<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 30, 1997.
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
AIRPLANES PASS THROUGH TRUST
(In whose assets the Certificates represent interests)
<TABLE>
<S> <C>
AIRPLANES LIMITED AIRPLANES U.S. TRUST
Exact Name of Registrants as specified in memorandum of association or trust agreement
(Originators of the Trusts described herein and issuers of the Notes and the Guarantees)
JERSEY, CHANNEL ISLANDS DELAWARE
(State or other jurisdiction of incorporation or organization)
7359 13-3521640
SIC Codes (I.R.S. Employer Identification Nos.)
AIRPLANES LIMITED AIRPLANES U.S. TRUST
22 GRENVILLE STREET 1100 NORTH MARKET STREET,
ST. HELIER RODNEY SQUARE NORTH
JERSEY, JE4 8PX WILMINGTON, DELAWARE
CHANNEL ISLANDS 19890-0001
(011 44 1534 609 000) (1-302-651-1000)
</TABLE>
(Addresses and telephone numbers of Registrants' principal executive offices)
------------------------------------
CORPORATION SERVICE COMPANY
375 HUDSON STREET
NEW YORK, NEW YORK 10014-3660
(212) 463-2700
(Name, address and telephone number of agent for service of registrants)
Please send copies of all communications to:
<TABLE>
<S> <C>
THOMAS J. REID, ESQ. WILLIAM J. WIEGMANN, ESQ.
DAVIS POLK & WARDWELL JOHN D. WILSON, ESQ.
1 FREDERICK'S PLACE SHEARMAN & STERLING
LONDON EC2R 8AB 199 BISHOPSGATE
LONDON EC2M 3TY
</TABLE>
------------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER UNIT OFFERING PRICE(1) REGISTRATION FEE(2)
- ------------------------------------------------------------------------------------------------------------
Certificates............ $850,000,000 100% $850,000,000 $250,750
- ------------------------------------------------------------------------------------------------------------
Notes of Airplanes
Limited................. $765,000,000 100% $ None
- ------------------------------------------------------------------------------------------------------------
Guarantees of Airplanes
Limited................. -- (2) (2) None
- ------------------------------------------------------------------------------------------------------------
Notes of Airplanes U.S.
Trust................... $85,000,000 100% $ None
- ------------------------------------------------------------------------------------------------------------
Guarantees of Airplanes
U.S. Trust.............. -- (2) (2) None
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) The registration fee relates to the registration of the Certificates, the
Notes and the Guarantees. No separate consideration will be received for the
Notes or the Guarantees.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
PROSPECTUS (Subject to Completion)
Issued December 30, 1997
$850,000,000
Airplanes Pass Through Trust
PASS THROUGH CERTIFICATES
------------------------
Each pass through certificate of any subclass (the "1998 Refinancing
Certificates") offered as described herein (the "Offering") will represent a
fractional undivided beneficial interest in two corresponding subclasses of
refinancing notes (collectively, the "1998 Refinancing Notes") issued by
Airplanes Limited, a Jersey limited liability company ("Airplanes Limited"), and
Airplanes U.S. Trust, a Delaware business trust ("Airplanes Trust" and, together
with Airplanes Limited, "Airplanes Group"). Airplanes Limited and Airplanes
Trust have each fully and unconditionally guaranteed (the "1998 Refinancing
Guarantees") the other's obligations under the 1998 Refinancing Notes. Each
corresponding subclass of 1998 Refinancing Notes will be held by a separate pass
through trust (each, a "1998 Refinancing Trust" and, collectively, the "1998
Refinancing Trusts"), formed pursuant to a Pass Through Trust Agreement (the
"Trust Agreement") among Airplanes Limited, Airplanes Trust, and Bankers Trust
Company, as pass through trustee (the "1998 Refinancing Trustee"). The only
source of payment for the 1998 Refinancing Notes, the 1998 Refinancing
Guarantees and other obligations of Airplanes Group will be the payments made by
the Lessees under the Leases, proceeds from dispositions, if any, of the assets
of Airplanes Group, net payments, if any, under the Swap Agreements, disposals
of the 1998 Refinancing Notes by the Indenture Trustees under certain
circumstances and net cash proceeds received from the sale of Refinancing
Certificates. Payments on the 1998 Refinancing Notes and the 1998 Refinancing
Certificates will be subordinated to certain other obligations of Airplanes
Group as further described herein.
Wholly owned subsidiaries of GPA Group plc ("GPA Group" and, together with its
subsidiaries and affiliates, "GPA") act as Administrative Agent and Cash Manager
and GE Capital Aviation Services, Limited ("GECAS") acts as Servicer in
connection with the transaction described herein.
------------------------
NEITHER THE 1998 REFINANCING CERTIFICATES NOR THE 1998 REFINANCING NOTES ARE
OBLIGATIONS OF, OR GUARANTEED BY, OR OFFERED FOR SALE BY, THE TRUSTEE, GPA
GROUP, OR ANY OF THEIR AFFILIATES.
NEITHER THE 1998 REFINANCING CERTIFICATES NOR THE 1998 REFINANCING NOTES ARE
OBLIGATIONS OF, OR GUARANTEED BY, OR OFFERED FOR SALE BY, GENERAL ELECTRIC
CAPITAL CORPORATION OR ANY OF ITS AFFILIATES. THE 1998 REFINANCING NOTES
AND THE 1998 REFINANCING GUARANTEES ARE SOLELY THE OBLIGATIONS OF
AIRPLANES LIMITED AND AIRPLANES TRUST. THE 1998 REFINANCING
CERTIFICATES REPRESENT ONLY BENEFICIAL INTERESTS IN THE 1998
REFINANCING NOTES AND THE 1998 REFINANCING GUARANTEES HELD
BY THE 1998 REFINANCING TRUSTS.
------------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER CONSIDERATIONS, THE
INFORMATION SET FORTH IN THE SECTION ENTITLED "RISK FACTORS" COMMENCING ON
PAGE -- .
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
INITIAL AGGREGATE EXPECTED FINAL FINAL PRICE TO
PASS THROUGH CERTIFICATES PRINCIPAL AMOUNT INTEREST RATE PAYMENT DATE(2) MATURITY DATE PUBLIC(3)(4)
- -------------------------- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Subclass A-6........... $ -- LIBOR+. -- %(1) March 15, 2019 -- %
Subclass A-7........... $ -- LIBOR+. -- %(1) March 15, 2019 -- %
</TABLE>
- ------------
(1) London interbank offered rate for one month U.S. dollar deposits (unless
otherwise specified, "LIBOR") plus the applicable margin.
(2) Based on the Assumptions set forth herein. See "Description of Securities --
The Certificates -- Payments and Distributions".
(3) The aggregate net proceeds to the 1998 Refinancing Trusts from the sale of
all the 1998 Refinancing Certificates will be $ -- million after
deducting aggregate underwriting discounts and commissions of $ --
million but before deducting transaction expenses payable by Airplanes
Limited and Airplanes Trust, which are expected to be approximately
$ -- million. See "Underwriting".
(4) Airplanes Limited, Airplanes Trust and GPA Group have agreed to indemnify
the Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting".
------------------------
The 1998 Refinancing Certificates are offered subject to prior sale, when, as
and if delivered to and accepted by the Underwriters, and subject to approval of
certain legal matters by Shearman & Sterling, counsel to the Underwriters. It is
expected that delivery of the 1998 Refinancing Certificates will be made in
book-entry form on or about March 16, 1998 through the facilities of The
Depository Trust Company, Cedel Bank, societe anonyme, and Morgan Guaranty Trust
Company of New York, Brussels Office, as operator of the Euroclear System,
against payment therefor in immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER
LEHMAN BROTHERS SALOMON SMITH BARNEY
-- , 1998
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
<PAGE> 3
EXPLANATORY NOTE
This registration statement relates to the securities of two registrants,
Airplanes Limited and Airplanes U.S. Trust (the "REGISTRANTS"), neither of which
has any equity ownership in the other but both of which are governed by the same
indentures and certain of the assets of which are subject to the same service
agreements. The terms and conditions of these indentures and service agreements
apply to the assets of both Registrants on a combined and identical basis.
Furthermore, each of the Registrants has fully and unconditionally guaranteed
the obligations of the other under the Notes registered on this registration
statement.
2
<PAGE> 4
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE 1998 REFINANCING
CERTIFICATES. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH
THE OFFERING, AND MAY BID FOR, AND PURCHASE, THE 1998 REFINANCING CERTIFICATES
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE LUXEMBOURG STOCK
EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
There has been no market for the 1998 Refinancing Certificates prior to the
Offering. The Underwriters have advised Airplanes Limited and Airplanes Trust
that they presently intend to make a market in the 1998 Refinancing
Certificates. The Underwriters are not obligated, however, to make a market in
the 1998 Refinancing Certificates and any such market-making may be discontinued
at any time at the sole discretion of the Underwriters. Accordingly, no
assurance can be given as to the liquidity of or trading market for the 1998
Refinancing Certificates. See "Underwriting".
Each subclass of the 1998 Refinancing Certificates will be issued as global
securities in registered form, which is expected to be deposited with Bankers
Trust Company, as custodian for the Depository Trust Company ("DTC"). Except as
described under "Description of Securities -- The Certificates", no Definitive
Certificates will be available to the purchasers thereof. Beneficial interests
in the 1998 Refinancing Certificates will be shown on, and transfers thereof
will be effected only through, records maintained in book-entry form by DTC, or
its nominee and its participants (including Cedel Bank, societe anonyme ("CEDEL
BANK") or Morgan Guaranty Trust Company of New York, Brussels office, as
operator of the Euroclear System ("EUROCLEAR") holding through their respective
depositaries, Citibank, N.A. and Morgan Guaranty Trust Company of New York).
Unless otherwise stated, all monetary amounts are expressed herein in
United States Dollars ("$").
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representations must not be relied upon as
having been authorized by the 1998 Refinancing Trusts, Airplanes Limited,
Airplanes Trust, GPA Group or the Underwriters. This Prospectus does not
constitute an offer of any securities other than those to which it relates or an
offer to sell, or a solicitation of an offer to buy, to any person in any
jurisdiction where such an offer or solicitation would be unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the 1998 Refinancing Trusts, Airplanes Limited, Airplanes Trust or
GPA Group since the date hereof or that the information contained herein is
correct as of any time subsequent to the date hereof.
Until - , 1998, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
Neither General Electric Capital Corporation ("GE CAPITAL"), GECAS nor any
of their affiliates is the issuer or guarantor of the 1998 Refinancing Notes or
the 1998 Refinancing Certificates. Accordingly, neither GE Capital, GECAS nor
any of their affiliates makes any representations or warranties as to the
accuracy or completeness of the information contained in this Prospectus and
nothing herein shall be deemed to constitute any such representation or warranty
by GE Capital, GECAS or any of their affiliates or any representation or
warranty as to the future performance of Airplanes Limited or Airplanes Trust or
the ability of Airplanes Limited or Airplanes Trust to make payments of interest
or principal with respect to the 1998 Refinancing Notes or the 1998 Refinancing
Certificates.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. AIRPLANES GROUP'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR
3
<PAGE> 5
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
The consent of the Finance and Economics Committee of the States of Jersey
(the "COMMITTEE") under the Control of Borrowing (Jersey) Order 1958 (as
amended) (the "1958 ORDER") will be obtained to the issue of the 1998
Refinancing Notes by Airplanes Limited and, to the extent the same may be
required under the 1958 Order, the 1998 Refinancing Certificates.
When this document is circulated there will have been delivered a copy
thereof to the Registrar of Companies in Jersey in accordance with Article 6 of
the Companies (General Provisions) (Jersey) Order 1992 and the consent of the
Registrar of Companies to its circulation will have been given and not
withdrawn. It must be distinctly understood that, in giving these consents,
neither the Registrar of Companies nor the Committee takes any responsibility
for the financial soundness of Airplanes Limited or for the correctness of any
statements made, or opinions expressed, with regard to it.
In accordance with the rules of the Luxembourg Stock Exchange, Airplanes
Group states that it has taken all reasonable care to confirm that the
information contained in this Prospectus in relation to Airplanes Group and the
1998 Refinancing Certificates is true and accurate in all material respects and
that in relation to Airplanes Group and the 1998 Refinancing Certificates there
are no material facts the omission of which would make misleading any statement
herein, whether of fact or opinion.
4
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Prospectus Summary.............................. 6
Summary Combined Financial Data................. 26
Risk Factors.................................... 29
Risks Relating to Airplanes Group and
Certain Third Parties....................... 29
Risks Relating to the Aircraft................ 34
Risks Relating to the Leases.................. 39
Risks Relating to the Lessees................. 42
Risks Relating to Payments on the
1998 Refinancing Certificates............... 44
Risks Relating to the Capital Markets......... 45
Certain Bankruptcy Considerations............. 46
Risks Relating to Tax......................... 47
The Parties..................................... 50
Airplanes Limited............................. 50
Airplanes Trust............................... 51
The Trust and Trustee......................... 52
GPA........................................... 53
GECAS......................................... 55
Use of Proceeds................................. 58
The Aircraft, Related Leases and Collateral..... 59
The Aircraft.................................. 59
Purchaser Options............................. 59
Insurance..................................... 59
Maintenance Reserves.......................... 59
Appraisers' Reports........................... 60
Portfolio Information......................... 61
Airplanes Group Portfolio Analysis............ 64
The Leases.................................... 69
The Lessees................................... 70
Downtime...................................... 73
The Commercial Aircraft Industry................ 74
Demand for Aircraft........................... 74
New Aircraft Supply........................... 75
Used Aircraft Supply.......................... 76
Operating Leasing............................. 76
Role of Government............................ 76
Technical Regulation.......................... 77
Management of Airplanes Group................... 79
Directors and Controlling Trustees............ 79
Beneficial Ownership of Airplanes Limited..... 82
The Servicer.................................. 82
Corporate Management.......................... 88
Selected Combined Financial Data................ 91
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 95
Introduction.................................. 95
</TABLE>
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
General....................................... 95
Results of Operations -- Six Months Ended
September 30, 1997 Compared with Six Months
Ended September 30, 1996.................... 95
Results of Operations -- Year Ended March 31,
1997 Compared with Year Ended March 31,
1996........................................ 98
Results of Operations -- Year Ended March 31,
1996 Compared with Year Ended March 31,
1995........................................ 102
Financial Resources and Liquidity............. 104
The Accounts.................................. 108
Description of Securities....................... 111
General....................................... 111
The Certificates.............................. 112
Revenue Assumptions........................... 118
The Notes and the Guarantees.................. 125
Defeasance.................................. 134
Priority of Payments........................ 134
The Class E Notes............................. 151
The Cash Management Agreement................. 153
The Accounts.................................. 153
Reports to Certificateholders................... 154
Book-Entry Registration, Global Clearance and
Settlement.................................... 156
Book-Entry Registration....................... 156
Definitive Certificates....................... 158
CUSIP, ISIN and Common Code Numbers........... 159
Tax Considerations.............................. 160
Certain Jersey Tax Considerations............. 160
Irish Tax Considerations...................... 161
U.S. Federal Income Tax Considerations........ 162
ERISA Considerations............................ 166
Underwriting.................................... 168
Legal Matters................................... 171
Enforcement of Civil Liabilities................ 171
Experts......................................... 172
Additional Information.......................... 172
Index to Financial Statements................... F-1
Appendix 1. Table of Defined Terms.............. A-1
Appendix 2. Aircraft Types Data................. A-5
Appendix 3. Monthly Gross Revenues Based on the
Assumptions................................... A-6
Appendix 4. Expected Portfolio Value Based on
the Depreciation Factors...................... A-7
Appendix 5. Target Loan to Value Ratio and
Target Principal Balance of Class A and Class
B Certificates................................ A-9
Appendix 6. Supplemental Loan to Value Ratio and
Supplemental Principal Balance................ A-11
Appendix 7. Scheduled Principal Payment Amounts
and Target Pool Factors for Fixed Rate
Certificates.................................. A-13
</TABLE>
5
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Capitalized terms
used in this Prospectus Summary without definition have the meanings assigned in
the text of this Prospectus. An Index referencing defined terms is attached as
Appendix 1 hereto. Investors should thoroughly consider this Prospectus in its
entirety, including the information set forth herein under "Risk Factors", prior
to an investment in the 1998 Refinancing Certificates.
OVERVIEW
The separate 1998 Refinancing Trusts will issue either Subclass A-6
Certificates (the "SUBCLASS A-6 CERTIFICATES") or Subclass A-7 Certificates (the
"SUBCLASS A-7 CERTIFICATES") or both. The relative amount of Subclass A-6
Certificates and Subclass A-7 Certificates to be issued will be determined by
market conditions at the time of issuance, but the aggregate principal amount of
all 1998 Refinancing Certificates to be issued will not exceed $850 million. Any
Subclass A-6 Certificate that is issued will represent a fractional undivided
interest in a pair of corresponding Subclass A-6 Notes issued by Airplanes
Limited and Airplanes Trust (together with, unless the context otherwise
requires, their subsidiaries, "AIRPLANES GROUP") and held by the "1998
REFINANCING TRUST-A-6". Any Subclass A-7 Certificate that is issued will
represent a fractional undivided interest in a pair of corresponding Subclass
A-7 Notes issued by Airplanes Limited and Airplanes Trust and held by the "1998
REFINANCING TRUST-A-7". The proceeds of the underwritten offering of the 1998
Refinancing Certificates (the "OFFERING") will be used to refinance Airplanes
Limited's and Airplanes Trust's Subclass A-1 Notes. Airplanes Limited and
Airplanes Trust have each fully and unconditionally guaranteed the other's
obligations under their respective 1998 Refinancing Notes.
AIRPLANES GROUP'S CAPITAL STRUCTURE AND PORTFOLIO
Airplanes Limited and Airplanes Trust are special purpose vehicles that
were established to acquire 229 aircraft from GPA in March 1996. Airplanes
Limited and Airplanes Trust funded this acquisition by causing Airplanes Pass
Through Trust to issue $4,048 million of Pass Through Certificates
(collectively, the "EXISTING CERTIFICATES" and, together with the 1998
Refinancing Certificates, the "CERTIFICATES") in four classes -- Class A, Class
B, Class C and Class D. The Class A Certificates were further subdivided into
five separate sub-classes. Each class and subclass of the Certificates
represents fractional undivided beneficial interests in two corresponding
classes or subclasses of notes (collectively, the "EXISTING NOTES" and, together
with the 1998 Refinancing Notes, the "NOTES") issued by Airplanes Limited and
Airplanes U.S. Trust. Airplanes Group received the net proceeds from an
underwritten offering of the Existing Certificates (the "1996 OFFERING") in
exchange for the Existing 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 which owned the 229 aircraft (the "ACQUISITION").
Of the $598 million of Subclass A-5 Notes and $375 million of Class B Notes
originally issued, $371 million and $26 million, respectively, had been repaid
as of November 17, 1997 in accordance with the terms of such Notes. Of the $604
million of Class E Notes issued, approximately $13 million was subsequently
canceled pursuant to the purchase price adjustment provisions of the agreements
pursuant to which the aircraft-owning subsidiaries of GPA Group were sold to
Airplanes Group.
Of the 229 aircraft and related leases acquired from GPA on March 28, 1996,
Airplanes Limited indirectly acquired 206 of the aircraft and related leases
through the acquisition of 95% of the capital stock of Airplanes Holdings
Limited ("HOLDING CO.") and Airplanes Trust indirectly acquired 23 aircraft
through the acquisition of the capital stock of AeroUSA, Inc. ("AEROUSA"), a
Connecticut corporation. During the fiscal year ending 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.
At September 30, 1997, one of the original 229 aircraft had been sold and
224 of the remaining 228 owned aircraft (the "AIRCRAFT") in the portfolio of
Aircraft owned by Airplanes Group (the "PORTFOLIO") were on lease to 77
operators in 40 countries. The leases with respect to the Aircraft at September
30, 1997 are referred to as the "EXISTING LEASES". In October 1997, a DC-9
Aircraft on lease to a Mexican lessee suffered a
6
<PAGE> 8
constructive total loss. The insurers are currently assessing the claim, and a
payment of the insurance proceeds is expected to be made to Airplanes Group by
December 31, 1997. In addition, on November 10, 1997 a DC-10 Aircraft that was
off-lease was sold. Finally, on December 30, 1997, Airplanes Group agreed to
sell six DC8 Aircraft to Emery Worldwide Airlines, Inc. ("EMERY") for an
aggregate price that meets the aggregate Note Target Price (as defined under
"Description of Securities -- The Notes and Guarantees -- Trust Indenture
Covenants"). The Aircraft are expected to be delivered to Emery in stages over
the period from December 30, 1997 to February 15, 1998. See "The Aircraft, the
Related Leases and Collateral".
As of September 30, 1997, Holding Co. owned (i) 31 of the Aircraft and
related Existing Leases, (ii) thirteen wholly owned subsidiaries which owned 173
of the Aircraft (including Holding Co., 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 Special Lessors are largely incorporated in various European
jurisdictions. Additional Special Lessors may be organized in other
jurisdictions in the future. As of September 30, 1997, AeroUSA owned, directly
and indirectly, 24 of the Aircraft. The indirect ownership of the Aircraft by
two different entities, Airplanes Limited and Airplanes Trust, reflects GPA
Group's corporate structure prior to the Acquisition. It would not have been
tax-efficient in Ireland or the United States to have a single direct or
indirect owner of the Aircraft following the Acquisition. The Aircraft Owning
Companies, the Special Lessors and AeroUSA are referred to herein as the
"TRANSFERRED COMPANIES".
SERVICER
GECAS acts as servicer (the "SERVICER") pursuant to the servicing agreement
among Airplanes Limited, AeroUSA, Holding Co., Airplanes Trust, GPA Cash Manager
Limited, as Cash Manager, and GECAS dated as of March 28, 1996 (the "SERVICING
AGREEMENT") and performs certain aircraft-related services on behalf of
Airplanes Group. Airplanes Limited, AeroUSA and Holding Co. have directed the
Servicer to perform such services in a manner that is intended to be consistent
with maximizing the cash flows derived from the Aircraft and the Existing Leases
and future leases related thereto (the "FUTURE LEASES" and, together with the
Existing Leases, the "LEASES") over time, subject to the constraints imposed by
the Trust Indentures and by seeking to achieve a balanced and diversified
portfolio (including, without limitation, with respect to lessees, geography and
lease term lengths), in all cases taking into account then existing and
anticipated market conditions affecting the operating lease market for used
aircraft and the commercial aviation industry generally. The Servicer is not
required pursuant to the terms of the Servicing Agreement to obtain rental rates
designed to pay any amounts due and owing under the Notes and no assurance can
be given that the rental rates of the Leases will be sufficient to pay interest
and principal on the Notes in accordance with their terms.
As described below under "The Parties -- GPA", GE Capital has the right to
acquire at any time until October 29, 2001, 90% of the ordinary share capital of
GPA Group. There can be no assurance, however, that GE Capital will elect to
acquire any of such ordinary shares. Neither the Certificates nor the Notes are
obligations of, or guaranteed by, or offered for sale by, GE Capital, GECAS or
any of their affiliates.
RANKING
After the payment of amounts due and owing in respect of, inter alia, taxes
and obligations to lessees and various service providers (including, without
limitation, the Servicer, the Administrative Agent and the Cash Manager), the
cash flows derived primarily from the Leases will be applied, indirectly,
towards the payment of amounts due to Certificateholders. Payments of interest
on the 1998 Refinancing Notes and the corresponding 1998 Refinancing
Certificates will be made pari passu with payments of interest on the other
subclasses of Class A Notes. A limited amount of Class E Note interest will be
paid in priority to certain payments of principal on the 1998 Refinancing Notes
and the corresponding 1998 Refinancing Certificates. See "Prospectus Summary --
Overview of Priority of Payments" and "Description of Securities -- The Notes
and the Guarantees -- Priority of Payments".
7
<PAGE> 9
GPA
The Acquisition was structured, and Airplanes Group's activities since the
Acquisition have been conducted, with the intent of establishing Airplanes
Limited, Airplanes Trust, Holding Co., AeroUSA and their respective subsidiaries
as legal entities distinct from GPA that would be unaffected by the bankruptcy
or insolvency of GPA Group or any of its affiliates. If such entities were to be
consolidated with GPA Group or otherwise affected by any bankruptcy or
insolvency of the GPA Group and its affiliates, payments to Certificateholders
could be materially adversely affected. See "Risk Factors -- Certain Bankruptcy
Considerations".
A majority of the Directors of Airplanes Limited and a majority of the
Controlling Trustees of Airplanes Trust are independent of GPA, although certain
significant transactions may only be approved by a unanimous vote of all the
Directors of Airplanes Limited and all the Controlling Trustees of Airplanes
Trust, respectively.
LACK OF EXECUTIVE MANAGEMENT
Airplanes Limited and Airplanes Trust have no employees or executive
officers. Accordingly, the Directors and Controlling Trustees rely 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. See "Management of Airplanes Group".
THE 1998 REFINANCING CERTIFICATES
The following table summarizes certain of the principal terms of the
Offering.
<TABLE>
<CAPTION>
SUBCLASS A-6 SUBCLASS A-7
CERTIFICATES CERTIFICATES
-------------- --------------
<S> <C> <C>
Aggregate Principal Amount:.............................. $ - -
Expected Ratings
DCR.................................................... AA AA
Moody's................................................ Aa2 Aa2
Standard & Poor's...................................... AA AA
Interest Rate:........................................... LIBOR+. - % LIBOR+. - %
Initial Loan to Aircraft Value (Cumulative)(1):.......... - % - %
Expected Average Life:................................... - Years - Years
Expected Final Payment Date:............................. - -
Final Maturity Date:..................................... March 15, 2019 March 15, 2019
</TABLE>
- ---------------
(1) "INITIAL LOAN TO AIRCRAFT VALUE" represents the initial aggregate principal
amount of the 1998 Refinancing Certificates, plus the outstanding aggregate
principal balance at - , 1998 of the other subclasses of Class A
Certificates, expressed as a percentage of (i) the aggregate Appraised Value
of the Aircraft plus (ii) $ - million, being the amount of cash held in
the Collection Account representing the Liquidity Reserve Amount on - ,
1998. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- The Accounts -- Liquidity Reserve Amount".
8
<PAGE> 10
RATINGS OF THE 1998 REFINANCING CERTIFICATES
The ratings of the 1998 Refinancing Certificates address the likelihood of
the timely payment of interest and the ultimate payment of principal and
premium, if any, on the 1998 Refinancing Certificates. Payments of principal and
interest on the 1998 Refinancing Notes will be payable only after any Expenses
have been paid or provided for in full and only to the extent that Available
Collections are sufficient therefor in accordance with the priority of payments
established for the Notes. In addition, Airplanes Group's ability to pay Step-Up
Interest or principal in full on the 1998 Refinancing Notes on the Expected
Final Payment Date (as indicated in the table above, the "EXPECTED FINAL PAYMENT
DATE") for the 1998 Refinancing Certificates (or on any other date prior to the
Final Maturity Date (as indicated in the table above, the "FINAL MATURITY
DATE")) has not been rated by any of the Rating Agencies. The ratings assigned
to the 1998 Refinancing Certificates do not address the effect of any imposition
of any withholding tax on any payments under the Leases, the 1998 Refinancing
Notes, the 1998 Refinancing Guarantees, the 1998 Refinancing Certificates or
otherwise. See "Risk Factors -- Risks Relating to Tax" and "Tax Considerations".
A rating is not a recommendation to buy, sell or hold 1998 Refinancing
Certificates inasmuch as ratings do not comment as to market price or
suitability for a particular investor and may be subject to revision, suspension
or withdrawal at any time by the assigning Rating Agency. In the event that a
rating initially assigned to the 1998 Refinancing Certificates is subsequently
lowered, suspended or withdrawn for any reason, no person or entity is obliged
to provide any additional support or credit enhancement with respect to the 1998
Refinancing Certificates.
9
<PAGE> 11
THE AIRCRAFT AND LESSEES
The following pie charts summarize Airplanes Group's exposure as of
September 30, 1997 to various types of Aircraft, Lessees, ages of Aircraft,
noise restrictions applying to Aircraft and the regions and countries in which
Lessees are based. All percentages have been calculated by reference to the
Appraised Value (as of February 25, 1997) of the Aircraft.
EXPOSURE TO INDIVIDUAL LESSEES
<TABLE>
<S> <C>
Off-Lease............... 1.1%
Malev................... 2.2%
Air Europa.............. 2.3%
TAM..................... 2.7%
Transbrasil............. 2.9%
Mexicana................ 3.0%
Airtours................ 3.1%
Avianca................. 3.4%
Emery Worldwide......... 3.6%
Burlington Air.......... 4.0%
THY..................... 4.5%
Canadian Airlines....... 5.4%
Aeromexico.............. 5.5%
Varig................... 7.3%
Other................... 48.9%
</TABLE>
Total Number of Lessees is 77
EXPOSURE TO TYPE OF AIRCRAFT
<TABLE>
<S> <C>
DHC8-300CA.............. 2.04%
B757-200................ 3.17%
B737-200A............... 4.24%
B737-500................ 5.87%
MD11.................... 6.05%
B737-300................ 6.12%
B767-300ER.............. 6.52%
F100.................... 7.17%
A320-200................ 9.28%
DC8-71F................. 10.93%
Other................... 11.89%
MD83.................... 12.36%
B737-400................ 14.36%
</TABLE>
Total Number of Aircraft is 228
Narrow Body Aircraft: 210 (82.6%)
Widebody Aircraft: 18 (17.4%)
EXPOSURE TO COUNTRIES IN WHICH LESSEES ARE BASED
<TABLE>
<S> <C>
Off-Lease............... 1.11%
Ireland................. 2.26%
Italy................... 2.27%
Chile................... 2.83%
Sweden.................. 3.34%
China................... 3.40%
Spain................... 4.28%
Colombia................ 4.41%
UK...................... 4.42%
Canada.................. 6.05%
Mexico.................. 8.70%
Turkey.................. 9.41%
USA..................... 12.99%
Brazil.................. 14.49%
Other................... 20.04%
</TABLE>
Total Number of Countries is 40
EXPOSURE OF AIRCRAFT TO NOISE RESTRICTIONS
<TABLE>
<S> <C>
Stage 2 Aircraft........ 6.4%
Stage 3 Aircraft........ 93.6%
</TABLE>
Turboprop Aircraft are included as Stage 3 Aircraft
EXPOSURE TO REGION IN WHICH LESSEES ARE BASED
<TABLE>
<S> <C>
Off-Lease............... 1.11%
Other................... 2.31%
Asia and Far East....... 9.93%
North America........... 19.04%
Europe.................. 33.77%
Latin America........... 33.84%
</TABLE>
Europe includes Turkey and Other includes CIS countries
EXPOSURE TO YEAR OF AIRCRAFT MANUFACTURE OR SUBSEQUENT FREIGHTER CONVERSION
<TABLE>
<S> <C>
1994.................... 2.87%
1993.................... 3.30%
1989.................... 4.18%
1988.................... 4.85%
1990.................... 9.96%
Other................... 13.25%
1991.................... 23.35%
1992.................... 38.24%
</TABLE>
Weighted average age from manufacture or conversion is approximately 7.3 years
10
<PAGE> 12
PAYMENT FLOWS
The flowchart under this heading provides a summary of payment flows
within Airplanes Group. Payments under the Leases are received from the Lessees
by AeroUSA, a subsidiary of Airplanes U.S. Trust and by Holding Co. and
Aircraft Owning Companies and Special Lessors, all of which are subsidiaries of
Airplanes Limited. The Lease payments are then used by the above named
subsidiaries of Airplanes U.S. Trust and Airplanes Limited to pay interest and
principal on intercompany loans to Airplanes U.S. Trust and Airplanes Limited.
Airplanes U.S. Trust uses the funds received from AeroUSA to pay interest and
principal on the Airplanes Trust Notes and Guarantees to Airplanes Pass Through
Trust and to pay interest and principal on the Class E Notes to GPA, Inc.
Airplanes Limited uses the funds it receives from the Aircraft Owning Companies
and Special Lessors and Holding Co. to pay interest and principal on the
Airplanes Limited Notes and Guarantees to Airplanes Pass Through Trust, to pay
interest and principal on the Class E Notes to GPA Group(1) and to pay dividends
on equity interest in Airplanes Limited to the Charitable Trusts. Finally,
Airplanes Pass Through Trust uses the funds it receives from Airplanes U.S.
Trust and Airplanes Limited to pay interest and principal on the Class A-D
Certificates.
- ---------------
(1) Approximately $83 million (or 14%) of the aggregate principal amount of the
Class E Notes are held by consolidated subsidiaries of GPA Group in which
minority shareholders have interests representing approximately $23 million
(or 4%) of the aggregate principal amount of the Class E Notes. See "The
Parties -- GPA".
11
<PAGE> 13
OWNERSHIP STRUCTURE(1)
The flowchart under this heading sets forth the ownership structure of
Airplanes Group. Airplanes Group consists of Airplanes Limited, a Jersey limited
liability company and Airplanes U.S. Trust, a Delaware business trust.
One-hundred percent of the equity interest in Airplanes Limited is held by
the Charitable Trusts. Airplanes Limited holds 95% of the equity interest in
Holding Co. GPA Group holds the remaining 5% equity interest in Holding Co.
Holding Co. owns 100% of the equity interest in the Aircraft Owning Companies
and Special Lessors. Together, Holding Co. and the Aircraft Owning Companies and
Special Lessors own 204 Aircraft.
The residual interest in Airplanes U.S. Trust is held by GPA, Inc.
One-hundred percent of the equity interest in GPA, Inc. is held by GPA Group.
Airplanes U.S. Trust owns 100% of the equity interest in AeroUSA and its wholly
owned subsidiary(2). AeroUSA and its subsidiary together own 24 Aircraft.
- ---------------
(1) Airplanes Group may establish additional subsidiaries from time to time for
the purpose of directly or indirectly leasing Aircraft from the Aircraft
Owning Companies or any other subsidiary of Holding Co. or AeroUSA and
sub-leasing them to operators where commercial or other reasons make it
desirable to do so. Any additional subsidiaries will be subject to
restrictions set forth in the Trust Indentures.
(2) The shares of AeroUSA and its wholly-owned subsidiary are held by voting
trusts with First Security Bank of Utah, National Association acting as
trustee in order to satisfy regulations of the U.S. Federal Aviation
Administration regarding the U.S. citizenship of the owners of
U.S.-registered aircraft. Airplanes Trust holds voting trust certificates
representing such respective shares.
12
<PAGE> 14
OVERVIEW OF
PRIORITY OF PAYMENTS
The following chart summarizes the order of priority of payments on the
Notes, the Class E Notes and other obligations of Airplanes Group as described
in more detail in "Description of the Securities -- The Notes and the Guarantees
- -- Priority of Payments".
Collections
(i) Required Expense Amount
(ii) Class A Interest and Swap Payments
(iii) First Collection Account Top-Up
(iv) Minimum Hedge Payment
(v) Class A Minimum Principal
(vi) Class B Interest
(vii) Class B Minimum Principal
(viii) Class C Interest
(ix) Class D Interest
(x) Second Collection Account Top-Up
(xi) Class A Principal Adjustment Amount
(xii) Class C Scheduled Principal
(xiii) Class D Scheduled Principal
(xiv) Modification Payments
(xv) Class A Note Step-Up Interest
(xvi) Class E Minimum Interest
(xvii) Supplemental Hedge Payment
(xviii) Class B Supplemental Principal
(xix) Class A Supplemental Principal
(xx) Class D Outstanding Principal
(xxi) Class C Outstanding Principal
(xxii) Class E Supplemental Interest
(xxiii) Class B Outstanding Principal
(xxiv) Class A Outstanding Principal
(xxv) Subordinated Swap Payments
(xxvi) Class E Accrued Unpaid Interest
(xxvii) Class E Outstanding Principal
13
<PAGE> 15
THE OFFERING
The 1998 Refinancing
Trusts..................... Each 1998 Refinancing Trust will be formed under
the laws of the State of New York pursuant to a
Trust Agreement among Airplanes Limited, Airplanes
Trust and Bankers Trust Company, as trustee for the
holders of the Existing Certificates, and will
acquire the 1998 Refinancing Notes and the 1998
Refinancing Guarantees and will issue and sell the
1998 Refinancing Certificates. The 1998 Refinancing
Trusts together with the Existing Trusts are
referred to as the "AIRPLANES PASS THROUGH TRUST".
Bankers Trust will be trustee for the holders of
the 1998 Refinancing Certificates (the "1998
REFINANCING TRUSTEE" and, together with the trustee
for the holders of the Existing Certificates, the
"TRUSTEE"). The Trust's principal office is located
in care of the Trustee at 4 Albany Street, New
York, New York 10006. See "The Parties -- The Trust
and Trustee".
Trust Assets............... The respective subclasses of 1998 Refinancing Notes
and 1998 Refinancing Guarantees, will represent
substantially all of the assets of the
corresponding 1998 Refinancing Trust (the "TRUST
ASSETS"). Under the Trust Agreement, the Trustee
may not transfer any of the 1998 Refinancing Notes
or the 1998 Refinancing Guarantees except in
connection with an exercise of remedies following a
Note Event of Default. See "The Parties -- The
Trust and Trustee".
Payment Dates.............. Interest on the 1998 Refinancing Certificates will
be payable monthly in arrears on the fifteenth day
of each month, commencing April 15, 1998 (each a
"PAYMENT DATE"); provided that if any Payment Date
would otherwise fall on a day which is not a
Business Day, the relevant Payment Date will be the
first following day which is a Business Day. For
the purposes of the Certificates, "BUSINESS DAY"
means a day on which U.S. dollar deposits may be
dealt in on the London inter-bank market and
commercial banks and foreign exchange markets are
open in New York, New York and London, England. See
"Description of Securities -- The Certificates --
Payments and Distributions".
Record Date................ The record date (the "RECORD DATE") with respect to
each Payment Date will be the close of business on
the day that is 15 days prior to such Payment Date,
whether or not such day is a Business Day. See
"Description of Securities -- The Certificates --
Payments and Distributions".
Reference Date............. The reference date (the "REFERENCE DATE") with
respect to each Payment Date will be the day that
is two Business Days prior to such Payment Date.
See "Description of Securities -- The Notes and the
Guarantees -- Reference Agency Agreement".
Calculation Date........... The fourth Business Day immediately preceding each
Payment Date is the "CALCULATION DATE".
Interest Accrual Period.... The period beginning on (and including) March 16,
1998 (the "CLOSING DATE") and ending on (but
excluding) the first Payment Date and each
successive period beginning on (and including) a
Payment Date and ending on (but excluding) the next
succeeding Payment Date is called an "INTEREST
ACCRUAL PERIOD"; provided that the final Interest
Accrual Period will end on but exclude the Final
Maturity Date (or, if earlier with respect to any
class or subclass of Notes, the date such class or
14
<PAGE> 16
subclass of Notes is paid in full). Account
balances with respect to each Interest Accrual
Period shall be determined by reference to the
balance of funds on deposit in Accounts on the
Calculation Date immediately preceding each Payment
Date. See "Description of Securities -- The
Certificates -- Payments and Distributions".
Accrued Interest........... Any accrued interest that is not paid on a Payment
Date will bear interest at the stated rate of the
relevant subclass of the 1998 Refinancing Notes.
Sources of Payments on the
1998 Refinancing
Certificates
and 1998 Refinancing
Notes.................... The only source of payment for the 1998 Refinancing
Certificates, the 1998 Refinancing Notes, the 1998
Refinancing Guarantees and the other obligations of
Airplanes Group will be the payments made by the
Lessees under the Leases, proceeds from
dispositions, if any, of the assets of Airplanes
Group, net payments, if any, under the Swap
Agreements and other hedging instruments, net cash
proceeds received from the sale of Refinancing
Certificates and proceeds, if any, received in
connection with disposals of the 1998 Refinancing
Notes by the Indenture Trustees under certain
circumstances. Payments on the 1998 Refinancing
Notes and the 1998 Refinancing Guarantees and,
correspondingly, on the 1998 Refinancing
Certificates, will be made only to the extent of
amounts on deposit in the Collection Account on the
Calculation Date relating to each Payment Date net
of Expenses (other than Permitted Accruals in
respect of Modification Payments) then due and
payable or reasonably anticipated to become due and
payable during the next Interest Accrual Period
(the "REQUIRED EXPENSE AMOUNT") and other amounts
set forth in "Description of Securities -- The
Notes and the Guarantees -- Priority of Payments"
(the "AVAILABLE COLLECTIONS"). On each Payment
Date, interest, principal and premium, if any, paid
in respect of each subclass of the 1998 Refinancing
Notes, to the extent received by the 1998
Refinancing Trustee, will be passed through to
holders of the corresponding subclass of the 1998
Refinancing Certificates on the Record Date for
such Payment Date (the "1998 REFINANCING
CERTIFICATEHOLDERS" and together with the holders
of the Existing Certificates, the
"CERTIFICATEHOLDERS"). It is expected, based on the
Assumptions, that funds to be received by the 1998
Refinancing Trustee in respect of the 1998
Refinancing Notes will be sufficient to pay
interest, principal and premium, if any, on the
1998 Refinancing Certificates. See "Description of
Securities -- The Certificates" and "-- The Notes
and the Guarantees -- Priority of Payments", "Risk
Factors -- Risks Relating to Payments on the
Certificates" and "-- Risks Relating to the Capital
Markets".
1998 Refinancing
Guarantees................. Each of Airplanes Limited and Airplanes Trust shall
unconditionally guarantee the obligations of the
other under the 1998 Refinancing Notes (the "1998
REFINANCING GUARANTEES"). Payments under the 1998
Refinancing Guarantees will be subordinated in
priority of payment in accordance with the priority
of payments on each subclass of the 1998
Refinancing Notes. The guarantees on the Existing
Notes are referred to herein as the "EXISTING
GUARANTEES". The Existing Guarantees, together with
the 1998 Refinancing Guarantees, are referred to
herein as the "GUARANTEES".
15
<PAGE> 17
Use of Proceeds............ The purpose of the Offering is to refinance the
Subclass A-1 Notes of Airplanes Group. All of the
proceeds from the offering will be used for such
purpose. See "Use of Proceeds".
Ratings of the 1998
Refinancing Certificates... It is a condition to the issuance of the 1998
Refinancing Certificates that each subclass of the
1998 Refinancing Certificates will receive ratings
from Duff & Phelps Credit Rating Co. ("DCR"),
Moody's Investors Service, Inc. ("MOODY'S") and
Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc. ("STANDARD & POOR'S"
and, together with DCR and Moody's, the "RATING
AGENCIES") as set forth under "Description of the
Securities -- The Certificates -- Ratings".
Listing.................... Application has been made to list the 1998
Refinancing Certificates on the Luxembourg Stock
Exchange. See "Additional Information".
Denominations.............. The 1998 Refinancing Certificates will be available
for purchase in minimum denominations of $100,000
and integral multiples of $1,000 in excess thereof;
provided that a single Certificate of each subclass
may be issued in a denomination of less than
$100,000. See "Description of the Securities -- The
Certificates".
Form....................... It is expected that the 1998 Refinancing
Certificates will be issued in fully registered
form only in the name of Cede & Co. as the nominee
of DTC. No person acquiring an interest in the 1998
Refinancing Certificates will be entitled to
receive a Definitive Certificate representing such
person's interest in the corresponding 1998
Refinancing Trust, except in the event that
Definitive Certificates are issued under the
limited circumstances described herein. 1998
Refinancing Certificateholders will hold their 1998
Refinancing Certificates through DTC (in the United
States) or Cedel Bank or Euroclear (in Europe), if
they are participants in such systems, or
indirectly through organizations which are
participants in such systems. See "Book-Entry,
Registration, Global Clearance and Settlement".
Airplanes Limited.......... Airplanes Limited is a special purpose limited
liability company formed under the laws of Jersey
with its registered and principal office located at
22 Grenville Street, St. Helier, Jersey, JE4 8PX,
Channel Islands (telephone: 011-44-1534-609-000)
("AIRPLANES LIMITED"). See "The Parties --
Airplanes Limited" and "Management of Airplanes
Group".
Airplanes Trust............ Airplanes U.S. Trust is a Delaware business trust
("AIRPLANES TRUST"), organized pursuant to the
Airplanes Trust Agreement (the "AIRPLANES TRUST
AGREEMENT") among GPA, Inc., a wholly owned
subsidiary of GPA Group ("GPA, INC."), as settlor
(the "SETTLOR"), Wilmington Trust Company, as
trustee (the "DELAWARE TRUSTEE") and the
Controlling Trustees thereunder. Airplanes Trust's
principal office is located in care of the Delaware
Trustee at 1100 North Market Street, Rodney Square
North, Wilmington, Delaware 19890-0001 (telephone:
1-302-651-1000). See "The Parties -- Airplanes
Trust" and "Management of Airplanes Group".
Airplanes Group............ Airplanes Limited and Airplanes Trust and, unless
the context otherwise requires, the subsidiaries of
each of them on a combined basis. See "Prospectus
Summary -- The Portfolio".
16
<PAGE> 18
Airplanes Limited
1998 Refinancing Notes... Airplanes Limited will issue the 1998 Refinancing
Notes (the "AIRPLANES LIMITED 1998 REFINANCING
NOTES") pursuant to a supplement to the trust
indenture dated March 28, 1996 (as amended or
supplemented, the "AIRPLANES LIMITED INDENTURE"),
among Airplanes Limited, Airplanes Trust and
Bankers Trust Company, as Airplanes Limited
Indenture Trustee (the "AIRPLANES LIMITED INDENTURE
TRUSTEE"). The Airplanes Limited 1998 Refinancing
Notes, together with the Existing Notes issued by
Airplanes Limited, are referred to as the
"AIRPLANES LIMITED NOTES". See "Description of
Securities -- The Notes and the Guarantees".
Airplanes Trust
1998 Refinancing Notes... Airplanes Trust will issue the 1998 Refinancing
Notes (the "AIRPLANES TRUST 1998 REFINANCING
NOTES") pursuant to a supplement to the trust
indenture dated March 28, 1996 (as amended or
supplemented, the "AIRPLANES TRUST INDENTURE" and,
together with the Airplanes Limited Indenture, the
"TRUST INDENTURES"), among Airplanes Limited,
Airplanes Trust and Bankers Trust Company, as
Airplanes Trust Indenture Trustee (the "AIRPLANES
TRUST INDENTURE TRUSTEE", and together with the
Airplanes Limited Indenture Trustee, the "INDENTURE
TRUSTEES"). The Airplanes Trust 1998 Refinancing
Notes, together with the Existing Notes issued by
Airplanes Trust, are referred to as the "AIRPLANES
TRUST NOTES". See "Description of Securities -- The
Notes and the Guarantees".
1998 Refinancing Notes..... The 1998 Refinancing Notes shall comprise the
Airplanes Limited 1998 Refinancing Notes and the
Airplanes Trust 1998 Refinancing Notes. The 1998
Refinancing Notes are expected to be divided into
two subclasses, the Subclass A-6 Notes and the
Subclass A-7 Notes but may be further subdivided
into additional subclasses. Each subclass of the
1998 Refinancing Notes will be entitled to receive
interest from their date of delivery at a rate per
annum equal to one month LIBOR on the applicable
Reference Date plus the applicable margin set forth
on the cover page of this Prospectus. The interest
rates on each subclass of the 1998 Refinancing
Notes will be determined for the initial Interest
Accrual Period two Business Days prior to the
scheduled delivery thereof.
The 1998 Refinancing Notes, the other subclasses of
Class A Notes and the Class B Notes are referred to
collectively herein as the "FLOATING RATE NOTES"
and the 1998 Refinancing Certificates, the other
subclasses of Class A Certificates and the Class B
Certificates are referred to collectively herein as
the "FLOATING RATE CERTIFICATES". The Existing
Class C Notes and Class D Notes are collectively
referred to herein as the "FIXED RATE NOTES" and
the Existing Class C Certificates and Class D
Certificates are collectively referred to herein as
the "FIXED RATE CERTIFICATES". See "Description of
Securities -- The Notes and the Guarantees".
Status of 1998 Refinancing
Notes.................... The 1998 Refinancing Notes will constitute direct
obligations of Airplanes Limited and Airplanes
Trust, as the case may be. 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
17
<PAGE> 19
the Aircraft or the Leases. The Security Trustee
has been granted a security interest in one-third
of the ordinary share capital of Holding Co. and
its subsidiaries and in Airplanes Group's interests
in the cash in the Accounts. In addition, the
Accounts (except for certain Rental Accounts) are
held in the name of the Security Trustee. See
"Description of Securities -- The Notes and the
Guarantees". Airplanes Group's ability to incur
indebtedness is significantly constrained. However,
Airplanes Group will have the ability, in certain
circumstances, to refinance certain classes or
subclasses of Certificates through the issuance and
sale by separate trusts of new certificates (the
"REFINANCING CERTIFICATES"). Such Refinancing
Certificates will rank pari passu with the classes
or subclasses of refinanced Certificates and will
never rank higher in priority than the Class A
Certificates. See "Description of Securities -- The
Notes and the Guarantees -- Trust Indenture
Covenants -- Limitations on Indebtedness".
Payments on the
1998 Refinancing Notes... Interest, principal and premium, if any, on the
1998 Refinancing Notes will be paid only out of
Available Collections with respect to any Interest
Accrual Period received on or prior to the
Calculation Date relating to such Interest Accrual
Period. On each Payment Date, principal will be
payable in respect of the 1998 Refinancing Notes
and the Existing Notes to the extent of Available
Collections, in an amount up to the Principal
Distribution Amount, if any, on such Payment Date
but only to the extent that funds are available for
such purpose after having made the payments ranking
in priority thereto. The expected principal
payments on the 1998 Refinancing Notes have been
determined on the basis of certain assumptions
(such assumptions, as set forth under "Description
of Securities -- The Certificates", the
"ASSUMPTIONS"), including, inter alia, assumptions
regarding the timing and amount of payments under
the Existing Leases, assumptions regarding the
terms of and payments under Future Leases and
assumptions regarding the ability of the Trust to
refinance maturing Certificates, including Subclass
A-6 Certificates, through the issuance and sale of
Refinancing Certificates. On the basis of the
Assumptions, the Subclass A-6 Certificates are not
expected to receive any payments of Principal
Distribution Amount until they are repaid in full
with an issue of Refinancing Certificates on or
prior to their Expected Final Payment Date on March
- , - . Also on the basis of the Assumptions
and following repayment in full of the Existing
Subclass A-5 Certificates, the Subclass A-7
Certificates are expected to receive, to the extent
there are Available Collections sufficient
therefor, all Principal Distribution Amounts
payable with respect to the Class A Certificates
until the Subclass A-7 Certificates have been
repaid in full. The Outstanding Principal Balance
of the Subclass A-5 Certificates was approximately
$ - million at February 15, 1998. The Expected
Final Payment Date of the Subclass A-5 Certificates
is April 15, 1999, but, based on the payment
performance of the Subclass A-5 Certificates to
date, the Subclass A-5 Certificates are expected to
be paid in full by - . The Expected Final
Payment Date of the Subclass A-7 Certificates is
- . It is highly likely that the Assumptions
will not correspond to actual experience and as a
result the actual principal payments received are
likely to vary from the expected principal payments
in respect of such class or subclass of
Certificates, and the
18
<PAGE> 20
actual maturity of any class or subclass of
Certificates is likely to occur earlier or later
than its Expected Final Payment Date. See
"Description of Securities -- The Notes and the
Guarantees -- Priority of Payments", "Risk Factors
-- Risks Relating to Payments on the Certificates"
and "Risk Factors -- Risks Relating to the Capital
Markets".
Step-Up Interest........... If any of the Subclass A-2, A-3, A-4 or A-6 Notes
is not repaid on or before the Expected Final
Payment Date for such subclass, such subclass of
Notes will accrue interest thereafter at a rate
equal to the stated interest rate therefor, plus
0.50% per annum (the "STEP-UP INTEREST"). For any
period in which Step-Up Interest is accruing on any
subclass of the Class A Notes, Step-Up Interest
will also accrue on the Subclass A-5 and Subclass
A-7 Notes. Payments of Step-Up Interest will be
subordinated to certain other obligations of
Airplanes Group, including the payment of the
Principal Adjustment Amount to the Class A Notes
and the Minimum Principal Payment Amount of the
Class B Notes and payment of the Scheduled
Principal Payment Amount to the Class C Notes and
Class D Notes and will not be rated by the Rating
Agencies. See "Description of Securities -- The
Notes and the Guarantees -- The Notes and
Guarantees -- Interest".
Priority of Payments....... On each Payment Date, distributions from Available
Collections will be made in accordance with the
priority of payments set forth in "Description of
Securities -- The Notes and the Guarantees --
Priority of Payments". Payments on the Notes will
be subordinated to all fees, costs, or 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") and (other than interest payments on
the Class A Notes with respect to which such
amounts are ranked pari passu) certain amounts due
to the parties providing interest rate swaps and
other hedging instruments (the "SWAP PROVIDERS").
Furthermore, payments on the Class D Notes and
Class D Certificates will be effectively
subordinated in priority of payment to payments on
all other classes of Notes and Certificates,
payments on the Class C Notes and Class C
Certificates will be effectively subordinated in
priority of payment to payments on the Class A and
Class B Notes and Class A and Class B Certificates
and payments on the Class B Notes and Class B
Certificates will be effectively subordinated in
priority of payment to payments on the Class A
Notes and Class A Certificates.
Redemption of the
1998 Refinancing Notes... Subject to certain conditions described in
"Description of Securities -- The Notes and
Guarantees -- Redemption", the 1998 Refinancing
Notes may be redeemed on any Payment Date, in whole
or in part, at the Redemption Price, plus accrued
but unpaid interest. Within each subclass of the
1998 Refinancing Notes, the Redemption Price will
be applied pro rata among all such Notes to the pro
rata reduction of the remaining expected principal
payments thereof.
The Redemption Price on the Subclass A-7 Notes
redeemed will equal the Outstanding Principal
Balance of such subclass of Notes being redeemed,
without premium.
The Redemption Price on the Subclass A-6 Notes
redeemed (i) prior to - will be - % of the
Outstanding Principal Balance of such
19
<PAGE> 21
subclass and (ii) on or after - , will equal
to the Outstanding Principal Balance of such
subclass, without premium.
Each subclass of the 1998 Refinancing Notes may
also be redeemed on any Payment Date, in whole, at
the Redemption Price, plus accrued but unpaid
interest, in connection with any sale of all or
substantially all of the assets of the Airplanes
Group. The 1998 Refinancing Notes may also be
redeemed at such time as other classes or
subclasses of Notes are being defeased. See
"Description of the Securities -- The Notes and the
Guarantees -- Defeasance".
In addition, each subclass of the 1998 Refinancing
Notes may be redeemed on any Payment Date, in
whole, but not in part, without premium, upon the
occurrence of certain adverse tax events affecting
Airplanes Group, at a Redemption Price equal to the
Outstanding Principal Balance thereof, plus accrued
and unpaid interest thereon. See "Description of
the Securities -- The Notes and the Guarantees --
Redemption".
Capital Stock of Airplanes
Limited.................. Airplanes Limited has an authorized share capital
of 10,000 ordinary shares, $1 par value per share
("CAPITAL STOCK"), of which 30 shares have been
issued. The issued Capital Stock of Airplanes
Limited is held by Juris Limited and Lively
Limited, each a Jersey corporation, (together, the
"NOMINEES"), for the benefit of certain charitable
trusts established under the laws of Jersey
(collectively, the "CHARITABLE TRUSTS"). See "The
Parties -- Airplanes Limited".
Airplanes Trust Residual
Interest................. GPA, Inc., a wholly owned subsidiary of GPA Group,
owns all of the residual ownership interest in
Airplanes Trust (the "AIRPLANES TRUST RESIDUAL
INTEREST"). Upon repayment in full of the Airplanes
Trust Notes, the Airplanes Trust Class E Notes and
the Airplanes Trust Refinancing Notes, if any, the
AeroUSA Shares will revert to GPA through its
ownership of the Airplanes Trust Residual Interest.
See "The Parties -- Airplanes Trust".
GPA Group.................. GPA Group is a public limited company incorporated
in Ireland. Wholly owned subsidiaries of GPA Group
act as the Administrative Agent and Cash Manager.
See "The Parties -- GPA" and "Management of
Airplanes Group -- Corporate Management."
Appraised Value............ As described herein, Airplanes Group has obtained
from Aircraft Information Services, Inc., BK
Associates, Inc. and Airclaims Limited (the
"APPRAISERS") three desktop appraisals (the
"APPRAISALS") of the value of each of the Aircraft
as of February 25, 1997. In connection with the
Offering, Airplanes Group will obtain new
appraisals from the Appraisers to reflect the value
of each of the Aircraft as of a date in late
January. The Appraisers ascertain the value of each
Aircraft on the basis of 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 knowledgeable 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
(with certain assumptions as to use since the last
20
<PAGE> 22
reported status), (each value so ascertained for
the Aircraft, a "BASE VALUE"). The average of the
Base Values as of February 25, 1997 for each of the
Aircraft in the Portfolio as of September 30, 1997
(with the exception of 11 Aircraft subject to
finance leases as of September 30, 1997 which have
been included in the computation of the Appraised
Value of the Portfolio at Airplanes Group's net
book value) is referred to herein as the "APPRAISED
VALUE". None of the Appraisals attribute any value
to the relevant Lease, the Maintenance Reserves,
cash and certain commitment fees that serve as
security (collectively, the "SECURITY DEPOSITS") or
certain letters of credit, third-party guarantees
or bank guarantees or the cash equivalent thereof
required under the relevant Leases (the "RELATED
COLLATERAL"), if any, related to the particular
Aircraft. The aggregate Appraised Value of the
Portfolio at February 25, 1997 was approximately
$4,189 million. An appraisal is only an estimate of
value and should not be relied upon as a measure of
realizable value. The proceeds received upon a sale
of any Aircraft are likely to be less than the
Appraised Value thereof. See "Risk Factors --
Aircraft Values" and "The Aircraft, Related Leases
and Collateral -- Appraisers' Report."
Leases..................... At September 30, 1997, the average remaining term,
weighted by Appraised Value (without giving effect
to Purchase Options, early termination options or
extension options) of the Existing Leases was
approximately 30 months. All of the Existing Leases
will expire under their terms prior to the last
Final Maturity Date of the Certificates and,
therefore, Airplanes Group must re-lease
substantially all of the Aircraft one or more times
prior to the last Final Maturity Date except to the
extent that Aircraft are sold prior to the Final
Maturity Date. Each Existing Lease is either (a) an
operating lease for a fixed term pursuant to which
Airplanes Group will retain title to the Aircraft
and substantially all of the risks and rewards
associated with ownership, including the residual
value of the Aircraft (although, as of September
30, 1997, 143 of the Existing Leases contained, and
a certain portion of the Future Leases may contain,
Purchase Options, early termination options or
extension options), or (b) a finance lease for a
fixed term, pursuant to which Airplanes Group
retains title to the Aircraft but substantially all
of the risks and rewards associated with ownership,
including the residual value of the Aircraft, are
transferred to the Lessee. Only 11 of the Existing
Leases (or 2.34% as a percentage of the Appraised
Value of the Portfolio) were classified as finance
leases as of September 30, 1997. See "Risk Factors
-- Risks Relating to the Leases -- Re-leasing" and
"The Aircraft, Related Leases and Collateral -- The
Leases."
Lessees.................... As of September 30, 1997, there were 77 lessees
(together with the lessees in respect of Future
Leases, the "LESSEES") of the Aircraft pursuant to
the Existing Leases in 40 different countries. Many
of the Lessees are in a relatively weak financial
condition and some face serious financial
difficulties. At September 30, 1997, thirty Lessees
were in arrears with respect to Rental Payments for
periods greater than 30 days, amounting to $20.1
million or 0.48% of the aggregate Appraised Value
of the Portfolio. As of September 30, 1997, four
additional Lessees were being allowed deferrals of
Rental Payments, maintenance and
21
<PAGE> 23
miscellaneous payments totaling approximately $20.8
million. See "Risk Factors -- Risks Relating to the
Lessees".
Rental Accounts............ The "RENTAL ACCOUNTS" are the accounts into which
payments made by Lessees under the Leases are paid.
The balance on deposit in each Rental Account is
transferred within one Business Day of receipt
thereof into the Collection Account, other than
certain limited amounts required to be left on
deposit for local legal or regulatory reasons. See
"Description of Securities -- The Accounts".
Lessee Funded Account...... The "LESSEE FUNDED ACCOUNT" is the account (or
accounts) into which amounts received from Lessees
in respect of Maintenance Reserves and Security
Deposits that are required to be segregated from
Airplanes Group's other funds ("SEGREGATED FUNDS")
are deposited and held. Funds on deposit in the
Lessee Funded Account are used to make certain
maintenance and security deposit related payments
to Lessees or may be applied against maintenance
related payments otherwise required to be made by
the Lessee during the term of the related Lease or
upon expiration thereof or repossession of the
Aircraft. In certain circumstances, on expiration
of a Lease, surplus funds may be credited from the
Lessee Funded Account to the Collection Account.
Amounts on deposit in the Lessee Funded Account are
not available to pay interest, principal or
premium, if any, on the Certificates. See
"Description of Securities -- The Accounts".
Collection Account......... The "COLLECTION ACCOUNT" is the account into which
all Collections received by or on behalf of
Airplanes Group in the course of conducting its
business are deposited. Except as noted below, the
Collection Account is maintained at a balance at
least equal to the Liquidity Reserve Amount. The
Liquidity Reserve Amount is currently approximately
$180 million and is intended to provide, to the
extent that payments required in respect of the
Leases are insufficient, for (i) Airplanes Group's
maintenance obligations, (ii) Airplanes Group's
obligation to repay Lessee Security Deposits and
(iii) certain other contingencies in respect of the
Aircraft (the "LIQUIDITY RESERVE AMOUNT"). The
balance of funds in the Collection Account may fall
below the Liquidity Reserve Amount at any time and
Airplanes Group may continue to make certain
payments required on the Notes in the circumstances
described under "Description of Securities -- The
Accounts -- Liquidity Reserve Amount". See
"Description of Securities -- The Accounts".
Expense Account............ The "EXPENSE ACCOUNT" is the account into which the
Cash Manager deposits the Required Expense Amount
(other than certain Expenses transferred directly
to payees from the Collection Account) on each
Payment Date. See "Description of Securities -- The
Accounts".
Servicer................... GECAS provides certain services with respect to the
aircraft owned at any time by Airplanes Group and
the related Leases in accordance with the terms of
the Servicing Agreement. Airplanes Limited, AeroUSA
and Holding Co. are jointly and severally obligated
to pay the Servicer an annual asset-based servicing
fee equal to approximately 0.495%, adjusted
annually for inflation, of the agreed book value of
each Aircraft being serviced by the Servicer. Such
fees amounted to $22.7 million in the year ended
March 31, 1997. The Servicer is also entitled to
certain additional
22
<PAGE> 24
fees based, in part, on the annual cash flow
generated by the Leases in excess of certain cash
flow targets and on sales of Aircraft at the
direction of the Airplanes Group, which fees are
subject to an aggregate annual minimum in the
amount of approximately $1.5 million.
Pursuant to the Servicing Agreement, the Servicer
provides certain services to Airplanes Group,
including, inter alia, collecting Rental Payments
and other receivables due under the Leases,
monitoring the performance of maintenance and
insurance obligations of Lessees, enforcing payment
by Lessees under the Leases and remarketing,
including re-leasing Aircraft on lease expiration
or repossession from Lessees.
The initial term of the Servicing Agreement expires
on the earlier of (i) March 28, 2014 (which is
prior to the Final Maturity Date of the 1998
Refinancing Certificates) or (ii) payment in full
of all amounts Outstanding to be paid under the
Notes. Airplanes Group and the Servicer each have
the ability to terminate the Servicing Agreement
prior to the expiration of its initial term under
certain circumstances described under "Management
of Airplanes Group -- The Servicer -- Term and
Termination" and "-- Tax Status". The Servicer is
not required pursuant to the terms of the Servicing
Agreement to obtain rental rates designed to pay
any amounts due and owing under the Notes and no
assurance can be given that the rental rates of
Leases or Rental Payments with respect thereto will
be sufficient to pay interest and principal on the
Notes in accordance with their terms. See
"Management of Airplanes Group -- The Servicer."
Neither the 1998 Refinancing Certificates nor the
1998 Refinancing Notes are obligations of, or
guaranteed by, or offered for sale by, GE Capital,
GECAS or any of their affiliates.
Cash Manager............... GPA Cash Manager Limited, a wholly owned subsidiary
of GPA Group, ("GPA CASH MANAGER") acts as Cash
Manager (the "CASH MANAGER") pursuant to a Cash
Management Agreement dated as of March 28, 1996,
among Airplanes Limited, Airplanes Trust, the Cash
Manager, GPA Group, the Indenture Trustees and the
Security Trustee (the "CASH MANAGEMENT AGREEMENT").
The Cash Management Agreement, the Trust Indentures
and the Security Trust Agreement, taken together,
establish the rights of the Noteholders as among
themselves with respect to the Aircraft owned by
Airplanes Group, the related Leases and all
proceeds therefrom, and govern the distribution of
Available Collections to pay amounts due and owing
under the Notes. The Cash Management Agreement and
Trust Indentures taken together further provide for
the creation and operation of the Accounts. See
"Management of Airplanes Group -- Corporate
Management". Neither the 1998 Refinancing
Certificates nor the 1998 Refinancing Notes are
obligations of, or guaranteed or offered for sale
by, the Cash Manager.
Administrative Agent....... GPA Financial Services (Ireland) Limited, a wholly
owned subsidiary of GPA Group ("GPA FINANCIAL"),
acts as Administrative Agent (the "ADMINISTRATIVE
AGENT") pursuant to an administrative agency
agreement, dated as of March 28, 1996 (the
"ADMINISTRATIVE AGENCY AGREEMENT"), among Airplanes
Limited, Airplanes Trust, Holding Co., AeroUSA, the
Administrative Agent and GPA Group. The
23
<PAGE> 25
Administrative Agent provides certain liability
management, interest rate risk management,
corporate administrative and accounting services to
Airplanes Group and also provides certain financial
modeling and computational services to Airplanes
Group, including providing cash flow projections
and forecasts to assist the Directors and the
Controlling Trustees in making leasing, selling,
refinancing, hedging and certain other decisions.
See "Management of Airplanes Group -- Corporate
Management". In addition, it monitors the
performance of the Servicer (including the
Servicer's compliance with the Servicing Agreement)
and reports on such performance to Airplanes Group.
Neither the 1998 Refinancing Certificates nor the
1998 Refinancing Notes are obligations of,
guaranteed by or offered for sale by the
Administrative Agent.
Future Aircraft
Dispositions............... Airplanes Group may sell Aircraft (i) pursuant to
the exercise of Purchase Options held by Lessees,
(ii) within Airplanes Limited and its subsidiaries
and within Airplanes Trust and its subsidiaries,
without limitation, and within the Airplanes Group,
provided that such sale does not materially
adversely affect the Certificateholders and (iii)
in other circumstances, provided that any such sale
does not cause a Note Event of Default under the
Trust Indentures and certain other conditions are
met. In addition, Airplanes Group may sell Aircraft
at prices below the specified target prices in
certain limited circumstances which may, in turn,
affect the amount and timing of principal payments
to Certificateholders and, in turn, affect the
average life of the Certificates. See "Description
of Securities -- The Notes and the Guarantees --
Trust Indenture Covenants", "-- Redemption" and "--
Defeasance".
Operating Covenants........ Airplanes Group may not enter into any Future Lease
(other than a renewal, extension or restructuring
of any Lease) unless after entering into such
Future Lease, Airplanes Group is in compliance with
certain criteria in respect of, inter alia,
geographic and other concentration limits (the
"RE-LEASING GUIDELINES"); provided that Airplanes
Group may enter into a Future Lease not meeting
such criteria if the Rating Agencies shall have
confirmed in writing that entering into such Lease
will not result in the lowering or withdrawal by
them of their current ratings on any class of the
Certificates then outstanding. See "Description of
Securities -- The Notes and the Guarantees --
Operating Covenants", "-- Concentration Limits",
"-- Compliance with Law, Maintenance of Permits",
"-- Appraisal of Portfolio", "-- Maintenance of
Assets", "-- Notification of Indenture Trustee,
Cash Manager and Administrative Agent", "--
Leases", "-- Opinions", "-- Insurance" and "--
Indemnity".
Certain Taxation Matters... In the opinion of Davis Polk & Wardwell, United
States Federal Tax Counsel to Airplanes Limited and
Airplanes Trust, each of the 1998 Refinancing
Trusts will be classified as a "grantor trust" for
United States Federal income tax purposes and not
as an association (or publicly traded partnership)
taxable as a corporation and accordingly, each 1998
Refinancing Certificateholder will be treated as if
it owned directly the portion of each 1998
Refinancing Note of Airplanes Limited and each 1998
Refinancing Note of Airplanes Trust represented by
such 1998 Refinancing Certificate.
Airplanes Limited will receive an opinion of
Mourant du Feu & Jeune, Jersey Tax Counsel, that,
inter alia, payments by Airplanes Limited on
24
<PAGE> 26
the Airplanes Limited 1998 Refinancing Notes will
not be subject to Jersey withholding tax. In
addition, Airplanes Limited will receive an opinion
of McCann FitzGerald, Irish Tax Counsel, that,
inter alia, payments by Airplanes Limited on the
Airplanes Limited 1998 Refinancing Notes will not
be subject to Irish withholding tax on the basis
described in "Tax Considerations -- Irish Tax
Considerations".
Neither Airplanes Limited nor Airplanes Trust, nor
any subsidiary of either of them, will be obliged
to make any additional payments with respect to any
subclass of the 1998 Refinancing Notes (or the
Intercompany Loans), and thus no payments will be
passed through to a corresponding subclass of the
1998 Refinancing Certificateholders, in respect of
any withholding or deduction required to be made
under applicable law from payments on any subclass
of the 1998 Refinancing Notes or the Intercompany
Loans. If any withholding or deduction is required
with respect to any subclass of the 1998
Refinancing Notes and such subclass of the 1998
Refinancing Notes is not redeemed, the net amount
of interest received by the 1998 Refinancing
Trustee and passed through to such 1998 Refinancing
Certificateholders and all entities acquiring a
beneficial interest in such subclass of the 1998
Refinancing Certificates will be reduced by the
amount of such withholding or deduction. See "Tax
Considerations".
Certain favorable Irish tax benefits currently
existing in favor of Airplanes Group could be lost
if the Servicer does not maintain certain
employment levels in Shannon, Ireland. The Servicer
has not agreed to, and there can be no assurances
that the Servicer will, maintain any such
employment levels at any time in the future. See
"Risk Factors -- Risks Relating to Airplanes Group
and Certain Third Parties -- Delegation of
Responsibilities", "-- Risks Relating to the
Financial Condition of GPA -- Financial Condition
of GPA", "-- Risks Relating to Tax -- Risks
Relating to the Loss of Certain Tax Benefits" and
"Management of Airplanes Group -- The Servicer --
Tax Status".
ERISA Considerations....... The 1998 Refinancing Certificates are eligible for
purchase under certain circumstances by an employee
benefit plan or other plan subject to Title I of
the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and/or Section 4975 of
the United States Internal Revenue Code of 1986, as
amended (the "CODE"). See "ERISA Considerations".
Any such plan should consider whether an investment
in the 1998 Refinancing Certificates could result
in a prohibited transaction or cause the assets of
each 1998 Refinancing Trust to be plan assets.
25
<PAGE> 27
SUMMARY COMBINED FINANCIAL DATA
The summary combined financial data set out below for each of the years in
the three-year period ended March 31, 1997 have been extracted or derived from
the audited Financial Statements of Airplanes Limited and Airplanes Trust
included elsewhere in this Prospectus, which have been audited by KPMG --
Dublin, Ireland, independent chartered accountants. See "Experts". These
financial statements have been prepared in accordance with generally accepted
accounting principles in the United States ("U.S. GAAP"). The selected financial
data set forth below as of September 30, 1997 and for the six month periods
ended September 30, 1996 and September 30, 1997 have not been audited but in the
opinion of management reflect all adjustments, consisting only of normal and
recurring adjustments, necessary to present a fair statement of the information
presented therein.
The summary 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. Investors should note, however, that Airplanes Group has
conducted independent business operations only since March 28, 1996.
Accordingly, for periods prior to March 28, 1996, adjustments and allocations
were 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 "Management's Discussion and
Analysis of Financial Condition and Results of Operations". While Airplanes
Group believes that the summary 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 "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
The summary 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 elsewhere in this Prospectus, and investors should
note 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 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.
As GPA continues to hold substantially all of the Class E Notes through
which it has 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.
26
<PAGE> 28
COMBINED STATEMENT OF OPERATIONS DATA(1)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER
YEAR ENDED MARCH 31, 30,
-------------------- ------------
1995 1996 1997 1996 1997
---- ---- ---- ---- ----
$MILLIONS
<S> <C> <C> <C> <C> <C>
Revenues(2)
Aircraft leasing....................................... 608 616 604 309 306
Expenses
Depreciation and amortization.......................... (208) (207) (223) (104) (98)
Net interest expense(3)(4)............................. (348) (368) (383) (186) (203)
Provision for maintenance.............................. (88) (97) (91) (50) (49)
Bad and doubtful debts................................. (33) 28 (--) 1 (1)
Provision for loss making leases and downtime,
net(5).............................................. (5) 15 12 10 17
Other lease costs...................................... (17) (21) (21) (25) (18)
Selling, general and administrative expenses........... (34) (35) (38) (18) (20)
Income tax benefit....................................... 16 13 10 -- 1
----- ----- ----- ----- -----
Net loss................................................. (109) (56) (130) (63) (65)
===== ===== ===== ===== =====
</TABLE>
COMBINED BALANCE SHEET DATA(1)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
-------------------------- -------------
1995 1996 1997 1997
------ ------ ------ -------------
$MILLIONS
<S> <C> <C> <C> <C>
Aircraft, net, and net investment in capital and
sales type leases.................................. 4,181 3,965 3,731 3,612
----- ----- ----- -----
Total assets......................................... 4,386 4,236 4,048 3,917
===== ===== ===== =====
Indebtedness(3).................................... (4,602) (4,634) (4,397) (4,283)
Provision for maintenance.......................... (268) (311) (313) (313)
Total liabilities.................................... (5,228) (5,252) (5,194) (5,128)
===== ===== ===== =====
Net liabilities...................................... (842) (1,016) (1,146) (1,211)
</TABLE>
COMBINED STATEMENT OF CASH FLOWS AND OTHER DATA(1)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER
YEAR ENDED MARCH 31, 30,
-------------------- ------------
1995 1996 1997 1996 1997
---- ---- ---- ---- ----
$MILLIONS
<S> <C> <C> <C> <C> <C>
Cash paid in respect of interest(3)(4)................... 303 323 265 131 126
EBITDA(6)................................................ 440 514 483 235 243
Net cash provided by operating activities (after payment
of interest)........................................... 177 216 224 148 106
Net cash (used in)/provided by investing activities...... (23) 13 19 8 19
Net cash (used in) financing activities.................. (154) (144) (238) (127) (115)
----- ----- ----- ----- -----
Net movements in cash.................................... NIL 85 5 29 10
===== ===== ===== ===== =====
</TABLE>
27
<PAGE> 29
SELECTED RATIOS(1)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER
YEAR ENDED 31, 30,
-------------------- ------------
1995 1996 1997 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Deficiency of Combined Earnings to Combined Fixed
Charges(7) ($ millions)................................ (125) (69) (140) (63) (66)
EBITDA(6) to cash paid in respect of interest(3)(4)...... 1.45 1.59 1.82 1.79 1.93
Indebtedness, less the Class E Note Portion, to
EBITDA(3)(6)(8) (interim period EBITDA amounts
annualized)............................................ 8.85 7.87 7.88 8.33 7.60
</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) For all periods and dates prior to March 28, 1996, net interest expense,
indebtedness and cash paid in respect of interest have been based on certain
assumptions as described more fully in Note 2 to the Financial Statements.
For all periods and dates since March 28, 1996, net interest expense,
indebtedness and cash paid in respect of interest have reflected the actual
terms of the Existing Notes and Airplanes Group's Class E Notes.
(4) Net interest expense is significantly higher than cash paid in respect of
interest in all periods reflecting the high interest rate accruing on the
Class E Notes (20% adjusted for inflation) relative to the lower amount of
cash interest payable on the Class E Notes for so long as the Notes remain
outstanding. Net interest expense is stated after crediting interest income
of $9 million in 1995, $8 million in 1996, $17 million in 1997, $8 million
in the six months ended September 30, 1996 and $8 million in the six months
ended September 30, 1997.
(5) A lease agreement is deemed to be "loss making" in circumstances where the
contracted rental payments are insufficient to cover depreciation and
interest attributable to the Aircraft plus certain direct costs attributable
to the lease over its term. Following the adoption of SFAS 121 "Accounting
for the Impairment of Long Lived Assets and 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. See Note 4(b) to the Financial
Statements.
(6) 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.
(7) 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.
(8) 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 15% of Airplanes
Group's indebtedness.
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RISK FACTORS
The following summarizes certain risks involved in an investment in the
1998 Refinancing Certificates which may materially affect the ability of
Airplanes Limited and Airplanes Trust to pay the interest, principal of, and
premium, if any, on the 1998 Refinancing Notes (and hence, the ability of each
1998 Refinancing Trust to pay interest, principal and premium, if any, on the
1998 Refinancing Certificates) in full at or before their respective Final
Maturity Dates. Investors should read and carefully consider, among other
things, the following factors in connection with the purchase of the 1998
Refinancing Certificates.
There can be no assurance that rental payments under the Existing Leases
will be adequate to pay the interest, principal and premium, if any, on the 1998
Refinancing Notes in accordance with their terms.
RISKS RELATING TO AIRPLANES GROUP AND CERTAIN THIRD PARTIES
LIMITED RESOURCES OF EACH 1998 REFINANCING TRUST
The 1998 Refinancing Notes and the 1998 Refinancing Guarantees are solely
obligations of Airplanes Limited and Airplanes Trust. The 1998 Refinancing
Trusts do not have, nor are they expected to have, any significant assets or
sources of funds other than the applicable subclass of 1998 Refinancing Notes
and the related 1998 Refinancing Guarantees. Neither the 1998 Refinancing
Certificates nor the 1998 Refinancing Notes are obligations of, guaranteed by,
or offered for sale by, the Trustee, the Indenture Trustees, GPA Group or any
affiliate of the foregoing. Furthermore, neither the 1998 Refinancing
Certificates nor the 1998 Refinancing Notes are obligations of, or guaranteed
by, or offered for sale 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
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 the
Accounts. Accordingly, Airplanes Limited's and Airplanes Trust's ability to make
payments on the Notes will 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 exceed expectations, or to the extent that
unforeseen and significant tax liabilities arise, 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, 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,
will be primarily dependent upon the receipt of payments under the Leases and,
in the case of each of the Subclass A-2, A-3, A-4 and A-6 Notes, the ability of
Airplanes Group to refinance the Outstanding Principal Balance of such Notes by
issuing Refinancing Notes. See "Risk Factors -- Risks Relating to the Capital
Markets -- Refinancing of Certain Certificates". Receipt of sufficient payments
under the Leases will depend upon a number of factors, including without
limitation (i) the timing of receipt of 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. See "-- Risks Relating to Payments on the
Certificates".
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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 certain of the Existing Leases were acquired in the
Acquisition through Airplanes Group's purchase of the Transferred Companies.
Prior to the sale of the Transferred Companies in March 1996, 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 were 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 is an
amount approximately equal to the purchase price (the "PURCHASE PRICE") paid in
the Acquisition. In addition, the representations and warranties of GPA
contained in the Stock Purchase Agreements will only survive until March 28,
1999.
AeroUSA and its wholly owned subsidiary, AeroUSA 3 Inc., a Connecticut
corporation, ("AEROUSA 3"), 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 taxes previously reported by the
GPA U.S. Tax Group. GPA Group believes that none of these audits will have a
material adverse impact upon the results of operations, financial condition or
liquidity of AeroUSA or AeroUSA 3. AeroUSA, Airplanes Trust, GPA, Inc. and GPA
Group 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"), 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 beginning on
or after March 28, 1996 and are Tax Liabilities that AeroUSA or AeroUSA 3 would
not have incurred if they were not 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 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 as a result of a tax asset generated by AeroUSA or AeroUSA 3, then GPA
Group will pay to AeroUSA, at the time such tax savings are realized, an amount
equal to the difference between the actual taxes paid for such tax period and
the amount of taxes that would have been payable in the absence of such tax
asset. With respect to a liability of AeroUSA described in clause (i) of the
preceding sentence, AeroUSA will pay such amounts to GPA, Inc. in cash only to
the extent that payments due to taxing authorities are attributable to the
Stand-alone Tax Liability of AeroUSA and AeroUSA 3; the remainder of any amounts
payable to GPA, Inc. described in clause (i) will be paid in the form of
subordinated, non-interest paying AeroUSA notes. Tax warranties of GPA and the
indemnity of GPA
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for Tax Liabilities related to any tax period or portion thereof prior to March
28, 1996 will 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, investors should recognize that 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.
See "Risk Factors -- Risks Relating to the Financial Condition of GPA".
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. See
"Management of the Aircraft -- Corporate Management", "Description of Securities
- -- The Notes and the Guarantees -- Trust Indenture Covenants" and "-- Note
Events of Default and Remedies".
Because Airplanes Group neither has nor will have executive management
resources of its own (although Airplanes Limited has a Board of Directors and
Airplanes Trust has a Board of Controlling Trustees), 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 ratings 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.
Accordingly, no investor should purchase 1998 Refinancing Certificates
unless such investor accepts the terms upon which the various services are to be
provided by the Servicer, the Administrative Agent and the Cash Manager pursuant
to the Servicing Agreement, the Administrative Agency Agreement and the Cash
Management Agreement, respectively. See "Management of Airplanes Group --
Corporate Management".
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. See "Risk Factors -- Risks
Relating to the Financial Condition of GPA" and "Risk Factors -- Risks Relating
to Tax" and "Management of Airplanes Group -- The Servicer".
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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. 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. Under the terms of the
Servicing Agreement, the Servicer is not obliged to disclose conflicts of
interest. Therefore, Airplanes Group will not always be aware of all conflicts
of interest involving the Servicer. Such conflicts may be particularly acute in
situations involving GE Capital or its affiliates or investment vehicles
sponsored by GE Capital or its affiliates (collectively, "GE GROUP"). Under
certain of GECAS's aircraft servicing arrangements (including the ALPS 94-1
Servicing Agreement), such conflicts will not entitle the entities to whom GECAS
provides services to replace GECAS as servicer except in certain limited
circumstances.
As of September 30, 1997, the portfolio of aircraft managed by GECAS and
its affiliates (the "GECAS MANAGED PORTFOLIO") comprised approximately 827
aircraft. At such date, the owned portfolio of GE Group was comprised of 455
aircraft or 55% of the GECAS Managed Portfolio. GECAS announced in early 1996 it
had entered into a multi-year order for five Boeing 777's and 102 Boeing 737 jet
aircraft, and options for 76 Boeing 737 jet aircraft of which 13 Boeing 737 jet
aircraft were purchased in the period up to September 30, 1997. Under the
agreement with Boeing, GECAS also may purchase up to a further 76 Boeing 737 jet
aircraft. In addition, in the same period GECAS purchased nine Boeing 737 jet
aircraft, which were not included in the order announced in 1996. On July 15,
1996, GECAS entered into an order for a combination of 40 A319, A320 or A321
aircraft and five A340 aircraft, and options for a further 40 A319, A320 or A321
aircraft and five A340 aircraft. The first aircraft under this Airbus order was
delivered 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 the 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. Particularly acute conflicts of interest
may arise when a lessee in financial distress needs to release some of its
aircraft and its fleet consists of a mixture of GE Capital-owned aircraft and GE
Capital-managed aircraft.
GECAS acts as servicer of 86 Stage 3 and six Stage 2 aircraft (as of
September 30, 1997) that are owned or leased-in by GPA or its affiliates
pursuant to an amended and restated management agreement between GECAS and GPA
dated as of 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.
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").
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Under certain limited circumstances in which a conflict of interest arises
with respect to a particular Aircraft or Lease that requires, in the good faith
opinion of the Servicer, an arm's-length negotiation between the Servicer or any
of its affiliates and Airplanes Group, the Servicing Agreement provides that the
Servicer shall be entitled to withdraw from acting as Servicer with respect to
such Aircraft or Lease in connection with the negotiation of the issue giving
rise to such conflict of interest and Airplanes Group shall be entitled to
appoint an independent representative to act on behalf of Airplanes Group with
respect to such negotiation. The Servicer shall be entitled to act on behalf of
itself or any of its affiliates with respect to such negotiation. In the event
that the Servicer reasonably determines that certain services required to be
carried out under the Servicing Agreement would place the Servicer in a conflict
of interest such that the Servicer could not, in its good faith opinion, perform
its obligations within the requirements of the Servicing Agreement, the Servicer
may resign as Servicer for all Aircraft, or, at its election, for any affected
Aircraft, such resignation to become effective upon the appointment of a
replacement servicer.
LIMITATION OF LIABILITY ON THE PART OF THE SERVICER
Pursuant to the Servicing Agreement, the Servicer and its affiliates are
not liable or accountable to any person, other than Airplanes Limited, AeroUSA
and Holding Co. to the limited extent described below, under any circumstances,
for any liabilities, obligations, losses, damages, penalties, taxes, suits,
judgments, costs, fees, expenses and disbursements directly or indirectly
arising out of, in connection with or related to, the management by the Servicer
of the Aircraft or other aircraft assets ("LOSSES"), and Airplanes Limited,
AeroUSA and Holding Co. shall 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 original offering of the Existing Notes and
related transactions in March 1996. 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 or any 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 the Maintenance Reserves or Security Deposits relating to the
Aircraft, (vi) the terms and conditions of the Notes or any notes issued in
refinancings (the "REFINANCING 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 and (viii) the structuring or implementation
of any aspect of the various transactions contemplated in this Prospectus.
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 Group. 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
September 30, 1997, GPA owned
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and leased-in a significant fleet of 86 Stage 3 aircraft and six Stage 2
aircraft. Of the 86 Stage 3 aircraft, 26 aircraft are leased-in.
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. 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 re-lease or sell
Aircraft.
Pursuant to the Administrative Agency Agreement, GPA Financial is
obligated, in performing its services as Administrative Agent, to devote the
same amount of time and attention and is 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, and have in the past been, represented
by the same Jersey and United States legal counsel, and it is anticipated that
such multiple representation will continue in the future. 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. 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.
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CYCLICALITY OF SUPPLY OF AND DEMAND FOR AIRCRAFT
The aircraft leasing market in general is affected by various factors that
are not within the control of Airplanes Group such as interest rates, the
availability of credit and other general economic conditions; manufacturer
production levels and price discounting; passenger demand; retirement and
obsolescence of aircraft models; re-introduction 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 the
relatively strong demand currently prevailing for aircraft on operating lease 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 ATR 42-300s, remains
problematic in respect of both the lease rates achievable and used aircraft
values.
In addition to the general factors discussed above, the values of specific
aircraft types will also be affected by developments not within the control of
Airplanes Group such as manufacturers exiting the industry or ceasing to produce
certain aircraft types in the Portfolio and the introduction by manufacturers of
new and more efficient aircraft that compete directly with aircraft types in the
Portfolio, particularly if such new aircraft types are introduced at discounted
prices.
The recent bankruptcy of Fokker N.V. and the discontinuation of its
aircraft manufacturing operations have resulted in significant reductions of
values and lease rates for Fokker aircraft, which reductions may continue. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Six Months Ended September 30, 1997
Compared with Six Months Ended September 30, 1996." Uncertainty as to the
long-term marketability for lease or sale of Fokker 100 aircraft generally is
expected to lead to further reductions in value for this aircraft type, which
could be significant. Approximately 7.17% of the Aircraft in the Portfolio by
Appraised Value are Fokker 100s. Also, the merger between Boeing and McDonnell
Douglas Corporation may adversely affect the value of aircraft manufactured by
McDonnell Douglas Corporation and lease rates that Airplanes Group is able to
obtain on those aircraft. Boeing has announced that it will cease production of
MD83 aircraft in 1999. Approximately 18.41% of the Aircraft in the Portfolio are
MD11s and MD83s.
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 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. These developments have
resulted in decreases in the prices of new aircraft when adjusted for inflation.
Boeing has introduced a new series of B737 aircraft at attractive prices and
Airbus has continued to offer A320, A319 and A321 aircraft at competitive
prices. This price discounting is the primary cause of declines in the value of
existing A320 aircraft and B737-300/400 and 500 series aircraft. A320-200 and
B737-300/400 and 500 Aircraft represented 35.63% of the Portfolio by Appraised
Value at September 30, 1997. Depending on the extent to which cost savings
continue to be 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.
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<PAGE> 37
RISKS RELATING TO THE PURCHASE PRICE AND DECLINE IN AIRCRAFT VALUES
The Purchase Price paid by Airplanes Group to GPA 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)
(the "INITIAL APPRAISED VALUE") of the Aircraft which assumed an open,
unrestricted "stable market environment with a reasonable balance of supply and
demand" and certain other factors set out in the definition of Base Value above.
Base Values of aircraft are often greater, and often substantially greater than,
the current market values of such aircraft. 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.
The value of specific aircraft will depend on the factors identified above
under "-- Cyclicality of Supply of and Demand for Aircraft" as well as on a
number of other factors that are not within the control of Airplanes Group, such
as market and economic condition of the aircraft, the particular maintenance and
operating history of the aircraft, the number of operators using each type of
aircraft, the supply of each type of aircraft 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 the commercial aviation market, or from the
maintenance and spare parts markets, or by unexpected manufacturing defects that
may surface.
Airplanes Group obtained updated appraisals of the Aircraft from the
Appraisers as of February 25, 1997. On the basis of these three updated
appraisals, the average appraised Base Value of the Aircraft in the Portfolio at
March 31, 1997 was approximately $4,207 million compared with $4,527 million as
of October 31, 1995. 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.
Updated appraisals of the Aircraft will next be obtained by Airplanes Group
in late January 1998. On the basis of developments in aircraft values since the
date of the last appraisal in February, 1997, it is expected that the average
appraised Base Value of the Aircraft in the Portfolio next January will again
show a greater decrease than that assumed by the Notes' aircraft depreciation
schedules. With a few exceptions, greater than assumed decreases are anticipated
across the Portfolio with significant impacts resulting from decreases in values
of Fokker 100s, DC8s, and, to a lesser extent, MD11s and MD83s. These greater
than assumed decreases are anticipated due primarily, in the case of the Fokker
100s, to Fokker exiting the industry, and in the case of the MD11s and MD83s, to
the Boeing/McDonnell Douglas merger. The value of Airplanes Group's DC8
freighter Aircraft is expected to suffer greater than anticipated declines due
in part to increasing competition from A300 aircraft that have been converted to
freighter configuration. Airplanes Group also expects its four B767-300ER
Aircraft to suffer greater than assumed decreases in value due in part to the
competition this aircraft type now faces from the relatively new A330-200
aircraft. Finally, greater than assumed decreases are also anticipated with
respect to the values of A320-200s and B737-300/400/500s due primarily to
continued price discounting by Boeing and Airbus.
Any reduction in Aircraft values may adversely affect Airplanes Group's
ability to maintain the current rental rates and may adversely affect its
ability to make payments on the Notes.
RISKS RELATING TO THE EXERCISE OF PURCHASE OPTIONS
As of September 30, 1997, six Lessees with respect to 22 Aircraft,
representing approximately 8.6% of the Portfolio by Appraised Value, have
options to purchase Aircraft at prices below either estimated fair market value
or Airplanes Group's estimated net book value at the option exercise date. (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 Appraised Value of each Aircraft as determined as of February 25,
1997).
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<PAGE> 38
Of these options, one Lessee with respect to two Aircraft, representing
approximately 0.8% of the Portfolio, has rights to purchase Aircraft at prices
below Airplanes Group's estimated net book value at the option exercise date.
In the event that a significant number of options to purchase Aircraft are
exercised at prices below estimated fair market value or Airplanes Group's
estimated net book value at the option exercise date, the amount and timing of
principal payments to certain Certificateholders and the average lives of the
Certificates may be adversely affected.
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
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 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 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. At September 30, 1997, Airplanes Group had sold one
Aircraft with an Appraised Value of $18 million pursuant to such provisions in
the Trust Indentures. See "Description of Securities -- The Notes and the
Guarantees -- Trust Indenture Covenants".
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 Existing Leases, the relevant Lessees are responsible
for, and are 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
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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 "Description of Securities -- The Notes and the
Guarantees -- Trust Indenture Covenants".
AIRCRAFT TYPE CONCENTRATIONS
At September 30, 1997, three aircraft types contained in the Portfolio each
represented over 10% of the Portfolio by Appraised Value: Boeing 737-400s
constituted 14.36%, McDonnell Douglas MD83s constituted 12.36% and McDonnell
Douglas DC8-71Fs constituted 10.93% (however, after giving effect to the sale of
six DC8-71F Aircraft to Emery as if such sales had occurred prior to September
30, 1997, DC8-71F Aircraft would have represented 8.7% of the Portfolio by
Appraised Value). Also, at September 30, 1997, narrowbody Aircraft (excluding
turboprops) constituted 77.5% of the Portfolio by Appraised Value.
At September 30, 1997, 18 Aircraft or 17.39% of the Portfolio by Appraised
Value, were widebody aircraft. These widebody Aircraft include four B767-300ERs
(6.52% of the Portfolio by Appraised Value), three MD11s (6.05% of the Portfolio
by Appraised Value), one B767-200ER (1.37% of the Portfolio by Appraised Value),
one B747-200 (0.83% of the Portfolio by Appraised Value), two DC10-30Fs (0.75%
of the Portfolio by Appraised Value), two A300-B4-200s (0.60% of the Portfolio
by Appraised Value), three A300-B4-100s (0.47% of the Portfolio by Appraised
Value), one DC10-30 (0.43% of the Portfolio by Appraised Value) and one
A300-C4-200 (0.37% of the Portfolio by Appraised Value). The rental rates
obtained by Airplanes Group from a new Lessee in respect of the three MD-11
aircraft have recently been reduced by approximately one-third as compared with
the prior Leases. See "-- Risks Relating to the Leases -- Factors Affecting
Rental Rates." Of the four Aircraft off-lease as of September 30, 1997, one is
an A300-B4-100, one is an A300-C4-200 and one is a DC10-30 which was sold on
November 10, 1997.
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
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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 (whether or 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 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 September 30, 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 now considering tightening noise and emissions certification
requirements for newly manufactured aircraft.
RISKS RELATING TO THE LEASES
OPERATING LEASES
Most of the Existing 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. Eleven 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 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 Payments
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 Payments and such terms, may be adversely affected by, inter alia,
restrictions imposed by the Trust Indentures, the economic condition of the
airline industry, the supply of competing aircraft, other matters affecting the
demand for particular aircraft types and competition from lessors offering
leases on more favorable terms than Airplanes Group.
The expected number of Aircraft that Airplanes Group must place with
Lessees through December 31, 2002 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 Existing Lease terms before
December 31, 2002, less the aggregate of (a) Aircraft which are currently the
subject of a Lease extending through December 31, 2002, (b) Aircraft which are
the subject of a non-binding letter of intent to sell or lease and (c) any
Aircraft sold prior to December 31, 2002. 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 September 30, 1997 through the year 2002 are shown in the
following table:
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AIRPLANES GROUP LEASE PLACEMENT REQUIREMENT AT SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Aircraft available for marketing(1)..................... 4 -- -- -- --
Contracted Lease expirations (including expirations of
Leases that are assumed to result from letters of
intent)(2)............................................ 77 33 48 30 29
Less Aircraft subject to contract or letter of
intent(2)(3).......................................... (23) -- (2) (5) (2)
-- -- -- --
---
Placement requirement(4)(5)............................. 58 33 46 25 27
=== == == == ==
</TABLE>
- ---------------
(1) Aircraft available for marketing consist of those Aircraft which were not in
revenue service with Lessees as of September 30, 1997.
(2) Excluded from these Aircraft are six F100s on lease to Transportes Aereos
Regionais S.A. ("TAM"), because the Leases were extended subsequent to
September 30, 1997 and one DC-10 Aircraft which was sold on November 10,
1997.
(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 September 30, 1997, the subject of an additional
agreement or letter of intent need to be re-leased only once more before the
year 2002. See "Risks Relating to the Lessees -- Lessee Default" below.
(5) Assumes that no Existing Lease entered into by Airplanes Group terminates
prematurely and that there are no sales of Aircraft. See "Risks Relating to
the Lessees -- Lease Termination and Aircraft Repossession" below.
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. See "Risk Factors -- Risks Relating to
Airplanes Group and Certain Third Parties."
REQUIREMENT FOR CERTAIN LICENSES AND APPROVALS
A number of Leases require specific licenses, consents or approvals for
different aspects of the Leases. These include consents from governmental or
regulatory authorities to certain payments under the Leases and to the import,
re-export or de-registration of the Aircraft. No assurance can be given that
such requirements may not be increased by subsequent changes in applicable law
or administrative practice or that a consent, once given, will not be withdrawn.
Furthermore, consents needed in connection with future re-leasing or sale of an
Aircraft may not be forthcoming. Any such event could have an adverse impact on
Airplanes Group's ability to re-lease or sell Aircraft.
FACTORS AFFECTING RENTAL RATES
Future rental rates and the ability to re-lease Aircraft worldwide all
depend upon a number of factors that are not within the control of Airplanes
Group. See "-- Risks Relating to the Aircraft -- Cyclicality of Supply of and
Demand for Aircraft; Risks Relating to the Purchase Price and Decline in
Aircraft Values" and "-- Funding of Maintenance Reserves". Each of the
bankruptcy of Fokker N.V., the manufacturer of 7.1% of the Aircraft by Appraised
Value, and the merger between Boeing and McDonnell Douglas Corporation
(McDonnell Douglas Corporation is the manufacturer of 33.8% of the Aircraft by
Appraised Value), has adversely affected the rental rates that Airplanes Group
is able to obtain on Aircraft manufactured by Fokker N.V. and McDonnell Douglas
Corporation, 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
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Varig, S.A. ("VARIG") in 1997 in respect of 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 cash flows. In addition, the rental rates obtained by
Airplanes Group from TAM in October 1997 in respect of six Fokker 100 Aircraft
are approximately 24% lower than the contracted rentals under the previous lease
agreements for these Aircraft and this will also 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 bear 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 September 30, 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.
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
payments by lessees and other cash received by Airplanes Group will not be
significantly less than projected. Actual maintenance 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 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 the Existing 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
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<PAGE> 43
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 canceled 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 Existing 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.
RISKS RELATING TO WITHHOLDING TAX
Airplanes Group endeavors to structure its Leases in such a way that either
no withholding taxes will be applicable to payments by the Lessees under the
Leases, or (in the event of such taxes being or becoming applicable) the Lessees
will be obliged to pay corresponding additional amounts. However, there can be
no assurances that Leases to which Airplanes Group may become a party as a
result of re-leasing the Aircraft will not result in the imposition of
withholding or other taxes in circumstances where the Lessee has not agreed to,
or is unable to, pay compensatory additional amounts.
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 September 30, 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 (net of default interest and certain
cash in transit) amounted to approximately $20.1 million in respect of 30
Lessees who had a combined total of 83 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 have recently experienced
or are currently experiencing financial difficulties. The Servicer, on behalf of
Airplanes Group, entered into restructuring agreements with three of these
Lessees which account for $6.6 million of the $20.1 million outstanding for a
period greater than 30 days. Twenty-seven Lessees account for the remaining
$13.5 million overdue and recovery of these amounts is being actively pursued.
In addition to these amounts four further Lessees were being allowed formal
deferrals of rent, maintenance and miscellaneous payments totaling $20.8 million
at September 30, 1997. See "The Aircraft, Related Leases and Collateral -- The
Lessees".
There can be no assurance that more Lessees will not become in arrears or
in default for any reason.
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<PAGE> 44
LESSEE CONCENTRATIONS
Latin American Concentration
At September 30, 1997, the Lessees with respect to 33.8% 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.
The economy of the Latin American region as a whole and of particular Latin
American countries may be materially affected by developments in other countries
in Latin America and also by developments in countries in other regions of the
world that are perceived to demonstrate similar "emerging market"
characteristics. For example, in December 1994 a decrease in capital inflow to
Mexico coupled with a large current account deficit led to diminishing foreign
exchange reserves which ultimately forced Mexico to allow the peso to float
freely. The subsequent devaluation of the peso led to a currency crisis in
Mexico which dampened investor confidence and resulted in lower levels of
foreign investment in Latin America in general. More recently, Brazil has
experienced significant downturns in its financial markets, with large decreases
in Brazilian financial asset prices and considerable pressure for a devaluation
of the Brazilian currency. The loss of confidence in the Brazilian markets and
currency has been associated with the economic crises currently affecting
"emerging markets" in Asia. See "-- Asia Pacific Concentration" below. The
Brazilian government has responded to these pressures with a series of austerity
measures including increased interest rates, public spending cuts and tax
increases. This has led to widespread expectations that economic growth in
Brazil will be significantly reduced through at least 1998 with the real
possibility of a recession that would adversely affect the operations of
Airplanes Group's Brazilian customers.
Airplanes Group has entered into rent deferral and restructuring
arrangements with certain significant Brazilian and Mexican Lessees who have
experienced difficulties due to overcapacity and adverse market conditions. See
"The Aircraft, Related Leases and Collateral -- The Lessees -- Latin America."
North American Concentration
At September 30, 1997, Airplanes Group leased 49 Aircraft representing
approximately 19.0% of its Portfolio by Appraised Value, to operators in North
America. 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 labor 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.
Airplanes Group has entered into rent deferral and restructuring
arrangements with certain significant North American lessees. See "The Aircraft,
Related Leases and Collateral -- The Lessees -- North America."
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Asian Concentration
At September 30, 1997, Airplanes Group leased 20 Aircraft representing
approximately 9.9% of its Portfolio by Appraised Value, to operators in Asia.
Trading conditions in the civil aviation industry in Asia have been adversely
affected by the severe economic and financial difficulties experienced recently
in the region. The economies of Indonesia, Thailand, Korea and Malaysia have
experienced particularly acute difficulties resulting in many business failures,
significant depreciation of local currencies against the dollar (the currency in
which Lease payments are payable), sovereign and corporate credit ratings
downgrades and internationally organized financial stability measures. This
downturn in the region's economies is likely to undermine business confidence
and may have an adverse impact on the results of operations of Airplanes Group's
lessees in the region and consequently on Airplanes Group's revenues and cash
flows.
One Indonesian lessee was already experiencing financial difficulties prior
to the current regional economic difficulties and is currently in arrears in its
payment obligations which had been restructured in December 1996. See "The
Aircraft, Related Leases and Collateral -- The Lessees -- Asia."
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.
Airplanes Group 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
releasing 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 ("SWAP AGREEMENTS").
RISKS RELATING TO PAYMENTS ON THE 1998 REFINANCING CERTIFICATES
FACTORS AFFECTING THE AMOUNT AND TIMING OF PAYMENTS UNDER THE 1998
REFINANCING 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
1998 Refinancing Notes and, accordingly, the 1998 Refinancing Certificates, and
may
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therefore affect the yield on the 1998 Refinancing 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 1998 Refinancing
Certificates. The exercise of 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. See "Description of the Securities -- The
Certificates".
CASH FLOW FROM AIRCRAFT AND LEASES NOT PREDICTABLE; FAILURE OF ACTUAL
EXPERIENCE TO MATCH THE ASSUMPTIONS
The expected repayment of the 1998 Refinancing Notes described in this
Prospectus was arrived at on the basis of the Assumptions. It is highly unlikely
that the Assumptions will be consistent with Airplanes Group's experience for
numerous reasons. Any inability of Airplanes Group to find financially able and
willing Lessees of the Aircraft at acceptable rental rates will affect the
timing and amount of proceeds realized from Leases of Aircraft. In addition,
other economic and political factors, such as prevailing interest rates and the
availability of credit and market demand for aircraft rentals cannot be assured.
Rental Payments, insurance recoveries, maintenance reserve payments, expenses
and liabilities will often be dependent upon the actions of third parties, which
are difficult to predict and are generally not within Airplanes Group's control.
Accordingly, collections and other realizations with respect to certain Leases
and Aircraft could occur at substantially different times and levels than
anticipated and may not occur at all. As a result, there can be no assurance
that Airplanes Group will be able to repay the initial Outstanding Principal
Balance on the 1998 Refinancing Notes or any other class or subclass of the
Notes.
SUBORDINATION PROVISIONS
The Expenses and certain other payments will be senior in priority of
payment to the 1998 Refinancing Notes and will be paid out of funds on deposit
in the Collection Account before any payments are made on the 1998 Refinancing
Notes.
EARLY REDEMPTION AND DEFEASANCE
Each subclass of the 1998 Refinancing Notes, and the corresponding 1998
Refinancing Certificates, may be redeemed on any Payment Date, 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 with such subclass of the 1998 Refinancing Notes to be
redeemed on such Payment Date. In addition, each subclass of the 1998
Refinancing Notes may be redeemed in whole but not in part on any Payment Date,
without premium, upon the occurrence of certain adverse tax events affecting
Airplanes Group. Finally, each subclass of the 1998 Refinancing Notes may be
redeemed or defeased, in whole, at the applicable Redemption Price plus accrued
and unpaid interest, 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. See "Description of Securities -- The Notes and the Guarantees --
Redemption" and "Description of Securities -- The Notes and the Guarantees --
Defeasance".
RISKS RELATING TO THE CAPITAL MARKETS
ABSENCE OF PUBLIC MARKET
There is currently no market for the 1998 Refinancing Certificates. The
Underwriters have advised Airplanes Group that they currently intend to make a
market in the 1998 Refinancing Certificates but they are under no obligation to
do so. Accordingly, there can be no assurance that a secondary market will
develop or, if a secondary market does develop, that it will provide 1998
Refinancing Certificateholders with liquidity of investment or that it will
continue.
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REFINANCING OF CERTAIN CERTIFICATES
The Subclass A-2, A-3, A-4 and A-6 Certificates and the corresponding
subclasses of Notes are expected to reach their Expected Final Payment Dates
before Airplanes Group has received sufficient Available Collections to pay all
of the principal on such Notes and the corresponding Certificates. Airplanes
Group will attempt to refinance each of the Subclass A-2, A-3, A-4 and A-6
Certificates with the net cash proceeds realized from public offerings and sales
by a trust of 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-2, A-3,
A-4 or A-6 Certificates. This may 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 and Subclass A-7
Certificates as a result of the need to make principal payments on the Subclass
A-2, A-3, A-4 or A-6 Certificates.
CERTAIN BANKRUPTCY CONSIDERATIONS
IRISH BANKRUPTCY CONSIDERATIONS
Airplanes Group has taken steps to ensure that the assets and liabilities
of Airplanes Group are not consolidated with those of GPA in the event that GPA
were to become either voluntarily or involuntarily the subject of an application
for relief under applicable bankruptcy or insolvency laws. These steps include
(a) the creation of Airplanes Limited and Airplanes Trust as separate legal
entities outside Ireland, (b) the requirement that GPA hold none of Airplanes
Limited's issued equity or voting share capital other than 5% of the capital
stock of Holding Co. and not control the composition of the Board of Directors
of either of them (prior to any exercise by GE Capital of its option), and (c)
the inclusion in various transaction documents of provisions requiring that the
business and affairs of each member of Airplanes Group be at all times
identifiable and separate from and managed and controlled apart from and
independently of GPA.
Subject to certain qualifications and reservations and based on certain
assumptions set forth in an opinion issued to Airplanes Group by McCann
FitzGerald, Irish counsel have concluded that (a) in any examination of GPA
Group or any of its affiliates prior to any exercise by GE Capital of its option
to acquire at least 90% of GPA Group's ordinary share capital, an Irish examiner
would not be able to contend successfully that an examiner should be appointed
to any member of Airplanes Group on the grounds that, after the 1996 Closing
Date, such member is a "related company" of GPA Group or such affiliate, and (b)
an Irish court should not, prior to any exercise by GE Capital of such option,
treat GPA or any of its affiliates, on the one hand, and any member of Airplanes
Group, on the other, as a single entity in any winding up of GPA Group or such
affiliate and order (i) the pooling of any of the assets and liabilities of any
member of Airplanes Group with those of GPA or (ii) the contribution of any of
the assets of any member of Airplanes Group to the repayment of the debts of
GPA.
There can be no assurance, however, that the circumstances and assumptions
upon which counsel will base their opinion will not change, that a court of
competent jurisdiction would not decide differently from the views expressed in
such counsel's opinions or that such opinions will prove to be correct. Such
opinions represent only the best judgment of counsel and are not binding on the
courts. In particular, such opinions depend on certain factual assumptions and
the existence of different facts could lead a court to reach a different
conclusion.
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U.S. BANKRUPTCY CONSIDERATIONS
If GPA, Inc. were to become a debtor in a proceeding under the U.S.
Bankruptcy Code and a creditor or trustee-in-bankruptcy of such debtor or such
debtor itself were to request a court to order that the assets and liabilities
of GPA, Inc. should be substantively consolidated with those of Airplanes Trust,
AeroUSA or AeroUSA 3, delays in payments on the Notes (and consequently on the
Certificates) could result. Should the bankruptcy court rule in favor of any
such creditor, trustee-in-bankruptcy or such debtor, such court could
substantively consolidate Airplanes Trust, AeroUSA and/or AeroUSA 3 with GPA,
Inc. or otherwise consider the AeroUSA Shares to be part of GPA, Inc.'s estate
or take other actions that would be adverse to the Certificateholders and that
could result in reductions in payments on the Certificates.
Davis Polk & Wardwell will deliver a reasoned opinion to GPA Group and
Airplanes Group to the effect that, based on various assumptions and
qualifications set forth in the opinion, notwithstanding the fact that there is
no case law directly on point and accordingly the issue is not free from doubt,
in a proceeding under the U.S. Bankruptcy Code relating to GPA, Inc., a court
properly presented with the facts and exercising reasonable discretion and
applying New York law would not grant an order consolidating the assets and
liabilities of Airplanes Trust, AeroUSA or AeroUSA 3 with those of GPA, Inc. The
assumptions and qualifications contained in this opinion include (i) an
assumption that the representations and warranties of Airplanes Trust, AeroUSA,
GPA Group, and GPA, Inc. set forth in the relevant Stock Purchase Agreement, the
Administrative Agency Agreement and the Cash Management Agreement continue to be
accurate and that the parties thereto will continue to be in compliance with
their obligations thereunder, and (ii) an assumption that the transfer of the
AeroUSA Shares did not constitute a fraudulent conveyance or other voidable
transfer under the U.S. Bankruptcy Code or other applicable state law.
There can be no assurance, however, that a court would not decide
differently from the views expressed in counsel's opinions and such opinions
represent only the best judgment of counsel and are not binding on the courts.
In particular, such opinions depend on certain factual assumptions and the
existence of different facts could lead a court to reach a different conclusion.
RISKS RELATING TO TAX
Ownership of the 1998 Refinancing 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 1998 Refinancing Certificates will depend to
some extent upon an investor's individual circumstances.
Airplanes Limited will receive an opinion of Mourant du Feu & Jeune, Jersey
tax counsel, that neither Airplanes Limited nor the 1998 Refinancing Trusts are
subject to Jersey income tax and that payments with respect to both the
Airplanes Limited 1998 Refinancing Notes and the 1998 Refinancing Certificates
will not be subject to Jersey withholding tax.
Airplanes Limited will also receive an opinion of McCann FitzGerald, Irish
tax counsel, that based on certain assumptions and subject to certain
restrictions, none of Airplanes Limited, Airplanes Trust, AeroUSA or the 1998
Refinancing Trusts are subject to Irish income tax on its income, and that
payments with respect to both the 1998 Refinancing Notes and the 1998
Refinancing Certificates will not be subject to Irish withholding tax. See "Tax
Considerations -- Irish Tax Considerations -- Irish Income and Withholding
Taxes".
Each prospective investor should be aware, however, that such opinions
represent only the best judgment of counsel and are not binding on the
applicable taxing authorities or the courts. Such opinions depend upon certain
factual assumptions and the occurrence of different facts could lead to
circumstances not anticipated by counsel. Moreover, investors should be aware
that the laws and regulations upon which an investor's treatment is based are
subject to change. In addition, 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
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Airplanes Limited, Holding Co. or the Irish tax resident Transferred Companies
to tax liabilities outside Ireland.
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 application
of the recently ratified income tax treaty 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.
Airplanes Limited, Holding Co. and the Transferred Companies, with the support
of the Irish authorities, have sought a ruling from the United States
authorities under the Treaty, to the effect that 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 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 the 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 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 32%) 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 ratings on the Certificates 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. See "Risk Factors -- Risks Relating to Tax"
and "Management of Airplanes Group -- The Servicer".
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Upon the scheduled termination of the preferential tax rate on December 31,
2005, Holding Co. and the other Irish tax resident Transferred Companies will
become subject to Irish corporate tax on their net trading income at a 12 1/2%
rate as announced by the Minister for Finance of Ireland on December 3, 1997.
According to such announcement, non-trading income will be taxed at 25%. There
can be no assurance that the announced rates will be adopted as law in Ireland
or that, if adopted, such rates will not thereafter be changed. 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.
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THE PARTIES
AIRPLANES LIMITED
Airplanes Limited is a special purpose limited liability company formed on
November 3, 1995 under the laws of Jersey 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, 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 under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Interest Rate Management", and establish and provide loans or
guarantees to, or in respect of, its subsidiaries.
Airplanes Limited has one direct subsidiary, 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 will continue to be entitled to certain corporate tax benefits for
Shannon certified companies. Airplanes Limited operates its business through its
direct and indirect subsidiaries. Airplanes Limited and its subsidiaries are
also permitted to lease Aircraft to or from, or sell Aircraft to or buy Aircraft
from, other members of Airplanes Group.
Airplanes Limited 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 the Nominees for the benefit of
the Charitable Trusts. The holders of the issued Capital Stock 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 has occurred and is continuing.
Airplanes Limited has a Board of Directors but does not have and will not
have any employees or executive officers. Accordingly, the Board relies 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 Board consists of
five members (the "DIRECTORS"), one of whom is 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. 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 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, 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, not less than 90% of the ordinary share capital of GPA Group (the
"CALL RIGHT"). If GE Capital were to exercise the Call Right 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 Call Right. If
GE Capital exercises the Call Right, it will be obliged to make an offer to all
other ordinary shareholders to purchase their ordinary shares. Alternatively, GE
Capital may make a general offer to all ordinary shareholders on or before
October 29, 2001 (a "GENERAL OFFER"). If GE Capital were to acquire 100% of the
ordinary share capital of GPA Group pursuant to the above offers, GE Capital
would pay approximately $120 million if it were to do so on or before March 31,
1998 or approximately $65 million if GE Capital were to exercise its rights in
this regard after March 31, 1998. 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 and Controlling Trustees and to appoint new Directors and
Controlling Trustees; provided that (i) GE Capital guarantees the performance by
GECAS of
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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 or Standard & Poor's,
respectively, and (iii) each of Airplanes Limited and Airplanes Trust shall
continue to have at least three Independent Directors and Independent Trustees,
as 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 and Controlling Trustees have been
appointed by the holder of a majority in aggregate principal amount of the Class
E Notes, then the Directors and Controlling Trustees 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 and the terms of
the Trust Indentures, discharge any Class E Notes not so transferred and pay,
with respect to Airplanes Limited, to the trustees of the Charitable Trusts an
amount (the "DISCOUNTED ANNUAL DIVIDEND AMOUNT") equal to the discounted present
value of the Annual Dividend Amount payable to the trustees of the Charitable
Trusts through the Final Maturity Date of the Class E Notes, plus any arrears of
the Annual Dividend Amount. See "Description of Securities -- The Notes and the
Guarantees -- Defeasance".
Neither Airplanes Limited nor any of its subsidiaries is involved in or
subject to any legal or arbitration proceedings relating to claims or amounts
which are material in the context of the issue of the 1998 Refinancing Notes nor
is Airplanes Limited aware that any such proceedings are pending or threatened.
See "-- GPA" below.
Airplanes Limited has no ownership or leasehold interest in any real
property. Airplanes Limited's registered and principal office is located at 22
Grenville Street, St. Helier, Jersey and its telephone number is
011-44-1534-609000.
AIRPLANES TRUST
Airplanes Trust is a business trust formed pursuant to the Airplanes Trust
Agreement dated November 29, 1995, as amended and restated as of March 11, 1996,
under the laws of Delaware for certain limited purposes, including acquiring,
financing, re-financing and owning the AeroUSA Shares. 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.
Airplanes Trust has one direct subsidiary, AeroUSA. AeroUSA itself has one
direct subsidiary, AeroUSA 3. The shares of AeroUSA and AeroUSA 3 are held by
separate voting trusts with First Security Bank of Utah, National Association
acting as trustee in order to satisfy regulations of the U.S. Federal Aviation
Administration regarding the U.S. citizenship of the owners of U.S.-registered
aircraft. Airplanes Trust holds voting trust certificates representing shares of
AeroUSA. Airplanes Trust operates its business through AeroUSA. AeroUSA and its
subsidiaries are also permitted to lease Aircraft to or from or sell Aircraft
to, or buy aircraft from, other members of Airplanes Group.
GPA, Inc. holds the Airplanes Trust Residual Interest in all of the
property of Airplanes Trust, including the AeroUSA Shares. Upon repayment in
full of the Airplanes Trust Notes, the Airplanes Trust Class E Notes and the
Airplanes Trust Refinancing Notes, the AeroUSA Shares will be transferred back
to GPA, Inc. pursuant to its ownership of the Airplanes Trust Residual Interest.
The trustees of Airplanes Trust consist of Wilmington Trust Company, as
Delaware Trustee, and as controlling trustees (the "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
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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 is 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, employees or consultants 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. See "-- Airplanes Limited" above. There can be
no assurance that GE Capital will elect to exercise its rights to acquire any
ordinary share capital of GPA Group.
None of Airplanes Trust, AeroUSA or AeroUSA 3 is involved in or subject to
any legal or arbitration proceedings relating to claims or amounts which are
material in the context of the issue of the 1998 Refinancing Notes nor is
Airplanes Trust, AeroUSA or AeroUSA 3 aware that any such proceedings are
pending or threatened. See "-- GPA" below.
Airplanes Trust has no ownership or leasehold interest in any real
property. 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.
THE TRUST AND TRUSTEE
Following the issue of the Subclass A-6 Certificates and the Subclass A-7
Certificates, the Trust will consist of nine separate trusts, each of which has
been organized under the laws of the State of New York pursuant to the Trust
Agreement among Airplanes Trust, Airplanes Limited and 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.
The Trust Agreement provides that Airplanes Limited and Airplanes Trust
will pay the Trustee's fees and expenses. The Trust Agreement further provides
that the Trustee is entitled to indemnification by Airplanes Limited and
Airplanes Trust for, and will be held harmless against, any loss, liability or
expenses incurred by it (other than through its own wilful misconduct, bad faith
or negligence or by reason of a breach of any of its representations or
warranties set forth in the Trust Agreement), except to the extent that such
loss, liability or expense is for or in respect of taxes, in which case the
Trustee may be entitled to be reimbursed by the Trust.
Bankers Trust Company is the Trustee for each of the Trusts. The Trustee
and any of its affiliates may hold Certificates in their own names. With certain
exceptions, the Trustee makes no representations as to the validity or
sufficiency of the Trust Agreement, the Certificates, the Notes, the Guarantees
or the Trust Indentures. Bankers Trust Company is also the Indenture Trustee
under each of the Trust Indentures pursuant to which the Notes are issued. The
Trustee and various affiliates of the Trustee have provided various services to
GPA in the past and may continue to provide services in the future.
The Trustee may resign with respect to any or all of the Trusts at any
time, in which event Airplanes Limited and Airplanes Trust will be obligated to
appoint a successor pass through trustee and/or indenture trustee. If the
Trustee ceases to be eligible to continue as a trustee with respect to the
Trusts or any class or subclass of Certificates or becomes incapable of acting
as trustee under the Trust Agreement or becomes insolvent, Airplanes Limited and
Airplanes Trust may remove the Trustee, or any Certificateholder of the
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<PAGE> 54
applicable class or subclass who has been a bona fide Certificateholder for at
least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor trustee. Any resignation or removal of the
Trustee with respect to a Trust and appointment of a successor trustee for such
Trust does not become effective until acceptance of the appointment by the
successor trustee. Pursuant to such resignation and successor trustee
provisions, it is possible that a different trustee could be appointed to act as
the successor trustee with respect to each Trust. All references in this
Prospectus to the Trustee are to the trustee acting in such capacity under each
of the Trusts and should be read to take into account the possibility that each
of the Trusts could have a different successor trustee in the event of such a
resignation or removal.
Pursuant to the Trust Indenture Act, if any class or subclass of
Certificates is outstanding and an Event of Default should occur with respect to
that class or subclass of Certificates, the existing Trustee would be required
either to resign as Trustee under the Trust Agreement with respect to such class
or subclass or to resign as Trustee under the Trust Agreement with respect to
all other classes or subclasses of Certificates within 90 days of such default
unless such default were cured, duly waived or otherwise eliminated.
As described above, each Trust corresponds to a separate class or subclass
of Certificates. Each class of Certificates has different priorities of payment
from Certificates of other classes. Each subclass of Certificates ranks pari
passu with each other subclass of the same class of Certificates, but may bear
different interest rates and may have different or potentially different
principal repayment schedules. Accordingly, Certificateholders of the Subclass
A-6 Certificates and the Subclass A-7 Certificates may have divergent or
conflicting interests from the Certificateholders of other classes or
subclasses.
GPA
INTRODUCTION
GPA Group, 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. GPA Group and its subsidiaries also hold substantially all of the Class
E Notes and, as such, are entitled to nominate one Director of Airplanes Limited
and one Controlling Trustee of Airplanes Trust. The GPA Group nominated Director
and Controlling Trustee is Edward Hansom, who is also a director of ALPS 94-1.
GPA is a significant lessor of modern commercial aircraft and is a
significant participant in the global commercial aviation industry. GPA leases
aircraft throughout the world almost exclusively by way of operating lease. At
September 30, 1997, GPA had 92 commercial aircraft in its portfolio, of which 89
were on lease to 37 lessees in 20 countries. The 66 aircraft classified as owned
by GPA include 29 aircraft leased-in pursuant to finance leases and six aircraft
leased out pursuant to finance leases. At September 30, 1997, GPA owned or
leased-in four aircraft types which represented over 10% each of its portfolio
by appraised value. Airbus A320 aircraft constituted approximately 19%, Boeing
737-400 aircraft constituted approximately 12%, B737-300 aircraft constituted
approximately 12% and Fokker 100 aircraft constituted approximately 11%.
Overall, at September 30, 1997, narrowbody aircraft (including turboprops)
constituted approximately 88% of GPA's portfolio by appraised value and Stage 3
aircraft (including turboprops) constituted approximately 97% of GPA's portfolio
by appraised value. At September 30, 1997, 33% of GPA's portfolio (by appraised
value) was on lease to North American airlines, 25% was on lease to European
based airlines, 22% was on lease to Asian airlines and 18% was on lease to Latin
American airlines. Also at September 30, 1997, approximately 36% of GPA's
portfolio was on lease to three airlines, of which approximately 15% was on
lease to one U.S. airline, approximately 11% was on lease to one Chinese airline
and approximately 10% was on lease to one Brazilian airline, in each case by
appraised value.
In addition to its remaining, owned aircraft, GPA continues to have an
interest in the aircraft owned by Airplanes Group by virtue of its deeply
subordinated investment in Airplanes Limited and Airplanes Trust. Also, because
GPA has access to certain potential benefits arising from the aircraft owned by
ALPS 94-1, GPA continues to have an interest in such aircraft.
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<PAGE> 55
The following table indicates the maturities of GPA's expected remaining
indebtedness as of September 30, 1997.
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
--------------------------------------------------
1998 1999 2000 2001 2002 THEREAFTER
---- ---- ---- ---- ---- ----------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Secured facilities.................................. 12 28 54 139 20 157
Unsecured facilities................................ -- 172 1 -- 52 3
--- --- --- --- --- ---
Total(1)............................................ 12 200 55 139 72 160
=== === === === === ===
</TABLE>
- ---------------
(1) As of September 30, 1997, GPA had cash on hand of $426.6 million ($176.3
million of which were restricted cash balances).
At September 30, 1997, GPA employed 29 people who perform those functions
for which GPA has not delegated responsibility to GECAS pursuant to the Aircraft
Servicing Agreement between GPA and GECAS (the "GPA SERVICING AGREEMENT"). GPA
continues to manage all matters related to its continuing business, operations,
assets and liabilities and the assets and liabilities of certain of its
associated companies and subsidiaries, other than matters that are expressly the
responsibility of GECAS under the GPA Servicing Agreement. Matters with respect
to which GPA did not delegate responsibility to GECAS under the GPA Servicing
Agreement include (i) monitoring GECAS' performance under the GPA Servicing
Agreement; (ii) decisions with respect to GPA's orders and options for future
aircraft deliveries; (iii) management of GPA's assets not managed by GECAS; (iv)
the management of all of GPA's liabilities; (v) all finance functions not
specifically provided by GECAS, including all matters relating to secured and
unsecured financings and managing relationships with secured and unsecured
creditors and rating agencies; (vi) all treasury functions not specifically
provided by GECAS, including cash management, approval of cash disbursements and
currency and interest rate risk management; (vii) all accounting functions not
specifically provided by GECAS, including the monitoring of cash receipts and
disbursements and accounts payable and receivable, accounting policies and
decisions, preparation of financial statements and audits thereof; (viii) all
corporate secretarial activities; (ix) all shareholder matters; (x) all legal
and regulatory matters not specifically provided by GECAS; (xi) the arrangement
and procurement of insurance other than insurance relating to the assets managed
by GECAS and certain other GPA assets; (xii) GPA employee matters; and (xiii)
adoption of annual budgets.
In 1996, GE Capital was granted the right to acquire at any time up to
October 29, 2001, not less than 90% of the ordinary share capital of GPA Group.
If GE Capital were to exercise the Call Right 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 Call Right. If GE Capital
exercises the Call Right, it will be obliged to make an offer to all other
ordinary shareholders to purchase their ordinary shares. Alternatively, GE
Capital may make a General Offer on or before October 29, 2001. If GE Capital
were to acquire 100% of the ordinary share capital of GPA Group under the Call
Right or a General Offer, GE Capital would pay approximately $120 million if it
were to do so on or before March 31, 1998 or approximately $65 million if GE
Capital were to exercise its rights in this regard after March 31, 1998.
In connection with the Call Right, GPA and GE Capital entered into an
agreement (the "GENERAL AGREEMENT") in which GPA agreed, inter alia, and subject
to certain exceptions, to various restrictions on its business and on its
ability to change its capital structure. GPA has also agreed to refrain from
taking certain other actions which have the effect of reducing the value of, or
imposing materially adverse conditions on the exercise of, the Call Right.
Additionally, under the General Agreement GPA has made comprehensive
representations and warranties and has agreed to indemnify GE Capital for losses
based on breaches of covenants, inaccuracies in representations and warranties
or for any liabilities of GPA. The General Agreement ceases upon the earlier of
exercise in full or expiry of the Call Right.
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
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<PAGE> 56
defaulted under its lease agreements 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. 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 has filed a writ of mandamus to the High Court seeking
to overturn the decision of the High Court and has sought a stay of the High
Court's decisions pending its appeals.
Seven of the thirteen aircraft which were repossessed by GPA from VASP
following the 1992 injunction and the 1993 decision are now owned by Airplanes
Group 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.
VASP sought to serve GPA with the notice requiring return of the
Repossessed Assets within thirty days of the notice. However, the High Court has
referred all matters concerning the notice to a lower court. Should VASP
commence any action before the lower court in respect of the notice, GPA has
advised Airplanes Group that it will challenge a number of matters relating to
the notice including its validity. The only immediate risk to the Repossessed
Assets would arise if they were located in Brazil and if VASP were 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.
GECAS
GECAS provides various services to Airplanes Group as Servicer under the
Servicing Agreement.
GECAS and its affiliates are the world's largest managers of commercial
aircraft. As of September 30, 1997, the GECAS Managed Portfolio consisted of
approximately 827 aircraft, which are on lease to more than 155 lessees in 56
countries throughout the world. GECAS announced in early 1996 that it had
entered into a multi-year order for five Boeing 777 and 102 Boeing 737 aircraft,
and options for 76 Boeing 737 aircraft, of which 13 Boeing 737 aircraft were
purchased in the period up to September 30, 1997. Under the agreement with
Boeing, GECAS also may purchase up to a further 76 Boeing 737 aircraft. In
addition, in the same period GECAS purchased nine Boeing 737 aircraft, which
were not included in the order announced in 1996. On July 15, 1996, GECAS
entered into an order for a combination of 40 A319, A320 and A321 aircraft and
five A340 aircraft, and options for a further 40 A319, A320 or A321 aircraft and
five A340 aircraft. The first aircraft under this order was delivered 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, taxadvantaged 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 223
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 September 30, 1997 had
121 employees.
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<PAGE> 57
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
aircraftrelated 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 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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<PAGE> 58
The table below sets forth the different aircraft comprising the GECAS
Managed Portfolio as of September 30, 1997 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 ALPS 94-1 FLEET(1) THIRD PARTIES GROUP TOTAL
- ---------------------------------------- --------- ---------- ------------- --------- -----
<S> <C> <C> <C> <C> <C>
Airbus
A300.................................. 1 19 -- 6 26
A310.................................. -- 8 -- -- 8
A320.................................. 4 14 5 12 35
Boeing
B727.................................. -- 19 2 2 23
B737-200.............................. -- 58 13 32 103
B737-300/400/500(2)................... 10 161 12 44 227
B747.................................. -- 24 1 1 26
B757-200/ER........................... 3 26 -- 3 32
B767-200ER/EM......................... -- 8 -- 1 9
B767-300ER............................ 3 26 -- 4 33
McDonnell Douglas
DC8................................... -- 9 2 28 39
DC9................................... -- 12 24 19 55
DC10.................................. -- 11 1 3 15
MD11.................................. -- 2 3 5
MD82.................................. -- 19 6 2 27
MD83.................................. 3 18 5 23 49
MD87.................................. -- -- -- 1 1
MD88.................................. -- 14 -- -- 14
Fokker
F100.................................. 3 -- 10 16 29
Other Jets.............................. -- 5 2 7
Turboprops.............................. -- 4 32 28 64
--
--- --- --- ---
Total.............................. 27 455 117 228 827
== === === === ===
Body Type:
Widebody.............................. 4 97 4 18 123
Narrowbody............................ 23 358 113 210 704
Stage Compliance:(3)
Stage 2............................... -- 89 19 53 161
Stage 3............................... 27 366 98 175 666
</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) For purposes of this table, 9 B737 aircraft have been included in the GE
Capital fleet but both GPA and GE Capital are included in the lease chain.
(3) Turboprop aircraft have been classified as Stage 3 compliant.
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<PAGE> 59
USE OF PROCEEDS
The purpose of the Underwritten Offering is to refinance Airplanes Group's
Subclass A-1 Notes. The Subclass A-1 Notes have an interest rate of LIBOR +
.25%, an expected final payment date of March 15, 1998 and a final maturity date
of March 15, 2006.
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<PAGE> 60
THE AIRCRAFT, RELATED LEASES AND COLLATERAL
THE AIRCRAFT
The assets of Airplanes Group consist principally of the Aircraft. As of
September 30, 1997 Airplanes Group owned (i) 228 Aircraft; (ii) the rights under
the related Leases; and (iii) monies on deposit in the Collection Account. As of
February 25, 1997 the Aircraft had an Appraised Value of $4,189 million. The
Appraised Value is equal to the average of the opinions of the Appraisers as to
the Base Value of each Aircraft as of February 25, 1997 without taking into
account the value of the Leases, Maintenance Reserves, Security Deposits or
other Related Collateral and on the basis of the Appraiser's assumptions
described herein.
PURCHASE OPTIONS
At September 30, 1997, Lessees with respect to 64 Aircraft have the benefit
of options to purchase Aircraft (each a "PURCHASE OPTION") at various dates
between 1997 and 2003 at prices generally at or above their estimated Appraised
Value at the exercise date. Six Lessees with respect to 22 Aircraft,
representing approximately 8.6% of the Portfolio by Appraised Value, have
options to purchase Aircraft at prices below either estimated fair market value
or Airplanes Group's estimated net book value at the option exercise date. In
addition, one Lessee exercised its option to purchase two DC10-30F Aircraft
(both Aircraft are subject to finance leases). (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 Appraised
Value of each Aircraft).
INSURANCE
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 the
Leases, the Lessees are currently obliged to indemnify against such claims
certain named parties and, in most cases, their respective successors, assigns,
shareholders, employees, affiliates and agents. Most of the Leases 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 only became known thereafter.
MAINTENANCE RESERVES
Many of the Leases require the Lessees to pay maintenance reserves or
"supplemental rent" amounts in respect of their obligation to maintain the
Aircraft. Generally, each such Lease in the Portfolio bears an associated
liability on the part of the Lessor to reimburse the Lessee for maintenance
performed on the Aircraft, engines or parts. The obligation of Airplanes Group
to Lessees with respect to maintenance is included within Expenses and thus
ranks in priority to any payments on the Notes. At September 30, 1997, Airplanes
Group recorded approximately $313 million of maintenance reserve liabilities. A
Liquidity Reserve Amount of approximately $181.8 million is currently maintained
in the Collection Account of which $80 million relates to the Maintenance
Reserve Amount. Airplanes Group and GPA Group believe that of this amount $80
million is considered necessary as the cash balance which together with
projected future maintenance payments under the Leases will 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 by Airplanes Group 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.
There can be no assurance, however, that Airplanes Group's maintenance
requirements will correspond to historical experience, or the industry's
experience overall, particularly as the Aircraft get older. Furthermore there
can be no assurance that actual maintenance payments by Lessees and other cash
received by Airplanes
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<PAGE> 61
Group will not be significantly less than projected. Actual maintenance 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 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.
APPRAISERS' REPORTS
The following summary is qualified in its entirety by reference to the
Appraisals, copies of which are filed as exhibits to the Registration Statement
of which this Prospectus is a part.
The Appraisers have provided 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 January 23, 1998, 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 in the
Portfolio as of January 23, 1998 are $ - million in the case of BK Associates,
Inc., $ - million in the case of Aircraft Information Services, Inc. and $ -
million in the case of Airclaims Limited. The aggregate Appraised Value of the
Aircraft is $ - million, which is approximately $ - 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 and the - DC8 Aircraft remaining to be delivered to
Emery have been included at their purchase price 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. See "Risk Factors -- Risks Relating to
the Aircraft -- Cyclicality of Supply of and Demand for Aircraft" and "-- Risks
Relating to the Purchase Price and Decline in Aircraft Values" and "Risk Factors
- -- Risks Relating to the Leases -- Factors Affecting Rental Rates".
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 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 Lessor has agreed to
participate in the cost of certain required modifications to the Aircraft. For a
description of general economic and industry specific factors affecting rental
rates and aircraft values, as well as certain risks associated with a Lessee's
failing to perform its obligations under a Lease, see "Risk Factors -- Risks
Relating to the Aircraft -- Cyclicality of Supply of and Demand for Aircraft"
and "-- Risks Relating to the Purchase Price and Decline in Aircraft Values" and
"Risk Factors -- Risks Relating to the Leases -- Factors Affecting Rental Rates"
and "-- Funding of Maintenance Reserves".
60
<PAGE> 62
PORTFOLIO INFORMATION
THE AIRCRAFT
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.
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 September 30, 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>
% OF PORTFOLIO
TYPE OF NUMBER OF ENGINE BY APPRAISED
MANUFACTURER AIRCRAFT AIRCRAFT BODY TYPE STAGE VALUE
- ------------ -------------- --------- ---------- ------ --------------
<S> <C> <C> <C> <C> <C>
Boeing (43.13%).................. 727-200A 2 Narrowbody 2 0.23
737-200A 30 Narrowbody 2 4.24
737-200C 2 Narrowbody 2 0.42
737-300 11 Narrowbody 3 6.12
737-400 22 Narrowbody 3 14.36
737-500 11 Narrowbody 3 5.87
747-200BC(1) 1 Widebody 3 0.83
757-200 3 Narrowbody 3 3.17
767-200ER 1 Widebody 3 1.37
767-300ER 4 Widebody 3 6.52
McDonnell Douglas (33.88)........ DC8-71F 27 Narrowbody 3 10.93
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 0.82
DC9-51 4 Narrowbody 2 0.51
DC10-30 1 Widebody 3 0.43
DC10-30F 2 Widebody 3 0.75
MD11 3 Widebody 3 6.05
MD82 2 Narrowbody 3 0.94
MD83 23 Narrowbody 3 12.36
MD87 1 Narrowbody 3 0.39
Airbus (10.72%).................. 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 9.28
Fokker (7.17%)................... F100 16 Narrowbody 3 7.17
Bombardier De Havilland
(4.32%)........................ DHC8-100 5 Turboprop 3 0.79
DHC8-102 1 Turboprop 3 0.13
DHC8-300 6 Turboprop 3 1.36
DHC8-300C 9 Turboprop 3 2.04
</TABLE>
61
<PAGE> 63
<TABLE>
<CAPTION>
% OF PORTFOLIO
TYPE OF NUMBER OF ENGINE BY APPRAISED
MANUFACTURER AIRCRAFT AIRCRAFT BODY TYPE STAGE VALUE
- ------------ -------------- --------- ---------- ------ --------------
<S> <C> <C> <C> <C> <C>
Other (0.78%).................... METRO-III 3 Turboprop 3 0.12
ATR42-300 3 Turboprop 3 0.48
ATR42-320 1 Turboprop 3 0.18
--- ------
228 100
=== ======
</TABLE>
- ---------------
(1) Currently undergoing conversion to freighter configuration.
The following table sets forth the exposure of the Portfolio to certain
individual Lessees calculated as of September 30, 1997 by reference to the
Appraised Value of the Aircraft at February 25, 1997.
<TABLE>
<CAPTION>
NUMBER OF % OF PORTFOLIO BY
LESSEE(1) AIRCRAFT APPRAISED VALUE
- --------- --------- ------------------
<S> <C> <C>
Varig........................................................... 6 7.28
Aerovias de Mexico S.A. de C.V. ("AEROMEXICO").................. 12 5.49
Canadian Airlines International Limited ("CANADIAN AIRLINES")... 13 5.40
Turk Hava Yollari A.O ("THY")................................... 7 4.45
Burlington Air Express, Inc. ("BURLINGTON AIR")................. 10 4.04
Emery Worldwide................................................. 9 3.63
Aerovias Nacionales de Colombia S.A. ("AVIANCA")................ 5 3.41
Airtours International Airways Limited ("AIRTOURS")............. 4 3.13
Compania Mexicana de Aviacion S.A. de C.V ("MEXICANA").......... 8 3.02
Transbrasil..................................................... 2 2.94
TAM............................................................. 6 2.67
Air Espana S.A. ("AIR EUROPA").................................. 4 2.34
Malev........................................................... 7 2.20
Other (64 Lessees).............................................. 131 48.89
Off-Lease(2).................................................... 4 1.11
--- ------
Total...................................................... 228 100.00
=== ======
</TABLE>
- ---------------
(1) Total number of Lessees = 77
(2) Of the four Aircraft off-lease, one is now the subject of a lease contract,
one is the subject of a non-binding letter of intent to lease and one was
the subject of a non-binding letter of intent to sell (this Aircraft was
subsequently sold on November 10, 1997).
62
<PAGE> 64
The following table sets forth the exposure of the Portfolio as of
September 30, 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>
Brazil.......................................................... 17 14.49
United States................................................... 33 12.99
Turkey.......................................................... 15 9.41
Mexico.......................................................... 28 8.70
Canada.......................................................... 16 6.05
United Kingdom.................................................. 9 4.42
Colombia........................................................ 8 4.41
Spain........................................................... 8 4.28
China........................................................... 6 3.40
Sweden.......................................................... 3 3.34
Chile........................................................... 10 2.83
Italy........................................................... 4 2.27
Ireland......................................................... 5 2.26
Other Countries (27 countries).................................. 62 20.04
Off-Lease(2).................................................... 4 1.11
--- ------
Total...................................................... 228 100.00
=== ======
</TABLE>
- ---------------
(1) Total number of countries = 40
(2) Of the four Aircraft off-lease, one is now the subject of a lease contract,
one is the subject of a non-binding letter of intent to lease and one was
the subject of a non-binding letter of intent to sell (this Aircraft was
subsequently sold on November 10, 1997).
The following table sets forth the exposure of the Portfolio by regions in
which Lessees are domiciled calculated as of September 30, 1997 by reference to
number of Aircraft and the Appraised Value of the Aircraft as of February 25,
1997.
<TABLE>
<CAPTION>
NUMBER OF % OF PORTFOLIO BY
REGION AIRCRAFT APPRAISED VALUE
- ------ --------- -----------------
<S> <C> <C>
Latin America................................................... 79 33.84
Europe (excluding CIS Countries)................................ 65 33.77
North America................................................... 49 19.04
Asia & Far East................................................. 20 9.93
Africa.......................................................... 4 1.55
Others (including CIS Countries)................................ 3 0.47
Australia & New Zealand......................................... 4 0.29
Off-Lease(1).................................................... 4 1.11
--- ------
Total...................................................... 228 100.00
=== ======
</TABLE>
- ---------------
(1) Of the four Aircraft off-lease, one is now the subject of a lease contract,
one is the subject of a non-binding letter of intent to lease and one was
the subject of a non-binding letter of intent to sell (this Aircraft was
subsequently sold on November 10, 1997).
63
<PAGE> 65
The following table sets forth the exposure of the Portfolio by year of
aircraft manufacture or conversion to freighter calculated as of September 30,
1997 by reference to the Appraised Value of the Aircraft as of February 25,
1997.
<TABLE>
<CAPTION>
NUMBER OF % OF PORTFOLIO BY
YEAR OF MANUFACTURE/FREIGHTER CONVERSION AIRCRAFT APPRAISED VALUE
- ---------------------------------------- --------- -----------------
<S> <C> <C>
1988............................................................ 15 4.85
1989............................................................ 9 4.18
1990............................................................ 21 9.96
1991............................................................ 45 23.35
1992............................................................ 55 38.24
1993............................................................ 7 3.30
1994............................................................ 6 2.87
Other........................................................... 70 13.25
--- ------
Total...................................................... 228 100.00
=== ======
</TABLE>
The following table sets forth the exposure of the Portfolio by seat
category calculated as of September 30, 1997 by reference to the Appraised Value
as of February 25, 1997. Passenger Aircraft are assumed to be configured with
the typical number of seats as set forth in Appendix 2.
<TABLE>
<CAPTION>
NUMBER OF % OF PORTFOLIO BY
SEAT CATEGORY AIRCRAFT TYPES AIRCRAFT APPRAISED VALUE
- -------------- -------------- --------- -----------------
<S> <C> <C> <C>
less than 51 DHC8, Metro-III, ATR42.......................... 28 5.10
51-90 DC9-14/15....................................... 8 0.19
91-120 B737-200, B737-500, DC9-30/50, MD87, F100....... 69 19.00
121-170 B727-200, B737-300/400, MD82/83, A320-200....... 72 43.29
171-240 B757-200, B767-200ER............................ 4 4.54
241-350 B767-300ER, DC10-30, MD11, A300................. 14 14.44
351 and above B747-200(1)..................................... 1 0.83
Freighter B737-200C, DC8-71F/73CF, DC10-30F............... 32 12.61
--- ------
228 100.00
=== ======
</TABLE>
- ---------------
(1) This Aircraft is currently undergoing conversion to freighter configuration.
Further particulars of the Portfolio as of September 30, 1997 are contained
in the table below.
AIRPLANES GROUP PORTFOLIO ANALYSIS
Particulars of the Portfolio as of September 30, 1997 (except for Appraised
Values which are as of February 25, 1997) are contained in the table below.
<TABLE>
<CAPTION>
APPRAISED
VALUE AT
DATE OF FEBRUARY 25,
AIRCRAFT ENGINE SERIAL MANUFACTURE/ 1997
REGION COUNTRY LESSEE TYPE CONFIGURATION NUMBER CONVERSION (US$000'S)
- ------ ------- ------ -------------- ---------------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Africa Kenya Kenya Airways B737-200A JT8D-17 21193 1-Jul-76 4,958
Tunisia Nouvelair Tunisie MD83 JT8D-219 49442 29-Apr-87 19,446
Tunisia Nouvelair Tunisie MD83 JT8D-219 49624 1-Aug-88 20,308
Tunisia Nouvelair Tunisie MD83 JT8D-219 49672 1-Jul-88 20,329
Asia & Far
East China China Southern B737-500 CFM56-3C1 24897 26-Feb-91 21,415
China China Southern B737-500 CFM56-3C1 25182 3-Feb-92 22,603
China China Southern B737-500 CFM56-3C1 25183 14-Feb-92 22,650
China China Southern B737-500 CFM56-3C1 25188 12-Mar-92 22,497
China China Southwest B757-200 RB211-535E4-37 26156 25-Nov-92 44,287
China Xiamen B737-200QC JT8D-17A 23066 9-Dec-83 8,889
India Jet Airways B737-400 CFM56-3C1 24345 1-Jun-89 24,950
</TABLE>
64
<PAGE> 66
<TABLE>
<CAPTION>
APPRAISED
VALUE AT
DATE OF FEBRUARY 25,
AIRCRAFT ENGINE SERIAL MANUFACTURE/ 1997
REGION COUNTRY LESSEE TYPE CONFIGURATION NUMBER CONVERSION (US$000'S)
- ------ ------- ------ --------- ------------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Asia & Far
East India Jet Airways B737-400 CFM56-3C1 24687 25-May-90 26,912
India Jet Airways B737-500 CFM56-3C1 25191 10-Apr-92 22,496
Indonesia PT Mandala Airlines B737-200A JT8D-15 22396 1-Feb-81 6,872
Indonesia PT Mandala Airlines B737-200A JT8D-17A 23023 30-Mar-83 7,380
Indonesia Sempati F100 TAY650-15 11336 5-Jun-91 18,978
Indonesia Sempati F100 TAY650-15 11339 1-Jul-91 19,064
Indonesia Sempati F100 TAY650-15 11347 1-Oct-91 19,090
Indonesia Sempati(1) F100 TAY650-15 11266 17-Aug-90 14,725
Malaysia Air Asia B737-300 CFM56-3C1 24907 1-Mar-91 25,578
Pakistan Pakistan Int. Airline A300-B4-203 CF6-50C2 269 11-Aug-83 13,640
Philippines Philippine Airlines B737-300 CFM56-3B1 24770 1-Oct-90 23,967
South Korea Asiana Airlines B737-400 CFM56-3C1 24493 14-Jul-89 24,720
South Korea Asiana Airlines B737-400 CFM56-3C1 24520 21-Dec-89 25,264
Australia &
New Zealand Australia National Jet Systems DHC8-100 PW121 229 1-Sep-90 7,247
New Zealand Air Nelson METRO-III TPE331-11 705 1-Aug-88 1,677
New Zealand Air Nelson METRO-III TPE331-11 711 1-Mar-88 1,677
New Zealand Air Nelson METRO-III TPE331-11 712 1-Jun-88 1,677
Europe Austria Rheintalflug DHC8-300 PW123 307 1-Dec-91 9,435
France Air France A320-200 CFM56-5A3 203 1-Sep-91 31,385
France Air France A320-200 CFM56 220 1-Sep-91 31,449
Germany Estago Anlagen-Vermietungs MD83 JT8D-219 49620 1-Jul-88 20,478
Hungary Malev B737-200A JT8D-15 21735 1-Jun-79 6,041
Hungary Malev B737-200A JT8D-15 22090 1-May-80 6,202
Hungary Malev B737-200A JT8D-17A 22803 14-Feb-83 7,154
Hungary Malev B737-200A JT8D-17A 22804 1-Feb-83 7,138
Hungary Malev B737-200A JT8D-15 22979 1-Mar-83 7,557
Hungary Malev B737-400 CFM56-3C1 26069 2-Nov-92 29,024
Hungary Malev B737-400 CFM56-3C1 26071 13-Nov-92 29,005
Ireland Aer Lingus B737-400 CFM56-3C1 24689 3-Jul-90 26,438
Ireland Aer Lingus B737-400 CFM56-3C1 24690 1-Jul-90 26,136
Ireland Aer Lingus B737-400 CFM56-3C1 25180 21-Jan-92 28,142
Ireland Transaer International A300-B4-100 CF6-50C2 12 20-May-75 7,089
Ireland Transaer International A300-B4-100 CF6-50C2 20 1-Oct-75 7,010
Italy Air One SpA B737-300 CFM56-3C1 25179 12-Feb-92 27,208
Italy Air One SpA B737-300 CFM56-3C1 25187 14-Mar-92 27,123
Italy Eurofly MD83 JT8D-219 49390 1-Apr-86 19,000
Italy Eurofly MD83 JT8D-219 49631 14-Jun-89 21,947
Netherlands Schreiner Airways DHC8-300 PW123 232 20-Oct-90 8,662
Netherlands Schreiner Airways DHC8-300A PW123 276 13-May-91 9,282
Netherlands Schreiner Airways DHC8-300A PW123 283 1-Sep-91 9,558
Netherlands Schreiner Airways DHC8-300A PW123 298 1-Apr-92 9,707
Netherlands Schreiner Airways DHC8-300A PW123 300 1-Apr-92 9,892
Netherlands Transavia B737-300 CFM56-3C1 24905 1-Feb-91 25,689
Norway Wideroe's Flyveselskap DHC8-300 PW123 293 1-Oct-91 9,697
Norway Wideroe's Flyveselskap DHC8-300 PW123 342 1-Dec-92 10,712
Spain Air Europa B737-300 CFM56-3B2 23749 1-May-87 20,792
Spain Air Europa B737-300 CFM56-3B2 23923 1-Apr-88 22,377
Spain Air Europa B737-400 CFM56-3C1 24906 24-Feb-91 27,231
Spain Air Europa B737-400 CFM56-3C1 24912 14-Jun-91 27,497
Spain IBERIA DC8-71F CFM56-2C1 45945 19-May-92 16,797
Spain Spanair MD83 JT8D-219 49626 22-Oct-88 20,551
Spain Spanair MD83 JT8D-219 49709 1-Dec-88 20,504
Spain Spanair MD83 JT8D-219 49938 1-Dec-90 23,403
Sweden Blue Scandinavia AB B757-200 RB2110-535E4-37 26151 23-Jul-92 44,601
Sweden Nordic European B737-400 CFM56-3C1 24911 1-Apr-91 27,309
Sweden SAS B767-300ER PW4060 25411 15-Jan-92 67,926
Switzerland Edelweiss Air AG MD83 JT8D-219 49935 26-Sep-90 23,400
Switzerland Edelweiss Air AG MD83 JT8D-219 49951 25-Aug-91 24,587
Turkey Istanbul B737-400 CFM56-3C1 24683 7-Aug-90 26,135
</TABLE>
65
<PAGE> 67
<TABLE>
<CAPTION>
APPRAISED
VALUE AT
DATE OF FEBRUARY 25,
AIRCRAFT ENGINE SERIAL MANUFACTURE/ 1997
REGION COUNTRY LESSEE TYPE CONFIGURATION NUMBER CONVERSION (US$000'S)
- ------ ------- ------ -------- ------------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Europe Turkey Istanbul B737-400 CFM56-3C1 24691 9-Aug-90 26,229
Turkey Pegasus B737-400 CFM56-3C1 24684 1-Apr-90 26,150
Turkey Pegasus B737-400 CFM56-3C1 26081 10-Mar-93 30,083
Turkey Sun Express B737-400 CFM56-3C1 25190 7-Apr-92 28,536
Turkey Sunways MD83 JT8D-219 49792 1-Nov-89 22,385
Turkey Sunways MD83 JT8D-219 49936 6-Oct-90 23,218
Turkey Sunways MD83 JT8D-219 49943 1-Jul-91 24,794
Turkey Turk Hava Yollari B737-400 CFM56-3C1 24917 24-Jun-91 27,432
Turkey Turk Hava Yollari B737-400 CFM56-3C1 25181 3-Feb-92 28,303
Turkey Turk Hava Yollari B737-400 CFM56-3C1 25184 2-Mar-92 28,540
Turkey Turk Hava Yollari B737-400 CFM56-3C1 25261 9-Apr-92 28,655
Turkey Turk Hava Yollari B737-500 CFM56-3C1 25288 16-Jun-92 22,472
Turkey Turk Hava Yollari B737-500 CFM56-3C1 25289 12-Jun-92 22,476
Turkey Turk Hava Yollari B737-400 CFM56-3C1 26065 1-May-92 28,725
UK Airtours International A320-200 CFM56 294 2-Apr-92 32,406
UK Airtours International A320-200 CFM56 301 22-Apr-92 32,546
UK Airtours International A320-200 CFM56 348 17-Jun-92 33,019
UK Airtours International A320-200 CFM56-5A3 349 30-Oct-92 33,099
UK British Midland B737-500 CFM56-3C1 25185 18-Feb-92 22,333
UK Brymon Airways DHC8-300A PW123 296 1-Oct-91 9,542
UK Brymon Airways DHC8-300 PW123 334 8-Oct-92 10,055
UK Titan Airways ATR42-300 PW120 109 14-Oct-88 6,060
UK Titan Airways ATR42-300 PW120 113 18-Nov-88 6,127
Latin
America Antigua Liat DHC8-102 PW120-A 113 1-Sep-88 5,477
Antigua Liat DHC8-100 PW120-A 140 1-Mar-89 5,887
Antigua Liat DHC8-100 PW120-A 144 1-Mar-89 6,080
Antigua Liat DHC8-100 PW120-A 270 1-May-91 6,953
Argentina Aerolineas Argentinas B737-200A JT8D-17 21192 1-Mar-76 4,865
Argentina LAPA B737-200A JT8D-17 21196 1-Jul-76 4,915
Argentina LAPA B737-200A JT8D-15 22278 19-Mar-80 6,132
Argentina LAPA B737-200A JT8D-15 22368 1-Sep-80 6,041
Argentina LAPA B737-200A JT8D-15 22369 1-Sep-80 6,062
Argentina LAPA B737-200QC JT8D-17A 23065 15-Oct-96 8,534
Aruba Air Aruba MD83 JT8D-219 49950 1-Nov-91 24,645
Brazil Rio Sul B737-500 CFM56-3C1 25186 11-Mar-92 22,330
Brazil Rio Sul B737-500 CFM56-3C1 25192 14-Apr-92 22,250
Brazil Rio Sul B737-500 CFM56-3C1 26075 23-Oct-92 22,562
Brazil TAM F100 TAY650-15 11284 31-Jul-90 18,217
Brazil TAM F100 TAY650-15 11285 1-Aug-90 18,210
Brazil TAM F100 TAY650-15 11304 27-Feb-91 18,443
Brazil TAM F100 TAY650-15 11305 19-Apr-91 18,554
Brazil TAM F100 TAY650-15 11348 6-Aug-91 19,080
Brazil TAM F100 TAY650-15 11371 19-Dec-91 19,173
Brazil Transbrasil B767-300ER PW4060 24948 19-Jul-91 65,459
Brazil Transbrasil B767-200ER PW4056 25421 14-Jan-92 57,530
Brazil VARIG MD11 CF6-80C2-D1F 48499 31-Dec-91 82,785
Brazil VARIG MD11 CF6-80C2-D1F 48500 1-Mar-92 84,503
Brazil VARIG MD11 CF6-80C2-D1F 48501 1-Sep-92 86,097
Brazil VARIG(1) B737-300 CFM56-3B2 26852 20-Apr-92 20,281
Brazil VARIG(1) DC10-30F CF6-50C2 47841 3-Jul-80 15,682
Brazil VARIG(1) DC10-30F CF6-50C2 47842 8-Apr-80 15,682
Chile Fast Air DC8-71F CFM56-2C1 45810 9-Apr-92 17,103
Chile Fast Air DC8-71F CFM56-2C1 45970 15-Oct-92 17,120
Chile Fast Air DC8-71F CFM56-2C1 45976 10-Aug-91 16,767
Chile Fast Air DC8-71F CFM56-2C1 45996 29-Oct-92 17,123
Chile Fast Air DC8-71F CFM56-2C1 45997 7-Dec-93 17,210
Chile Lan Chile Airlines B737-200A JT8D-15 21960 1-Mar-80 6,160
Chile Lan Chile Airlines B737-200A JT8D-15 22397 1-Feb-81 6,723
Chile Lan Chile Airlines B737-200A JT8D-17A 22407 1-Sep-80 6,827
</TABLE>
66
<PAGE> 68
<TABLE>
<CAPTION>
APPRAISED
VALUE AT
DATE OF FEBRUARY 25,
AIRCRAFT ENGINE SERIAL MANUFACTURE/ 1997
REGION COUNTRY LESSEE TYPE CONFIGURATION NUMBER CONVERSION (US$000'S)
- ------ ------- ------ -------- ------------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Latin
America Chile Lan Chile Airlines B737-200A JT8D-15 22632 1-Feb-82 6,483
Chile Lan Chile Airlines B737-200A JT8D-17A 23024 1-May-83 7,108
Colombia ACES ATR42-320 PW121-5A1 284 1-Jan-92 7,683
Colombia Avianca B757-200 RB211-535E4-37 26154 22-Sep-92 43,919
Colombia Avianca MD83 JT8D-219 49939 26-Oct-90 23,290
Colombia Avianca MD83 JT8D-219 49946 18-Jul-91 24,328
Colombia Avianca MD83 JT8D-219 53120 29-Jul-92 25,279
Colombia Avianca MD83 JT8D-219 53125 2-Apr-92 26,036
Colombia Tampa DC8-71F CFM56-2C1 45849 9-Mar-91 17,167
Colombia Tampa DC8-71F CFM56-2C1 46066 24-Apr-91 16,827
Jamaica Air Jamaica A300-B4-203 CF6-50C2 131 7-Feb-81 11,587
Mexico Aerocalifornia DC9-14 JT8D-7B 45736 1-Aug-66 1,050
Mexico Aerocalifornia DC9-14 JT8D-7B 45743 1-May-66 999
Mexico Aerocalifornia DC9-15 JT8D-7A 45785 1-Nov-66 1,000
Mexico Aerocalifornia DC9-15 JT8D-7B 45786 1-Mar-67 1,067
Mexico Aerocalifornia DC9-15 JT8D-7A 47059 1-May-67 958
Mexico Aerocalifornia DC9-15 JT8D-7A 47085 1-Jul-67 959
Mexico Aerocalifornia DC9-15 JT8D-7A 47122 1-Dec-67 903
Mexico Aerocalifornia DC9-15 JT8D-7A 47126 1-Oct-68 980
Mexico Aeromexico B767-300ER PW4060 26200 1-Sep-92 69,748
Mexico Aeromexico B767-300ER PW4060 26204 1-Oct-92 70,082
Mexico Aeromexico DC9-32 JT8D-17 47594 1-Feb-74 3,299
Mexico Aeromexico DC9-32 JT8D-17 48125 1-Apr-80 4,906
Mexico Aeromexico DC9-32 JT8D-17 48126 1-Apr-80 5,156
Mexico Aeromexico DC9-32 JT8D-17 48127 1-Jul-80 5,069
Mexico Aeromexico DC9-32 JT8D-17 48128 1-Aug-80 5,097
Mexico Aeromexico DC9-32 JT8D-17 48129 1-Nov-80 5,139
Mexico Aeromexico DC9-32 JT8D-17 48130 1-Dec-80 5,493
Mexico Aeromexico MD82 JT8D-217 49660 1-Mar-88 19,579
Mexico Aeromexico MD82 JT8D-217A 49667 21-Jan-88 19,848
Mexico Aeromexico MD87 JT8D-219 49673 1-Dec-88 16,349
Mexico Mexicana F100 TAY650-15 11309 16-May-91 18,759
Mexico Mexicana F100 TAY650-15 11319 5-Apr-91 18,713
Mexico Mexicana F100 TAY650-15 11374 20-Jan-92 19,777
Mexico Mexicana F100 TAY650-15 11375 1-Dec-92 19,815
Mexico Mexicana F100 TAY650-15 11382 1-Jan-93 19,832
Mexico Mexicana F100 TAY650-15 11384 1-Jan-93 19,929
Mexico Mexicana B727-200A JT8D-17R 21346 1-Oct-80 4,909
Mexico Mexicana B727-200A JT8D-17R 21600 1-Nov-80 4,805
Netherlands Antilles ALM DHC8-300C PW123 230 1-Feb-91 9,533
Netherlands Antilles ALM DHC8-300C PW123 242 1-Nov-90 9,437
Peru Aerosanta B737-200A JT8D-17 21206 26-Feb-76 4,673
Trinidad & Tobago BWIA International MD83 JT8D-219 49789 23-Sep-89 22,252
North
America Canada Bombardier Inc DHC8-300 PW123 244 1-Dec-90 8,723
Canada Bombardier Inc DHC8-300A PW123 266 20-Mar-91 9,213
Canada Bombardier Inc DHC8-300A PW123 267 4-Apr-91 9,227
Canada Canadian Airlines A320-200 CFM56-5A1 174 1-Apr-91 31,302
Canada Canadian Airlines A320-200 CFM56-5A1 175 1-Apr-91 31,282
Canada Canadian Airlines A320-200 CFM56-5A1 232 1-Oct-91 31,533
Canada Canadian Airlines A320-200 CFM56-5A1 284 9-Mar-92 32,722
Canada Canadian Airlines A320-200 CFM56-5A1 309 13-May-92 32,639
Canada Canadian Airlines A320-200 CFM56-5A1 404 1-Jan-94 35,231
Canada Canadian Airlines(1) B737-200A JT8D-9A 20922 1-Aug-74 2,516
Canada Canadian Airlines(1) B737-200A JT8D-9A 20958 1-Jan-75 3,463
Canada Canadian Airlines(1) B737-200A JT8D-9A 20959 1-Nov-74 3,463
Canada Canadian Airlines(1) B737-200A JT8D-9A 21115 1-Dec-75 3,463
Canada Canadian Airlines(1) B737-200A JT8D-9A 21639 1-Nov-78 4,801
Canada Canadian Airlines(1) B737-200A JT8D-9A 21712 1-Feb-79 5,240
Canada Canadian Airlines(1) B737-200A JT8D-9A 22873 1-Jul-82 8,595
</TABLE>
67
<PAGE> 69
<TABLE>
<CAPTION>
APPRAISED
VALUE AT
DATE OF FEBRUARY 25,
AIRCRAFT ENGINE SERIAL MANUFACTURE/ 1997
REGION COUNTRY LESSEE TYPE CONFIGURATION NUMBER CONVERSION (US$000'S)
- ------------ --------------------- --------------------------- -------------- ---------------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
North
America U.S.A. America West B737-300 CFM56-3B1 23499 1-Jun-86 21,727
U.S.A. America West B737-300 CFM56-3B1 23500 1-Jun-86 21,700
U.S.A. Burlington Air Express DC8-71F CFM56-2C1 45811 30-May-91 16,493
U.S.A. Burlington Air Express DC8-71F CFM56-2C1 45813 28-Apr-92 17,330
U.S.A. Burlington Air Express DC8-71F CFM56-2C1 45946 23-Apr-92 16,790
U.S.A. Burlington Air Express DC8-71F CFM56-2C1 45971 13-Feb-92 16,977
U.S.A. Burlington Air Express DC8-71F CFM56-2C1 45973 27-Feb-92 16,953
U.S.A. Burlington Air Express DC8-71F CFM56-2C1 45978 23-Apr-93 17,240
U.S.A. Burlington Air Express DC8-71F CFM56-2C1 45993 23-Jun-93 17,090
U.S.A. Burlington Air Express DC8-71F CFM56-2C1 45994 1-Sep-94 17,009
U.S.A. Burlington Air Express DC8-71F CFM56-2C1 45998 21-May-93 17,042
U.S.A. Burlington Air Express DC8-71F CFM56-2C1 46065 12-Jan-92 16,438
U.S.A. Emery Worldwide DC8-71F CFM56-2C1 45812 14-Jul-94 17,253
U.S.A. Emery Worldwide DC8-71F CFM56-2C1 45941 27-Aug-91 16,723
U.S.A. Emery Worldwide DC8-71F CFM56-2C1 45947 11-Mar-94 17,163
U.S.A. Emery Worldwide DC8-71F CFM56-2C1 45974 25-Jun-91 16,933
U.S.A. Emery Worldwide DC8-71F CFM56-2C1 45975 21-Jul-92 16,833
U.S.A. Emery Worldwide DC8-71F CFM56-2C1 45977 23-Nov-90 16,837
U.S.A. Emery Worldwide DC8-71F CFM56-2C1 45983 24-Jan-94 16,448
U.S.A. Emery Worldwide DC8-71F CFM56-2C1 45995 30-Dec-94 17,203
U.S.A. Emery Worldwide DC8-71F CFM56-2C1 46039 29-Oct-90 16,823
U.S.A. Frontier B737-300 CFM56-3B1 23177 1-Apr-86 19,944
U.S.A. Hawaiian Airlines DC9-51 JT8D-17 47742 1-Jun-77 4,775
U.S.A. Hawaiian Airlines DC9-51 JT8D-17 47784 1-May-79 5,422
U.S.A. Hawaiian Airlines DC9-51 JT8D-17 47796 1-Apr-79 5,403
U.S.A. Hawaiian Airlines DC9-51 JT8D-17 48122 26-Jan-81 5,658
U.S.A. Idefix ATR42-300 PW120 249 1-Jun-91 7,650
U.S.A. Reno Air MD-83 JT8D-219 49941 1-Dec-90 23,243
U.S.A. Reno Air MD-83 JT8D-219 49949 5-Aug-91 24,498
U.S.A. SAT DC8-73CF CFM56-2C1 46091 1-Dec-89 21,403
U.S.A. Tower Air B747-200BC(2) JT9D-7Q 21730 7-Jun-79 34,617
U.S.A. TWA MD83 JT8D-219 49575 1-Oct-87 19,668
U.S.A. US Air Express DHC8-100 PW121 258 1-Jan-91 7,020
Others Cyprus Fornax Aircraft Leasing B737-200A JT8D-17 21685 1-Jan-79 5,546
Lithuania Lithuanian Airlines B737-200A JT8D-15 22453 1-Mar-81 6,444
Ukraine Ukraine International B737-200A JT8D-17A 22802 1-Feb-83 7,540
Off Lease Off Lease A300-B4-100 CF6-50C2 9 26-Dec-74 5,753
Off Lease -- Lease LOI
MNG Airlines(3) A300-C4-203 CF6-50C2 83 1-May-79 15,445
Off Lease -- LAPA(5) B737-200A JT8D-15 22633 1-Mar-81 7,311
Off Lease -- Sale LOI
Gemini(4) DC10-30 CF6-50C2 46978 29-Nov-78 17,930
------------
4,188,723
=============
</TABLE>
- ---------------
Notes:
(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) This Aircraft is currently undergoing conversion to freighter configuration
and the January - , 1998 Appraised Value for such Aircraft assumes such
conversion had been completed at that date.
(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 September 30, 1997.)
(5) This Aircraft is now subject to a lease contract and is scheduled for
delivery in January, 1998.
68
<PAGE> 70
THE LEASES
GENERAL
All Leases are managed by the Servicer pursuant to the Servicing Agreement.
References in this Prospectus to "LESSOR" will mean the relevant subsidiary of
Airplanes Group which leases the Aircraft to the operator.
There is a reasonable degree of standardization in the 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 routine maintenance, fuel, crews, airport and
navigation charges, taxes, licenses, registration and insurance, including
public liability insurance as described below.
Each Existing Lease requires the Lessee to make periodic Rental Payments
during the Lease term. The majority of Existing Leases have an original term in
excess of five years and certain Existing Leases include options for the Lessee
or the Lessor to extend the term of the Lease with Rental Payments either
similar to the rent payable during the original term or at future market rates.
Substantially all existing 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 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 Existing 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. See "Risk Factors -- Risks
relating to the Lessees".
MAINTENANCE
The Existing 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 Existing 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 Existing Leases require the Lessee to pay Maintenance
Reserves or to provide Security Deposits, maintenance letters of credit or
guarantees. With respect to other Existing 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 Existing Leases provide for the Aircraft to be redelivered in a
specified condition upon expiration of the Existing 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 Existing 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 Existing 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
Existing Lease.
INDEMNIFICATION AND INSURANCE
Under the terms of each Existing 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
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
69
<PAGE> 71
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 Existing 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 the
Existing Leases, the Lessees are currently obliged to indemnify against such
claims certain named parties and, in most cases, their respective successors,
assigns, shareholders, employees, affiliates and agents. Under most Existing
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 Existing Lease. Most
of the Existing Leases also require the Lessee to maintain the liability
insurance for a specified period between one and three years after termination
of such Existing Lease to cover liabilities that may have arisen prior to
terminations but that became known thereafter.
With respect to certain Existing 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.
THE LESSEES
As of September 30, 1997, there were 77 Lessees in 40 countries throughout
the world.
Despite the continued economic recovery in the air transport industry over
the last two years, a number of the Lessees remain in a relatively weak
financial position and there can be no assurance that the rate of Lessee
defaults will not increase in the future. As of September 30, 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 (net
of amounts in respect of default interest and certain cash in transit) amounted
to $20.1 million in respect of 30 Lessees who had a combined total of 83
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 September 30, 1997 Airplanes Group, through the
efforts of GECAS, in its capacity as Servicer had entered into restructuring
agreements with three of the Lessees which account for $6.6 million of the above
amount (in addition to entering into a restructuring agreement with two Lessees
which had no outstanding balances at September 30, 1997). Of these three
Lessees, two Lessees account for approximately $5.4 million of the outstanding
obligation for periods greater than 30 days and the third Lessee, which had
returned the aircraft at September 30, 1997, accounts for $1.2 million which it
has agreed to repay over an 11 month period. None of these three Lessees are
currently complying with the terms of their restructuring agreements. As of
September 30, 1997, in addition to the $20.1 million in respect of payments past
due more than 30 days, four further Lessees were being allowed deferrals of
rent, maintenance and miscellaneous payments totaling $20.8 million.
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 which have defaulted and 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
Providers. See "Management Discussion and Analysis of Financial Condition and
Results of Operations -- Interest Rate Management".
70
<PAGE> 72
The most significant deferrals, rescheduled amounts and difficult accounts,
as of September 30, 1997, are referred to below.
Latin America
Lessees with respect to approximately 33.8% 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 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 effect on Lessee
operations in those countries.
Brazil
Recently, Brazil has experienced significant downturns in its financial
markets, with large decreases in financial asset prices and considerable
pressure for a devaluation of the Brazilian currency. The loss of confidence in
the Brazilian markets and currency has been associated with the economic crises
currently affecting "emerging markets" in Asia. See "-- Asia Pacific
Concentration" below. The Brazilian government has responded to these pressures
with a series of austerity measures including increased interest rates, public
spending cuts and tax increases. This has led to widespread expectations that
economic growth in Brazil will be significantly reduced through at least 1998
with the real possibility of a recession that would adversely affect the
operations of Airplanes Group's Brazilian customers.
At September 30, 1997, 17 Aircraft (or approximately 14.5% of Airplanes
Group's Portfolio by Appraised Value) were leased to four Brazilian Lessees. At
September 30, 1997, Airplanes Group had six Aircraft on lease to Varig (which
included three MD11s, two DC10s (on May 5, 1997 Varig exercised its option to
purchase both DC10 Aircraft) and one B737-300) representing 7.3% of the
Portfolio by Appraised Value. In 1994, GPA entered into a rescheduling agreement
with Varig to reschedule the repayment of $14 million in arrears over a 48 month
period. Airplanes Group assumed part of GPA's rights and obligations under such
agreement as part of the Acquisition. GPA signed this formal deferral agreement
in January 1995, under which all deferred obligations are due to be repaid by
April 1999. At September 30, 1997, the amounts outstanding for a period greater
than 30 days in respect of Varig's deferred obligations to Airplanes Group were
approximately $5.4 million. Also at September 30, 1997, there were amounts
outstanding of $0.5 million for a period greater than 30 days in respect of two
of the other three Brazilian Lessees. As at September 1997, Airplanes Group had
six Fokker 100 Aircraft on lease to a Brazilian lessee, with an average
remaining lease term of 29 months. During the month ended October 31, 1997 all
six leases were restructured. In consideration for an extension of the leases
for 119 months, the revised terms of the leases include rental rates reduced by
approximately 24%, no maintenance reserve payments and the return of all
previously paid maintenance reserves by Airplanes Group within 12 months.
Mexico
Mexico continues to be a significant market for aircraft, and at September
30, 1997, 28 Aircraft representing approximately 8.7% 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 operating leases
with options to purchase the Aircraft on lease expiry. 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 September 30, 1997, amounts outstanding
for a period greater than 30 days in respect of this Lessee were $1.8 million.
In January 1996, a formal deferral arrangement was signed with Mexicana, another
Mexican Lessee which operates eight
71
<PAGE> 73
Aircraft representing approximately 3.0% of the Portfolio by Appraised Value.
Mexicana has agreed to repay its obligations over the four year period ending
December 31, 1999. At September 30, 1997, the amounts outstanding for a period
greater than 30 days in respect of Mexicana's deferred balance were $8.8
million. The third Mexican Lessee has performed satisfactorily in the year ended
September 30, 1997 and had no amounts outstanding for a period greater than 30
days.
North America
North America is an important market for Airplanes Group's Aircraft with
approximately 19.0% of the Portfolio by Appraised Value being operated in this
region. At September 30, 1997, Airplanes Group had 33 Aircraft (or approximately
13.0% of the Portfolio by Appraised Value) on lease to 11 U.S.-based aircraft
operators and 16 Aircraft (or approximately 6.1% 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 labor 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 Existing Leases.
In December, 1996, Canadian Airlines, Airplanes Group's third largest
Lessee at September 30, 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 13 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 was 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. In June 1997, Airplanes Group and Tower
Air entered into a rental deferral agreement which provides for the outstanding
balance to be repaid over a six month period from July 15, 1997 to January 15,
1998. The Lessee is currently complying with the deferral agreement. In
addition, during September 1997 in consideration for Tower Air extending the
lease term to 180 months with revised rental rates, Airplanes Group agreed to a
cargo conversion of the aircraft at a cost of approximately $10 million (of
which $2 million has already been paid). The cargo conversion is expected to be
completed by February 1998.
Asia
As of September 30, 1997, 20 Aircraft representing approximately 9.9% of
the Portfolio by Appraised Value were on lease to 10 aircraft operators in this
region. Trading conditions in the civil aviation industry in Asia may be
adversely affected by the severe economic and financial difficulties experienced
recently in the region. The economies of Indonesia, Thailand, Korea and Malaysia
have experienced particularly acute difficulties resulting in many business
failures, significant depreciation of local currencies against the dollar
72
<PAGE> 74
(the currency in which Lease payments are payable), sovereign and corporate
credit ratings downgrades and internationally organized financial stability
measures.
At September 30, 1997, six Aircraft (or approximately 2.1% of the Portfolio
by Appraised Value) were on lease to two aircraft operators in Indonesia. One
Indonesian Lessee was already experiencing financial difficulties prior to the
current regional economic difficulties. This Lessee is currently more than $1
million in arrears in its payment obligations which had been restructured as
recently as December 1996. This Lessee leases four Fokker 100 Aircraft
(representing approximately 1.7% of the Portfolio by Appraised Value) from
Airplanes Group, which have recently experienced significant reductions in
realizable rental rates with other Lessees. To the extent Fokker 100 Aircraft
are redelivered from this Indonesian Lessee, it may prove difficult to place
such aircraft types without a material reduction in rental rates.
Europe (excluding CIS)
As of September 30, 1997, 65 Aircraft representing approximately 33.8% of
the Portfolio by Appraised Value were on lease to twenty-seven aircraft
operators in this region. At that date, three MD-83 Aircraft (or approximately
1.7% of the Portfolio by Appraised Value) were on lease to an aircraft operator
in Turkey which ceased to trade in October 3, 1997. All three MD83 Aircraft have
been de-registered and repossessed.
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
adversely to affect the value of the Aircraft.
DOWNTIME
At September 30, 1997, the relatively low number of four Aircraft were
off-lease. Of these Aircraft, one is now the subject of a lease contract, one is
the subject of a non-binding letter of intent to lease and one is subject to a
non-binding letter of intent to sell (and was subsequently sold on November 10,
1997). The remaining Aircraft is being actively marketed.
73
<PAGE> 75
THE COMMERCIAL AIRCRAFT INDUSTRY
Commercial aviation is an important segment of the travel and tourism
industry.
The level of worldwide demand for air travel has been cyclical, and is
influenced by a number of factors, including global and regional political
stability, general economic, business and credit conditions, the impact of the
price and availability of jet fuel on airline costs and technological
developments in the field of transport and communications such as high-speed
rail travel and video-conferencing which provide partial substitutes for some
air travel.
Demand for air travel as measured by the number of fare paying passengers
carried multiplied by the distance flown in miles (revenue passenger miles, or
"RPMS") has increased since 1970 in every year but one, 1991, in which there was
a decline of 2.8% principally due to a worldwide economic slowdown exacerbated
by the Gulf War. This decline in demand together with a sharp increase in
surplus industry capacity led to widespread financial losses in the airline
industry. The average annual increase in RPMs from 1970 to 1995, taking into
account the decline in 1991, was approximately 7.0%. Historical growth in RPMs
has shown a correlation with growth in world GDP and the decrease in the cost of
air travel on an inflation-adjusted basis.
Demand has varied in different regions of the world. In the period since
1990 the highest rates of annual increase in RPMs have been on certain routes in
the Asia-Pacific region, although these growth rates are expected to suffer as a
result of the economic crises that have recently affected several Asian
economies. The lowest rates of annual increase in RPMs have been on domestic
routes within Europe and the United States.
Worldwide traffic grew by approximately 7.0% both in 1995 and 1996. There
can be no assurance that the worldwide demand for air travel will continue to
increase or that such worldwide demand will not decline.
WORLD TRAFFIC GROWTH
(EXCLUDING DOMESTIC CIS RPMS)
<TABLE>
<CAPTION>
ANNUAL GROWTH
WORLD TRAFFIC WORLD TRAFFIC
YEAR IN RPMS IN RPMS
- ---- ------------- -------------
(BILLIONS) %
<S> <C> <C>
1985........................................................... 870.1
1990........................................................... 1,212.7 6.9
1994........................................................... 1,457.2 4.7
1995........................................................... 1,558.6 7.0
1996........................................................... 1,668.0 7.0
</TABLE>
Recent annual rates of growth in the commercial aviation industry may not
be indicative of future rates of growth. Various industry participants have
forecast average annual rates of growth ranging from 4.9% to 6.3% for the period
from 1996 to 2001 and ranging from 4.9% to 5.2% for the period from 1999 through
2016. There can be no assurance, however, that such rates of growth will be
achieved or, even if achieved on average, that there will not be cyclical
variations in certain years. Furthermore, there can be no assurance that growth
in RPMs will lead to increases in the profitability of airline operations or
demand for aircraft.
DEMAND FOR AIRCRAFT
Over time, an increase in RPMs will create a need for new aircraft capacity
to service the incremental demand for air travel over and above the existing
capacity provided by airlines. Growth in RPMs has been the principal long-term
factor affecting demand for aircraft. Another factor contributing to the demand
for aircraft is the need to replace aircraft that are retired at the end of
their useful economic lives or are written off for other reasons, including
casualties.
In addition to those factors which affect the demand for air travel, the
overall level of demand for commercial aircraft depends on a number of factors,
including changes in aircraft productivity; the supply of new and used or
replacement aircraft, which is affected by manufacturer production levels and
may be
74
<PAGE> 76
affected by bankruptcies of significant owners or operators of aircraft; the
ability of air transport infrastructure to accommodate commercial air traffic
levels; the cost and availability of jet fuel; and governmental regulations and
restrictions affecting the costs and benefits of owning and operating aircraft.
The types of aircraft, jet or turboprop, required by an operator are
dictated principally by its existing and anticipated structure of routes and
traffic volume. An operator's specific choice of aircraft will also depend on a
number of additional factors, including the size and composition of its current
fleet, its ability to operate and maintain particular aircraft types based on
the training of its personnel and the capacity of its ground facilities, seating
capacity of the aircraft and operating costs. Approximately 70% of commercial
jet aircraft manufactured outside the CIS are narrowbody aircraft with the
balance being widebody aircraft. Increased airport congestion and limitations on
air traffic control systems may lead to a relative increase in the number of
widebody aircraft in the worldwide commercial jet fleet. As of August 14, 1997,
of the 9,204 narrowbody aircraft in operation, approximately 20% were more than
25 years old while only approximately 2.9% of the 3,574 widebody aircraft in
service on that date were more than 25 years old. It is difficult to predict
whether any such increase in the number of widebody aircraft will have a
material effect on the relative demand for either type of aircraft, as the
demand for replacements for older narrowbody aircraft may equal or exceed the
demand for widebody aircraft. Within the widebody sector, the availability of
newer long-haul aircraft are likely to result in a continued weak market for
earlier models such as the A300-B4, A310, B747-100, B747-200 and DC10. The newer
models have lower operating costs and allow airlines to develop new long-haul
routes more efficiently as well as to increase service frequency on established
routes.
NEW AIRCRAFT SUPPLY
There are currently two major manufacturers of commercial jet aircraft
outside of the CIS (Boeing and Airbus Industrie G.I.E.) and three smaller
manufacturers (British Aerospace plc, Bombardier and Embraer) which produce
regional aircraft. The manufacturers of commercial jet aircraft in the CIS are
currently not a material factor in supplying the requirements of operators
outside the CIS and the former Eastern Bloc countries. There are three principal
manufacturers which, together with their affiliates, produce substantially all
commercial jet engines: General Electric Company, through the GE Aircraft
Engines Division; United Technologies International, Inc., through Pratt &
Whitney; and Rolls Royce. There are relatively more manufacturers of turboprop
aircraft and engines than jet aircraft and engines.
There has been a long-term trend toward consolidation of the commercial
aircraft manufacturing industry, evidenced by the merger between Boeing and
McDonnell Douglas, the creation of the Airbus Industrie consortium by four
European manufacturers (Aerospatiale, British Aerospace, Daimler-Benz and CASA)
and the exit of former participants such as Lockheed and Convair. The long lead
time, high capital cost and technological sophistication required to bring a new
aircraft model to the market create significant barriers to entry into the
industry, particularly for narrowbody and widebody jet aircraft.
Although most new aircraft are ordered under long-term, multi-aircraft
contracts, the volume of aircraft production has varied significantly over the
years, reflecting the changing state of the commercial aviation industry and the
economy in general. Manufacturers generally adjust production levels in response
to their customers' desires and financial capacity to take delivery of ordered
aircraft which in turn may be affected by the level of air traffic and the
availability of competitive used aircraft. Boeing and Airbus have both announced
and partially implemented increased production levels from the cyclical low
reached in 1995, with the result that new jet aircraft production levels are
likely to double by 1999 to over 900 aircraft. This level of production is above
the long-term requirement implied by industry forecasts, including those
published by Boeing and Airbus. The increase in production has been accompanied
by very aggressive pricing strategies in an effort by these companies to
maximise their market share. A continuation of current new aircraft production
and pricing trends is likely to have an adverse impact on Airplanes Group's
ability to generate cash flows in line with the Assumptions.
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USED AIRCRAFT SUPPLY
The supply of used aircraft depends on the level of utilization of the
existing worldwide fleet and the net change in this fleet based on
manufacturers' production levels and aircraft retirements. Cyclical factors that
affect air travel demand also may affect the supply of used aircraft. According
to the Airclaims Limited CASE database, as of August 14, 1997 there were
approximately 692 commercial jet aircraft in storage of which approximately 52%
(359 aircraft) were Stage 2 aircraft and approximately 48% (333 aircraft) Stage
3 aircraft. The median ages of such aircraft in storage were approximately 26
and 18 years, respectively. According to third party industry sources, there was
a total of 392 commercial jet aircraft available for sale or lease, of which 179
were Stage 2 aircraft and 213 were Stage 3 aircraft. Approximately 32% of such
Stage 3 aircraft were narrowbodies and 68% widebodies. There are a number of
aircraft in storage that are not available for sale or lease; conversely, a
number of aircraft available for sale or lease are in service rather than in
storage. In general older aircraft are significantly more likely to be stored
than younger aircraft.
The weak growth of air travel in the 1990-1994 period combined with high
levels of new deliveries from manufacturers in the early 1990s resulted in low
levels of profitability or significant losses for many airlines and leasing
companies, a significant increase in the supply of used aircraft and decrease in
their value, especially for Stage 2 aircraft and older Stage 3 widebody
aircraft. There can be no assurance that such oversupply will diminish or that
any future downturn in the commercial aviation industry or the worldwide demand
for aircraft will not result in increased availability of used aircraft for
lease or sale in the future, particularly at the times Aircraft are being
marketed for lease by Airplanes Group.
OPERATING LEASING
Until the mid-1970s, almost all commercial aircraft were either owned by
their airline operators or leased under finance leases from financial
institutions, except for short-term leases of surplus aircraft from one airline
to another. Beginning in the mid-1970s, in contrast, leasing companies were
willing to purchase aircraft and undertake the risk of finding a buyer or lessee
for such aircraft.
Leasing companies acquire aircraft for lease through purchases of used
aircraft, often through sale-leaseback arrangements with the operators of such
aircraft. Also, in the mid-1980s a number of leasing companies started to
acquire new aircraft directly from manufacturers, with or without lease
commitments for such aircraft. Leasing companies and other financial
institutions have become significant purchasers of new aircraft and their jet
aircraft orders and options constituted approximately 18% of outstanding jet
orders as of August 14, 1997.
The number of airlines taking aircraft on operating and finance leases has
increased from 139 out of a worldwide total of 305 in 1980 (approximately 46% of
total airlines) to 463 out of a worldwide total of 672 in 1997 (approximately
69% of total airlines).
Many operating lessees are airlines that cannot independently finance the
purchase of aircraft, that desire greater flexibility in fleet planning or that
choose to take advantage of demand from leasing companies to acquire assets
through equipment sale-leaseback transactions.
ROLE OF GOVERNMENT
National governments play a major role in the regulation of air
transportation through the establishment of standards of aircraft certification,
airworthiness and operation, the regulation of airspace and the provision of
services, including navigational aids, air traffic control and search and
rescue. There is a general worldwide uniformity of standards because all nations
with any significant civil aviation industry are members of the International
Civil Aviation Organization (a United Nations agency) and apply the technical
standards developed by this agency as the basis of national aviation
regulations. In many countries, the national government regulates both domestic
routes and the pricing of air travel, although since the late 1980s there has
been a trend in certain jurisdictions, such as the European Union, Australia,
Mexico and Brazil, toward limited deregulation and the progressive opening up of
routes to competition, which could lead to developments similar to those which
have occurred in the United States since the enactment of the Airline
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Deregulation Act of 1978. In particular, the European Union introduced a package
of liberalization measures in 1993 affecting the licensing of air carriers,
access to air routes within the European Union and fares and rates for air
transportation services.
National governments have also influenced the financial condition of the
commercial aviation industry in other ways. These include the ownership or
support of national and local airlines, often with direct subsidies although
there is currently a worldwide trend toward the complete or partial
privatization of many government-owned airlines. However, there have been recent
initiatives within the European Union intended to make more stringent the
conditions subject to which state aid may be given to airlines. Most governments
limit the extent to which foreign interests may own domestic airlines (although
this is no longer the case within the European Union with respect to the
nationals of other member states). Certain national governments also have
provided financial support of local commercial passenger jet manufacturing
industries. Indirect financial support is also provided to aircraft and engine
manufacturers through the issuance of credits and guarantees from national
export credit agencies.
There can be no assurance, however, that the recent trends toward
deregulation of routes and pricing of air travel and toward complete or partial
privatization of government-owned airlines will continue or will occur in the
manner announced by the relevant governments. Although such trends may result
initially in an increase in the number of airlines worldwide, they also may
result ultimately in a greater concentration of larger airlines due to the
failure of smaller, more thinly capitalized airlines. In any event, deregulation
and privatization may at times adversely affect the future market for aircraft,
including the Aircraft.
TECHNICAL REGULATION
In addition to general requirements regarding maintenance of aircraft,
aviation authorities from time to time issue ADs requiring the operators of
aircraft to take particular maintenance actions or make particular modifications
with respect to a number of aircraft of one or more designated types. ADs
normally specify a period of time in which to carry out the required action or
modification and generally enough time is allowed to permit the implementation
of the AD in connection with scheduled maintenance of the aircraft or engines.
The Initial Leases typically require the Lessees to bear the cost of compliance
with ADs issued by applicable aviation authorities and, in most cases, relevant
manufacturers' recommendations. In some cases, Airplanes Group may be required
to contribute a portion of such costs over a specified threshold. However, to
the extent that a Lessee fails to perform ADs required on an Aircraft, Airplanes
Group would bear the cost of compliance necessary for the Aircraft to maintain
its Certificate of Airworthiness. In such circumstances, funds in the Collection
Account and Lessee Funded Account will be available to Airplanes Group to
mitigate the costs of compliance, although such use would reduce the
availability of such amounts to cover the cost of scheduled maintenance. There
can be no assurance that such funds will be available at the time needed or that
any funds available will be sufficient for such purposes.
In addition to the foregoing requirements relating to airworthiness, other
governmental regulations may apply to the Aircraft, including requirements
relating to noise and emissions levels. Such regulations may be imposed not only
by the jurisdictions in which the Aircraft are registered, possibly in
connection with airworthiness requirements, but also in jurisdictions where the
Aircraft operate. Chapters 2 and 3 of Chicago Convention establish two
progressively restrictive noise level standards that correspond to the
requirements for Stage 2 and Stage 3 aircraft. 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 of these
standards. Such regulations restrict the future operation of aircraft that are
not Stage 3 aircraft and ultimately will prohibit the operation of such aircraft
in the relevant jurisdictions early in the next century (1999, in the case of
the United States). Since 6.4% of the Aircraft by Appraised Value were not Stage
3 aircraft as of September 30, 1997, these regulations may affect Airplanes
Group adversely. In addition, local municipalities may have more stringent noise
regulations than those applicable to Stage 3 aircraft.
Volume 2 of Annex 16 of the Chicago Convention also contains standards and
recommendations regarding limitations on vented fuel and smoke and gaseous
emissions for aircraft. While a number of countries have adopted regulations
implementing these recommendations, such regulations generally have
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been prospective in nature, requiring only that newly manufactured engines meet
particular standards after a particular date. To the extent that any such
regulations require modifications to the Engines owned by Airplanes Group, they
would receive the same treatment under the Leases as do ADs.
There can be no assurance, however, that new noise or emissions reduction
requirements will not be adopted in the future that would adversely affect the
value of some or all Stage 3 aircraft. Some organizations and jurisdictions have
already begun to discuss the tightening of noise and emissions certification
requirements for newly manufactured aircraft. There can be no assurance that any
such regulations, if adopted, would not adversely affect the value of the
Aircraft.
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MANAGEMENT OF AIRPLANES GROUP
The following description of the management of Airplanes Group is subject
to and is qualified in its entirety by reference to the Servicing Agreement, the
Administrative Agency Agreement, the Cash Management Agreement, Airplanes
Limited's Articles of Association, the Airplanes Trust Agreement and the
Secretarial Services Agreement, forms of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part.
Except to the limited extent described herein, particularly upon a Note
Event of Default, neither the Trustee nor any of the Certificateholders 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 release of the Aircraft, which functions have generally been delegated
to the Servicer under the Servicing Agreement. See "Risk Factors -- Risks
Relating to Airplanes Group and Certain Third Parties -- Delegation of
Responsibilities", "Description of Securities -- The Notes and the Guarantees --
Trust Indenture Covenants" and "-- Note Events of Default and Remedies".
DIRECTORS AND CONTROLLING TRUSTEES
The Board is currently composed of five members. The holder or holders of a
majority in aggregate principal amount of the Class E Notes issued by Airplanes
Limited have the right to appoint one Director of Airplanes Limited while the
Class E Notes are outstanding. The remaining Directors must be Independent
Directors subject to GE Capital's right to appoint new Directors as set forth
below. Independent Directors are appointed by a majority of the then standing
Directors. Edward Hansom has been appointed a Director by GPA as majority holder
of the Class E Notes. If no Independent Directors are serving on the Board at
any time, four new Independent Directors will be appointed in accordance with
Airplanes Limited's Articles of Association. Certain significant transactions or
proceedings of Airplanes Limited may only be approved by a unanimous vote of all
Directors. 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, the sale of all or
substantially all of Airplanes Limited's assets.
Four Independent Trustees have been appointed who are the same individuals
as the Independent Directors of Airplanes Limited. Independent Trustees are
appointed by a majority of the then standing Controlling Trustees. The holders
of a majority in aggregate principal amount of the Class E Notes issued by
Airplanes Trust have the right to appoint one of the Controlling Trustees of
Airplanes Trust, and Mr. Hansom has been appointed a Controlling Trustee by GPA,
as majority holder of the Class E Notes. The five trustees other than the
Delaware Trustee are the Controlling Trustees with the right to manage Airplanes
Trust. Approval of certain significant transactions or proceedings with respect
to Airplanes Trust or AeroUSA may only be obtained by a unanimous vote of all
Controlling Trustees. 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 Directors and the Controlling Trustees, their respective ages and
principal activities are as follows:
<TABLE>
<CAPTION>
NAME AGE OFFICES HELD WITH THE REGISTRATION
- ---- --- ----------------------------------
<S> <C> <C>
Roy M. Dantzic........................ 53 Director, Airplanes Limited
Controlling Trustee, Airplanes Trust
William A. Franke..................... 60 Director and Chairman, Airplanes Limited
Controlling Trustee and Chairman, Airplanes Trust
Hugh R. Jenkins....................... 64 Director, Airplanes Limited
Controlling Trustee, Airplanes Trust
William M. McCann..................... 53 Director, Airplanes Limited
Controlling Trustee, Airplanes Trust
Edward J. Hansom...................... 39 Director, Airplanes Limited
Controlling Trustee, Airplanes Trust
</TABLE>
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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 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.
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. 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 and evening
newspapers, of Phelps Dodge Corporation, a major mining and manufacturing
company and Beringer Wine Estates. He is also a director of the Air Transport
Association (ATA).
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 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 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 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 each rely and will 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. See "Risk Factors -- Risks Relating to
Airplanes Group and Certain Third Parties".
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Certain individuals other than the Directors and Controlling Trustees listed
above serve as directors of various subsidiaries of Airplanes Group.
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 Directors and the Controlling Trustees
and to appoint new Directors and Controlling Trustees, 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 or Standard & Poor's, respectively, and (iii) each of
Airplanes Limited and Airplanes Trust shall continue to have at least three
Independent Directors or Independent Trustees, 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 right to acquire any ordinary share capital of GPA Group. Neither
the Certificates nor the Notes are obligations of, or guaranteed by, or offered
for sale by, GE Capital, GECAS or any of their affiliates.
At such time, if any, as the Directors and Controlling Trustees have been
appointed by the holder of a majority in aggregate principal amount of the Class
E Notes, then the Directors and Controlling Trustees 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 and the terms of
the Trust Indentures, discharge any Class E Notes not so transferred and pay,
with respect to Airplanes Limited, the Discounted Annual Dividend Amount, plus
any arrears of the Annual Dividend Amount. See "Description of Securities -- The
Notes and the Guarantees Defeasance".
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
Directors nor the Controlling Trustees appointed by the holder of a majority in
aggregate principal amount of the Class E Notes receives remuneration from
Airplanes Limited or Airplanes Trust for his services. In addition, Mr. Dantzic,
Mr. Jenkins and Mr. McCann receive $7,500, $2,500 and $7,500, respectively, per
annum for their services as directors of Holding Co. and certain of its
subsidiaries. Mr. Dantzic, Mr. Jenkins and Mr. McCann are also entitled to
receive an additional $1,000 in respect of each board meeting of the above
companies which they attend, subject to a maximum payment of $5,000 per annum
for each of them. Mr. Franke receives an aggregate of $2,500 per annum from
AeroUSA and AeroUSA 3 for his services as a director of those companies and is
also entitled to receive an additional $1,000 in respect of each board meeting
of these companies which he attends, subject to a maximum payment of $5,000 per
annum.
The Directors and the Controlling Trustees do not and will not receive any
additional cash or non-cash compensation (either in the form of stock options,
stock appreciation rights or pursuant to any long-term incentive plan, benefit
or actuarial plan or any other similar arrangements of any kind) as salary or
bonus for their services as Directors or Controlling Trustees. None of the
Directors or Controlling Trustees currently 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 Trust Agreement. 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.
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None of the Directors, Controlling Trustees or any member of their
families, or any person owning more than five percent of Airplanes Limited's
Capital Stock, has been a party to any transaction, or is party to any currently
proposed transaction, with either of Airplanes Limited or Airplanes Trust or any
of their respective subsidiaries. Nor has any Director or Controlling Trustee or
any member of his family, or any corporation, organization or trust in which
such Director or Controlling Trustee is an executive officer, partner, trustee
or has a beneficial interest, been indebted in any amount to Airplanes Limited
or Airplanes Trust.
Neither Airplanes Limited nor Airplanes Trust knows of any arrangement,
other than GE Capital's right to elect to acquire at least 90% of the ordinary
share capital of GPA Group, the exercise of which could result in a change in
control of either Airplanes Limited or Airplanes Trust. There can be no
assurance that GE Capital will elect to exercise its right to acquire any
ordinary share capital of GPA Group.
BENEFICIAL OWNERSHIP OF AIRPLANES LIMITED
<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 entered into by 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, 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
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.
THE SERVICER
The Servicer and its affiliates have not assumed and are not responsible
for, or guarantors of, and shall not assume or be responsible for, or guarantors
of, any liabilities of Airplanes Limited, Airplanes Trust, Holding Co. or any of
their affiliates, including, without limitation, any payments due with respect
to the Notes.
The Servicer provides services pursuant to the terms of the Servicing
Agreement on behalf of Airplanes Group (except in certain circumstances
described below where a substitute servicer may perform such services). The
Servicing Agreement (a) sets forth the various duties of the Servicer with
respect to the
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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
or Additional 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. Under the terms of the Servicing
Agreement, Airplanes Group has directed the Servicer to, and the Servicer is
obliged to perform its services in a manner that is intended to be consistent
with maximizing the cash flows derived from the Leases relating to the Aircraft
over time, subject to the constraints imposed by the Trust Indentures and the
Servicing Agreement and by seeking to achieve a balanced and diversified
portfolio (including with respect to lessees, geography and lease term lengths),
in all cases taking into account the then-existing and anticipated market
conditions affecting the operating lease of used aircraft and the commercial
aviation industry generally. As part of the terms of the Servicing Agreement,
Airplanes Group has acknowledged the inherent uncertainty in determining market
conditions at any point in time as well as the inherent limitations in
anticipating market conditions from time to time. The Servicing Agreement states
that these provisions of the Servicing Agreement do not impose any higher or
different standard of care or liability than the GECAS Services Standard or the
standard of liability contained in the Servicing Agreement.
In addition to managing the Aircraft, GECAS also manages aircraft assets
owned by ALPS 94-1 and 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. See "Risk Factors -- Conflicts of Interest of
GECAS".
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. 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. See "Risk Factors
- -- Limitation of Liability on the Part of the Servicer".
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
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<PAGE> 85
GECAS or its affiliates, (ii) violate any established written policies of GE, in
effect from time to time, applicable to GE Group related to business practices
with respect to legal, ethical and social matters ("GE POLICY") or (iii) lead to
an investigation by any governmental authority.
AIRCRAFT SERVICES
Pursuant to the Servicing Agreement, the Servicer has, inter alia,
undertaken:
- to grant Airplanes Group and its agents, including the Administrative
Agent, access to certain information and personnel of the Servicer under
specified circumstances to enable Airplanes Group to monitor the
Servicer's compliance with the Servicing Agreement and otherwise for the
purposes of Airplanes Group's business
- not to commingle with its own funds any funds of Airplanes Group.
The main categories of services being provided by the Servicer pursuant to
the Servicing Agreement in respect of the Aircraft (the "SERVICES") are:
- Lease marketing services, including, subject to the terms of the
Indentures and the Servicing Agreement, remarketing, 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 redelivery 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.
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<PAGE> 86
Pursuant to the terms of the Servicing Agreement, the Servicer is required
to comply with the GECAS Services Standard and the GECAS Conflicts Standard in
the performance of the Services. All transactions to be entered into by the
Servicer on behalf of Airplanes Group (other than with other persons within
Airplanes Group) are required to be at arm's length and on fair market value
terms unless otherwise agreed or directed by Airplanes Group. Certain
transactions or matters with respect to Aircraft require the specific approval
of Airplanes Group, including:
- sales of Aircraft (other than as required by a Lease)
- the entering into of any Leases (including renewals or extensions,
unless any such Lease had originally been approved) if the Lease does
not comply with any applicable operating covenants set forth under
"Description of Securities -- The Notes and the Guarantees -- Operating
Covenants"
- 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. adopts 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.
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<PAGE> 87
TERM AND TERMINATION
The Servicing Agreement is for a non-cancellable initial term expiring on
the earlier of (i) March 28, 2014 or (ii) payment in full of all amounts
outstanding to be paid under the Notes. Each party has the right to terminate
the Servicing Agreement under certain circumstances. The Servicer has the right
to terminate the Servicing Agreement if, among other things:
- Airplanes Limited, AeroUSA and/or Holding Co. fails to pay when due (i)
any servicing fees if not paid within five days of notice of such
failure, or (ii) any other amount payable by Airplanes Limited, AeroUSA
or Holding Co. to the Servicer if not paid within ten days of notice of
such failure
- Airplanes Limited, AeroUSA, Holding Co. or any of their subsidiaries
fails to perform or observe or violates 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 any Significant Subsidiary 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 any Significant Subsidiary 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.
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<PAGE> 88
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 Rating
Agencies have confirmed to Airplanes Group that no lowering or withdrawal of the
then current ratings of any Certificates will result from such appointment. In
the event that a replacement servicer has not been appointed within 90 days
after any termination of the Servicing Agreement or resignation by the Servicer,
the Servicer may petition any court of competent jurisdiction for the
appointment of a replacement servicer. Notwithstanding any other term to the
contrary, the Servicer may terminate the Servicing Agreement, whether or not a
replacement servicer has been appointed and accepted such appointment, in the
event that Airplanes Limited, AeroUSA or Holding Co. have failed, after the
applicable cure periods, to pay amounts due to the Servicer.
TAX STATUS
By virtue of GPA Group's ownership of 5% of the issued and outstanding
ordinary share capital of Holding Co. and the continued ability of GPA Group and
GECAS to satisfy certain employment levels in Shannon, Ireland, it is intended
that the Irish tax resident Transferred Companies will continue to benefit from
their status as Shannon certified companies. As a result of this status, the
Irish tax resident Transferred Companies are intended to enjoy reduced rates of
corporation tax and advance corporation tax together with improved entitlements
to capital allowances. In addition, the benefits include the right to pay
interest, in certain circumstances, without paying Irish withholding tax and to
deduct payments of interest in computing liability for corporate tax. There can
be no assurance that the future management of the Aircraft by the Servicer in
accordance with the terms of the Servicing Agreement will not expose Holding Co.
or the Irish tax resident Transferred Companies to tax liabilities outside
Ireland. The Servicing Agreement sets out certain tax-related undertakings with
respect to the Servicer which are designed to maintain a favorable tax treatment
in Ireland for Holding Co. and the Irish tax resident Transferred Companies.
These tax-related undertakings include the following:
- maintaining minimum levels of employment in Ireland, if required for
Holding Co. or the Irish tax resident Transferred Companies to maintain
their Shannon licences and tax certification
- holding meetings of the board of directors of the Servicer in Shannon no
less frequently than quarterly and only occasionally outside Shannon
- the Servicer's transaction approval committee (meeting in Shannon not
less frequently than monthly and meeting outside Ireland only
occasionally) shall be comprised of at least five persons, a majority of
whom will 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 shall 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
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<PAGE> 89
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.
See "Risk Factors -- Risks Relating to Tax".
ASSIGNMENT OF SERVICING AGREEMENT
The Servicing Agreement and the rights and obligations of the Servicer, on
the one hand, and Airplanes Limited, Holding Co. and AeroUSA, jointly and
severally, on the other hand, are not assignable by any of such parties other
than with the prior consent of the other parties. However, the Servicer may
delegate any portion, but not all, of its duties to GE Capital or GE or any 75%
or more owned subsidiary of GE Capital or GE.
PRIORITY PAYMENT OF SERVICING FEES AND REIMBURSABLE EXPENDITURES
The fees and expenses of the Servicer rank senior in priority of payment to
all payments of interest, principal and premium, if any, on the Notes.
The joint and several obligations of Airplanes Limited, Holding Co. and
AeroUSA under the Servicing Agreement have been guaranteed for the benefit of
the Servicer by each entity within Airplanes Group.
CORPORATE MANAGEMENT
With regard to the corporate affairs of Airplanes Group, management
services are provided by four entities: the Administrative Agent, the Cash
Manager, the Company Secretary and the Delaware Trustee.
ADMINISTRATIVE AGENT
GPA Financial acts as the Administrative Agent of Airplanes Group.
The Administrative Agent is responsible for providing administrative and
accounting services to the Directors and Controlling Trustees. The
Administrative Agent's duties include:
(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 the 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;
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(i) preparing and coordinating reports to investors (including preparing
press releases and managing investor relations) and to the 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 and the Delaware Trustee;
(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.
The Administrative Agent also provides other administrative services,
including (a) assistance in arranging refinancings of all or a portion of the
Notes, (b) assistance in filing and making effective a shelf registration
statement on behalf of Airplanes Group with the Commission relating to certain
of the Certificates, and (c) undertaking an effort to avoid any adverse change
in the tax status of the various members of Airplanes Group. Airplanes Limited,
AeroUSA and Holding Co. are, jointly and severally, obligated to pay a fee (the
"ADMINISTRATIVE FEE") to the Administrative Agent in a per annum amount equal to
$6 million, payable monthly in arrears. The Administrative Agent is also
entitled to an additional fee (the "REDUCING FEE") in an amount equal to $2
million per annum, payable monthly in arrears, which is reduced by certain
agreed amounts in the event that Airplanes Group sells, retires or disposes of
76 or more of the Aircraft. Both the Administrative Fee and the Reducing Fee
will, from time to time, be adjusted for inflation. The Administrative Agent is
also entitled to be reimbursed for certain expenses incurred in connection with
the performance of its services under the Administrative Agency Agreement. The
Administrative Agent may resign on 60 days' written notice in certain
circumstances. Airplanes Group may remove the Administrative Agent on 120 days'
written notice with or without cause, as long as Airplanes Group has, with the
consent of the Servicer, engaged another person or entity to perform the
services that were being provided by the Administrative Agent.
CASH MANAGER
GPA Cash Manager acts as the Cash Manager. The Cash Manager provides cash
management and related services to Airplanes Group. In the ordinary course of
Airplanes Group's business, the Cash Manager informs the Servicer and the
Administrative Agent of the aggregate deposits in the Accounts as required and
provides 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 (the "PERMITTED ACCOUNT 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.
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The Cash Manager is required to exercise the same level of skill, care and
diligence in the performance of its services as a prudent business person would
in administering such services on its own behalf. 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.
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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 or derived from
the audited Financial Statements of Airplanes Limited and Airplanes Trust
included elsewhere in this Prospectus, which have been audited by KPMG --
Dublin, Ireland, independent chartered accountants. See "Experts". These
financial statements have been prepared in accordance with U.S. GAAP. The
selected financial data set forth below as of September 30, 1997 and for the six
month periods ended September 30, 1996 and September 30, 1997 have not been
audited but in the opinion of management reflect all adjustments, consisting
only of normal and recurring adjustments, necessary to present a fair statement
of the information presented therein.
The selected combined financial data set forth below are presented on the
basis that the Aircraft have been operated separately from GPA within Airplanes
Group for all periods presented or from the date of acquisition by GPA, as
appropriate. Investors should note, however, that Airplanes Group has conducted
independent business operations only since March 28, 1996. Accordingly, for
periods prior to March 28, 1996 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 "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 "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
Combining Financial Statements included elsewhere in this Prospectus, and
investors should note 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 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 of
Airplanes Group and the Notes thereto, which are included elsewhere in the
Prospectus.
As GPA holds substantially all of the Class E Notes through which it has
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.
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<PAGE> 93
COMBINED STATEMENT OF OPERATIONS DATA(1)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------------ -------------
1993 1994 1995 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ----
($ MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues(2)
Aircraft leasing.......................... 413 526 608 616 604 309 306
Expenses
Depreciation and amortization............. (230) (185) (208) (207) (223) (104) (98)
Net interest expense(3)(4)................ (203) (252) (348) (368) (383) (186) (203)
Provision for maintenance................. (83) (71) (88) (97) (91) (50) (49)
Bad and doubtful debts.................... (31) (20) (33) 28 -- 1 (1)
Provision for loss making leases and
downtime, net(5)....................... (33) (27) (5) 15 12 10 17
Other lease costs......................... (28) (19) (17) (21) (21) (25) (18)
Selling, general and administrative
expenses............................... (22) (26) (34) (35) (38) (18) (20)
Income tax benefit.......................... 32 13 16 13 10 -- 1
----- ----- ----- ----- ----- ----- -----
Net loss.................................... (185) (61) (109) (56) (130) (63) (65)
===== ===== ===== ===== ===== ===== =====
</TABLE>
COMBINED BALANCE SHEET DATA(1)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
--------------------------------------- -------------
1994 1995 1996 1997 1997
------ ------ ------ ------ -------------
($ MILLIONS)
<S> <C> <C> <C> <C> <C>
Aircraft, net, and net investment in
capital and sales type leases........... 4,332 4,181 3,965 3,731 3,612
------- ------- ------- ------- -------
Total assets.............................. 4,561 4,386 4,236 4,048 3,917
======= ======= ======= ======= =======
Indebtedness(3)......................... (4,583) (4,602) (4,634) (4,397) (4,283)
Provision for maintenance............... (217) (268) (311) (313) (313)
Total liabilities......................... (5,169) (5,228) (5,252) (5,194) (5,128)
======= ======= ======= ======= =======
Net liabilities........................... (608) (842) (1,016) (1,146) (1,211)
</TABLE>
COMBINED STATEMENT OF CASH FLOWS AND OTHER DATA(1)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
-------------------------------------- -------------
1993 1994 1995 1996 1997 1996 1997
------ ---- ---- ---- ---- ---- ----
($ MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash paid in respect of interest(3)(4).... 178 222 303 323 265 131 126
EBITDA(6)................................. 222 369 440 514 483 235 243
Net cash provided by operating activities
(after payment of interest)............. 164 189 177 216 224 148 106
Net cash (used in)/provided by investing
activities.............................. (1,282) (514) (23) 13 19 8 19
Net cash (used in)/provided by financing
activities.............................. 1,118 325 (154) (144) (238) (127) (115)
------- ----- ----- ----- ----- ----- -----
Net Movements in cash..................... NIL NIL NIL 85 5 29 10
======= ===== ===== ===== ===== ===== =====
</TABLE>
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SELECTED RATIOS(1)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
----------------------------------------- --------------
1993 1994 1995 1996 1997 1996 1997
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Deficiency of Combined Earnings to
Combined Fixed Charges(7) ($
millions)............................. (217) (74) (125) (69) (140) (63) (66)
EBITDA(6) to cash paid in respect of
interest(3)(4)........................ 1.25 1.66 1.45 1.59 1.82 1.79 1.93
Indebtedness, less the Class E Note
Portion, to EBITDA(3)(6)(8) (interim
period EBITDA amounts annualized)..... 15.10 10.51 8.85 7.87 7.88 8.33 7.60
</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) For all periods and dates prior to March 28, 1996, net interest expense,
indebtedness and cash paid in respect of interest have been based on certain
assumptions as described more fully in Note 2 to the Financial Statements.
For all periods and dates since March 28, 1996, net interest expense,
indebtedness and cash paid in respect of interest have reflected the actual
terms of the Existing Notes and Airplanes Group's Class E Notes.
(4) Net interest expense is significantly higher than cash paid in respect of
interest in all periods reflecting the high interest rate accruing on the
Class E Notes (20% adjusted for inflation) relative to the lower amount of
cash interest payable on the Class E Notes for so long as the Notes remain
outstanding. Net interest expense is stated after crediting interest income
of $6 million in 1993 and 1994, $9 million in 1995, $8 million in 1996, $17
million in 1997, $8 million in the six months ended September 30, 1996 and
$8 million in the six months ended September 30, 1997.
(5) A lease agreement is deemed to be "loss making" in circumstances where the
contracted rental payments are insufficient to cover depreciation and
interest attributable to the Aircraft plus certain direct costs attributable
to the lease over its term. Following the adoption of FAS 121 with effect
from April 1, 1996, Airplanes Group no longer makes separate provisions for
downtime costs. See Note 4(b) to the Financial Statements.
(6) 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.
(7) 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.
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(8) 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 15% of Airplanes
Group's indebtedness.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
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.
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 -- SIX MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH SIX
MONTHS ENDED SEPTEMBER 30, 1996.
Airplanes Group's results of operations for the six months ended September
30, 1997 reflected a continuation of reasonably favorable industry conditions.
There was a utilisation of a loss making lease provision of $17 million and the
number of Aircraft off-lease at September 30, 1997 was four compared to five at
September 30, 1996. Overall, Airplanes Group generated $106 million in cash from
operations in the six months to September 30, 1997 compared to $148 million in
the same period of the previous year. The decrease in cash generated from
operations in the six month period to September 30, 1997 is primarily
attributable to an increase in maintenance claims and technical costs for the
six months ended September 30, 1997 to $52 million as compared with $31 million
for the six months ended September 30, 1996. In addition,
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the decrease in cash from operations in the six months ended September 30, 1997
reflects the receipt from GPA of $13 million in the period to September 30, 1996
pursuant to the purchase price adjustment provisions of Airplanes Group's
agreement to acquire certain subsidiaries from GPA Group. Finally, maintenance
receipts received previously in cash from one lessee which amounted to $4
million in the six months ending September 31, 1996, were replaced by letters of
credit in the three months to December 31, 1996.
Overall, there was a net loss after taxation for the six months to
September 30, 1997 of $65 million (Airplanes Limited: $60 million; Airplanes
Trust: $5 million) compared to a net loss after taxation for the six months to
September 30, 1996 of $63 million (Airplanes Limited: $57 million; Airplanes
Trust: $6 million)
REVENUES
Revenues (which include maintenance reserve receipts which Airplanes Group
receives from certain of its lessees) for the six months ended September 30,
1997 remained relatively unchanged at $306 million (Airplanes Limited: $269
million; Airplanes Trust: $37 million) compared with $309 million (Airplanes
Limited: $271 million; Airplanes Trust: $38 million) for the six months ended
September 30, 1996. The marginal decrease in 1997 was primarily attributable to
the reduced rental rates for three MD11 Aircraft on lease to Varig (one of which
only delivered to Varig on September 29, 1997) which are approximately one-third
lower than the contracted rentals received under such Aircraft's previous lease
agreements which were in effect during the period to September 30, 1996. These
factors were partially offset by a marginally higher interest rate environment
(which impacts the pricing of certain lease rentals). In addition, there was a
decrease in maintenance revenues as a result of one lessee replacing cash
maintenance payments with letters of credit in the three months to December 31,
1996.
At September 30, 1997 and September 30, 1996 Airplanes Group had 224
Aircraft on lease (Airplanes Limited: 200 Aircraft; Airplanes Trust: 24
Aircraft). However, during October 1997, a DC-9 Aircraft on lease to a Mexican
lessee suffered a constructive total loss, which will result in a reduction in
the number of Aircraft on lease in the six months to March 31, 1998. A further
Aircraft was sold on November 10, 1997. Finally, revenues for the six months to
March 31, 1998 will be reduced by $2 million compared with revenues received for
the six months to March 31, 1997 as a result of the lease restructuring with TAM
of six Fokker 100 Aircraft which, at September 30, 1997, had an average
remaining lease term of 29 months. During the month ended October 31, 1997, all
six leases were restructured. In consideration for an extension of the leases
for 119 months, the revised terms of the leases include rental rates reduced by
approximately 24%, no maintenance reserve payments and the return of all
previously paid maintenance reserves by Airplanes Group within 12 months. The
reduced rentals payable under the revised terms of these leases will require an
additional "loss making" lease provision of approximately $13 million in the
three months ending December 31, 1997.
DEPRECIATION AND AMORTIZATION
The charge for depreciation and amortization in the six months ended
September 30, 1997 amounted to $98 million (Airplanes Limited: $87 million;
Airplanes Trust: $11 million) compared with $104 million (Airplanes Limited: $92
million; Airplanes Trust: $12 million) for the comparative period in 1996. The
decrease arose as a result of the depreciation charge being calculated on the
revised aircraft book values net of all valuation provisions required. This has
been partially offset by an increase in the charge required, in accordance with
FAS 121, in respect of Airplanes Group's three A300-B4-100 Aircraft.
NET INTEREST EXPENSE
Net interest expense amounted to $203 million (Airplanes Limited: $182
million; Airplanes Trust: $21 million) in the six month period ended September
30, 1997 compared to $186 million (Airplanes Limited: $169 million; Airplanes
Trust : $17 million) in the six month period ended September 30, 1996. The
increase in net interest expense was primarily due to additional interest being
charged on accrued but unpaid Class E Note interest of $18 million. In addition,
a marginally higher interest rate environment prevailed during the six months to
September 30, 1997. This has been partially offset by lower average debt in the
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six months to September 30, 1997 including, in particular, a reduction in the
principal amount of the Subclass A-5 Notes.
The weighted average interest rate on the Class A-D Notes during the six
months to September 30, 1997 was 6.80% and the average debt in respect of the
Class A-D Notes outstanding during the period was $3,751 million. The Class E
Notes accrue interest at a rate of 20% per annum (as adjusted by reference to
the U.S. consumer price index, effective March 28, 1996). The weighted average
interest rate on the Class A-D Notes during the six months to September 30, 1996
was 6.60% and the average debt in respect of the Class A-D Notes outstanding
during the period was $3,995 million.
The difference for the six months ended September 30, 1997 in Airplanes
Group's net interest expense of $203 million (Airplanes Limited: $182 million;
Airplanes Trust: $21 million) and cash paid in respect of interest of $126
million (Airplanes Limited: $115 million; Airplanes Trust: $11 million) 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 the period ended September 30, 1997. Furthermore, as a result
of the greater than expected decrease in appraised values as at February 25,
1997, as compared to the Initial Appraised Values, no interest payments on the
Class E Notes were made from February 17, 1997 until July 15,1997.
Net interest expense is stated after deducting interest income earned
during the relevant period. In the six months ended September 30, 1997,
Airplanes Group earned interest income (including lessee default interest) of $8
million (Airplanes Limited: $7 million; Airplanes Trust: $1 million) which was
unchanged from the six months ended September 30, 1996.
BAD DEBT AND LOSS-MAKING LEASE PROVISIONS
See "Results of Operations -- Year Ended March 31, 1997 Compared with Year
ended March 31, 1996" for a discussion of Airplanes Group's accounting practices
in respect of delinquent receivables and provisions for "loss making" leases.
While a small number of Airplanes Group's lessees failed to meet their
contractual obligations in the six month period ended September 30, 1997,
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 carriers improved in the period. Overall, there was a net
provision required of $1 million in respect of bad and doubtful debts (Airplanes
Limited: $1 million; Airplanes Trust: nil) in the six months ended September 30,
1997. However there was an overall net credit of $1 million of provisions
previously made in respect of bad and doubtful debts for the six months ended
September 30, 1996 (Airplanes Limited: nil; Airplanes Trust: $1 million). The
net charge in 1997 was primarily as a result of the requirement for provisions
against receivable balances due from one Indonesian lessee, one Turkish lessee,
one Peruvian lessee and one North American lessee, which were partially offset
by a reduction in the provisions required in respect of two Mexican lessees, one
Canadian lessee and one Philippine lessee.
There were no significant "loss making" leases signed in the six months to
September 30, 1997. In respect of "loss making" lease provisions, there was an
overall net provision utilized of $17 million (Airplanes Limited: $15 million;
Airplanes Trust: $2 million) in the six months to September 30, 1997 compared
with an overall net utilization of $10 million (Airplanes Limited: $7 million;
Airplanes Trust: $3 million) in the six month period to September 30, 1996. The
increase in the provision released in the period to September 30, 1997 is as a
result of no material "loss making" lease provisions required in the period to
September 30, 1997 as compared to the $7 million provision required primarily in
respect of a "loss making" lease for one B747 aircraft in the period to
September 30, 1996. During the month ended October 31, 1997, the leases in
respect of six Fokker 100 Aircraft on lease to a Brazilian lessee were
restructured. The reduced rentals payable under the revised terms of these
leases will require an additional "loss making" lease provision of approximately
$13 million in the three months ending December 31, 1997.
OTHER LEASE COSTS
Other lease costs in the six months ended September 30, 1997 amounted to
$18 million (Airplanes Limited: $17 million; Airplanes Trust: $1 million)
compared to other lease costs of $25 million (Airplanes
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Limited: $19 million; Airplanes Trust: $6 million) in the six months to
September 30, 1996. The reduction in the charge in the six months to September
30, 1997, was primarily due to the fact that in the six months to September 30,
1996, other lease costs included provisions for maintenance and other costs of
$15 million in respect of two DC10-30 Aircraft, one of which was sold on April
4, 1997. This was partially offset by an increase in technical costs of $5
million which relate primarily to two B737-200 Aircraft which were redelivered
in the previous quarter and a provision required of $4 million (including $3
million relating to potential costs payable to Eurocontrol, the European air
traffic control regulator) in respect of three MD83 Aircraft which were on lease
to a Turkish lessee which has ceased to trade on October 3, 1997. All three MD83
Aircraft have been de-registered and repossessed.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the six month period to
September 30, 1997 amounted to $20 million (Airplanes Limited: $19 million;
Airplanes Trust: $1 million). This is a comparable expense to that incurred in
the six months to September 30, 1996 of $18 million (Airplanes Limited: $16
million; Airplanes Trust: $2 million).
The most significant element of selling, general and administrative
expenses is the aircraft servicing fees paid to 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 $20 million in the six months to
September 30, 1997 include $13 million (Airplanes Limited: $12 million;
Airplanes Trust: $1 million) relating to GECAS servicing fees as compared to the
expense incurred in respect of GECAS servicing fees in the comparative period to
September 30, 1996 of $12 million (Airplanes Limited: $11 million; Airplanes
Trust: $1 million). 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 September 30, 1997 was $4
million (Airplanes Limited: $4 million; Airplanes Trust: nil) in respect of
administrative agency and cash management fees payable to GPA, which is similar
to the charge of $5 million for the period to September 30, 1996 (Airplanes
Limited: $4 million; Airplanes Trust: $1 million).
OPERATING LOSS
The operating loss for the six months ended September 30, 1997 was $66
million (Airplanes Limited: $61 million; Airplanes Trust: $5 million) compared
with an operating loss of $63 million for the six months ended September 30,
1996 (Airplanes Limited: $56 million; Airplanes Trust: $7 million). Airplanes
Limited and Airplanes Trust are expected to continue to report substantial
losses in the future.
TAXES
There was an overall deferred tax benefit of $1 million in the six months
to September 30, 1997, as a result of continuing operating losses (Airplanes
Limited: $1 million; Airplanes Trust: nil), compared with no overall tax benefit
in the same period in 1996 (Airplanes Limited: a charge of $1 million; Airplanes
Trust: a benefit of $1 million).
NET LOSS
The net loss after taxation for the six months ended September 30, 1997 was
$65 million (Airplanes Limited: $60 million; Airplanes Trust: $5 million)
compared with a net loss after taxation for the six months ended September 30,
1996 of $63 million (Airplanes Limited: $57 million; Airplanes Trust: $6
million).
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
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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 were 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.
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 was sold subsequent to September 30, 1997.
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 Existing 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.
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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 Existing
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 was paid on the Class E Notes from February 17, 1997 to
July 15, 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 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 million) were released
during the year to March 31, 1997. In the year to March 31, 1996, the net
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provision released was also $7 million (Airplanes Limited: a release of $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 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 the 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 million) in respect
of administrative agency and cash management fees payable to GPA. Arrangements
with GPA in 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).
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
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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).
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 Existing
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).
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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.
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).
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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 1996 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 cash balances at
September 30, 1997 amounted to $235 million (Airplanes Limited: $229 million;
Airplanes Trust $6 million) compared to cash balances at September 30, 1996 of
$249 million (Airplanes Limited: $243 million; Airplanes Trust: $6 million).
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.
Six Months Ended September 30, 1997 Compared with Six Months Ended September 30,
1996
Net cash provided by operating activities in the six months ended September
30, 1997 amounted to $106 million (Airplanes Limited: $105 million; Airplanes
Trust: $1 million) compared with $148 million in the six months ended September
30, 1996 (Airplanes Limited: $141 million; Airplanes Trust: $7 million). This
reflects cash paid in respect of interest of $126 million in the six months to
September 30, 1997 (Airplanes Limited: $115 million; Airplanes Trust: $11
million) compared with $131 million in the six months to September 30, 1996
(Airplanes Limited: $120 million; Airplanes Trust $11 million). The decrease in
cash from operations generated in the six month period to September 30, 1997 is
primarily attributable to the increase in both maintenance claims and technical
costs for the six months ended September 30, 1997 as compared to the six months
ended September 30, 1996. In addition, there was a receipt from GPA of $13
million in the period to September 30, 1996 pursuant to the purchase price
adjustment provisions of Airplanes Group's agreement to acquire certain
subsidiaries of GPA Group and maintenance receipts received previously in cash
from one lessee were replaced by letters of credit in the three months to
December 31, 1996.
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Year Ended March 31, 1997 Compared With Year Ended March 31, 1996
Net cash provided by operating activities amounted to $224 million in the
fiscal year ended March 31, 1997 (Airplanes Limited: $214 million; Airplanes
Trust: $10 million), compared with $216 million in the fiscal year ended March
31, 1996 (Airplanes Limited: $196 million; Airplanes Trust: $20 million). This
reflects cash paid in respect of interest of $265 million in the fiscal year
ended March 31, 1997 (Airplanes Limited: $237 million; Airplanes Trust: $28
million), compared with $323 million in the fiscal year ended March 31, 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 the fiscal year ended March 31, 1997
(Airplanes Limited: $191 million; Airplanes Trust: $32 million), compared with
$207 million in the fiscal year ended March 31, 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, 1997
also 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. 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 March 28, 1996.
INVESTING AND FINANCING ACTIVITIES
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).
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.
Cash flows from investing and financing activities in the six months to
September 30, 1997 primarily reflect the repayment of $115 million of principal
on Subclass A-5 and Class B Notes by Airplanes Group (Airplanes Limited: $105
million; Airplanes Trust: $10 million) compared to $127 million of principal on
Subclass A-5 and Class B Notes repaid by Airplanes Group (Airplanes Limited:
$120 million; Airplanes Trust: $7 million) in the six months to September 30,
1996. The lower amount of principal repayments in the six months ended September
30, 1997 is due to a lower amount of cash provided by operating activities as
discussed above, being partially offset by cash flows from investing activities
of $9 million from the sale of a DC10 Aircraft on April 4, 1997.
Cash flows from investing activities are expected to be significantly
greater in the six months ended March 31, 1998 as a result primarily of
Airplanes Group's recent agreement with Emery for the sale of six DC8 Aircraft
to Emery for an aggregate price that meets the aggregate Note Target Price.
INDEBTEDNESS
Airplanes Group's indebtedness consists of the Class A-E Notes in the
amount of $4,267 million (Airplanes Limited: $3,887 million; Airplanes Trust:
$380 million) at November 17, 1997. Airplanes Group has $591 million in Class E
Notes outstanding at November 17, 1997. In order to repay principal on the
Subclass A-2, A-3, A-4 and A-6 Notes on their Expected Final Payment Dates,
Airplanes Group will have to refinance such Notes in the capital markets. In
order to avoid stepped up interest costs, $750 million of
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Subclass A-2 Notes, $500 million of Subclass A-3 Notes, $200 million of Subclass
A-4 Notes and $ - million of Subclass A-6 Notes will have to be refinanced
through the sale of further pass-through certificates in 1999, 2001, 2003 and
- 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 scheduled principal payments on the Class
C and D Notes (which are scheduled to commence in May 1998 and 1999,
respectively) and interest payments on the Class E Notes. Airplanes Group
obtained updated appraisals of the Aircraft from the Appraisers as of February
25, 1997. On the basis of these three updated appraisals, the average appraised
Base Value of the Aircraft as of March 31, 1997 was approximately $4,207 million
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 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 cash inflows since March 28, 1996 had allowed
greater than expected amortization of the Class A Notes. Accordingly, at March
17, 1997, Principal Adjustment Amounts of only 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.
Updated appraisals of the Aircraft will next be obtained by Airplanes Group
at the end of January, 1998. On the basis of developments in aircraft values
since the date of the last appraisal in February, 1997, it is expected that the
average appraised Base Value of the Aircraft in the Portfolio next January will
again show a greater decrease than that assumed by the Notes' aircraft
depreciation schedules. With a few exceptions, greater than assumed decreases
are again anticipated across the Portfolio with significant impacts resulting
from decreases in values of Fokker 100s, DC8s and, to a lesser extent, MD11s and
MD83s. These greater than assumed decreases are anticipated due primarily, in
the case of the Fokker 100s, to Fokker exiting the industry, and in the case of
the MD11s and MD83s, to the Boeing/McDonnell Douglas merger. The value of
Airplanes Group's DC8 freighter Aircraft is expected to suffer greater than
anticipated declines due in part to increasing competition from A300 aircraft
that have been converted to freighter configuration. Airplanes Group also
expects its four B767-300ER Aircraft to suffer greater than assumed decreases in
value due in part to the competition this aircraft type now faces from the
relatively new A330-200 aircraft. Finally, greater than assumed decreases are
also anticipated with respect to the values of A320-200s and B737-300/400/500s
due primarily to continued price discounting by Boeing and Airbus.
The exact extent to which the actual decrease in Aircraft values to be
demonstrated by the January 1998 appraisals will exceed the assumed value
decline and the size of required Class A Principal Adjustment Amounts will not
be known until such appraisals are obtained. Airplanes Group expects, however,
that the actual value decrease will exceed the assumed value decrease to a
similar extent as that experienced in February 1997. However, at December 15,
1997, Airplanes Group had exceeded scheduled payments to the Class A Notes by
$41 million and, therefore, the required Class A Principal Adjustment Amount
will reflect such repayments and will be further offset by net cash proceeds
from the sale of six DC8 Aircraft to Emery in the six months to March 31, 1998.
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
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LIBOR, generally six-month LIBOR. Some leases carry fixed and floating rental
payments for different rental periods. Slightly more than half of the leases are
fixed rate leases and there has been an increasing tendency for fixed rate
leases to be written.
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 enters into interest rate swaps (the "SWAPS"). Under the Swaps, Airplanes
Group pays fixed amounts and receives floating amounts on a monthly basis. The
Swaps amortize having regard to the expected paydown schedule of the Class A and
B Notes, the expiry dates of the leases under which lessees are contracted to
make fixed rate rental payments and the LIBOR reset dates under the floating
rate leases. At least every three months, and in practice more frequently, 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 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 September 30,
1997, Airplanes Group had unamortized Swaps with an aggregate notional principal
balance of $2,730 million. None of the Swaps have maturity dates extending
beyond June 2001. The fair values of the swaps at September 30, 1997 was a
negative $1.2 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 and in the prevailing level of interest rates. On each
Payment Date Airplanes Group purchases Swaptions with an aggregate notional
amount equal to the quotient of (i) the difference, if positive, between the
Target Hedge and aggregate notional amount of Swaptions owned by the Group
immediately prior to such purchase divided by (ii) the number of Payment Dates
remaining until the Payment Date in May 1998 or, after May 15, 1998, one. The
payment of premium for any such Swaptions may be made at two points in the
Priority of Payments. Fifty percent of any such payment for any month is a
"MINIMUM HEDGE PAYMENT" and is paid in the order of priority of payments set
forth under "Description of Securities -- The Notes and the Guarantees --
Priority of Payments". The other 50% of any such premium payable is expended as
a "SUPPLEMENTAL HEDGE PAYMENT" and is paid in the order of priority of payments
set forth under "Description of Securities -- The Notes and the Guarantees --
Priority of Payments". If there are not sufficient amounts available for
distribution, with the result that a Supplemental Hedge Payment would not be
made, then Airplanes Group will reduce the aggregate notional amount of the
Swaptions bought in any given month to reflect the amount that can be bought for
the premium payable as a Minimum Hedge Payment. 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 September 30, 1997, Airplanes Group
purchased Swaptions with an aggregate notional principal balance of $124 million
and sold Swaptions with an aggregate notional principal balance of $25 million.
The net aggregate notional principal balance of Swaptions at September 30, 1997
therefore amounted to $99 million. The fair value of the Swaptions at September
30, 1997 was
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$0.6 million and because the Swaptions do not qualify for hedge accounting under
U.S. GAAP, this amount has been included in income for the six months ended
March 31, 1997.
Through the use of 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 Certificates.
THE ACCOUNTS
Substantially all of Airplanes Group's cash inflows and outflows occur
through certain bank accounts prescribed by the Trust Indentures and the
Security Trust Agreement, which the Cash Manager, acting on behalf of the
Security Trustee, has established. The accounts are as follows: (i) the
Collection Account, (ii) the Lessee Funded Account, (iii) the Expense Account
and (iv) the Rental Accounts. Each of the Collection Account, the Expense
Account, most of the Rental Accounts and the Lessee Funded Account have been
established at a bank having (i) a long-term unsecured debt rating of not less
than AA, or the equivalent, by certain rating agencies or (ii) a certificate of
deposit rating of A-1+ by Standard & Poor's, P-1 by Moody's and that is
acceptable to other relevant rating agencies. Where required by the terms of the
relevant leases, certain Rental Accounts may be established at banks having
ratings of less than AA, or the equivalent, by certain rating agencies or a
certificate of deposit rating of less than A-1+ by Standard & Poor's and P-1 by
Moody's. Except where local legal or regulatory reasons do not permit, all of
such accounts are held in the names of the Security Trustee, who has sole
dominion and control over the Accounts, including, inter alia, the sole power to
direct withdrawals from or transfers among such accounts. Subject to certain
conditions set forth in the Cash Management Agreement, the Security Trustee has
delegated such authority over the Accounts to the Cash Manager; provided that
the Security Trustee is not responsible for the acts or omissions of the Cash
Manager.
For as long as any Notes remain outstanding, funds on deposit in the
Accounts will be invested and reinvested at Airplanes Group's written direction
(which direction may be delegated, at Airplanes Group's discretion, to the Cash
Manager pursuant to the terms of the Cash Management Agreement) in one or more
investments permitted under the Trust Indentures, maturing, in the case of the
Collection Account and Expense Account, such that sufficient funds shall be
available to make required payments on the first succeeding scheduled interest
payment date on the Notes after such investments are made; provided that
investment and reinvestment of funds in the Lessee Funded Account must be made
in a manner and with maturities that conform to the requirements of the related
leases. Investment earnings on funds deposited in any Account, net of losses and
investment expenses, will, to the extent permitted by the terms of such related
leases in the case of such funds in the Lessee Funded Account, be deposited in
the Collection Account and treated as collections.
RENTAL ACCOUNTS
The Lessees make all payments under the Leases directly into the applicable
Rental Accounts. Pursuant to the Cash Management Agreement, the Cash Manager
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).
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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 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 as of September 30, 1997, (ii)
a "SECURITY DEPOSIT RESERVE AMOUNT", equal to approximately $59.8 million as of
September 30, 1997, and (iii) a "MISCELLANEOUS RESERVE AMOUNT", equal to $40.0
million as of September 30, 1997.
The Liquidity Reserve Amount at November 17, 1997 equaled approximately
$181.8 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
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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 are held in the
Lessee Funded Account. Amounts on deposit in the Lessee Funded Account are
accounted for, and, if required by any Lease, segregated, on a per Lease basis.
Funds on deposit in the Lessee Funded Account are 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 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 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.
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DESCRIPTION OF SECURITIES
The following summary is qualified in its entirety by reference to the
Trust Indentures, the Cash Management Agreement, the Reference Agency Agreement,
the Administrative Agency Agreement, the Airplanes Trust Agreement, the Notes,
the Secretarial Services Agreement, the Security Trust Agreement, the Servicing
Agreement, the Stock Purchase Agreements, the Swap Agreements and the Trust
Agreement and any supplements thereto (collectively, the "RELATED DOCUMENTS"),
forms of which have been filed as exhibits to the Registration Statement of
which this Prospectus is a part, and the provisions of the Trust Indenture Act
of 1939, as amended (the "TRUST INDENTURE ACT").
GENERAL
In connection with the Offering, two trusts will be formed under the laws
of the State of New York (the "1998 REFINANCING TRUSTS") to be referred to
collectively with each other trust formed and existing with respect to each
other Class or Subclass of Certificates (the "EXISTING TRUSTS") as the "TRUST"
and each of such trusts shall be referred to individually as a Trust. Each
subclass of the 1998 Refinancing Certificates will be issued pursuant to a
related supplement to the Trust Agreement (collectively together with the Trust
Agreements for the other classes or subclasses of Airplanes Group's Notes, the
"TRUST AGREEMENT"), among Airplanes Limited and Airplanes Trust (each, an
"ISSUER" or a "RELEVANT ISSUER") and the Trustee.
The Trust will have no significant assets other than corresponding classes
and subclasses of Airplanes Limited Notes and Airplanes Trust Notes (together,
the "CORRESPONDING NOTES"), the corresponding Guarantees, and funds from time to
time on deposit in the Certificate Accounts.
The Trust Agreement provides that each Relevant Issuer will pay the fees
and expenses of the Trustee in proportion to the initial aggregate principal
amount of Notes issued by such Relevant Issuer and held by the Trustee, and
further provides that the Trustee will be entitled to indemnification by such
entity for, and will be held harmless against, any loss, liability or expenses
incurred by the Trustee (other than through its own wilful misconduct, bad faith
or negligence or by reason of a breach of any of its representations or
warranties set forth in the Trust Agreement).
The Trustee may resign with respect to any Trust at any time upon at least
90 days' prior written notice, in which event Airplanes Group will be obligated
to appoint a successor trustee for such Trust or Trusts. Certificateholders of
each class or subclass may have divergent or conflicting interests from both the
Certificateholders of other classes or subclasses and the Trust, as holder of
the Notes. As a result, the occurrence of certain circumstances, including the
occurrence of an Event of Default under one or more of the Trust Agreements, may
give rise to a potential conflict of interest on the part of the Trustee in its
capacity as trustee of Trusts in respect of more than one class or subclass of
Certificates, upon which event the Trustee may be compelled to resign as trustee
of any Trust in respect of more than one class or subclass of Certificates. In
addition, the occurrence of certain circumstances including a Note Event of
Default under one or both of the Trust Indentures may give rise to a potential
conflict of interest on the part of the Trustee in its capacity as trustee of
more than one class or subclass of Certificates. If the Trustee ceases to be
eligible to continue as trustee with respect to any Trust under the Trust
Agreement, becomes incapable of acting as Trustee or becomes insolvent,
Airplanes Group may remove such Trustee, or any Certificateholder of the
applicable class or subclass who has been a bona fide Certificateholder for at
least six months may, on behalf of itself and all other Certificateholders of
the same class or subclass, petition any court of competent jurisdiction for the
removal of such Trustee and the appointment of a successor trustee. In addition,
Certificateholders evidencing not less than a majority in aggregate Outstanding
Principal Balance of the Certificates of any class or subclass may at any time
remove the Trustee with respect to the applicable Trust without cause by
delivering written notice of such removal in writing to Airplanes Group, the
Cash Manager, the Trustee and the Indenture Trustees. Any resignation or removal
of the Trustee and appointment of a successor trustee for the applicable Trust
will not become effective until acceptance of the appointment by the successor
trustee. Pursuant to such resignation, removal and successor trustee provisions,
it is possible that a different trustee could be appointed to act as the
successor trustee with respect to each Trust. All references in this Prospectus
to the "Trustee" should be read to include the 1998 Refinancing Trustee and the
Trustee for the Existing Notes as well as any
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successor trustee appointed in the event of such a resignation or removal. All
references in this Prospectus to the Trustee are, unless the context otherwise
requires, references to the "APPLICABLE TRUSTEE".
THE CERTIFICATES
The Certificates of each class or subclass, as the case may be, represent
undivided beneficial interests in each of two corresponding classes or
subclasses of Notes and the corresponding Guarantees. The Certificates are not
secured by the Aircraft or the Leases, do not represent an interest in, and,
other than the Guarantees of Airplanes Limited and Airplanes Trust, are not
guaranteed by, any Lessee, Airplanes Limited, Airplanes Trust, the Trustee,
either Indenture Trustee, GPA, or any affiliate of any of the foregoing. In
addition, the Certificates are not obligations of, or guaranteed by, or offered
for sale by, GE Capital, GECAS or any of their affiliates.
Each subclass of the Class A Certificates and each class of Class B, Class
C and Class D Certificates are issued by a separate Trust. The terms and
conditions governing each Trust are substantially similar, except that the
subordination provisions, principal amounts, interest rates, timing of payments
of principal, Expected Final Payment Dates and Final Maturity Dates applicable
to the Notes held by each Trust differ.
The four classes of Certificates have been issued in fully registered form
only. The Class A Notes will, upon completion of the Offering, be subdivided
into a total of six subclasses (Subclasses A-2, A-3, A-4, A-5, A-6 and A-7).
Each Certificate of any class or subclass will represent a fractional undivided
interest in the two corresponding classes or subclasses of Notes, the
corresponding Guarantees and all monies received thereon and funds from time to
time deposited in the Certificate Accounts. All payments and distributions with
respect to each Certificate shall be made only to the extent of the assets of
the applicable Trust. The Certificates are issued in minimum denominations of
$100,000 and integral multiples of $1,000 in excess thereof; provided that a
single Certificate of each class or subclass may be issued in a denomination of
less than $100,000.
Each subclass of the 1998 Refinancing Certificates will bear interest at
the floating rate per annum borne by the corresponding class or subclass of 1998
Refinancing Notes. Interest on the 1998 Refinancing Notes will be calculated on
the basis of a 360-day year and the actual number of days elapsed in an Interest
Accrual Period. Payments of interest, principal and premium, if any, on any
subclass of the 1998 Refinancing Notes are required to be passed through by the
corresponding Trust to holders of the corresponding subclass of 1998 Refinancing
Certificates at the times and in the manner described herein.
Ratings
Each class or subclass of the Existing Certificates is rated as follows:
<TABLE>
<CAPTION>
RATING AGENCIES
-------------------------------------
DCR MOODY'S STANDARD & POOR'S
--- ------- -----------------
<S> <C> <C> <C>
Subclass A-2 Certificates................................ AA Aa2 AA
Subclass A-3 Certificates................................ AA Aa2 AA
Subclass A-4 Certificates................................ AA Aa2 AA
Subclass A-5 Certificates................................ AA Aa2 AA
Class B Certificates..................................... A A2 A
Class C Certificates..................................... BBB Baa2 BBB
Class D Certificates..................................... BB Ba2 BB
</TABLE>
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It is a condition to issuance of the 1998 Refinancing Certificates that
each subclass of 1998 Refinancing Certificates be rated as follows:
<TABLE>
<CAPTION>
RATING AGENCIES
-------------------------------------
DCR MOODY'S STANARD & POOR'S
--- ------- -----------------
<S> <C> <C> <C>
Subclass A-6 Certificates................................. AA Aa2 AA
Subclass A-7 Certificates................................. AA Aa2 AA
</TABLE>
The ratings of the Certificates address the likelihood of the timely
payment of interest and the ultimate payment of principal and premium, if any,
on the Certificates. Payments of principal and interest on all classes or
subclasses of the Notes will be payable only after any Expenses and certain
other amounts have been paid in full or provided for and only to the extent that
Available Collections are sufficient therefor in accordance with the priority of
payments established for the Notes. In addition, Airplanes Group's ability to
pay Step-Up Interest or principal in full on any class or subclass of the Notes
on the Expected Final Payment Date for the corresponding class or subclass of
Certificates (or on any other date prior to the Final Maturity Date) has not
been rated by any of the Rating Agencies. The ratings assigned to the
Certificates do not address the imposition of any withholding tax on any
payments under the Leases, the Notes, the Guarantees, the Certificates or
otherwise. See "Tax Considerations".
A rating is not a recommendation to buy, sell or hold Certificates inasmuch
as ratings do not comment as to market price or suitability for a particular
investor and may be subject to revision or withdrawal at any time by the
assigning Rating Agency. In the event that the rating initially assigned to any
class or subclass of the Certificates is subsequently lowered, suspended or
withdrawn for any reason, no person or entity is obliged to provide any
additional support or credit enhancement with respect to the Certificates.
Payments and Distributions
The Trustee with respect to each 1998 Refinancing Trust is scheduled to
receive on each Payment Date, commencing April 15, 1998 for each subclass of the
1998 Refinancing Notes, payments of interest, principal and, in certain limited
circumstances described herein, premium on, the corresponding subclass of 1998
Refinancing Notes held by such Trust. The amounts paid with respect to each
class or subclass of Notes will be determined from time to time in accordance
with the provisions described below under "-- The Notes and the Guarantees --
Priority of Payments".
On each Payment Date, the applicable Trustee will distribute (or will
instruct a paying agent appointed in Luxembourg to distribute) to the applicable
Certificateholders all payments of interest, principal and premium, if any, on
each of the pair of corresponding Notes of such class or subclass (other than
payments received following a Note Event of Default in respect of any class or
subclass of Notes), the receipt of which is confirmed by such Trustee or paying
agent by 1:00 p.m. (New York time) on such Payment Date or, if such receipt is
confirmed after 1:00 p.m. (New York time) on such Payment Date, then on the
following Business Day. Each distribution on any Payment Date other than the
Final Payment Date with respect to any Certificate will be made by the Trustee
or paying agent to the Certificateholders as of the Record Date immediately
preceding such Payment Date. If a payment of interest, principal or premium, if
any, on any class or subclass of the Notes (other than a payment received
following a payment default in respect of such class or subclass of Notes) is
not received by the Trustee or paying agent on a Payment Date but is received
within five Business Days thereafter, it will be distributed to such
Certificateholders on the date receipt thereof is confirmed by such Trustee or
paying agent, if such receipt is confirmed by such Trustee or paying agent
before 1:00 p.m. (New York time) or, if such receipt is confirmed after 1:00
p.m. (New York time), then on the following Business Day. If such payment is
received by such Trustee or paying agent after such five Business Day period, it
will be treated as a payment received following a payment default in respect of
such class or subclass of Notes and will be distributed as described below. The
final distribution with respect to any Certificate, however, will be made only
upon presentation and surrender of such Certificate by the Certificateholder or
its agent (including any holder in street name) at the office or agency of the
applicable Trustee or paying agent specified in the notice given by such Trustee
or paying agent with respect to such final
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payment. So long as the Certificates are listed on the Luxembourg Stock
Exchange, Airplanes Group shall appoint and maintain a paying agent in
Luxembourg.
The Expected Final Payment Date for the Subclass A-6 Certificates is
- and the Expected Final Payment Date for the Subclass A-7 Certificates is
- . The Expected Final Payment Date represents the date on which the final
payment of principal of and interest on the Subclass A-6 Certificates or the
Subclass A-7 Certificates is expected to be made based on the Assumptions. The
Final Maturity Date for the 1998 Refinancing Certificates is March 15, 2019. The
Final Maturity Date for the Subclass A-6 Certificates and the Subclass A-7
Certificates represents the date on which all principal not previously paid, if
any, on the Subclass A-6 Notes and Subclass A-7 Notes is due and payable. The
actual final payment date for the Subclass A-6 Certificates and the Subclass A-7
Certificates is likely to occur earlier or later than the Expected Final Payment
Date as a result of numerous factors, including that the Assumptions are
unlikely to correspond to actual experience. For a description of certain
Redemption events and other factors which could cause the Subclass A-6 Notes or
the Subclass A-7 Notes to be paid prior to the Expected Final Payment Date
applicable to such Certificates, see "-- The Notes and the Guarantees --
Redemption". In addition, the Subclass A-6 Certificates and the Subclass A-7
Certificates may be repaid later than the Expected Final Payment Date as a
result of, among other things, increased levels of Aircraft downtime, reduced
Rental Payments, early termination of Leases and, in the case of the Subclass
A-6 Certificates, any inability of Airplanes Group to issue Refinancing Notes
for the purpose of refinancing the Subclass A-6 Certificates. See "Risk Factors
- -- Risks Relating to Payments on the Certificates". Holders of each of the
Subclass A-2, A-3, A-4 and A-6 Certificates will receive payments of Step-Up
Interest in respect of any amounts Outstanding on and after the Expected Final
Payment Date for such subclass. Holders of the Subclass A-5 and A-7 Certificates
will be entitled to payments of Step-Up Interest for any period in which Step-Up
Interest is accruing on any other subclass of Class A Notes.
Each supplement to the Trust Agreement requires that each Trustee establish
and maintain for the benefit of the Certificateholders of such class or subclass
of Certificates, a separate non-interest bearing account (each a "CERTIFICATE
ACCOUNT") for the deposit of payments on the Notes or the Guarantees held in
such Trust. Pursuant to the terms of each Trust Agreement, each Trustee is
required to deposit any payments received by it in respect of the applicable
class or subclass of Notes in the corresponding Certificate Account. All amounts
so deposited will be distributed by such Trustee to Certificateholders of the
applicable class or subclass on each Payment Date unless a different date for
distribution of such amount is specified in the corresponding Trust Agreement.
At such time, if any, as the Certificates of any class or subclass are
issued in the form of Definitive Certificates, distributions by the applicable
Trustee from the applicable Certificate Account on a Payment Date will be made
by check mailed to each Certificateholder of a Definitive Certificate on the
applicable Record Date at its address appearing on the register maintained with
respect to such class or subclass. Alternatively, upon application in writing to
the Trustee, not later than the applicable Record Date, by a Certificateholder
of one or more Definitive Certificates of such class or subclass having an
aggregate principal amount of not less than $1,000,000, any such distribution
will be made by wire transfer to an account designated by such Certificateholder
at a financial institution in New York, New York; provided that the final
distribution for each class or subclass of Certificates will be made only upon
presentation and surrender of the Definitive Certificates of such class or
subclass by the Certificateholder or its agent (including any holder in street
name) at the office or agency of the Trustee specified in the notice of such
final distribution given by such Trustee. Such Trustee will mail such notice of
the final distribution of such class or subclass to each of the
Certificateholders of such class or subclass, specifying the date and amount of
such final distribution.
If any Payment Date or other date specified herein for distribution of any
payments to Certificateholders is not a Business Day, distributions scheduled to
be made on such Payment Date or other date may be made on the next succeeding
Business Day.
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Events of Default
An event of default with respect to any class of Certificates (an "EVENT OF
DEFAULT") is defined as the occurrence and continuance of a Note Event of
Default under either Trust Indenture. Holders of a class of Notes (other than
the Class A Notes) will not be permitted to deliver a default notice ("DEFAULT
NOTICE") with respect to any Note Event of Default or to exercise any remedy in
respect of such Note Event of Default until all amounts with respect to Notes of
each class ranking senior to such class of Notes have been paid in full. Similar
restrictions will apply to Certificateholders.
The Trust Agreement provides that if an Event of Default shall have
occurred and be continuing with respect to any class of Certificates, the
Trustee, subject to the limitations described above, (i) may vote all of the
corresponding class of Notes to declare due and payable the outstanding
principal balance (the "OUTSTANDING PRINCIPAL BALANCE") of, and any accrued but
unpaid interest on, such corresponding class of Notes, and (ii) upon the
direction of Certificateholders representing not less than 25% of the
Outstanding Principal Balance of such class of Certificates, shall vote a
corresponding amount of such corresponding class of Notes to direct the
Indenture Trustees with respect to such class of Notes to declare the
Outstanding Principal Balance of, and any accrued but unpaid interest on, such
corresponding class of Notes to be due and payable; provided that the Trustee
and any such Certificateholders will not be permitted to direct the Indenture
Trustees until all amounts due and payable with respect to the Notes of each
class ranking senior to such corresponding class of Notes have been paid in
full.
As an additional remedy, if any Event of Default shall have occurred and be
continuing, the applicable Trust Agreement provides that the Trustee may, and
upon the direction of the Certificateholders representing not less than 25% of
the Outstanding Principal Balance of such class of Certificates shall, sell all
or part of each of the two corresponding classes of Notes and Guarantees held in
such Trust for cash to any person. Any proceeds received by such Trustee upon
any such sale will be deposited in the Certificate Account for such class
(allocated, in the case of the Class A Notes, among subclasses on a pari passu
basis and pro rata in relation to the Outstanding Principal Balances, if any, on
each subclass) and will be distributed to the applicable Certificateholders on
the next Payment Date. The market for any class of Notes and the related
Guarantees in default would necessarily be very limited; therefore, there can be
no assurance that such Notes and Guarantees could be sold for an amount
sufficient to pay the Outstanding Principal Balance, interest and premium, if
any, on the Notes. If the Trustee sells any class of Notes and Guarantees for
less than the Notes' respective aggregate Outstanding Principal Balances, the
Certificateholders of the corresponding class will receive a smaller amount of
principal distributions than anticipated and will have no claim for the
shortfall against the Relevant Issuer or the applicable Trustee.
Any funds representing payments with respect to the corresponding class of
Notes in default received by the Trustee (including any payment under the
applicable Guarantee) and any proceeds from the sale by the Trustee of such
corresponding class of Notes shall, to the extent practicable, be invested and
reinvested by such Trustee, at the direction of the Senior Trustee pursuant to
the terms of the Cash Management Agreement, in Permitted Account Investments,
pending distribution of such funds to Certificateholders.
The Trust Agreement provides that, within 30 days of the occurrence of an
Event of Default in respect of any class of Certificates, the Trustee will give
to the Certificateholders of such class notice, transmitted by mail, of all
uncured or unwaived defaults under the Trust Agreement known to it on such date.
For the purposes of the Trust Agreement and each Trust Indenture, the term
"default" shall mean the occurrence of any event which is, or after notice or
lapse of time, or both, would constitute an Event of Default or a Note Event of
Default, as the case may be.
The Trust Agreement contains a provision entitling the Trustee, subject to
the duty of such Trustee during a default to act with the required standard of
care, to be indemnified by the holders of the applicable class or subclass of
Certificates before proceeding to exercise any right or power under the Trust
Agreement at the request or direction of such Certificateholders.
In certain cases, Certificateholders representing not less than a majority
of the Outstanding Principal Balance of such class or subclass of Certificates
may, on behalf of all of the Certificateholders of such class or
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subclass, waive any past default or Event of Default under the applicable Trust
Agreement with respect to such class or subclass of Certificates and thereby
annul any previous direction given by the applicable Trustee with respect
thereto, except (i) a default in the deposit or distribution of any payment
required to be made on the Certificates of such class or subclass, (ii) a
payment default on any of the corresponding class or subclass of Notes and (iii)
a default in respect of any covenant or provision of the applicable Trust
Agreement that cannot by the terms thereof be modified or amended without the
consent of each Certificateholder affected thereby. Each Trust Indenture
provides that, with exceptions corresponding to those in the Trust Agreement,
holders representing not less than a majority of the Outstanding Principal
Balance of the senior class of Notes issued thereunder or the Senior Trustee may
waive, on behalf of all holders of such class of Notes, any default or Note
Event of Default thereunder. In the event of a waiver under the Trust Agreement
as described in the first sentence of this paragraph, a corresponding majority
of the Outstanding Principal Balance of Notes held by the related Trust will be
counted as having voted for a waiver of such past default or a Note Event of
Default.
Voting of the Notes
The Trustee, as sole initial holder of the applicable class or subclass of
Notes in each Trust, has the right to vote and give consents and waivers in
respect of such class or subclass and to certain provisions of the Related
Documents. The Trust Agreement sets forth the circumstances in which the Trustee
shall direct any action or cast any vote as the holder of the related class or
subclass of Notes held in the applicable Trust on instructions from the
Certificateholders of such class or subclass. In circumstances in which the
Trustee is required to seek instructions from Certificateholders of the related
Trust with respect to any action or vote, the Trustee shall take such action or
vote for or against such proposal in proportion to the principal amount of
Certificates of such class or subclass, as applicable, held by
Certificateholders taking the corresponding position.
Termination of the Trust
The respective obligations of Airplanes Limited, Airplanes Trust and the
applicable Trustee with respect to each class or subclass of Certificates will
terminate upon (i) the distribution to Certificateholders of such class or
subclass of the property of the related Trust created by the applicable Trust
Agreement and the disposition of all property held in such Trust and (ii) final
payments having been made in respect of the Notes. The applicable Trustee will
mail to each Certificateholder of such Trust notice of the termination of such
Trust, the amount of the proposed final payment and the proposed date for the
distribution of such final payment for such Trust. The final distribution to any
Certificateholder of such Trust will be made only upon surrender of such
Certificateholder's Certificates at the office or agency of the applicable
Trustee specified in such notice of termination.
Modification of Agreements
In the event that any Trustee, as holder of the Notes of any class or
subclass held in the related Trust, receives a request for its consent to an
amendment, modification or waiver under the related Trust Indenture, such Notes
or any Related Document relating to such Notes, such Trustee shall mail a notice
of such proposed amendment, modification or waiver to each Certificateholder of
such class or subclass as to whether or not to consent to such amendment,
modification or waiver. The applicable Trustee shall vote or consent with
respect to such Notes in such Trust in the same proportion as the Certificates
of such class or subclass were actually voted by the holders thereof by a
certain date.
Governing Law
The 1998 Refinancing Certificates are to be governed by and construed in
accordance with the laws of the State of New York. Each of Airplanes Limited,
Airplanes Trust and each applicable Trustee has submitted to the jurisdiction of
the United States Federal and New York State courts located in The City of New
York for all purposes of, or in connection with, the Certificates and the
applicable Trust Agreement, and each has designated a person in The City of New
York to accept service of any process on its behalf.
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Notices to Certificateholders
(a) Save as provided below, any notice to the Certificateholders shall be
validly given (i) by publication in the Luxemburger Wort or, if such
newspaper shall cease to be published or timely publication therein
shall not be practicable, in such English language newspaper or
newspapers as the Trustee shall approve having a general circulation
in Europe, (ii) by either of (a) the information contained in such
notice appearing on the relevant page of the Reuters Screen or such
other medium for the electronic display of data as may be approved by
the Trustee and notified to Certificateholders or (b) publication in
the Financial Times and The Wall Street Journal (National Edition) or,
if such newspaper shall cease to be published or timely publication
therein shall not be practicable, in such English language newspaper
or newspapers as the Trustee shall approve having a general
circulation in Europe and the United States and (iii) until such time
as any Definitive Certificates are issued and, so long as the
Certificates are registered with Euroclear and/or Cedel Bank, delivery
of the relevant notice to DTC, Euroclear and/or Cedel Bank for
communication by them to Certificateholders.
(b) The Trustee shall be at liberty to sanction some other method of
giving notice to the Certificateholders if, in its opinion, such other
method is reasonable, having regard to the number and identity of the
Certificateholders and/or to market practice then prevailing, is in
the best interests of the Certificateholders and will comply with the
rules of the Luxembourg Stock Exchange or such other stock exchange
(if any) on which the Certificates are then listed, and any such
notice shall be deemed to have been given on such date as the Trustee
may approve; provided that notice of such method is given to the
Certificateholders in such manner as the Trustee shall require.
Notwithstanding the above, any notice specifying the rate, amount or
Payment Date in respect of any Floating Rate Certificates or in respect of any
repayment of principal on any Notes or Certificates shall, for so long as the
Certificates are listed on the Luxembourg Stock Exchange and so long as the
rules of the Luxembourg Stock Exchange so require, be given to the Luxembourg
Stock Exchange; provided that such requirement shall be satisfied until such
time as any Definitive Certificates are issued and so long as the Notes and
Certificates are held by Cedel Bank and Euroclear by delivery of the relevant
notice to Cedel Bank and Euroclear for communication by them to the Noteholders
and Certificateholders without the need for publication in the Luxemburger Wort.
Any such notice shall be deemed to have been given on the first day on which any
of such conditions shall have been met.
Assumptions
The Assumptions and tables set forth below represent possible revenue
scenarios designed to illustrate certain payment characteristics of the 1998
Refinancing Certificates and are not intended to be projections, estimates,
forecasts or forward-looking statements. The tables have been developed by
fixing certain of the Assumptions and by varying other Assumptions and certain
other factors which affect Airplanes Group's revenues and costs and expenses.
The Assumptions do not represent a complete list of factors which may affect the
revenues and costs and expenses of Airplanes Group, but rather indicate those
factors which are likely to significantly affect the performance of Airplanes
Group in future years. In addition, the range of possible outcomes with respect
to each Assumption and the combinations of Assumptions set forth above do not
indicate a comprehensive set of possible results for Airplanes Group. In
particular, more severe stresses may lead to payments of principal on the Notes
being delayed or decreased, or in certain cases, an Event of Default.
Accordingly, investors should understand that the following tables are
intended merely to illustrate certain, but not all, payment sensitivities of the
1998 Refinancing Certificates to certain, but not all, market and economic
stresses. Airplanes Group does not intend to update or revise the information
presented to reflect changes occurring after January 31, 1998. As of the date of
this Prospectus, however, Airplanes Group is not aware of events or
circumstances since January 31, 1998 that would cause the Assumptions to be
unreliable. It is highly likely that actual experience will vary from the
Assumptions and the possible revenue scenarios
117
<PAGE> 119
represented by the tables. The principal factors that could cause Airplanes
Group's actual revenues to differ materially from such scenarios are the
Stresses and certain "Risk Factors" as set out herein.
The Expected Final Payment Date, Expected Maturity, Weighted Average Life
and yield of the 1998 Refinancing Certificates have been based on the
Assumptions.
REVENUE ASSUMPTIONS
(i) One month LIBOR remains constant at - % per annum.
(ii) Six month LIBOR (the most common reference rate for the floating
rate Leases) remains constant at - % per annum, reflecting the
blended effect of six month LIBOR at January 31, 1998 and Airplanes
Group's outstanding swaps portfolio (see "Management's Discussion
and Analysis of Financial Condition and Results of Operations --
Interest Rate Management").
(iii) Funds on deposit in the Collection Account and Expense Account earn
interest at a rate of one month LIBOR;
(iv) Aircraft coming off-lease in the future are assumed to be re-leased
at a monthly rate that is a function of the current contracted
monthly lease rate as of January 31, 1998 for, and age of, such
Aircraft. Lease rates are assumed to remain constant at the monthly
lease rate for the first 60% of an Aircraft's expected useful life,
thereafter declining on a straight-line basis to 40% of such lease
rate over the remainder of its expected useful life (the "FUTURE
LEASE RATE"). Aircraft which are not currently on-lease are assumed
to be leased at a rate based upon lease rates currently being
received for Aircraft of a similar age and type. The table below
sets forth the expected useful life assumed for each aircraft type
in the Portfolio.
<TABLE>
<CAPTION>
EXPECTED
AIRCRAFT TYPE USEFUL LIFE
----------------- -----------
(YEARS)
<S> <C> <C>
Jet Aircraft.................................... A300 25
A320-200 25
B727-200A 22.5
B737-200A/C 20-25
B737-300/400/500 25
B747-200BC(1) 25
B757-200 25
B767-200ER/300ER 25
DC8-71F/73CF 20(2)
DC9-14/15 22.5-25
DC9-32/51 22.5-25
DC10-30/F 25
F100 25
MD11 25
MD82/3/7 25
Turboprops...................................... ATR42-300 22.5
DHC8-100/300 22.5
METRO-III 22.5
</TABLE>
---------------
NOTES:
(1) Airplanes Group's one B747-200BC Aircraft is currently
undergoing conversion to freighter configuration.
(2) Years from the date of conversion to freighter service.
(v) Aircraft are assumed to have no scrap value at the end of their
expected useful life.
118
<PAGE> 120
(vi) All contracted and assumed future payments in respect of the Leases
are timely received by Airplanes Group on the due date therefor.
(vii) Future Lease terms are assumed to be five years.
(viii) No new Purchase Options with respect to the Aircraft are granted to
Lessees by Airplanes Group and the only existing Purchase Options
exercised are those associated with finance leases or their
equivalent.
(ix) No new Lease termination or extension options are granted to Lessees
by Airplanes Group and no existing termination or extension options
are exercised.
(x) With the exception of any Aircraft sales assumed pursuant to a
Purchase Option as detailed in paragraph (viii) above and except for
any Aircraft which Airplanes Group has agreed to sell as of January
31, 1998, Airplanes Group sells no Aircraft.
The above Assumptions (i) to (x) are used to determine the assumed gross
monthly revenue to Airplanes Group before interest payments, principal payments,
Swap Payments, selling, general and administrative expenses and before lost
rental payments and expenditures required due to Aircraft downtime, Lessee
defaults, aircraft repossession costs, bad debts and operating costs incurred in
the ordinary course of the operating lease business ("GROSS REVENUE"). See
Appendix 3 for further data regarding Gross Revenue.
INTEREST, EXPENSE AND OPERATING COST ASSUMPTIONS:
(xi) The Notes consist of the Classes and Subclasses with aggregate
principal amounts and coupons as set forth in the following table
and payments are made in accordance with the order of priorities set
forth under "Description of Securities -- The Notes and the
Guarantees -- Priority of Payments".
<TABLE>
<CAPTION>
CLASS OR SUBCLASS AMOUNT COUPON
--------------------------------------------- ----------- ----------------------
($ MILLIONS)
<S> <C> <C>
A-2.......................................... 750 1 Month LIBOR+.32%
A-3.......................................... 500 1 Month LIBOR+.47%
A-4.......................................... 200 1 Month LIBOR+.62%
A-5.......................................... - 1 Month LIBOR+.35%
A-6.......................................... - 1 Month LIBOR+-%
A-7.......................................... - 1 Month LIBOR+-%
B............................................ - 1 Month LIBOR+1.10%
C............................................ 375 8.15%
D............................................ 400 10.875%
E............................................ 591 *
-----
$ -
=====
</TABLE>
---------------
*Stated Interest Rate of 20% (adjustable for inflation); The "CLASS
E NOTE MINIMUM INTEREST AMOUNT" is 1%; The "CLASS E NOTE
SUPPLEMENTAL INTEREST AMOUNT" is 10%. The Class E Note Minimum
Interest Amount and the Class E Note Supplemental Interest Amount
are payable on the initial Outstanding Principal Balance of each
Class E Note.
(xii) Refinancing Notes are assumed to be issued and sold on the
respective Expected Final Payment Dates of the Subclass A-2, A-3,
A-4 and A-6 Notes (and on each subsequent expected final payment
date of any Refinancing Notes) on the same terms with respect to
priority, coupon, issuance expenses and redemption as the Notes
being refinanced and with maturities and amortization schedules paid
with the application of the Minimum and Supplemental Principal
Payment Amounts.
(xiii) Airplanes Group realizes no actual liabilities in respect of
contingent liabilities of the Transferred Companies.
119
<PAGE> 121
(xiv) Selling, general and administrative expenses in the amount of $ -
million per annum are deducted from Gross Revenue and include fees to
the Servicer, Administrative Agent and Cash Manager and other general
and administrative expenses of Airplanes Group.
(xv) Gross Revenues are reduced each year by 2% to account for certain
operating costs incurred in the ordinary course of the operating
lease business including insurance expenses, Aircraft related costs
and leasing transaction expenses.
ASSUMED CASE STRESS SCENARIO:
(xvi) Gross Revenues are assumed to be reduced by 6% per annum in respect
of lost rental payments and expenditures required due to Aircraft
downtime (known in the industry as "aircraft on ground") ("AOG"),
Lessee defaults, aircraft repossession costs and bad debts
("STRESSES"). The following set of Stresses are presented for
illustrative purposes and only represent an example of a combination
of Stresses which result in approximately a 6% reduction in Gross
Revenues. Other Stress combinations could result in Gross Revenue
reductions which exceed 6%.
<TABLE>
<S> <C> <C>
A: Weighted Average Portfolio Turnover: 20% per annum (Assumption (vii))
B: Average Re-marketing Time: 6 weeks (.115 years)
C: Weighted Average Default Rate: 4% per annum
D: Average Repossession Time: 18 weeks (.346 years)
E: Average Repossession Cost: $500,000 per Aircraft
F: Weighted Average Bad Debt Expense: 1% per annum
AOG = (A X B) + (C X (B + D))
Annual Repossession Expense ("ARE") = (C X (E/Average
Annual Gross Revenue per Aircraft)) (See Appendix 3)
AOG = (20% X .115 yrs) + (4% X (.115 yrs + .346 yrs)) 4.2%
ARE = (4% X 21%) 0.8
Bad Debt Expense +1
Stress Related Gross Revenue Reduction 6.0%
Operating costs (see Assumption (xv)) +2
---
Gross Revenue Reduction in the Assumed Case 8.0%
===
</TABLE>
Increasing the above Stresses would result in a greater reduction in annual
Gross Revenues. The following table shows the effect upon Gross Revenues of
doubling the severity of each Stress (other than Average Repossession Cost)
outlined in the above example (in each case holding other Stresses unchanged).
<TABLE>
<CAPTION>
GROSS REVENUE
STRESS SEVERITY REDUCTION
------ -------------- -------------
<S> <C> <C>
Portfolio Turnover 40% per annum 10.3%
Re-marketing Time 12 weeks 10.8%
Default Rate 8% per annum 10.7%
Repossession Time 36 weeks 9.4%
Bad Debt Expense 2% per annum 9.0%
</TABLE>
It is highly likely that actual experience will differ from the Assumptions
and the Stresses and, therefore, principal payments on certain Notes will likely
occur earlier or later, and may occur significantly earlier or later, than
assumed.
PRINCIPAL REPAYMENTS UNDER THE ASSUMED CASE
The table below shows, for each Payment Date presented, the percentage of
the initial Outstanding Principal Balance of each subclass of Class A
Certificates, the aggregate Class A Certificates, including
120
<PAGE> 122
Refinancing Certificates, and the Class B Certificates expected to be
Outstanding on such Payment Date based on the Assumptions. It is highly unlikely
that the Assumptions will correspond to actual experience. Therefore, principal
payments on the Notes and the corresponding Certificates may occur earlier or
later than as set forth in the table. The failure of Airplanes Group to pay
principal of any class or subclass of the Notes prior to the Final Maturity Date
of such class or subclass because funds are not available therefor in accordance
with the priorities described under "The Notes and the Guarantees -- Priority of
Payments" will not of itself constitute an Event of Default or a Note Event of
Default.
PERCENT OF INITIAL OUTSTANDING PRINCIPAL BALANCE OF THE
CERTIFICATES BASED ON THE ASSUMED CASE
<TABLE>
<CAPTION>
AGGREGATE
CLASS A
CERTIFICATE
INCLUDING
PAYMENT DATE REFINANCING
OCCURRING IN MARCH A-2 A-3 A-4 A-5 A-6 A-7 CERTIFICATES
- ------------------ ---- ---- ---- --- --- --- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 (Closing Date)...................... 100% 100% 100% -% -%
1999..................................... 0% 100% 100% -% -%
2000..................................... 0% 100% 100% -% -%
2001..................................... 0% 0% 100% -% -%
2002..................................... 0% 0% 100% -% -%
2003..................................... 0% 0% 0% -% -%
2004..................................... 0% 0% 0% -% -%
2005..................................... 0% 0% 0% -% -%
2006..................................... 0% 0% 0% -% -%
2007..................................... 0% 0% 0% -% -%
2008..................................... 0% 0% 0% -% -%
2009..................................... 0% 0% 0% -% -%
2010..................................... 0% 0% 0% -% -%
2011..................................... 0% 0% 0% -% -%
2012..................................... 0% 0% 0% -% -%
Weighted Average Life (years)(1)......... 3.0 5.0 7.0 - -
</TABLE>
- ---------------
(1) The Weighted Average Life ("WEIGHTED AVERAGE LIFE") of a Certificate equals
(i) the sum of the products on each Payment Date of (A) the Principal
Distribution Amount on such Payment Date and (B) the number of years from
the date of issuance of such Certificate to such Payment Date (ii) divided
by the initial Outstanding Principal Balance of such Certificate.
121
<PAGE> 123
DECLINING BALANCES OF THE CERTIFICATES AND EXPECTED PORTFOLIO VALUE
BASED ON THE ASSUMED CASE
The table under this heading will show the declining balances of the
Certificates and the Expected Portfolio Value based on the Assumptions from
March of 1998 through March of 2018.
In each of the following tables, "EXPECTED MATURITY" means the period
(expressed in years) from (i) the Closing Date in the case of the 1998
Refinancing Certificates and (ii) March 28, 1996 in the case of any other
Certificates through the expected final payment of principal of the relevant
Certificates.
EFFECT OF INABILITY TO REFINANCE SUBCLASS A-2 CERTIFICATES THROUGH SUBCLASS
A-4 CERTIFICATES AND
SUBCLASS A-6 CERTIFICATES
The table below is based on the Assumptions, except that no further
Refinancing Notes are assumed to be issued and sold and the Subclass A-2, A-3,
A-4 and A-6 Certificates are assumed to amortize according to the Priority of
Payments. If such Refinancings do not occur, the Expected Maturities ("EXP") and
Weighted Average Lives ("AVG") of each subclass of the 1998 Refinancing
Certificates would be as set forth below.
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF 1998 REFINANCING CERTIFICATES
<TABLE>
<CAPTION>
EXPECTED MATURITY/
WEIGHTED AVERAGE LIFE
-------------------------------
NO
ASSUMED CASE REFINANCINGS
------------- -------------
EXP AVG EXP AVG
---- ---- ---- ----
(YEARS) (YEARS)
<S> <C> <C> <C> <C>
Subclass A-6 Certificates.....................................
Subclass A-7 Certificates.....................................
</TABLE>
MINIMUM REVENUE PERCENTAGE REQUIRED TO RETIRE CERTIFICATES
The table below indicates the minimum percentage of Gross Revenue that will
be necessary to repay all interest and principal on the Class A Certificates by
their respective Final Maturity Dates. If the actual revenue received by
Airplanes Group were to fall below the percentages of Gross Revenue indicated
below and all of the other Assumptions were to occur as assumed, Airplanes Group
would be unable to meet its required payment obligations for the classes of
Notes and corresponding classes of Certificates, which would constitute an Event
of Default with respect to the Certificates.
122
<PAGE> 124
PERCENTAGE OF GROSS REVENUE NECESSARY TO REPAY THE
CERTIFICATES BY THE APPLICABLE FINAL MATURITY DATE ASSUMING ACTUAL
EXPERIENCE CORRESPONDS TO THE ASSUMED CASE UNTIL THE BEGINNING OF THE YEAR
STATED
<TABLE>
<CAPTION>
CLOSING DATE YEAR 3 YEAR 6 YEAR 10
----- ------ ------ -------
<S> <C> <C> <C> <C>
Aggregate Class A Certificates(1).............................
</TABLE>
- ---------------
(1) Including all Refinancing Certificates
EFFECT OF A PERMANENT CHANGE IN GROSS REVENUE
The tables below have been prepared based on the Assumptions, except that
the revenue received by Airplanes Group varies from Gross Revenues by the
indicated percentages, beginning in years 3 and 6. If the actual revenues
received by Airplanes Group were to vary as indicated below and all of the other
Assumptions were to occur as assumed, then the Expected Maturities and Weighted
Average Lives of the 1998 Refinancing Certificates would be as set forth below.
EXPECTED MATURITY AND WEIGHTED AVERAGE LIFE OF 1998 REFINANCING CERTIFICATES
ASSUMING A PERMANENT CHANGE IN GROSS REVENUE, BEGINNING IN YEAR 3
<TABLE>
<CAPTION>
PERMANENT CHANGE IN GROSS REVENUE
-------------------------------------------------------------------
+10% 0% -8%* -15% -20%
----------- ----------- ----------- ----------- -----------
EXP AVG EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(YEARS) (YEARS) (YEARS) (YEARS) (YEARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subclass A-6 Certificates............
Subclass A-7 Certificates............
</TABLE>
- ---------------
* Assumed case
EXPECTED MATURITY AND WEIGHTED AVERAGE LIFE OF 1998 REFINANCING CERTIFICATES
ASSUMING A PERMANENT CHANGE IN GROSS REVENUE, BEGINNING IN YEAR 6
<TABLE>
<CAPTION>
PERMANENT CHANGE IN GROSS REVENUE
-------------------------------------------------------------------
+10% 0% -8%* -15% -20%
----------- ----------- ----------- ----------- -----------
EXP AVG EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(YEARS) (YEARS) (YEARS) (YEARS) (YEARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subclass A-6 Certificates............
Subclass A-7 Certificates............
</TABLE>
- ---------------
* Assumed case
EFFECT OF PERMANENT DECLINE IN PORTFOLIO VALUE
To the extent that the Adjusted Portfolio Value is less than the Expected
Portfolio Value, the Principal Adjustment Amount may be paid from time to time
to holders of Class A Certificates. Such payments may shorten the Weighted
Average Lives of the Class A Certificates and lengthen the Weighted Average
Lives of the Class B, Class C and Class D Certificates. The following tables
show the Expected Maturity and Weighted Average Life of the 1998 Refinancing
Notes if the Adjusted Portfolio Value were to permanently decline to a given
percentage of the Expected Portfolio Value, beginning in years 1 and 5,
respectively.
123
<PAGE> 125
<TABLE>
<CAPTION>
ADJUSTED PORTFOLIO VALUE AS PERCENTAGE OF
EXPECTED PORTFOLIO VALUE BEGINNING IN YEAR 1
-----------------------------------------------------
100%* 90% 80% 70%
----------- ----------- ----------- -----------
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
(YEARS) (YEARS) (YEARS) (YEARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subclass A-6 Certificates.......................
Subclass A-7 Certificates.......................
</TABLE>
- ---------------
* Assumed case
<TABLE>
<CAPTION>
ADJUSTED PORTFOLIO VALUE AS PERCENTAGE OF
EXPECTED PORTFOLIO VALUE BEGINNING IN YEAR 5
-----------------------------------------------------
100%* 90% 80% 70%
----------- ----------- ----------- -----------
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
(YEARS) (YEARS) (YEARS) (YEARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subclass A-6 Certificates.......................
Subclass A-7 Certificates.......................
</TABLE>
- ---------------
* Assumed case
124
<PAGE> 126
THE NOTES AND THE GUARANTEES
The Notes and the Guarantees are solely the obligations of Airplanes
Limited and Airplanes Trust and are not obligations of, or guaranteed by, any
Lessee, any Trustee, either Indenture Trustee, GPA Group or any affiliate of any
of the foregoing. In addition, the Notes and the Guarantees are not obligations
of, or guaranteed by, or offered for sale by, GE Capital, GECAS or any of their
affiliates.
GENERAL
Each of Airplanes Limited and Airplanes Trust have issued the Airplanes
Limited Notes and the Airplanes Trust Notes, respectively. Pursuant to the Trust
Indentures, Airplanes Limited has fully and unconditionally guaranteed (the
"AIRPLANES LIMITED GUARANTEE") the payment of principal, interest and premium,
if any, on the Airplanes Trust Notes issued by Airplanes Trust and Airplanes
Trust has fully and unconditionally guaranteed (the "AIRPLANES TRUST GUARANTEE"
and, together with the Airplanes Limited Guarantee, the "GUARANTEES") the
payment of interest, principal of and premium, if any, on the Airplanes Limited
Notes.
Pursuant to the terms of the Leases, the Lessees are obliged to make rental
payments and certain other payments (collectively, the "RENTAL PAYMENTS") to
certain subsidiaries of Airplanes Limited or Airplanes Trust. Pursuant to the
terms of the Leases, all Rental Payments and Related Collateral amounts are made
directly to the Rental Accounts held in the names of the Security Trustee on
behalf of the Secured Parties and then transferred, within one Business Day of
receipt thereof, to the Collection Account, except for certain limited amounts,
required to be left on deposit for local legal reasons. Unsegregated amounts
received by Airplanes Group in respect of the assets of Airplanes Group are
transferred directly to the Collection Account pursuant to the Trust Indentures
and the Cash Management Agreement. Amounts received by Airplanes Group which are
required to be segregated are transferred to the Lessee Funded Account. On the
basis of the Assumptions, such Rental Payments, together with such other
amounts, are expected to be sufficient to pay the principal, interest and
premium, if any, on the Notes and all other amounts payable by Airplanes Group
to the creditors referred to in the Cash Management Agreement, including the
Servicer, holders of the Class E Notes, the Trustees, the Indenture Trustees,
the Cash Manager, the Administrative Agent, the Company Secretary and each Swap
Provider in each case when and as due.
The Notes constitute direct, unsecured obligations of Airplanes Limited and
Airplanes Trust and are subordinated to the Expenses and certain obligations and
pari passu or senior to certain other obligations specified in the Trust
Indentures. The only source of payment for the Notes, the Guarantees and the
obligations of Airplanes Group to its creditors will be (i) the payments made by
the Lessees under the Leases, (ii) proceeds from dispositions, if any, of the
assets of Airplanes Group, (iii) net payments, if any, under the Swap Agreements
or disposals of the Notes by the Indenture Trustees under certain circumstances
and, (iv) net cash proceeds received from the sale of Refinancing Certificates.
Each class and subclass of the Notes and the corresponding Guarantees have
the priority set forth in the respective Trust Indentures, the Notes and the
Guarantees. Payment in full of the Expenses and certain other amounts rank in
priority to payments due on the Notes, in each case, as set forth under "--
Priority of Payments"; provided that, upon the occurrence of a Note Event of
Default, the priority of Airplanes Group's payment obligations will be as set
forth under "-- Priority of Payments following a Default Notice".
Pursuant to the subordination provisions of the Trust Indentures and the
various classes and subclasses of Notes and the Guarantees, no payment of
principal, interest and premium, if any, on any class or subclass of Notes may
be made on any Payment Date unless certain required payments have been made in
respect of the Notes of each class ranking prior to such class or subclass of
Notes on such Payment Date. In addition, any amendment to or modification of the
subordination provisions in each Trust Indenture with respect to any class or
subclass of Notes issued thereunder will require the consent of each holder of
the class or subclass of Notes affected thereby and each holder of any class or
subclass of Notes ranking senior to such Notes if such amendment or modification
would affect the rights of such holders or any Swap Provider; provided that in
no event will the provisions relating to the priority of the Expenses and
certain payments to Swap Providers in each Trust Indenture be amended or
modified.
125
<PAGE> 127
Each Indenture Trustee may resign as to all or any of the classes or
subclasses of the Notes at any time without cause by giving at least 30 days'
prior written notice to the Relevant Issuer, the Cash Manager and the holders of
such class or subclass of Notes. Holders of a majority of the Outstanding
Principal Balance of any class or subclass of the Notes may at any time remove
the Indenture Trustee as to such class or subclass without cause by an
instrument in writing delivered to the Relevant Issuer, the Cash Manager, the
Security Trustee, the Senior Trustee and such Indenture Trustee. Upon the giving
of notice by the Indenture Trustee, Airplanes Group will be obligated to appoint
a successor Indenture Trustee. In addition, the occurrence of certain
circumstances, including a Note Event of Default under one or both of the Trust
Indentures, may give rise to a potential conflict of interest on the part of one
or both of the Indenture Trustees in their respective capacities as trustees in
respect of the Notes of the Relevant Issuers.
In addition, the Administrative Agent, on behalf of the Issuer, may replace
the bank at which the Accounts are located (1) if it fails to maintain either a
short-term unsecured debt rating of A1+ (or the equivalent) or better by each
Rating Agency (or A1 (or the equivalent) or better if the amount on deposit at
anytime in any Accounts held with the operating bank does not exceed 20% of the
Outstanding Principal Balance of the Notes for any period in excess of 30 days),
(2) if the operating bank is adjudged a bankrupt or an insolvent, (3) if a
receiver or public officer takes charge of the operating bank or its property or
(4) if the operating bank becomes incapable of acting.
Holders of each class of Notes (other than Class A Notes) will not be
permitted to give a Default Notice with respect to any Note Event of Default or
to exercise any remedy in respect of such Note Event of Default until all
amounts with respect to Notes of each class ranking senior to such class of
Notes have been paid in full.
THE GUARANTEES
Each of the Issuers has fully and unconditionally guaranteed the
obligations of the other under each class or subclass of Notes. Pursuant to the
terms of the Guarantees, the obligations of Airplanes Trust under the Airplanes
Trust Guarantee with respect to each Airplanes Limited Note will rank pari passu
with Airplanes Trust's obligation under the corresponding class or subclass of
Airplanes Trust Notes, and the obligation of Airplanes Limited under the
Airplanes Limited Guarantee with respect to each Airplanes Trust Note will rank
pari passu with Airplanes Limited's obligation under the corresponding Airplanes
Limited Notes. In addition, the obligations of Airplanes Trust and Airplanes
Limited under their respective Guarantees will be limited under the terms of the
Trust Indentures so as not to constitute a fraudulent conveyance under
applicable laws.
INTEREST
Each Note bears interest on the Outstanding Principal Balance thereof,
payable monthly in arrears on each Payment Date. The initial Interest Accrual
Period for the 1998 Refinancing Notes is the period commencing on and including
the Closing Date and ending on but excluding the first Payment Date. Each
subsequent Interest Accrual Period will include each period from and including
the last preceding Payment Date and to but excluding the next succeeding Payment
Date. The final Interest Accrual Period with respect to each class or subclass
of Notes will end on but exclude the Final Maturity Date, or, if earlier, the
date upon which all principal, interest and premium, if any, on such class or
subclass of Notes is paid in full. Each subclass of Notes offered hereby will
bear interest for each Interest Accrual Period at the rate per annum set forth
on the cover page of this Prospectus.
Interest on any class or subclass of Floating Rate Notes will be calculated
on the basis of a 360-day year and the actual number of days elapsed in an
Interest Accrual Period. Interest on any class of Fixed Rate Notes will be
calculated on the basis of one-twelfth of an annual interest payment on the
Outstanding Principal Balance and in the case of an incomplete Interest Accrual
Period on the basis of a 360-day year consisting of twelve 30-day months.
The interest rate borne by the Subclass A-2, A-3, A-4 and A-6 Notes will
increase after the Expected Final Payment Date for the corresponding subclass of
Certificates, to the extent such Notes are then
126
<PAGE> 128
Outstanding, by the amount of Step-Up Interest. The interest rate borne by the
Subclass A-5 and A-7 Notes will increase with respect to any period in which
Step-Up Interest is payable on any other subclass of Class A Notes.
REFERENCE AGENCY AGREEMENT
For the purpose of calculating the rate of interest payable on the Floating
Rate Notes, Airplanes Group has entered into the Reference Agency Agreement with
the Indenture Trustees, Bankers Trust Company as reference agent (the "REFERENCE
AGENT") and the Cash Manager. The Reference Agent will determine LIBOR for the
1998 Refinancing Notes for the Initial Interest Accrual Period two Business Days
prior to the Closing Date and, for each Interest Accrual Period following the
Initial Interest Accrual Period, on a Reference Date. The Reference Agent will
determine LIBOR in accordance with the following provisions of the Reference
Agency Agreement:
(a) On each Reference Date, the Reference Agent will determine LIBOR as
the per annum offered rate for deposits in U.S. dollars for a period
of one month that appears on the display designated as page "3750" on
the Telerate Monitor (or such other page or service as may replace it
for the purpose of displaying LIBOR of major banks for U.S. dollar
deposits) at approximately 11:00 a.m. (London time).
(b) If the offered LIBOR rate so appearing is replaced by the
corresponding rates of more than one bank then paragraph (a) above
shall be applied, with any necessary consequential changes, to the
arithmetic mean of the rates (being at least two) which so appear, as
determined by the Reference Agent. If for any other reason such
offered rate does not so appear, or if the relevant page is
unavailable, the Reference Agent will request that each of the banks
whose offered rates would have been used for the purposes of the
relevant page if the event leading to the application of this sentence
had not happened or any duly appointed substitute reference bank
acting in each case through its principal London office (the
"REFERENCE BANKS"), to provide the Reference Agent with its offered
quotation to prime banks for dollar deposits in London for the next
Interest Accrual Period concerned as at 11:00 a.m. (London time) on
the applicable Reference Date. The floating rates of interest for such
Interest Accrual Period for each class or subclass of Floating Rate
Notes shall be the aggregate of the arithmetic mean of such quotations
(or of such of them, being at least two, as are so provided), as
determined by the Reference Agent, plus the applicable interest rate
spread over LIBOR (for the 1998 Refinancing Notes such spread is as
set forth on the cover page of this Prospectus for the 1998
Refinancing Certificates), plus the Step-Up Interest, if any, on any
subclass of the Class A Notes.
(c) If, on any Reference Date, one only or none of the Reference Banks
provides such quotation, the floating rate of interest for the next
Interest Accrual Period shall be the rate per annum which the
Reference Agent determines to be the aggregate of the arithmetic mean
of the U.S. dollar lending rates which New York City banks selected by
the Reference Agent are quoting on the relevant Reference Date to
leading European banks for the next Interest Accrual Period, plus the
applicable interest rate spread over LIBOR set forth, for the 1998
Refinancing Certificates representing an interest in the 1998
Refinancing Notes, on the cover page of this Prospectus, plus, if
applicable, any Step-up Interest on any subclass of the Class A Notes,
except that, if the banks so selected by the Reference Agent are not
quoting as mentioned above, the floating rate of interest shall be the
floating rate of interest in effect for the last preceding Interest
Accrual Period.
Once having obtained LIBOR or its substitute, the Reference Agent will
calculate the interest rate for each class or subclass of Floating Rate Notes
and the amount of interest payable on the relevant Payment Date in respect of
each class or subclass of Floating Rate Notes. The interest amount for each such
class or subclass of Floating Rate Notes will be calculated by the Reference
Agent by multiplying the rate of interest for such class or subclass for the
relevant Interest Accrual Period by the estimated Outstanding Principal Balance
of such class or subclass of Floating Rate notes on the first day of such
Interest Accrual Period and by multiplying the product by the actual number of
days in such Interest Accrual Period divided by 360 and
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<PAGE> 129
rounding the resulting amount to the nearest cent (with half a cent being
rounded upwards). The Reference Agent's determination of LIBOR, the interest
rate and the interest amount for each such class or subclass of Floating Rate
Notes (in the absence of negligence, wilful default, bad faith or manifest
error) will be conclusive and binding upon all parties, including the holders of
the Floating Rate Certificates.
As promptly as is practicable after the determination thereof, the
Reference Agent will give notice of applicable LIBOR, the Payment Date, the
interest rate for each class or subclass of Floating Rate Notes for the relevant
Interest Accrual Period and the amount of interest on each class or subclass of
Floating Rate Notes to Airplanes Limited, Airplanes Trust, the listing agent for
the Luxembourg Stock Exchange and the Cash Manager.
If the Reference Agent does not determine the interest rate for each class
or subclass of Floating Rate Notes or calculate the amount of interest on each
class or subclass of Floating Rate Notes for the relevant interest Accrual
Period in accordance with the provisions described above, the Cash Manager will
determine such rate of interest or calculate such interest amount in accordance
with the provisions described above, and each such determination or calculation
will be deemed to have been made by the Reference Agent.
Each of Airplanes Limited and Airplanes Trust reserve the right to
terminate the appointment of the Reference Agent at any time on 30 days' notice
and to appoint a replacement reference agent in its place. Notice of any such
termination will be given to the holders of Floating Rate Certificates. The
Reference Agent may not be removed or resign its duties without a successor
having been appointed.
PRINCIPAL
The principal repayment provisions of the Notes are intended to produce
increasing levels of "collateralization" with respect to each class of Notes as
the Portfolio ages and the value of the Aircraft declines and to ensure that the
principal amount of each class of subclass of Notes is repaid in full prior to
the Final Maturity Date thereof. There can be no assurance, however, that
Airplanes Group will receive sufficient revenues from leasing or selling the
Aircraft for the principal repayment provisions to achieve increasing levels of
"collateralization" or will be able to repay the initial Outstanding Principal
Balance on any class or subclass of the Notes. As used in this "Description of
Securities", the term "collateralization" refers to the difference between the
Outstanding Principal Balance of the various classes of Notes relative to the
Initial Appraised Value of the Aircraft, the Expected Portfolio Value and the
Adjusted Portfolio Value, as applicable, and as described further below. The
obligations of Airplanes Group to pay interest, principal and premium, if any,
will not, in fact, be secured by the Aircraft or the Leases of Airplanes Group.
The Subclass A-2, A-3, A-4 and A-6 Notes. The terms of the Subclass A-2,
A-3, A-4 and A-6 Notes (the "SOFT BULLET NOTES") will not require repayment of
principal on any Payment Date prior to the date (the "AMORTIZATION COMMENCEMENT
DATE") that is the earlier of (i) their respective Expected Final Payment Dates
and (ii) in the case of the Subclass A-3 Notes, the date of repayment in full of
the Subclass A-2 Notes (other than through an issue of Refinancing Notes), in
the case of the Subclass A-4 Notes, the date of repayment in full of the
Subclass A-3 Notes (other than through an issue of Refinancing Notes) and in the
case of the Subclass A-6 Notes, the date of repayment in full of the Subclass
A-4 Notes (other than through an issue of Refinancing Notes). On or prior to the
Expected Final Payment Date of the Soft Bullet Notes, Airplanes Group intends to
refinance 100% of the Outstanding Principal Balance of each such subclass by
issuing Refinancing Notes to a new trust. Such trust will finance the purchase
of these Refinancing Notes through the issuance and sale of a corresponding
amount and subclass of Refinancing Certificates. Issuance and sale of such
Refinancing Certificates will be subject to market conditions. Failure to repay
any Soft Bullet Note in full at its Expected Final Payment Date will not result
in a Note Event of Default under the Trust Indentures. If any subclass of the
Soft Bullet Notes is not repaid in full on its Amortization Commencement Date,
such subclass of Notes will convert automatically into a subclass of amortizing
Notes having a principal repayment schedule intended to ensure that the
remaining Outstanding Principal Balance of such subclass will be repaid in full
on or before its Final Maturity Date. In addition, after its Expected Final
Payment Date, each Soft Bullet Note which remains Outstanding will accrue
interest at a rate equal to its stated interest rate, plus Step-up Interest.
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<PAGE> 130
The Subclass A-5, A-7 and the Class B Notes. The terms of the Subclass A-5
and the Class B Notes require amortization of the Outstanding Principal Balance
thereof, to the extent there are funds available therefor in accordance with "--
Priority of Payments", on each Payment Date. Following the date of repayment in
full of the Subclass A-5 Notes, the Subclass A-7 Notes will require amortization
of the Outstanding Principal Balance thereof, to the extent there are funds
available therefor in accordance with "-- Priority of Payments", on each Payment
Date. The Subclass A-5 and A-7 Notes and the Class B Notes are referred to
herein as the "AMORTIZING NOTES".
PRINCIPAL AMORTIZATION OF FLOATING RATE NOTES
With respect to each class and subclass of the Subclass A-5 or A-7 and
Class B Notes and, following their respective Amortization Commencement Dates,
if applicable, each subclass of the Soft Bullet Notes, there may be distributed
on any Payment Date, to the extent there are sufficient funds in the Collection
Account, the sum of the Minimum Principal Payment Amount, if any, the
Supplemental Principal Payment Amount, if any, and with respect to the Class A
Notes only, the Principal Adjustment Amount, if any (the sum of those amounts,
if applicable and to the extent paid in respect of any class or subclass, the
"PRINCIPAL DISTRIBUTION AMOUNT").
To the extent that any Minimum Principal Payment Amount, Principal
Adjustment Amount or Supplemental Principal Payment Amount is required to be
made with respect to the Class A Notes, and sufficient funds are available
therefor, such amounts will be applied to repay first, any amount Outstanding
under the Subclass A-2 Notes, then the Subclass A-3 Notes, then the Subclass A-4
Notes and then the Subclass A-6 Notes but in each case only following their
respective Amortization Commencement Dates, and then such amounts will be
applied to repay any amount Outstanding under the Subclass A-5 Notes and,
following repayment in full of the Subclass A-5 Notes, the Subclass A-7 Notes.
Any subclass of Refinancing Notes issued to refinance a subclass of Class A
Notes will not receive any payments of principal before there has been repaid in
full the Outstanding Principal Balance of each subclass of Class A Notes then
Outstanding which (i) was issued prior to the issuance of such subclass of
Refinancing Notes and (ii) has passed its Amortization Commencement Date.
Minimum Principal Payment Amount. With respect to (i) the Subclass A-5
Notes (or, following repayment in full of the Subclass A-5 Notes, the Subclass
A-7 Notes) and the Class B Notes and (ii) following their respective
Amortization Commencement Dates, if applicable, each subclass of the Soft Bullet
Notes to the extent that any amount remains Outstanding thereon, the "MINIMUM
PRINCIPAL PAYMENT AMOUNT" for each class of Notes with respect to any Payment
Date will equal the difference, if positive, between the Outstanding Principal
Balance of such class and the Target Principal Balance on such Payment Date;
provided, that, with respect to the Class A Notes only, if on any Payment Date
the Outstanding Principal Balance of the Class A Notes is greater than the
Adjusted Portfolio Value, then the Class A Minimum Principal Payment Amount
shall be equal to the difference between the Outstanding Principal Balance of
the Class A Notes and the Adjusted Balance of the Class A Notes.
On each Payment Date, the "TARGET PRINCIPAL BALANCE" for each class of
Notes will equal the product of (i) the applicable "TARGET LOAN TO VALUE RATIO"
(as set forth in Appendix 5 to this Prospectus) and (ii) the Expected Portfolio
Value (as set forth in Appendix 4 to this Prospectus), on such Payment Date.
On each Payment Date, the "EXPECTED PORTFOLIO VALUE" will equal the sum of
the products of (A) the Initial Appraised Value of each Aircraft then in the
Portfolio and (B) the quotient obtained by dividing the applicable Depreciation
Factor for such Aircraft (as set forth below) on such Payment Date by the
Depreciation Factor for such Aircraft on March 28, 1996. The Depreciation
Factors produce a "depreciation curve" that assumes an accelerating decline in
the value of Aircraft of increasing age. The accelerating annual decline in
aircraft values that is assumed by the depreciation curve has been expressed as
an equation below:
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<PAGE> 131
<TABLE>
<S> <C> <C> <C>
Depreciation Factor = [1 - (kn)] * (1 + g)n
Where:
n = age of the aircraft expressed in years
1
--------------------------------------------------------------------
k = 25 years for commercial passenger Aircraft and 15 years for Aircraft
converted to freighters
g = 0.03
</TABLE>
The applicable depreciation factor (each, a "DEPRECIATION FACTOR"), and
consequently the assumed decline in aircraft value, for any Aircraft on any
Payment Date will be determined by reference to (i) for purposes of calculating
a Minimum Principal Payment Amount or a Supplemental Principal Payment Amount
(as discussed below), the period of time between March 28, 1996 and the relevant
Payment Date and (ii) for purposes of calculating a Principal Adjustment Amount
(as discussed below), the period of time between the most recent appraisal of
the Aircraft and the relevant Payment Date.
Principal Adjustment Amount. With respect to the Subclass A-5 Notes (or,
following repayment in full of the Subclass A-5 Notes, the Subclass A-7 Notes)
only and, following their Amortization Commencement Date, if applicable, the
Soft Bullet Notes, there may also be paid on any Payment Date a Principal
Adjustment Amount. This amount is intended to adjust the principal amortization
schedule established on March 28, 1996 by the Depreciation Factors for declines
in the value of the Aircraft which, at the time of any subsequent appraisal of
the Aircraft, are in excess of the decline in value assumed by the Depreciation
Factors. The Principal Adjustment Amount for the Subclass A-5 Notes (or,
following repayment in full of the Subclass A-5 Notes, the Subclass A-7 Notes)
or following their respective Amortization Commencement Dates, any subclass of
Soft Bullet Notes, with respect to any Payment Date will equal the difference,
if positive, between the Outstanding Principal Balance of the Class A Notes
(after giving effect to payment of the Minimum Principal Payment Amount, if any,
for such Payment Date) and the Adjusted Balance of the Class A Notes (the
"PRINCIPAL ADJUSTMENT AMOUNT").
The "ADJUSTED BALANCE" of the Class A Notes on each Payment Date will equal
the product of; (i) the Target Loan to Value Ratio of the Class A Notes and (ii)
the Adjusted Portfolio Value. On any Payment Date, the "ADJUSTED PORTFOLIO
VALUE" will equal the sum of the products of (A) the Adjusted Base Value of each
Aircraft then in the Portfolio and (B) the quotient obtained by dividing the
applicable Depreciation Factor for such Aircraft on such Payment Date by the
Depreciation Factor for such Aircraft as of the Relevant Appraisal. The
"ADJUSTED BASE VALUE" of each Aircraft will be the Base Value of such Aircraft
as determined in the most recent Appraisal (the "RELEVANT APPRAISAL") preceding
such Payment Date.
Supplemental Principal Payment Amount. With respect to (i) the Subclass
A-5 Notes (or, following repayment in full of the Subclass A-5 Notes, the
Subclass A-7 Notes) and the Class B Notes and (ii) following their respective
Amortization Commencement Dates, if applicable, each subclass of the Soft-Bullet
Notes to the extent that any amount remains Outstanding, the "SUPPLEMENTAL
PRINCIPAL PAYMENT AMOUNT" for each class of Notes with respect to any Payment
Date will equal the difference, if positive, between the Outstanding Principal
Balance of such class (after giving effect to the payment of the Minimum
Principal Payment Amount and, with respect to the Class A Notes only, any
Principal Adjustment Amount to be made on such Payment Date) and the
Supplemental Principal Balance on such Payment Date.
On each Payment Date, the "SUPPLEMENTAL PRINCIPAL BALANCE", for each class
of Floating Rate Notes will equal the product of (i) the applicable
"SUPPLEMENTAL LOAN TO VALUE RATIO" (as set forth in Appendix 6 to this
Prospectus) and (ii) the Expected Portfolio Value on such Payment Date.
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<PAGE> 132
SCHEDULED PRINCIPAL REPAYMENT OF FIXED RATE NOTES
With respect to each class of Fixed Rate Notes, there may be distributed on
any Payment Date to the extent there are sufficient funds available therefor,
the Scheduled Principal Payment Amount, if any, for such class.
Scheduled Principal Payment Amount. For any Payment Date, the "SCHEDULED
PRINCIPAL PAYMENT AMOUNT" on the Fixed Rate Notes will equal the difference, if
positive, between the Outstanding Principal Balance of each such class of Notes
immediately prior to such Payment Date and the product of (i) the initial
aggregate Outstanding Principal Balance of each such class of Notes and (ii) the
"TARGET POOL FACTOR" for each such class of Notes on such date (as set forth in
Appendix 7 and subject to recomputation to reflect any redemption of principal
as set forth below).
The "ACTUAL POOL FACTOR" of each class of Notes on any Payment Date (as
reported monthly in the Report to Certificateholders) is computed by dividing
(i) the Outstanding Principal Balance after giving effect to any payment of
principal on the Notes of such class on such Payment Date by (ii) the initial
aggregate Outstanding Principal Balance of the Notes of such class (and rounded
to the seventh decimal place). The Pool Factor for the Class C and Class D Notes
was 1.0000000 on the March 28, 1996 before repayments of principal on each such
class of Notes. The amount of a Noteholder's pro rata interest of a class of
Notes can be determined by multiplying the original denomination of such
Holder's Notes of such class by the Actual Pool Factor for such class as of the
applicable Payment Date. The Actual Pool Factor for each class of Fixed Rate
Notes will be mailed to Certificateholders of such class on each Payment Date.
In the event of a partial redemption of such Class of Notes, the applicable
Target Pool Factor and the Outstanding Principal Balance of each such class will
be recomputed and notice thereof will be mailed to the Certificateholders of
such Notes. Each class of Fixed Rate Notes will have a separate Target Pool
Factor.
REDEMPTION
Airplanes Group may redeem any class or subclass of the Notes out of
amounts available for such purpose, if any, on any Payment Date (any such date,
a "REDEMPTION DATE"), in whole or in part, at the Redemption Price plus accrued
but unpaid interest thereon. The Redemption Price on the Subclass A-2, A-3, A-4
and A-6 Notes redeemed (i) prior to the applicable Premium Expiration Date (as
indicated below for such subclass of Notes, the "PREMIUM EXPIRATION DATE") will
equal 102% or, in the case of the Subclass A-6 Notes, - % of the Outstanding
Principal Balance of such subclass being redeemed and (ii) on or after the
Premium Expiration Date, will equal the Outstanding Principal Balance of such
subclass of Notes being redeemed, without premium (the "FLOATING RATE REDEMPTION
PRICE"). The Subclass A-5, A-7 and Class B Notes are redeemable at a price equal
to the Outstanding Principal Balance of such class or subclass, without premium.
The Redemption Price on any Fixed Rate Notes will be (i) if such redemption
occurs prior to March 15, 2001, the Make-Whole Price or (ii) if such redemption
occurs on or after March 15, 2001, the product of the applicable Fixed Price
Premium (as indicated below for each class of Notes, the "FIXED PRICE PREMIUM")
and the Outstanding Principal Balance of such class of Notes or portion thereof
being redeemed (the "FIXED RATE REDEMPTION PRICE" and, together with the
Floating Rate Redemption Price, the "REDEMPTION PRICE").
It is a condition of any such redemption that on the Redemption Date, all
payments of interest and other amounts due on or prior to the Redemption Date in
respect of all Notes ranking pari passu with or prior to the Notes to be
redeemed shall have been paid or will be paid on the Redemption Date. In
addition, Airplanes Group will be required on each Payment Date to redeem Notes
to the extent of any Available Collections in excess of the Principal
Distribution Amount, with respect to the Floating Rate Notes, and the Scheduled
Principal Payment Amounts, with respect to the Fixed Rate Notes, in the manner
described in "Principal Amortization" above and "Priority of Payments" below at
the Redemption Price plus accrued but unpaid interest thereon. Within each class
of Fixed Rate Notes being redeemed in part, the amount of the Outstanding
Principal Balance being prepaid will be applied in each case pro rata among all
Fixed Rate Notes of such class to the pro rata reduction of the remaining
expected principal payments thereof.
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Without limiting the foregoing, each class or subclass of the Notes may
also be redeemed on any Payment Date, in whole, at the Redemption Price, plus
accrued but unpaid interest, in connection with any sale of all or substantially
all of the assets of the Airplanes Group. Certain classes or subclasses of Notes
may be redeemed at such time as other classes or subclasses of Notes are being
defeased. See "Management of Airplanes Group" and "-- Defeasance".
No premium will be payable on Notes redeemed on or after the Premium
Expiration Date therefor.
The following table sets forth the Premium Expiration Date for the Subclass
A-2 to A-4 and A-6 Notes.
<TABLE>
<CAPTION>
CLASS OR SUBCLASS OF NOTES PREMIUM EXPIRATION DATE
- -------------------------- -----------------------
<S> <C>
A-2................................................................... March 15, 1998
A-3................................................................... March 15, 1998
A-4................................................................... March 15, 1999
A-6................................................................... -
</TABLE>
The following table sets forth the applicable Fixed Price Premium for the
Class C and Class D Notes.
<TABLE>
<CAPTION>
FIXED PRICE PREMIUM
-------------------
FIXED PRICE REDEMPTION DATE CLASS C CLASS D
- --------------------------- ------- -------
<S> <C> <C>
On or after March 15, 2001 but prior to March 15, 2002................... 105% 107%
On or after March 15, 2002 but prior to March 15, 2003................... 104% 106%
On or after March 15, 2003 but prior to March 15, 2004................... 103% 105%
On or after March 15, 2004 but prior to March 15, 2005................... 102% 104%
On or after March 15, 2005 but prior to March 15, 2006................... 101% 103%
On or after March 15, 2006 but prior to March 15, 2007................... 100% 102%
On or after March 15, 2007 but prior to March 15, 2008................... 100% 101%
On or after March 15, 2008............................................... 100% 100%
</TABLE>
The Make-Whole Price (the "MAKE-WHOLE PRICE") will equal the higher of (i)
the discounted present value of Scheduled Principal Payment Amounts and interest
from the Redemption Date through, but not including, March 15, 2001, plus the
Fixed Rate Redemption Price for the scheduled Outstanding Principal Balance on
March 15, 2001 of the Notes being redeemed, discounted at a rate equal to the
Treasury Yield plus a spread equal to, in the case of the Class C Notes, 0.50%
and, in the case of the Class D Notes, 1.00% (the "MAKE-WHOLE SPREAD") and (ii)
the Outstanding Principal Balance of the Notes being redeemed.
"TREASURY YIELD" means a per annum rate (expressed as a monthly equivalent
yield) determined to be the per annum rate equal to the semiannual yield to
maturity of the 7 3/4% United States Treasury Notes maturing on February 15,
2001.
The "REMAINING WEIGHTED AVERAGE LIFE" of each class of Certificates will be
determined by (i) multiplying each scheduled future payment of principal of such
class of Certificates (including the final principal payment to be made on the
Expected Final Payment Date) by the number of months remaining until such
payment date, (ii) calculating the sum of the resulting products and (iii)
dividing such sum by the aggregate amount of principal Outstanding on such Fixed
Price Redemption Date.
Redemption for Taxation Purposes. All payments of principal, interest and
premium, if any, made by Airplanes Limited and Airplanes Trust in respect of the
Notes or the Guarantees or any inter-company payments supporting the obligations
under the Notes or the Guarantees will be made without withholding or deduction
for or on account of any present or future taxes or duties of whatever nature
unless required by law. Should such withholding or deduction be required by law,
neither Airplanes Limited nor Airplanes Trust will be obliged to pay any
additional amounts in respect of such withholding or deduction. If at any time:
(a) Airplanes Limited or Airplanes Trust is, or on the next Payment Date
will be, required to make any withholding or deduction under the laws
or regulations of any applicable tax authority with respect to any
payment in respect of any class or subclass of Notes; or
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(b) Airplanes Limited or Airplanes Trust is or will be subject to any
circumstance (whether by reason of any law, regulation, regulatory
requirement or double-taxation convention, or the interpretation or
application thereof, or otherwise) leading to the imposition of a tax
(whether by direct assessment or by withholding at source) or other
similar imposition by any jurisdiction which would (i) materially
increase the cost to Airplanes Limited or Airplanes Trust of making
payments in respect of any class or subclass of Notes or of complying
with its obligations under or in connection with the Notes; (ii)
materially increase the operating or administrative expenses of
Airplanes Limited or Airplanes Trust, as the case may be, or the
Charitable Trusts under which the ordinary share capital of Airplanes
Limited is held; or (iii) otherwise obligate Airplanes Limited or
Airplanes Trust or any subsidiary of either of them to make any
material payment on, or calculated by reference to, the amount of any
sum received or receivable by Airplanes Limited or Airplanes Trust, as
the case may be, or by the Cash Manager on behalf of Airplanes Group
as contemplated by the Cash Management Agreement;
then Airplanes Limited or Airplanes Trust or both, will inform the Trustee at
such time of any such requirement or imposition and shall use its or their best
efforts to avoid the effect of the same; provided that no actions shall be taken
by either Airplanes Limited or Airplanes Trust to avoid such effects unless each
Rating Agency has confirmed that such action will not cause an impairment in the
rating of Certificates of any class or subclass. If, after using its best
efforts to avoid the adverse effect described above, Airplanes Limited or
Airplanes Trust, or both, or any subsidiary of either of them has not avoided
such effects, each of Airplanes Limited and Airplanes Trust may, at its
election, redeem the Notes of any or all classes or subclasses to which such
withholding or deduction applies in whole with accrued and unpaid interest but
without premium on any Payment Date. However, any such redemptions may not occur
more than 30 days prior to such time as the requirement or imposition described
in (a) or (b) above is to become effective.
Method of Redemption. In respect of any redemption of any class or
subclass of Notes to be made out of amounts available for such purposes, if any,
other than Collections on any Payment Date, at least 20 days but not more than
60 days before such Redemption Date, the Indenture Trustee will give notice of
such redemption (a "NOTICE OF REDEMPTION") to each holder of such class or
subclass of Notes; provided that such Indenture Trustee shall have determined in
advance of giving any such notice that funds are or will, on the Redemption
Date, be available therefor. If a redemption is of less than all of the Notes of
any class or subclass, Notes of such class or subclass to be redeemed will be
repaid principal pro rata, to the extent moneys are available therefor. In the
case of any redemption in whole (other than a redemption resulting from taxation
reasons), Airplanes Limited and Airplanes Trust will deposit, or will cause to
be deposited, in the Defeasance/Redemption Account an amount equal to the
Redemption Price, together with an amount sufficient to pay or provide for all
of the accrued and unpaid interest as of the Redemption Date. In the case of any
required redemption by Airplanes Group from Collections on any Payment Date
pursuant to the Priority of Payments, such redemptions will be made only in
conformance with the order of payments set forth under "Priority of Payments",
and no Notice of Redemption will be sent. Each Notice of Redemption will state
(i) the applicable Redemption Date, (ii) the Indenture Trustee's arrangements
for making payments due, (iii) the redemption price of the Notes to be redeemed,
(iv) in the case of redemptions in whole, that Notes of the class or subclass to
be redeemed must be surrendered (which action may be taken by any holder of the
Notes or its authorized agent) to the applicable Indenture Trustee to collect
the Redemption Price and accrued and unpaid interest on such Notes, and (v) in
the case of redemptions in whole, that, unless Airplanes Limited or Airplanes
Trust defaults in the payment of the Redemption Price and any accrued and unpaid
interest thereon, interest on the class of Notes called for redemption will
cease to accrue on and after the Redemption Date. Once a Notice of Redemption in
respect of a redemption in whole is mailed, each class or subclass of Notes to
which such Notice of Redemption applies will become due and payable on the
Redemption Date stated in such Notice of Redemption at their Redemption Price,
together with accrued and unpaid interest thereon.
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DEFEASANCE
Airplanes Limited and Airplanes Trust at any time may terminate all of
their respective obligations under the Notes and the Trust Indentures ("LEGAL
DEFEASANCE"), except for certain obligations, including those respecting the
defeasance trust and obligations to register the transfer or exchange of the
Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a
register in respect of the Notes. Airplanes Limited or Airplanes Trust at any
time may terminate their respective obligations under the covenants described
under "Trust Indenture Covenants" and "Operating Covenants" and the events of
default described under "Note Events of Default and Remedies" other than clauses
(a), (b), (c), (f) (solely with respect to Airplanes Limited and Airplanes
Trust) and (g) (solely with respect to Airplanes Limited and Airplanes Trust)
set forth under "-- Note Events of Default and Remedies" ("COVENANT
DEFEASANCE").
Airplanes Limited and Airplanes Trust may exercise their respective legal
defeasance options notwithstanding their prior exercise of the covenant
defeasance option. If Airplanes Limited and Airplanes Trust exercises their
respective legal defeasance options, payment of the Notes may not be accelerated
because of a Note Event of Default with respect thereto. If Airplanes Limited
and Airplanes Trust exercise their respective covenant defeasance options,
payment of the Notes may not be accelerated because of the events of default
described under "Note Events of Default and Remedies" other than clauses
(a),(b),(c),(f) (solely with respect to Airplanes Limited and Airplanes Trust)
and (g) (solely with respect to Airplanes Limited and Airplanes Trust) set forth
under "-- Note Events of Default and Remedies".
In order to exercise either defeasance option, Airplanes Limited and
Airplanes Trust must irrevocably deposit in trust (the "DEFEASANCE TRUST") with
the Indenture Trustee any combination of money, obligations of the U.S.
Government or obligations of corporate issuers (which corporate obligations
shall be rated AA+ or its equivalent or higher and shall not have a maturity of
longer than three years from the date of defeasance) for the payment of
principal, premium (if any), and interest on the Notes to redemption or
maturity, as the case may be, and must comply with certain other conditions,
including delivering to the Indenture Trustee an opinion of counsel to the
effect that holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such opinion of counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
PRIORITY OF PAYMENTS
Pursuant to the terms of each Trust Indenture and the Cash Management
Agreement, on each Payment Date, the Cash Manager will withdraw all amounts on
deposit in the Collection Amount and distribute such amounts in the order of
priority set forth below but, in each case, only to the extent that all amounts
ranking prior thereto have been paid in full.
(i) First, to the Expense Account, or in certain cases directly to the
relevant Expense payees, an amount equal to the Required Expense
Amount and then to the relevant Expense payees;
(ii) Second, in no order of priority inter se, but pro rata, (A) pro
rata, to the holders of the Class A Notes, all accrued and unpaid
interest excluding the Step-Up Interest, if applicable, on such
subclass of Class A Notes; and (B) pro rata, to any Swap Provider,
an amount equal to any payment due from Airplanes Limited or
Airplanes Trust pursuant to any Swap Agreement;
(iii) Third, retain in the Collection Account, an amount (the "FIRST
COLLECTION ACCOUNT TOP-UP"), if positive, equal to (A) the sum of
the Maintenance Reserve Amount and the Miscellaneous Reserve Amount
less (B) the amount then on deposit in the Collection Account;
(iv) Fourth, to any Swap Provider an amount not in excess of the Minimum
Hedge Payment;
(v) Fifth, to the holders of the Class A Notes, in the order of priority
by subclass set forth under "Description of the Notes and the
Guarantees -- Principal", an amount equal to the aggregate Minimum
Principal Payment Amount with respect to each subclass of such Class
A Notes;
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(vi) Sixth, to the holders of the Class B Notes, all accrued and unpaid
interest on the Class B Notes;
(vii) Seventh, to the holders of the Class B Notes, an amount equal to
the aggregate Minimum Principal Payment Amount with respect to such
Class B Notes;
(viii) Eighth, to the holders of the Class C Notes, all accrued and unpaid
interest on the Class C Notes;
(ix) Ninth, to the holders of the Class D Notes, all accrued and unpaid
interest on the Class D Notes;
(x) Tenth, retain in the Collection Account, an amount (the "SECOND
COLLECTION ACCOUNT TOP-UP"), if positive, equal to (A) the
Liquidity Reserve Amount less (B) the amount then on deposit in the
Collection Account;
(xi) Eleventh, in the order of priority by subclass set forth under
"Description of the Notes and the Guarantees -- Principal", to the
holders of the Class A Notes, an amount, if any, equal to the Class
A Principal Adjustment Amount with respect to each such subclass;
(xii) Twelfth, to the holders of the Class C Notes, an amount equal to
the Class C Scheduled Principal Payment Amount;
(xiii) Thirteenth, to the holders of the Class D Notes, an amount equal to
the Class D Scheduled Principal Payment Amount;
(xiv) Fourteenth, to the Permitted Accruals balance in the Expense
Account, an amount equal to any Modification Payments (or any part
thereof);
(xv) Fifteenth, to the holders of each subclass of the Class A Notes
entitled thereto pro rata, an amount equal to all accrued and
unpaid Step-Up Interest on such subclasses, if any;
(xvi) Sixteenth, to the holders of Class E Notes an amount equal to the
Class E Note Minimum Interest Amount for the current Interest
Accrual Period, without accruals from prior Interest Accrual
Periods;
(xvii) Seventeenth, to any Swap Provider an amount not in excess of the
Supplemental Hedge Payment;
(xviii) Eighteenth, to the holders of Class B Notes, an amount equal to the
Class B Supplemental Principal Payment Amount;
(xix) Nineteenth, in the order of priority by subclass set forth under
"Description of the Notes and the Guarantees -- Principal", to the
holders of the Class A Notes, an amount equal to the Class A
Supplemental Principal Payment Amount with respect to each
subclass;
(xx) Twentieth, to the holders of Class D Notes, an amount equal to the
Redemption Price of the Outstanding Principal Balance, if any, on,
the Class D Notes;
(xxi) Twenty-first, to the holders of Class C Notes, an amount equal to
the Redemption Price of the Outstanding Principal Balance, if any,
on, the Class C Notes;
(xxii) Twenty-second, to the holders of the Class E Notes, an amount equal
to the Class E Note Supplemental Interest Amount for the current
Interest Accrual Period, without accruals from prior Interest
Accrual Periods;
(xxiii) Twenty-third, to the holders of Class B Notes, an amount equal to
the Redemption Price of the Outstanding Principal Balance, if any,
on, the Class B Notes;
(xxiv) Twenty-fourth, in the order of priority by subclass set forth under
"Description of the Notes and the Guarantees -- Principal", to the
holders of the Class A Notes, an amount equal to the Redemption
Price of the Outstanding Principal Balance, if any, on, each such
subclass;
(xxv) Twenty-fifth, payments to Swap Providers which are subordinated in
accordance with the relevant Swap Agreement ("SUBORDINATED SWAP
PAYMENTS");
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(xxvi) Twenty-sixth, to the holders of the Class E Notes, an amount equal
to all accrued and unpaid interest on the Class E Notes and any
amount equal to the Liquidity Reserve Amount then on deposit in the
Collection Account; and
(xxvii) Twenty-seventh, on a pari passu basis to the holders of the Class E
Notes, an amount equal to the Outstanding Principal Balance of the
Class E Notes and to the trustees of the Charitable Trusts, an
amount equal to any arrears of the Annual Dividend Amount not
previously paid.
In addition to the above payments, Airplanes Limited will pay annually to
the trustees of the Charitable Trusts, to the extent that there are
distributable profits in any fiscal year, the Annual Dividend Amount and any
arrears of the Annual Dividend Amount to the extent not paid in respect of
previous fiscal years.
PRIORITY OF PAYMENTS FOLLOWING A DEFAULT NOTICE
Following delivery to Airplanes Limited, Airplanes Trust or the Cash
Manager of a Default Notice, the allocation of payments described above will not
apply and all amounts on deposit in the Collection Account will be applied in
the following order of priority:
(i) First, to the Expense Account, or in certain cases directly to the
relevant Expense payees, an amount equal to the Required Expense
Amount and then to the relevant Expense payees;
(ii) Second, in no order of priority inter se, but pro rata in respect of
amounts payable on such date, (A) pro rata to the holders of each
subclass of the Class A Notes, all accrued and unpaid interest
(including Step-Up Interest) on, and all Outstanding principal of,
the Class A Notes and (B) pro rata to any Swap Provider, such
amounts as are required to make any payments due to such Swap
Provider pursuant to any Swap Agreement;
(iii) Third, to the holders of the Class B Notes, all accrued and unpaid
interest on and all Outstanding principal of the Class B Notes;
(iv) Fourth, to the holders of the Class C Notes, all accrued and unpaid
interest on and all Outstanding principal of the Class C Notes;
(v) Fifth, to the holders of the Class D Notes, all accrued and unpaid
interest on and all Outstanding principal of the Class D Notes;
(vi) Sixth, to the holders of the Class E Notes all accrued and unpaid
interest on and all Outstanding principal of the Class E Notes; and
(vii) Seventh, with respect to Airplanes Limited only, to the Charitable
Trusts, all accrued and unpaid dividends payable to the Charitable
Trusts.
TRUST INDENTURE COVENANTS
No Release of Obligations. The Relevant Issuer will not take, or knowingly
permit any subsidiary to take, any action which would amend, terminate (other
than any termination in connection with the replacement of such agreement with
an agreement having substantially similar terms) or discharge or prejudice the
validity or effectiveness of the Trust Indentures (other than as permitted
therein), the Security Trust Agreement, the Cash Management Agreement, the
Administrative Agency Agreement or the Servicing Agreement or permit any party
to any such document to be released from such obligations, except, in each case,
as permitted or contemplated by the terms of such document, and provided that
such actions may be taken or permitted, and such releases may be permitted, if
such Relevant Issuer shall have first obtained an authorizing resolution of the
Directors, in the case of Airplanes Limited, or a resolution of the Controlling
Trustees, in the case of Airplanes Trust, determining that such action,
permitted action or release does not materially adversely affect the interests
of the Noteholders, and provided further, that in any case (i) the Relevant
Issuer will not take any action which would result in any amendment or
modification to the conflicts standard or duty of care in such agreements and
(ii) there must be at all times an administrative agent, a cash
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manager and, unless the Servicer resigns prior to the appointment of a
replacement servicer as a result of Airplanes Group's failure to pay amounts due
and owing to it, a servicer.
Limitation on Encumbrances. Under the terms of each Trust Indenture, the
Relevant Issuer will not, and will not permit any subsidiary to, create, incur,
assume or suffer to exist any mortgage, pledge, lien, encumbrance, charge or
security interest (in each case, an "ENCUMBRANCE"), including, without
limitation, any conditional sale, any sale with recourse against the seller or
any affiliate of the seller, or any agreement to give any security interest over
or with respect to any of such Relevant Issuer's or subsidiary's assets
(excluding Segregated Funds) including, without limitation, all ordinary shares
and preferred shares, any options, warrants and other rights to acquire such
shares of capital stock ("STOCK") and any Indebtedness of any subsidiary held by
such Relevant Issuer or a subsidiary thereof.
Notwithstanding the foregoing, the Relevant Issuer may create, incur,
assume or suffer to exist (i) any Permitted Encumbrance, (ii) any security
interest created or required to be created under the Security Trust Agreement,
(iii) Encumbrances over rights in or derived from leases, upon confirmation from
the Rating Agencies in advance that such action or event will not result in the
lowering or withdrawal of any rating assigned by any Rating Agency to any of the
Certificates, provided that any transaction or series of transactions resulting
in such Encumbrance, taken as a whole, does not materially adversely affect the
amount of Collections that would have been received by the Relevant Issuer from
such Lease had such Encumbrance not been created or (iv) any other Encumbrance
the validity or applicability of which is being contested in good faith in
appropriate proceedings by the Relevant Issuer or any of its subsidiaries;
provided that if such proceedings continue for a period exceeding 12 months,
such continuing proceedings, together with continuing proceedings related to
Aircraft under the Trust Indenture relating to the Guarantor of the Relevant
Issuer, do not relate to claims exceeding 2% of the Initial Appraised Value of
the Portfolio.
As used in this Prospectus, "AFFILIATE" means, with respect to any person,
any other person that, directly or indirectly, controls, is controlled by or is
under common control with, such person or is a director or officer of such
person; "CONTROL" of a person means the possession, direct or indirect, of the
power to vote 5% or more of the voting Stock of such person or to direct or
cause the direction of the management and policies of such person, whether
through the ownership of voting Stock, by contract or otherwise; and "PERMITTED
ENCUMBRANCE" means (i) any lien for taxes, assessments and governmental charges
or levies not yet due and payable or which are being contested in good faith by
appropriate proceedings; (ii) in respect of any Aircraft, any liens of a
repairer, carrier or hanger keeper arising in the ordinary course of business by
operation of law or any engine or parts-pooling arrangements or other similar
lien; (iii) any permitted lien or encumbrance on any Aircraft, Engines or Parts
as defined under any Lease thereof (other than liens or encumbrances created by
the relevant lessor); (iv) any liens created by or through or arising from debt
or liabilities or any act or omission of any Lessee in each case either in
contravention of the relevant Lease (whether or not such Lease has been
terminated) or without the consent of the relevant Lessor (provided that if such
Lessor becomes aware of any such lien, such Lessor shall use commercially
reasonable efforts to have any such liens lifted); (v) any head lease, lease,
conditional sale agreement or Purchase Option existing as of March 28, 1996 or
Aircraft Agreement meeting the requirements of (iii) (B) of the second paragraph
under the "Limitation on Aircraft Sales" covenant; (vi) any lien for air
navigation authority, airport tending, gate or handling (or similar) charges or
levies; (vii) any lien created in favor of the Relevant Issuer, or any of its
subsidiaries or the Security Trustee; and (viii) any lien not referred to in (i)
through (vii) above which would not adversely affect the owner's rights and does
not exceed the greater of $2,000,000 in the aggregate for the Portfolio or
$250,000 per Aircraft.
Limitation on Restricted Payments. Under the terms of each Trust
Indenture, the Relevant Issuer will not, and will not permit any of its
subsidiaries to (i) declare or pay any dividend or make any distribution on its
Stock held by persons other than the Relevant Issuer or any of its subsidiaries;
provided that as long as no Note Event of Default shall have occurred and be
continuing and Airplanes Limited has distributable profits which may lawfully be
paid as dividends, Airplanes Limited may, subject to the provisions set forth
under "Description of the Securities -- The Notes and the Guarantees", pay the
Annual Dividend Amount; (ii) purchase, redeem, retire or otherwise acquire for
value any shares of Stock of such Relevant Issuer or any of its subsidiaries
held by and on behalf of persons other than such Relevant Issuer, any of its
subsidiaries or to
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other Persons permitted under the requirements of (ii)(B) under the "Limitation
on the Issuance, Delivery and Sale of Capital Stock" covenant; (iii) make any
interest, principal or premium payment on the Notes or make any voluntary or
optional repurchase, defeasance or other acquisition or retirement for value of
Indebtedness of such Relevant Issuer or any of its subsidiaries that is not owed
to such Relevant Issuer or any of its subsidiaries other than in accordance with
"Description of the Securities -- The Notes and the Guarantees" or (iv) make any
investments (other than Permitted Account Investments, investments permitted
under the "Limitation on Engaging in Business Activities" covenant and allowed
Restructurings) provided that no investment by any Airplanes Limited Member in
any Airplanes Trust Member or by any Airplanes Trust Member in any Airplanes
Limited Member shall be made if such investment would materially adversely
affect the Noteholders. "AIRPLANES LIMITED MEMBER" means Airplanes Limited and
any of its subsidiaries. "AIRPLANES TRUST MEMBER" means Airplanes Trust and any
of its subsidiaries.
The term "INVESTMENT" for purposes of the above restriction shall mean any
loan or advance to a person or entity, any purchase or other acquisition of any
capital stock, warrants, rights, options, obligations or other securities of
such person or entity, any capital contribution to such person or entity or any
other investment in such person or entity.
Limitation on Dividends and Other Payment Restrictions. Under the terms of
each Trust Indenture, the Relevant Issuer will not, and will not permit any of
its subsidiaries to, create or otherwise suffer to exist any consensual
encumbrance or restriction of any kind on the ability of any subsidiary to (i)
declare or pay dividends or make any other distributions permitted by applicable
law, or purchase, redeem or otherwise acquire for value, the Stock of such
Relevant Issuer or such subsidiary, as the case may be, (ii) pay any
Indebtedness owed to such Relevant Issuer or such subsidiary, (iii) make loans
or advances to such Relevant Issuer or such subsidiary or (iv) transfer any of
its property or assets to such Relevant Issuer or any other subsidiary thereof.
The foregoing provisions shall not restrict any consensual encumbrances or
other restrictions: (i) existing as of March 28, 1996 under any Related
Document, and any amendments, extensions, refinancings, renewals or replacements
of such documents; provided that such consensual encumbrances and restrictions
in any such amendments, extensions, refinancings, renewals or replacements are
no less favorable in any material respect to the holders of the Notes than those
previously in effect and being amended, extended, refinanced, renewed or
replaced; or (ii) in the case of clause (iv) in the preceding paragraph, (A)
that restrict in a customary manner the subletting, assignment or transfer of
any property or asset that is a lease, license, conveyance or contract or
similar property or asset or (B) existing by virtue of any transfer of,
agreement to transfer, option or right with respect to, or consensual
encumbrance on, any property or assets of the Relevant Issuer or any subsidiary
not otherwise prohibited by the Trust Indenture. Nothing contained in this
covenant shall prevent such Relevant Issuer or any subsidiary from creating,
incurring, assuming or suffering to exist any Encumbrances not otherwise
prohibited under the Trust Indenture.
Limitation on Engaging in Business Activities. Under the terms of each
Trust Indenture, the Relevant Issuer will not, and will not permit any
subsidiary to, engage in any business or activity other than:
(i) (A) purchasing or otherwise acquiring, directly or indirectly, from
GPA Group and its affiliates the stock of the Transferred Companies
(including purchases of stock of affiliates of the companies organized
in the Isle of Man (the "IOMCOS") who were parties to aircraft sales
agreements in connection with the Acquisition), and (B) owning,
holding, converting, maintaining, modifying, managing, operating,
leasing, re-leasing and, subject to the limitations set forth in the
"Limitations on Aircraft Sales" covenant, selling or otherwise
disposing of the Aircraft and entering into all contracts and engaging
in all related activities incidental thereto, including from time to
time accepting, exchanging, holding or permitting any of its
subsidiaries to accept, exchange or hold (an "ALLOWED RESTRUCTURING")
promissory notes, contingent payment obligations or equity interests,
of Lessees or their affiliates issued in connection with the
bankruptcy, reorganization or other similar process, or in settlement
of delinquent obligations or obligations anticipated to be delinquent,
of such Lessees or their respective affiliates in the
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ordinary course of business and (C) acquiring, directly or
indirectly, from an IOMCo any Aircraft that was subject on March 28,
1996 to an existing sales agreement;
(ii) providing loans to, and guaranteeing or otherwise supporting the
obligations and liabilities of, any Airplanes Group member, in each
case on such terms and in such manner as the Directors or
Controlling Trustees, as the case may be, see fit and (whether or
not the Relevant Issuer or such subsidiaries derive a benefit
therefrom) so long as such loans, guarantees or other supports are
provided in connection with the purposes set forth in clause (i) of
this covenant; provided that no such loan, guarantee or other
support of the obligations or liabilities of any Airplanes Limited
Member by any Airplanes Trust Member or of any Airplanes Trust
Member by any Airplanes Limited Member shall be made if it would
materially adversely affect the Noteholders;
(iii) financing or refinancing the business activities described in
clause (i) of this covenant through the offer, sale and issuance of
any securities of Airplanes Limited or Airplanes Trust, upon such
terms and conditions as the Directors or Controlling Trustees, as
the case may be, see fit, for cash or in payment or in partial
payment for any property purchased or otherwise acquired by the
Relevant Issuer;
(iv) engaging in currency and interest rate exchange transactions for the
purposes of avoiding, reducing, minimizing, hedging against or
otherwise managing the risk of any loss, cost, expense or liability
arising, or which may arise, directly or indirectly, from any change
or changes in any interest rate or currency exchange rate or in the
price or value of any of the property or assets of such Relevant
Issuer or any of its subsidiaries within limits determined by the
Directors or the Controlling Trustees from time to time and
submitted to the Rating Agencies, including but not limited to
dealings, whether involving purchases, sales or otherwise, in
foreign currency, spot and forward interest rate exchange contracts,
forward interest rate agreements, caps, floors and collars, futures,
options, swaps, and any other currency, interest rate and other
similar hedging arrangements and such other instruments as are
similar to, or derivatives of, any of the foregoing;
(v) (A) establishing, promoting and aiding in promoting, constituting,
forming or organizing companies, syndicates or partnerships of all
kinds in any part of the world for the purposes set forth in clause
(i) above, (B) acquiring, holding and disposing of shares,
securities and other interests in any such company, syndicate or
partnership and (C) disposing of shares, securities and other
interests in, or causing the dissolution of, any existing subsidiary
other than Holding Co. or AeroUSA, provided that any such
disposition which results in the disposition of an Aircraft meets
the requirements set forth under the "Limitation on Aircraft Sales"
covenant; and
(vi) taking out, acquiring, surrendering and assigning policies of
insurance and assurances with any insurance company or companies
which the Relevant Issuer or any of its subsidiaries may think fit
and to pay the premiums thereon.
Limitation on Indebtedness. Under the terms of each Trust Indenture, the
Relevant Issuer will not, and will not permit any of its subsidiaries to, incur,
create, issue, assume, guarantee or otherwise become liable for or with respect
to, or become responsible for, the payment of, contingently or otherwise,
whether present or future (in any such case, to "INCUR"), Indebtedness.
For the purposes of the Trust Indentures, "INDEBTEDNESS" means, with
respect to any person at any date of determination (without duplication), (i)
all indebtedness of such person for borrowed money, (ii) all obligations of such
person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto), (iv) all
the obligations of such person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months after the
date of purchasing such property or service or taking delivery and title thereto
or the completion of such services, and payment deferrals arranged primarily as
a method of raising finance or financing the acquisition of such property or
service, (v) all obligations of such person under a lease of (or other agreement
conveying the right to use) any property, whether real, personal or mixed, that
is required to be classified and accounted
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for as a capital lease obligation under U.S. GAAP, (vi) all Indebtedness (as
defined in clauses (i) through (v) of this paragraph) of other persons secured
by a lien on any asset of such person, whether or not such Indebtedness is
assumed by such person, and (vii) all Indebtedness (as defined in clauses (i)
through (v) of this paragraph) of other persons guaranteed by such person.
Notwithstanding the foregoing, the Relevant Issuer and any subsidiary may
incur each and all of the following: (i) Indebtedness in respect of any Note,
Class E Note or Guarantee, (ii) Indebtedness in respect of any Refinancing
Notes; provided that (A) the Refinancing Certificates corresponding to such
Refinancing Notes receive ratings from the Rating Agencies at the close of such
refinancing equal to or higher than those of the class or subclass being
refinanced (determined at the date of incurrence), (B) taking into account such
refinancing, the Relevant Issuer receives confirmation prior to such refinancing
from the Rating Agencies that such refinancing will not result in the lowering
or withdrawal of any rating assigned by any Rating Agency to any of the
Certificates corresponding to each class or subclass of Notes Outstanding at
such time, (C) such refinancing does not extend the Remaining Weighted Average
Life of any other class or subclass of Notes then Outstanding by more than three
months and (D) the net proceeds of any such refinancing shall be used only to
repay the Outstanding Principal Balance of the class or subclass of the Notes
being so refinanced; and provided further, that, in the case of any refinancing
of Notes other than the Soft Bullet Notes, the Remaining Weighted Average Life
and Expected Final Payment Date of such Refinancing Notes, determined as of the
date of incurrence, does not exceed by more than three months (x) with respect
to the Fixed Rate Notes, the Remaining Weighted Average Life or Expected Final
Payment Date, as the case may be, of such class or subclass of Notes to be so
refinanced, and (y) with respect to the Floating Rate Notes, the Expected Final
Payment Date of such class or subclass of Notes to be refinanced; (iii)
Indebtedness in respect of guarantees by the Relevant Issuer or any subsidiary
of any other member of Airplanes Group, provided that no such Indebtedness in
respect of any member of Airplanes Group other than of the Relevant Issuer or
any subsidiary of the Relevant Issuer shall be incurred if it would materially
adversely affect the Noteholders; (iv) obligations to each seller under the
Stock Purchase Agreement and the related lease assignment and assumption
agreements and the documents related thereto, (v) indebtedness in respect of any
issuance of Class E Notes payable in connection with any purchase price
adjustment under the Stock Purchase Agreements, (vi) Indebtedness to GPA under
intercompany loans or any agreement between the Relevant Issuer or any of its
subsidiaries and any other members of Airplanes Group (each an "INTERCOMPANY
LOAN"); provided that no such Indebtedness incurred by an Airplanes Limited
Member in favor of an Airplanes Trust Member or incurred by an Airplanes Trust
Member in favor of an Airplanes Limited Member shall be incurred if it would
materially adversely affect the Noteholders and (vii) any subordinated,
non-interest paying indebtedness issued in accordance with the terms of the Tax
Sharing Agreement.
As used in this Prospectus, "GUARANTEE" means any obligation, contingent or
otherwise, of any person directly or indirectly guaranteeing any Indebtedness or
other obligation of any other person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other person or (ii)
entered into for purposes of assuring in any other manner the obligee of such
Indebtedness or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part); provided that the
term "guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "guarantee" when used as a verb has a
corresponding meaning.
Limitation on Aircraft Sales. Under the terms of each Trust Indenture, the
Relevant Issuer will not, and will not permit any of its subsidiaries to, sell,
transfer or otherwise dispose of any Aircraft or any interest therein.
Notwithstanding the foregoing, the Relevant Issuer and any of its
subsidiaries will be permitted to sell, transfer or otherwise dispose of,
directly or indirectly, (a) any engines being sold pursuant to the Stock
Purchase Agreements on March 28, 1996 or any replacements thereof ("ENGINES") or
parts installed in or attached to any Aircraft other than Engines ("PARTS"), or
(b) one or more Aircraft or an interest therein (i) pursuant to a Purchase
Option or other agreements of a similar character existing on March 28, 1996,
(ii) within or among the Relevant Issuer and its subsidiaries without
limitation, and among the Relevant
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Issuer or any of its subsidiaries and any member of Airplanes Group if such
sale, transfer or disposition, as the case may be, would not materially
adversely affect the Noteholders, (iii) pursuant to any Aircraft Agreement;
provided that such sale does not result in an Event of Default under "Operating
Covenants -- Concentration Limits", and the net present value of the cash Net
Sale Proceeds is not less than the Note Target Price, (iv) pursuant to receipt
of insurance proceeds in connection with an event of loss or (v) having an
aggregate Initial Appraised Value of no more than $50 million per annum and no
more than $500 million in aggregate, in each case for Airplanes Group taken as a
whole, from March 28, 1996 until the termination of the Trust Indentures by
their terms, provided that (x) the Directors of Airplanes Limited or the
Controlling Trustees of Airplanes Trust, as applicable, unanimously confirm that
each such sale is in the best interests of such Relevant Issuer and the
Noteholders, (y) all of the consideration received in respect of such sale shall
be in cash and (z) such sale does not result in a Note Event of Default under
"Operating Covenants -- Concentration Limits"; provided, however, that this
covenant will not apply to any sale, transfer or other disposition of any
Aircraft or any interest therein effected as part of a single transaction
providing for the redemption or defeasance of the Notes and the Class E Notes in
accordance with the terms thereof as described under "-- Redemption" or "--
Defeasance", respectively.
For the purpose of this covenant, the net present value of the cash Net
Sale Proceeds of any sale, transfer or other disposition of any aircraft shall
mean the present value of all payments received or to be received by the
Relevant Issuer or one of its subsidiaries from the date of execution or option
granting date, as the case may be, of the relevant Aircraft Agreement through
and including the date of transfer of title to such Aircraft, discounted back to
the date of execution or option granting date, as the case may be, of such
Aircraft Agreement at the weighted average cost of funds of Airplanes Group
(based on the cost of funds on the Payment Date immediately preceding such date
(excluding for such purpose any interest paid or accrued on the Class E Notes
other than Class E Note Minimum Interest Amount, but taking into account any
Swap Agreements)).
The "NOTE TARGET PRICE" means, in respect of any Aircraft, an amount equal
to 105% of the aggregate Outstanding Principal Balance of the Notes allocable to
such Aircraft on the date of the sale agreement or purchase option granting
date, as the case may be. On any date, the Outstanding Principal Balance of
Notes allocable to an Aircraft will equal the product of (i) (A) the Adjusted
Base Value of such aircraft divided by (B) the Adjusted Portfolio Value and (ii)
the aggregate Outstanding Principal Balance of the Notes, in each case on the
most recent Payment Date.
"AIRCRAFT AGREEMENT" means any lease, sub-lease, conditional sale
agreement, hire purchase agreement or other agreement (other than an agreement
for sale not providing for possession by the purchaser, or an agreement relating
to maintenance, modification or repairs) or any purchase option granted to a
person other than the Relevant Issuer or its subsidiaries to purchase an
Aircraft pursuant to a purchase option agreement, in each case pursuant to which
any person acquires or is entitled to acquire legal title, or the economic
benefits of ownership of, such aircraft.
"NET SALE PROCEEDS" means, with respect to any sale or other disposition of
any assets, the aggregate amount of cash received from time to time (whether as
initial or deferred consideration) by or on behalf of the seller in connection
with such transaction after deducting therefrom (without duplication) (a)
reasonable and customary brokerage commissions and other similar fees and
commissions and (b) the amount of taxes payable in connection with or as a
result of such transaction, in each case to the extent, but only to the extent,
that the amounts so deducted are, at the time of receipt of such cash, actually
paid to a person that is not an affiliate of the seller and are properly
attributable to such transaction or to the asset that is the subject thereof.
Limitation on Modification Payments and Capital Expenditures. Under the
terms of each Trust Indenture, the Relevant Issuer will not, and will not permit
any of its subsidiaries to, make any capital expenditures for the purpose of
effecting any optional improvement or modification of any Aircraft, for the
optional conversion of any Aircraft from a passenger aircraft to a freighter or
mixed-use aircraft, or for the purpose of purchasing or otherwise acquiring any
Engines or Parts outside of the ordinary course of business (each such
expenditure, a "MODIFICATION PAYMENT"). Notwithstanding the foregoing, the
Relevant Issuer may, and may permit any of its subsidiaries to, make
Modification Payments; provided that (i) each
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Modification Payment, together with all other Modification Payments made after
the Closing Date pursuant to the covenant with respect to any single Aircraft,
do not exceed the aggregate amount of funds that would be necessary to perform
heavy maintenance (as described in the Servicing Agreement) on such Aircraft,
including the airframe and the related Engines thereof; (ii) any improvements
made as a result of such Modification Payment do not detract from the value of
the affected Aircraft; (iii) such Modification Payment is included in the annual
operating budget of Airplanes Group and approved by the Directors or Controlling
Trustees, as the case may be; (iv) the amount of funds necessary to make such
Modification Payment shall have been accrued in advance as a Permitted Accrual
in the Expense Account through transfers into the Expense Account pursuant to
the Trust Indentures or otherwise allowed to be paid under Permitted
Indebtedness; and (v) the aggregate amount of all Modification Payments made by
members of Airplanes Group, taken as a whole, pursuant to this covenant after
March 28, 1996, including such Modification Payment, shall not exceed
$200,000,000.
Limitation on Consolidation, Merger and Transfer of Assets. Under the
terms of each Trust Indenture, the Relevant Issuer will not, and will not permit
any subsidiary to, consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of its property and assets (as an entirety
or substantially an entirety in one transaction or in a series of related
transactions) to, any other person, or permit any other person to merge with or
into the Relevant Issuer or any subsidiary, unless (i) the resulting entity is a
special purpose corporation, the charter of which is substantially similar to
the Memorandum of Association of Airplanes Limited, the Trust Agreement pursuant
to which Airplanes Trust is organized, or the equivalent charter document of
such subsidiary, as the case may be, and, after such consolidation, merger,
sale, conveyance, transfer, lease or other disposition, payments from such
resulting entity to the Noteholders do not give rise to any withholding tax
payments less favorable to the Noteholders than the amount of any withholding
tax payments which wold have been required had such event not occurred, (ii) in
the case of consolidation, merger or transfer by the Relevant Issuer, the
surviving successor or transferee entity shall expressly assume all of the
obligations of the Relevant Issuer in the relevant Trust Indenture, the Notes
and each other Related Document to which such Relevant Issuer is then a party,
(iii) the Directors or the Controlling Trustees as the case may be shall have
obtained confirmation in advance that such action or event will not result in
the lowering or withdrawal of any rating assigned by any Rating Agency to any of
the Certificates, (iv) immediately after giving effect to such transaction, no
Note Event of Default shall have occurred and be continuing, and (v) the
Relevant Issuer delivers to the applicable Indenture Trustee an officers'
certificate or trustee's certificates as the case may be, and an opinion of
counsel, in each case stating that such consolidation, merger or transfer and
such supplemental indenture comply with the above criteria and, if applicable,
the "Limitation on Aircraft Sales" covenant and that all conditions precedent
provided for in the related Trust Indenture relating to such transaction have
been complied with; provided that this covenant shall not apply to any such
consolidation, merger, sale, conveyance, transfer, lease or disposition (a)
within and among the Relevant Issuer and any of its subsidiaries and among
Airplanes Group if such consolidation, merger, sale, conveyance, transfer, lease
or disposition, as the case may be, would not materially adversely affect the
Noteholders, (b) complying with the terms of the "Limitation on Aircraft Sales"
covenant or (c) effected as part of a single transaction providing for the
redemption or defeasance of the Notes and the Class E Notes in accordance with
the terms thereof as described under "-- Redemption" or "-- Defeasance",
respectively.
Limitation on Transactions with Affiliates. Under the terms of each Trust
Indenture, the Relevant Issuer will not, and will not permit any subsidiary to,
directly or indirectly, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or assets,
or the rendering of any service) with any affiliate of such Relevant Issuer or
any subsidiary, except upon fair and reasonable terms no less favorable to such
Relevant Issuer or such subsidiary than could be obtained, at the time of such
transaction or at the time of the execution of the agreement providing therefor,
in a comparable arm's-length transaction with a person that is not such an
affiliate.
The foregoing limitation does not limit, and shall not apply to, (i) any
transaction pursuant to the terms of the Related Documents; (ii) any transaction
within and among the Relevant Issuer or any of its subsidiaries and any other
member of Airplanes Group, provided, that no such transaction, other than
between the
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Relevant Issuer and any of its subsidiaries, shall be consummated if it would
materially adversely affect the Noteholders; (iii) the payment of reasonable and
customary regular fees to, and the provision of reasonable and customary
liability insurance in respect of, Directors of Airplanes Limited or Controlling
Trustees of Airplanes Trust; (iv) any payments or other transactions pursuant to
the Tax-Sharing Agreement; (v) any contracts between the Relevant Issuer and any
employee of Airplanes Group pursuant to which the aggregate value of payments
does not exceed $200,000 per year; (vi) any payments of the types referred to in
clauses (i) or (ii) of the "Limitation on Restricted Payments" covenant and not
prohibited thereunder; (vii) payments under any contract for the re-acquisition
of an Aircraft from an IOMCo. of a price not exceeding the amount paid therefor
by such IOMCo under a conditional sale agreement existing on the date hereof or
(viii) entering into any transaction effected as part of a single transaction
providing for the redemption or defeasance of the Notes and the Class E Notes in
accordance with the terms thereof as described under "-- Redemption" or "--
Defeasance", respectively.
Limitation on the Issuance, Delivery and Sale of Capital Stock. Under the
terms of each Trust Indenture, the Relevant Issuer will not (i) issue, deliver
or sell any shares, interests, participations or other equivalents (however
designated, whether voting or non-voting, other than such shares, interests,
participations or other equivalents existing on March 28, 1996) in equity,
including without limitation, all ordinary shares of Airplanes Limited and the
Airplanes Trust Residual Interest, as the case may be, or (ii) sell, or permit
any subsidiary, directly or indirectly, to issue, deliver or sell, any shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting, other than such shares, interests, participations or other
equivalents existing on March 28, 1996) in equity except (A) to the Charitable
Trust Trustees, (B) issuances or sales of shares of Stock of foreign
subsidiaries of the Relevant Issuer to nationals in the jurisdiction of
incorporation or organization of such subsidiary, as the case may be, to the
extent required by applicable law or necessary in the determination of the Board
of Directors or the Controlling Trustees, as the case may be, to avoid an
adverse tax consequence in any such jurisdiction, (C) the pledge of the shares
pursuant to the Security Trust Agreement, (D) the sale, delivery or transfer of
any Stock of any member of Airplanes Group in connection with the redemption or
defeasance of the Notes and the Class E Notes in accordance with the terms set
forth under "-- Redemption" or "-- Defeasance", respectively and (E) the sale of
any Stock in connection with any sale of Aircraft in compliance with the terms
of the "Limitation on Aircraft Sales" covenant.
In addition, under the terms of the Shareholders Agreement, the Charitable
Trust Trustees have agreed that while the Airplanes Limited Notes are
outstanding they will not, without prior written approval of the Airplanes
Limited Indenture Trustee and all of the Directors, take any action in their
capacity as shareholders of Airplanes Limited to alter the share capital or
issue any additional shares of Airplanes Limited.
Bankruptcy and Insolvency. Under the terms of each Trust Indenture, the
Relevant Issuer (i) will promptly provide the Indenture Trustee and the Rating
Agencies with notice of the institution of any proceeding by or against such
Relevant Issuer or any of its subsidiaries, as the case may be, seeking to
adjudicate any of them a bankrupt or insolvent, or seeking liquidation, winding
up, reorganization, arrangement, adjustment, protection, relief or composition
of their debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking entry of an order for relief or
the appointment of a receiver, trustee or other similar official for either or
for any substantial part of their property and (ii) each Relevant Issuer will
not, without an affirmative unanimous written resolution of the Directors or the
Controlling Trustees, as applicable and confirmation from the Rating Agencies in
advance that such action or event will not result in the lowering or withdrawal
of any rating assigned by any Rating Agency to any of the Certificates, take any
action to waive, repeal, amend, vary, supplement or otherwise modify its charter
documents.
In addition, under the terms of the Shareholders Agreement, the Charitable
Trust Trustees have agreed that while the Airplanes Limited Notes are
outstanding they will not, without prior written approval of the Airplanes
Limited Indenture Trustee and all of the Directors, take any action in their
capacity as shareholders of Airplanes Limited (i) to cause Airplanes Limited to
institute any proceeding seeking liquidation or insolvency (or similar
proceeding), (ii) in the case of any such proceeding instituted against
Airplanes Limited, to authorize or consent to such proceedings, (iii) to
terminate Airplanes Limited's corporate
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existence, (iv) to waive or amend the Memorandum and Articles of Association of
Airplanes Limited or (v) to transfer any part of the capital stock of Airplanes
Limited 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.
Maintenance of Taxation Status. Under the terms of each Trust Indenture,
the Relevant Issuer shall not, and shall not permit any of its subsidiaries to,
take any action or omit to take any action which is inconsistent with the
preservation of the certification with respect to taxation of Airplanes Group
issued by the Irish Department of Finance (or any similar treatment in other
jurisdictions) in connection with business operations in Shannon, Ireland or
similar certification for other tax-advantaged zones in Ireland or such other
jurisdictions and the taxation treatment awarded to the subsidiaries of
Airplanes Group as a consequence thereof.
OPERATING COVENANTS
Concentration Limits. Unless the Directors or Controlling Trustees obtain
prior written confirmation from each of the Rating Agencies that no lowering or
withdrawal of the then current rating of any class or subclass of Certificates
will result, the Relevant Issuer will not permit any of its subsidiaries to
lease or re-lease any Aircraft if entering into such proposed lease would cause
the Portfolio to exceed any of the concentration limits set forth below (the
"CONCENTRATION LIMITS"); provided that each Trust Indenture will permit breaches
of such Concentration Limits upon any renewal, extension or restructuring of any
Lease.
LESSEE COVENANTS
<TABLE>
<CAPTION>
PERCENTAGE OF MOST RECENT
APPRAISED VALUE OF PORTFOLIO
-------------------------------
<S> <C>
Single Lessee...................................................... 10%
Five largest Lessees............................................... 35%
</TABLE>
COUNTRY COVENANTS
<TABLE>
<CAPTION>
PERCENTAGE OF MOST RECENT
COUNTRY RATING APPRAISED VALUE OF PORTFOLIO(2)
- -------------- -------------------------------
<S> <C>
A -- (or the equivalent) or better(1).............................. 20%
Other.............................................................. 15%
</TABLE>
REGION COVENANTS
<TABLE>
<CAPTION>
PERCENTAGE OF MOST RECENT
APPRAISED VALUE OF PORTFOLIO(3)
-------------------------------
<S> <C>
Africa............................................................. 5%
Asia............................................................... 45%
Australia.......................................................... 10%
Europe (including Turkey, but excluding the CIS and Eastern
Europe).......................................................... 45%
Middle East........................................................ 15%
North America...................................................... 45%
Latin America (including South America, the Caribbean and
Mexico).......................................................... 35%
Other (including CIS and Eastern Europe)........................... 10%
</TABLE>
- ---------------
(1) Based on the sovereign foreign currency debt rating assigned by the Rating
Agencies to the country in which a Lessee is habitually based at the time
the relevant Lease is executed.
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(2) Percentage to be obtained by dividing the aggregate most recent Appraised
Values of all Aircraft operated or to be operated by Lessees habitually
based in the applicable country by the aggregate most recent Appraised
Values of all Aircraft then owned by Airplanes Group.
(3) Percentage to be obtained by dividing the aggregate most recent Appraised
Values of all Aircraft operated or to be operated by Lessees habitually
based in the applicable region by the aggregate most recent Appraised Values
of all Aircraft then owned by Airplanes Group.
In addition, each Trust Indenture will not permit the Relevant Issuer or
any subsidiary to lease Aircraft operated or to be operated by Lessees domiciled
in (i) certain countries and (ii) certain other countries without procuring
political risk insurance. The list of prohibited countries and countries with
respect to which political risk insurance must be procured may be modified from
time to time upon the approval of the Directors of Airplanes Limited or the
Controlling Trustees of Airplanes Trust, as the case may be, after consultation
with the Administrative Agent.
The Trust Indentures contain no limitations with respect to the country or
region where any sublessees of Aircraft operated or to be operated are domiciled
if (i) such sublease is permitted under the relevant Lease (including by reason
of consent or waiver, if applicable) or renewed Lease (including by reason of
consent or waiver, if applicable) and (ii) the relevant Lessee is either a
signatory to a Lease or a renewed Lease.
Compliance with Law, Maintenance of Permits. Under the terms of each Trust
Indenture, the Relevant Issuer will (i) comply, and cause each of its
subsidiaries to comply, in all material respects with all applicable laws, (ii)
obtain, and cause each of its subsidiaries to obtain, all material governmental
(including regulatory) registrations, certificates, licenses, permits and
authorizations required for such person's use and operation of the Aircraft,
including, without limitation, a current certificate of airworthiness for each
Aircraft (issued by the applicable aviation authority and in the appropriate
category for the nature of operations of such Aircraft), except that (A) no
certificate of airworthiness shall be required for any Aircraft (x) during any
period when such Aircraft is undergoing maintenance, modification or repair, (y)
following the withdrawal or suspension by such applicable aviation authority of
certificates of airworthiness in respect of all aircraft of the same model or
period of manufacture as such Aircraft (in which case the Relevant Issuer shall
comply, and cause each of its subsidiaries to comply, with all directions of
such applicable aviation authority in connection with such withdrawal or
suspension), (B) no registrations, certificates, licenses, permits or
authorizations required for the use or operation of any Aircraft need be
obtained with respect to any period when such Aircraft is not being operated and
(C) no such registrations, certificates, licenses, permits or authorizations
shall be required to be maintained for any Aircraft that is not the subject of a
Lease, except to the extent required under applicable laws, (iii) not cause or
knowingly permit, directly or indirectly, through any of its subsidiaries, any
Lessee to operate any Aircraft under any Lease in any material respect contrary
to any applicable law and (iv) not knowingly permit, directly or indirectly,
through any of its subsidiaries, any Lessee not to obtain all material
governmental (including regulatory) registrations, certificates, licenses,
permits and authorizations required for such Lessee's use and operation of any
Aircraft under any operating Lease except as provided, mutatis mutandis, in
clauses (ii)(A) and (ii)(B) above.
The foregoing covenant shall not be deemed to have been breached by virtue
of any act or omission of a Lessee or sub-lessee, or of any person which has
possession of the Aircraft or any Engine for the purpose of repairs,
maintenance, modification or storage, or by virtue of any requisition, seizure,
or confiscation of the Aircraft (other than seizure or confiscation arising from
a breach by the Relevant Issuer or a subsidiary of such covenant) (each, a
"THIRD PARTY EVENT"); provided that (i) no member of Airplanes Group consents or
has consented to such Third Party Event; and (ii) the member of Airplanes Group
which is the lessor or owner of such Aircraft promptly and diligently takes such
commercially reasonable actions as a leading international aircraft operating
lessor or owner would reasonably take in respect of such Third Party Event,
including, as deemed appropriate (taking into account, inter alia, the laws of
the jurisdictions in which the Aircraft are located), seeking to compel such
Lessee or other relevant person to remedy such Third Party Event or seeking to
repossess the relevant Aircraft or Engine.
Appraisal of Portfolio. Under the terms of each Trust Indenture, the
Relevant Issuer will, no earlier than 90 nor later than 30 days prior to March
31 of each year, deliver to the Trustee appraisals of the Base
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Value of each of the Aircraft, from at least three independent appraisers that
are members of the International Society of Transport Aircraft Trading or any
similar organization, each such appraisal to be dated within 30 days prior to
its delivery to the Trustee.
Maintenance of Assets. Under the terms of each Trust Indenture, the
Relevant Issuer will (i) with respect to each Aircraft and Engine that is
subject to a Lease, cause directly or indirectly, through any of its
subsidiaries, such Aircraft and Engine to be maintained in a state of repair and
condition consistent with the reasonable commercial practice of leading
international aircraft operating lessors with respect to similar aircraft under
lease, taking into consideration, among other things, the identity of the
relevant Lessee (including the credit standing and operating experience
thereof), the age and condition of the Aircraft and the jurisdiction in which
such Aircraft will be operated or registered under such Lease, and (ii) with
respect to each Aircraft that is not subject to a Lease, maintain, and cause
each of its subsidiaries to maintain, such Aircraft in a state of repair and
condition consistent with the reasonable commercial practice of leading
international aircraft operating lessors with respect to aircraft not under
lease. No breach of this covenant, however, shall be deemed to have occurred by
virtue of any Third Party Event; provided that (i) no member of Airplanes Group
consents or has consented to such Third Party Event; and (ii) the member of
Airplanes Group which is the lessor or owner of such Aircraft promptly and
diligently takes such commercially reasonable actions as a leading international
aircraft operating lessor would reasonably take in respect of such Third Party
Event, including as deemed appropriate, seeking to compel such Lessee or other
relevant person to remedy such Third Party Event or seeking to repossess the
relevant Aircraft or Engine.
Notification of Indenture Trustee, Cash Manager and Administrative
Agent. Under the terms of each Trust Indenture, the Relevant Issuer will notify
the Indenture Trustee, Cash Manager and Administrative Agent as soon as such
Relevant Issuer or any of its subsidiaries becomes aware of any loss, theft,
damage or destruction to any Aircraft or Engine if the potential cost of repair
or replacement of such asset (without regard to any insurance claim related
thereto) may exceed $2,000,000.
Leases. Under the terms of each Trust Indenture, the Relevant Issuer shall
adopt and has agreed to cause the Servicer to utilize the pro forma lease
agreement or agreements then used by the Servicer in connection with its
aircraft operating leasing services business generally, as such pro forma lease
agreement or agreements may be revised from time to time by the Servicer (the
"SERVICER'S PRO FORMA LEASE"), for use by the Servicer on behalf of each member
of Airplanes Group as a starting point in the negotiation of Future Leases with
persons who are not members of Airplanes Group; provided, that with respect to
any Future Lease entered into in connection with (x) the renewal or extension of
an Existing Lease, (y) the leasing of an Aircraft to a person that is or was a
Lessee under an Existing Lease or (z) the leasing of an Aircraft to a person
that is or was a lessee under an operating lease of an aircraft that is being
managed or serviced by the Servicer (such Future Lease, a "RENEWAL LEASE"), a
form of lease substantially similar to such Existing Lease or operating lease (a
"PRECEDENT LEASE"), as the case may be, may, in lieu of the Servicer's Pro Forma
Lease, be used by the Servicer on behalf of any member of Airplanes Group as a
starting point in the negotiation of such Future Lease with persons who are not
members of Airplanes Group; and provided further, however, that if the Directors
or Controlling Trustees, as the case may be, determine, in an annual review of
the Servicer's Pro Forma Lease, that any revision to the Servicer's Pro Forma
Lease made from time to time since the preceding review by such Directors or
Controlling Trustees is substantially inconsistent with the core lease
provisions of the Relevant Issuer set forth in the Administrative Agency
Agreement (as such provisions may be amended from time to time, the "CORE LEASE
PROVISIONS") in a manner and to such a degree as to have a material adverse
effect on the Noteholders, taking into consideration, inter alia, such revision
and any risk that the Aircraft might not be able to be leased on terms
inconsistent with the relevant provisions in the Servicer's Pro Forma Lease,
then such Directors or Controlling Trustees shall direct the Servicer not to
include such revision in the Servicer's Pro Forma Lease to be used thereafter as
the starting point in the negotiation of any Future Lease with respect to the
Aircraft. With respect to any such revisions as to which such Directors or
Controlling Trustees have not made such determination, such Directors or
Controlling Trustees, as the case may be, shall, to the extent relevant, amend
the applicable Core Lease Provisions. It shall not be deemed a violation of this
covenant if the terms of any Future Lease deviate from the terms of the
Servicer's Pro Forma Lease or a Precedent Lease, as applicable, so long as the
Servicer's Pro Forma Lease or
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the applicable Precedent Lease was the starting point for the negotiation of
such Future Lease. The foregoing covenant shall not be applicable to any
negotiation with respect to, or the execution of, any Future Lease of an
Aircraft where such negotiation commenced on or prior to March 28, 1996.
On the Payment Date occurring three months after each year subsequent to
March 28, 1997, the Relevant Issuer shall certify to the Indenture Trustee that,
based upon any and all factors considered by it to be relevant and taking into
account any advice received from its agents, including the Administrative Agent
and the Servicer, the Future Leases executed by or on behalf of the Relevant
Issuer or its subsidiaries during the preceding year ending on such anniversary
with Persons who are not members of Airplanes Group, having regard to deviations
from the Core Lease Provisions in effect as of such anniversary (or, with
respect to any Renewal Leases, having regard to deviations from the provisions
corresponding to the Core Lease Provisions which had been previously
incorporated in the applicable Precedent Leases), taken as a whole, should not
be reasonably expected to have a material adverse effect on the Noteholders. If
the Relevant Issuer cannot make such certification, then it shall deliver to the
Indenture Trustee a Core Lease Provision certificate which sets forth
information specifying the nature of the deviations from the Core Lease
Provisions or, with respect to the Renewal Leases, such corresponding provisions
of the Future Leases executed by or on behalf of the Issuer during the preceding
year which should reasonably be expected to have a material adverse effect on
the Noteholders. In addition, the Issuer shall furnish an annual report to the
Rating Agencies (with a copy to the Indenture Trustee) setting forth the
rationale (including, if applicable, trends in the international operating
leasing market) for any changes in the Core Lease Provisions during the
preceding year.
Opinions. Under the terms of each Trust Indenture, the Relevant Issuer
will not enter into, and will not permit any of its subsidiaries to enter into,
any Future Lease with any person that is not a member of Airplanes Group or
change the jurisdiction of registration of any Aircraft that is subject to a
Lease, unless, upon entering into such Future Lease or changing the jurisdiction
or registration of such Aircraft (or within a commercially reasonable period
thereafter), the Servicer obtains such legal opinions, if any, with regard to
compliance with the registration requirements of the relevant jurisdiction,
enforceability of the Future Lease and such other matters customary for such
transactions to the extent that receiving such legal opinions is consistent with
the reasonable commercial practice of leading international aircraft operating
lessors.
Insurance. Under the terms of each Trust Indenture, the Relevant Issuer
will maintain or cause, directly or indirectly through its subsidiaries, to be
maintained with reputable and responsible insurers or with insurers that
maintain relevant reinsurance with reputable and responsible reinsurers (i)
airline hull insurance for each Aircraft in an amount at least equal to the Note
Target Price for such Aircraft (or the equivalent thereof from time to time if
such insurance is denominated in a currency other than U.S. dollars), (ii)
airline liability insurance for each Aircraft and occurrence in an amount at
least equal to the relevant amounts set forth in the Trust Indentures for each
model of aircraft and (iii) airline political risk insurance ("PRI") for each
Aircraft subject to a Lease and habitually based in a jurisdiction determined in
accordance with the PRI guidelines, as set forth in the Indentures and as
amended from time to time by the Directors or Controlling Trustees, in an amount
at least equal to the Note Target Price (or the equivalent thereof from time to
time if such insurance is denominated in a currency other than U.S. dollars) for
such Aircraft; provided, however, that, with respect to any such insurance for
any Aircraft, such insurance may be subject to (x) deductibles and
self-insurance in an amount not exceeding $10,000,000 in the aggregate in
respect of any one occurrence in respect of such Aircraft that is subject to a
Lease (or sale agreement) with any Lessee (or purchaser) whose long-term
unsecured debt obligations are rated not less than A, or its equivalent, by at
least one of the Rating Agencies, or (y) commercially reasonable deductible and
self-insurance arrangements (taking into account, inter alia, the
creditworthiness and experience of the Lessee, if any, the type of aircraft and
market practices in the aircraft insurance industry generally). Apart from the
matters covered by the preceding sentence, the coverage and terms (including
endorsements) of any insurance maintained (a) with respect to any Aircraft not
subject to a Lease shall be substantially consistent with the commercial
practices of leading international aircraft operating lessors regarding similar
aircraft and (b) with respect to any Aircraft subject to a Lease, shall be
substantially consistent with the relevant provisions of such Lease.
In determining the amount of insurance required to be maintained by the
covenant, the Relevant Issuer may take into account any indemnification from, or
insurance provided by, any governmental, supranational or
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inter-governmental authority or agency (other than, with respect to PRI, any
governmental authority or agency of any jurisdiction for which PRI must be
obtained), the sovereign foreign currency debt rating of which is rated AA, or
the equivalent, by at least one of the Rating Agencies, against any risk with
respect to an Aircraft at least in an amount which, when added to the amount of
insurance against such risk maintained by the Relevant Issuer (or which the
Relevant Issuer has caused to be maintained), shall be at least equal to the
amount of insurance against such risk otherwise required by the covenant (taking
into account self-insurance permitted by the covenant). Any such indemnification
or insurance provided by such government shall provide substantially similar
protection as the insurance required by the covenant. The Relevant Issuer will
not be required to maintain (or to cause to be maintained) any insurance
otherwise required hereunder to the extent that such insurance is not generally
available in the relevant insurance market from time to time.
Indemnity. Under the terms of each Trust Indenture, the Relevant Issuer
will, and will cause each of its subsidiaries to include in each Lease between a
member of Airplanes Group and a person who is not a member of Airplanes Group an
indemnity in respect of the Lease in respect of any losses or liabilities
arising from the use or operation of the Aircraft during the term of such Lease,
subject to such exceptions, limitations and qualifications as are consistent
with the reasonable commercial practices of leading international aircraft
operating lessors.
NOTE EVENTS OF DEFAULT AND REMEDIES
Each of the following events will constitute a "NOTE EVENT OF DEFAULT" with
respect to any class of Notes under each applicable Trust Indenture (unless
otherwise specified below):
(a) failure to pay interest on the Notes of such class or any subclass
thereof (other than Step-Up Interest), in each case when such amount
becomes due, and such default continues for a period of five or more
Business Days;
(b) failure to pay principal of or premium, if any, on the Notes of such
class or subclass thereof either on or prior to the applicable Final
Maturity Date;
(c) failure to pay any amount (other than interest) when due and payable
in connection with any Note, to the extent that there are at such time
Available Collections therefor, and such default continues for a
period of two or more Business Days;
(d) failure by Airplanes Limited or Airplanes Trust to comply with any of
the covenants, obligations, conditions or provisions binding on it
under the Trust Indentures or the Notes (other than a payment default
for which provision is made in clause (a), (b) or (c) above) or any
material breach of any of the covenants, obligations, conditions or
provisions binding on it under any of the Related Documents to which
it is a party or any breach of the representations and warranties
given as of the Closing Date by Airplanes Limited, Airplanes Trust or
any subsidiary thereof in such agreements, if such failure or such
breach materially adversely affects the holders of such class of Notes
and continues for a period of 30 days or more after written notice
thereof has been given to the Relevant Issuer by the Cash Manager, the
Administrative Agent, the Servicer or by holders of at least 25% of
the aggregate Outstanding Principal Balance of the Notes of the Senior
Class;
(e) an "Event of Default" by any Guarantor under the Trust Indentures or
failure by any Guarantor to pay any amount when due and payable under
the Trust Indentures;
(f) a court having jurisdiction in the premises enters a decree or order
for (i) relief in respect of Airplanes Limited, Airplanes Trust or any
subsidiary thereof (other than a subsidiary which owns or leases
Aircraft having an aggregate Base Value of less than 2% of the
Adjusted Portfolio Value at that time (each, a "SIGNIFICANT
SUBSIDIARY"), under any applicable law relating to bankruptcy,
insolvency, receivership, winding-up, liquidation, reorganization,
examination, relief of debtors or other similar law now or hereafter
in effect, (ii) appointment of a receiver, liquidator, examiner,
assignee, custodian, trustee, sequestrator or similar official of
Airplanes Limited, Airplanes Trust, or any Significant Subsidiary; or
(iii) the winding up or liquidation of the affairs of Airplanes
Limited, Airplanes Trust, or any Significant Subsidiary and, in each
case, such decree or order shall
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remain unstayed or such writ or other process shall not have been
stayed or dismissed within 90 days from entry thereof;
(g) Airplanes Limited, Airplanes Trust, or any Significant Subsidiary (i)
commences a voluntary case under any applicable law relating to
bankruptcy, insolvency, receivership, winding-up, liquidation,
reorganization, examination, relief of debtors or other similar law
now or hereafter in effect, or consents to the entry of an order for
relief in any voluntary case under any such law, (ii) consents to the
appointment of or taking possession by a receiver, liquidator,
examiner, assignee, custodian, trustee, sequestrator or similar
official of Airplanes Limited, Airplanes Trust or any Significant
Subsidiary or for all or substantially all of the property and assets
of Airplanes Limited, Airplanes Trust or any Significant Subsidiary or
(iii) effects any general assignment for the benefit of creditors;
(h) any judgment or order for the payment of money in excess of
$100,000,000 shall be rendered against Airplanes Limited, Airplanes
Trust or any subsidiary thereof and either (i) enforcement proceedings
shall have been commenced by any creditor upon such judgment or order
or (ii) there shall be any period of 10 consecutive days during which
a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; provided,
however, that any such judgment or order shall not be an Event of
Default under the Trust Indentures if and for so long as (i) the
amount of such judgment or order is covered by a valid and binding
policy of insurance between the defendant and the insurer covering
payment thereof and (ii) such insurer, which shall be rated at least A
by A.M. Best Company or any similar successor entity, has been
notified of, and has not disputed the claim made for payment of, the
amount of such judgment or order; or
(i) the constitutional documents of Airplanes Limited or the documents
creating Airplanes Trust cease to be in full force and effect without
replacement documents having the same terms being in full force and
effect.
If a Note Event of Default (other than a Note Event of Default under (f) or
(g)above) shall have occurred and be continuing, the Senior Trustee may, and,
when instructed by the holders of 25% of the aggregate Outstanding Principal
Balance of the Senior Class of Notes, shall, give a Default Notice to the
Relevant Issuer and the Cash Manager declaring the Outstanding Principal Balance
of the Notes and all accrued and unpaid interest thereon to be due and payable.
At any time after the Senior Trustee has declared the Outstanding Principal
Balance of the Notes to be due and payable and prior to the exercise of any
other remedies pursuant to the Trust Indentures, holders of a majority of the
Outstanding Principal Balance of the Senior Class of Notes, by written notice to
the Relevant Issuer, the Senior Trustee and the Cash Manager, may rescind and
annul such declaration and thereby annul its consequences if: (i) there has been
paid to or deposited with the Senior Trustee an amount sufficient to pay all
overdue installments of interest on the Notes, and the principal of and premium,
if any, on the Notes that would have become due otherwise than by such
declaration of acceleration, (ii) the rescission would not conflict with any
judgment or decree and (iii) all other defaults and Note Events of Default,
other than nonpayment of interest and principal on the Notes that have become
due solely because of such acceleration, have been cured or waived. If a Note
Event of Default under clause (f) or (g) occurs, the Outstanding Principal
Balance of the Notes and all accrued and unpaid interest thereon shall
automatically become due and payable without any further action by any party.
After the occurrence and during the continuation of a Note Event of Default: (i)
the Class B Noteholders will not be permitted to give or direct the giving of a
Default Notice or to exercise any remedy in respect of such Note Event of
Default until all interest and principal on the Class A Notes have been paid in
full; (ii) the Class C Noteholders will not be permitted to give a Default
Notice or to exercise any remedy in respect of such Note Event of Default until
all interest and principal on the Class A Notes and the Class B Notes have been
paid in full; (iii) the Class D Noteholders will not be permitted to give a
Default Notice or to exercise any remedy in respect of such Note Event of
Default until all interest and principal on the Class A Notes, the Class B Notes
and the Class C Notes have been paid in full and (iv) the Class E Noteholders
will not be permitted to give a Default Notice or to exercise any remedy in
respect of such Note Event of Default until all interest and principal on the
Class A Notes, the Class B Notes, the Class C Notes and the Class D Notes have
been paid
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in full. The relevant Indenture Trustee shall provide each Rating Agency with a
copy of any Default Notice it receives pursuant to the Trust Indentures.
Each Trust Indenture contains a provision entitling the applicable
Indenture Trustee, subject to the duty of the Indenture Trustee during a default
to act with the required standard of care, to be indemnified by the holders of
any class of the Notes before proceeding to exercise any right or power under
the applicable Trust Indenture or the Cash Management Agreement at the request
or direction of such holders. Except in limited circumstances, no holder of the
Notes will have the right, other than through the Senior Trustee acting in
accordance with the Trust Agreement and the Trust Indentures to sue for recovery
or take any other actions to enforce the obligations of the Relevant Issuer to
pay any and all amounts due and payable under the Notes issued under either
Trust Indenture, and no holder of the Notes will have the right to take any
steps to cause the filing for bankruptcy of such Issuer. The Senior Trustee, as
sole initial holder of the senior class of Notes outstanding, is entitled to
exercise any and all remedies available under the applicable Trust Indentures.
INTERCREDITOR RIGHTS
Subject to the terms of the Trust Indentures, the Senior Trustee will have
sole discretion as to whether to direct the Cash Manager to exercise and enforce
any and all remedies with respect to the Notes. The Senior Trustee may take
various actions in respect of the Notes, without regard to the interests of any
other creditors.
MODIFICATION AND WAIVER
Each Trust Indenture will provide that, with the consent of the holders of
a majority of the Outstanding Principal Balance of the Notes on the date of any
vote of such holders (voting as a single class), modifications may be made to
any class or subclass of Notes or such Trust Indenture; provided that any
modification of the provisions setting forth the frequency or the currency of
payment of, the maturity of, or the method of calculation of the amount of any
interest, principal and premium, if any, payable in respect of any class or
subclass of Notes, or reducing the percentage of the aggregate Outstanding
Principal Balance of any class or subclass of Notes required to approve any such
amendment or waiver, or altering the manner or priority of payment of such class
or subclass of Notes (each, a "BASIC TERMS MODIFICATION") is not permitted
without the consent of any Swap Provider and the holder of each Outstanding Note
affected thereby; provided further, however, that the Senior Trustee may waive
any Note Event of Default. Any such modification approved by the required
holders of any class or subclass of Notes will be binding on the holders of the
relevant class or subclass of Notes and each party to the Trust Indenture. The
foregoing, however, shall not prevent Airplanes Group or any subsidiary from
amending any Lease; provided that such amendment is otherwise permitted by the
relevant Trust Indentures.
The subordination provisions contained in each Trust Indenture may not be
amended or modified without the consent of each Swap Provider, each holder of
the class or subclass of Notes affected thereby and each holder of any class or
subclass of Notes ranking senior to such Notes.
Without the consent of each Noteholder, no amendment or modification of the
relevant Trust Indenture or the Cash Management Agreement may, inter alia, (a)
modify the provisions of the relevant Trust Indenture or the Cash Management
Agreement with respect to Account payment instructions and the payment
thereunder by the Cash Manager or (b) result in the sale of the Relevant
Issuer's assets other than pursuant to the provisions of "Trust Indenture
Covenants". In no event shall the provisions relating to the priority of the
Expenses, Swap Payments or Swap Breakage Costs in each Trust Indenture be
amended or modified.
The Trust Agreement contains provisions permitting the Relevant Issuer and
the applicable Trustee to enter into supplemental trust agreements, without the
consent of any Certificateholders of the related Trust, inter alia, (i) to allow
the Issuers to issue Refinancing Notes, (ii) to add to the covenants of
Airplanes Limited and Airplanes Trust for the benefit of the Certificateholders
of any Class, or to surrender any right or power of Airplanes Limited and
Airplanes Trust under the Trust Agreement, (iii) to cure any ambiguity in, or to
correct or supplement any defective or inconsistent provision of, the Trust
Agreement or any supplemental trust agreement; provided that any such actions
set forth in clause (iii) above shall not adversely affect the
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interests of such Certificateholders or (iv) to make any modification necessary
to continue the qualification of the Trust Agreement under the Trust Indenture
Act.
The Trust Agreement also contains provisions permitting the Relevant Issuer
and the applicable Trustee, with the consent of the holders of each class or
subclass of Certificates of the applicable Trust evidencing interests
aggregating not less than a majority of the Outstanding Principal Balance of
such class or subclass to execute supplemental trust agreements adding any
provisions to or changing or eliminating any of the provisions of the Trust
Agreement or modifying the rights of the Certificateholders of such class or
subclass, except that no such supplemental trust agreement may, without the
consent of each Certificateholder so affected, (i) reduce in any manner the
amount of, or delay the timing of, the applicable Trustee's receipt of payments
on any of the related Notes held in such Trust, or distributions in respect of
any related Certificate, change the Final Maturity Date or Payment Date on any
Certificate, change the place of payment where, or the coin or currency in
which, any Certificate is payable, or impair the right of any Certificateholder
to institute suit for the enforcement of any such payment when due, (ii) permit
the disposition of any of the Notes except as provided in the Trust Agreement,
or otherwise deprive any Certificateholder of the benefit of the ownership of
such Notes, (iii) reduce the percentage of the Outstanding Principal Balance of
the Certificates of any class or subclass provided for in the Trust Agreement,
the consent of the holders of which is required for any such supplemental trust
agreement or for any waiver provided for in the Trust Agreement, or (iv)
adversely affect the status of the Trust as a grantor trust for U.S. federal
income tax purposes.
In the event that any Trustee, as the holder of each subclass of Notes held
in the applicable Trust, receives a request for its consent to an amendment,
modification or waiver under the applicable Trust Indenture, such Notes, the
Cash Management Agreement, the Administrative Agency Agreement or other Related
Document relating to such Notes, such Trustee shall mail a notice of such
proposed amendment, modification or waiver to each Certificateholder of such
subclass as to whether or not to consent to such amendment, modification or
waiver. The applicable Trustee shall vote or consent with respect to such Notes
in such Trust in the same proportion as the Certificates of such subclass were
actually voted by the holders thereof by a certain date.
GOVERNING LAW AND JURISDICTION
Each Trust Indenture and the Cash Management Agreement are to be governed
by and construed in accordance with the laws of the State of New York. In each
Trust Indenture and the Cash Management Agreement, Airplanes Limited and
Airplanes Trust respectively have submitted to the jurisdiction of the United
States Federal and New York State courts located in the City of New York for all
purposes of or in connection with the Notes and Cash Management Agreement, as
the case may be, and have each designated a person in the City of New York to
accept service of any process on its behalf.
THE CLASS E NOTES
The $591 million in aggregate principal amount of Class E Notes have been
issued by and constitute direct, unsecured obligations of Airplanes Limited (the
"AIRPLANES LIMITED CLASS E NOTES") and Airplanes Trust (the "AIRPLANES TRUST
CLASS E NOTES"), pursuant to the Airplanes Limited Indenture and the Airplanes
Trust Indenture respectively. Approximately $83 million (or 14%) of the
aggregate principal amount of the Class E Notes have been issued to subsidiaries
of GPA in which minority shareholders have interests representing approximately
$23 million (or 4%) of the aggregate principal amount of the Class E Notes. The
Class E Notes were issued in transactions exempt from the registration
requirements of the Securities Act.
The Class E Notes rank junior in priority of payment to certain payments on
the Notes and certain other obligations of Airplanes Limited and Airplanes Trust
and, to the extent held by more than one person, pari passu among such persons.
Pursuant to the subordination provisions of the Trust Indentures and the Class E
Notes, payments on any Class E Note, other than the Class E Note Minimum
Interest Amount and the Class E Note Supplemental Interest Amount, in each case
as set forth in "-- Priority of Payments", are subordinated to all payments of
interest and principal on the Notes. Holders of the Class E Notes are not
permitted to give a Default Notice with respect to any Note Event of Default or
to exercise any remedy in
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respect of any such Note Event of Default until all amounts owing under each
other class of the Notes have been paid in full. In addition, any amendment to
or modification of the subordination provisions contained in the Trust
Indentures will require the consent of each noteholder if such amendment or
modification would adversely affect the rights of such noteholders.
The Class E Notes have been issued in fully certificated form. The Class E
Notes accrue interest for each Interest Accrual Period at a rate of 20% per
annum, payable monthly in arrears on each Payment Date, commencing May 15, 1996.
The stated interest rate on the Class E Notes is adjusted by reference to the
U.S. Consumer Price Index. Except for the Class E Note Minimum Interest Amount
plus the Class E Note Supplemental Interest Amount, each of which is paid
interest at a rate of 1% and 10% multiplied by the Outstanding Principal Balance
of the Class E Notes, respectively, no interest is payable on the Class E Notes
until all of the interest, principal and premium, if any, on the Notes have been
repaid in full. Interest accrued but not paid on the Class E Notes on each
Payment Date will accrue during each Interest Accrual Period until the principal
of the Class E Notes shall have been repaid. The Class E Note Minimum Interest
Amount plus, in more limited circumstances, the Class E Note Supplemental
Interest Amount will be paid on each Payment Date only to the extent that
Airplanes Group has Available Collections sufficient to make such payment after
paying or providing for each of the items ranking prior to such payment in the
order of priority described under "-- Priority of Payments".
Principal of the Class E Notes will not be payable until the Outstanding
Principal Balance of the Notes is reduced to zero.
The terms of the Class E Notes require, inter alia, that the Class E
Noteholders pay over to the Cash Manager any money (including principal or
interest) paid to them in the event that the Cash Manager, acting in good faith,
determines subsequently that such monies were not paid in accordance with the
priority of payment obligations described above under "-- Priority of Payments"
or as a result of any other mistake of fact or law on the part of the Cash
Manager in making such payment.
Under Airplanes Limited's Articles of Association and the Airplanes Trust
Agreement, the holder or holders of a majority in aggregate principal amount of
the Class E Notes have the right to appoint one of Airplanes Limited's Directors
and one of Airplanes Trust's Controlling Trustees while the Class E Notes are
outstanding. Currently, GPA has appointed Edward Hansom as such Director and
Controlling Trustee. If GE Capital exercises its right to acquire at least 90%
of the ordinary share capital of GPA Group, the holder of a majority in
aggregate principal amount of the Class E Notes will be entitled to dismiss the
Directors of Airplanes Limited and all of the Controlling Trustees of Airplanes
Trust and to appoint new Directors and Controlling Trustees. There can be no
assurance, however, that GE Capital will elect to acquire any of such ordinary
shares. Neither the Certificates nor the Notes are obligations of, or guaranteed
by, or offered for sale by, GE Capital, GECAS or any of their affiliates.
At such time, if any, as the Directors and Controlling Trustees 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 all of the Controlling
Trustees of Airplanes Trust shall have the authority, acting on a 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, or the terms of the Trust Indentures,
discharge any Class E Notes not so transferred and pay the Discounted Annual
Dividend Amount, plus any arrears of the Annual Dividend Amount.
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THE CASH MANAGEMENT AGREEMENT
The following summary description of the Cash Management Agreement is
subject to, and qualified in its entirety by reference to, the provisions of
each Trust Indenture and the Cash Management Agreement, forms of which are filed
as exhibits to the Registration Statement of which this Prospectus forms a part.
Each payment of cash in respect of any class of Notes and all other
payments to be received by Airplanes Limited or Airplanes Trust or made by
either of them pursuant to the applicable Trust Indenture will be directed by
the Cash Management Agreement.
The Cash Management Agreement was entered into by Airplanes Limited,
Airplanes Trust, the Cash Manager, GPA Group, Indenture Trustees and the
Security Trustee. The Cash Management Agreement appoints the Cash Manager to
administer the Accounts, to monitor the performance of Airplanes Group, to
prepare reports with respect to such performance and to perform certain other
specified administrative tasks on behalf of Airplanes Group. The Cash Manager
shall ensure that the proceeds of the Airplanes Group assets are deposited in
the Collection Account. The Cash Management Agreement and each Trust Indenture
set forth a number of covenants of Airplanes Group with respect to the conduct
of Airplanes Group's business and the Airplanes Group assets and provides for
the establishment and operation of the Accounts. Upon the occurrence of a Note
Event of Default, the Cash Manager will distribute funds in the manner set forth
in the Indenture.
THE ACCOUNTS
The Cash Manager, acting on behalf of the Security Trustee, has established
the following accounts: (i) the Collection Account, (ii) the Lessee Funded
Account, (iii) the Expense Account and (iv) the Rental Accounts (collectively
with the Proceeds Account, the Refinancing Account and the Defeasance/Redemption
Account, and including any ledger or subledger accounts maintained therein, the
"ACCOUNTS"). For a description of the Accounts see "Management's Discussion and
Analysis of Financial Conditions and Results of Operations -- The Accounts".
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REPORTS TO CERTIFICATEHOLDERS
On each Payment Date and any other date for distribution of any payments
with respect to each class or subclass of Certificates then Outstanding, the
applicable Trustee will include with each distribution of any payment to a
Certificateholder a statement with respect to such distribution to be made on
such Payment Date or other date, as the case may be, setting forth the following
information:
<TABLE>
<S> <C> <C>
(i) With respect to each Payment Date, (A) the balances on deposit on the
Calculation Date immediately preceding the prior Payment Date, (B) the
aggregate amounts of deposits and withdrawals between such Calculation
Date and the Calculation Date immediately preceding the Payment Date
and (C) the balances on deposit in the Expense Account, Collection
Account and Lessee Funded Account on the Calculation Date immediately
preceding such Payment Date.
(ii) Analysis of Expense Account Activity
Balance on Preceding Calculation Date; ..................................
Payments during period between prior Calculation Date and the relevant
Calculation Date;
(1) Payments on prior Payment Date.....................................
(2) Other payments.....................................................
Balance on relevant Calculation Date.....................................
(iii) Analysis of Collection Account Activity
Balance on Preceding Calculation Date....................................
-- Required Expense Amount (including on preceding Payment Date).......
-- Net Transfer to Lessee Funded Accounts during period................
-- Collections during period...........................................
-- Aggregate Certificate Payments......................................
-- Swap Payments.......................................................
Balance on relevant Calculation Date (separately stating the components
of the Liquidity Reserve Amount).......................................
Analysis of current Payment Date distributions.........................
(iv) Payments on the Certificates
(a) Floating Rate Certificates (by class or subclass)....................
Applicable LIBOR for the current Interest Accrual Period.............
Applicable Margin for the current Interest Accrual Period............
Applicable Interest Rate for the current Interest Accrual Period.....
Interest Amount Payable..............................................
Step-Up Interest.....................................................
Opening Outstanding Principal Balance................................
Minimum Principal Payment Amount.....................................
Adjusted Principal Payment Amount....................................
Supplemental Principal Payment Amount................................
Redemption Amount....................................................
-- amount allocable to principal.....................................
-- amount allocable to premium.......................................
Closing Outstanding Principal Balance................................
(b) Fixed Rate Certificates (by class)
Applicable Interest Rate.............................................
Interest Amount Payable..............................................
Opening Outstanding Principal Balance................................
Scheduled Principal Payment Amount...................................
Redemption Amount
-- amount allocable to principal.....................................
-- amount allocable to premium.......................................
</TABLE>
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<TABLE>
<S> <C> <C>
Closing Outstanding Principal Balance..................................
Pool Factors and scheduled payment amounts in the event of
a partial redemption...................................................
(v) Floating Rate Certificate information for next Interest Accrual Period
(by class or subclass)
Applicable LIBOR.........................................................
Applicable Margin........................................................
Applicable Interest Rate.................................................
(vi) Payments per $100,000 Initial Outstanding Principal Balance of
Certificates
(by class or subclass)
Opening Outstanding Principal Balance....................................
Total Principal Payments.................................................
Closing Outstanding Principal Balance....................................
---------
Total Interest...........................................................
Total Premium............................................................
</TABLE>
These monthly statements are filed with the Securities and Exchange
Commission (the "COMMISSION") as a Current Report on Form 8-K. Such monthly
statements do not contain financial information with respect to Airplanes Group;
however, on the first Payment Date following the filing by Airplanes Group of
any Report on Form 10-Q or Form 10-K under the Securities Exchange Act of 1934,
as amended, with the Commission with respect to each class or subclass of
Certificates then Outstanding, the applicable Trustee will include with each
statement accompanying a distribution of any payment as described in (i) - (vi)
above, a supplemental statement setting forth the following information: a copy
of the "Airplanes Group Portfolio Analysis" table in this Prospectus, updated
and revised to reflect the current composition of the Portfolio. Each Airplanes
Group Report on Form 10-Q or Form 10-K includes disclosure with respect to any
material adverse effect of any delinquency or loss in connection with the
Leases.
In addition, after the end of each calendar year, the applicable Trustee
will furnish to each person who at any time during such calendar year was a
holder of any class or subclass of Certificates a statement containing the sum
of the amounts determined pursuant to clause (iv) above with respect to such
class or subclass for such calendar year or, in the event such person was a
holder of record of any class or subclass of Certificates during a portion of
such calendar year, for the applicable portion of such calendar year, and such
other items as are readily available to such Trustee and which a
Certificateholder shall reasonably request as necessary for the purpose of such
Certificateholder's preparation of its U.S. federal income tax returns. So long
as the Certificates of any class or subclass are registered in the name of DTC
or its nominee, such report and such other items will be prepared on the basis
of such information supplied to such Trustee by DTC and the DTC Participants,
and will be delivered by such Trustee to such DTC Participants to be available
for forwarding by such DTC Participants to the applicable Certificateholders in
the manner described above.
At such time, if any, as the Certificates of any class or subclass are
issued in the Form of Definitive Certificates, the applicable Trustee will
prepare and deliver the information described above to each holder of record of
a Definitive Certificate of such class or subclass as the name and period of
beneficial ownership of such holder of record of a Definitive Certificate of
such class or subclass appears on the records of the Trustee. The Trustee
maintains the records concerning the holders of such Certificates.
The Trustee will publish or cause to be published following each
distribution date in a daily newspaper in Luxembourg (expected to be the
Luxemburger Wort) a notice to the effect that the information set forth in the
statement described under "Reports to Certificateholders" will be available at
the office of the Listing Agent of Airplanes Group in Luxembourg, Banque
Internationale A Luxembourg S.A. (the "LISTING AGENT"), 69 route d'Esch, L-1470
Luxembourg. The Luxembourg Stock Exchange will receive notice promptly following
each distribution date. In addition, the Trustee provides such information to
Bloomberg Financial Markets promptly following each distribution date for
publication on the BLOOMBERG.
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BOOK-ENTRY REGISTRATION, GLOBAL CLEARANCE AND SETTLEMENT
BOOK-ENTRY REGISTRATION
Certificateholders will hold their Certificates through DTC (in the United
States) or Cedel Bank or Euroclear (in Europe) if they are participants in such
systems, or indirectly through organizations which are participants in such
systems. Except as set forth below, the Certificates will be registered in the
name of Cede as the nominee for DTC. Certificateholders will be entitled to
receive a physical certificate representing such person's interest therein only
in the limited circumstances described herein. Unless and until Definitive
Certificates are issued, all references herein to actions by Certificateholders
will refer to actions taken by DTC upon instructions from participants whose
securities are held by DTC (the "DTC PARTICIPANTS"), and all references herein
to distributions, notices, reports and statements to Certificateholders will
refer to distributions, notices, reports and statements, respectively, to DTC or
Cede, as the registered holder of the Certificates, or to DTC Participants for
distribution to Certificateholders in accordance with DTC procedures.
Cedel Bank and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in Cedel Bank's and Morgan
Guaranty's names on the books of their respective Depositaries which, in turn,
will hold such positions in customers' securities accounts in the Depositaries'
names on the books of DTC. Citibank, N.A. will act as depositary for Cedel Bank
and Morgan Guaranty Trust Company of New York will act as depositary for
Euroclear (in such capacities, the "DEPOSITARIES").
Transfers between DTC Participants will occur in the ordinary way in
accordance with DTC rules. Transfers between participating organizations whose
securities are held by Cedel Bank (the "CEDEL PARTICIPANTS") and participants in
Euroclear (the "EUROCLEAR PARTICIPANTS") will occur in the ordinary way in
accordance with the applicable rules and operating procedures of Cedel and
Euroclear.
Cross-market transfers between persons holding directly or indirectly
through DTC Participants, on the one hand, and directly or indirectly through
Cedel Participants or Euroclear Participants, on the other, will be effected by
DTC in accordance with DTC rules on behalf of Cedel or Euroclear, as the case
may be, by its respective Depositary. However, such cross-market transactions
will require delivery of instructions to Cedel or Euroclear, as the case may be,
by the counterparty in such system in accordance with its rules and procedures
and within its established deadlines. If the transaction meets its settlement
requirements, Cedel Bank or Euroclear, as the case may be, will deliver
instructions to its respective Depositary to take action to effect final
settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of Certificates received in Cedel
Bank or Euroclear as a result of a transaction with a DTC Participant will be
made during the securities settlement processing day dated the Business Day
following the DTC settlement date. Such credits or any transactions in such
Certificates settled during such processing will be reported to the relevant
Cedel Participant or Euroclear Participant on such Business Day. Cash received
in Cedel Bank or Euroclear as a result of sales of Certificates by or through a
Cedel Participant or Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
Cedel or Euroclear cash account of as only the business day following settlement
in DTC.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for DTC Participants and to
facilitate the clearance and settlement of securities transactions between DTC.
Participants through electronic book-entry changes in accounts of DTC
Participants, thereby eliminating the need for physical movement of
certificates. DTC Participants include securities brokers and dealers (including
the Underwriters), banks, trust companies and clearing corporations and may in
the future include certain other organizations. Indirect access to the DTC
system also is available to others such as banks, brokers, dealers and trust
companies that clear through or
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maintain a custodial relationship with a DTC Participant either directly or
indirectly ("INDIRECT PARTICIPANTS") .
Certificateholders who are not DTC Participants but desire to purchase,
sell or otherwise transfer ownership of, or other interests in, the Certificates
may do so only through DTC Participants. Indirect Participants are required to
effect transfers through a DTC Participant. Payments of interest, principal, and
premium, if any, in respect of the Certificates will be made to DTC and are the
responsibility of the Trust, Certificateholders will receive all distributions
of interest, principal and premium, if any, in respect of the Certificates from
the Trustee through DTC Participants and Indirect Participants. Disbursement of
such payments to DTC Participants will be the responsibility of DTC and
disbursement of such payments to the Certificateholders will be the
responsibility of DTC Participants and Indirect Participants. DTC's practice is
to credit DTC Participants' accounts on the payment date in accordance with
their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payment on such payment date. Payments by DTC
Participants to Certificateholders will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such DTC Participant. So long as the Certificates are
registered in the name of Cede, the only "Certificateholder" will be Cede, as
nominee for DTC. While so registered, Certificateholders will be permitted to
exercise the rights of Certificateholders only indirectly through DTC and DTC
Participants.
Under the rules, regulations and procedures governing DTC and its
operations (the "RULES"), DTC is required to make book-entry transfers of the
Certificates among the DTC Participants on whose behalf it acts with respect to
the Certificates and to receive and transmit distributions of interest,
principal and premium if any, in respect of the Certificates. DTC Participants
and Indirect Participants with which Certificateholders have accounts with
respect to the Certificates similarly are required to make book-entry transfers
and receive and transmit such payments on behalf of their respective
Certificates. The Rules provide a mechanism by which Certificateholders will
receive payments and will be able to transfer their interests.
DTC has advised Airplanes Limited, Airplanes Trust, and the Trust that it
will take any action permitted to be taken by a Certificateholder in respect of
each class or subclass of Certificates under the Trust Agreement only at the
direction of one or more DTC Participants to whose accounts that class or
subclass of Certificates is credited. Additionally, DTC has advised Airplanes
Limited, Airplanes Trust and the Trust that it will take such actions with
respect to any percentage of the outstanding principal amount of any class or
subclass of Certificates only at the direction of and on behalf of the DTC
Participants whose holders own such outstanding principal amount. DTC may take
conflicting actions with respect to different classes or subclasses of
Certificates to the extent that such actions are taken on behalf of DTC
Participants whose holdings include such different classes or subclasses of
Certificates.
Distributions with respect to Certificates held beneficially through Cedel
will be credited to cash accounts of Cedel Participants in accordance with
Cedel's rules and procedures, to the extent received by its Depositary. Cedel
will take any other action permitted to be taken by a Certificate owner under
the Trust Agreement on behalf of a Cedel Participant only in accordance with its
rules and procedures and subject to its Depositary's ability to effect such
actions on its behalf through DTC.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "TERMS AND CONDITIONS"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear and receipts of payments with respect to securities in
Euroclear. All securities of a particular class (or, in the case of the Class A
Certificates, subclass) in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
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Distributions with respect to Certificates held through Euroclear will be
credited to the cash accounts of Euroclear Participants in accordance with the
Terms and Conditions, to the extent received by its Depositary. The Euroclear
Operator will take any other action permitted to be taken by a Certificateholder
under the Trust Agreement on behalf of a Euroclear Participant only in
accordance with the Terms and Conditions and subject to its Depositary ability
to effect such actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Certificates among participants of DTC,
Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
DEFINITIVE CERTIFICATES
The Certificates of any class or subclass may be issued in fully
registered, certificated form ("DEFINITIVE CERTIFICATES") to Certificateholders
of that class or subclass or their nominees only if (i) Airplanes Limited and
Airplanes Trust advise the Trustee in writing that DTC is no longer willing or
able to discharge properly its responsibilities as depositary with respect to
the Certificates and Airplanes Limited and Airplanes Trust are unable to locate
a qualified successor, (ii) Airplanes Limited and Airplanes Trust at their
option, elect to terminate the book-entry system through DTC or (iii) after the
occurrence of an Event of Default with respect to such class or subclass,
Certificateholders of such class or subclass representing an aggregate of not
less than 51% of the aggregate outstanding principal amount of Certificates of
such class or subclass advise the Trustee through DTC in writing that the
continuation of a book-entry system through DTC (or a successor thereto) is no
longer in such Certificateholders' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee will be required to notify all Certificateholders of each
affected class or subclass through DTC of the availability of Definitive
Certificates of such class or subclass. Upon surrender by DTC of the
Certificates of that class or subclass and receipt of instructions for
re-registration, the Trustee will reissue the Certificates of that class or
subclass as Definitive Certificates to Certificateholders of that class or
subclass.
Distributions of principal of, and interest on, any Definitive Certificates
will thereafter be made by the Trustee in accordance with the procedures set
forth in the Trust Agreement directly to holders of Definitive Certificates in
whose names the Definitive Certificates were registered at the close of business
on the Record Date. Such distributions will be made by check mailed to the
address of such holder as it appears on the register maintained by the Trustee.
The final payment on any such Definitive Certificates, however, will be made
only upon presentation and surrender of such Definitive Certificates at the
office or agency specified in the notice of final distribution to
Certificateholders.
Definitive Certificates will be freely transferable and exchangeable for
Definitive Certificates of the same class or subclass at the office of the
Trustee upon compliance with the requirements set forth in the Trust Agreement.
No service charge will be imposed for any registration of transfer or exchange,
but payment of a sum sufficient to cover any tax or other governmental charge
may be required.
A Certificate that is mutilated, destroyed lost or stolen may be exchanged
or replaced, as the case may be, at the offices of the co-transfer agent and the
co-registrar in Luxembourg upon presentation of the Certificate or satisfactory
evidence of destruction, loss or theft thereof to the co-transfer agent and
co-registrar. An indemnity satisfactory to the co-transfer agent and
co-registrar and the Trustee may be required at the expense of the
Certificateholder before a replacement Certificate will be issued. The
Certificateholder will be required to pay any tax or other governmental charge
imposed in connection with such exchange or replacement and any other expenses
(including the fees and expenses of the Trustee and the co-transfer agent and
co-registrar) connected therewith.
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CUSIP, ISIN AND COMMON CODE NUMBERS
The 1998 Refinancing Certificates have been accepted for clearance through
Euroclear and Cedel Bank. The CUSIP numbers, International Securities
Identification Numbers ("ISIN") and the Common Code Numbers ("CCN") are set
forth in the table below.
<TABLE>
<CAPTION>
CLASS OR SUBCLASS CUSIP ISIN CCN
- ----------------- ---------- ---------- ----------
<S> <C> <C> <C>
Subclass A-6......................................
Subclass A-7......................................
</TABLE>
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TAX CONSIDERATIONS
CERTAIN JERSEY TAX CONSIDERATIONS
The following summary is based upon the opinion of Mourant du Feu & Jeune
("JERSEY TAX COUNSEL") as to the tax treatment under Jersey law of Airplanes
Limited and the Trust and the tax treatment under Jersey law in relation to the
purchase, ownership and disposition of the Airplanes Limited 1998 Refinancing
Notes and the 1998 Refinancing Certificates. The discussion is based on an
interpretation of laws, regulations, rulings and decisions, including certain
letters from the Comptroller of Income Tax in Jersey and the Director of the
Jersey Financial Services Department, all of which are currently in effect and
are subject to change. Any such change may be applied retroactively and may
adversely affect the Jersey tax consequences described herein. Unless otherwise
specifically noted, the term "CERTIFICATEHOLDERS" as used in the discussion
below (including the discussion with respect to Irish and United States Federal
tax consequences) refers to the beneficial owner of the 1998 Refinancing
Certificates and the term "CERTIFICATE" refers to both the actual 1998
Refinancing Certificate and the interest in the 1998 Refinancing Certificate
held indirectly through Cede, Cedel or Euroclear.
INCOME TAXES
Airplanes Limited will qualify as an "exempt company" under Article 123A of
the Income Tax (Jersey) Law 1961 as amended (the "1961 LAW") as long as it makes
the returns of information and pays the fees (L600 per annum with effect from
January 1, 1998) as required by that Article and, subject to the concession
referred to below, as long as no Jersey resident has a beneficial interest (for
purposes of the 1961 Law) in Airplanes Limited. As an exempt company, Airplanes
Limited will be treated for purposes of the 1961 Law as not resident in Jersey
and will pay no Jersey income tax other than on income arising in Jersey (but,
by long standing concession, excluding bank deposit interest arising in Jersey)
and on profits of its trade (if any) carried on through an established place of
business in Jersey. For purposes of the 1961 Law the Comptroller of Income Tax
in Jersey, among other things, has: (i) granted a concession to the effect that
the 1998 Refinancing Certificateholders and holders of Airplanes Limited 1998
Refinancing Notes will not be regarded as having a beneficial interest (for the
purposes of Article 123A of the 1961 Law) in Airplanes Limited; (ii) confirmed
that the holding of the shares in the capital of Airplanes Limited by or on
behalf of the Charitable Trust Trustees will not prejudice the exempt company
status of Airplanes Limited; (iii) confirmed that the income generated by the
activities undertaken by Airplanes Limited as described herein will not be
treated as income arising in Jersey; and (iv) confirmed that the administration
in and from Jersey of the business undertaken by Airplanes Limited as described
herein will not constitute the carrying on of a trade through an established
place of business in Jersey. Accordingly, based upon the foregoing, in the
opinion of Jersey Tax Counsel, Airplanes Limited will not be subject to Jersey
income tax.
In addition. in the opinion of Jersey Tax Counsel, there will not be any
Jersey income taxes imposed on the 1998 Refinancing Trusts.
WITHHOLDING TAXES
In general, Jersey imposes a withholding tax at the rate of 20% on interest
and other amounts paid to non-residents of Jersey with respect to a debt
obligation of a company resident in Jersey. However, no such withholding tax is
imposed with respect to an exempt company (as defined above). Accordingly, based
upon Airplanes Limited's qualification as an exempt company, in the opinion of
Jersey Tax Counsel, no withholding tax will be deducted from interest and other
amounts paid on the Airplanes Limited 1998 Refinancing Notes on account of
Jersey taxes.
In addition, in the opinion of Jersey Tax Counsel, no withholding or
deduction on account of Jersey taxes will be imposed with respect to interest
and other amounts paid on the 1998 Refinancing Certificates (other than any
deduction with respect to payments on the 1998 Refinancing Certificates
attributable to withholding on the Airplanes Limited 1998 Refinancing Notes, if
any, as described above).
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In the event that any Jersey withholding tax is imposed, 1998 Refinancing
Certificateholders should note that there is no income tax treaty between the
United States and Jersey that would apply to reduce or eliminate such
withholding. 1998 Refinancing Certificateholders should note further that
Airplanes Limited will not be obligated under the terms of the Airplanes Limited
1998 Refinancing Notes, and the Trustee will not be obligated under the terms of
the 1998 Refinancing Certificates, to make any additional payments in respect of
any such withholding tax. Accordingly, in the event that withholding were to be
required on account of Jersey taxes, distributions to 1998 Refinancing
Certificateholders may be less than those which would be made on the 1998
Refinancing Certificates in the absence of any such withholding tax.
OTHER TAXES
There is no taxation of capital gains (other than with respect to certain
tax avoidance transactions) in Jersey. As a result, the capital gains of
Airplanes Limited on its investments and the capital gains of the 1998
Refinancing Certificateholders on a sale or transfer of their 1998 Refinancing
Certificates will not be subject to taxation in Jersey. There is no value added
tax or other relevant taxation in Jersey. No stamp duty, stamp duty reserve tax
or issue, documentary, registration or other similar tax imposed by any
governmental department or other taxing authority of or in Jersey is payable in
connection with the creation, initial issue, delivery or transfer inter vivos of
the Airplanes Limited 1998 Refinancing Notes or the 1998 Refinancing
Certificates.
In the event that on the death of a sole individual holder of 1998
Refinancing Certificates who is a non-resident of Jersey, such 1998 Refinancing
Certificates or corresponding Airplanes Limited 1998 Refinancing Notes are
situated in Jersey (by virtue of their being held on a register in Jersey or in
bearer form and held in Jersey at the date of death or otherwise deemed to be so
situated under applicable rules of private international law), a grant of
probate or letters of administration would have to be obtained in Jersey and a
duty of up to 1% of the value of the assets of the deceased situated in Jersey
would be payable.
IRISH TAX CONSIDERATIONS
The following summary is based on the opinion of McCann FitzGerald on
principles of Irish taxation law. These principles depend on interpretation of
laws, regulations, rulings and decisions, all of which are currently in effect
but are subject to change. Any such change may be applied retroactively and may
adversely affect the principles of Irish tax on which the opinion is based. This
summary does not address all Irish tax principles that may apply to all
categories of potential investors, some of which may be subject to special
rules.
IRISH INCOME AND WITHHOLDING TAXES
A company that is resident in Ireland is subject to Irish tax on its
worldwide income and gains, and a company that is not resident in Ireland but
which carries on a trade in Ireland through a permanent establishment, branch or
agency is subject to Irish taxes on its income and capital gains arising in
Ireland. In addition, there generally is an Irish withholding tax imposed on
interest paid to non-residents of Ireland by a company resident in Ireland or by
a company that is not a resident of Ireland to the extent that such interest is
attributable to trade carried on in Ireland through a permanent establishment,
branch or agency or is Irish source interest.
In the opinion of McCann FitzGerald, (i) there will be no Irish taxation on
the income of, or any capital gain of, Airplanes Limited, Airplanes Trust or the
Trust; and (ii) there will be no withholding or deduction on account of Irish
taxes with respect to interest and other amounts paid by Airplanes Limited or
Airplanes Trust on the 1998 Refinancing Notes, or by the 1998 Refinancing Trust
on the 1998 Refinancing Certificates. The foregoing opinion is based on the
assumptions that (i) none of Airplanes Limited, Airplanes Trust or the Trust
will (a) be Irish tax resident, (b) have a branch, agency or permanent
establishment in Ireland or (c) have any Irish source income or gain other than
interest paid by their direct and indirect Irish subsidiaries in the course of
carrying on relevant trading operations under their Shannon certificates
("SHANNON CERTIFIED OPERATIONS"), and (ii) the interest and other amounts paid
on the 1998 Refinancing Notes and 1998 Refinancing Certificates will not be
Irish source income.
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Airplanes Limited, Airplanes Trust and the Trust intend to operate their
business in a way which will satisfy these criteria.
As regards Shannon Certified Operations, and their termination in 2005, see
"Risk Factors -- Risks Relating to Tax".
In the event that any Irish withholding tax is imposed, 1998 Refinancing
Certificateholders should note that neither Airplanes Limited nor Airplanes
Trust will be obliged under the terms of the 1998 Refinancing Notes, and the
Trustee will not be obliged under the terms of the 1998 Refinancing
Certificates, to make any additional payments in respect of any such withholding
tax. Accordingly, distributions to 1998 Refinancing Certificateholders would be
less than those which would be made on the 1998 Refinancing Certificates in the
absence of any such withholding tax.
IRISH VALUE ADDED TAX
Ireland generally imposes a value added tax on the supply of goods and
services. In the opinion of McCann FitzGerald, (i) payments under the Existing
Leases to the various Aircraft Owning Companies, Special Lessors, AeroUSA and
AeroUSA3 by the Lessees will not be subject to Irish value added tax and (ii)
any Irish value added tax that may become payable by AeroUSA in connection with
any management services performed by the Servicer or GPA Group will be eligible
to be reclaimed by AeroUSA. The foregoing opinion is based upon certain
covenants by each of Airplanes Limited, Airplanes Trust and AeroUSA regarding
its place of business and the location of the Aircraft and on the assumptions
that: (i) the Aircraft are used or to be used by a transport undertaking
operation for reward chiefly on international routes; (ii) none of Airplanes
Limited, Airplanes Trust or AeroUSA supply goods or services within Ireland and
(iii) input credit would not be denied to an Irish person carrying on the same
activity as the payor, if that person were in receipt of the management
services.
In general, Irish value added tax will be payable, and may not be
reclaimable, in respect of certain management services performed by the Servicer
or GPA Group for Airplanes Limited, Airplanes Trust or the Trust.
OTHER IRISH TAXES
In the opinion of McCann FitzGerald no stamp duty, stamp duty reserve tax
or issue, documentary, registration or other similar tax imposed by any
government department or other taxing authority of or in Ireland will be payable
in connection with the creation, initial issue or delivery of the 1998
Refinancing Notes or the 1998 Refinancing Certificates.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Davis Polk & Wardwell ("FEDERAL TAX COUNSEL") the
following summary accurately sets forth the material United States federal tax
consequences resulting from the purchase, ownership and disposition of 1998
Refinancing Certificates. It does not purport to consider all the possible tax
consequences of the purchase, ownership or disposition of the 1998 Refinancing
Certificates, and it is not intended to reflect the individual tax position of
any holder. It deals only with 1998 Refinancing Certificates held as capital
assets. Except as expressly indicated, it is addressed only to initial holders
purchasing 1998 Refinancing Certificates at their "issue price" (as defined
below) and does not deal with holders with a special tax status or special tax
situation, such as financial institutions or dealers in securities or
currencies, 1998 Refinancing Certificates held as a hedge against currency risks
or as part of a straddle with other investments or as part of a "synthetic
security" or other integrated investment (including a conversion or constructive
sale transaction) consisting of a 1998 Refinancing Certificate and one or more
other investments, or situations in which the functional currency of the 1998
Refinancing Certificateholder is not the U.S. dollar. Except to the extent
discussed below, this discussion is not applicable to non-United States persons
not subject to United States federal income tax on a net income basis. It is
based upon the United States federal tax laws and regulations as now in effect
and as currently interpreted, and does not take into account possible changes in
such tax laws or such interpretations, all of which may be applied
retroactively. It does not include any description of the tax
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laws of any state or local governments within the United States, or of any
foreign government, that may be applicable to the 1998 Refinancing Certificates
or holders thereof. Persons considering the purchase of 1998 Refinancing
Certificates should consult their own tax advisors concerning the application of
the United States federal tax laws to their particular situations as well as any
consequences arising under the laws of any other taxing jurisdiction.
At Closing, the Trust will be provided with an opinion of Federal Tax
Counsel, special Federal tax counsel to Airplanes Limited and Airplanes Trust
regarding certain of the United States federal income tax matters discussed
below. An opinion of Federal Tax Counsel is not binding on the Internal Revenue
Service (the "IRS") or the courts. Prospective investors should note that no
rulings have been or will be sought from the IRS with respect to any United
States federal income tax consequences discussed below, and no assurance can be
given that the IRS will not take contrary positions. Accordingly, each
prospective investor is urged to consult its own tax advisor with respect to the
United States federal income tax consequences of holding an interest in a 1998
Refinancing Certificate.
For purposes of the discussion below, (i) "UNITED STATES PERSON" means a
citizen or resident of the United States, a corporation, partnership or certain
other entities created or organized in or under the laws of the United States,
or any political subdivision thereof, or an estate or trust the income of which
is includible in gross income for United States federal income tax purposes
regardless of its source and (ii) "NON-UNITED STATES PERSON" or "NON-U.S. 1998
REFINANCING CERTIFICATEHOLDER" means a person other than a United States person.
The "ISSUE PRICE" of a Certificate is the first price to the public (not
including bond houses, brokers or similar persons or organizations acting in the
capacity of underwriters, placement agents or wholesalers) at which a
substantial amount of Certificates is sold for money.
U.S. TAX STATUS OF THE TRUST
In the opinion of Federal Tax Counsel, the Trust will be classified for
United States federal income tax purposes as a grantor trust and not as an
association (or publicly traded partnership) taxable as a corporation.
Accordingly, each 1998 Refinancing Certificateholder will be treated as owning
directly the portion of the subclass of 1998 Refinancing Notes represented by
such 1998 Refinancing Certificate.
TAXATION OF U.S. CERTIFICATEHOLDERS
Each 1998 Refinancing Certificateholder that is a United States person will
be required to include in income, in accordance with its usual method of
accounting, the portion of the stated interest with respect to the 1998
Refinancing Notes that is allocable to the 1998 Refinancing Certificates held by
such 1998 Refinancing Certificateholder. The 1998 Refinancing Notes will be
issued either at par, in which case there will be no original issue discount, or
at less than par with a de minimis amount of original issue discount. A holder
of an instrument with de minimis original issue discount must include such
original issue discount in income on a pro rata basis as principal payments are
made.
In the event any withholding or deduction is required with respect to the
1998 Refinancing Notes on account of Irish or Jersey taxes, 1998 Refinancing
Certificateholders that are United States persons will be required to include in
gross income the gross amount of interest payable. Such 1998 Refinancing
Certificateholders may be entitled to claim foreign tax credits, subject to
applicable limitations, with respect to any such withheld taxes. 1998
Refinancing Certificateholders should consult their tax advisors about the
treatment of any such taxes.
A 1998 Refinancing Certificateholder that is a United States person will
recognize capital gain or loss upon the sale or exchange of a 1998 Refinancing
Certificate equal to the difference between the amount realized from such sale
or exchange (exclusive of any portion thereof reflecting accrued but unpaid
interest accrued between interest payment dates on the underlying 1998
Refinancing Notes, which will be includible in income in accordance with the
United States person's method of accounting as described above) and its tax
basis in the 1998 Refinancing Certificate. Amounts attributable to accrued
interest are treated as interest, subject to the treatment described above. A
1998 Refinancing Certificateholder that is a United States person will have a
tax basis in a 1998 Refinancing Certificate equal to the 1998 Refinancing
Certificateholder's
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purchase price for such 1998 Refinancing Certificate, decreased by any principal
repayments. Any capital gain will generally be U.S. source gain.
Certificateholders should consult their tax advisors regarding the U.S. federal
income tax treatment of capital gains (which may be taxed at lower rates than
ordinary income for certain taxpayers who are individuals) and losses (the
deductibility of which is subject to limitations).
TAXATION OF NON-U.S. 1998 REFINANCING CERTIFICATEHOLDERS
To the extent that payments on 1998 Refinancing Certificates are in respect
of the underlying Airplanes Trust 1998 Refinancing Notes:
(a) payments of interest (including original issue discount, if any),
principal and premium, if any, on the 1998 Refinancing Notes to any
non-United States person will not be subject to United States federal
withholding tax, provided that, in the case of interest, such person
(i) does not own, actually or constructively, 10% or more of the total
combined voting power of all classes of stock of AeroUSA entitled to
vote, (ii) is not a controlled foreign corporation related, directly
or indirectly, to AeroUSA through stock ownership and (iii) is not a
bank receiving interest described in Section 881(c)(3)(A) of the Code,
and provided that the certification requirement described in paragraph
(b) has been fulfilled with respect to the beneficial owner; and
(b) Sections 871(h) and 881(c) of the Code require that, in order to
obtain the exemption from withholding tax described in paragraph (a),
either the beneficial owner of the 1998 Refinancing Certificate, or a
securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade
or business (a "FINANCIAL INSTITUTION") and that is holding the 1998
Refinancing Certificate on behalf of such beneficial owner, file a
statement with the withholding agent to the effect that the beneficial
owner of the 1998 Refinancing Certificate is not a United States
person. Under temporary United States Treasury Regulations which apply
to both stated interest and sale or exchange proceeds if either is
paid with respect to a Certificate on or before December 31, 1998,
such requirement will be fulfilled if (i) the beneficial owner of a
1998 Refinancing Certificate certifies on IRS Form W-8, under
penalties of perjury, that it is not a United States person and
provides its name and address and (ii) any Financial Institution
holding the 1998 Refinancing Note on behalf of the beneficial owner
files a statement with the withholding agent to the effect that it has
received such a statement from the 1998 Refinancing Certificateholder
(and furnishes the withholding agent with a copy thereof). Recently
issued final Treasury Regulations (the "FINAL REGULATIONS"), which
apply to interest (including original issue discount) and sale or
exchange proceeds paid with respect to a Certificate after December
31, 1998, also provide that the requirement of Section 871(h) and
881(c) generally will be fulfilled if beneficial owners (including
partners of certain foreign partnerships), as well as certain foreign
partnerships, meet the two conditions set forth in the preceding
sentence. However, a beneficial owner that is a foreign estate or
trust (or fiduciary thereof), a foreign partnership that has entered
into a withholding agreement with the Internal Revenue Service, or a
Non-U.S. 1998 Refinancing Certificateholder holding a 1998 Refinancing
Certificate through its U.S. branch will be required to provide its
"taxpayer identification number" ("TIN") in addition to its name and
address on Form W-8. Foreign partnerships and their partners should
consult their tax advisors regarding possible additional reporting
requirements.
To the extent that payments on 1998 Refinancing Certificates are in respect
of the underlying Airplanes Limited 1998 Refinancing Notes, interest paid to a
1998 Refinancing Certificateholder that is a non-United States person will not
be subject to United States federal withholding tax.
Notwithstanding the foregoing, if interest or other income received with
respect to the 1998 Refinancing Certificate (whether representing the underlying
1998 Refinancing Notes of Airplanes Limited or Airplanes Trust) is effectively
connected with a United States trade or business conducted by a non-U.S. 1998
Refinancing Certificateholder, such 1998 Refinancing Certificateholder, although
exempt from the withholding tax described in the preceding paragraph, may be
subject to United States federal income tax on such interest in the same manner
as if it were a United States person. In addition, if such 1998 Refinancing
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Certificateholder is a corporation, it may be subject to a branch profits tax
equal to 30% (or a lower treaty rate) of its effectively connected earnings and
profits for the taxable year, subject to certain adjustments.
A Non-U.S. 1998 Refinancing Certificateholder will not be subject to United
States federal income tax on gain realized on the sale, exchange or other
disposition of a Certificate, unless (i) such 1998 Refinancing Certificateholder
is an individual who is present in the United States for 183 days or more in the
taxable year of disposition, and either (a) such individual has a "tax home" (as
defined in Code Section 911(d)(3)) in the United States (unless such gain is
attributable to a fixed place of business in a foreign country maintained by
such individual and has been subject to foreign tax of at least 10%) or (b) the
gain is attributable to an office or other fixed place of business maintained by
such individual in the United States or (ii) such gain is effectively connected
with the conduct by such Holder of a trade or business in the United States.
A 1998 Refinancing Certificate held by an individual who is not a citizen
or resident of the United States at the time of his death will not be subject to
United States federal estate tax as a result of such individual's death,
provided, to the extent the 1998 Refinancing Certificate represents the
underlying Airplanes Trust 1998 Refinancing Notes, that the individual does not
own, actually or constructively, 10% or more of the total combined voting power
of all classes of stock of AeroUSA entitled to vote and, at the time of such
individual's death, payments with respect to such 1998 Refinancing Certificate
would not have been effectively connected with the conduct by such individual of
a trade or business in the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Trustee will be required to report annually to the IRS, and to each
1998 Refinancing Certificateholder of record, certain information, including the
1998 Refinancing Certificateholder's name, address and TIN (either the 1998
Refinancing Certificateholder's Social Security number or its employer
identification number, as the case may be), the aggregate amount of principal
and interest paid and the amount of tax withheld, if any. This obligation,
however, does not apply with respect to certain United States persons, including
corporations, tax-exempt organizations, qualified pension and profit-sharing
trusts and individual retirement accounts.
In the event a United States person subject to the reporting requirements
described above fails to supply its correct TIN in the manner required by
applicable law or underreports its tax liability, the Trust, its agents or
paying agents may be required to "backup" withhold a tax equal to 31% of each
payment of interest and principal on the 1998 Refinancing Certificates. This
backup withholding is not an additional tax and may be credited against the 1998
Refinancing Certificateholder's United States Federal income tax liability,
provided that the required information is furnished to the IRS.
Under current Treasury regulations, information reporting and backup
withholding will not apply to payments made by the Trust or any agent thereof to
a 1998 Refinancing Certificateholder that is a non-United States person if the
certifications required by Section 871(h) and 881(c) of the Code (described
above) are received, provided that the Trust or such agent does not have actual
knowledge that the payee is a United States person.
The Final Regulations modify the backup withholding and information
reporting procedures in certain respects for payments made after December 31,
1998. Prospective investors are urged to consult their tax advisors regarding
the application of the backup withholding and information reporting rules.
165
<PAGE> 167
ERISA CONSIDERATIONS
Any Plan that proposes to purchase 1998 Refinancing Certificates should
consult with its counsel with respect to the potential consequences of such
investment under the fiduciary responsibility provisions of ERISA and the
prohibited transaction provisions of ERISA and the Code.
ERISA and the Code impose certain requirements on employee benefit plans
and certain other retirement plans and arrangements, including individual
retirement accounts and annuities, that are subject to ERISA and/or the Code
(all of which are hereinafter referred to as "PLANS") and or persons who are
fiduciaries with respect to such Plans. A person who exercises discretionary
authority or control with respect to the management or assets of a Plan will be
considered a fiduciary of the Plan under ERISA. In accordance with ERISA's
general fiduciary standards, before investing in a 1998 Refinancing Certificate,
a Plan fiduciary should determine whether such an investment is permitted under
the governing Plan instruments and is appropriate for the Plan in view of its
overall investment policy and the composition and diversification of its
portfolio, taking into account the limited liquidity of the 1998 Refinancing
Certificates. Other provisions of ERISA and the Code prohibit certain
transactions involving the assets of a Plan and persons who have certain
specified relationships to the Plan ("PARTIES IN INTEREST" within the meaning of
ERISA or "DISQUALIFIED PERSONS" within the meaning of the Code). Thus, a Plan
fiduciary considering an investment in 1998 Refinancing Certificates should also
consider whether such an investment might constitute or give rise to a
prohibited transaction under ERISA or the Code and whether an administrative
exemption might be applicable to such investment.
An investment in 1998 Refinancing Certificates by a Plan might also result
in the assets of the Trust being deemed to constitute Plan assets, which in turn
might mean that certain aspects of such investment, or actions involving the
assets of the Trust, would involve assets of a Plan, which transactions might be
or become prohibited transactions under ERISA and/or the Code. Further, in such
case the Plan fiduciary might be deemed to have engaged in an improper
delegation to the Trustee of its investment management responsibilities with
respect to those assets of the Trust deemed Plan assets. Neither ERISA nor the
Code defines the term "plan assets". Under Section 2510.3-101 of the United
States Department of Labor (the "DOL") regulations (the "REGULATIONS"), a Plan's
assets may include an interest in the underlying assets of an entity (such as a
trust) for certain purposes, including the fiduciary responsibility provisions
of ERISA and the prohibited transaction provisions of ERISA and the Code, if the
Plan acquires an "equity interest" in such entity. Thus, if a Plan acquired a
1998 Refinancing Certificate, for certain purposes (including such fiduciary
responsibility and prohibited transaction provisions) the Plan would be
considered to own its share of the underlying assets of the Trust allocable to
such 1998 Refinancing Certificates unless equity participation by benefit plan
investors in the Trust is not "significant". In the event that at any time
investment by benefit plan investors in the Trust is "significant", as discussed
below, investment by a Plan in a 1998 Refinancing Certificate of any class or
subclass would, in effect, be considered, for purposes of the fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions of
ERISA and the Code, to be an investment in the corresponding pair of 1998
Refinancing Notes and an ongoing loan to Airplanes Limited and Airplanes Trust.
Participation by benefit plan investors in 1998 Refinancing Certificates
would not be significant if at all times less than 25 percent of the value of
the 1998 Refinancing Certificates was held by benefit plan investors, which are
defined to include both Plans and employee benefit plans not subject to ERISA
(for example, governmental plans, foreign plans and individual retirement
accounts and entities whose assets are treated as "plan assets" under the
Regulation). Investment in and transfer of the 1998 Refinancing Certificates
will not be restricted or monitored with respect to this 25 percent limit.
Accordingly, it is possible that during the term of the 1998 Refinancing
Certificates 25 percent or more of the 1998 Refinancing Certificates will be
held by Plans and other benefit plan investors so that, under the Regulation, an
investment by a Plan in 1998 Refinancing Certificates during such period would,
in effect, be considered, for purposes of the fiduciary responsibility
provisions of ERISA and the prohibited transaction provisions of ERISA and the
Code, to be an investment in the corresponding pair of 1998 Refinancing Notes
and an ongoing loan to Airplanes Limited and Airplanes Trust.
166
<PAGE> 168
Accordingly, if assets of the Trust are considered Plan assets, investment
by a Plan or Plans in 1998 Refinancing Certificates could result in a prohibited
transaction or impermissible delegation of authority. The acquisition of 1998
Refinancing Certificates by a Plan could be a prohibited transaction if an
Underwriter, the Trustee, Airplanes Limited, Airplanes Trust, GPA, GECAS, the
Lessees or any of their affiliates are parties in interest or disqualified
persons with respect to the Plan. The duties of the Trustee under the Trust,
however, are essentially custodial and ministerial in nature and it is not
expected that the Trustee will be required to exercise discretionary authority
or control in the discharge of its responsibilities under the Trust other than
in limited circumstances such as upon a default on the 1998 Refinancing Notes.
Moreover, since Airplanes Limited and Airplanes Trust are special-purpose
entities whose principal assets are the Aircraft and since GPA (which has,
directly or indirectly, sold the Aircraft to Airplanes Limited and Airplanes
Trust and owns the Class E Notes) is engaged primarily in the business of
owning, selling and leasing aircraft and GECAS is engaged primarily in the
business of providing aircraft management services, it is possible that many
Plans will be able to determine that Airplanes Limited, Airplanes Trust, GPA and
GECAS or any of their other affiliates are not disqualified persons or parties
in interest with respect to such Plans.
Any prohibited transaction could be treated as exempt under ERISA and the
Code if the 1998 Refinancing Certificates were acquired pursuant to and in
accordance with one or more "class exemptions" issued by the DOL, such as
Prohibited Transaction Class Exemption ("PTCE") 75-1 (an exemption for certain
transactions involving employee benefit plans and broker dealers (such as an
Underwriter), reporting dealers and banks), PTCE 84-14 (an exemption for certain
transactions determined by an independent qualified professional asset manager),
PTCE 91-38 (an exemption for certain transactions involving bank collective
investment funds), PTCE 90-1 (an exemption for certain transactions involving
insurance company pooled separate accounts), PTCE 95-60 (an exemption for
certain transactions involving insurance company general accounts), or PTCE
96-23 (an exemption for certain transactions determined by a qualified in-house
asset manager).
ERISA also prohibits a fiduciary of a Plan from maintaining the indicia of
ownership of any assets of the Plan outside the jurisdiction of the district
courts of the United States except under certain circumstances. Before investing
in a 1998 Refinancing Certificate, a Plan fiduciary should consider whether its
acquisition and holding of a 1998 Refinancing Certificate would satisfy such
indicia of ownership rules.
A PLAN FIDUCIARY CONSIDERING THE PURCHASE OF 1998 REFINANCING CERTIFICATES
SHOULD CONSULT ITS TAX AND/OR LEGAL ADVISORS REGARDING UNDER WHAT CIRCUMSTANCES
THE ASSETS OF THE 1998 REFINANCING TRUSTS WOULD BE CONSIDERED PLAN ASSETS, THE
AVAILABILITY, IF ANY, OF EXEMPTIVE RELIEF FROM ANY POTENTIAL PROHIBITED
TRANSACTION AND OTHER FIDUCIARY ISSUES AND THEIR POTENTIAL CONSEQUENCES.
167
<PAGE> 169
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "UNDERWRITING AGREEMENT"), the Underwriters
(the "UNDERWRITERS") named below have severally agreed to purchase, and the
Trust has agreed to sell to them, the principal amounts of 1998 Refinancing
Certificates set forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
SUBCLASS SUBCLASS
A-6 A-7
---------- ----------
<S> <C> <C>
Underwriters:
Morgan Stanley & Co. Incorporated............................... $ $
Lehman Brothers Inc.............................................
Salomon Brothers Inc............................................
--------- ---------
Total........................................................ $ $
========= =========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the 1998 Refinancing Certificates
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obliged to take
and pay for all of the 1998 Refinancing Certificates offered hereby if any such
1998 Refinancing Certificates are taken.
The Underwriters initially propose to offer the 1998 Refinancing
Certificates directly to the public at the public offering price set forth on
the cover page hereof and to certain dealers at a price that represents a
concession not in excess of the percentage of the principal amount thereof
specified in the table set forth below. The Underwriters may allow, and such
dealers may reallow, concessions not in excess of the percentage of the
principal amount thereof specified in the table set forth below to certain
brokers and dealers. After the initial public offering, such concessions and
reallowances and other selling terms may be changed by the Underwriters.
168
<PAGE> 170
<TABLE>
<CAPTION>
UNDERWRITING
SUBCLASS OR CLASS OF CERTIFICATES COMMISSIONS ALLOWANCE REALLOWANCE
- --------------------------------- ----------- --------- -----------
<S> <C> <C> <C>
Subclass A-6 Certificates..............................
Subclass A-7 Certificates..............................
</TABLE>
Pursuant to the Agreement among Underwriters, each Underwriter has
represented that it has not offered or sold, and has agreed not to offer or
sell, any 1998 Refinancing Certificates, directly or indirectly, in Canada in
contravention of the securities laws of Canada or any province or territory
thereof and has represented that any offer of 1998 Refinancing Certificates in
Canada will be made only pursuant to an exemption from the requirement to file a
prospectus in the province or territory of Canada in which such offer is made.
Each Underwriter has further agreed to send to any dealer who purchases from it
any 1998 Refinancing Certificates a notice stating in substance that, by
purchasing such 1998 Refinancing Certificates, such dealer represents and agrees
that it has not offered or sold, and will not offer or sell, directly or
indirectly, any of such 1998 Refinancing Certificates in Canada or to, or for
the benefit of, any resident of Canada in contravention of the securities laws
of Canada or any province or territory thereof and that any offer of 1998
Refinancing Certificates in Canada will only be made pursuant to an exemption
from the requirement to file a prospectus in the province of Canada in which
such offer is made, and that such dealer will deliver to any other dealer to
whom it sells any of such 1998 Refinancing Certificates a notice to the
foregoing effect.
Pursuant to the agreement among Underwriters, each Underwriter represents
and agrees that:
(1) it has not offered or sold and, prior to the expiry of the period of
six months from the Closing Date, will not offer or sell any 1998
Refinancing Certificates to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of Securities
Regulations 1995 (the "1995 REGULATIONS");
(2) it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 and the 1995 Regulations with respect to
anything done by it in relation to the 1998 Refinancing Certificates
in, from or otherwise involving the United Kingdom; and
(3) it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the
issue of the 1998 Refinancing Certificates to a person who is of a
kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to
whom such document may otherwise lawfully be issued or passed on.
Each of the Underwriters has agreed that it will not undertake any directed
selling efforts with respect to the 1998 Refinancing Certificates in Jersey
other than to financial institutions who may acquire 1998 Refinancing
Certificates in the normal course of their trade.
The 1998 Refinancing Certificates have not been and will not be registered
under the Securities and Exchange Law of Japan and each of the Underwriters has
represented and agreed that it has not offered or sold, and it will not offer or
sell, directly or indirectly, any of the 1998 Refinancing Certificates in or to
residents of Japan or to any persons for reoffering or resale, directly or
indirectly in Japan or to any resident of Japan, except pursuant to an exemption
from the registration requirements of the Securities and Exchange Law available
thereunder and in compliance with the other relevant laws and regulations of
Japan.
Each of the Underwriters has represented and agreed that it has not offered
or sold, and it will not offer or sell, the 1998 Refinancing Certificates by
means of any document to persons in Hong Kong other than persons whose ordinary
business it is to buy or sell shares or debentures, whether as principal or
agent, or otherwise in circumstances which do not constitute an offer to the
public within the meaning of the Hong Kong Companies Ordinance (Chapter 32 of
the Laws of Hong Kong).
169
<PAGE> 171
Each of the Underwriters has acknowledged that the Prospectus has not been
registered with the Registrar of Companies in Singapore and that the 1998
Refinancing Certificates are issued in Singapore pursuant to an exemption
invoked under section 106C of the Companies Act, Chapter 50 of Singapore (the
"SINGAPORE COMPANIES ACT"). Accordingly, each of the Underwriters has
represented and agreed that the 1998 Refinancing Certificates issued in
Singapore may not be offered or sold, nor may the Prospectus or any other
offering document or material relating to the 1998 Refinancing Certificates to
be circulated or distributed, directly or indirectly, to the public or any
member of the public in Singapore other than (i) to an institutional investor or
other body or person specified in section 106C of the Singapore Companies Act,
(ii) to a sophisticated investor or other body or person specified in section
106D of the Singapore Companies Act, or (iii) otherwise pursuant to, and in
accordance with the conditions of, section 106E(2) of the Singapore Companies
Act or any other applicable exemption invoked under Division 5A of Part IV of
the Singapore Companies Act.
Each Underwriter that is not a member of the National Association of
Securities Dealers, Inc. (the "NASD") is a foreign broker or dealer not eligible
for membership in the NASD which has agreed not to make any sales within the
United States, its territories or possessions or to persons who are citizens
thereof or residents therein (other than certain sales made by the Underwriters
as a group), except that each such Underwriter shall be permitted to make sales
to the other Underwriters or their United States affiliates provided that such
sales are made in compliance with applicable rules under the Exchange Act and in
conformity with the Rules of Fair Practice of the NASD.
Application has been made for the listing of the 1998 Refinancing
Certificates on the Luxembourg Stock Exchange. The Underwriters have advised the
Trust that they intend to sell the 1998 Refinancing Certificates so as to meet
the distribution requirements of such listing.
The Trust, Airplanes Limited and Airplanes Trust each have agreed that,
without the prior written consent of Morgan Stanley & Co. Incorporated ("MORGAN
STANLEY"), it will not, for a period of up to six months from the date of this
Prospectus, offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or otherwise dispose of, directly or
indirectly, any securities of the Trust, Airplanes Limited or Airplanes Trust,
other than the 1998 Refinancing Notes, or any 1998 Refinancing Certificates of
fractional undivided interests in any debt of Airplanes Limited or Airplanes
Trust, which are substantially similar to the 1998 Refinancing Notes or the 1998
Refinancing Certificates other than as contemplated in this Prospectus.
The Underwriting Agreement provides that Airplanes Limited and Airplanes
Trust will, jointly and severally, and that GPA Group separately will, indemnify
the Underwriters against certain liabilities, including liabilities under
applicable securities laws or contribute to payments the Underwriters may be
required to make in respect thereof. In addition, Airplanes Limited, Airplanes
Trust and GPA Group will reimburse the Underwriters for certain of their
expenses incurred in connection with the offering of the 1998 Refinancing
Certificates, including certain fees and expenses of counsel for the
Underwriters.
There has been no market for the 1998 Refinancing Certificates prior to the
sale of the 1998 Refinancing Certificates. The Underwriters have advised the
Trust, Airplanes Limited, Airplanes Trust and GPA Group that they presently
intend to make a market in the 1998 Refinancing Certificates. The Underwriters
are not obliged, however, to make a market in the 1998 Refinancing Certificates
and any such market-making may be discontinued at any time at the sole
discretion of the Underwriters. Accordingly, no assurance can be given as to the
liquidity of or trading market for the 1998 Refinancing Certificates.
Morgan Stanley has provided various investment banking and advisory
services to Airplanes Group and to GPA and/or its affiliates and may continue to
provide such services to Airplanes Group and to GPA and/or its affiliates. In
addition, Morgan Stanley and certain other Underwriters are acting as swap
counterparties in Swap Agreements with Airplanes Group.
170
<PAGE> 172
It is expected that delivery of the 1998 Refinancing Certificates will be
made against payment therefor on or about the date specified on the cover page,
which will be the - calendar day following the date of pricing of the 1998
Refinancing Certificates. Under rule 15c6-1 adopted by the Commission under the
Securities Exchange Act of 1934, as amended, trades in the secondary market
generally are required to settle in three business days, unless the parties to
any such trade expressly agree otherwise. Accordingly, purchasers who wish to
trade 1998 Refinancing Certificates on any day prior to the third business day
before the date of delivery of any payment for the 1998 Refinancing Certificates
will be required, by virtue of the fact that the 1998 Refinancing Certificates
initially will settle on a delayed basis, to specify an alternate settlement
cycle at the time of any such trade to prevent a failed settlement.
LEGAL MATTERS
Certain legal matters relating to the 1998 Refinancing Certificates offered
hereby and the 1998 Refinancing Notes will be passed upon for Airplanes Limited
and Airplanes Trust by Davis Polk & Wardwell, New York, New York, United States
counsel for Airplanes Limited and Airplanes Trust, and Potter, Anderson &
Corroon, Delaware counsel to Airplanes Trust. Certain legal matters relating to
the 1998 Refinancing Notes will be passed upon for Airplanes Limited by Mourant
du Feu & Jeune, Jersey counsel to Airplanes Limited. Certain legal matters
relating to the 1998 Refinancing Certificates offered hereby and the 1998
Refinancing Notes will be passed upon for the Underwriters by Shearman &
Sterling, New York, New York, United States counsel for the Underwriters.
Prospective investors should consider the applicability of statutes, rules,
regulations, orders, guidelines or agreements generally governing investments
made by a particular investor including, but not limited to, "prudent investor"
provisions and percentage-of-assets limitations. Investors should consult their
own legal advisors in determining whether and to what extent the Certificates
constitute legal investment for such investors.
The Trustee, Airplanes Limited, Airplanes Trust and the Underwriters make
no representation as to the proper characterization of the 1998 Refinancing
Certificates for legal investment or financial institution regulatory purposes,
or as to the ability of particular investors to purchase 1998 Refinancing
Certificates under applicable legal investment restrictions. The uncertainties
described above (and any unfavorable future determinations concerning legal
investment or financial institutions regulatory characteristics of the 1998
Refinancing Certificates) may adversely affect the liquidity of the 1998
Refinancing Certificates.
ENFORCEMENT OF CIVIL LIABILITIES
Airplanes Limited is a public limited company incorporated and registered
in Jersey. All but one of the Directors of Airplanes Limited and the Controlling
Trustees of Airplanes Trust and certain experts named in this Prospectus are
non-residents of the United States. All or a substantial portion of the assets
of such non-resident persons and of Airplanes Limited are located outside the
United States. As a result, it may not be possible for investors to effect
service of process within the United States upon such persons or Airplanes
Limited or to enforce against them in United States courts judgments obtained in
such courts predicted upon the civil liability provisions of the Federal
securities laws of the United States. Airplanes Limited has been advised that it
is unlikely that the courts of Jersey would adjudge civil liability in an
original action predicated solely upon the Federal securities laws of the United
States. There is no arrangement in place between Jersey and the United States
for the reciprocal enforcement of judgements. There are no limitations on the
right of non-residents of Jersey to hold or vote the 1998 Refinancing
Certificates under Jersey law or under the Memorandum and Articles of
Association of Airplanes Limited.
171
<PAGE> 173
EXPERTS
The financial statements of Airplanes Limited and Airplanes Trust included
in this Prospectus as of March 31, 1997 and 1996 and for each of the years in
the three year period ended March 31, 1997 have been audited by KPMG -- Dublin,
Ireland, independent public accountants, as indicated in their report thereon
included herein in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
With respect to certain matters, Airplanes Group and GPA are not
represented by separate counsel and are not expected to be unless it is agreed
that separate representation is required to satisfy the professional
responsibilities of counsel. Also, certain professionals, appraisers and experts
who perform services for Airplanes Group and the Trust have performed services
for GECAS and GPA and certain of their respective affiliates in the past and may
do so again in the future.
Valuations of the Aircraft have been made by three expert aircraft
appraisers: Aircraft Information Services, Inc., BK Associates, Inc. and
Airclaims Limited. These valuations are discussed in detail elsewhere in this
prospectus and are included herein in reliance upon the authority of such firms
as experts in giving such appraisals.
ADDITIONAL INFORMATION
A Registration Statement under the Securities Act has been filed with the
Commission with respect to the Certificates that are offered pursuant to this
Prospectus. This Prospectus does not contain all the information set forth in
the Registration Statement (of which the Prospectus is a part) and exhibits
relating thereto, which have been filed with the Commission in Washington, D.C.
Copies of the information and the exhibits are available for inspection without
charge at the Commission's public reference facilities at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at the regional offices of the
Commission at 7 World Trade Center, Suite 1300, New York, New York 10048 and at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60611. Copies of such material can also be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
Application has been made to list the 1998 Refinancing Notes and the 1998
Refinancing Certificates on the Luxembourg Stock Exchange. Once the 1998
Refinancing Certificates have been so listed, trading of the 1998 Refinancing
Certificates may be effected on the Luxembourg Stock Exchange. The constitutive
documents of Airplanes Group and the legal notice relating to the issue of the
1998 Refinancing Notes and the 1998 Refinancing Certificates have been deposited
with the Registrar of the District Court in Luxembourg. (Greffier en Chef du
Tribunal d'Arrondissement de et a Luxembourg) where such documents will be
available for inspection and where such documents will be obtainable upon
request. In accordance with the rules of the Luxembourg Stock Exchange,
Airplanes Group states that except as otherwise disclosed in this Prospectus
there has been no material adverse change in the financial position of Airplanes
Limited and Airplanes Trust since the date of their formation.
The transactions contemplated in this Prospectus were authorized by
resolutions adopted by the Directors of the Airplanes Limited and the
Controlling Trustees of Airplanes Trust on - , 1998.
Copies of the Prospectus, the annual report of independent public
accountants, the documents listed under "Available Information" and the reports
to Certificateholders referred to under "Reports to Certificateholders" are
available at the office of the Listing Agent whose address is 69 route d'Esch,
L-1470 Luxembourg. Financial information regarding Airplanes Group is included
in the Airplanes Group Annual Report and Form 10-K for each fiscal year and is
available at the office of the Listing Agent in Luxembourg after the Annual
Report and Form 10-K for each fiscal year is filed with the Commission.
172
<PAGE> 174
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
Unaudited Interim Financial Statements................................................. F-25
Notes to the Unaudited Condensed Financial Statements.................................. F-29
</TABLE>
F-1
<PAGE> 175
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> 176
AIRPLANES GROUP
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------------------------
1996 1997
-------------------------------- --------------------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
NOTES LIMITED TRUST COMBINED LIMITED TRUST COMBINED
----- --------- --------- -------- --------- --------- --------
($ 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> 177
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) ($MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Aircraft leasing......... 16 547 61 608 556 60 616 532 72 604
EXPENSES
Depreciation and
amortization........... (183) (25) (208) (183) (24) (207) (191) (32) (223)
Net interest expense..... 17 (317) (31) (348) (335) (33) (368) (343) (40) (383)
Provision for
maintenance............ (74) (14) (88) (79) (18) (97) (70) (21) (91)
Bad and doubtful debts... (34) 1 (33) 27 1 28 -- -- --
Provision for loss making
leases, net............ (4) (1) (5) 18 (3) 15 5 7 12
Other lease costs........ (16) (1) (17) (20) (1) (21) (20) (1) (21)
Selling, general and
administrative
expenses............... 18 (31) (3) (34) (32) (3) (35) (35) (3) (38)
----- ---- ----- ----- ---- ----- ----- ---- -----
OPERATING LOSS BEFORE
INCOME TAXES........... (112) (13) (125) (48) (21) (69) (122) (18) (140)
Income tax benefit....... 19 11 5 16 5 8 13 10 -- 10
----- ---- ----- ----- ---- ----- ----- ---- -----
NET LOSS................. (101) (8) (109) (43) (13) (56) (112) (18) (130)
===== ==== ===== ===== ==== ===== ===== ==== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 178
AIRPLANES GROUP
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT/NET LIABILITIES
YEARS ENDED MARCH 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION> AIRPLANES
AIRPLANES LIMITED TRUST COMBINED
------------------------------------------ ----------- ------------
SHARE SHAREHOLDERS
CAPITAL NET SHAREHOLDERS NET DEFICIT/NET
(NOTE 15) LIABILITIES DEFICIT LIABILITIES LIABILITIES
----------- ----------- ------------ ----------- ------------
($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, $1 par value
per share (Note 15)............... -- -- -- -- --
--- ----- ----- --- -----
BALANCE AT MARCH 31, 1996........... -- 893 893 123 1,016
=== ===== ===== === =====
Net loss for the fiscal year........ -- 112 112 18 130
--- ----- ----- --- -----
BALANCE AT MARCH 31, 1997........... -- 1,005 1,005 141 1,146
=== ===== ===== === =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 179
AIRPLANES GROUP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------------------------------------------------------------
1995 1996 1997
------------------------------ ------------------------------ ------------------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST COMBINED LIMITED TRUST COMBINED LIMITED TRUST COMBINED
--------- --------- -------- --------- --------- -------- --------- --------- --------
($ 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
amortization................. 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> 180
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 organized 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 Administrative Agency Agreement and a
Cash Management Agreement with GPA. (Note 18)
F-7
<PAGE> 181
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> 182
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 such GPA subsidiaries with
Airplanes Group.
Although Airplanes Group's portfolio will at all times be held in two
different entities, Airplanes Limited and Airplanes Trust, Airplanes Group is
managed and the note covenants structured on the basis of a single economic
entity owning a single aircraft portfolio.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Airplanes Group's accounting policies conform with United States generally
accepted accounting principles. The following paragraphs describe the main
accounting policies followed in these financial statements.
(a) Revenue Recognition
Revenue from aircraft on operating leases is recognized as income as it
accrues over the period of the leases. Unearned revenue from capital and sales
type leases is amortized 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 Impairment 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 recognized 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> 183
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
Turbopro 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 recognized 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 aircraft, together with
direct costs such as legal fees and other costs attributable to the lease over
its term. At
F-10
<PAGE> 184
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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 recognize the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred income tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
income tax assets and liabilities of a change in tax rates is recognized 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 capitalized 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.
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
F-11
<PAGE> 185
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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 realize
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 amortization 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
rate rentals default are managed in part through the purchase of Swaptions.
March 31, 1997 Airplanes Group had entered into Swaptions with a notional
principal amount of $76 million. The fair value of the Swaptions at March 31,
1997 was $0.3 million and this amount has been included in income for the year
ended March 31, 1997. At March 31, 1996, Airplanes Group had no Swaptions.
Airplanes Group is exposed to losses in the event of non-performance by
counterparties to interest rate swap agreements or in the event of defaults by
lessees. However, Airplanes Group does not anticipate non-
F-12
<PAGE> 186
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
performance by the counterparties and other parties and accounts for hedging
losses resulting from lessee defaults as they are incurred.
Counterparty risk is monitored on an ongoing basis. Counterparties are
subject to the prior approval of the Directors of Airplanes Limited and the
Controlling Trustees of Airplanes Trust. Airplanes Group's counterparties at
March 31, 1997 comprise three major U.S./European financial institutions.
(j) Foreign Currency Transactions
Airplanes Group's foreign currency transactions are not significant as
virtually all revenues and most costs are denominated in US dollars.
5. CASH
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------
1996 1997
----------------------- -----------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
($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>
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 $Nil) at March 31, 1996.
F-13
<PAGE> 187
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
7. AMOUNTS DUE FROM AIRPLANES TRUST TO AIRPLANES LIMITED
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------
1996 1997
----------------------- -----------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
($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) ($MILLIONS)
<S> <C> <C> <C> <C>
Amounts due from GPA.............................. 12 1 -- 2
=== === === ===
</TABLE>
The amounts due from GPA at March 31, 1996 related to a cash adjustment
amount in respect of the difference between the collateralized value of the
receivables which were originally assumed to be transferred and the actual
balances which were transferred at the Closing Date. The balance at March 31,
1997 represents cash received by GPA, in respect of aircraft owned by Airplanes
Trust.
9. NET INVESTMENT IN CAPITAL AND SALES TYPE LEASES
The following are the components of the net investment in capital and sales
type leases of Airplanes Limited:
<TABLE>
<CAPTION>
MARCH 31,
-------------
1996 1997
---- ----
($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 $9 million for the years
ended March 31, 1995, 1996 and 1997, respectively, was amortized and included in
revenue.
F-14
<PAGE> 188
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
9. NET INVESTMENT IN CAPITAL AND SALES TYPE LEASES -- (CONTINUED)
Minimum future payments to be received on such capital leases for aircraft
at March 31, 1997 are as follows:
<TABLE>
<CAPTION>
MINIMUM LEASE
PAYABLES RECEIVABLE
-------------------
($MILLIONS)
<S> <C>
Years ending March 31, 1998............................. 27
1999.................................................. 15
2000.................................................. 14
2001.................................................. 13
2002.................................................. 7
Thereafter.............................................. 1
---
77
===
</TABLE>
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) ($MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Depreciation expense............... 180 24 180 23 185 30
=== == === == === ==
</TABLE>
F-15
<PAGE> 189
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
11. ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------
1996 1997
----------------------- -----------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
($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) ($MILLIONS)
<S> <C> <C> <C> <C>
Amounts due....................................... 12 -- 4 --
=== == === ==
</TABLE>
The amounts due to GPA relate to cash balances retained by Airplanes Group
on the Closing Date in excess of those required in accordance with the terms of
the Transaction, in respect of security deposits and letters of credit which
were not novated from GPA at the Closing Date. The balance at March 31, 1997
represents cash received by Airplanes Limited, in respect of aircraft owned by
GPA.
F-16
<PAGE> 190
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
13. INDEBTEDNESS
The components of the debt are as follows:
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------
1996 1997
----------------------- -----------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C>
Indebtedness in respect of Notes issued:
Subclass A-1...................................... 773 77 773 77
Subclass A-2...................................... 683 67 683 67
Subclass A-3...................................... 455 45 455 45
Subclass A-4...................................... 182 18 182 18
Subclass A-5...................................... 548 50 345 29
Class B........................................... 341 34 328 33
Class C........................................... 341 34 341 34
Class D........................................... 364 36 364 36
Class E........................................... 538 53 538 53
----- ----- ----- -----
4,225 414 4,009 392
Discounts arising on issue of Notes............... (4) (1) (4) --
----- ----- ----- -----
4,221 413 4,005 392
===== ===== ===== =====
</TABLE>
Debt maturity
The repayment terms of the A, B, C and D Notes are such that certain
principal amounts are expected to be repaid based on certain assumptions (the
"EXPECTED FINAL PAYMENT DATE") or refinanced through the issue of new Notes by
specified Expected Final Payment Dates but in any event are ultimately due for
repayment on specified final maturity dates (the "FINAL MATURITY DATE"). The
Expected Final Payment Dates, Final Maturity Dates and interest rates applicable
to each class of note are set out below:
<TABLE>
<CAPTION>
INTEREST EXPECTED FINAL FINAL
CLASS/SUBCLASS OF NOTES RATES PRINCIPAL AMOUNT PAYMENT DATE MATURITY DATE
- --------------------------- ------------- ---------------- -------------- --------------
($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-17
<PAGE> 191
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/Transfer.............................. (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'/trustees' 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-18
<PAGE> 192
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
Authorized 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-19
<PAGE> 193
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-20
<PAGE> 194
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 finalization of
these estimates.
Airplanes Limited has net operating loss carryforwards of approximately
$788 million as of March 31, 1997, which are available for offset against future
taxable income with no restrictions to expiration.
F-21
<PAGE> 195
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
19. PROVISION FOR INCOME TAXES -- (CONTINUED)
The deferred tax assets and liabilities of Airplanes Limited are summarized
below:
<TABLE>
<CAPTION>
MARCH 31,
-------------
1996 1997
---- ----
($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 $97 million as of March 31, 1997, which expire beginning in 2007.
F-22
<PAGE> 196
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
19. PROVISION FOR INCOME TAXES -- (CONTINUED)
Deferred tax assets and liabilities of Airplanes Trust are summarized
below:
<TABLE>
<CAPTION>
MARCH 31,
-------------
1996 1997
---- ----
($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 liability 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 utilized 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.
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.
F-23
<PAGE> 197
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
21. CONTINGENT LIABILITIES -- (CONTINUED)
Foreign Taxation
The international character of Airplanes 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 Airplanes Group provides for
all known liabilities.
F-24
<PAGE> 198
AIRPLANES GROUP
UNAUDITED INTERIM BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1997 SEPTEMBER 30, 1997
-------------------------------- --------------------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST COMBINED LIMITED TRUST COMBINED
--------- --------- -------- --------- --------- --------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash.................................... 219 6 225 229 6 235
Accounts receivable
Trade receivables..................... 39 2 41 35 3 38
Allowance for doubtful debts.......... (12) (1) (13) (12) (1) (13)
Amounts due from Airplanes Trust........ 56 -- 56 38 -- 38
Amounts due from GPA.................... -- 2 2 -- 2 2
Net investment in capital and sales type
leases................................ 94 -- 94 84 -- 84
Aircraft, net........................... 3,242 395 3,637 3,157 371 3,528
Other assets............................ 5 1 6 5 -- 5
----- --- ----- ----- --- -----
Total assets............................ 3,643 405 4,048 3,536 381 3,917
===== === ===== ===== === =====
LIABILITIES
Accrued expenses and other
liabilities........................... 295 24 319 351 35 386
Amounts due to Airplanes Limited........ -- 56 56 -- 38 38
Amounts due to GPA...................... 4 -- 4 4 -- 4
Indebtedness............................ 4,005 392 4,397 3,901 382 4,283
Provision for maintenance............... 287 26 313 289 24 313
Deferred income taxes................... 57 48 105 56 48 104
----- --- ----- ----- --- -----
Total liabilities....................... 4,648 546 5,194 4,601 527 5,128
----- --- ----- ----- --- -----
Net liabilities......................... (1,005) (141) (1,146) (1,065) (146) (1,211)
----- --- ----- ----- --- -----
3,643 405 4,048 3,536 381 3,917
===== === ===== ===== === =====
</TABLE>
The accompanying notes are an integral part of the unaudited condensed financial
statements.
F-25
<PAGE> 199
AIRPLANES GROUP
UNAUDITED INTERIM STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------
1996 1997
-------------------------------- --------------------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST COMBINED LIMITED TRUST COMBINED
--------- --------- -------- --------- --------- --------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Aircraft leasing........................ 271 38 309 269 37 306
EXPENSES
Depreciation and amortisation........... (92) (12) (104) (87) (11) (98)
Net interest expense.................... (169) (17) (186) (182) (21) (203)
Provision for maintenance............... (38) (12) (50) (39) (10) (49)
Bad and doubtful debts.................. -- 1 1 (1) -- (1)
Provision for loss making leases, net... 7 3 10 15 2 17
Other lease costs....................... (19) (6) (25) (17) (1) (18)
Selling, general and administrative
expenses.............................. (16) (2) (18) (19) (1) (20)
---- ---- ---- ---- ---- ----
OPERATING (LOSS) BEFORE
PROVISION FOR INCOME TAXES.............. (56) (7) (63) (61) (5) (66)
Income tax benefit/(charge)............. (1) 1 -- 1 -- 1
---- ---- ---- ---- ---- ----
NET (LOSS).............................. (57) (6) (63) (60) (5) (65)
==== ==== ==== ==== ==== ====
</TABLE>
The accompanying notes are an integral part of the unaudited condensed financial
statements.
F-26
<PAGE> 200
AIRPLANES GROUP
UNAUDITED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT/NET LIABILITIES
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1997
---------------------------------------------------------------------
AIRPLANES COMBINED
AIRPLANES LIMITED TRUST ------------
---------------------------------------- ----------- SHAREHOLDERS
SHARE NET SHAREHOLDERS' NET DEFICIT/NET
CAPITAL LIABILITIES DEFICIT LIABILITIES LIABILITIES
----------- ----------- ------------ ----------- ------------
($MILLIONS) ($MILLIONS) ($MILLIONS) ($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31 1996.................. 0 893 893 123 1,016
Net loss for the period................... 57 57 6 63
--- ----- ----- --- -----
BALANCE AT SEPTEMBER 30, 1996............. 0 950 950 129 1,079
=== ===== ===== === =====
BALANCE AT MARCH 31 1997.................. 0 1,005 1,005 141 1,146
Net loss for the period................... 60 60 5 65
--- ----- ----- --- -----
BALANCE AT SEPTEMBER 30, 1997............. 0 1,065 1,065 146 1,211
=== ===== ===== === =====
</TABLE>
The accompanying notes are an integral part of the unaudited condensed financial
statements.
F-27
<PAGE> 201
AIRPLANES GROUP
UNAUDITED CONDENSED STATEMENTS OF CASHFLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------
1996 1997
-------------------------------- --------------------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST COMBINED LIMITED TRUST COMBINED
--------- --------- -------- --------- --------- --------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................ (57) (6) (63) (60) (5) (65)
Adjustment to reconcile (net loss) to
net cash provided by operating
activities:
Depreciation and amortisation........... 92 12 104 87 11 98
Aircraft maintenance, net............... 20 9 29 2 1 3
Deferred income taxes................... 1 (1) -- (1) -- (1)
Provision for loss making leases........ (7) (3) (10) (15) (2) (17)
Accrued and deferred interest expense... 57 6 63 68 9 77
CHANGES IN OPERATING ASSETS &
LIABILITIES:
Accounts receivable, net................ (4) (4) (8) 4 (1) 3
Intercompany account movements.......... 11 (11) -- 18 (18) --
Amounts due to GPA...................... 4 1 5 -- -- --
Other accruals and liabilities.......... 26 4 30 4 6 10
Other assets............................ (2) -- (2) (2) -- (2)
----- ---- ----- ----- ---- -----
NET CASH PROVIDED BY OPERATING
ACTIVITIES............................ 141 7 148 105 1 106
===== ==== ===== ===== ==== =====
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase/Sale of aircraft............... 43 (44) (1) -- 9 9
Intercompany movements - Airplanes
Group................................. (44) 44 -- -- -- --
Capital and sales type leases........... 9 -- 9 10 -- 10
----- ---- ----- ----- ---- -----
NET CASH PROVIDED BY INVESTING
ACTIVITIES............................ 8 -- 8 10 9 19
===== ==== ===== ===== ==== =====
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in indebtedness................ (120) (7) (127) (105) (10) (115)
----- ---- ----- ----- ---- -----
NET CASH USED IN FINANCING ACTIVITIES... (120) (7) (127) (105) (10) (115)
===== ==== ===== ===== ==== =====
NET INCREASE IN CASH.................... 29 -- 29 10 -- 10
CASH AT BEGINNING OF PERIOD............. 214 6 220 219 6 225
----- ---- ----- ----- ---- -----
CASH AT END OF PERIOD................... 243 6 249 229 6 235
===== ==== ===== ===== ==== =====
CASH PAID IN RESPECT OF:
Interest................................ 120 11 131 115 11 126
===== ==== ===== ===== ==== =====
</TABLE>
The accompanying notes are an integral part of the unaudited condensed financial
statements.
F-28
<PAGE> 202
AIRPLANES GROUP
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
The accompanying unaudited condensed financial statements of Airplanes
Limited, Airplanes Trust and the balance sheets, statements of operations,
statement of changes in shareholders deficit/net liabilities and statements of
cash flows of Airplanes Group have been prepared on a going concern basis in
conformity with United States generally accepted accounting principles. The
financial statements are presented on a historical cost basis.
The accompanying financial statements for Airplanes Limited and Airplanes
Trust reflect all adjustments which in the opinion of management are necessary
to present a fair statement of the information presented as of September 30,
1997 and for the six month periods ending September 30, 1997 and September 30,
1996. Such adjustments are of a normal, recurring nature. The results of
operations for the six months ended September 30, 1997 are not necessarily
indicative of the results to be expected for the full year.
2. POST BALANCE SHEET EVENTS
The following events which have occurred since the end of the financial
quarter will have an effect on Airplanes Group's future results.
As at September 30, 1997, Airplanes Group had six Fokker 100 Aircraft on
lease to a Brazilian lessee, with an average remaining lease term of 29 months.
During the month ended October 31, 1997 all six leases were restructured. In
consideration for an extension of the leases for 119 months, the revised terms
of the leases include rental rates reduced by approximately 24%, no maintenance
reserve payments and the return of all previously paid maintenance reserves by
Airplanes Group within 12 months. The reduced rentals payable under the revised
terms of these leases will require an additional "loss making" lease provision
of approximately $13 million in the three months ending December 31, 1997.
In addition, a DC-9 aircraft on lease to a Mexican lessee suffered a
constructive total loss during October 1997. The insurers are currently
assessing the claim, and a payment of the insurance proceeds is expected to be
made to Airplanes Group in the three months ending December 31, 1997, resulting
in a marginal surplus over book value.
F-29
<PAGE> 203
INDEPENDENT AUDITORS' CONSENT AND 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 Registration Statement on form S-1. In connection
with our audits of the aforementioned financial statements, we also audited the
related financial statement schedule in this Registration Statement on form S-1.
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.
We consent to the use of our reports included herein and to references to
our firm under the headings "Summary Combined Financial Data", "Selected
Financial Data" and "Experts" in the Registration Statement.
KPMG
Chartered Accountants
Dublin, Ireland
December 15, 1997
S-1
<PAGE> 204
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> 205
APPENDIX 1
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
$................................... 3
1958 Order.......................... 4
1961 Law............................ 160
1995 Regulations.................... 169
1996 Offering....................... 6
1998 Refinancing
Certificateholders................ 15
1998 Refinancing Certificates....... 1
1998 Refinancing Guarantees......... 15
1998 Refinancing Notes.............. 1
1998 Refinancing Trust A-6.......... 6
1998 Refinancing Trust A-7.......... 6
1998 Refinancing Trustee............ 1,14
1998 Refinancing Trust.............. 1
1998 Refinancing Trusts............. 1,111
Accounts............................ 153
Acquisition......................... 6
Actual Pool Factor.................. 131
Adjusted Balance.................... 130
Adjusted Base Value................. 130
Adjusted Portfolio Value............ 130
Administrative Agency Agreement..... 23
Administrative Agent................ 23
Administrative Agent's Conflict
Duties............................ 34
Administrative Agent's Services
Standard.......................... 34
Administrative Fee.................. 89
ADs................................. 38
Aeromexico.......................... 62
AeroUSA............................. 6
AeroUSA 3........................... 30
affiliate........................... 137
Air Europa.......................... 62
Aircraft............................ 6
Aircraft Agreement.................. 141
Aircraft Owning Companies........... 7
Airplanes Group..................... 1,6
Airplanes Limited................... 1,16
Airplanes Limited 1998 Refinancing
Notes............................. 17
Airplanes Limited Class E Notes..... 151
Airplanes Limited Guarantee......... 125
Airplanes Limited Indenture......... 17
Airplanes Limited Indenture
Trustee........................... 17
Airplanes Limited Member............ 138
Airplanes Limited Notes............. 17
Airplanes Pass Through Trust........ 14
Airplanes Trust..................... 1,16
Airplanes Trust 1998 Refinancing
Notes............................. 17
</TABLE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Airplanes Trust Agreement........... 16
Airplanes Trust Class E Notes....... 151
Airplanes Trust Guarantee........... 125
Airplanes Trust Indenture........... 17
Airplanes Trust Indenture Trustee... 17
Airplanes Trust Member.............. 138
Airplanes Trust Notes............... 17
Airplanes Trust Residual Interest... 20
Airtours............................ 62
Allowed Restructuring............... 138
ALPS 94-1........................... 32
Amortization Commencement Date...... 128
Amortizing Notes.................... 129
Annual Dividend Amount.............. 50
AOG................................. 120
applicable Trustee.................. 112
Appraisals.......................... 20
Appraised Value..................... 21
Appraisers.......................... 20
ARE................................. 120
Asset Based Servicing Fee........... 85
Assumptions......................... 18
Available Collections............... 15
Avg................................. 122
Avianca............................. 62
Base Value.......................... 21
Basic Terms Modification............ 150
Burlington Air...................... 62
Business Day........................ 14
CAA................................. 37
Calculation Date.................... 14
Call Right.......................... 50
Canadian Airlines................... 62
Capital Stock....................... 20
Cash Management Agreement........... 23
Cash Manager........................ 23
CCN................................. 159
Cedel Bank.......................... 3
Cedel Participants.................. 156
Certificate......................... 160
Certificate Account................. 114
Certificateholders.................. 15,160
Certificates........................ 6
Charitable Trust Trustees........... 82
Charitable Trusts................... 20
Chicago Convention.................. 61
Class E Note Minimum Interest
Amount............................ 119
</TABLE>
A-1
<PAGE> 206
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Class E Note Supplemental Interest
Amount............................ 119
Class E Notes....................... 6
Closing Date........................ 14
Code................................ 25
Collection Account.................. 22
Collections......................... 109
Commission.......................... 155
Committee........................... 4
Company Secretary................... 90
Concentration Limits................ 144
control............................. 137
Controlling Trustees................ 51
Core Lease Provisions............... 146
Corresponding Notes................. 111
covenant defeasance................. 134
DCR................................. 16
Default Notice...................... 115
defeasance trust.................... 134
Definitive Certificates............. 158
Delaware Trustee.................... 16
Depositaries........................ 156
Depreciation Factor................. 130
Directors........................... 50
Discounted Annual Dividend Amount... 51
disqualified persons................ 166
DOL................................. 166
DTC................................. 3
DTC Participants.................... 156
Emery............................... 7
Encumbrance......................... 137
Engines............................. 140
ERISA............................... 25
Euroclear........................... 3
Euroclear Participants.............. 156
Event of Default.................... 115
Existing Certificates............... 6
Existing Guarantees................. 15
Existing Leases..................... 6
Existing Notes...................... 6
Existing Trusts..................... 111
Exp................................. 122
Expected Final Payment Date......... 8
Expected Maturity................... 122
Expected Portfolio Value............ 129
Expense Account..................... 22
Expenses............................ 19
FAS 121............................. 28
Federal Tax Counsel................. 162
Final Maturity Date................. 8
Final Regulations................... 164
</TABLE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Financial Institution............... 164
Financial Statements................ F-7
First Collection Account Top-up..... 134
Fixed Price Premium................. 131
Fixed Rate Certificates............. 17
Fixed Rate Notes.................... 17
Fixed Rate Redemption Price......... 131
Floating Rate Certificates.......... 17
Floating Rate Notes................. 17
Floating Rate Redemption Price...... 131
Future Lease Rate................... 118
Future Leases....................... 7
GE Capital.......................... 3
GE Group............................ 32
GE Policy........................... 83
GECAS............................... 1
GECAS Conflicts Standard............ 32
GECAS Managed Portfolio............. 32
GECAS Services Standard............. 32
General Agreement................... 54
General Offer....................... 50
GPA................................. 1
GPA Cash Manager.................... 23
GPA Financial....................... 23
GPA Group........................... 1
GPA, Inc............................ 16
GPA Management Agreement............ 32
GPA Servicing Agreement............. 54
GPA U.S. Tax Group.................. 30
Gross Revenue....................... 119
guarantee........................... 140
Guarantees.......................... 15,125
High Court.......................... 55
Holding Co.......................... 6
incur............................... 139
Indebtedness........................ 139
Indenture Trustees.................. 17
Independent Directors............... 50
Independent Trustees................ 52
Indirect Participants............... 157
Initial Appraised Value............. 36
Initial Loan to Aircraft Value...... 8
Intercompany Loan................... 140
Interest Accrual Period............. 14
investment.......................... 138
IOMCos.............................. 138
IRS................................. 163
ISIN................................ 159
issue price......................... 163
Issuer.............................. 111
Jersey Tax Counsel.................. 160
</TABLE>
A-2
<PAGE> 207
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Lease LOI........................... 68
Leases.............................. 7
legal defeasance.................... 134
Lessee Funded Account............... 22
Lessees............................. 21
Lessor.............................. 69
LIBOR............................... 1
Liens............................... 37
Liquidity Reserve Amount............ 22,109
Listing Agent....................... 155
Losses.............................. 33
Maintenance Reserve Amount.......... 41
Maintenance Reserves................ 41
Make-Whole Price.................... 132
Make-Whole Spread................... 132
Mexicana............................ 62
Minimum Hedge Payment............... 107
Minimum Principal Payment Amount.... 129
Miscellaneous Reserve Amount........ 109
Modification Payment................ 141
Moody's............................. 16
Morgan Stanley...................... 170
NASD................................ 170
Net Sale Proceeds................... 141
Nominees............................ 20
Non-U.S. 1998 Refinancing
Certificateholder................. 163
non-United States person............ 163
Note Event of Default............... 148
Note Target Price................... 141
Notes............................... 6
Notice of Redemption................ 133
Offering............................ 1,6
Outstanding Principal Balance....... 115
parties in interest................. 166
Parts............................... 140
Payment Date........................ 14
Permitted Account Investments....... 89
Permitted Accruals.................. 109
Permitted Encumbrance............... 137
Plans............................... 166
Portfolio........................... 6
Precedent Lease..................... 146
Premium Expiration Date............. 131
PRI................................. 147
Principal Adjustment Amount......... 130
Principal Distribution Amount....... 129
PTCE................................ 167
Purchase Option..................... 59
Purchase Price...................... 30
Rating Agencies..................... 16
</TABLE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Re-Leasing Guidelines............... 24
Record Date......................... 14
Redemption Date..................... 131
Redemption Price.................... 131
Reducing Fee........................ 89
Reference Agent..................... 127
Reference Banks..................... 127
Reference Date...................... 14
Refinancing Certificates............ 18
Refinancing Notes................... 33
Registrants......................... 2
Regulations......................... 166
Related Collateral.................. 21
Related Documents................... 111
Relevant Appraisal.................. 130
Relevant Issuer..................... 111
Remaining Weighted Average Life..... 132
Renewal Lease....................... 146
Rental Accounts..................... 22
Rental Payments..................... 125
Repossessed Assets.................. 54
Required Expense Amount............. 15,109
RPMs................................ 74
Rules............................... 157
Sale LOI............................ 68
Scheduled Principal Payment
Amount............................ 131
Second Collection Account Top-up.... 135
Securities Act...................... 1
Security Deposit Reserve Amount..... 109
Security Deposits................... 21
Segregated Funds.................... 22
Servicer............................ 7
Servicer's Pro Forma Lease.......... 146
Services............................ 84
Servicing Agreement................. 7
Settlor............................. 16
Shannon Certified Operations........ 161
Shareholders Agreement.............. 82
Significant Subsidiary.............. 148
Singapore Companies Act............. 170
Soft Bullet Notes................... 128
Special Lessors..................... 7
Stage 2 aircraft.................... 61
Stage 3 aircraft.................... 61
Stand-alone Tax Liability........... 30
Standard & Poor's................... 16
Step-Up Interest.................... 19
Stock............................... 137
Stock Purchase Agreements........... 30
Stresses............................ 120
Subclass A-6 Certificates........... 6
</TABLE>
A-3
<PAGE> 208
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Subclass A-7 Certificates........... 6
Subordinated Swap Payments.......... 135
Supplemental Hedge Payment.......... 107
Supplemental Loan to Value Ratio.... 130
Supplemental Principal Balance...... 130
Supplemental Principal Payment
Amount............................ 130
Swap Agreements..................... 44
Swap Providers...................... 19
Swaps............................... 107
Swaptions........................... 107
TAM................................. 40
Target Hedge........................ 107
Target Loan to Value Ratio.......... 129
Target Pool Factor.................. 131
Target Principal Balance............ 129
Tax Liabilities..................... 30
Tax Sharing Agreement............... 30
Terms and Conditions................ 157
</TABLE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Third Party Event................... 145
THY................................. 62
TIN................................. 164
Transferred Companies............... 7
Treasury Yield...................... 132
Treaty.............................. 48
Trust............................... 111
Trust Agreement..................... 1,111
Trust Assets........................ 14
Trust Indenture Act................. 111
Trust Indentures.................... 17
Trustee............................. 14
U.S. GAAP........................... 26
Underwriters........................ 168
Underwriting Agreement.............. 168
United States person................ 163
Varig............................... 41
Weighted Average Life............... 121
</TABLE>
A-4
<PAGE> 209
APPENDIX 2
AIRCRAFT TYPES DATA
<TABLE>
<CAPTION>
NO. AND STAGE 3
TYPICAL MFR. OF NOISE PROD. NO. CURRENT ON NO. OF
TYPE & VARIANT SEATS ENGINES COMPLIANCE YEARS DELIVERED FLEET ORDER OPERATORS
- -------------------- ------- ------------- ---------- -------- --------- ------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Airbus A300B4-200 Widebody Jet..... 250 2 X GE/PW Yes 1975-88
Airbus A320-200 Narrowbody Jet... 150 2 X CFM/IAE Yes 1988-
AI(R) ATR42-300 Turboprop........ 46 2 X PWC Yes(2) 1985-
Boeing 727-200 Adv Narrowbody Jet... 150 3 X PW No(1) 1972-84
Boeing 737-200 Adv Narrowbody Jet... 110 2 X PW No(1) 1971-88
Boeing 737-300 Narrowbody Jet... 130 2 X CFM Yes 1984-
Boeing 737-400 Narrowbody Jet... 150 2 X CFM Yes 1988-
Boeing 737-500 Narrowbody Jet... 110 2 X CFM Yes 1990-
Boeing 747-200B Widebody Jet..... 370 4 X GE/PW/RR Yes 1970-89
Boeing 757-200 Narrowbody Jet... 180 2 X RR/PW Yes 1982-
Boeing 767-200ER Widebody Jet..... 210 2 X GE/PW Yes 1984-
Boeing 767-300ER Widebody Jet..... 250 2 X GE/PW/RR Yes 1988-
De Havilland Dash 8 Turboprop........ 36-50 2 X PWC Yes(2) 1984-
Fairchild Metro Turboprop........ 20 2 X GT Yes(2) 1970-
Fokker 100 Narrowbody Jet... 100 2 X RR Yes 1988-96
MDC DC-8-70 Narrowbody Jet... Cargo 4 X CFM Yes 1981-86
MDC DC-9-10 Narrowbody Jet... 70 2 X PW No(1) 1965-68
MDC DC-9-30 Narrowbody Jet... 100 2 X PW No(1) 1967-82
MDC DC-9-50 Narrowbody Jet... 120 2 X PW No(1) 1975-81
MDC MD-82/83 Narrowbody Jet... 150 2 X PW Yes 1981-
MDC MD-87 Narrowbody Jet... 115 2 X PW Yes 1986-92
MDC DC-10-30 Widebody Jet..... 260 3 X GE Yes 1971-88
MDC MD-11 Widebody Jet..... 290 3 X GE/PW Yes 1991-
</TABLE>
- ---------------
Notes -- CFM = CFM International; GE = General Electric; GT = Garrett; IAE =
International Aero Engines; PW = Pratt & Whitney; PWC = Pratt & Whitney Canada;
RR = Rolls-Royce. DC-8 production is years since conversion or re-engining.
Source -- Airclaims CASE Database.
(1) Certain aircraft classified as Stage 2 are capable of meeting Stage 3
compliance requirements through either re-engining or hushkitting. For a
description of the Stage compliance categorization of each aircraft in the
Portfolio, see "-- Portfolio Information".
(2) Turboprop aircraft have been classified as Stage 3 compliant.
A-5
<PAGE> 210
APPENDIX 3
MONTHLY GROSS REVENUES BASED ON THE ASSUMPTIONS
<TABLE>
<CAPTION>
MONTHLY GROSS REVENUES
MONTH ($MILLIONS)
- ----- ----------------------
<S> <C>
March 1998..............................................................
</TABLE>
A-6
<PAGE> 211
APPENDIX 4
EXPECTED PORTFOLIO VALUE
BASED ON THE DEPRECIATION FACTORS
AND THE AIRCRAFT IN THE PORTFOLIO AS OF JANUARY 31, 1998
<TABLE>
<CAPTION>
EXPECTED PORTFOLIO
MONTH VALUE
- ----- ------------------
(MILLIONS)
<S> <C>
March 1998............. -
April 1998............. -
May 1998............... -
June 1998.............. -
July 1998.............. -
August 1998............ -
September 1998......... -
October 1998........... -
November 1998.......... -
December 1998.......... -
January 1999........... -
February 1999.......... -
March 1999............. -
April 1999............. -
May 1999............... -
June 1999.............. -
July 1999.............. -
August 1999............ -
September 1999......... -
October 1999........... -
November 1999.......... -
December 1999.......... -
January 2000........... -
February 2000.......... -
March 2000............. -
April 2000............. -
May 2000............... -
June 2000.............. -
July 2000.............. -
August 2000............ -
September 2000......... -
October 2000........... -
November 2000.......... -
December 2000.......... -
January 2001........... -
February 2001.......... -
March 2001............. -
April 2001............. -
May 2001............... -
June 2001.............. -
July 2001.............. -
August 2001............ -
September 2001......... -
October 2001........... -
November 2001.......... -
December 2001.......... -
January 2002........... -
February 2002.......... -
March 2002............. -
April 2002............. -
May 2002............... -
June 2002.............. -
</TABLE>
<TABLE>
<CAPTION>
EXPECTED PORTFOLIO
MONTH VALUE
- ----- ------------------
(MILLIONS)
<S> <C>
July 2002.............. -
August 2002............ -
September 2002......... -
October 2002........... -
November 2002.......... -
December 2002.......... -
January 2003........... -
February 2003.......... -
March 2003............. -
April 2003............. -
May 2003............... -
June 2003.............. -
July 2003.............. -
August 2003............ -
September 2003......... -
October 2003........... -
November 2003.......... -
December 2003.......... -
January 2004........... -
February 2004.......... -
March 2004............. -
April 2004............. -
May 2004............... -
June 2004.............. -
July 2004.............. -
August 2004............ -
September 2004......... -
October 2004........... -
November 2004.......... -
December 2004.......... -
January 2005........... -
February 2005.......... -
March 2005............. -
April 2005............. -
May 2005............... -
June 2005.............. -
July 2005.............. -
August 2005............ -
September 2005......... -
October 2005........... -
November 2005.......... -
December 2005.......... -
January 2006........... -
February 2006.......... -
March 2006............. -
April 2006............. -
May 2006............... -
June 2006.............. -
July 2006.............. -
August 2006............ -
September 2006......... -
October 2006........... -
</TABLE>
<TABLE>
<CAPTION>
EXPECTED PORTFOLIO
MONTH VALUE
- ----- ------------------
(MILLIONS)
<S> <C>
November 2006.......... -
December 2006.......... -
January 2007........... -
February 2007.......... -
March 2007............. -
April 2007............. -
May 2007............... -
June 2007.............. -
July 2007.............. -
August 2007............ -
September 2007......... -
October 2007........... -
November 2007.......... -
December 2007.......... -
January 2008........... -
February 2008.......... -
March 2008............. -
April 2008............. -
May 2008............... -
June 2008.............. -
July 2008.............. -
August 2008............ -
September 2008......... -
October 2008........... -
November 2008.......... -
December 2008.......... -
January 2009........... -
February 2009.......... -
March 2009............. -
April 2009............. -
May 2009............... -
June 2009.............. -
July 2009.............. -
August 2009............ -
September 2009......... -
October 2009........... -
November 2009.......... -
December 2009.......... -
January 2010........... -
February 2010.......... -
March 2010............. -
April 2010............. -
May 2010............... -
June 2010.............. -
July 2010.............. -
August 2010............ -
September 2010......... -
October 2010........... -
November 2010.......... -
December 2010.......... -
January 2011........... -
February 2011.......... -
</TABLE>
A-7
<PAGE> 212
<TABLE>
<CAPTION>
EXPECTED PORTFOLIO
MONTH VALUE
- ----- ------------------
(MILLIONS)
<S> <C>
March 2011............. -
April 2011............. -
May 2011............... -
June 2011.............. -
July 2011.............. -
August 2011............ -
September 2011......... -
October 2011........... -
November 2011.......... -
December 2011.......... -
January 2012........... -
February 2012.......... -
March 2012............. -
April 2012............. -
May 2012............... -
June 2012.............. -
July 2012.............. -
August 2012............ -
September 2012......... -
October 2012........... -
November 2012.......... -
December 2012.......... -
January 2013........... -
February 2013.......... -
March 2013............. -
April 2013............. -
May 2013............... -
June 2013.............. -
July 2013.............. -
August 2013............ -
September 2013......... -
October 2013........... -
November 2013.......... -
</TABLE>
<TABLE>
<CAPTION>
EXPECTED PORTFOLIO
MONTH VALUE
- ----- ------------------
(MILLIONS)
<S> <C>
December 2013.......... -
January 2014........... -
February 2014.......... -
March 2014............. -
April 2014............. -
May 2014............... -
June 2014.............. -
July 2014.............. -
August 2014............ -
September 2014......... -
October 2014........... -
November 2014.......... -
December 2014.......... -
January 2015........... -
February 2015.......... -
March 2015............. -
April 2015............. -
May 2015............... -
June 2015.............. -
July 2015.............. -
August 2015............ -
September 2015......... -
October 2015........... -
November 2015.......... -
December 2015.......... -
January 2016........... -
February 2016.......... -
March 2016............. -
April 2016............. -
May 2016............... -
June 2016.............. -
July 2016.............. -
</TABLE>
<TABLE>
<CAPTION>
EXPECTED PORTFOLIO
MONTH VALUE
- ----- ------------------
(MILLIONS)
<S> <C>
August 2016............ -
September 2016......... -
October 2016........... -
November 2016.......... -
December 2016.......... -
January 2017........... -
February 2017.......... -
March 2017............. -
April 2017............. -
May 2017............... -
June 2017.............. -
July 2017.............. -
August 2017............ -
September 2017......... -
October 2017........... -
November 2017.......... -
December 2017.......... -
January 2018........... -
February 2018.......... -
March 2018............. -
April 2018............. -
May 2018............... -
June 2018.............. -
July 2018.............. -
August 2018............ -
September 2018......... -
October 2018........... -
November 2018.......... -
December 2018.......... -
January 2019........... -
February 2019.......... -
March 2019............. -
</TABLE>
A-8
<PAGE> 213
APPENDIX 5
TARGET LOAN TO VALUE RATIO AND
TARGET PRINCIPAL BALANCE OF CLASS A
AND CLASS B CERTIFICATES
<TABLE>
<CAPTION>
TARGET LOAN TO TARGET
VALUE RATIO PRINCIPAL BALANCE
---------------------- -------------------------
AGGREGATE AGGREGATE
CLASS A CLASS A
PAYMENT DATE INCLUDING INCLUDING
OCCURRING IN REFINANCINGS CLASS B REFINANCINGS CLASS B
- --------------------------- ------- ------------ ----------
($) ($)
<S> <C> <C> <C> <C>
March 1998..... 62.71% 8.28%
April 1998..... 62.65% 8.28%
May 1998....... 62.57% 8.28%
June 1998...... 62.50% 8.28%
July 1998...... 62.43% 8.28%
August 1998.... 62.36% 8.28%
September
1998......... 62.28% 8.28%
October 1998... 62.20% 8.28%
November 1998.. 62.13% 8.28%
December 1998.. 62.05% 8.28%
January 1999... 61.97% 8.28%
February 1999.. 61.89% 8.28%
March 1999..... 61.81% 8.28%
April 1999..... 61.72% 8.28%
May 1999....... 61.64% 8.28%
June 1999...... 61.55% 8.28%
July 1999...... 61.46% 8.28%
August 1999.... 61.38% 8.25%
September
1999......... 61.29% 8.25%
October 1999... 61.20% 8.24%
November 1999.. 61.10% 8.24%
December 1999.. 61.01% 8.24%
January 2000... 60.92% 8.23%
February 2000.. 60.82% 8.23%
March 2000..... 60.72% 8.22%
April 2000..... 60.72% 8.22%
May 2000....... 60.53% 8.21%
June 2000...... 60.42% 8.21%
July 2000...... 60.32% 8.20%
August 2000.... 60.22% 8.20%
September
2000......... 60.11% 8.19%
October 2000... 60.01% 8.19%
November 2000.. 59.90% 8.18%
December 2000.. 59.79% 8.18%
January 2001... 59.68% 8.17%
February 2001.. 59.57% 8.16%
March 2002..... 59.46% 8.16%
April 2001..... 59.34% 8.15%
May 2001....... 59.23% 8.14%
June 2001...... 59.11% 8.14%
July 2001...... 58.99% 8.13%
August 2001.... 58.87% 8.12%
September
2001......... 58.75% 8.11%
October 2001... 58.63% 8.11%
November 2001.. 58.50% 8.10%
December 2001.. 58.38% 8.09%
January 2002... 58.25% 8.08%
February 2002.. 58.12% 8.07%
March 2002..... 57.99% 8.06%
April 2002..... 57.86% 8.06%
May 2002....... 57.72% 8.05%
June 2002...... 57.59% 8.04%
July 2002...... 57.45% 8.03%
August 2002.... 57.32% 8.02%
September
2002......... 57.18% 8.01%
October 2002... 57.04% 8.00%
November 2002.. 56.89% 7.99%
December 2002.. 56.75% 7.97%
January 2003... 56.61% 7.96%
February 2003.. 56.46% 7.95%
March 2003..... 56.31% 7.94%
April 2003..... 56.16% 7.93%
</TABLE>
<TABLE>
<CAPTION>
TARGET LOAN TO TARGET
VALUE RATIO PRINCIPAL BALANCE
---------------------- -------------------------
AGGREGATE AGGREGATE
CLASS A CLASS A
PAYMENT DATE INCLUDING INCLUDING
OCCURRING IN REFINANCINGS CLASS B REFINANCINGS CLASS B
- --------------------------- ------- ------------ ----------
($) ($)
<S> <C> <C> <C> <C>
May 2003....... 56.01% 7.92%
June 2003...... 55.86% 7.91%
July 2003...... 55.70% 7.89%
August 2003.... 55.54% 7.88%
September
2003......... 55.39% 7.87%
October 2003... 55.23% 7.85%
November 2003.. 55.07% 7.84%
December 2003.. 54.90% 7.83%
January 2004... 54.74% 7.81%
February 2004.. 54.57% 7.80%
March 2004..... 54.40% 7.79%
April 2004..... 54.23% 7.77%
May 2004....... 54.06% 7.76%
June 2004...... 53.89% 7.74%
July 2004...... 53.72% 7.73%
August 2004.... 53.54% 7.71%
September
2004......... 53.36% 7.69%
October 2004... 53.18% 7.68%
November 2004.. 53.00% 7.66%
December 2004.. 52.82% 7.65%
January 2005... 52.63% 7.63%
February 2005.. 52.44% 7.61%
March 2005..... 52.26% 7.59%
April 2005..... 52.07% 7.58%
May 2005....... 51.87% 7.56%
June 2005...... 51.68% 7.54%
July 2005...... 51.48% 7.52%
August 2005.... 51.29% 7.50%
September
2005......... 51.09% 7.48%
October 2005... 50.88% 7.46%
November 2005.. 50.68% 7.45%
December 2005.. 50.48% 7.43%
January 2006... 50.27% 7.41%
February 2006.. 50.06% 7.38%
March 2006..... 49.85% 7.36%
April 2006..... 49.64% 7.34%
May 2006....... 49.42% 7.32%
June 2006...... 49.20% 7.30%
July 2006...... 48.99% 7.28%
August 2006.... 48.77% 7.26%
September
2006......... 48.54% 7.23%
October 2006... 48.32% 7.21%
November 2006.. 48.09% 7.19%
December 2006.. 47.86% 7.16%
January 2007... 47.63% 7.14%
February 2007.. 47.40% 7.12%
March 2007..... 47.17% 7.09%
April 2007..... 46.93% 7.07%
May 2007....... 46.69% 7.04%
June 2007...... 46.45% 7.02%
July 2007...... 46.21% 6.99%
August 2007.... 45.96% 6.97%
September
2007......... 45.71% 6.94%
October 2007... 45.46% 6.91%
November 2007.. 45.21% 6.89%
December 2007.. 44.96% 6.86%
January 2008... 44.70% 6.83%
February 2008.. 44.45% 6.80%
March 2008..... 44.19% 6.78%
April 2008..... 43.92% 6.75%
May 2008....... 43.66% 6.72%
June 2008...... 43.39% 6.69%
</TABLE>
A-9
<PAGE> 214
<TABLE>
<CAPTION>
TARGET LOAN TO TARGET
VALUE RATIO PRINCIPAL BALANCE
---------------------- -------------------------
AGGREGATE AGGREGATE
CLASS A CLASS A
PAYMENT DATE INCLUDING INCLUDING
OCCURRING IN REFINANCINGS CLASS B REFINANCINGS CLASS B
- --------------------------- ------- ------------ ----------
($) ($)
<S> <C> <C> <C> <C>
July 2008...... 43.13% 6.66%
August 2008.... 42.85% 6.63%
September
2008......... 42.58% 6.60%
October 2008... 42.31% 6.57%
November 2008.. 42.03% 6.54%
December 2008.. 41.75% 6.50%
January 2009... 41.47% 6.47%
February 2009.. 41.18% 6.44%
March 2009..... 40.90% 6.41%
April 2009..... 40.61% 6.38%
May 2009....... 40.31% 6.34%
June 2009...... 40.02% 6.31%
July 2009...... 39.72% 6.27%
Aug 2009....... 39.43% 6.24%
September
2009......... 39.13% 6.21%
October 2009... 38.82% 6.17%
November 2009.. 38.52% 6.13%
December 2009.. 38.21% 6.10%
January 2010... 37.90% 6.06%
February 2010.. 37.58% 6.03%
March 2010..... 37.27% 5.99%
April 2010..... 36.95% 5.95%
May 2010....... 36.63% 5.91%
June 2010...... 36.31% 5.87%
July 2010...... 35.98% 5.84%
August 2010.... 35.66% 5.80%
September
2010......... 35.32% 5.76%
October 2010... 34.99% 5.72%
November 2010.. 34.66% 5.68%
December 2010.. 34.32% 5.63%
January 2011... 33.98% 5.59%
February 2011.. 33.63% 5.55%
March 2011..... 33.29% 5.51%
April 2011..... 32.94% 5.47%
May 2011....... 32.59% 5.42%
June 2011...... 32.23% 5.38%
July 2011...... 31.88% 5.34%
August 2011.... 31.52% 5.29%
September
2011......... 31.16% 5.25%
October 2011... 30.79% 5.20%
November 2011.. 30.43% 5.16%
December 2011.. 30.06% 5.11%
January 2012... 29.68% 5.06%
February 2012.. 29.31% 5.02%
March 2012..... 28.93% 4.97%
April 2012..... 28.55% 4.92%
May 2012....... 28.16% 4.87%
June 2012...... 27.78% 4.82%
July 2012...... 27.39% 4.77%
August 2012.... 26.60% 4.67%
October 2012... 26.20% 4.62%
November 2012.. 25.80% 4.57%
December 2012.. 25.40% 4.52%
January 2013... 24.99% 4.47%
February 2013.. 24.58% 4.41%
March 2013..... 24.17% 4.36%
April 2013..... 23.75% 4.31%
May 2013....... 23.33% 4.25%
June 2013...... 22.91% 4.20%
July 2013...... 22.49% 4.14%
August 2013.... 22.06% 4.08%
September
2013......... 21.63% 4.03%
October 2013... 21.19% 3.97%
November 2013.. 20.76% 3.91%
December 2013.. 20.32% 3.85%
</TABLE>
<TABLE>
<CAPTION>
TARGET LOAN TO TARGET
VALUE RATIO PRINCIPAL BALANCE
---------------------- -------------------------
AGGREGATE AGGREGATE
CLASS A CLASS A
PAYMENT DATE INCLUDING INCLUDING
OCCURRING IN REFINANCINGS CLASS B REFINANCINGS CLASS B
- --------------------------- ------- ------------ ----------
($) ($)
<S> <C> <C> <C> <C>
January 2014... 19.87% 3.80%
February 2014.. 19.43% 3.74%
March 2014..... 18.98% 3.68%
April 2014..... 18.53% 3.62%
May 2014....... 18.07% 3.56%
June 2014...... 17.61% 3.49%
July 2014...... 17.15% 3.43%
August 2014.... 16.68% 3.37%
September
2014......... 16.22% 3.31%
October 2014... 15.74% 3.24%
November 2014.. 15.27% 3.18%
December 2014.. 14.79% 3.11%
January 2015... 14.31% 3.05%
February 2015.. 13.82% 2.98%
March 2015..... 13.34% 2.92%
April 2015..... 12.84% 2.85%
May 2015....... 12.35% 2.78%
June 2015...... 11.85% 2.71%
July 2015...... 11.35% 2.64%
August 2015.... 10.84% 2.57%
September
2015......... 10.34% 2.50%
October 2015... 9.82% 2.43%
November 2015.. 9.31% 2.36%
December 2015.. 8.79% 2.29%
January 2016... 8.27% 2.22%
February 2016.. 7.74% 2.14%
March 2016..... 7.21% 2.07%
April 2016..... 6.68% 1.99%
May 2016....... 6.14% 1.92%
June 2016...... 5.60% 1.84%
July 2016...... 5.06% 1.77%
August 2016.... 4.51% 1.69%
September
2016......... 3.96% 1.61%
October 2016... 3.41% 1.53%
November 2016.. 2.85% 1.45%
December 2016.. 2.29% 1.37%
January 2017... 1.72% 1.29%
February 2017.. 1.15% 1.21%
March 2017..... 0.58% 1.13%
April 2017..... 0.00% 1.05%
May 2017....... 0.00% 0.96%
June 2017...... 0.00% 0.88%
July 2017...... 0.00% 0.79%
August 2017.... 0.00% 0.71%
September
2017......... 0.00% 0.62%
October 2017... 0.00% 0.54%
November 2017.. 0.00% 0.45%
December 2017.. 0.00% 0.36%
January 2018... 0.00% 0.27%
February 2018.. 0.00% 0.18%
March 2018..... 0.00% 0.09%
April 2018..... 0.00% 0.00%
May 2018....... 0.00% 0.00%
June 2018...... 0.00% 0.00%
July 2018...... 0.00% 0.00%
August 2018.... 0.00% 0.00%
September
2018......... 0.00% 0.00%
October 2018... 0.00% 0.00%
November 2018.. 0.00% 0.00%
December 2018.. 0.00% 0.00%
January 2019... 0.00% 0.00%
February 2019.. 0.00% 0.00%
March 2019..... 0.00% 0.00%
April 2019..... 0.00% 0.00%
</TABLE>
A-10
<PAGE> 215
APPENDIX 6
SUPPLEMENTAL LOAN TO VALUE RATIO AND
SUPPLEMENTAL PRINCIPAL BALANCE
<TABLE>
<CAPTION>
SUPPLEMENTAL SUPPLEMENTAL
LOAN TO VALUE RATIO PRINCIPAL BALANCE
---------------------- -------------------------
AGGREGATE AGGREGATE
CLASS A CLASS A
PAYMENT DATE INCLUDING INCLUDING
OCCURRING IN REFINANCINGS CLASS B REFINANCINGS CLASS B
- ------------- ------------ ------- ------------ ---------
% % $ $
<S> <C> <C> <C> <C>
December 1997.. 58.00 8.28
January 1998... 57.90 8.28
February 1998.. 57.80 8.28
March 1998..... 57.70 8.28
April 1998..... 57.61 8.28
May 1998....... 57.41 8.28
June 1998...... 57.41 8.28
July 1998...... 57.81 8.28
August 1998.... 56.51 8.28
September
1998......... 56.21 8.28
October 1998... 55.90 8.28
November 1998.. 55.59 8.28
December 1998.. 55.28 8.28
January 1999... 54.97 8.28
February 1999.. 54.65 8.28
March 1999..... 54.33 8.28
April 1999..... 54.01 8.28
May 1999....... 53.68 8.28
June 1999...... 53.35 8.28
July 1999...... 53.02 8.28
August 1999.... 52.69 7.90
September
1999......... 52.36 7.89
October 1999... 52.02 7.88
November 1999.. 51.68 7.87
December 1999.. 51.33 7.86
January 2000... 50.98 7.85
February 2000.. 50.63 7.82
March 2000..... 50.28 7.83
April 2000..... 49.93 7.81
May 2000....... 49.57 7.80
June 2000...... 49.21 7.79
July 2000...... 48.84 7.78
August 2000.... 48.48 7.77
September
2000......... 48.11 7.76
October 2000... 47.73 7.75
November 2000.. 47.36 7.74
December 2000.. 46.98 7.73
January 2001... 46.60 7.69
February 2001.. 46.21 7.73
March 2001..... 45.82 7.71
April 2001..... 45.43 7.68
May 2001....... 45.04 7.66
June 2001...... 44.64 7.63
July 2001...... 44.24 7.60
August 2001.... 43.84 7.57
September
2001......... 43.43 7.55
October 2001... 43.02 7.52
November 2001.. 42.61 7.49
December 2001.. 42.20 7.48
January 2002... 41.78 7.47
February 2002.. 41.35 7.46
March 2002..... 40.93 7.45
April 2002..... 40.50 7.41
May 2002....... 40.07 7.38
June 2002...... 39.63 7.34
July 2002...... 39.20 7.30
August 2002.... 38.75 7.26
September
2002......... 38.31 7.22
October 2002... 37.86 7.18
November 2002.. 37.41 7.13
December 2002.. 36.95 7.10
January 2003... 36.50 7.04
February 2003.. 36.03 7.01
March 2003..... 35.57 6.97
April 2003..... 35.10 6.91
May 2003....... 34.63 6.90
June 2003...... 34.15 6.86
July 2003...... 33.67 6.81
August 2003.... 33.19 6.76
September
2003......... 32.71 6.71
October 2003... 32.22 6.65
November 2003.. 31.72 6.60
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL SUPPLEMENTAL
LOAN TO VALUE RATIO PRINCIPAL BALANCE
---------------------- -------------------------
AGGREGATE AGGREGATE
CLASS A CLASS A
PAYMENT DATE INCLUDING INCLUDING
OCCURRING IN REFINANCINGS CLASS B REFINANCINGS CLASS B
- ------------- ------------ ------- ------------ ---------
% % $ $
<S> <C> <C> <C> <C>
December 2003.. 31.23 6.55
January 2004... 30.73 6.49
February 2004.. 30.22 6.43
March 2004..... 29.71 6.37
April 2004..... 29.20 6.25
May 2004....... 28.69 6.21
June 2004...... 28.17 6.19
July 2004...... 27.65 6.13
August 2004.... 27.12 6.07
September
2004......... 26.59 6.00
October 2004... 26.06 5.93
November 2004.. 25.52 5.87
December 2004.. 24.98 5.80
January 2005... 24.44 5.73
February 2005.. 23.89 5.65
March 2005..... 23.33 5.52
April 2005..... 22.78 5.45
May 2005....... 22.22 5.43
June 2005...... 21.65 5.35
July 2005...... 21.09 5.27
August 2005.... 20.51 5.19
September
2005......... 19.94 5.11
October 2005... 19.36 5.03
November 2005.. 18.77 4.95
December 2005.. 18.19 4.86
January 2006... 17.59 4.77
February 2006.. 17.00 4.60
March 2006..... 16.40 4.59
April 2006..... 15.79 4.50
May 2006....... 15.18 4.41
June 2006...... 14.57 4.31
July 2006...... 13.96 4.22
August 2006.... 13.33 4.12
September
2006......... 12.71 4.02
October 2006... 12.08 3.92
November 2006.. 11.45 3.81
December 2006.. 10.81 3.71
January 2007... 10.17 3.60
February 2007.. 9.52 3.49
March 2007..... 8.87 3.38
April 2007..... 8.21 3.27
May 2007....... 7.55 3.04
June 2007...... 6.89 2.90
July 2007...... 6.22 2.84
August 2007.... 5.55 2.73
September
2007......... 4.87 2.68
October 2007... 4.19 2.56
November 2007.. 3.50 2.44
December 2007.. 2.81 2.31
January 2008... 2.11 2.18
February 2008.. 1.41 2.05
March 2008..... 0.71 1.92
April 2008..... 0.00 1.78
May 2008....... 0.00 1.65
June 2008...... 0.00 1.51
July 2008...... 0.00 1.37
August 2008.... 0.00 1.22
September
2008......... 0.00 1.08
October 2008... 0.00 0.93
November 2008.. 0.00 0.78
December 2008.. 0.00 0.63
January 2009... 0.00 0.48
February 2009.. 0.00 0.32
March 2009..... 0.00 0.00
April 2009..... 0.00 0.00
May 2009....... 0.00 0.00
June 2009...... 0.00 0.00
July 2009...... 0.00 0.00
August 2009.... 0.00 0.00
September
2009......... 0.00 0.00
October 2009... 0.00 0.00
November 2009.. 0.00 0.00
</TABLE>
A-11
<PAGE> 216
<TABLE>
<CAPTION>
SUPPLEMENTAL SUPPLEMENTAL
LOAN TO VALUE RATIO PRINCIPAL BALANCE
------------------- ---------------------
AGGREGATE AGGREGATE
CLASS A CLASS A
PAYMENT DATE INCLUDING INCLUDING
OCCURRING IN REFINANCINGS CLASS B REFINANCINGS CLASS B
- -------------- ------------- --------- ------------- --------
% % $ $
<S> <C> <C> <C> <C>
December 2009.. 0.00 0.00
</TABLE>
A-12
<PAGE> 217
APPENDIX 7
SCHEDULED PRINCIPAL PAYMENT
AMOUNTS AND TARGET POOL FACTORS
FOR FIXED RATE CERTIFICATES
<TABLE>
<CAPTION>
SCHEDULED PRINCIPAL TARGET
PAYMENT AMOUNTS POOL FACTORS
PAYMENT DATE --------------------- -----------------
OCCURRING IN CLASS C CLASS D CLASS C CLASS D
- ------------- --------- --------- ------- -------
($) ($)
<S> <C> <C> <C> <C>
December 1997......... 0 0 100.00% 100.00%
January 1998.......... 0 0 100.00% 100.00%
February 1998......... 0 0 100.00% 100.00%
March 1998............ 0 0 100.00% 100.00%
April 1998............ 0 0 100.00% 100.00%
May 1998.............. 885,843 0 99.76% 100.00%
June 1998............. 899,286 0 99.52% 100.00%
July 1998............. 912,823 0 99.28% 100.00%
August 1998........... 926,456 0 99.03% 100.00%
September 1998........ 940,184 0 98.78% 100.00%
October 1998.......... 954,010 0 98.53% 100.00%
November 1998......... 967,932 0 98.27% 100.00%
December 1998......... 981,952 0 98.01% 100.00%
January 1999.......... 996,070 0 97.74% 100.00%
February 1999......... 1,010,286 0 97.47% 100.00%
March 1999............ 1,024,602 0 97.20% 100.00%
April 1999............ 1,039,018 0 96.92% 100.00%
May 1999.............. 1,053,534 316,942 96.64% 99.92%
June 1999............. 1,068,152 333,313 96.36% 99.84%
July 1999............. 1,082,871 349,860 96.07% 99.75%
August 1999........... 1,097,692 366,583 95.78% 99.66%
September 1999........ 1,112,616 383,485 95.48% 99.56%
October 1999.......... 1,127,643 400,566 95.18% 99.46%
November 1999......... 1,142,775 417,827 94.87% 99.36%
December 1999......... 1,158,011 435,270 94.56% 99.25%
January 2000.......... 1,173,352 452,899 94.25% 99.14%
February 2000......... 1,188,799 470,712 93.93% 99.02%
March 2000............ 1,204,352 488,712 93.61% 98.90%
April 2000............ 1,220,012 506,901 93.29% 98.77%
May 2000.............. 1,235,780 525,280 92.96% 98.64%
June 2000............. 1,251,656 543,850 92.63% 98.50%
July 2000............. 1,267,641 562,613 92.29% 98.36%
August 2000........... 1,283,736 581,572 91.94% 98.22%
September 2000........ 1,299,940 600,727 91.60% 98.07%
October 2000.......... 1,316,255 620,080 91.25% 97.91%
November 2000......... 1,332,682 639,632 90.89% 97.75%
December 2000......... 1,349,221 659,385 90.53% 97.59%
January 2001.......... 1,365,872 679,342 90.17% 97.42%
February 2001......... 1,382,636 699,503 89.80% 97.24%
March 2001............ 1,399,515 719,871 89.43% 97.06%
April................. 1,416,508 740,447 89.05% 96.88%
May 2001.............. 1,433,616 761,232 88.67% 96.69%
June 2001............. 1,450,841 782,228 88.28% 96.49%
July 2001............. 1,468,181 803,438 87.89% 96.29%
August 2001........... 1,485,639 824,862 87.49% 96.08%
September 2001........ 1,503,215 846,503 87.09% 95.87%
October 2001.......... 1,520,910 868,362 86.68% 95.65%
November 2001......... 1,538,723 890,442 86.27% 95.43%
December 2001......... 1,556,657 912,744 85.86% 95.20%
January 2002.......... 1,574,711 935,269 85.44% 94.97%
February 2002......... 1,592,886 958,019 85.01% 94.73%
March 2002............ 1,611,184 980,997 84.58% 94.49%
April 2002............ 1,629,604 1,004,204 84.15% 94.23%
May 2002.............. 1,648,147 1,027,643 83.71% 93.98%
June 2002............. 1,666,814 1,051,315 83.27% 93.71%
July 2002............. 1,685,606 1,075,221 82.82% 93.45%
August 2002........... 1,704,524 1,099,363 82.36% 93.17%
September 2002........ 1,723,568 1,123,745 81.90% 92.89%
October 2002.......... 1,742,738 1,148,367 81.44% 92.60%
November 2002......... 1,762,037 1,173,232 80.97% 92.31%
December 2002......... 1,781,463 1,198,340 80.49% 92.01%
January 2003.......... 1,801,019 1,223,696 80.01% 91.70%
February 2003......... 1,820,704 1,249,300 79.53% 91.39%
March 2003............ 1,840,520 1,275,154 79.04% 91.07%
April 2003............ 1,860,467 1,301,261 78.54% 90.75%
May 2003.............. 1,880,546 1,327,622 78.04% 90.42%
</TABLE>
<TABLE>
<CAPTION>
SCHEDULED PRINCIPAL TARGET
PAYMENT AMOUNTS POOL FACTORS
PAYMENT DATE --------------------- -----------------
OCCURRING IN CLASS C CLASS D CLASS C CLASS D
- ------------ ---------- --------- ------- -------
($) ($)
<S> <C> <C> <C> <C>
June 2003............. 1,900,758 1,354,240 77.53% 90.08%
July 2003............. 1,921,104 1,381,117 77.02% 89.73%
August 2003........... 1,941,583 1,408,253 76.50% 89.38%
September 2003........ 1,962,198 1,435,652 75.98% 89.02%
October 2003.......... 1,982,948 1,463,317 75.45% 88.65%
November.............. 2,003,835 1,491,249 74.92% 88.28%
December 2003......... 2,024,859 1,519,449 74.38% 87.90%
January 2004.......... 2,046,021 1,547,920 73.83% 87.52%
February 2004......... 2,067,322 1,576,665 73.28% 87.12%
March 2004............ 2,088,762 1,605,686 72.72% 86.72%
April 2004............ 2,110,343 1,634,985 72.16% 86.31%
May 2004.............. 2,132,066 1,664,563 71.59% 85.89%
June 2004............. 2,153,930 1,694,424 71.02% 85.47%
July 2004............. 2,175,936 1,724,569 70.44% 85.04%
August 2004........... 2,198,087 1,755,000 69.85% 84.60%
September 2004........ 2,220,382 1,785,721 69.26% 83.70%
October 2004.......... 2,242,822 1,816,733 68.66% 84.15%
November 2004......... 2,265,408 1,848,039 68.06% 83.24%
December 2004......... 2,288,140 1,879,641 67.45% 82.77%
January 2005.......... 2,311,021 1,911,541 66.83% 82.29%
February 2005......... 2,334,050 1,943,741 66.21% 81.80%
March 2005............ 2,357,228 1,976,245 65.58% 81.31%
April 2005............ 2,380,556 2,009,053 64.94% 80.81%
May 2005.............. 2,404,035 2,042,170 64.30% 80.30%
June 2005............. 2,427,666 2,075,597 63.65% 79.78%
July 2005............. 2,451,450 2,109,337 63.00% 79.25%
August 2005........... 2,475,387 2,143,392 62.34% 78.72%
September 2005........ 2,499,479 2,177,764 61.67% 78.17%
October 2005.......... 2,523,725 2,212,458 61.00% 77.62%
November 2005......... 2,548,128 2,247,473 60.32% 77.06%
December 2005......... 2,572,688 2,282,814 59.64% 76.49%
January 2006.......... 2,597,405 2,318,482 58.94% 75.91%
February 2006......... 2,622,282 2,354,480 58.24% 75.32%
March 2006............ 2,647,318 2,390,813 57.54% 74.72%
April 2006............ 2,672,514 2,427,480 56.83% 74.11%
May 2006.............. 2,697,872 2,464,485 56.11% 73.50%
June 2006............. 2,723,392 2,501,832 55.38% 72.87%
July 2006............. 2,749,075 2,539,522 54.65% 72.24%
August 2006........... 2,774,922 2,577,559 53.91% 71.59%
September 2006........ 2,800,934 2,615,944 53.16% 70.94%
October 2006.......... 2,827,112 2,654,680 52.41% 70.27%
November 2006......... 2,853,457 2,693,772 51.64% 69.60%
December 2006......... 2,879,970 2,733,220 50.88% 68.92%
January 2007.......... 2,906,651 2,773,029 50.10% 68.22%
February 2007......... 2,933,502 2,813,200 49.32% 67.52%
March 2007............ 2,960,523 2,853,737 48.53% 66.81%
April 2007............ 2,987,716 2,894,643 47.73% 66.08%
May 2007.............. 3,015,082 2,935,919 46.93% 65.35%
June 2007............. 3,042,620 2,977,569 46.12% 64.61%
July 2007............. 3,070,333 3,019,598 45.30% 63.85%
August 2007........... 3,098,222 3,062,006 44.47% 63.09%
September 2007........ 3,126,287 3,104,797 43.64% 62.31%
October 2007.......... 3,154,529 3,147,975 42.80% 61.52%
November 2007......... 3,182,949 3,191,541 41.95% 60.72%
December 2007......... 3,211,548 3,235,499 41.09% 59.92%
January 2008.......... 3,240,328 3,279,852 40.23% 59.10%
February 2008......... 3,269,288 3,324,603 39.36% 58.26%
March 2008............ 3,298,431 3,369,756 38.48% 57.42%
April 2008............ 3,327,758 3,415,313 37.59% 56.57%
May 2008.............. 3,357,268 3,461,277 36.69% 55.70%
June 2008............. 3,386,964 3,507,652 35.79% 54.83%
July 2008............. 3,416,845 3,554,441 34.88% 53.94%
August 2008........... 3,446,915 3,601,646 33.96% 53.04%
September 2008........ 3,477,172 3,649,271 33.03% 52.12%
October 2008.......... 3,507,619 3,697,321 32.10% 51.20%
November 2008......... 3,538,256 3,745,797 31.15% 50.26%
</TABLE>
A-13
<PAGE> 218
<TABLE>
<CAPTION>
SCHEDULED PRINCIPAL TARGET
PAYMENT AMOUNTS POOL FACTORS
PAYMENT DATE --------------------- -----------------
OCCURRING IN CLASS C CLASS D CLASS C CLASS D
- ------------- --------- --------- ------- -------
($) ($)
<S> <C> <C> <C> <C>
December 2008......... 3,569,084 3,794,703 30.20% 49.31%
January 2009.......... 3,600,105 3,844,042 29.24% 48.35%
February 2009......... 3,631,320 3,893,818 28.27% 47.38%
March 2009............ 3,662,729 3,944,033 27.30% 46.39%
April 2009............ 3,694,334 3,994,693 26.31% 45.40%
May 2009.............. 3,726,135 4,045,799 25.32% 44.38%
June 2009............. 3,758,135 4,097,355 24.32% 43.36%
July 2009............. 3,790,333 4,149,365 23.31% 42.32%
August 2009........... 3,822,731 4,201,832 22.29% 41.27%
September 2009........ 3,855,330 4,254,760 21.26% 40.21%
October 2009.......... 3,888,132 4,308,152 20.22% 39.13%
November 2009......... 3,921,136 4,362,011 19.18% 38.04%
December 2009......... 3,954,345 4,416,342 18.12% 36.94%
January 2010.......... 3,987,760 4,471,148 17.06% 35.82%
February 2010......... 4,021,381 4,526,433 15.99% 34.69%
March 2010............ 4,055,210 4,582,199 14.90% 33.54%
April 2010............ 4,089,248 4,638,451 13.81% 32.38%
May 2010.............. 4,123,496 4,695,193 12.71% 31.21%
June 2010............. 4,157,955 4,752,429 11.61% 30.02%
July 2010............. 4,192,627 4,810,162 10.49% 28.82%
August 2010........... 4,227,512 4,868,396 9.36% 27.60%
September 2010........ 4,262,611 4,927,135 8.22% 26.37%
October 2010.......... 4,297,927 4,986,381 7.08% 25.12%
November 2010......... 4,333,459 5,046,140 5.92% 23.86%
December 2010......... 4,369,210 5,106,416 4.76% 22.58%
January 2011.......... 4,405,180 5,167,212 3.58% 21.29%
February 2011......... 4,441,370 5,228,532 2.40% 19.99%
March 2011............ 8,992,201 5,290,381 0.00% 18.66%
April 2011............ 0 5,352,762 0.00% 17.32%
May 2011.............. 0 5,415,679 0.00% 15.97%
June 2011............. 0 5,479,139 0.00% 14.60%
July 2011............. 0 5,543,139 0.00% 13.22%
</TABLE>
<TABLE>
<CAPTION>
SCHEDULED PRINCIPAL TARGET
PAYMENT AMOUNTS POOL FACTORS
PAYMENT DATE --------------------- -----------------
OCCURRING IN CLASS C CLASS D CLASS C CLASS D
- ------------ --------- --------- ------- -------
($) ($)
<S> <C> <C> <C> <C>
August 2011........... 0 5,607,689 0.00% 11.81%
September 2011........ 0 5,672,792 0.00% 10.39%
October 2011.......... 0 5,738,453 0.00% 8.96%
November 2011......... 0 5,804,675 0.00% 7.51%
December 2011......... 0 5,871,461 0.00% 6.04%
January 2012.......... 0 5,938,817 0.00% 4.56%
February 2012......... 0 6,006,748 0.00% 3.05%
March 2012............ 0 12,219,605 0.00% 0.00%
April 2012............ 0 0 0.00% 0.00%
May 2012.............. 0 0 0.00% 0.00%
June 2012............. 0 0 0.00% 0.00%
July 2012............. 0 0 0.00% 0.00%
August 2012........... 0 0 0.00% 0.00%
September 2012........ 0 0 0.00% 0.00%
October 2012.......... 0 0 0.00% 0.00%
November 2012......... 0 0 0.00% 0.00%
December 2012......... 0 0 0.00% 0.00%
January 2013.......... 0 0 0.00% 4.56%
February 2013......... 0 0 0.00% 3.05%
March 2013............ 0 0 0.00% 0.00%
April 2013............ 0 0 0.00% 0.00%
May 2013.............. 0 0 0.00% 0.00%
June 2013............. 0 0 0.00% 0.00%
July 2013............. 0 0 0.00% 0.00%
August 2013........... 0 0 0.00% 0.00%
September 2013........ 0 0 0.00% 0.00%
October 2013.......... 0 0 0.00% 0.00%
November 2013......... 0 0 0.00% 0.00%
December 2013......... 0 0 0.00% 0.00%
January 2014.......... 0 0 0.00% 0.00%
February 2014......... 0 0 0.00% 0.00%
</TABLE>
A-14
<PAGE> 219
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Airplanes Group in connection
with this offering. All amounts are estimated other than the SEC Registration
Fee:
<TABLE>
<S> <C>
SEC registration Fee.................................................. $ 250,750
Blue Sky Fees and Expenses............................................ *
Printing and Engraving................................................ *
Accounting Fees and Expenses.......................................... *
Legal Fees and Expenses............................................... *
Rating Agencies' Fees................................................. *
Trustee's Fees........................................................ *
Appraisers' Fees...................................................... *
Miscellaneous......................................................... *
TOTAL............................................................... *
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Except as hereinafter set forth, there is no provision of Airplanes
Limited's Memorandum and Articles of Association or Airplanes Trust's Trust
Agreement, or of any contract, arrangement or statute under which any director,
trustee or officer of Airplanes Limited or Airplanes Trust is insured or
indemnified in any manner against any liability that he may incur in his
capacity as such.
Airplanes Limited's Articles of Association provide that Airplanes Limited
shall indemnify every present and former director of Airplanes Limited against
any loss or liability incurred by reason of being or having been a director of
Airplanes Limited to the fullest extent permitted by Jersey law. Article 77 of
the Companies (Jersey) Law 1991 ("ARTICLE 77") permits a Jersey company to
indemnify each director of that company against, inter alia, any liabilities
incurred in defending any proceedings (whether civil or criminal)(i) in which
judgment is given in his favor or he is acquitted, or (ii) which are
discontinued otherwise than for some benefit conferred by him (or on his behalf)
or for some detriment suffered by him, or (iii) which are settled on terms which
include such benefit or detriment and, in the opinion of a majority of the
directors of the company (excluding any director who conferred such benefit or
on whose behalf such benefit was conferred or who suffered such detriment), the
director was substantially successful on the merits in this resistance to the
proceedings.
Airplanes Limited may purchase and maintain, in the name of and at the
expense of Airplanes Limited, insurance for the benefit of any person who is or
was a director or officer of Airplanes Limited or is or was serving at the
request of Airplanes Limited as a director of officer in another corporation,
partnership, joint venture, trust or other enterprise against any liability
incurred by him or her in any such capacity, or arising out of such person's
status as such, whether or not Airplanes Limited would have the power to
indemnify him or her against such liability under Article 77.
The Airplanes Trust Agreement provides that Airplanes Trust shall indemnify
every present and former trustee for any and all liabilities, losses or expenses
arising out of the administration of Airplanes Trust, except in the case of a
trustee's gross negligence or willful misconduct in the performance of its
duties as trustee. Under Delaware law, a business trust has the power to
indemnify and hold harmless any trustee for and against all claims and demands
whatsoever. Airplanes Trust shall ensure that for the term of the Airplanes
Trust Agreement, the trustees are named insureds on liability insurance policies
with respect to the Aircraft on
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<PAGE> 220
terms required by the related Lease or mortgage then in effect with respect to
such Aircraft or if there is no such lease or mortgage, on terms customary in
the industry for similar Aircraft.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The securities of Airplanes Limited issued or sold by Airplanes Limited
within the past three years and not registered with the Securities and Exchange
Commission (the "COMMISSION") are described below. All such securities were
offered and issued outside the United States to buyers who were neither citizens
nor residents of the United States. Accordingly, the offering and issuance of
such securities were not subject to the registration requirements of the
Securities Act of 1933:
<TABLE>
<CAPTION>
NO. OF SHARES/
PRINCIPAL
TITLE OF AMOUNT OF PRICE PER AGGREGATE
DATE OF ISSUE SECURITIES NOTES PURCHASER SHARE OFFERING PRICE
- --------------------- ------------------ -------------- --------------- --------- --------------
<S> <C> <C> <C> <C> <C>
November 29, 1995.... Capital Stock 15 Juris Limited $1 $15
November 29, 1995.... Capital Stock 15 Lively Limited $1 $15
Airplanes Limited
March 28, 1996....... Class E Notes $551,000,000 GPA N/A $551,000,000
Airplanes Trust
March 28, 1996....... Class E Notes $53,000,000 GPA N/A $53,000,000
</TABLE>
ITEM 16. EXHIBITS
All exhibits will be filed by amendment.
<TABLE>
<S> <C>
1. Form of Underwriting Agreement dated as of - , 1998 among Airplanes Limited,
Airplanes Trust, and Morgan Stanley & Co. Incorporated***
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 Trust Supplement No. 9 dated as of - , 1998 to the Pass Through Trust
Agreement***
4.11 Trust Supplement No. 10 dated as of - , 1998 to the Pass Through Trust
Agreement***
4.12 Form of Subclass A-6 Pass Through Certificate***
4.13 Form of Subclass of A-7 Pass Through Certificate***
4.14 Airplanes Limited Indenture dated March 28, 1996 between Airplanes Limited,
Airplanes U.S. Trust and Bankers Trust Company, as Trustee**
</TABLE>
II-2
<PAGE> 221
<TABLE>
<S> <C>
4.15 Airplanes U.S. Trust Indenture dated March 28, 1996 between Airplanes U.S. Trust,
Airplanes Limited and Bankers Trust Company, as Trustee**
4.16 Supplement to the Airplanes Limited Indenture dated - , 1998, of Airplanes
U.S. Trust***
4.17 Supplement to the Airplanes U.S. Trust Indenture dated - , 1998, of Airplanes
Limited***
4.18 Form of Floating Rate Subclass A-6 Note***
4.19 Form of Floating Rate Subclass A-7 Note***
5.1 Opinion of Davis Polk & Wardwell, U.S. counsel for the 1998 Refinancing Trust, as
to the legality of the 1998 Refinancing Notes and 1998 Refinancing Certificates***
5.2 Opinion of Mourant du Feu & Jeune, as to the legality of the Airplanes Limited 1998
Refinancing Notes***
5.3 Opinion of Potter, Anderson & Corroon, as to legality of the Airplanes Trust 1998
Refinancing Notes***
8.1 Opinion of Davis Polk & Wardwell, U.S. counsel for the Trust, as to certain tax
matters***
8.2 Opinion of McCann FitzGerald, Irish counsel for Airplanes Limited, as to certain
tax matters***
8.3 Opinion of Mourant du Feu & Jeune, Jersey counsel for Airplanes Limited, as to
certain tax matters***
9.1 Shareholders Agreement among the Note Indenture Trustee, Mourant & Co. Trustees
Limited, as trustees of the Charitable Trusts, and Juris Limited and Lively
Limited*
9.2 Voting Trust Agreement among AeroUSA, Airplanes Trust and First Security Bank of
Utah, National Association*
9.3 Voting Trust Agreement among AeroUSA 3, AeroUSA and First Security Bank of Utah,
National Association*
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 March 28, 1996, between GP 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**
</TABLE>
II-3
<PAGE> 222
<TABLE>
<S> <C>
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**
12 Statement re: Computation of Ratios
21 Subsidiaries of Airplanes Group*
23.1 Consent of Davis Polk & Wardwell (included in Exhibits 5.1 and 8.1)***
23.2 Consent of McCann FitzGerald (included in Exhibit 8.2)***
23.3 Consent of Mourant du Feu & Jeune (included in Exhibits 5.2 and 8.3)***
23.4 Consent of Potter, Anderson & Corroon (included in Exhibit 5.3)***
23.5 Consent of KPMG
23.6 Consent of Aircraft Information Services, Inc.***
23.7 Consent of BK Associates, Inc.***
23.8 Consent of Airclaims Limited***
24.1 Directors' Power of Attorney (with the Resolution of the Board of Directors
attached thereto) (included in signature pages)
25 Statement of Eligibility of Bankers Trust Company, as Trustee, under the Trust
Agreement to be qualified under the Trust Indenture Act of 1939
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>
- ---------------
* Incorporated by reference to the Registration Statement on Form S-1 (File
No. 33-99978), previously filed with the Commission
** Incorporated by reference to the Report on Form 10-Q for the quarterly
period ended December 31, 1996, previously filed with the Commission
*** To be filed by amendment
ITEM 17. UNDERTAKINGS
The undersigned registrants hereby undertake:
(a) (1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement.
II-4
<PAGE> 223
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the information to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to
the Commission by the Registrant pursuant to Section 13 or Section 15(d)
of the Exchange Act that are incorporated by reference in the
registration statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) with respect to Airplanes Limited, to file a post-effective
amendment to the registration statement to include any financial
statements required by Rule 3-19 of this chapter at the start of
any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3)
of the Act need not be furnished, provided, that the registrant
includes in the prospectus, by means of a post-effective amendment,
financial statements required pursuant to this paragraph (a)(4) and
other information necessary to ensure that all other information in
the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect
to registration statements on Form F-3, a post-effective amendment
need not be filed to include financial statements and information
required by Section 10(a)(3) of the Act or Rule 3-19 of this
chapter if such financial statements and information are contained
in periodic reports filed with or furnished to the Commission by
the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference
in the Form F-3.
(b) (1) for purposes of determining any liability under the
Securities Act of 1933 (the "Securities Act"), the information
omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this Registration Statement as of the time it was
declared effective;
(2) for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrants pursuant to the foregoing provisions, or
otherwise, the registrants have been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrants of
expenses incurred or paid by a director, officer or controlling person
of the registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrants will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
II-5
<PAGE> 224
(d) to file an application for the purpose of determining the
eligibility of the trustee to act under subsection (a) of Section
310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of
the Act.
II-6
<PAGE> 225
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
any rules and regulations promulgated thereunder, Airplanes Limited has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Jersey, Channel Islands on December
30, 1997.
AIRPLANES LIMITED
AS ORIGINATOR OF THE TRUST
By /s/ WILLIAM A. FRANKE
----------------------------------
Name: William A. Franke
Title: Director and Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of William A. Franke, William M. McCann,
Hugh R. Jenkins and Roy M. Dantzic, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any or all amendments
(including post-effective amendments) to this Registration Statement (including
any registration statement in connection herewith that is to be effective upon
filing pursuant to Rule 462(b) of the Securities Act of 1933) and to file the
same with all exhibits thereto and other documents in connection therewith with
the Securities and Exchange Commission granting unto said attorney-in-fact and
agent, Roy M. Dantzic, full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about the premises as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, and
any rules and regulations promulgated thereunder, this Registration Statement
has been signed by the following persons in the following capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- ------------------
<C> <S> <C>
/s/ WILLIAM A. FRANKE Director and Officer December 30, 1997
- --------------------------------------------- (principal executive
William A. Franke officer)
/s/ ROY M. DANTZIC Director and Officer December 30, 1997
- --------------------------------------------- (principal financial
Roy M. Dantzic officer)
/s/ WILLIAM A. MCCANN Director and Officer December 30, 1997
- --------------------------------------------- (principal accounting
William M. McCann officer)
/s/ HUGH R. JENKINS Director December 30, 1997
- ---------------------------------------------
Hugh R. Jenkins
/s/ EDWARD J. HANSOM Director December 30, 1997
- ---------------------------------------------
Edward J. Hansom
</TABLE>
II-7
<PAGE> 226
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
any rules and regulations promulgated thereunder, Airplanes U.S. Trust has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Jersey, Channel Islands on December
30, 1997.
AIRPLANES U.S. TRUST
AS ORIGINATOR OF THE TRUST
By /s/ WILLIAM A. FRANKE
----------------------------------
Name: William A. Franke
Title: Director and Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of William A. Franke, William M. McCann,
Hugh R. Jenkins and Roy M. Dantzic, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any or all amendments
(including post-effective amendments) to this Registration Statement (including
any registration statement in connection herewith that is to be effective upon
filing pursuant to Rule 462(b) of the Securities Act of 1933) and to file the
same with all exhibits thereto and other documents in connection therewith with
the Securities and Exchange Commission granting unto said attorney-in-fact and
agent, Roy M. Dantzic, full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about the premises as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, and
any rules and regulations promulgated thereunder, this Registration Statement
has been signed by the following persons in the following capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- -------------------
<C> <S> <C>
/s/ WILLIAM A. FRANKE Trustee December 30, 1997
- --------------------------------------------- (principal executive
William A. Franke officer)
/s/ ROY M. DANTZIC Trustee December 30, 1997
- --------------------------------------------- (principal financial
Roy M. Dantzic officer)
/s/ WILLIAM A. MCCANN Trustee December 30, 1997
- --------------------------------------------- (principal accounting
William A. McCann officer)
/s/ HUGH R. JENKINS Trustee December 30, 1997
- ---------------------------------------------
Hugh R. Jenkins
/s/ EDWARD J. HANSOM Trustee December 30, 1997
- ---------------------------------------------
Edward J. Hansom
</TABLE>
II-8
<PAGE> 227
AUTHORIZED REPRESENTATIVE
/s/ WILLIAM A. FRANKE
- --------------------------------
Name: William A. Franke
As the duly authorized representative
of Airplanes Limited in the United States
Date: December 30, 1997
II-9
<PAGE> 228
EXHIBIT INDEX
<TABLE>
<S> <C>
1. Form of Underwriting Agreement dated as of - , 1998 among Airplanes Limited,
Airplanes Trust, and Morgan Stanley & Co. Incorporated***
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 Trust Supplement No. 9 dated as of - , 1998 to the Pass Through Trust
Agreement***
4.11 Trust Supplement No. 10 dated as of - , 1998 to the Pass Through Trust
Agreement***
4.12 Form of Subclass A-6 Pass Through Certificate***
4.13 Form of Subclass of A-7 Pass Through Certificate***
4.14 Airplanes Limited Indenture dated March 28, 1996 between Airplanes Limited,
Airplanes U.S. Trust and Bankers Trust Company, as Trustee**
4.15 Airplanes U.S. Trust Indenture dated March 28, 1996 between Airplanes U.S. Trust,
Airplanes Limited and Bankers Trust Company, as Trustee**
4.16 Supplement to the Airplanes Limited Indenture dated - , 1998, of Airplanes
U.S. Trust***
4.17 Supplement to the Airplanes U.S. Trust Indenture dated - , 1998, of Airplanes
Limited***
4.18 Form of Floating Rate Subclass A-6 Note***
4.19 Form of Floating Rate Subclass A-7 Note***
5.1 Opinion of Davis Polk & Wardwell, U.S. counsel for the 1998 Refinancing Trust, as
to the legality of the 1998 Refinancing Notes and 1998 Refinancing Certificates***
5.2 Opinion of Mourant du Feu & Jeune, as to the legality of the Airplanes Limited 1998
Refinancing Notes***
5.3 Opinion of Potter, Anderson & Corroon, as to legality of the Airplanes Trust 1998
Refinancing Notes***
8.1 Opinion of Davis Polk & Wardwell, U.S. counsel for the Trust, as to certain tax
matters***
8.2 Opinion of McCann FitzGerald, Irish counsel for Airplanes Limited, as to certain
tax matters***
8.3 Opinion of Mourant du Feu & Jeune, Jersey counsel for Airplanes Limited, as to
certain tax matters***
</TABLE>
<PAGE> 229
<TABLE>
<S> <C>
9.1 Shareholders Agreement among the Note Indenture Trustee, Mourant & Co. Trustees
Limited, as trustees of the Charitable Trusts, and Juris Limited and Lively
Limited*
9.2 Voting Trust Agreement among AeroUSA, Airplanes Trust and First Security Bank of
Utah, National Association*
9.3 Voting Trust Agreement among AeroUSA 3, AeroUSA and First Security Bank of Utah,
National Association*
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 March 28, 1996, between GP 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**
12 Statement re: Computation of Ratios
21 Subsidiaries of Airplanes Group*
23.1 Consent of Davis Polk & Wardwell (included in Exhibits 5.1 and 8.1)***
23.2 Consent of McCann FitzGerald (included in Exhibit 8.2)***
23.3 Consent of Mourant du Feu & Jeune (included in Exhibits 5.2 and 8.3)***
23.4 Consent of Potter, Anderson & Corroon (included in Exhibit 5.3)***
23.5 Consent of KPMG
23.6 Consent of Aircraft Information Services, Inc.***
23.7 Consent of BK Associates, Inc.***
23.8 Consent of Airclaims Limited***
24.1 Directors' Power of Attorney (with the Resolution of the Board of Directors
attached thereto) (included in signature pages)
25 Statement of Eligibility of Bankers Trust Company, as Trustee, under the Trust
Agreement to be qualified under the Trust Indenture Act of 1939
</TABLE>
<PAGE> 230
<TABLE>
<S> <C>
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>
- ---------------
* Incorporated by reference to the Registration Statement on Form S-1 (File
No. 33-99978), previously filed with the Commission
** Incorporated by reference to the Report on Form 10-Q for the quarterly
period ended December 31, 1996, previously filed with the Commission
*** To be filed by amendment
<PAGE> 1
EXHIBIT 12
COMPUTATION OF DEFICIENCY OF COMBINED EARNINGS TO COMBINED FIXED CHARGES
The following computations of the deficiency of combined earnings to combined
fixed charges has been based upon the audited Financial Statements of Airplanes
Limited and Airplanes U.S. Trust for the five year period ended March 31, 1997
and the unaudited Financial Statements of Airplanes Limited and Airplanes U.S.
Trust for the six month periods ended September 30, 1996 and 1997 included in
this registration statement.
<TABLE>
<CAPTION>
Year ended Six months ended
March 31, September 30,
-------------------------------------- ------------------
1993 1994 1995 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ----
($ millions) ($ millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating loss before income tax...... (217) (74) (125) (69) (140) (63) (66)
Add: interest expense................. 209 258 357 376 400 194 211
---- ---- ---- ---- ---- ---- ----
Earnings.............................. (8) 184 232 307 260 131 145
---- ---- ---- ---- ---- ---- ----
Fixed Charges:-
Interest expense 209 258 357 376 400 194 211
---- ---- ---- ---- ---- ---- ----
Deficit of earnings to fixed charges (217) (74) (125) (69) (140) (63) (66)
---- ---- ---- ---- ---- ---- ----
</TABLE>
<PAGE> 1
[Letterhead]
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors of Airplanes Limited
and the Controlling Trustees of Airplanes US Trust
Under date of June 26, 1997, we reported on the balance sheets of Airplanes
Limited and Airplanes US 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 Registration Statement on Form S-1. In connection
with our audits of the aforementioned financial statements, we also audited the
related financial statement schedule in this Registration Statement on Form S-1.
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.
We consent to the use of our reports included herein and to references to
our firm under the headings "Summary Combined Financial Data", "Selected
Financial Data" and "Experts" in the Registration Statement.
KPMG
Chartered Accountants
Dublin, Ireland
December 15, 1997
<PAGE> 1
EXHIBIT 25
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF
1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A
TRUSTEE PURSUANT TO SECTION 305(b)(2) ____X_______
______________________________
BANKERS TRUST COMPANY
(Exact name of trustee as specified in its charter)
NEW YORK 13-4941247
(Jurisdiction of Incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification no.)
FOUR ALBANY STREET
NEW YORK, NEW YORK 10006
(Address of principal (Zip Code)
executive offices)
BANKERS TRUST COMPANY
LEGAL DEPARTMENT
130 LIBERTY STREET, 31ST FLOOR
NEW YORK, NEW YORK 10006
(212) 250-2201
(Name, address and telephone number of agent for service)
_________________________________
AIRPLANES LIMITED AIRPLANES U.S. TRUST
(Exact name of obligor as specified in its charter)
JERSEY, CHANNEL ISLANDS DELAWARE
(State or other jurisdiction of Incorporation or organization)
N/A 13-3521640
(I.R.S. Employer Identification No.)
AIRPLANES LIMITED AIRPLANES U.S. TRUST
22 GRENVILLE STREET 1100 NORTH MARKET STREET
ST. HELIER RODNEY SQUARE NORTH
JERSEY, JE4 8PX WILMINGTON, DELAWARE
CHANNEL ISLANDS 19890-0001
(Address of principal executive offices and Zip Code)
AIRPLANES PASS THROUGH TRUST
(Title of the indenture securities)
