust
Edward J. Hansom......... 39 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 moved into the City 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 the property division of BG plc (formerly British
Gas Plc).
William Franke is Chairman and Chief Executive Officer of America West
Holdings Corporation since February 1997 and since 1992, Chairman of the Board
of its principal subsidiary, America West Airlines, Inc., an airline and was the
subsidiary's Chief Executive Officer from December 1993 until February 1997.
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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 Central Newspapers, Inc., publisher of the Phoenix and
Indianapolis morning newspapers, Phelps Dodge Corporation, a major mining and
manufacturing company and Beringer Wine Estates. He is also a director of the
Air Transport Association of America.
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 Deputy Chairman, Thorn Plc and a
non-executive Director of The Rank Organisation Plc, 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, Deputy Chairperson of the
Irish Takeover Panel 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 Chairman or a Director of a number of other companies. He is a
Board Member of the University College Dublin Graduate School of Business.
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 Chief Financial Officer of GPA Group.
He joined GPA Group in December 1988 from the treasury division of Schroders.
Prior to taking up his current position in May, 1997, Mr. Hansom was General
Manager, Treasury of GPA Group. 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, 1996, the GECAS Managed Portfolio consisted of 891
aircraft, which are on lease to more than 156 lessees in 57 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 of which four aircraft have been delivered in period to
March 31, 1997. In addition GECAS purchased three Boeing 737 jet aircraft, which
were not included in the order book announced in 1996. Under the agreement with
Boeing, GECAS also may purchase up to 76 additional Boeing 737 jet aircraft. On
July 15, 1996, GECAS entered into a multi-year order for 40 A320 aircraft and
five A340 aircraft, and options for a further
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40 A320 aircraft and five A340 aircraft. The first aircraft under this order is
due for delivery in August 1997. 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 210 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, 1996 had 114
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.
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 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.
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The table below sets forth the different aircraft comprising the GECAS
Managed Portfolio as of December 31, 1996 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 1 6 26
A310............................................ 8 8
A320............................................ 16 13 12 41
Boeing
B727............................................ 20 18 2 40
B737-200........................................ 61 33 32 126
B737-300/400/500(3)............................. 143 29 44 216
B747............................................ 25 2 1 28
B757-200........................................ 26 3 3 32
B767-200ER...................................... 8 1 9
B767-300ER...................................... 27 3 4 34
McDonnell Douglas
DC8............................................. 9 2 28 39
DC9............................................. 15 40 19 74
DC10............................................ 11 4 4 19
MD11............................................ 2 3 5
MD82............................................ 19 6 2 27
MD83............................................ 19 8 23 50
MD87............................................ 1 1
MD88............................................ 14 14
Fokker
F100............................................ 14 16 30
Other Jets........................................ 6 2 8
Turboprops........................................ 4 32 28 64
--- --- --- -----
Total........................................ 450 212 229 891
--- --- --- -----
Body Type:
Widebody........................................ 100 12 19 131
Narrowbody...................................... 350 200 210 760
Stage Compliance:(4)
Stage 2......................................... 108 93 53 254
Stage 3......................................... 342 119 176 637
</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 and ALPS 94-1.
(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.
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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.
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.
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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
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)
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-- 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, 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
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-- 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 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
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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
-- 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 $29 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
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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, 1997, GPA had a total of 100 aircraft in its portfolio.
Ninety-seven of these aircraft were on lease to 40 customers in 23 countries. Of
these aircraft, 91 were on operating leases and six aircraft were classified as
being on finance leases. Of the 100 aircraft, 37 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, 1997, approximately 23% of
the aircraft were Airbus A320s, approximately 16% were Boeing 737-400s,
approximately 10% were Boeing 737-300s and approximately 10% were Fokker 100s,
in each case calculated on the basis of appraisals of the aircraft's base values
at February 25, 1997 (determined on the same basis as the calculation for the
values of the Aircraft). At March 31, 1997, approximately 42% of GPA's aircraft
were on lease to four airlines of which approximately 18% were on lease to one
U.S. airline, approximately 10% were on lease to one Chinese airline,
approximately 9% were on lease to one Brazilian airline and approximately 5%
were on lease to one French airline, in each case by appraised value at February
25, 1997. 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 similar 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, 1997, GPA employed 38 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.
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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. In
the year ended March 31, 1996 GPA reported a profit of $54 million, in
accordance with generally accepted accounting principles in Ireland and the
United Kingdom.
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. Since March 31, 1996,
GPA has continued to restructure its indebtedness and capital structure,
including through the purchase of certain notes which it had previously issued.
At March 31, 1997, GPA had approximately $444 million in secured debt and
approximately $313 million in unsecured debt. GPA's unencumbered cash balances
(excluding balances of affiliated companies) were approximately $347 million at
March 31, 1997. The following table indicates the maturities of GPA's remaining
indebtedness as of March 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
----------------------------------------------
1998 1999 2000 2001 THEREAFTER
---- ---- ---- ---- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Principal Maturities............................... $44 $333(1) $46 $85 $249
</TABLE>
- ---------------
(1) Of this amount, $218 million consists of GPA Delaware Inc.'s 8 3/4%
Guaranteed Notes due December 15, 1998. In the period from April 1, 1996 to
March 31, 1997 GPA Group purchased $282 million of such notes
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. In addition, for so long
as GE Capital's right to acquire not less than 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 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.
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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>
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
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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.
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
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$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 sub-sublease to America West.
Finally, GPA also has several relationships with America West. First, GPA
has 7 aircraft subleased to America West. Second, John F. Tierney, a director of
GPA Group, is also a director of America West.
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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, previously 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.
70
<PAGE> 72
<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 Aircraft Information Services, Inc.
23.2 Consent of BK Associates, Inc.
23.3 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>
71
<PAGE> 73
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 26, 1997
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 26, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/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>
72
<PAGE> 74
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 26, 1997
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 26, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/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>
73
<PAGE> 75
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> 76
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, 1997 and 1996, and the related statements
of operations, changes in shareholders' deficit/net liabilities and cashflows
for each of the years in the three year period ended March 31, 1997. 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, 1996 to March 31, 1997 (as defined in Notes 1 and 2). 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, 1997 and 1996, and the results of their
operations and cash flows for each of the years in the three year period ended
March 31, 1997, in conformity with generally accepted accounting principles in
the United States.
KPMG
Chartered Accountants
Dublin, Ireland
June 26, 1997
F-2
<PAGE> 77
AIRPLANES GROUP
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------------------------------
1996 1997
----------------------------------- -----------------------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
NOTES LIMITED TRUST COMBINED LIMITED TRUST COMBINED
----- ---------- ----------- -------- ---------- ----------- --------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash.................................. 5 214 6 220 219 6 225
Accounts receivable................... 6
Trade receivables................... 40 2 42 39 2 41
Allowance for doubtful debts........ (12) (1) (13) (12) (1) (13)
Amounts due from Airplanes Trust...... 7 -- -- -- 56 -- 56
Amounts due from GPA.................. 8 12 1 13 -- 2 2
Net investment in capital and
sales type leases................... 9 113 -- 113 94 -- 94
Aircraft, net......................... 10 3,471 381 3,852 3,242 395 3,637
Other assets.......................... 8 1 9 5 1 6
----- --- ----- ----- ----- -----
Total assets.......................... 3,846 390 4,236 3,643 405 4,048
===== === ===== ===== ===== =====
LIABILITIES
Accrued expenses and other
liabilities......................... 11 163 17 180 295 24 319
Amounts due to Airplanes Limited...... -- -- -- -- 56 56
Amounts due to GPA.................... 12 12 -- 12 4 -- 4
Indebtedness.......................... 13 4,221 413 4,634 4,005 392 4,397
Provision for maintenance............. 14 276 35 311 287 26 313
Deferred income taxes................. 19 67 48 115 57 48 105
----- --- ----- ----- ----- -----
Total liabilities..................... 4,739 513 5,252 4,648 546 5,194
----- --- ----- ----- ----- -----
Net liabilities....................... (893) (123) (1,016) (1,005) (141) (1,146)
----- --- ----- ----- ----- -----
3,846 390 4,236 3,643 405 4,048
===== === ===== ===== ===== =====
Commitments and Contingent Liabilities
(Notes 20 and 21)
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 78
AIRPLANES GROUP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------------------------------------------------------------
1995 1996 1997
------------------------------ ------------------------------ ------------------------------
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........... 16 547 61 608 556 60 616 532 72 604
EXPENSES
Depreciation and
amortisation............. (183) (25) (208) (183) (24) (207) (191) (32) (223)
Net interest expense....... 17 (317) (31) (348) (335) (33) (368) (343) (40) (383)
Provision for
maintenance.............. (74) (14) (88) (79) (18) (97) (70) (21) (91)
Bad and doubtful debts..... (34) 1 (33) 27 1 28 -- -- --
Provision for loss making
leases, net.............. (4) (1) (5) 18 (3) 15 5 7 12
Other lease costs.......... (16) (1) (17) (20) (1) (21) (20) (1) (21)
Selling, general and
administrative
expenses................. 18 (31) (3) (34) (32) (3) (35) (35) (3) (38)
---- --- ---- --- --- ---- ---- ---- -----
Operating loss before
income taxes............. (112) (13) (125) (48) (21) (69) (122) (18) (140)
Income tax benefit......... 19 11 5 16 5 8 13 10 -- 10
---- --- ---- --- --- ---- ---- ---- -----
Net loss................... (101) (8) (109) (43) (13) (56) (112) (18) (130)
==== === ==== === === ==== ==== ==== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 79
AIRPLANES GROUP
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT/NET LIABILITIES
YEARS ENDED MARCH 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
AIRPLANES LIMITED AIRPLANES COMBINED
------------------------------------------ TRUST ------------
SHARE ----------- SHAREHOLDERS
CAPITAL NET SHAREHOLDERS NET DEFICIT/NET
(NOTE 15) LIABILITIES DEFICIT LIABILITIES LIABILITIES
----------- ----------- ------------ ----------- ------------
($MILLIONS) ($MILLIONS) ($MILLIONS) ($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C> <C>
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
(iii)).............................................. -- (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
(iii)).............................................. -- (46) (46) (5) (51)
Ordinary shares issued, $1 par value per share (Note
15)................................................. -- -- -- -- --
------ ----- ----- ---- -----
BALANCE AT MARCH 31, 1996............................. -- 893 893 123 1,016
====== ===== ===== ==== =====
Net loss for the fiscal year.......................... -- 112 112 18 130
------ ----- ----- ---- -----
BALANCE AT MARCH 31, 1997............................. -- 1,005 1,005 141 1,146
====== ===== ===== ==== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 80
AIRPLANES GROUP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------------------------------------------------------------------------------
1995 1996 1997
----------------------------------- ----------------------------------- -----------------------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST COMBINED LIMITED TRUST COMBINED LIMITED TRUST COMBINED
---------- ----------- -------- ---------- ----------- -------- ---------- ----------- --------
($MILLIONS) ($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING
ACTIVITIES
Net loss........ (101) (8) (109) (43) (13) (56) (112) (18) (130)
Adjustments to
reconcile net
loss to net
cash provided
by operating
activities:
Depreciation and
amortisation... 183 25 208 183 24 207 191 32 223
Aircraft
maintenance,
net........... 49 2 51 34 9 43 11 (9) 2
Deferred income
taxes......... (11) (5) (16) (5) (8) (13) (10) -- (10)
Provision for
loss making
leases........ 4 1 5 (18) 3 (15) (5) (7) (12)
Accrued and
deferred
interest
expense....... 49 5 54 48 5 53 123 11 134
Changes in
operating
assets and
liabilities:
Accounts
receivable.... (8) 1 (7) 18 -- 18 1 -- 1
Other accruals
and
liabilities... (2) (4) (6) (19) -- (19) 18 3 21
Other assets.... (2) (1) (3) (2) -- (2) (3) (2) (5)
----- ---- ----- ----- --- ----- ---- ---- ----
NET CASH
PROVIDED BY
OPERATING
ACTIVITIES.... 161 16 177 196 20 216 214 10 224
===== ==== ===== ===== === ===== ==== ==== ====
CASH FLOWS FROM
INVESTING
ACTIVITIES
Sale/(Purchase)
of aircraft... (26) (1) (27) (3) -- (3) 44 (44) --
Aircraft
deposits and
pre-delivery
payments...... (10) -- (10) -- -- -- -- -- --
Capital and
sales type
leases........ 14 -- 14 16 -- 16 19 -- 19
----- ---- ----- ----- --- ----- ---- ---- ----
NET CASH
PROVIDED
BY/(USED IN)
INVESTING
ACTIVITIES.... (22) (1) (23) 13 -- 13 63 (44) 19
===== ==== ===== ===== === ===== ==== ==== ====
CASH FLOWS FROM
FINANCING
ACTIVITIES
Repayment of
notes......... -- -- -- -- -- -- (216) (22) (238)
Issue of A-E
notes......... -- -- -- 4,221 413 4,634 -- -- --
Amounts due from
Airplanes
Trust to
Airplanes
Limited....... (56) 56 --
Increase
in/(repayment
of)
indebtedness
-- GPA........ 19 -- 19 (4,192) (410) (4,602) -- -- --
(Distributions
to)/Contributions
from GPA Group
plc........... (158) (15) (173) (147) (29) (176) -- --
----- ---- ----- ----- --- ----- ---- ---- ----
NET CASH
PROVIDED
BY/(USED IN)
FINANCING
ACTIVITIES.... (139) (15) (154) (118) (26) (144) (272) 34 (238)
----- ---- ----- ----- --- ----- ---- ---- ----
NET
INCREASE/(DECREASE)
IN CASH....... -- -- -- 91 (6) 85 5 -- 5
Cash at
beginning of
year.......... 123 12 135 123 12 135 214 6 220
----- ---- ----- ----- --- ----- ---- ---- ----
Cash at end of
year.......... 123 12 135 214 6 220 219 6 225
===== ==== ===== ===== === ===== ==== ==== ====
CASH PAID IN
RESPECT OF:
Interest........ 276 27 303 294 29 323 237 28 265
===== ==== ===== ===== === ===== ==== ==== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 81
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") re-financed on a long term basis certain indebtedness due
to commercial banks and other senior secured debt. 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 91% of the principal amount of notes in
each class being issued by Airplanes Limited and 9% approximately by Airplanes
Trust. Airplanes Group also issued Class E Notes 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. Airplanes Limited and Airplanes
Trust have each fully and unconditionally guaranteed each others' 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:
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 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. For all periods prior to the
Closing Date, the financial statements have been prepared on the bases and
assumptions set out below. For the period subsequent to the Closing Date the
financial statements reflect the actual results of Airplanes Limited and
Airplanes Trust.
Bases and Assumptions
(i) Prior to the Closing Date, an allocation of certain costs such as
selling, general and administrative expenses of GPA to Airplanes Limited and
Airplanes Trust was made. The most significant element of these costs related to
aircraft management fees, substantially all of which were 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 basis for these allocations are
reasonable.
Airplanes Group has entered into a Servicing Agreement with GE Capital
Aviation Services Limited ("GECAS") under which GECAS provides, inter alia,
lease management and aircraft asset management services in return for a fee.
Airplanes Group has also entered into an Administration Agency Agreement and a
Cash Management Agreement with GPA. (Note 18)
F-7
<PAGE> 82
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
2. BASIS OF PREPARATION -- (CONTINUED)
(ii) In the period prior to the Closing Date it was assumed that Airplanes
Group was 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 was also assumed that 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 was assumed that no repayment of debt was
made prior 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 were surrendered and cancelled under the terms of the
Transaction (after giving effect to certain purchase price adjustments). It was
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 are set out in Note 13.
Indebtedness at March 31, 1997 represents the aggregate of the Class A-E
Notes in issue.
(iii) 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
7.83% and 8.25% for the years ended March 31, 1995 and 1996, respectively. In
the period subsequent to the Closing Date interest expense is based on the terms
of the notes issued. Details of the interest rates applicable to the various
classes of Notes 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.
(iv) 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, 1997, and March 31, 1996, represent the
actual cash balances held by Airplanes Group at those dates.
(v) In the period prior to the Closing Date, 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, 1997 and 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 portfolio has been acquired entirely from GPA pursuant to
the Transaction.
With effect from the Closing Date, GECAS provides, in consideration for
management fees, certain management services to Airplanes Group pursuant to a
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 has been appointed to manage the aircraft. In
addition, Airplanes Group will, under certain circumstances, have the right to
terminate the servicing agreement.
F-8
<PAGE> 83
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
3. RELATIONSHIP WITH GPA GROUP PLC AND MANAGEMENT ARRANGEMENTS -- (CONTINUED)
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 holders
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 recognised as income as it
accrues over the period of the leases. Unearned revenue from capital and sales
type leases is amortised and included in income.
(b) Aircraft
Aircraft, including engines, are stated at cost less accumulated
depreciation.
Airplanes Group adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Improvement of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("FAS 121") with effect from April 1, 1996. The
statement requires the recognition of an impairment loss for an asset held for
use when the estimate of undiscounted future cash flows expected to be generated
by the asset is less than its carrying amount. Measurement of impairment loss is
to be recognised based on the fair value of the asset. Fair market value
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. The fair market value of the
assets is based on independent valuations of the aircraft in the fleet and
estimates of discounted future cash flows.
FAS 121 also requires that long-lived assets to be disposed of, be reported
at the lower of the carrying amount or fair value less estimated disposal costs.
F-9
<PAGE> 84
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Prior to the adoption of FAS 121, additional depreciation was charged to
reduce the book value of specific assets to fair market value where a permanent
diminution was considered to have occurred. Where fair market value was greater
than book value, no adjustment was made. Additionally, prior to the
implementation of FAS 121, Airplanes Group made a separate provision for
downtime costs where aircraft were off lease and were expected to be on the
ground for a period prior to re-leasing. Following the adoption of FAS 121,
Airplanes Group's assessment of the need for downtime provisions is incorporated
in its impairment assessment.
The adoption of FAS 121 did not have a material impact on these financial
statements.
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>
(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.
Maintenance provisions also include an estimate of maintenance costs which
are Airplanes Group's primary responsibility and certain amounts in respect of
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 existing in the lessee's operating environment.
(f) Provision for Loss Making Leases
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
F-10
<PAGE> 85
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
aircraft, together with direct costs such as legal fees and other costs
attributable to the lease over its term. At March 31, 1997 and 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.
(g) Taxation
Deferred income tax assets and liabilities recognise 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 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, 1997
Airplanes Group had leased aircraft to 79 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.
The exposure of Airplanes Group's aircraft to particular countries and
customers is managed partly through concentration limits provided for under the
terms of the notes and through obtaining security from lessees by way of
deposits, letters of credit and guarantees. Airplanes Group will continue to
manage its exposure to particular countries, regions and lessees through
concentration limits. In the normal course of its business Airplanes Group (and
in the past GPA) has 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, 1997, 28 of Airplanes Group's aircraft were being operated by three 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 been
concluded, while negotiations with other lessees are continuing. Receivable
balances with Mexican lessees in total were $15.4 million at March 31, 1997, of
which $8 million has been deferred, and in respect of which allowances of $4.7
million for doubtful debts have been made.
F-11
<PAGE> 86
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Airplanes Group's Brazilian lessees also continue to experience significant
difficulties due to over-capacity and adverse market conditions. At March 31,
1997, 14 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 $10 million at
March 31, 1997, of which $8 million has been deferred, and in respect of which
no allowances for doubtful debts have been made.
Canadian Airlines, Airplanes Group's second largest lessee at March 31,
1997 by appraised value, approached its creditors including Airplanes Group,
with proposals to reschedule its obligations. A rescheduling plan which granted
Canadian Airlines a deferral of operating lease rentals for a three month period
and a deferral of finance lease principal payments for the six month period
commencing from December 1996 has been reached in principle. The deferred
payments are to be repaid with interest over a two and a half year period
commencing October 1998. Receivable balances at March 31, 1997 were $6.9 million
against which $2.4 million of doubtful debt provisions 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 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 outstanding at March 31, 1997 and 1996 were $3,865 million and $4,055
million respectively, as compared to the carrying values (before discounts)
of $3,810 million and $4,048 million at March 31, 1997 and 1996
respectively. While the amount subscribed for the E Notes was based on the
appraised value of the aircraft at the Closing Date, the fair value of
these Notes at March 31, 1997 and 1996 cannot be determined, as it
represents the holders' residual interest in the aircraft owned by
Airplanes Group.
(iii) Airplanes Group manages its interest rate exposure through the
use of interest rate swaps and options to enter into interest rate swaps
("Swaptions"). At March 31, 1997 and 1996 Airplanes Group had entered into
interest rate swaps with an aggregate notional principal amount of $2.79
billion and $2.62 billion, respectively. 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 bonds,
taking into account the expected amortisation of Class A and Class B Notes.
The fair value of these swaps at March 31, 1997 and 1996 were $8.77 million
and nil, respectively.
Interest rate exposures which may arise in the event that lessees paying
fixed rate rentals default is managed in part through the purchase of Swaptions.
At March 31, 1997 Airplanes Group had entered into swaptions with a notional
value of $76 million. The fair value of the Swaptions at March 31, 1997 was $0.3
million and this amount has been included in income for the year ended March 31,
1997. At March 31, 1996, Airplanes Group had no Swaptions.
F-12
<PAGE> 87
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Airplanes Group is exposed to losses in the event of non-performance by
counterparties to interest rate swap agreements or in the event of defaults by
lessees. However, Airplanes Group does not anticipate non-performance by the
counterparties and other parties and accounts for hedging losses resulting from
lessee defaults as they are incurred.
Counterparty risk is monitored on an ongoing basis. Counterparties are
subject to the prior approval of the Directors of Airplanes Limited and the
Controlling Trustees of Airplanes Trust. Airplanes Group's counterparties at
March 31, 1997 comprise three major U.S./European financial institutions.
Airplanes Group is exposed to losses in the event of non-performance by
counterparties to interest rate swap agreements or in the event of defaults by
lessees. However, Airplanes Group does not anticipate non-performance by the
counterparties and other parties and accounts for hedging losses resulting from
lessee defaults as they are incurred.
Counterparty risk is monitored on an ongoing basis. Counterparties are
subject to the prior approval of the Directors of Airplanes Limited and the
Controlling Trustees of Airplanes Trust. Airplanes Group's counterparties at
March 31, 1997 comprise three major U.S./European financial institutions.
(j) Foreign Currency Transactions
Airplanes Group's foreign currency transactions are not significant as
virtually all revenues and most costs are denominated in US dollars.
5. CASH
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------
1996 1997
--------------------- ---------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C>
Cash...................................................... 214 6 219 6
=== == === ==
</TABLE>
Substantially all of the cash balances at March 31, 1997 and March 31, 1996
are held for specific purposes under the terms of the Transaction. Included in
the cash balances at March 31, 1997 and 1996 is restricted cash of $6 million.
6. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------
1996 1997
--------------------- ---------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C>
Trade receivables......................................... 40 2 39 2
Allowance for doubtful debts.............................. (12) (1) (12) (1)
--- --- --- ---
28 1 27 1
=== === === ===
Included in trade receivables are deferred amounts as
follows:--
Gross deferred lease receivables.......................... 25 -- 16 --
Allowance for doubtful debts.............................. (4) -- (2) --
--- --- --- ---
21 -- 14 --
=== === === ===
</TABLE>
F-13
<PAGE> 88
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCOUNTS RECEIVABLE -- (CONTINUED)
Deferred lease receivables at March 31, 1997 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)). In December 1996, Canadian Airlines deferred
operating lease rentals for a three month period and finance lease principal
payments for a six month period.
Receivables include amounts classified as due after one year of $8 million
(Airplanes Limited $8 million and Airplanes Trust $Nil) at March 31, 1997 and
$17 million (Airplanes Limited $17 and Airplanes Trust $Nil) at March 31, 1996.
7. AMOUNTS DUE FROM AIRPLANES TRUST TO AIRPLANES LIMITED
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------
1996 1997
------------------------ ------------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
---------- ----------- ---------- -----------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C>
Amount receivable from Airplanes Trust.............. -- -- 56 (56)
== == == ==
</TABLE>
Included in the balance of $56 million at March 31, 1997 was $43 million in
respect of aircraft sales and purchases. This amount bears interest based on the
interest terms of the Class A-D Notes. The remaining balance represents the net
amount due to Airplanes Limited in respect of Airplanes Trust's trading
activities, including servicing of its' debt obligations.
8. AMOUNTS DUE FROM GPA
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------
1996 1997
------------------------ ------------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
---------- ----------- ---------- -----------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C>
Amounts due from GPA................................ 12 1 -- 2
== == == ==
</TABLE>
The amounts due from GPA at March 31, 1996 related to a cash adjustment
amount in respect of the difference between the collateralized value of the
receivables which were originally assumed to be transferred and the actual
balances which were transferred at the Closing Date. The balance at March 31,
1997 represents cash received by GPA, in respect of aircraft owned by Airplanes
Trust.
F-14
<PAGE> 89
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
9. NET INVESTMENT IN CAPITAL AND SALES TYPE LEASES
The following are the components of the net investment in capital and sales
type leases of Airplanes Limited:
<TABLE>
<CAPTION>
MARCH 31,
-------------
1996 1997
---- ----
($MILLIONS)
<S> <C> <C>
Total minimum lease payments receivable........................ 112 77
Estimated residual values of leased assets..................... 37 39
Less unearned revenue.......................................... (36) (22)
--- ---
Net investment in capital and sales type leases................ 113 94
=== ===
</TABLE>
Aggregate lease rentals in respect of such capital and sales type leases
for the years ended March 31, 1995, 1996 and 1997 amounted to $26 million, $28
million and $28 million respectively.
Unearned revenue of $13 million, $8 million and $9 million for the years
ended March 31, 1995, 1996 and 1997, respectively, was amortised and included in
revenue.
Minimum future payments to be received on such capital leases for aircraft
at March 31, 1997 are as follows:
<TABLE>
<CAPTION>
MINIMUM LEASE
PAYABLES RECEIVABLE
-------------------
($MILLIONS)
<S> <C>
Years ending March 31,
1998....................................................................... 27
1999....................................................................... 15
2000....................................................................... 14
2001....................................................................... 13
2002....................................................................... 7
Thereafter................................................................. 1
--
77
==
</TABLE>
F-15
<PAGE> 90
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
10. AIRCRAFT
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------
1996 1997
----------------------- -----------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C>
AIRCRAFT
Cost................................................ 4,332 510 4,281 554
Less Accumulated depreciation....................... (861) (129) (1,039) (159)
----- ---- ----- ----
3,471 381 3,242 395
===== ==== ===== ====
FLEET ANALYSIS
On operating lease for a further period of:
More than five years.............................. 683 -- 425 74
From one to five years............................ 1,950 322 2,277 283
Less than one year................................ 722 25 493 25
Non revenue earning aircraft:
Available for lease............................... 31 25 6 --
Available for lease, subject to letters of
intent......................................... 85 9 41 13
----- ---- ----- ----
3,471 381 3,242 395
===== ==== ===== ====
</TABLE>
Certain aircraft are subject to purchase options granted to existing
lessees.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------------------------------------
1995 1996 1997
--------------------- --------------------- ---------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST LIMITED TRUST
--------- --------- --------- --------- --------- ---------
($MILLIONS) ($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Depreciation expense..................... 180 24 180 23 185 30
=== == === == === ==
</TABLE>
F-16
<PAGE> 91
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
11. ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------
1996 1997
----------------------- -----------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C>
Accrued expenses and other liabilities include:
Unearned revenue.................................... 15 2 17 2
Provisions for loss making leases................... 63 13 58 6
Interest accrued.................................... 3 -- 126 11
Other accruals...................................... 26 -- 34 2
Trade payables...................................... 1 -- 1 --
Deposits received................................... 55 2 59 3
--- -- --- --
163 17 295 24
=== == === ==
Of which:
Payable within one year............................. 66 10 87 5
Payable after one year.............................. 97 7 208 19
--- -- --- --
163 17 295 24
=== == === ==
</TABLE>
12. AMOUNTS DUE TO GPA
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------
1996 1997
----------------------- -----------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C>
Amounts due......................................... 12 -- 4 --
=== == === ==
</TABLE>
The amounts due to GPA relate to cash balances retained by Airplanes Group
on the Closing Date in excess of those required in accordance with the terms of
the Transaction, in respect of security deposits and letters of credit which
were not novated from GPA at the Closing Date. The balance at March 31, 1997
represents cash received by Airplanes Limited, in respect of aircraft owned by
GPA.
F-17
<PAGE> 92
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
13. INDEBTEDNESS
The components of the debt are as follows:
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------
1996 1997
----------------------- -----------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C>
Indebtedness in respect of Notes issued:
Subclass A-1........................................ 773 77 773 77
Subclass A-2........................................ 683 67 683 67
Subclass A-3........................................ 455 45 455 45
Subclass A-4........................................ 182 18 182 18
Subclass A-5........................................ 548 50 345 29
Class B............................................. 341 34 328 33
Class C............................................. 341 34 341 34
Class D............................................. 364 36 364 36
Class E............................................. 538 53 538 53
----- --- ----- ---
Discounts arising on issue of Notes................. 4,225(4) 414(1) 4,009(4) 392
----- --- ----- ---
4,221 413 4,005 392
===== === ==== ===
</TABLE>
Debt maturity
The repayment terms of the A, B, C and D Notes are such that certain
principal amounts are expected to be repaid based on certain assumptions (the
"EXPECTED FINAL PAYMENT DATE") or refinanced through the issue of new Notes by
specified Expected Final Payment Dates but in any event are ultimately due for
repayment on specified final maturity dates (the "FINAL MATURITY DATE"). The
Expected Final Payment Dates, Final Maturity Dates and interest rates applicable
to each class of note are set out below:
<TABLE>
<CAPTION>
CLASS/SUBCLASS OF INTEREST EXPECTED FINAL FINAL
NOTES RATES PRINCIPAL AMOUNT PAYMENT DATE MATURITY DATE
- --------------------- -------------- ---------------- -------------- --------------
($MILLIONS)
<S> <C> <C> <C> <C>
Subclass A-1 (LIBOR+ .25%) 850 March 15, 1998 March 15, 2006
Subclass A-2 (LIBOR+ .32%) 750 March 15, 1999 March 15, 2009
Subclass A-3 (LIBOR+ .47%) 500 March 15, 2001 March 15, 2015
Subclass A-4 (LIBOR+ .62%) 200 March 15, 2003 March 15, 2019
Subclass A-5 (LIBOR+ .35%) 374 April 15, 1999 March 15, 2019
Class B (LIBOR+ 1.10%) 361 March 15, 2009 March 15, 2019
Class C (8.15%) 375 March 15, 2011 March 15, 2019
Class D (10.875%) 400 March 15, 2012 March 15, 2019
Class E (see below) 591 See below See below
------
4,401
======
</TABLE>
The dates on which principal repayments on the Notes will actually occur
will depend on the cash generated by Airplanes Group and 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 Maturity Date, additional interest will arise.
F-18
<PAGE> 93
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
13. INDEBTEDNESS -- (CONTINUED)
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 is calculated on the
basis of a 360-day year, consisting of twelve 30-day months.
The Class E Notes accrue interest at a rate of 20% per annum adjusted by
reference to the U.S. Consumer Price Index. Except for a minimum interest amount
and a supplemental interest amount of 1% and 10%, respectively, no interest will
be payable on the Class E Notes until all of the interest, principal and
premium, if any, on the Notes have been repaid in full. The principal on the
Class E notes will be repaid, subject to adequate funds being available, after
payment of all interest due on the E Note.
In general the priority of the principal payments on the Notes is as set
out below;
1. Specified minimum principal amounts on the A and the B Notes in that
order.
2. Additional amounts on the A Notes in the event that the value of the
fleet falls below specified amounts.
3. Scheduled principal repayments on the C and D Notes in that order.
4. Specified additional amounts on the B Notes and the A Notes in that
order.
5. Thereafter cash available to repay the principal on the Notes is
applied on each payment date to repay the outstanding principal on
the D Notes, the C Notes, the B Notes and the A Notes in that order.
On each payment date the priority of the principal amounts outstanding in
respect of the various sub-classes of A Notes is A-5, A-1, A-2, A-3 and A-4 in
that order.
14. PROVISION FOR MAINTENANCE
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------
1996 1997
--------------------- ---------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C>
Balance at April, 1....................................... 242 26 276 35
Receivable during year.................................... 78 14 70 21
Expenditure/Transfers..................................... (44) (5) (59) (30)
--- -- --- ---
Balance at March, 31...................................... 276 35 287 26
=== == === ===
</TABLE>
The reserve for maintenance includes maintenance reserve funds received
from lessees, provisions to cover the directors' estimate of maintenance costs
where Airplanes Group has the primary obligation for maintenance and provisions
to cover the risk of lessees defaulting on obligations, which could result in
Airplanes Group incurring maintenance costs which are the lessees' primary
responsibility.
F-19
<PAGE> 94
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
15. SHARE CAPITAL
<TABLE>
<CAPTION>
AIRPLANES
LIMITED
---------------------
MARCH 31,
---------------------
1996 1997
--------- ---------
($)
<S> <C> <C>
Ordinary shares, par value $1
Authorised 10,000.......................................................... 10,000 10,000
====== ======
Issued 30.................................................................. 30 30
====== ======
</TABLE>
The holders of the issued ordinary shares are entitled to an annual
cumulative preferential dividend of $4,500. As Airplanes Limited does not have
distributable profits this dividend has not been paid. As at March 31, 1997 the
total unpaid cumulative preferential dividend amounted to $4,500.
16. REVENUES
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------------------------------------
1995 1996 1997
--------------------- --------------------- ---------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST LIMITED TRUST
--------- --------- --------- --------- --------- ---------
($MILLIONS) ($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
The distribution of revenues by
geographic area is as follows:
Europe................................... 136 1 195 2 193 1
North America............................ 58 59 58 56 51 58
South America............................ 216 1 185 1 180 12
Asia/rest of world....................... 137 -- 118 1 108 1
--- -- --- -- --- --
547 61 556 60 532 72
=== == === == === ==
Of which, maintenance revenue
represents............................. 74 14 78 14 70 21
=== == === == === ==
</TABLE>
At March 31, 1997, Airplanes Group had contracted to receive the following
minimum rentals under operating leases:
<TABLE>
<CAPTION>
1997
---------------------
AIRPLANES AIRPLANES
LIMITED TRUST
--------- ---------
($MILLIONS)
<S> <C> <C>
Year ending March 31,
1998........................................... 402 48
1999........................................... 319 41
2000........................................... 230 37
2001........................................... 154 30
2002........................................... 104 10
Thereafter..................................... 28 --
----- ---
1,237 166
===== ===
</TABLE>
Contracted rentals are based on actual rates up to the first recalculation
date, and thereafter are based on a budget Libor of 5.6%, and include aircraft
subject to letters of intent to lease.
F-20
<PAGE> 95
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
16. REVENUES -- (CONTINUED)
Each of Airplanes Limited and Airplanes Trust operates in one business
segment, the leasing of aircraft.
For Airplanes Limited no customer accounted for more than 10% of revenue in
fiscal 1995, 1996 or 1997. For Airplanes Trust: (a) two lessees each accounted
for more than 10% of leasing revenue for the year ended March 31, 1995, and
individually these lessees accounted for 38% and 27% of leasing revenue,
respectively, (b) two lessees each accounted for more than 10% of leasing
revenue for the year ended March 31, 1996, and individually these lessees
accounted for 32% and 31% of leasing revenue respectively and (c) two lessees
each accounted for more than 10% of leasing revenue in the year ended March 31,
1997 and individually these lessees accounted for 37% and 31% of leasing revenue
respectively.
17. NET INTEREST EXPENSE
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------------------------------------
1995 1996 1997
--------------------- --------------------- ---------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST LIMITED TRUST
--------- --------- --------- --------- --------- ---------
($MILLIONS) ($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Interest on indebtedness to GPA.......... 325 32 339 34 -- --
Interest on Notes issued................. -- -- 3 -- 360 40
Interest income.......................... (8) (1) (7) (1) (17) --
--- -- --- -- --- --
317 31 335 33 343 40
=== == === == === ==
Cash paid in respect of interest......... 276 27 294 29 237 28
=== == === == === ==
</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 7.83% and 8.25% for the years ended March 31, 1995, and
the period to March 28, 1996 respectively. For periods up to March 28, 1996 the
Statement of Cash Flows gives effect to cash payments for interest only of 1%
per annum on that portion of the indebtedness assumed to be refinanced by the E
Notes (assumed in these financial statements to be approximately 15% of total
indebtedness) and the balance is deferred and reflected as a movement in net
liabilities.
For all periods subsequent to March 28, 1996 the Statement of Operations
and the Statement of Cash Flows includes the actual amounts charged and paid
respectively.
18. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------------------------------------
1995 1996 1997
--------------------- --------------------- ---------------------
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.................... 21 2 20 2 24 2
Other selling, general and administrative
expenses............................... 10 1 12 1 11 1
-- - -- - -- -
31 3 32 3 35 3
== = == = == =
</TABLE>
F-21
<PAGE> 96
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
18. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- (CONTINUED)
In the year ended March 31, 1997 other selling, general and administrative
expenses included an amount of $9 million (Airplanes Limited $8 million,
Airplanes Trust $1 million) payable to GPA in respect of Administration and Cash
Management fees.
19. PROVISION FOR INCOME TAXES
References to Airplanes Limited and Airplanes Trust in the context of this
footnote refer to the underlying taxable entities of Airplanes Limited
(primarily Irish entities) and Airplanes Trust (primarily US entities).
(a) Airplanes Limited
Income tax benefit of Airplanes Limited consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------
1995 1996 1997
---- ---- ----
($MILLIONS)
<S> <C> <C> <C>
Current income tax...................................... -- -- --
Deferred income tax benefit............................. 11 5 10
-- - --
11 5 10
== = ==
</TABLE>
Airplanes Limited's income from approved activities in Ireland is taxable
at a rate of 10% until December 31, 2005.
A reconciliation of differences between actual income tax benefit of
Airplanes Limited for 1995, 1996 and 1997 and the expected tax benefit based on
a tax rate of 10% is shown below:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------
1995 1996 1997
---- ---- ----
($MILLIONS)
<S> <C> <C> <C>
Tax benefit at 10%...................................... 11 5 12
Non deductible E Note interest.......................... -- -- (12)
Reversal of prior year over provision................... -- -- 10
-- - --
Actual tax benefit...................................... 11 5 10
== = ==
</TABLE>
E Note interest is not deductible for tax purposes in Ireland.
The deferred tax provision at March 31, 1996 was based on calculations of
losses forward and capital allowances of Airplanes Limited at December 31, 1995
adjusted on an estimated basis to March 31, 1996. The reversal of the over
provision in respect of the prior year primarily relates to the finalisation of
these estimates.
Airplanes Limited has net operating loss carryforwards of approximately
$788 million as of March 31, 1997, which are available for offset against future
taxable income with no restrictions to expiration.
F-22
<PAGE> 97
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
19. PROVISION FOR INCOME TAXES -- (CONTINUED)
The deferred tax assets and liabilities of Airplanes Limited are summarised
below:
<TABLE>
<CAPTION>
MARCH 31,
-------------
1996 1997
---- ----
($MILLIONS)
<S> <C> <C>
Deferred tax assets relating to:
Net operating loss carryforwards............................. 40 79
Deferred tax liability relating to:
Aircraft..................................................... 107 136
--- ---
Net deferred tax liability..................................... 67 57
=== ===
</TABLE>
(b) Airplanes Trust
Income tax benefit of Airplanes Trust consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------
1995 1996 1997
---- ---- ----
($MILLIONS)
<S> <C> <C> <C>
Current income tax:
Federal....................................................... -- -- --
State......................................................... -- -- --
--- --- ---
Total current................................................... -- -- --
--- --- ---
Deferred income tax:
Federal....................................................... 4 6 --
State......................................................... 1 2 --
--- --- ---
Total deferred.................................................. 5 8 --
--- --- ---
5 8 --
=== === ===
</TABLE>
A reconciliation of differences between actual income tax benefit of
Airplanes Trust for 1995, 1996, and 1997 and the expected tax benefit based on
the U.S. Federal statutory tax rate of 35% in 1995, 1996, and 1997 is shown
below:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------
1995 1996 1997
---- ---- ----
($MILLIONS)
<S> <C> <C> <C>
Tax benefit at statutory rate................................... 4 7 6
State taxes, net of Federal tax................................. 1 1 1
Non deductible E-Note interest.................................. -- -- (5)
Increase on valuation allowance................................. -- -- (2)
--- --- ---
5 8 --
=== === ===
</TABLE>
E Note interest is not deductible for tax purposes.
Airplanes Trust has Federal tax net operating loss carryforwards of
approximately $97 million as of March 31, 1997, which expire beginning in 2007.
F-23
<PAGE> 98
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
19. PROVISION FOR INCOME TAXES -- (CONTINUED)
Deferred tax assets and liabilities of Airplanes Trust are summarised
below:
<TABLE>
<CAPTION>
YEARS ENDED
MARCH 31,
-------------
1996 1997
---- ----
($MILLIONS)
<S> <C> <C>
Deferred tax assets relating to:
Net operating loss carryforwards............................................. 22 40
Other........................................................................ 10 6
Valuation allowance.......................................................... (17) (19)
-- --
15 27
-- --
Deferred tax liabilities relating to:
Aircraft..................................................................... 63 75
-- --
Net deferred tax liability..................................................... 48 48
== ==
</TABLE>
The valuation allowance of $19 million arises as it is believed that a
portion of the net operating loss carryforwards will be utilised in future
years.
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 US "safe-harbor lease" tax rules (see Note 5). 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, 1995, 1996 and 1997 the maximum potential exposure under these
provisions is $11 million, $9 million and $7 million, respectively. However, it
is believed 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. In the year ended March
31, 1997 no tax sharing will occur as both groups will be in a loss position.
20. COMMITMENTS
Capital Commitments
Airplanes Group did not have any material contractual commitments for
capital expenditures at March 31, 1997.
F-24
<PAGE> 99
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
21. CONTINGENT LIABILITIES
Guarantees
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.
Foreign Taxation
The international character of the Group's operations gives rise to some
uncertainties with regard to the impact of taxation in certain countries. The
position is kept under continuous review and the Group provides for all known
liabilities.
F-25
<PAGE> 100
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 26, 1997, we reported on the balance sheets of Airplanes
Limited and Airplanes U.S. Trust as of March 31, 1996 and 1997, 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, 1997,
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 26, 1997
S-1
<PAGE> 101
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
- ----------------- ---------- ------------------ ------------ -----------
($MILLIONS)
<S> <C> <C> <C> <C>
Year ended March 31,
1994.................................... 25 17 (3) 39
1995.................................... 39 34 (7) 66
1996.................................... 66 (27) (27) 12
1997.................................... 12 2 (2) 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
- --------------- ---------- ------------------ ------------ -----------
($MILLIONS)
<S> <C> <C> <C> <C>
Year ended March 31,
1994.................................... 3 3 (1) 5
1995.................................... 5 (1) 1 5
1996.................................... 5 (1) (3) 1
1997.................................... 1 -- -- 1
</TABLE>
S-2
<PAGE> 102
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> 103
<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 Aircraft Information Services, Inc.
23.2 Consent of BK Associates, Inc.
23.3 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 23.1
[LOGO] AIRCRAFT
INFORMATION
SERVICES, INC.
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, 1997.
Date: June 26, 1997 Aircraft Information Services, Inc.
By: /s/ Fred E. Bearden
----------------------
Name: Fred E. Bearden
Title: President
<PAGE> 1
EXHIBIT 23.2
BK ASSOCIATES, INC.
1295 Northern Boulevard
Manhasset, New York 11030
(516) 365-6272 - Fax (516) 365-6287
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, 1997.
Date: June 26, 1997 BK ASSOCIATES, INC.
By: /s/ John F. Keitz
------------------
Name: John F. Keitz
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, 1997.
Date: June 26, 1997 Airclaims Limited
By: /s/ Edward Pienazek
----------------------
Name: Edward Pienazek
Title: Director
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001004539
<NAME> AIRPLANES LIMITED
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 219
<SECURITIES> 0
<RECEIVABLES> 39
<ALLOWANCES> (12)
<INVENTORY> 0
<CURRENT-ASSETS> 242
<PP&E> 4,375
<DEPRECIATION> 1,039
<TOTAL-ASSETS> 3,643
<CURRENT-LIABILITIES> 137
<BONDS> 4,005
<COMMON> 0
0
0
<OTHER-SE> (1,005)
<TOTAL-LIABILITY-AND-EQUITY> 3,643
<SALES> 0
<TOTAL-REVENUES> 532
<CGS> 0
<TOTAL-COSTS> 276
<OTHER-EXPENSES> 38
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 343
<INCOME-PRETAX> (122)
<INCOME-TAX> (10)
<INCOME-CONTINUING> (122)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (112)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001004540
<NAME> AIRPLANES TRUST
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 6
<SECURITIES> 0
<RECEIVABLES> 2
<ALLOWANCES> (1)
<INVENTORY> 0
<CURRENT-ASSETS> 10
<PP&E> 554
<DEPRECIATION> 159
<TOTAL-ASSETS> 405
<CURRENT-LIABILITIES> 9
<BONDS> 392
<COMMON> 0
0
0
<OTHER-SE> (141)
<TOTAL-LIABILITY-AND-EQUITY> 405
<SALES> 0
<TOTAL-REVENUES> 72
<CGS> 0
<TOTAL-COSTS> 47
<OTHER-EXPENSES> 3
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40
<INCOME-PRETAX> (18)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
Exhibit 99.1
[LOGO] AIRCRAFT
INFORMATION
SERVICES, INC.
AIRPLANES LIMITED
22 Grenville Street
St. Helier
Jersey
AIRPLANES U.S. TRUST
1100 North Market Street
Rodney Square North
Wilmington, Delaware
USA
GPA GROUP PLC
GPA House
Shannon
Ireland
BANKERS TRUST COMPANY
4 Albany Street
New York, New York
USA
MORGAN STANLEY & CO. INCORPORATED
1585 Broadway
New York, New York
USA
- ------------------------------------------------------------------------------
ADJUSTED BASE MARKET VALUE OPINION
229 Aircraft Fleet
AISI File No.: A7S002BVO
Date: 28 February 1997
<PAGE> 2
[LOGO] AIRCRAFT
INFORMATION
SERVICES, INC.
28 February 1997
Airplanes Limited
22 Grenville Street
St. Helier
Jersey
Airplanes U.S. Trust
1100 North Market Street
Rodney Square North
Wilmington, Delaware
USA
GPA Group plc
GPA House
Shannon
Ireland
Bankers Trust Company
4 Albany Street
New York, New York
USA
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York
USA
Subject: Adjusted Base Value Opinion for 229 Aircraft.
AISI File number: A7S002BVO
Dear Sirs:
In response to your request, Aircraft Information Services, Inc. (AISI) is
pleased to offer our opinion to the above addresses of the adjusted base values
of the Fleet of Aircraft as identified in Table I (the "Aircraft").
1. METHODOLOGY AND DEFINITIONS
The historical standard term of reference for commercial aircraft value has
been "half-life fair market value" of an "average" aircraft. However, "fair
market value" could mean a fair value in the given market or a value in a
hypothetical "fair" or balanced market, and the two
<PAGE> 3
[LOGO]
28 February 1997
AISI File No. A75002BVO
Page -2-
definitions are not equivalent. Recently, the term "base value" has been created
to describe the theoretical balanced market condition and to avoid the
potentially misleading term "fair market value" which has now become synonymous
with the term "current market value" or a "fair" value in the actual current
market. AISI value definitions are consistent with those of the International
Society of Transport Aircraft Trading (ISTAT) of 01 January 1994; AISI is a
member of that organization and employs an ISTAT Certified Senior Aircraft
Appraiser.
AISI defines a "base value" as that of a transaction between equally willing
and informed buyer and seller, neither under compulsion to buy or sell, for a
single unit cash transaction with no hidden value or liability, and with supply
and demand of the sale item roughly in balance. Base values are typically given
for aircraft in "new" condition "average half-life" condition, or in a
specifically described condition unique to a single aircraft at a specific
time. An "average" aircraft is an operable airworthy aircraft in average
physical condition and with average accumulated flight hours and cycles, with
clear title and standard unrestricted certificate of airworthiness, and
registered in an authority which does not represent a penalty to aircraft value
or liquidity, with no damage history and with inventory configuration and
level of modification which is normal for its intended use and age. AISI
assumes average condition unless otherwise specified in this report.
"Half-life" condition assumes that every component or maintenance service which
has a prescribed interval that determines its service life, overhaul interval
or interval between maintenance services, is at a condition which is one-half
of the total interval.
AISI defines a "current market value" as that value which reflects the real
market conditions, whether at above or below the base value conditions.
Definitions of aircraft condition, buyer/seller qualifications and type of
transaction remain unchanged from that of base value. Current market value
takes into consideration the status of the economy in which the aircraft is
used, the status of supply and demand for the particular aircraft type, the
value of recent transactions and the opinions of informed buyers and sellers.
Current market value assumes that there is no short term time constraint to buy
or sell.
AISI encourages the use of base values only to consider historical trends, as a
basis for long term future value considerations, or to consider how actual
market values vary from theoretical base values. Base values are inappropriate
to determine near term values. AISI encourages the use of current market values
to consider the probable near term value of an aircraft.
AISI determines an "adjusted market value" by determining the value of known
deviations from half-life condition, which may be better or worse than half-life
condition, and to account for better or worse than average physical condition,
and the inclusion of additional equipment, or absence of standard equipment.
Our opinion of the adjusted base values of the Aircraft are derived from
information and specifications supplied by GPA Group plc. No physical
inspection of the Aircraft or their essential records was made by AISI for the
purposes of this report.
<PAGE> 4
[LOGO]
28 February 1997
AISI File No. A7S002BVO
Page -3-
2. VALUATION
Adjustments from half life have been applied based on the current maintenance
status of the Aircraft as indicated in the Aircraft General Specification
sheets supplied to AISI and in accordance with standard AISI methods.
Adjustments are calculated only where there is sufficient information to do so,
or where reasonable assumptions can be made.
With regard to airframe and gear maintenance, if no time between check/overhaul
(TBO) or time since check/overhaul (TSO) information was provided, and if the
total hours/cycles of the airframe do not exceed the TBO limits then the total
hours/cycles of the airframe were assumed to be the TSO. This was typical of
newer aircraft. If no information was provided and if the TSO could not be
calculated, then half life was assumed.
With regard to the engines, due to the lack of information provided, all
engines are considered to be in half life condition.
All hours and cycle information provided for airframe, C Check, D Check, gear
and engines have been projected from the Aircraft General Specification sheet
dates to 31 January 1997 based on a daily utilization factor calculated for
each aircraft.
It is our considered opinion that the adjusted base market values of the
Aircraft are as follows in Table I subject to the assumptions, definitions, and
disclaimers herein.
Unless otherwise agreed by Aircraft Information Services, Inc. (AISI) in
writing, this report shall be for the sole use of the client/addressee. This
report is offered as a fair and unbiased assessment of the subject aircraft.
AISI has no past, present, or anticipated future interest in the subject
aircraft. The conclusions and opinions expressed in this report are based on
published information, information provided by others, reasonable
interpretations and calculations thereof and are given in good faith. Such
conclusions and opinions are judgements that reflect conditions and values
which are current at the time of this report. The values and conditions
reported upon are subject to any subsequent change. AISI shall not be liable to
any party for damages arising out of reliance or alleged reliance on this
report, or for any parties action or failure to act as a result of reliance or
alleged reliance on this report.
Sincerely,
AIRCRAFT INFORMATION SERVICES, INC.
Fred E. Bearden
President
FB/JDM/jm
<PAGE> 5
[LOGO]
TABLE I - AISI FILE A7S002BVO
February 28, 1997
FLEET VALUATION - AIRPLANES FLEET
<TABLE>
<CAPTION>
ADJUSTED
DATE OF BASE VALUE
SERIAL MANUFACTURE JAN-97
No. AIRCRAFT NUMBER (MM/DD/YY) MTOW ENGINE US DOLLARS
<S> <C> <C> <C> <C> <C> <C>
1 A300-B4-100 9 12/26/74 347,222 CF6-50C2 4,640,000
2 A300-B4-100 12 05/20/75 347,222 CF6-50C2 6,810,000
3 A300-B4-100 20 10/01/75 347,222 CF6-50C2 6,890,000
4 A300-B4-200 131 02/07/81 363,700 CF6-50C2 9,070,000
5 A300-B4-200 269 08/11/83 363,700 CF6-50C2 11,530,000
6 A300-C4-200 83 05/01/79 363,700 CF6-50C2 11,790,000
7 A320-200 174 04/01/91 166,446 CFM56-5A1 31,790,000
8 A320-200 175 04/01/91 166,446 CFM56-5A1 31,790,000
9 A320-200 203 09/01/91 166,446 CFM56-5A3 32,110,000
10 A320-200 220 09/01/91 166,446 CFM56-5A3 32,110,000
11 A320-200 232 10/01/91 166,446 CFM56-5A1 31,870,000
12 A320-200 284 03/09/92 166,446 CFM56-5A1 33,590,000
13 A320-200 294 04/02/92 166,446 CFM56-5A3 33,820,000
14 A320-200 301 04/22/92 166,446 CFM56-5A3 33,750,000
15 A320-200 309 05/13/92 166,446 CFM56-5A1 33,630,000
16 A320-200 348 07/17/92 169,753 CFM56-5A1 33,780,000
17 A320-200 349 10/30/92 166,446 CFM56-5A3 33,830,000
18 A320-200 404 01/01/94 166,446 CFM56-5A1 38,280,000
19 ATR-42-300 109 10/14/88 36,800 PW120 6,750,000
20 ATR-42-300 113 11/18/88 36,800 PW120 6,810,000
21 ATR-42-300 249 06/01/91 36,800 PW120 8,500,000
22 ATR-42-300 284 01/01/92 36,800 PW121 9,100,000
23 B727-200A 21346 10/01/80 190,500 JT8D-17R 4,670,000
24 B727-200A 21600 11/01/80 190,500 JT8D-17R 4,800,000
25 B737-200A 20922 08/01/74 117,000 JT8D-9A 3,600,000
26 B737-200A 20958 01/01/75 117,000 JT8D-9A 3,930,000
27 B737-200A 20959 02/04/75 117,000 JT8D-9A 3,940,000
28 B737-200A 21115 12/01/75 117,000 JT8D-9A 3,960,000
29 B737-200A 21192 03/01/76 119,500 JT8D-17 4,990,000
30 B737-200A 21193 07/01/76 119,500 JT8D-17 4,750,000
31 B737-200A 21196 07/01/76 119,500 JT8D-17 4,770,000
32 B737-200A 21206 02/26/76 115,500 JT8D-17 4,590,000
33 B737-200A 21639 11/01/78 117,000 JT8D-9A 5,010,000
34 B737-200A 21685 01/01/79 119,500 JT8D-17 6,160,000
35 B737-200A 21712 02/01/79 117,000 JT8D-9A 5,750,000
36 B737-200A 21735 06/01/79 119,500 JT8D-15 6,270,000
37 B737-200A 21960 03/01/80 117,000 JT8D-15 6,420,000
</TABLE>
<PAGE> 6
[LOGO]
TABLE I - AISI FILE A7S002BVO
February 28, 1997
FLEET VALUATION - AIRPLANES FLEET
<TABLE>
<CAPTION>
ADJUSTED
DATE OF BASE VALUE
SERIAL MANUFACTURE JAN-97
NO. AIRCRAFT NUMBER (MM/DD/YY) MTOW ENGINE US DOLLARS
<S> <C> <C> <C> <C> <C> <C>
38 B737-200A 22090 05/01/80 117,000 JT8D-15 6,450,000
39 B737-200A 22278 03/19/80 121,500 JT8D-15 6,450,000
40 B737-200A 22368 09/01/80 119,500 JT8D-15 6,210,000
41 B737-200A 22369 09/01/80 119,500 JT8D-15 6,240,000
42 B737-200A 22396 02/01/81 119,500 JT8D-15 6,710,000
43 B737-200A 22397 02/01/81 117,000 JT8D-15 6,640,000
44 B737-200A 22407 09/01/80 124,500 JT8D-17A 6,840,000
45 B737-200A 22453 03/01/81 119,500 JT8D-15 6,370,000
46 B737-200A 22632 02/01/82 117,000 JT8D-15 6,460,000
47 B737-200A 22633 03/01/81 121,000 JT8D-15 7,090,000
48 B737-200A 22802 02/01/83 124,500 JT8D-17A 7,350,000
49 B737-200A 22803 02/14/83 124,500 JT8D-17A 7,480,000
50 B737-200A 22804 02/01/83 124,500 JT8D-17A 7,090,000
51 B737-200A 22873 07/01/82 117,000 JT8D-9A 6,380,000
52 B737-200A 22979 03/01/83 117,000 JT8D-15 7,000,000
53 B737-200A 23023 03/30/83 117,000 JT8D-17A 7,180,000
54 B737-200A 23024 05/01/83 117,000 JT8D-17A 7,280,000
55 B737-200QC 23065 10/15/83 124,500 JT8D-17A 8,300,000
56 B737-200QC 23066 12/09/83 124,500 JT8D-17A 8,500,000
57 B737-300 23177 04/01/86 135,000 CFM56-3B1 21,790,000
58 B737-300 23749 05/01/87 137,000 CFM56-3B2 22,390,000
59 B737-300 23923 04/01/88 138,500 CFM56-3B2 23,560,000
60 B737-300 24770 10/01/90 135,000 CFM56-3B1 24,690,000
61 B737-300 24905 02/01/91 130,000 CFM56-3C1 26,120,000
62 B737-300 24907 03/01/91 130,000 CFM56-3C1 25,930,000
63 B737-300 25179 02/12/92 138,500 CFM56-3C1 27,390,000
64 B737-300 25187 03/14/92 138,500 CFM56-3C1 27,390,000
65 B737-300 26852 04/20/92 135,000 CFM56-3B2 27,070,000
66 B737-300QC 23499 06/01/86 135,000 CFM56-3B1 22,720,000
67 B737-300QC 23500 06/01/86 135,000 CFM56-3B1 22,670,000
68 B737-400 24345 06/01/89 138,500 CFM56-3C1 25,860,000
69 B737-400 24493 07/14/89 142,500 CFM56-3C1 26,170,000
70 B737-400 24520 01/16/90 142,500 CFM56-3C1 26,860,000
71 B737-400 24683 08/07/90 150,000 CFM56-3C1 27,340,000
72 B737-400 24684 04/01/90 150,000 CFM56-3C1 27,210,000
73 B737-400 24687 05/25/90 150,000 CFM56-3C1 28,000,000
74 B737-400 24689 07/03/90 150,000 CFM56-3C1 27,040,000
</TABLE>
Page 2 of 7
<PAGE> 7
[LOGO]
TABLE I - AISI FILE A7S002BVO
February 28, 1997
FLEET VALUATION - AIRPLANES FLEET
<TABLE>
<CAPTION>
ADJUSTED
DATE OF BASE VALUE
SERIAL MANUFACTURE JAN-97
No. AIRCRAFT NUMBER (MM/DD/YY) MTOW ENGINE US DOLLARS
<S> <C> <C> <C> <C> <C> <C>
75 B737-400 24690 07/01/90 150,000 CFM56-3C1 27,170,000
76 B737-400 24691 08/09/90 150,000 CFM56-3C1 27,320,000
77 B737-400 24906 04/01/91 142,500 CFM56-3C1 28,150,000
78 B737-400 24911 04/01/91 150,000 CFM56-3C1 28,380,000
79 B737-400 24912 06/14/91 142,500 CFM56-3C1 28,170,000
80 B737-400 24917 06/24/91 150,000 CFM56-3C1 28,110,000
81 B737-400 25180 01/21/92 150,000 CFM56-3C1 29,500,000
82 B737-400 25181 02/03/92 150,000 CFM56-3C1 29,420,000
83 B737-400 25184 03/02/92 150,000 CFM56-3C1 29,530,000
84 B737-400 25190 04/07/92 150,000 CFM56-3C1 29,650,000
85 B737-400 25261 04/09/92 150,000 CFM56-3C1 29,540,000
86 B737-400 26065 05/01/92 150,000 CFM56-3C1 29,420,000
87 B737-400 26069 11/02/92 150,000 CFM56-3C1 29,600,000
88 B737-400 26071 11/13/92 150,000 CFM56-3C1 29,610,000
89 B737-400 26081 03/10/93 150,000 CFM56-3C1 31,090,000
90 B737-500 24897 02/26/91 133,500 CFM56-3C1 21,590,000
91 B737-500 25182 02/03/92 133,500 CFM56-3C1 22,740,000
92 B737-500 25183 02/14/92 133,500 CFM56-3C1 22,850,000
93 B737-500 25185 02/18/92 133,500 CFM56-3C1 22,590,000
94 B737-500 25186 03/11/92 133,500 CFM56-3C1 22,600,000
95 B737-500 25188 03/12/92 133,500 CFM56-3C1 22,800,000
96 B737-500 25191 04/10/92 133,500 CFM56-3C1 22,770,000
97 B737-500 25192 04/14/92 133,500 CFM56-3C1 22,660,000
98 B737-500 25288 06/16/92 133,500 CFM56-3C1 22,590,000
99 B737-500 25289 06/12/92 133,500 CFM56-3C1 22,600,000
100 B737-500 26075 10/23/92 133,500 CFM56-3C1 22,710,000
101 B747-200M 21730 06/07/79 805,000 JT9D-7Q 36,160,000
102 B757-200ER 26151 07/23/92 250,000 RB211-535E4 49,010,000
103 B757-200ER 26154 09/22/92 230,000 RB211-535E4 48,170,000
104 B757-200ER 26156 11/25/92 240,000 RB211-535E4 48,670,000
105 B767-200ER 25421 01/14/92 387,000 PW4056 63,460,000
106 B767-300ER 24948 07/19/91 407,000 PW4060 69,240,000
107 B767-300ER 25411 01/15/92 407,000 PW4060 72,930,000
108 B767-300ER 26200 09/01/92 407,000 PW4060 72,740,000
109 B767-300ER 26204 10/01/92 407,000 PW4060 72,980,000
110 DC10-30 46976 12/14/78 572,000 CF6-50-C2 14,790,000
111 DC10-30 46978 11/29/78 572,000 CF6-50-C2 14,940,000
</TABLE>
<PAGE> 8
[LOGO]
TABLE I - AISI FILE A7S002BVO
February 28, 1997
FLEET VALUATION - AIRPLANES FLEET
<TABLE>
<CAPTION>
ADJUSTED
DATE OF BASE VALUE
SERIAL MANUFACTURE JAN-97
No. AIRCRAFT NUMBER (MM/DD/YY) MTOW ENGINE US DOLLARS
<S> <C> <C> <C> <C> <C> <C>
112 DC10-30F 47841 07/03/80 580,000 CF6-50-C2 23,270,000
113 DC10-30F 47842 04/08/80 580,000 CF6-50-C2 23,270,000
114 DC8-71F 45810 05/07/67 328,000 CFM56-2C1 17,690,000
115 DC8-71F 45811 07/01/67 328,000 CFM56-2C1 17,250,000
116 DC8-71F 45812 02/17/68 328,000 CFM56-2C1 17,790,000
117 DC8-71F 45813 01/26/67 328,000 CFM56-2C1 18,010,000
118 DC8-71F 45849 04/30/67 328,000 CFM56-2C1 17,690,000
119 DC8-71F 45941 12/23/67 328,000 CFM56-2C1 17,690,000
120 DC8-71F 45945 03/01/68 328,000 CFM56-2C1 17,500,000
121 DC8-71F 45946 03/14/68 328,000 CFM56-2C1 17,790,000
122 DC8-71F 45947 03/20/68 328,000 CFM56-2C1 17,790,000
123 DC8-71F 45970 03/29/68 328,000 CFM56-2C1 17,790,000
124 DC8-71F 45971 05/12/68 328,000 CFM56-2C1 17,600,000
125 DC8-71F 45973 05/20/68 328,000 CFM56-2C1 17,870,000
126 DC8-71F 45974 06/21/68 328,000 CFM56-2C1 17,790,000
127 DC8-71F 45975 06/25/68 328,000 CFM56-2C1 17,430,000
128 DC8-71F 45976 07/26/68 328,000 CFM56-2C1 17,790,000
129 DC8-71F 45977 07/16/68 328,000 CFM56-2C1 17,790,000
130 DC8-71F 45978 07/31/68 328,000 CFM56-2C1 17,980,000
131 DC8-71F 45983 04/19/68 328,000 CFM56-2C1 17,790,000
132 DC8-71F 45993 08/06/68 328,000 CFM56-2C1 17,980,000
133 DC8-71F 45994 08/27/68 328,000 CFM56-2C1 17,840,000
134 DC8-71F 45995 08/06/68 328,000 CFM56-2C1 17,790,000
135 DC8-71F 45996 10/01/68 328,000 CFM56-2C1 17,790,000
136 DC8-71F 45997 11/01/68 328,000 CFM56-2C1 17,790,000
137 DC8-71F 45998 10/22/68 328,000 CFM56-2C1 17,540,000
138 DC8-71F 46039 03/01/69 328,000 CFM56-2C1 17,890,000
139 DC8-71F 46065 06/04/69 328,000 CFM56-2C1 17,850,000
140 DC8-71F 46066 05/01/69 328,000 CFM56-2C1 17,890,000
141 DC8-73CF 46091 04/04/70 355,000 CFM56-2C1 21,290,000
142 DC9-14 45736 08/01/66 90,700 JT8D-7B 1,080,000
143 DC9-14 45743 05/01/66 90,700 JT8D-7B 1,080,000
144 DC9-15 45785 11/01/66 90,700 JT8D-7A 1,080,000
145 DC9-15 45786 03/01/67 90,700 JT8D-7B 1,120,000
146 DC9-15 47059 05/01/67 90,700 JT8D-7A 1,120,000
147 DC9-15 47085 07/01/67 90,700 JT8D-7A 1,120,000
148 DC9-15 47122 12/01/67 90,700 JT8D-7A 1,120,000
</TABLE>
<PAGE> 9
[LOGO]
TABLE I - AISI FILE A7S002BVO
February 28, 1997
FLEET VALUATION - AIRPLANES FLEET
<TABLE>
<CAPTION>
ADJUSTED
DATE OF BASE VALUE
SERIAL MANUFACTURE JAN-97
NO. AIRCRAFT NUMBER (MM/DD/YY) MTOW ENGINE US DOLLARS
<S> <C> <C> <C> <C> <C> <C>
149 DC9-15 47126 10/01/68 90,700 JT8D-7A 1,170,000
150 DC9-32 47594 02/01/74 108,000 JT8D-17 4,210,000
151 DC9-32 48125 04/01/80 108,000 JT8D-17 5,340,000
152 DC9-32 48126 04/01/80 108,000 JT8D-17 5,150,000
153 DC9-32 48127 07/01/80 108,000 JT8D-17 5,440,000
154 DC9-32 48128 08/01/80 108,000 JT8D-17 5,480,000
155 DC9-32 48129 11/01/80 108,000 JT8D-17 5,380,000
156 DC9-32 48130 12/01/80 108,000 JT8D-17 5,580,000
157 DC9-51 47742 06/01/77 121,000 JT8D-17 5,590,000
158 DC9-51 47784 05/01/79 121,000 JT8D-17 5,760,000
159 DC9-51 47796 04/01/79 121,000 JT8D-17 5,920,000
160 DC9-51 48122 01/26/81 121,000 JT8D-17 5,940,000
161 DHC8-100 113 09/01/88 34,500 PW120-A 6,500,000
162 DHC8-100 140 03/01/89 34,500 PW120-A 6,900,000
163 DHC8-100 144 03/01/89 34,500 PW120-A 6,890,000
164 DHC8-100 229 09/01/90 34,500 PW121 7,270,000
165 DHC8-100 258 01/01/91 34,500 PW121 7,730,000
166 DHC8-100 270 05/01/91 34,500 PW120-A 7,760,000
167 DHC8-300 232 10/20/90 41,100 PW123 9,070,000
168 DHC8-300 244 12/01/90 41,000 PW123 9,070,000
169 DHC8-300 266 03/20/91 43,000 PW123 9,920,000
170 DHC8-300 267 04/04/91 43,000 PW123 9,910,000
171 DHC8-300 276 05/13/91 43,000 PW123 9,910,000
172 DHC8-300 283 09/01/91 43,000 PW123 9,930,000
173 DHC8-300 293 10/01/91 43,000 PW123 9,940,000
174 DHC8-300 296 10/01/91 43,000 PW123 9,930,000
175 DHC8-300 298 06/30/91 43,000 PW123 9,920,000
176 DHC8-300 300 06/30/91 43,000 PW123 9,920,000
177 DHC8-300 307 12/01/91 43,000 PW123 9,900,000
178 DHC8-300 334 10/08/92 43,000 PW123 10,760,000
179 DHC8-300 342 06/30/93 43,000 PW123 11,690,000
180 DHC8-300C 230 10/01/90 43,000 PW123 10,110,000
181 DHC8-300C 242 11/01/90 43,000 PW123 10,140,000
182 F100 11266 08/17/90 98,000 RB183MK650-15 18,340,000
183 F100 11284 07/31/90 98,000 RB183MK650-15 18,740,000
184 F100 11285 08/01/90 98,000 RB183MK650-15 18,690,000
185 F100 11304 02/27/91 98,000 RB183MK650-15 19,320,000
</TABLE>
Page 5 of 7
<PAGE> 10
[LOGO]
TABLE I - AISI FILE A7S002BVO
February 28, 1997
FLEET VALUATION - AIRPLANES FLEET
<TABLE>
<CAPTION>
ADJUSTED
DATE OF BASE VALUE
SERIAL MANUFACTURE JAN-97
No. AIRCRAFT NUMBER (MM/DD/YY) MTOW ENGINE US DOLLARS
<S> <C> <C> <C> <C> <C> <C>
186 F100 11305 04/19/91 98,000 RB183MK650-15 19,270,000
187 F100 11309 05/16/91 98,000 RB183MK650-15 19,260,000
188 F100 11319 04/05/91 98,000 RB183MK650-15 19,280,000
189 F100 11336 06/05/91 98,000 RB183MK650-15 19,490,000
190 F100 11339 07/01/91 98,000 RB183MK650-15 19,430,000
191 F100 11347 10/01/91 98,000 RB183MK650-15 19,400,000
192 F100 11348 08/06/91 98,000 RB183MK650-15 19,180,000
193 F100 11371 12/19/91 98,000 RB183MK650-15 19,170,000
194 F100 11374 01/20/92 98,000 RB183MK650-15 20,200,000
195 F100 11375 12/01/92 98,000 RB183MK650-15 20,190,000
196 F100 11382 03/01/92 98,000 RB183MK650-15 20,230,000
197 F100 11384 03/01/92 98,000 RB183MK650-15 20,240,000
198 MD11 48499 12/31/91 618,000 CF6-80C2D1F 93,950,000
199 MD11 48500 03/01/92 618,000 CF6-80C2D1F 97,290,000
200 MD11 48501 09/01/92 618,000 CF6-80C2D1F 97,330,000
201 MD-82 49660 03/01/88 149,500 JT8D-217 21,760,000
202 MD-82 49667 01/21/88 149,500 JT8D-217A 21,770,000
203 MD-83 49390 04/01/86 160,000 JT8D-219 22,150,000
204 MD-83 49442 04/29/87 160,000 JT8D-219 22,720,000
205 MD-83 49575 10/01/87 160,000 JT8D-219 22,700,000
206 MD-83 49620 07/01/88 160,000 JT8D-219 23,790,000
207 MD-83 49624 08/01/88 160,000 JT8D-219 23,700,000
208 MD-83 49626 10/22/88 160,000 JT8D-219 23,620,000
209 MD-83 49631 06/01/89 160,000 JT8D-219 24,600,000
210 MD-83 49672 07/01/88 160,000 JT8D-219 23,580,000
211 MD-83 49709 12/01/88 160,000 JT8D-219 23,650,000
212 MD-83 49789 09/23/89 160,000 JT8D-219 24,760,000
213 MD-83 49792 11/01/89 160,000 JT8D-219 24,620,000
214 MD-83 49935 09/26/90 160,000 JT8D-219 25,510,000
215 MD-83 49936 10/06/90 160,000 JT8D-219 25,500,000
216 MD-83 49938 12/01/90 160,000 JT8D-219 25,360,000
217 MD-83 49939 10/26/90 160,000 JT8D-219 25,610,000
218 MD-83 49941 12/01/90 160,000 JT8D-219 25,480,000
219 MD-83 49943 07/01/91 160,000 JT8D-219 26,600,000
220 MD-83 49946 07/18/91 160,000 JT8D-219 26,580,000
221 MD-83 49949 08/05/91 160,000 JT8D-219 26,560,000
222 MD-83 49950 11/01/91 160,000 JT8D-219 26,770,000
</TABLE>
<PAGE> 11
[LOGO]
TABLE I - AISI FILE A7S002BVO
February 28, 1997
FLEET VALUATION - AIRPLANES FLEET
<TABLE>
<CAPTION>
ADJUSTED
DATE OF BASE VALUE
SERIAL MANUFACTURE JAN-97
No. AIRCRAFT NUMBER (MM/DD/YY) MTOW ENGINE US DOLLARS
<S> <C> <C> <C> <C> <C> <C>
223 MD-83 49951 08/25/91 160,000 JT8D-219 26,340,000
224 MD-83 53120 07/29/92 160,000 JT8D-219 27,710,000
225 MD-83 53125 04/02/92 160,000 JT8D-219 27,720,000
226 MD-87 49673 12/01/88 149,000 JT8D-219 19,220,000
227 METRO III 705 08/01/88 16,000 TPE331-11 1,880,000
228 METRO III 711 03/01/88 16,000 TPE331-11 1,880,000
229 METRO III 712 06/01/88 16,000 TPE331-11 1,880,000
Totals: $4,446,410,000
</TABLE>
<PAGE> 1
Exhibit 99.2
I. INTRODUCTION
----------------
<PAGE> 2
1. INTRODUCTION
---------------
In response to a request from GPA Group plc (GPA), BK Associates, Inc. is
pleased to present this report on the base values (BV) as of February 25, 1997
of the aircraft in the Airplanes Group Portfolio (Portfolio). The aircraft
include various types or models of narrow- and wide-body jets as well as
turboprop commuter aircraft. The aircraft are identified in Figure 2-1 by
aircraft type, date of manufacture, serial number, and engine model.
It should be understood that the aircraft have not been inspected for this
appraisal and their current condition and status relative to major maintenance
events was not known in some cases. GPA provided BK Associates with data on the
specifications and current maintenance status for each aircraft. These data
were used to adjust base values to account for current maintenance status.
Section 2 of this report presents the conclusions regarding the values of the
aircraft. Other sections describe the methodology used by BK Associates in
determining appraised values, discuss the factors affecting the market for
aircraft, and describe the experience and qualifications of BK Associates in
undertaking appraisals.
<PAGE> 3
2. CONCLUSIONS
----------------
<PAGE> 4
2. CONCLUSIONS
--------------
Based upon our familiarity with airline transport aircraft, our knowledge of
their capabilities and the uses to which they are put, our knowledge of the
marketing and leasing of new or used aircraft, and our familiarity with
aircraft generally, it is our opinion that the base values as of February 25,
1997 for the aircraft in the Portfolio are as stated in Figure 2-1, expressed
in millions of dollars.
According to the International Society of Transport Aircraft Trading's (ISTAT)
definition of Base Value, to which BK Associates subscribes, base value is the
Appraiser's opinion of the underlying economic value of an aircraft in an open,
unrestricted, stable market environment with a reasonable balance of supply and
demand, and assumes full consideration of its "highest and best use". An
aircraft's Base Value is founded in the historical trend of values and in the
projection of value trends and presumes an arm's length, cash transaction
between willing, able and knowledgeable parties, acting prudently with an
absence of duress and with a reasonable period of time available for marketing.
The values given in Figure 2-1 are based upon certain definitions and
assumptions regarding aircraft condition, maintenance status, and market
conditions which are described more fully below and later in this report.
THESE VALUES SHOULD NOT BE USED OUTSIDE THE CONTEXT OF, OR WITHOUT KNOWLEDGE
OF THOSE ASSUMPTIONS AND DEFINITIONS.
The values given in Figure 2-1 include adjustments to account for the current
maintenance status. These adjustments are approximate, based on industry
average costs, and normally would include an adjustment for the time remaining
to a "C" check, time remaining to a "D" check, time remaining to landing gear
overhaul and time remaining to a heavy shop visit on engines. Where estimates
of time to a check were provided by months or
<PAGE> 5
calendar date, industry average utilization figures were used to convert to an
equivalent hourly rate. Where "C" checks and "D" checks are accomplished on
a phased basis the aircraft is assumed to be at half-time and no adjustment is
included. In many cases, sufficient relevant data were not available to make
adjustments for engines and they were assumed to be at half-time. Where data
were available adjustments were included for engines.
Also, no consideration has been given to cash maintenance reserve payments or
security deposits that are likely paid by the lessees on nearly all of the
aircraft in the Portfolio. These payments are intended to offset the very costs
for which the maintenance adjustments are applied to the half-time values.
BK Associates, Inc. has no present or contemplated future interest in the
aircraft, nor any interest that would preclude our making a fair and unbiased
estimate. This appraisal represents the opinion of BK Associates, Inc. and
reflects our best judgment based on the information available to us at the time
of preparation. It is not given as a recommendation, or as an inducement, for
any financial transaction and further, BK Associates assumes no responsibility
or legal liability for any action taken or not taken by the addressee, or any
other party, with regard to the appraised equipment. By accepting this
appraisal, the addressee agrees that BK Associates shall bear no such
responsibility or legal liability. This appraisal is prepared for the use of
the addressee and shall not be provided to other parties without the express
consent of the addressee.
BK ASSOCIATES, INC.
/s/ John F. Keitz
---------------------
John F. Keitz
President
ISTAT Senior Certified Appraiser
<PAGE> 6
Figure 2-1
AIRPLANES GROUP PORTFOLIO ADJUSTED BASE VALUES
<TABLE>
<CAPTION>
1/2 TIME MT. ADJ.
# TYPE SERNUM YEAR ENGINE BASE VAL. BASE VAL.
<S> <C> <C> <C> <C> <C> <C>
1 A300B4-100 9 1974 CF6-50C2 9.300 9.429
2 A300B4-100 12 1975 CF6-50C2 9.500 9.986
3 A300B4-100 20 1975 CF6-50C2 9.700 10.040
4 A300B4-200 131 1981 CF6-50C2 18.000 18.000
5 A300B4-200 269 1983 CF6-50C2 19.250 19.250
6 A300C4-200 83 1979 CF6-50C2 17.550 17.644
7 A320-211 174 1991 CFM56-5A1 31.250 31.256
8 A320-211 175 1991 CFM56-5A1 31.250 31.256
9 A320-211 203 1991 CFM56-5A3 31.250 31.245
10 A320-211 220 1991 CFM56-5A3 31.250 31.247
11 A320-211 232 1991 CFM56-5A1 31.250 31.259
12 A320-211 284 1992 CFM56-5A1 32.300 32.315
13 A320-212 294 1992 CFM56-5A3 32.300 32.317
14 A320-212 301 1992 CFM56-5A3 32.300 32.257
15 A320-211 309 1992 CFM56-5A1 32.300 32.317
16 A320-231 348 1992 CFM56-5A1 32.300 32.347
17 A320-231 349 1992 CFM56-5A3 32.300 32.308
18 A320-211 404 1993 CFM56-5A1 33.715 33.754
19 B727-2A1 21346 1980 JT8D-17R 6.850 6.928
20 B727-2A1 21600 1980 JT8D-17R 6.850 6.424
21 B737-275 20922 1974 JT8D-9A 4.000 4.000
22 B737-275 20958 1975 JT8D-9A 4.300 4.300
23 B737-275 20959 1975 JT8D-9A 4.300 4.300
24 B737-275 21115 1975 JT8D-9A 4.750 4.750
25 B737-266 21192 1976 JT8D-17 6.605 6.605
26 B737-266 21193 1976 JT8D-17 7.251 7.155
27 B737-266 21196 1976 JT8D-17 7.204 6.845
28 B737-269 21206 1976 JT8D-17 6.750 6.750
29 B737-275 21639 1978 JT8D-9A 6.150 6.150
30 B737-2L9 21685 1979 JT8D-17 7.567 7.567
31 B737-275 21712 1979 JT8D-9A 6.350 6.350
32 B737-2Q8 21735 1979 JT8D-15 7.282 7.282
33 B737-2Q8 21960 1980 JT8D-15 7.966 7.260
34 B737-2M8 22090 1980 JT8D-15 8.817 8.817
35 B737-2S3 22278 1980 JT8D-15 8.295 8.295
36 B737-2T4 22368 1980 JT8D-15 8.073 8.073
37 B737-2T4 22369 1980 JT8D-15 8.125 8.125
</TABLE>
<PAGE> 7
Figure 2-1
AIRPLANES GROUP PORTFOLIO ADJUSTED BASE VALUES
<TABLE>
<CAPTION>
1/2 TIME MT. ADJ.
# TYPE SERNUM YEAR ENGINE BASE VAL. BASE VAL.
<S> <C> <C> <C> <C> <C> <C>
38 B737-2T5 22396 1981 JT8D-15 9.037 9.037
39 B737-2T5 22397 1981 JT8D-15 8.740 8.740
40 B737-2L9 22407 1980 JT8D-17A 8.711 8.711
41 B737-2Q8 22453 1981 JT8D-15 9.199 9.011
42 B737-2T5 22632 1982 JT8D-15 9.196 8.758
43 B737-2S3 22633 1981 JT8D-15 9.275 10.012
44 B737-2T4 22802 1983 JT8D-17A 10.050 10.050
45 B737-2T4 22803 1983 JT8D-17A 10.062 10.062
46 B737-2T4 22804 1983 JT8D-17A 10.043 10.043
47 B737-275 22873 1982 JT8D-9A 8.350 8.350
48 B737-2T5 22979 1983 JT8D-15 10.201 10.201
49 B737-291 23023 1983 JT8D-17A 10.120 10.120
50 B737-291 23024 1983 JT8D-17A 9.925 9.925
51 B737-2T4C 23065 1983 JT8D-17A 11.193 10.842
52 B737-2T4C 23066 1983 JT8D-17A 10.950 11.356
53 B737-317 23177 1986 CFM56-3B1 19.233 19.233
54 B737-3Y0 23749 1987 CFM56-3B2 20.165 20.165
55 B737-3Y0 23923 1988 CFM56-3B2 21.600 21.600
56 B737-3Y0 24770 1990 CFM56-3B1 24.277 24.382
57 B737-3Y0 24905 1991 CFM56-3C1 26.087 25.937
58 B737-3Y0 24907 1991 CFM56-3C1 26.016 26.054
59 B737-3Y0 25179 1992 CFM56-3C1 28.300 28.165
60 B737-3Y0 25187 1992 CFM56-3C1 28.300 28.130
61 B737-3Y0 26852 1992 CFM56-3B2 27.750 27.750
62 B737-3Y0C 23499 1986 CFM56-3B1 21.550 21.550
63 B737-3Y0C 23500 1986 CFM56-3B1 21.550 21.550
64 B737-4Y0 24345 1989 CFM56-3C1 25.237 24.940
65 B737-4Y0 24493 1989 CFM56-3C1 25.050 24.539
66 B737-4Y0 24520 1989 CFM56-3C1 25.750 25.312
67 B737-4Y0 24683 1990 CFM56-3C1 26.740 26.335
68 B737-4Y0 24684 1990 CFM56-3C1 26.611 26.091
69 B737-4Y0 24687 1990 CFM56-3C1 26.661 27.257
70 B737-4Y0 24689 1990 CFM56-3C1 26.625 27.033
71 B737-4Y0 24690 1990 CFM56-3C1 26.625 26.158
72 B737-4Y0 24691 1990 CFM56-3C1 26.625 26.306
73 B737-4Y0 24906 1991 CFM56-3C1 27.350 27.133
74 B737-4Y0 24911 1991 CFM56-3C1 27.600 27.236
</TABLE>
<PAGE> 8
Figure 2-1
AIRPLANES GROUP PORTFOLIO ADJUSTED BASE VALUES
<TABLE>
<CAPTION>
1/2 TIME MT. ADJ.
# TYPE SERNUM YEAR ENGINE BASE VAL. BASE VAL.
<S> <C> <C> <C> <C> <C> <C>
75 B737-4Y0 24912 1991 CFM56-3C1 27.900 27.762
76 B737-4Y0 24917 1991 CFM56-3C1 27.950 27.596
77 B737-4Y0 25180 1992 CFM56-3C1 28.700 28.227
78 B737-4Y0 25181 1992 CFM56-3C1 28.700 28.480
79 B737-4Y0 25184 1992 CFM56-3C1 28.900 28.821
80 B737-4Y0 25190 1992 CFM56-3C1 29.100 28.679
81 B737-4Y0 25261 1992 CFM56-3C1 29.100 28.926
82 B737-4Y0 26065 1992 CFM56-3C1 29.250 29.106
83 B737-4Y0 26069 1992 CFM56-3C1 29.750 29.681
84 B737-4Y0 26071 1992 CFM56-3C1 29.750 29.696
85 B737-4Y0 26081 1993 CFM56-3C1 30.500 30.309
86 B737-5Y0 24897 1991 CFM56-3C1 21.000 20.735
87 B737-5Y0 25182 1992 CFM56-3C1 21.950 21.950
88 B737-5Y0 25183 1992 CFM56-3C1 21.950 21.950
89 B737-5Y0 25185 1992 CFM56-3C1 21.950 21.789
90 B737-5Y0 25186 1992 CFM56-3C1 21.950 21.740
91 B737-5Y0 25188 1992 CFM56-3C1 21.950 21.950
92 B737-5Y0 25191 1992 CFM56-3C1 22.100 21.999
93 B737-5Y0 25192 1992 CFM56-3C1 22.100 21.931
94 B737-5Y0 25288 1992 CFM56-3C1 22.510 22.325
95 B737-5Y0 25289 1992 CFM56-3C1 22.510 22.319
96 B737-5Y0 26075 1992 CFM56-3C1 23.000 22.867
97 B747-259M 21730 1979 JT9D-7Q 37.750 37.750
98 B757-2Y0ER 26151 1992 RB211-535E4 46.000 45.864
99 B757-2Y0 26154 1992 RB211-535E4 43.450 43.276
100 B757-2Y0 26156 1992 RB211-535E4 43.450 43.651
101 B767-2Y0ER 25421 1992 PW4056 59.800 59.800
102 B767-3Y0ER 24948 1991 PW4060 62.300 62.078
103 B767-3Y0ER 25411 1992 PW4060 64.950 64.799
104 B767-3Y0ER 26200 1992 PW4060 67.750 67.345
105 B767-3Y0ER 26204 1992 PW4060 67.750 67.996
106 DC8-71F 45810 1967 CFM56-2C1 15.800 15.800
107 DC8-71F 45811 1967 CFM56-2C1 15.800 15.800
108 DC8-71F 45812 1967 CFM56-2C1 15.800 15.800
109 DC8-71F 45813 1967 CFM56-2C1 15.800 15.800
110 DC8-71F 45849 1967 CFM56-2C1 15.800 15.800
111 DC8-71F 45941 1968 CFM56-2C1 15.800 15.800
</TABLE>
<PAGE> 9
Figure 2-1
AIRPLANES GROUP PORTFOLIO ADJUSTED BASE VALUES
<TABLE>
<CAPTION>
1/2 TIME MT. ADJ.
# TYPE SERNUM YEAR ENGINE BASE VAL. BASE VAL.
<S> <C> <C> <C> <C> <C> <C>
112 DC8-71F 45945 1968 CFM56-2C1 15.800 15.800
113 DC8-71F 45946 1968 CFM56-2C1 15.800 15.800
114 DC8-71F 45947 1968 CFM56-2C1 15.800 15.800
115 DC8-71F 45970 1968 CFM56-2C1 15.800 15.800
116 DC8-71F 45971 1968 CFM56-2C1 15.800 15.800
117 DC8-71F 45973 1968 CFM56-2C1 15.910 15.910
118 DC8-71F 45974 1968 CFM56-2C1 15.900 15.900
119 DC8-71F 45975 1968 CFM56-2C1 15.980 15.980
120 DC8-71F 45976 1968 CFM56-2C1 15.800 15.800
121 DC8-71F 45977 1968 CFM56-2C1 15.800 15.800
122 DC8-71F 45978 1968 CFM56-2C1 15.800 16.301
123 DC8-71F 45983 1968 CFM56-2C1 14.145 14.145
124 DC8-71F 45993 1968 CFM56-2C1 15.800 15.800
125 DC8-71F 45994 1968 CFM56-2C1 15.800 16.086
126 DC8-71F 45995 1968 CFM56-2C1 15.800 15.800
127 DC8-71F 45996 1968 CFM56-2C1 15.800 15.800
128 DC8-71F 45997 1968 CFM56-2C1 15.800 15.800
129 DC8-71F 45998 1968 CFM56-2C1 15.800 15.486
130 DC8-71F 46039 1969 CFM56-2C1 15.800 15.800
131 DC8-71F 46065 1969 CFM56-2C1 15.800 14.863
132 DC8-71F 46066 1969 CFM56-2C1 15.800 15.800
133 DC8-73F 46091 1970 CFM56-2C1 21.950 21.950
134 DC9-14 45736 1966 JT8D-7 1.350 1.350
135 DC9-15 45743 1966 JT8D-7B 1.176 1.176
136 DC9-15 45785 1966 JT8D-7A 1.350 1.350
137 DC9-14 45786 1967 JT8D-7B 1.450 1.450
138 DC9-15 47059 1967 JT8D-7A 1.174 1.174
139 DC9-15 47085 1967 JT8D-7A 1.177 1.177
140 DC9-15 47122 1967 JT8D-7A 1.100 1.100
141 DC9-15 47126 1968 JT8D-7A 1.150 1.150
142 DC9-32 47594 1974 JT8D-17 3.500 3.186
143 DC9-32 48125 1980 JT8D-17 6.250 5.907
144 DC9-32 48126 1980 JT8D-17 6.250 6.639
145 DC9-32 48127 1980 JT8D-17 6.250 6.517
146 DC9-32 48128 1980 JT8D-17 6.250 6.461
147 DC9-32 48129 1980 JT8D-17 6.250 6.567
148 DC9-32 48130 1980 JT8D-17 6.250 6.768
</TABLE>
<PAGE> 10
Figure 2-1
AIRPLANES GROUP PORTFOLIO ADJUSTED BASE VALUES
<TABLE>
<CAPTION>
1/2 TIME MT. ADJ.
# TYPE SERNUM YEAR ENGINE BASE VAL. BASE VAL.
<S> <C> <C> <C> <C> <C> <C>
149 DC9-51 47742 1977 JT8D-17 5.200 5.576
150 DC9-51 47784 1979 JT8D-17 6.000 6.355
151 DC9-51 47796 1979 JT8D-17 6.000 6.489
152 DC9-51 48122 1981 JT8D-17 6.550 6.754
153 DC10-30CF 47841 1980 CF6-50C2 27.300 27.300
154 DC10-30CF 47842 1980 CF6-50C2 27.300 27.300
155 DC10-30 46976 1978 CF6-50C2 21.750 21.750
156 DC10-30 46978 1978 CF6-50C2 21.750 21.750
157 F100 11266 1990 TAY650 18.000 17.826
158 F100 11284 1990 TAY650 18.000 18.171
159 F100 11285 1990 TAY650 18.000 18.131
160 F100 11304 1991 TAY650 18.700 18.529
161 F100 11305 1991 TAY650 19.100 18.913
162 F100 11309 1991 TAY650 19.100 18.837
163 F100 11319 1991 TAY650 19.100 18.850
164 F100 11336 1991 TAY650 19.300 19.325
165 F100 11339 1991 TAY650 19.300 19.333
166 F100 11347 1991 TAY650 20.200 20.200
167 F100 11348 1991 TAY650 20.200 20.200
168 F100 11371 1991 TAY650 20.400 20.218
169 F100 11374 1992 TAY650 20.700 20.280
170 F100 11375 1992 TAY650 20.700 20.296
171 F100 11382 1992 TAY650 20.700 20.305
172 F100 11384 1992 TAY650 20.700 20.428
173 MD11 48499 1991 CF6-80C2 79.500 80.324
174 MD11 48500 1992 CF6-80C2-D1 81.000 81.000
175 MD11 48501 1992 CF6-80C2-D1 82.800 82.800
176 MD82 49660 1988 JT8D-217C 18.950 18.536
177 MD82 49667 1988 JT8D-217A 18.800 18.355
178 MD83 49390 1986 JT8D-219 18.100 17.549
179 MD83 49442 1987 JT8D-219 18.500 18.008
180 MD83 49575 1987 JT8D-219 18.500 17.633
181 MD83 49620 1988 JT8D-219 19.260 18.924
182 MD83 49624 1988 JT8D-219 19.260 18.995
183 MD83 49626 1988 JT8D-219 19.260 19.104
184 MD83 49631 1989 JT8D-219 21.510 21.142
185 MD83 49672 1988 JT8D-219 19.700 18.958
</TABLE>
<PAGE> 11
Figure 2-1
AIRPLANES GROUP PORTFOLIO ADJUSTED BASE VALUES
<TABLE>
<CAPTION>
1/2 TIME MT. ADJ.
# TYPE SERNUM YEAR ENGINE BASE VAL. BASE VAL.
<S> <C> <C> <C> <C> <C> <C>
186 MD83 49709 1988 JT8D-219 19.250 19.161
187 MD83 49789 1989 JT8D-219 21.185 21.045
188 MD83 49792 1989 JT8D-219 21.800 21.804
189 MD83 49935 1990 JT8D-219 23.050 23.050
190 MD83 49936 1990 JT8D-219 23.050 22.484
191 MD83 49938 1990 JT8D-219 23.050 22.908
192 MD83 49939 1990 JT8D-219 22.307 22.241
193 MD83 49941 1990 JT8D-219 23.050 22.600
194 MD83 49943 1991 JT8D-219 24.425 24.372
195 MD83 49946 1991 JT8D-219 23.015 23.325
196 MD83 49949 1991 JT8D-219 24.330 24.083
197 MD83 49950 1991 JT8D-219 24.330 24.435
198 MD83 49951 1991 JT8D-219 24.330 24.330
199 MD83 53120 1992 JT8D-219 24.060 23.998
200 MD83 53125 1992 JT8D-219 25.700 26.018
201 MD87 49673 1988 JT8D-219 17.250 16.967
202 ATR42-300 109 1988 PW120 5.700 5.700
203 ATR42-300 113 1988 PW120 5.700 5.700
204 ATR42-300 249 1991 PW120 7.150 7.150
205 ATR42-300 284 1992 PW121 6.500 6.500
206 DHC8-102 113 1988 PW120A 4.480 4.480
207 DHC8-102 140 1989 PW120A 4.910 4.910
208 DHC8-100 144 1989 PW120A 5.400 5.400
209 DHC8-100 229 1990 PW121 7.600 7.600
210 DHC8-100 258 1991 PW121 6.550 6.550
211 DHC8-100 270 1991 PW120A 6.200 6.200
212 DHC8-300 232 1990 PW123 8.650 8.707
213 DHC8-300 244 1990 PW123 8.820 8.820
214 DHC8-300 266 1991 PW123 8.880 8.880
215 DHC8-300 267 1991 PW123 8.970 8.970
216 DHC8-300 276 1991 PW123 9.135 9.135
217 DHC8-300 283 1991 PW123 9.895 9.895
218 DHC8-300 293 1991 PW123 10.130 10.192
219 DHC8-300 296 1991 PW123 9.175 9.325
220 DHC8-300 298 1992 PW123 9.850 9.850
221 DHC8-300 300 1992 PW123 10.405 10.405
222 DHC8-300 307 1991 PW123 9.655 9.655
</TABLE>
<PAGE> 12
Figure 2-1
AIRPLANES GROUP PORTFOLIO ADJUSTED BASE VALUES
<TABLE>
<CAPTION>
1/2 TIME MT. ADJ.
# TYPE SERNUM YEAR ENGINE BASE VAL. BASE VAL.
<S> <C> <C> <C> <C> <C> <C>
223 DHC8-300 334 1992 PW123 9.515 9.665
224 DHC8-300 342 1992 PW123 10.565 10.565
225 DHC8-300C 230 1990 PW123 9.985 10.110
226 DHC8-300C 242 1990 PW123 9.740 9.871
227 METROIII 705 1988 TPE331-11U 1.700 1.700
228 METROIII 711 1988 TPE331-11U 1.700 1.700
229 METROIII 712 1988 TPE331-11U 1.700 1.700
Total 4291.318 4279.068
</TABLE>
<PAGE> 1
Exhibit 99.3
[LOGO]
Our Ref: 97215BV1/EP/kw
Airplanes Limited 25th February, 1997
22 Grenville Street
St Helier
Jersey
GPA Group plc
GPA House
Shannon
Ireland
Attention: Mr Richard Pierce
GPA Group Chief Accountant
Dear Sirs,
- AIRPLANES GROUP PORTFOLIO VALUATION -
BASE VALUES AS AT 25TH FEBRUARY, 1997
Further to the instructions of Mr. Richard Pierce, Group Chief Accountant of GPA
Group, we are pleased to be able to provide our opinion of the adjusted "Base
Value" of each aircraft in the portfolio of Airplanes Group as indicated in the
attached table, reference 97215BV1. Our valuation is based on the portfolio
details as provided by GPA in January and February, 1997. The point of valuation
is 25th February, 1997.
Airclaims' valuation of the portfolio takes into account data supplied in the
past by GPA, as well as updated information made available in January and
February 1997, regarding the specification of the subject aircraft, including
their type and variants, years of build, engine types and variants, accumulated
airframe and engine hours and cycles, and serial/line number (where relevant).
Information has also been provided in many cases concerning the airframe and
engine maintenance status, and, where possible or necessary this has been
interpreted or extrapolated and our value opinion adjusted accordingly.
We have additionally referred to the data held in the Airclaims CASE Aviation
Database to supplement and complete the data required for the valuation,
including cumulative airframe hours and cycles and have assumed that, unless
otherwise advised, each aircraft is a typical example of its type, model and
age, and is generally in good condition, with all airworthiness directives and
significant service bulletins complied with.
As requested by GPA, we have provided our value opinion under a BASE VALUE
scenario. Airclaims believes it to be very important that value definitions are
understood by all parties and that such values are always considered in
conjunction with their definitions.
Airclaims Limited, Cardinal Point, Newall Road,
Heathrow Airport London TW6 2AS.
Telephone 0181 897 1066 Fax 0181 897 0300 Telex 934679
Cables AIRCLAIMS London Airport.
Registered Head Office as above, Registered in England No. 710284,
VAT Reg. No. 224 1906 87.
<PAGE> 2
[LOGO]
BASE VALUE (TO ISTAT DEFINITION)
The Base Values presented in the attached table are based on the definitions as
outlined by the International Society of Transport Aircraft Trading (ISTAT).
ISTAT's definition of Base Value equates in principle to the previously used
appraisal term. Fair Market Value.
The ISTAT definition is as follows:
A Base Value is the Appraiser's opinion of the underlying economic value of an
aircraft in an open, unrestricted, stable market environment with a reasonable
balance of supply and demand, and assumes full consideration of its "highest and
best use". An aircraft's Base Value is founded in the historical trend of values
and in the projection of value trends and presumes an arm's length, cash
transaction between willing, able and knowledgeable parties, acting prudently,
with an absence of duress and with a reasonable period of time available for
marketing.
In most cases, the BASE VALUE of an aircraft assumes its physical condition is
average for an aircraft of its type and age, and its maintenance time status is
at mid-life, mid-time (or benefiting from an above average maintenance status if
it is new or nearly new, as the case may be).
In this instance, with much of the fleet under consideration being relatively
young, all the Base Values pertaining to the GPA fleet have been adjusted for
maintenance status where available and appropriate.
No physical inspection of the subject aircraft has been undertaken by Airclaims
in conjunction with this assignment, and no attempt made to verify the
information available to us, which is therefore assumed to be correct as given.
Abbreviations used on the tabulated valuation pages include:
Type Aircraft type, model and variant
Eng. Engine Type and Variant
MSN Manufacturers Serial Number
REGN Registration
MTOW Maximum Take-Off Weight
ADJ BV Adjusted Base Value
H-L BV Half-Life Base Value
Whilst the tabulated values are given as single figures, it must be borne in
mind that the determination of such values involves a multiplicity of variables,
and that some variation in perceived values must be expected, due to for
example, any potential inaccuracies in the data provided, and also because the
aircraft have been valued "sight unseen". In this case we consider that a
tolerance of +/- 4% may reasonably apply to the aforementioned calculated
values.
97215BVI/EP/lew GPA Group Plc
25/02/97 Page 2
<PAGE> 3
[LOGO]
Please note that valuations given by Airclaims are valid only as at the date of
issue. Subsequent to that date there may be alterations in the world aviation
market, or in the status and physical condition of the subject aircraft or other
general factors that may affect Airclaims' valuation opinion.
I trust the foregoing is satisfactory and to your requirements.
Yours faithfully,
Edward Pieniazek
Director, Consultancy & Information Services
Encl.
<PAGE> 4
AIRCLAIMS LIMITED
AIRPLANES GROUP PORTFOLIO
[LOGO]
BASE VALUES of the AIRPLANES GROUP PORTFOLIO
Specification/Values as at 25th February 1997
<TABLE>
<CAPTION>
BASE VALUES
BUILD MTOW AIRFRAME ADJ H-L
TYPE ENG MSN REGN DATE OPERATOR (LB) HOURS CYCLES AS AT BV BV
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 A300B4-103 CF6-50C2R 9 RP-C8881 Dec-74 GRAND AIR 338,987 38,121 21,249 31-Oct-96 $3.19m $3.40m
2 A300B4-103 CF6-50C2R 12 G-GIJU May-75 TRANSLIFT 330,693 44,440 22,495 31-Oct-96 $4.47m $3.40m
3 A300B4-100 CF6-50C2R 20 EI-CJK Oct-75 TRANSLIFT 346,916 36,903 20,243 01-Feb-95 $4.10m $3.40m
4 A300B4-200 CF6-50C2 131 6Y-JMK Dec-80 GECAS 363,760 31,596 18,304 31-Oct-96 $7.69m $8.55m
5 A300B4-200 CF6-50C2 269 AP-BEL Aug-83 PIA 363,760 28,564 14,484 31-Oct-96 $10.14m $10.00m
6 A300C4-200 CF6-50C2 83 EI-BZB May-79 PHILIPPINE AIRLINES 363,760 33,891 19,513 31-Dec-96 $16.90m $16.80m
7 A320-200 CFM56-5A1 174 C-GPWG Feb-91 CANADIAN 166,447 20,098 7,355 31-Dec-96 $30.86m $30.77m
8 A320-200 CFM56-5A1 175 C-FPWE Feb-91 CANADIAN 166,447 20,029 7,394 31-Dec-96 $30.80m $30.77m
9 A320-200 CFM56-5A3 203 F-GLGG May-91 AIR FRANCE 166,447 13,343 8,526 31-Dec-96 $30.80m $31.32m
10 A320-200 CFM56-5A3 220 F-GLGH Jun-91 AIR CHARTER 166,447 12,877 8,337 31-Dec-96 $30.99m $31.32m
11 A320-200 CFM56-5A1 232 C-FDCA Jul-91 CANADIAN 166,447 18,740 7,063 31-Dec-96 $31.47m $31.22m
12 A320-200 CFM56-5A1 284 C-FLSS Dec-91 CANADIAN 166,447 17,222 6,473 31-Dec-96 $32.26m $32.12m
13 A320-200 CFM56-5A3 294 G-HAGT Jan-92 166,447 16,570 6,330 31-Dec-96 $31.08m $32.17m
14 A320-200 CFM56-5A3 301 G-KMAM Feb-92 PREMIAIR 166,447 16,298 6,017 30-Nov-96 $31.63m $32.17m
15 A320-200 CFM56-5A1 309 C-FLSU Feb-92 CANADIAN 162,067 16,651 6,315 31-Dec-96 $31.97m $31.90m
16 A320-200 CFM56-5A1 348 F-GLGE Jun-92 AIRTOURS INT'L 162,067 8,482 3,258 31-Dec-96 $32.93m $32.90m
17 A320-200 CFM56-5A3 349 G-OEXC Jun-92 AIRTOURS INT'L 166,447 14,791 5,456 31-Dec-96 $33.16m $32.92m
18 A320-200 CFM56-5A3 404 C-FNVV Jan-93 CANADIAN 162,067 10,853 4,111 31-Dec-96 $33.66m $33.60m
19 ATR42-300 PW120 109 G-BUPS Aug-88 TITAN AIRWAYS 36,825 15,007 14,290 31-Dec-96 $5.73m $5.75m
20 ATR42-310 PW120 113 EI-CIQ Oct-88 TITAN AIRWAYS 36,825 11,517 11,781 31-Dec-96 $5.87m $5.85m
21 ATR42-310 PW120 249 N249AT May-91 AMR-SIMMONS 36,825 10,766 14,032 31-Dec-96 $7.30m $7.20m
22 ATR42-320 PW120 264 HK-3684X Dec-91 ACES COLOMBIA 36,825 11,210 18,609 31-Oct-96 $7.45m $7.55m
</TABLE>
GPA GROUP Page 1
<PAGE> 5
AIRCLAIMS LIMITED
AIRPLANES GROUP PORTFOLIO
[LOGO]
BASE VALUES of the AIRPLANES GROUP PORTFOLIO
Specification/Values as at 25th February 1997
<TABLE>
<CAPTION>
BASE VALUES
BUILD MTOW AIRFRAME ADJ H-L
TYPE ENG MSN REGN DATE OPERATOR (LB) HOURS CYCLES AS AT BV BV
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
23 B727-200Adv. JT8D-17R 21346 XA-MXI Sep-80 MEXICANA 190,500 41,022 34,055 31-Dec-96 $3.13m $3.75m
24 B727-200Adv. JT8D-17R 21600 XA-MXJ Oct-80 MEXICANA 190,500 41,479 34,663 31-Dec-96 $3.19m $3.75m
25 B737-200Adv. JT8D-9A 20922 C-GAPW Aug-74 AMERICA WEST 117,000 62,829 68,418 30-Nov-96 $1.96m $2.40m
26 B737-200Adv. JT8D-9A 20958 C-GBPW Dec-74 AMERICA WEST 117,000 60,095 67,353 30-Nov-96 $2.37m $2.35m
27 B737-200Adv. JT8D-9A 20959 N126AW Jan-75 AMERICA WEST 117,000 61,370 65,957 30-Nov-96 $2.16m $2.60m
28 B737-200Adv. JT8D-9A 21115 C-GEPW Oct-75 CANADIAN 117,000 53,597 61,664 31-Dec-96 $2.56m $2.60m
29 B737-200Adv. JT8D-17 21192 TF-ABG Feb-76 AIR PHILIPPINES 119,500 38,767 36,602 31-Dec-96 $3.00m $3.59m
30 B737-200Adv. JT8D-17 21193 5Y-BHV Mar-76 KENYA AIRWAYS 119,500 45,837 35,314 31-Dec-96 $2.97m $3.59m
31 B737-200Adv. JT8D-17 21196 5Y-BHW Jun-76 KENYA AIRWAYS 119,500 47,633 35,952 31-Dec-96 $3.13m $3.59m
32 B737-200Adv. JT8D-17 21206 OB-1539 Jan-76 AERO SANTA 119,500 33,773 30,461 30-Sep-96 $2.68m $3.39m
33 B737-200Adv. JT8D-9A 21639 C-GGPW Oct-78 CANADIAN 117,000 46,134 52,974 31-Dec-96 $3.13m $3.20m
34 B737-200Adv. JT8D-17 21685 UR-BFA Dec-78 AEROSWEET 119,500 43,987 34,106 31-Dec-96 $2.91m $3.89m
35 B737-200Adv. JT8D-9A 21712 C-GIPW Jan-79 CANADIAN 117,000 45,432 50,286 31-Dec-96 $3.80m $3.40m
36 B737-200Adv. JT8D-15 21735 HA-LEA May-79 MALEV 119,500 47,418 37,904 31-Dec-96 $4.57m $3.89m
37 B737-200Adv. JT8D-15 21960 CC-CLD Feb-80 LAN CHILE 117,000 49,265 31,121 31-Dec-96 $4.80m $4.00m
38 B737-200Adv. JT8D-15 22090 HA-LEB Apr-80 MALEV 119,500 36,881 23,774 31-Dec-96 $3.34m $4.18m
39 B737-200Adv. JT8D-15 22278 LV-WJS Feb-80 LAPA ARGENTINA 121,500 53,112 28,065 31-Dec-96 $3.65m $4.26m
40 B737-200Adv. JT8D-15 22368 LV-WNA Sep-80 LAPA ARGENTINA 119,500 44,218 36,366 31-Dec-96 $3.84m $4.09m
41 B737-200Adv. JT8D-15 22369 LV-WNB Sep-80 LAPA ARGENTINA 119,500 42,809 35,666 31-Dec-96 $3.82m $4.09m
42 B737-200Adv. JT8D-15 22396 VT-EWF Dec-80 119,500 46,744 27,173 31-May-96 $4.87m $4.19m
43 B737-200Adv. JT8D-15 22397 CC-CJW Jan-81 119,500 46,255 31,128 31-Dec-96 $4.79m $4.49m
44 B737-200Adv. JT8D-17A 22407 CC-CEE Sep-80 LAN CHILE 124,500 44,000 29,651 31-Dec-96 $4.93m $4.45m
45 B737-200Adv. JT8D-15 22453 LY-GPA Feb-81 LITHUANIAN A/L 119,500 41,130 24,830 31-Oct-96 $3.95m $4.49m
46 B737-200Adv. JT8D-15 22632 CC-CYP Feb-82 LAN CHILE 117,000 41,464 24,717 31-Dec-96 $4.23m $4.80m
47 B737-200Adv. JT8D-15 22633 VT-EWD Feb-81 121,500 44,081 24,002 31-May-96 $4.83m $4.36m
48 B737-200Adv. JT8D-17A 22802 UR-GAD Jul-82 UKRAINE INT'L 124,500 33,757 24,802 30-Nov-96 $5.22m $4.85m
49 B737-200Adv. JT8D-17A 22803 HA-LEI Aug-82 MALEV 124,500 29,095 24,844 31-Dec-96 $3.92m $4.85m
50 B737-200Adv. JT8D-17A 22804 HA-LEM Aug-82 MALEV 124,500 30,372 25,098 31-Dec-96 $4.28m $4.85m
51 B737-200Adv. JT8D-9A 22873 C-GUPW Jul-82 CANADIAN 117,000 36,240 38,164 31-Dec-96 $4.08m $4.15m
52 B737-200Adv. JT8D-15 22979 HA-LEC Feb-83 MALEV 119,500 36,623 20,982 31-Dec-96 $5.47m $4.75m
53 B737-200Adv. JT8D-17A 23023 PK-RIQ Mar-83 MANDALA 117,000 30,155 24,061 31-Dec-96 $4.84m $4.85m
54 B737-200Adv. JT8D-17A 23024 CC-CDG Apr-83 LAN CHILE 117,000 35,220 27,998 31-Dec-96 $4.12m $4.85m
</TABLE>
GPA GROUP
PAGE 2
<PAGE> 6
AIRCLAIMS LIMITED
AIRPLANES GROUP PORTFOLIO
[LOGO]
BASE VALUES of the AIRPLANES GROUP PORTFOLIO
Specification/Values as at 25th February 1997
<TABLE>
<CAPTION>
BASE VALUES
BUILD MTOW AIRFRAME ADJ H-L
TYPE ENG MSN REGN DATE OPERATOR (LB) HOURS CYCLES AS AT BV BV
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
55 B737-200C/Adv. JT8D-17A 23065 N675MA Aug-83 LAPA 124,500 32,022 29.765 31-Dec-96 $6.46m $6.75m
56 B737-200C/Adv. JT8D-17A 23066 N676MA Oct-83 XIAMEN 124,500 29,806 28.096 31-Dec-96 $6.81m $6.75m
57 B737-300 CFM56-3B1 23177 EI-CHH Mar-86 FRONTIER AIRLINES 135,000 29,319 20.890 31-Dec-96 $18.81m $18.15m
58 B737-300 CFM56-3B2 23749 EC-FKJ Apr-87 AIR EUROPA 137,000 35,466 17.868 31-Dec-96 $19.82m $20.15m
59 B737-300 CFM56-3B2 23923 EC-FJZ Mar-88 AIR EUROPA 138,500 28,690 13.636 31-Dec-96 $21.97m $21.89m
60 B737-300 CFM56-3B1 24770 EI-BZN Sep-90 PHILIPPINE AIRLINES 135,000 13,362 9.970 31-Dec-96 $22.83m $22.95m
61 B737-300 CFM56-3C1 24905 PH-TSU Jan-91 TRANSAVIA AIRLINES 130,000 12,002 7.843 30-Nov-96 $25.01m $25.19m
62 B737-300 CFM56-3C1 24907 UR-GAE Feb-91 AIR ASIA 130,000 11,657 8.789 31-Dec-96 $24.75m $25.18m
63 B757-300 CFM56-3C1 25179 EI-CLZ Dec-91 AIR ONE 135,000 12,736 8.321 30-Nov-96 $26.07m $26.55m
64 B737-300 CFM56-3C1 25187 EI-CLW Feb-92 AIR ONE 135,000 12,654 7.674 30-Nov-96 $25.85m $26.25m
65 B737-300 CFM56-3B2 26852 PP-VPA Mar-92 VARIG 135,000 9,950 12.551 30-Nov-96 $25.98m $25.75m
66 B737-300QC CFM56-3B1 23499 N303AL May-86 VANGUARD AIRLINES 135,000 25,987 29,600 31-Dec-96 $20.91m $21.03m
67 B737-300QC CFM56-3B1 23500 N304AL May-86 VANGUARD AIRLINES 135,000 26,823 30,837 31-Dec-96 $20.88m $21.03m
68 B737-400 CFM56-3C1 24345 VT-JAG May-89 JET AIRWAYS 142,500 18,747 10.741 31-Dec-96 $24.05m $23.94m
69 B737-400 CFM56-3C1 24493 HL-7258 Jun-89 ASIANA 142,500 16,093 16.682 30-Nov-96 $23.45m $23.94m
70 B737-400 CFM56-3C1 24520 HL-7260 Dec-89 ASIANA 142,500 16,742 15.241 30-Nov-96 $23.62m $24.44m
71 B737-400 CFM56-3C1 24683 TC-AYA Jul-90 MYANMAR AIRWAYS INTL 150,000 15,785 9.445 31-Dec-96 $24.73m $25.45m
72 B737-400 CFM56-3C1 24684 TC-AFK Mar-90 PHILIPPINE AIRLINES 150,000 21,873 8,642 30-Nov-96 $25.15m $25.45m
73 B737-400 CFM56-3C1 24687 D-ABAC Apr-90 JET AIRWAYS (INDIA) 150,000 21,771 9,034 31-Dec-96 $25.48m $25.45m
74 B737-400 CFM56-3C1 24689 EC-EXY Jun-90 FUTURA 150,000 21,361 10,019 31-Dec-96 $25.24m $25.45m
75 B737-400 CFM56-3C1 24690 EC-FPB Jun-90 AER LINGUS 150,000 20,260 10,110 31-Oct-96 $25.08m $25.45m
76 B737-400 CFM56-3C1 24691 TC-AZA Jul-90 ISTANBUL AIRLINES 150,000 16,306 9,970 31-Dec-96 $25.06m $25.45m
77 B737-400 CFM56-3C1 24906 EC-GAZ Feb-91 AIR EUROPA 142,500 13,096 12,775 31-Dec-96 $26.41m $26.49m
78 B737-400 CFM56-3C1 24911 SE-DTB Mar-91 NORDIC EAST 150,000 15,066 8,964 30-Nov-96 $26.31m $26.55m
79 B737-400 CFM56-3C1 24912 EC-GBN May-91 AIR EUROPA 142,500 11,973 11,718 31-Dec-96 $26.56m $26.49m
80 B737-400 CFM56-3C1 24917 TC-JDF May-91 THY-TURKISH 150,000 15,060 7,966 31-Dec-96 $26.59m $26.75m
81 B737-400 CFM56-3C1 25180 EC-FLD Dec-91 RYAN INT'L AIRLINES 150,000 16,013 7,247 31-Dec-96 $26.70m $27.15m
82 B737-400 CFM56-3C1 25181 TC-JDG Dec-91 RYAN INT'L AIRLINES 150,000 13,144 6,898 31-Dec-96 $27.01m $27.15m
83 B737-400 CFM56-3C1 25184 TC-JDH Jan-92 THY-TURKISH 150,000 13,281 6,849 31-Dec-96 $27.27m $27.60m
84 B737-400 CFM56-3C1 25190 TC-SUT Mar-92 SUN EXPRESS 150,000 15,638 6,876 30-Nov-96 $27.28m $27.60m
85 B737-400 CFM56-3C1 25261 TC-JDT Mar-92 THY-TURKISH 150,000 13,009 6,679 31-Dec-96 $27.50m $27.80m
86 B737-400 CFM56-3C1 26065 TC-JDY Apr-92 THY-TURKISH 150,000 12,803 6,572 31-Dec-96 $27.65m $27.90m
</TABLE>
GPA GROUP Page 3
<PAGE> 7
AIRCLAIMS LIMITED
AIRPLANES GROUP PORTFOLIO
[LOGO]
BASE VALUES of the AIRPLANES GROUP PORTFOLIO
Specification/Values as at 25th February 1997
<TABLE>
<CAPTION> BASE VALUES
------------
BUILD MTOW AIRFRAME ADJ H-L
TYPE ENG MSN REGN DATE OPERATOR (LB) HOURS CYCLES AS AT BV BV
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
87 B737-400 CFM56-3C1 26069 HA-LEN Aug-92 MALEV 150,000 10,979 5,659 31-Dec-96 $27.79m $27.80m
88 B737-400 CFM56-3C1 26071 HA-LEO Aug-92 MALEV 150,000 10,776 5,331 31-Dec-96 $27.71m $27.80m
89 B737-400 CFM56-3C1 26081 D-ABAF Feb-93 PEGASUS 150,000 13,633 5,408 30-Nov-96 $28.85m $29.10m
90 B737-500 CFM56-3C1 24897 B-2542 Jan-91 CHINA SOUTHERN 133,500 13,328 11,213 31-Oct-96 $21.92m $22.08m
91 B737-500 CFM56-3C1 25182 B-2548 Jan-92 CHINA SOUTHERN 133,500 11,305 8,022 31-Dec-96 $23.12m $23.13m
92 B737-500 CFM56-3C1 25183 B-2549 Jan-92 CHINA SOUTHERN 133,500 10,818 8,211 31-Dec-96 $23.15m $23.13m
93 B737-500 CFM56-3C1 25185 XA-RJS Jan-92 BRITISH MIDLAND 133,500 15,255 9,309 31-Dec-96 $22.62m $23.13m
94 B737-500 CFM56-3C1 25186 PT-SLU Feb-92 RIO SUL 133,500 14,321 10,649 31-Dec-96 $22.65m $23.13m
95 B737-500 CFM56-3C1 25188 B-2550 Feb-92 CHINA SOUTHERN 133,500 10,760 6,455 31-Dec-96 $22.74m $23.13m
96 B737-500 CFM56-3C1 25191 XA-SAS Mar-92 JET AIRWAYS (INDIA) 133,500 13,480 7,383 31-Dec-96 $22.72m $23.13m
97 B737-500 CFM56-3C1 25192 XA-SAC Mar-92 RIO SUL 133,500 13,853 8,944 31-Dec-96 $22.16m $22.78m
98 B737-500 CFM56-3C1 25288 TC-JDU Apr-92 THY-TURKISH 133,500 14,352 5,912 31-Dec-96 $22.50m $22.78m
99 B737-500 CFM56-3C1 25289 TC-JDV Apr-92 THY-TURKISH 133,500 14,513 5,998 31-Dec-96 $22.51m $22.78m
100 B737-500 CFM56-3C1 28075 PT-SLN Sep-92 RIO SUL 133,500 13,904 12,057 31-Dec-96 $22.11m $22.78m
101 B747-200M JT9D-7Q 21730 EI-CEO Apr-79 TOWER AIR 805,000 53,763 15,819 31-Oct-96 $29.94m $28.60m
102 B757-200 RB211-535E4- 26151 XA-KWK Jun-92 BLUE SCANDINAVIAN 250,000 14,472 6,817 31-Dec-96 $38.93m $40.30m
103 B757-200 RB211-535E4- 26154 EI-CEZ Aug-92 AVIANCA 250,000 13,895 5,388 31-Dec-96 $40.31m $40.50m
104 B757-200 RB211-535E4- 26156 B-2827 Oct-92 CHINA SOUTHWEST 250,000 9,209 4,822 31-Oct-96 $40.54m $41.60m
105 B767-200ER PW4056 25421 EI-CEM Nov-91 TRANSBRASIL 387,000 15,868 3,117 31-Dec-96 $49.33m $48.40m
106 B767-300ER PW4060 24946 PT-TAE Jun-91 TRANSBRASIL 387,000 26,314 6,470 31-Dec-96 $65.06m $65.40m
107 B767-300ER PW4060 25411 EI-CLR Nov-91 SAS 407,000 14,738 3,114 30-Apr-96 $66.05m $66.45m
108 B767-300ER PW4060 26200 XA-RKI Jul-92 AEROMEXICO 407,000 16,304 3,876 31-Dec-96 $69.16m $69.35m
109 B767-300ER PW4060 26204 XA-RKJ Oct-92 LAN CHILE AIRLINES 407,000 13,141 3,105 31-Dec-96 $69.27m $69.35m
</TABLE>
GPA Group Page 4
<PAGE> 8
AIRCLAIMS LIMITED
AIRPLANES GROUP PORTFOLIO
[LOGO]
BASE VALUES of the AIRPLANES GROUP PORTFOLIO
Specification/Values as at 25th February 1997
<TABLE>
<CAPTION>
BASE VALUES
BUILD MTOW AIRFRAME ADJ H-L
TYPE ENG MSN REGN DATE OPERATOR (LB) HOURS CYCLES AS AT BV BV
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
110 DC10-30 CF6-50C2 46976 N602DC Nov-78 OFF LEASE 572,000 52,201 14,855 31-Dec-96 $18.01m $17.95m
111 DC10-30 CF6-50C1 48978 N777SJ Nov-78 OFF LEASE 572,000 55,704 13,842 31-Dec-96 $17.10m $17.10m
112 DC10-30F CF6-50C2 47841 PP-VMT Jun-80 VARIG 580,000 52,593 13,285 30-Nov-96 $24.15m $24.15m
113 DC10-30F CF6-50C2 47842 PP-VMU Aug-80 VARIG 580,000 53,047 13,370 30-Nov-96 $23.45m $24.15m
114 DC8-71F(M) CFM56-2C1 45810 CC-CYQ 66 ABSA CARGO 328,000 82,240 31,108 31-Dec-96 $17.82m $17.48m
115 DC8-71F(M) CFM56-2C1 45811 N821BX 67 A T INTL/BURLINGTON EXP 328,000 74,371 30,983 30-Nov-96 $16.43m $17.48m
116 DC8-71F(M) CFM56-2C1 45812 N500MH 66 EMERY WORLDWIDE 325,000 75,396 29,862 31-Dec-96 $18.17m $17.38m
117 DC8-71F(M) CFM56-2C1 45813 N8228X 67 A T INTL/BURLINGTON EXP 328,000 75,278 30,669 31-Dec-96 $18.18m $17.38m
118 DC8-71F(M) CFM56-2C1 45849 HK-3786X 67 TAMPA 328,000 79,436 31,283 31-Dec-96 $18.01m $17.48m
119 DC8-71F(M) CFM56-2C1 45941 N8076U 67 EMERY WORLDWIDE 328,000 74,591 30,289 31-Dec-96 $16.68m $17.48m
120 DC8-71F(M) CFM56-2C1 45945 EC-FVA 68 CARGOSUR 328,000 75,828 31,002 31-Dec-96 $17.09m $17.48m
121 DC8-71F(M) CFM56-2C1 45946 N824BX 68 A T INTL/BURLINGTON EXP 328,000 73,009 30,213 30-Nov-96 $16.78m $17.48m
122 DC8-71F(M) CFM56-2C1 45947 N8079U 68 EMERY WORLDWIDE 325,000 79,492 31,120 31-Dec-96 $17.90m $17.38m
123 DC8-71F(M) CFM56-2C1 45970 CC-CAX 68 FAST AIR CHILE 328,000 83,013 31,599 31-Dec-96 $17.77m $17.48m
124 DC8-71F(M) CFM56-2C1 45971 N827BX 68 A T INTL/BURLINGTON EXP 328,000 74,928 30,632 30-Nov-96 $17.53m $17.48m
125 DC8-71F(M) CFM56-2C1 45973 N783UP 68 A T INTL/BURLINGTON EXP 328,000 65,083 24,903 30-Nov-96 $17.08m $17.48m
126 DC8-71F(M) CFM56-2C1 45974 N8084U 68 EMERY WORLDWIDE 328,000 67,969 25,077 31-Dec-96 $17.11m $17.48m
127 DC8-71F(M) CFM56-2C1 45975 N8085U 68 EMERY WORLDWIDE 328,000 67,569 24,645 31-Dec-96 $17.09m $17.48m
128 DC8-71F(M) CFM56-2C1 45976 CC-CAR 68 FAST AIR CHILE 328,000 74,120 26,035 31-Dec-96 $16.71m $17.48m
129 DC8-71F(M) CFM56-2C1 45977 N8087U 68 EMERY WORLDWIDE 328,000 70,973 25,911 31-Dec-96 $16.92m $17.48m
130 DC8-71F(M) CFM56-2C1 45978 N825BX 68 A T INTL/BURLINGTON EXP 328,000 74,480 28,671 30-Nov-96 $17.44m $17.48m
131 DC8-71F(M) CFM56-2C1 45983 N8177U 68 EMERY WORLDWIDE 325,000 61,935 39,833 31-Dec-96 $17.41m $17.38m
132 DC8-71F(M) CFM56-2C1 45993 N828BX 68 A T INTL/BURLINGTON EXP 328,000 71,183 28,796 30-Nov-96 $17.49m $17.48m
133 DC8-71F(M) CFM56-2C1 45994 N829BX 60 A T INTL/BURLINGTON EXP 325,000 76,845 30,169 30-Nov-96 $17.10m $17.38m
134 DC8-71F(M) CFM56-2C1 45995 N8091U 68 EMERY WORLDWIDE 325,000 77,726 29,205 31-Dec-96 $18.02m $17.38m
135 DC8-71F(M) CFM56-2C1 45996 CC-CDS 68 FAST AIR 328,000 82,899 29,796 31-Dec-96 $17.78m $17.48m
136 DC8-71F(M) CFM56-2C1 45997 CC-CDU 68 FAST AIR 328,000 78,889 28,328 31-Dec-96 $18.04m $17.48m
137 DC8-71F(M) CFM56-2C1 45998 N826BX 68 A T INTL/BURLINGTON EXP 328,000 76,375 30,146 30-Nov-96 $18.10m $17.48m
138 DC8-71F(M) CFM56-2C1 46039 N870SJ 69 EMERY WORLDWIDE 328,000 73,105 28,077 31-Dec-96 $16.78m $17.48m
139 DC8-71F(M) CFM56-2C1 46065 N820BX 69 A T INTL/BURLINGTON EXP 328,000 72,868 30,155 30-Nov-96 $16.60m $17.48m
140 DC8-71F(M) CFM56-2C1 46066 HK-3785X 69 TAMPA 328,000 72,909 29,686 31-Dec-96 $16.79m $17.48m
141 DC8-73F(M) CFM56-2C1 46091 N873SJ 70 SAT 355,000 76,951 19,035 30-Nov-96 $20.97m $20.00m
</TABLE>
GPA GROUP Page 5
<PAGE> 9
AIRCLAIMS LIMITED
AIRPLANES GROUP PORTFOLIO
[LOGO]
BASE VALUES of the AIRPLANES GROUP PORTFOLIO
Specification/Values as at 25th February 1997
<TABLE>
<CAPTION>
BASE VALUES
BUILD MTOW AIRFRAME ADJ H-L
TYPE ENG. MSN REGN DATE OPERATOR (LB) HOURS CYCLES AS AT BV BV
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
142 DC9-14 JT8D-7B 45736 XA-LMM 66 AEROCALIFORNIA 90,700 76,420 75,326 31-Dec-96 $0.72m $0.76m
143 DC9-14 JT8D-7B 45786 XA-AGS 67 AEROCALIFORNIA 90,700 75,688 72,500 31-Dec-96 $0.74m $0.76m
144 DC9-15 JT8D-7B 45743 XA-CSL 66 AEROCALIFORNIA 90,700 81,762 85,803 31-Dec-96 $0.57m $0.76m
145 DC9-15 JT8D-7A 45785 XA-RRY 66 AEROCALIFORNIA 90,700 79,558 82,123 31-Dec-96 $0.63m $0.76m
146 DC9-15 JT8D-7A 47059 XA-RNQ 67 AEROCALIFORNIA 90,700 81,342 84,655 31-Dec-96 $0.58m $0.76m
147 DC9-15 JT8D-7A 47085 XA-GDL 67 AEROCALIFORNIA 90,700 81,414 84,808 31-Dec-96 $0.58m $0.76m
148 DC9-15 JT8D-7A 47122 XA-RKT 67 AEROCALIFORNIA 90,700 84,649 88,716 31-Dec-96 $0.49m $0.76m
149 DC9-15 JT8D-7A 47126 XA-LAC 68 AEROCALIFORNIA 90,700 79,773 82,932 31-Dec-96 $0.62m $0.76m
150 DC9-32 JT8D-17 47594 XA-DEJ 74 AEROMEXICO 108,000 65,739 68,451 31-Dec-96 $2.50m $2.66m
151 DC9-32 JT8D-17 48125 XA-AMA 80 AEROMEXICO 108,000 47,524 46,511 31-Dec-96 $3.47m $3.60m
152 DC9-32 JT8D-17 48126 XA-AMB 80 AEROMEXICO 108,000 47,500 48,716 31-Dec-96 $3.68m $3.60m
153 DC9-32 JT8D-17 48127 XA-AMC 80 AEROMEXICO 108,000 46,335 44,652 31-Dec-96 $3.25m $3.60m
154 DC9-32 JT8D-17 48128 XA-AMD 80 AEROMEXICO 108,000 46,497 45,338 31-Dec-96 $3.35m $3.60m
155 DC9-32 JT8D-17 48129 XA-AME 80 AEROMEXICO 108,000 45,621 44,262 31-Dec-96 $3.47m $3.60m
156 DC9-32 JT8D-17 48130 XA-AMF 80 AEROMEXICO 108,000 44,385 42,732 31-Dec-96 $4.13m $3.60m
157 DC9-51 JT8D-17 47742 EI-CBG 77 HAWAIIAN 121,000 32,568 52,793 31-Dec-96 $3.16m $3.40m
158 DC9-51 JT8D-17 47784 N603DC 79 HAWAIIAN 121,000 34,580 50,440 31-Dec-96 $4.15m $3.80m
159 DC9-51 JT8D-17 47796 EI-CBH 79 HAWAIIAN 121,000 30,486 50,761 31-Dec-96 $3.80m $3.80m
160 DC9-51 JT8D-17 48122 EI-CBI 81 HAWAIIAN 121,000 27,489 47,130 31-Dec-96 $4.28m $4.15m
</TABLE>
<PAGE> 10
AIRCLAIMS LIMITED
AIRPLANES GROUP PORTFOLIO
[LOGO]
BASE VALUES of the AIRPLANES GROUP PORTFOLIO
SPECIFICATION/VALUES AS AT 25TH FEBRUARY 1997
<TABLE>
<CAPTION>
BASE VALUES
BUILD MTOW AIRFRAME ADJ H-L
TYPE ENG MSN REGN DATE OPERATOR (LB) HOURS CYCLES AS AT BV BV
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
161 DHC-8-100 PW120A 113 V2-LDQ Jul-88 LIAT 34,500 $5.45m $5.45m
162 DHC-8-100 PW120A 140 V2-LDP Jan-89 LIAT 34,500 $5.85m $5.85m
163 DHC-8-100 PW120A 144 V2-LEF Mar-89 LIAT 33,900 $5.95m $5.95m
164 DHC-8-100 PW120A 229 VH-LAR Aug-90 NATIONAL JET SYSTEMS 34,500 5,019 4,147 31-Mar-96 $6.87m $6.80m
165 DHC-8-100 PW121 258 EI-CHP Jan-91 USAIR EXPRESS 34,500 14,466 15,126 30-Nov-96 $6.78m $6.80m
166 DHC-8-100 PW120A 270 V2-LDU Apr-91 LIAT 34,500 $6.90m $8.90m
167 DHC-8-300 PW123 232 HS-SKJ Oct-90 SCHREINER AIRWAYS 41,100 $8.21m $6.25m
168 DHC-8-300 PW123 244 HS-SKK Dec-90 DAC AIR 41,100 10,820 9,895 31-Dec-96 $8.28m $8.25m
169 DHC-8-300 PW123 266 PT-OKA Mar-91 DAC AIR 43,000 11,274 10,275 31-Dec-96 $8.84m $8.80m
170 DHC-8-300 PW123 267 PT-OKB Apr-91 DAC AIR 43,000 10,810 9,733 31-Dec-96 $8.80m $8.80m
171 DHC-8-300 PW123 276 PT-OKC May-91 SCHREINER AIRWAYS 43,000 $8.80m $8.80m
172 DHC-8-300 PW123 283 PH-SDR Jun-91 SCHREINER AIRWAYS 43,000 $8.85m $8.85m
173 DHC-8-300 PW123 293 PH-SDS Sep-91 WIDEROE'S FLYVESELSKAP 43,000 4,806 5,365 30-Nov-96 $8.96m $8.95m
174 DHC-8-300 PW123 296 D-BKIS Dec-91 CONTACT AIR 43,000 10,176 8,226 31-Dec-96 $9.37m $9.33m
175 DHC-8-300 PW123 298 PH-SDM Mar-92 SCHREINER AIRWAYS 43,000 5,115 5,753 31-Dec-96 $9.35m $9.35m
176 DHC-8-300 PW123 300 PH-SDP Mar-92 SCHREINER AIRWAYS 43,000 3,107 3,844 31-Dec-96 $9.35m $9.35m
177 DHC-8-300 PW123 307 OE-LRW Oct-91 RHEINTALFLUG 43,000 6,700 57,334 31-Dec-96 $8.75m $8.75m
178 DHC-8-300 PW123 334 D-BKIR Sep-92 CONTACT AIR 43,000 10,271 8,539 31-Oct-96 $9.74m $9.75m
179 DHC-8-300 PW123 342 LN-WFA Dec-92 WIDEROE'S FLYVESELSKAP 43,000 4,128 4,797 30-Nov-96 $9.88m $9.88m
180 DHC-8-300C PW123 230 VT-ETP Sep-90 ANTILLEAN AIRLINES 43,000 6,173 5,445 30-Jun-95 $8.38m $8.38m
181 DHC-8-300C PW123 242 VT-ETQ Sep-90 ANTILLEAN AIRLINES 43,000 7,345 6,577 20-Jun-96 $8.30m $8.38m
</TABLE>
GPA GROUP Page 7
<PAGE> 11
AIRCLAIMS LIMITED
AIRPLANES GROUP PORTFOLIO
[LOGO]
BASE VALUES of the AIRPLANES GROUP PORTFOLIO
Specification/Values as at 25th February 1997
<TABLE>
<CAPTION>
BASE VALUES
BUILD MTOW AIRFRAME ADJ H-L
TYPE ENG MSN REGN DATE OPERATOR (LB) HOURS CYCLES AS AT BV BV
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
182 FOKKER 100 TAY650 11266 PK-JGD Aug-90 SEMPATI 98,000 20,316 15,432 31-Oct-96 $17.00m $17.62m
183 FOKKER 100 TAY650 11284 PT-MRA Aug-90 TAM 98,000 14,358 15,515 31-Dec-96 $17.74m $17.62m
184 FOKKER 100 TAY650 11285 PT-MRB Aug-90 TAM 98,000 14,336 15,707 31-Dec-96 $17.81m $17.92m
185 FOKKER 100 TAY650 11304 PT-MRG Feb-91 TAM 98,000 10,060 10,781 31-Dec-96 $17.48m $17.97m
186 FOKKER 100 TAY650 11305 PT-MRH Mar-91 TAM 98,000 10,402 11,062 31-Dec-96 $17.48m $18.07m
187 FOKKER 100 TAY650 11309 XA-SHI Apr-91 MEXICANA 98,000 8,729 8,797 31-Dec-96 $18.18m $18.27m
188 FOKKER 100 TAY650 11319 XA-SHJ Mar-91 MEXICANA 98,000 8,589 8,570 31-Dec-96 $18.01m $18.17m
189 FOKKER 100 TAY650 11336 PK-JGG May-91 SEMPATI 98,000 15,987 12,691 31-Oct-96 $18.12m $18.07m
190 FOKKER 100 TAY650 11339 PK-JGH Jun-91 SEMPATI 98,000 15,744 12,325 31-Oct-96 $18.43m $18.17m
191 FOKKER 100 TAY650 11347 PK-JGF Jul-91 SEMPATI 98,000 16,632 13,017 31-Oct-96 $17.67m $18.17m
192 FOKKER 100 TAY650 11348 PT-MRE Jul-91 TAM 98,000 10,795 11,943 31-Dec-96 $17.86m $18.17m
193 FOKKER 100 TAY650 11371 SE-DUI Dec-91 TRANSWEDE 98,000 9,212 10,277 31-Dec-96 $18.13m $18.67m
194 FOKKER 100 TAY650 11374 XA-TCG Jan-92 MEXICANA 98,000 9,754 9,836 31-Dec-96 $18.85m $19.12m
195 FOKKER 100 TAY650 11375 XA-TCH Mar-92 MEXICANA 98,000 9,634 9,685 31-Dec-96 $18.96m $19.22m
196 FOKKER 100 TAY650 11382 XA-SGE Mar-92 MEXICANA 98,000 9,532 9,622 31-Dec-96 $18.96m $19.22m
197 FOKKER 100 TAY650 11384 XA-SGF Mar-92 MEXICANA 98,000 9,484 9,478 31-Dec-96 $19.12m $19.22m
</TABLE>
<PAGE> 12
AIRCLAIMS LIMITED
AIRPLANES GROUP PORTFOLIO
[LOGO]
BASE VALUES of the AIRPLANES GROUP PORTFOLIO
Specification/Values as at 25th February 1997
<TABLE>
<CAPTION>
BASE VALUES
BUILD MTOW AIRFRAME ADJ H-L
TYPE ENG. MSN REGN DATE OPERATOR (LB) HOURS CYCLES AS AT BV BV
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
198 MD-11 CF6-80C2D1F 48499 EI-CDI Nov-91 GARUDA 618,000 19,163 4,761 31-Dec-96 $74.08m $72.65m
199 MD-11 CF6-80C2D1F 48500 PK-GIH Mar-92 GARUDA 618,000 18,240 4,183 31-Dec-96 $75.22m $75.65m
200 MD-11 CF6-80C2D1F 48501 EI-CDK Aug-92 GARUDA 618,000 17,053 3,764 31-Dec-96 $76.16m $76.15m
201 MD82 JT8D-217C 49660 EI-BTX Feb-88 AEROMEXICO 149,500 21,151 16,413 31-Dec-96 $18.44m $18.75m
202 MD83 JT8D-219 49390 9Y-THN Mar-86 BWIA 160,000 24,198 16,075 31-Dec-96 $17.30m $18.00m
203 MD83 JT8D-219 49442 HB-IUL Mar-87 BALAIR CTA 160,000 23,868 12,408 31-Dec-96 $17.61m $18.05m
204 MD83 JT8D-219 49575 EI-BWD Sep-87 TWA 160,000 23,227 13,686 31-Dec-96 $18.67m $19.05m
205 MD83 JT8D-219 49620 D-ALLV Jun-88 AERO LLYOD 160,000 20,289 9,385 31-Dec-96 $18.72m $19.25m
206 MD83 JT8D-219 49624 EI-CGI Jul-88 AIR LIBERTE TUNISIE 160,000 21,770 11,101 31-Dec-96 $18.23m $19.05m
207 MD83 JT8D-219 49626 EC-GBA Oct-88 SPANAIR 160,000 23,853 12,482 31-Dec-96 $18.93m $19.05m
208 MD83 JT8D-219 49631 EI-CEK May-89 EUROFLY 160,000 20,590 9,372 31-Dec-96 $20.10m $20.05m
209 MD83 JT8D-217C 49667 EI-BTY Apr-88 AEROMEXICO 149,500 21,624 16,755 31-Dec-96 $19.42m $19.75m
210 MD83 JT8D-219 49672 EC-FTU Jun-88 SPANAIR 160,000 26,984 13,229 31-Dec-96 $18.45m $19.05m
211 MD83 JT8D-219 49709 EC-GAT Nov-88 SPANAIR 160,000 16,862 10,676 31-Dec-96 $18.70m $19.25m
212 MD83 JT8D-219 49789 9Y-THX Sep-89 BWIA 160,000 16,568 12,846 31-Dec-96 $20.95m $21.05m
213 MD83 JT8D-219 49792 TC-INA Oct-89 SUNWAY 160,000 20,066 7,318 31-Dec-96 $20.73m $21.05m
214 MD83 JT8D-219 49935 G-DCAC Sep-90 EDELWEISS AIR AG 160,000 22,744 8,638 30-Sep-96 $21.64m $22.25m
215 MD83 JTBD-219 49936 TC-INB Oct-90 SUNWAY 160,000 24,589 8,029 31-Dec-96 $21.67m $22.25m
216 MD83 JT8D-219 49938 EC-FXA Oct-90 SPANAIR 160,000 15,809 9,164 31-Dec-96 $21.94m $22.25m
217 MD83 JT8D-219 49939 EI-CBR Oct-90 AVIANCA 160,000 9,463 12,634 31-Dec-96 $22.02m $22.25m
218 MD83 JT8D-219 49941 G-DEVR Nov-90 RENO AIR 160,000 22,497 8,536 30-Nov-96 $21.65m $22.25m
219 MD83 JT8D-219 49943 TC-INC Jul-91 SUNWAY 160,000 15,541 5,124 31-Dec-96 $23.41m $23.25m
220 MD83 JT8D-219 49946 EI-CCC Sep-91 AVIANCA 160,000 9,848 12,612 31-Dec-96 $23.08m $23.25m
221 MD83 JT8D-219 49949 G-RJER Sep-91 RENO AIR 160,000 19,121 7,158 30-Nov-96 $22.85m $23.25m
222 MD83 JT8D-219 49950 P4-MDE Oct-91 AIR ARUBA 160,000 13,252 5,591 31-Dec-96 $22.73m $23.25m
223 MD83 JT8D-219 49951 G-GMJM Oct-91 EDELWEISS AIR AG 160,000 18,252 6,635 31-Dec-96 $23.09m $23.25m
224 MD83 JT8D-219 53120 EI-CFZ Jun-92 AVIANCA 160,000 6,163 8,271 31-Aug-95 $24.13m $24.30m
225 MD83 JT8D-219 53125 EI-CER May-92 AVIANCA 160,000 9,993 9,575 31-Dec-96 $24.37m $24.30m
226 MD87 JT8D-219 49673 XA-SFO Nov-88 AEROMEXICO 149,500 18,008 11,065 31-Dec-96 $12.68m $13.45m
</TABLE>
<PAGE> 13
AIRCLAIMS LIMITED
AIRPLANES GROUP PORTFOLIO
[LOGO]
BASE VALUES of the AIRPLANES GROUP PORTFOLIO
Specification/Values as at 25th February 1997
<TABLE>
<CAPTION>
BASE VALUES
BUILD MTOW AIRFRAME ADJ H-L
TYPE ENG MSN REGN DATE OPERATOR (LB) HOURS CYCLES AS AT BV BV
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
227 METRO III TPE331-11U-6 705 ZK-NSU Aug-88 AIR NELSON 14,500 12,627 21,058 31-Dec-96 $1.45m $1.45m
228 METRO III TPE331-11U-6 711 ZK-NSY 88 AIR NELSON 14,500 12,402 20,660 31-Dec-96 $1.45m $1.45m
229 METRO III TPE331-11U-6 712 ZK-NSZ 88 AIR NELSON 14,500 12,295 20,718 31-Dec-96 $1.45m $1.45m
$3,975.04m $4,007.37m
</TABLE>
Page 10
