SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number 33-99970-01
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Airplanes Limited Airplanes U.S. Trust
Exact Name of Registrants as specified in memorandum of association or
trust agreement
Jersey, Channel Islands Delaware
(State or other jurisdiction of incorporation or organization)
7359 13-3521640
SIC Code (I.R.S. Employer Identification No.)
Airplanes Limited Airplanes U.S. Trust
22 Grenville Street 1100 North Market Street,
St. Helier Rodney Square North
Jersey, JE4 8PX Wilmington, Delaware
Channel Islands 19890-0001
(011 44 1534 609 000) (302-651-1000)
(Addresses and telephone numbers, including area codes, of Registrants'
principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [x] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Issuer Class June 30, 1998
Airplanes Limited Common Stock, $1.00 par value 30
Airplanes Limited and Airplanes U.S. Trust
Form 10-Q for the Three Month Period Ended June 30, 1998
Index
Part I. Financial Information Page No.
Item 1. Financial Statements (Unaudited) 3
o Unaudited Condensed Balance Sheets - June 30, 1998 and March 31, 1998
Unaudited Condensed Statements of Operations - Three Months Ended June
30, 1998 and June 30, 1997
o Unaudited Condensed Statements of Changes in Shareholders Deficit / Net
Liabilities - Three months Ended June 30, 1998 and June 30, 1997
o Unaudited Condensed Statements of Cash Flows - Three months Ended June
30, 1998 and June 30, 1997
o Notes to the Unaudited Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
Part II. Other Information
Item 1. Legal Proceedings 22
Item 6. Exhibits and Reports on Form 8 - K 23
Signatures
Index to Exhibits
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
<TABLE>
<CAPTION>
AIRPLANES GROUP
UNAUDITED CONDENSED BALANCE SHEETS
March 31, June 30,
---------------------------------------- ---------------------------------------
1998 1998
---------------------------------------- ---------------------------------------
Airplanes Airplanes Airplanes Airplanes
Limited Trust Combined Limited Trust Combined
--------- ----------- -------- --------- ---------- --------
($millions) ($millions)
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Cash 212 6 218 217 6 223
Accounts receivable
Trade receivables 19 4 23 23 5 28
Allowance for doubtful debts (9) (1) (10) (13) (2) (15)
Amounts due from Airplanes Trust 33 - 33 - 36 36
Intercompany capital lease 38 - 38 38 38
Net investment in capital and sales
type leases 61 38 99 29 38 67
Aircraft, net 2,993 344 3,337 2,944 264 3,208
Other assets 5 - 5 5 - 5
----- ----- ----- ----- ----- -----
Total assets 3,352 391 3,743 3,243 347 3,590
===== ===== ===== ===== ===== =====
LIABILITIES
Accrued expenses and other liabilities 437 36 473 467 40 507
Amounts due to Airplanes Limited - 33 33 36 - 36
Intercompany capital lease - 38 38 - 38 38
Indebtedness 3,715 363 4,078 3,589 351 3,940
Provision for maintenance 292 23 315 284 17 301
Deferred income taxes 54 48 102 54 48 102
----- ----- ----- ----- ----- -----
Total liabilities 4,498 541 5,039 4,430 494 4,924
----- ----- ----- ----- ----- -----
Net liabilities (1,146) (150) (1,296) (1,187) (147) (1,334)
----- ----- ----- ----- ----- -----
3,352 391 3,743 3,243 347 3,590
===== ===== ===== ===== ===== =====
The accompanying notes are an integral part of the unaudited condensed financial statements
</TABLE>
<TABLE>
<CAPTION>
AIRPLANES GROUP
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended June 30,
----------------------------------------------------------------------------------
1997 1998
--------------------------------------- --------------------------------------
Airplanes Airplanes Airplanes Airplanes
Limited Trust Combined Limited Trust Combined
--------- ---------- -------- --------- ----------- --------
($millions) ($millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues
Aircraft leasing 135 18 153 123 11 134
Aircraft Sales - 10 10 24 94 118
Expenses
Cost of Aircraft Sold - (10) (10) (22) (85) (107)
Depreciation and amortisation (43) (6) (49) (40) (4) (44)
Net interest expense (90) (10) (100) (95) (9) (104)
Provision for maintenance (20) (5) (25) (16) (1) (17)
Bad and doubtful debts (2) - (2) (4) (1) (5)
Provision for loss making leases, net 8 1 9 1 - 1
Other lease costs (6) - (6) (4) (1) (5)
Selling, general and administrative
expenses (9) (1) (10) (8) (1) (9)
--- --- --- --- --- ---
Operating (loss) before
provision for income taxes (27) (3) (30) (41) 3 (38)
Income tax benefit/(charge) - - - - - -
--- --- --- --- --- ---
Net (loss) (27) (3) (30) (41) 3 (38)
=== === === === === ===
The accompanying notes are an integral part of the unaudited condensed financial statements
</TABLE>
<TABLE>
<CAPTION>
AIRPLANES GROUP
UNAUDITED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT/NET LIABILITIES
Three Months Ended June 30 1997 and June 30 1998
Airplanes Limited Airplanes Trust Combined
-------------------------------------------------- --------------- ------------
Share Net Shareholders' Net Shareholders
Capital Liabilities Deficit Liabilities Deficit/Net
Liabilities
----------- ----------- ------------- --------------- ------------
($millions) ($millions) ($millions) ($millions) ($millions)
<S> <C> <C> <C> <C> <C>
Balance at March 31 1997 0 1,005 1,005 141 1,146
Net loss for the period 27 27 3 30
------ ------ ------ ------ ------
Balance at June 30, 1997 0 1,032 1,032 144 1,176
====== ====== ====== ====== ======
Balance at March 31 1998 0 1,146 1,146 150 1,296
Net loss for the period 41 41 (3) 38
------ ------ ------ ------ ------
Balance at June 30, 1998 0 1,187 1,187 147 1,334
====== ====== ====== ====== ======
The accompanying notes are an integral part of the unaudited condensed financial statements
</TABLE>
<TABLE>
<CAPTION>
AIRPLANES GROUP
UNAUDITED CONDENSED STATEMENTS OF CASHFLOWS
Three Months Ended June 30,
-------------------------------------------------------------------------
1997 1998
---------------------------------- ----------------------------------
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 (27) (3) (30) (41) 3 (38)
Adjustment to reconcile (net loss)
to net cash provided by operating activities:
Depreciation and amortisation 43 6 49 40 4 44
Aircraft maintenance, net 1 - 1 (7) (1) (8)
Profit on disposal of aircraft - - - (2) (9) (11)
Provision for loss making leases (8) (1) (9) (1) - (1)
Provision for Bad Debts - - - 4 1 5
Accrued and deferred interest expense 35 3 38 42 4 46
Changes in operating assets & liabilities:
Accounts receivable (1) (2) (3) (5) - (5)
Intercompany movements - Airplanes Group 7 (7) - (10) 10 -
Other accruals and liabilities - - - (8) (1) (9)
--- --- --- --- --- ---
Net cash provided by/(utilised in) operating activities 50 (4) 46 12 11 23
=== === === === === ===
Cash flows from investing activities
Sale of aircraft - 9 9 39 79 118
Intercompany movements - Airplanes Group - - - 79 (79) -
Capital and sales type leases 5 - 5 3 - 3
--- --- --- --- --- ---
Net cash provided by
investing activities 5 9 14 121 - 121
=== === === === === ===
Cash flows from financing activities
Payments on indebtedness (53) (5) (58) (128) (11) (139)
--- --- --- --- --- ---
Net cash used in
financing activites (53) (5) (58) (128) (11) (139)
=== === === === === ===
Net increase in cash 2 - 2 5 - 5
Cash at beginning of period 219 6 225 212 6 218
--- --- --- --- --- ---
Cash at end of period 221 6 227 217 6 223
=== === === === === ===
Cash paid in respect of:
Interest 56 10 66 53 6 59
=== === === === === ===
The accompanying notes are an integral part of the unaudited condensed financial statements
</TABLE>
Airplanes Group
Notes to the Unaudited Condensed 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, the following special
purpose vehicles were formed: 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" and together with Airplanes Limited "Airplanes Group"). Airplanes Group
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 unaudited condensed
financial statements may relate to Airplanes Limited and Airplanes Trust on a
combined or individual basis as applicable.
Simultaneously with such transfers, Airplanes Group issued
notes of $4,048 million in aggregate principal amount in four classes: Class
A, Class B, Class C and Class D ("Notes") with approximately 90% of the
principal amount of notes in each class being issued by Airplanes Limited and
approximately 10% by Airplanes Trust. Airplanes Group also issued Class E
Notes of $604 million ranking after the Notes and these were taken up by GPA
as part consideration for the transfer of the Aircraft and certain related
lease receivables. Of the $604 million Class E Notes issued, approximately
$13 million were subsequently canceled on July 30, 1996 under the terms of the
Transaction. On March 16, 1998 Airplanes Group successfully completed a
refinancing of $2,437 million of Class A and Class B Notes. Indebtedness at
June 30, 1998 represents the aggregate of the Class A - D Notes and Class E
Notes in issue (net of approximately $2 million of discounts on issue and net
of $13 million of Class E Notes subsequently canceled as referred to above).
Airplanes Limited and Airplanes Trust have each fully and unconditionally
guaranteed each others' obligations under the relevant notes.
2. Basis of Preparation
The accompanying unaudited condensed financial statements of Airplanes
Limited, Airplanes Trust and the combined unaudited condensed balance sheets,
statements of operations, statement of changes in shareholders deficit/net
liabilities and statements of cash flows of Airplanes Group (together the
"financial statements") 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 June
30, 1998, and for the three month periods ended June 30, 1998 and June 30,
1997. Such adjustments are of a normal, recurring nature. The results of
operations for the three months ended June 30, 1998 are not necessarily
indicative of the results to be expected for the full year.
The accompanying financial statements of Airplanes Limited and Airplanes Trust
have been prepared in accordance with generally accepted accounting principles
for interim financial information and in accordance with the requirements of
the Report on Form 10-Q. Consequently, they do not include all the disclosure
normally required by generally accepted accounting principles. For further
information regarding Airplanes Group and its financial condition, results of
operations and cash flows, refer to the audited financial statements and notes
thereto included in Airplanes Group's annual Report on Form 10-K for the year
ended March 31, 1998, previously filed with the Securities and Exchange
Commission.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
On March 28, 1996, Airplanes Pass Through Trust (the "Trust") issued $4,048
million of Pass Through Certificates (the "1996 Certificates") in four classes
- - Class A, Class B, Class C and Class D. The Class A 1996 Certificates were
further subdivided into five separate subclasses (A-1 through A-5). Each
class and subclass of the Certificates represents an interest in two
corresponding classes or subclasses of notes (collectively, the "1996 Notes")
issued by Airplanes Limited ("Airplanes Limited") and Airplanes U.S. Trust
("Airplanes Trust"). Airplanes Limited, together with Airplanes Trust and
their respective subsidiaries comprise Airplanes Group ("Airplanes Group").
Airplanes Limited and Airplanes Trust have each fully and unconditionally
guaranteed (the "1996 Guarantees") the other's obligations under each class or
subclass of 1996 Notes. Also on March 28, 1996, Airplanes Group received the
net proceeds from an underwritten offering of the 1996 Certificates (the
"Underwritten Offering") in exchange for the 1996 Notes. Airplanes Group used
such net proceeds, together with approximately $604 million in aggregate
principal amount of a fifth class of Airplanes Group notes (the "Class E
Notes") to acquire certain subsidiaries of GPA Group plc ("GPA Group" and,
together with its subsidiaries and affiliates, "GPA"). Of the $604 million of
Class E Notes issued, approximately $13 million were canceled in July 1996
based on the purchase price adjustment provisions in the agreements pursuant to
which these subsidiaries of GPA Group were sold to Airplanes Group. The
acquired subsidiaries owned 229 aircraft (the "Aircraft") and related leases
to 82 aircraft operators in 40 countries as at March 31, 1996. Since then
fifteen Aircraft have been sold and one Aircraft suffered a constructive total
loss. At June 30, 1998, 212 of the remaining 213 owned Aircraft were on lease
to 77 operators in 40 countries.
On March 16, 1998 the Trust issued additional Class A Certificates in three
separate subclasses (A-6 through A-8) and new Class B Certificates (the "1998
Refinancing Certificates" and together with the 1996 Certificates, the
"Certificates"). Also on this date, the Trust completed an underwritten
offering of the 1998 Refinancing Certificates (the "Refinancing") in exchange
for an interest in two corresponding Subclass A-6, Subclass A-7, Subclass A-8
and Class B notes issued by Airplanes Limited and Airplanes Trust (the "1998
Refinancing Notes and together with the 1996 Notes, the "Notes"). Airplanes
Limited and Airplanes Trust have each guaranteed the other's obligations under
their respective 1998 Refinancing Notes (the "Refinancing Guarantees" and
together with the 1996 Guarantees, the "Guarantees"). The proceeds of this
offering were used to refinance the Trust's Subclass A-1, Subclass A-2,
Subclass A-3 and existing Class B 1996 Certificates.
The discussion and analysis which follows 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 of Airplanes Limited and the
Controlling Trustees of Airplanes Trust 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.
Furthermore, 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 Limited or Airplanes Trust, 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 business is expected to consist of
aircraft operating lease activities. However, Airplanes Group may also engage
in aircraft sales subject to certain limitations and guidelines. Airplanes
Group's revenues and operating results 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 of Aircraft owned by Airplanes Group and (iii) Airplanes Group's
financial resources and liquidity position relative to its competitors who may
possess substantially greater financial resources.
Cashflow Performance Relative to March 1998 Assumptions
The March 16, 1998 prospectus relating to the Certificates and underlying
Notes contained various assumptions (the "1998 Assumptions") regarding
Airplanes Group's future revenues and cash inflows. In the period from the
March 10, 1998 Calculation Date to the July 9, 1998 Calculation Date (the
"Period") gross revenue cashflows after selling, general and administrative
expenses, operating costs and expenditure due to aircraft downtime, defaults,
repossession and bad debts ("Net Gross Revenue Cashflows") were in excess of
the 1998 Assumptions as a result of Aircraft sales.
Sales proceeds of $118 million were received in the Period in respect of the
sale of eight Aircraft (six DC8-71Fs, one B737-300 and one B737-200A). The
1998 Assumptions reflected sales proceeds of $47 million in respect of the
sale of three DC8-71F Aircraft only. Airplanes Group's cashflows in the
period were also positively affected by the receipt of default interest from
lessees of $1 million. The 1998 Assumptions did not assume any payment of
default interest.
However, apart from Aircraft Sales, Net Gross Revenue Cashflows were lower
than the 1998 Assumptions. Lease revenues receipts were $10 million lower
than the 1998 Assumptions primarily as a result of revenue foregone due to
Aircraft sales, in addition to a number of lessees going into arrears on their
rental payments. This was partially offset by the fact that the revenue lost
through downtime and default was better than assumed in the 1998 Assumptions.
Net maintenance reserve cashflows were also lower than the 1998 Assumptions by
approximately $8 million (the 1998 Assumptions assumed that net maintenance
cashflows would be zero). Net interest rate swap payments were $1 million
greater than those contained in the 1998 Assumptions.
In addition, other leasing costs were approximately $6 million greater than
assumed in the 1998 Assumptions primarily as a result of considerable costs
incurred in relation to two A300 Aircraft, one of three MD83 Aircraft which
were repossessed from Sunways in October 1997 and one B747 Aircraft. In
addition, repossession costs exceeded the 1998 Assumptions by $1 million.
These repossession costs were primarily in respect of the three MD83 Aircraft
repossessed from Sunways and to a lesser extent in respect of one B737-400
Aircraft repossessed from Nordic East and one B737-200A Aircraft which was
repossessed from an Indonesian Lessee and subsequently sold in June 1998.
In the Period, the additional sales proceeds received, compared with the 1998
Assumptions, resulted in greater than assumed distributions of principal to
the Class A Certificate holders ($45 million greater than assumed) and to the
Class B Certificate holders ($6 million greater than assumed). There were
lower than assumed interest payments to the floating rate Class A and Class
B Certificate holders as a result of the lower principal balances outstanding
due to the greater than assumed principal amortisation. In addition, payments
of $1 million in respect of the minimum and supplemental hedge amounts in the
period were not assumed in the 1998 Assumptions.
As at the July 9, 1998 Calculation Date, Airplanes Group retained $14 million
in the Collection and Expense Accounts more than anticipated in the 1998
Assumptions.
Recent Developments
The recent severe downturn in the economies of Asia and the Far East has
undermined business confidence in the region and has had an adverse impact on
the results of operations of some of Airplanes Group's lessees in the region
which may adversely affect Airplanes Group's future revenues and cashflows.
The economies of Indonesia, Thailand, Korea, Malaysia and the Philippines 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 defaults, and in certain cases, internationally
organized financial stability measures. The economic difficulties in
Indonesia have resulted in civil disturbances and a change in Government in
that country. Several airlines in the region have recently announced their
intention to reschedule their aircraft purchase obligations, reduce headcount
and eliminate certain routes. Since 1990, the market in this region for
aircraft on operating lease has demonstrated significant growth rates and the
recessionary conditions that are now expected to prevail in large parts of the
region for a significant period of time will have an adverse impact on global
aircraft demand. At June 30, 1998, Airplanes Group leased 19 Aircraft
representing 10.62% of its portfolio by Appraised Value, to operators in Asia
and the Far East which included three Fokker 100 Aircraft, or approximately
1.32% of the portfolio by Appraised Value which were on lease to Sempati.
Prior to the current regional economic difficulties Sempati was already
experiencing financial difficulties and on June 5, 1998, Sempati ceased to
trade. Sempati leased four Fokker 100 Aircraft from Airplanes Group which had
been recovered from the lessee and deregistered prior to June 5, 1998. Since
then all four leases have been terminated and two of the Aircraft have been
released to a Latin American lessee at rental rates which are approximately 9%
lower than the previous lease. The other two Aircraft are subject to a Letter
of Intent for operating lease. Technical costs of $10 million, estimated to be
the amount required to ensure that all four of the Aircraft recovered from
that Indonesian lessee are in a suitable condition for re-leasing, were
provided for in the three months ended March 31, 1998. At June 30, 1998, the
amount outstanding in respect of rental payments and maintenance reserves in
relation to Sempati was $7 million which amount has been fully provided
against.
A Brazilian lessee, the lessee of two B767 Aircraft or 3.07% of the portfolio
by Appraised Value was approximately $4 million in arrears in respect of
rental payments and maintenance reserves at June 30, 1998. The Servicer, on
behalf of Airplanes Group, is in negotiation with this lessee in relation to a
restructuring of the outstanding debt.
Philippine Airlines ("PAL"), the lessee of one Aircraft representing 0.61% of
the portfolio by Appraised Value, recently filed a petition for appointment of
a Rehabilitation Receiver or Committee and approval of a rehabilitation plan
with the Securities and Exchange Commission of the Philippines. The petition
was granted and Airplanes Group was listed as a creditor in the petition. At
June 30, 1998, PAL was approximately $1 million in arrears in respect of rental
payments and maintenance reserves.
At June 30, 1998, a North American, lessee of one B747 Aircraft, was $2
million in arrears in respect of rental payments and maintenance reserves and
is currently discussing a short-term restructuring with the Servicer.
Results of Operations - Three Months Ended June 30, 1998 Compared with Three
Months Ended June 30, 1997.
While Airplanes Group's results of operations for the three months ended June
30, 1998, reflected a continuation of generally favourable industry
conditions, a number of lessees performed poorly. There was an overall
increase in cash of $5 million in the three months to June 30, 1998 compared
with a net increase of $2 million in the same period of the previous year.
The net increase in cash in the three months to June 30, 1998 was primarily
attributable to the proceeds of $118 million received in respect of the sale
of eight Aircraft (six DC8-71Fs, one B737-200A and one B737-300), which was
partially offset by a decrease in cash provided by operating activities.
Overall there was an increase in the net loss to $38 million for the three
months to June 30, 1998 compared to $30 million for the three months to June
30, 1997.
Leasing Revenues
There was a $19 million decrease in leasing revenues (which include
maintenance reserve receipts which Airplanes Group receives from certain of
its lessees) for the three months ended June 30, 1998 to $134 million
(Airplanes Limited: $123 million; Airplanes Trust: $11 million) compared with
$153 million (Airplanes Limited: $135 million; Airplanes Trust: $18 million)
for the three months ended June 30, 1997. The decrease was primarily
attributable to the reduction in the number of Aircraft on lease in the period
to June 30, 1998, as a result of Aircraft sales in the fifteen month period
ended June 30, 1998. At June 30, 1998, Airplanes Group had 212 of its 213
owned Aircraft on lease (Airplanes Limited: 194 Aircraft, Airplanes Trust: 18
Aircraft) compared to 223 of its 228 owned Aircraft (Airplanes Limited: 199
Aircraft; Airplanes Trust: 24 Aircraft) at June 30, 1997. In addition, the
rental rates for three MD11 Aircraft on lease to Varig were approximately
one-third lower in the three months ended June 30, 1998 than the contracted
rentals received under such Aircraft's previous lease agreements which were in
effect with respect to two of the three MD11 Aircraft during the three months
ended June 30, 1997. Leasing revenues were also adversely affected by the
restructuring during October 1997 of leases in respect of six Fokker 100
Aircraft on lease to a Brazilian lessee with an average remaining lease term
of 29 months. In consideration for an extension of the leases for 119 months,
the revised terms of the leases included reduced rental rates and no
maintenance reserve payments which resulted in a decrease in rental rates of
approximately 24% in the three months to June 30, 1998 compared with the three
months to June 30, 1997. Finally, there was a marginally lower interest rate
environment (which impacts the pricing of certain lease rentals) in the three
months to June 30, 1998 compared with the three months to June 30, 1997.
Aircraft Sales
Sales revenues of $118 million (Airplanes Limited: $24 million; Airplanes
Trust: $94 million) in respect of the sale of eight Aircraft were received in
the three months ended June 30, 1998. One Aircraft was sold in the same
period in 1997 generating sales revenue of $10 million (Airplanes Limited;
nil; Airplanes Trust: $10 million). The net book value of the eight Aircraft
at the date of sale, net of maintenance reserves of $7 million, was $107
million (Airplanes Limited: $22 million; Airplanes Trust: $85 million).
Depreciation and Amortization
The charge for depreciation and amortization in the three months ended June
30, 1998 amounted to $44 million (Airplanes Limited: $40 million; Airplanes
Trust: $4 million) compared with $49 million (Airplanes Limited: $43 million;
Airplanes Trust: $6 million) for the comparative period in 1996. The decrease
arose as a result of the reduction in the number of Aircraft owned by
Airplanes Group.
Net Interest Expense
Net interest expense amounted to $104 million (Airplanes Limited: $95 million;
Airplanes Trust: $9 million) in the three month period ended June 30, 1998
compared to $100 million (Airplanes Limited: $90 million; Airplanes Trust :
$10 million) in the three month period ended June 30, 1997. The increase in
net interest expense was primarily due to additional interest being charged
on accrued but unpaid Class E Note interest of $9 million. This was partially
offset by lower average debt in the three months to June 30, 1998 resulting in
a decrease in the interest expense of $4 million on the Class A Notes and of
$1 million on the Class B Notes, in addition to a marginally lower interest
rate environment in the three months to June 30, 1998. Finally, following the
refinancing of $2,437 million of Class A and Class B Notes on March 16, 1998,
interest expense also decreased due to overall lower margins on the 1998
Refinancing Notes compared with the 1996 Notes.
The weighted average interest rate on the Class A - D Notes during the three
months to June 30, 1998 was 6.85% and the average debt in respect of the Class
A - D Notes outstanding during the period was $3,440 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 three months to June
30, 1997 was 6.80% and the average debt in respect of the Class A - D Notes
outstanding during the period was $3,779 million. Although LIBOR was
marginally lower in the three months ended June 30, 1998 as compared with the
three months ended June 30, 1997, the weighted average interest rate on the
Class A-D Notes actually increased slightly during the three months ended June
30, 1998 as compared to the three months ended June 30, 1997. This increase
occurred because substantial amounts of Airplanes Group's floating rate notes
have been paid down over time with relatively small payments on the fixed rate
notes resulting in an increase in the relative proportion of fixed rate notes
as compared with floating rate notes.
The difference between Airplanes Group's $104 million of net interest expense
for the three months ended June 30, 1998 (Airplanes Limited: $95 million;
Airplanes Trust: $9 million) and Airplanes Group's cash paid in respect of
interest of $59 million for the same period (Airplanes Limited: $53 million;
Airplanes Trust: $6 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 cash in the three months
ended June 30, 1998.
Net interest expense is stated after deducting interest income earned during
the relevant period. In the three months ended June 30, 1998 and June 30,
1997, Airplanes Group earned interest income (including lessee default
interest) of $4 million (Airplanes Limited: $4 million; Airplanes Trust: nil).
Bad Debt and Loss-Making Lease Provisions
Airplanes Group's practice is to provide specifically for any amounts due but
unpaid by lessees based primarily on 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. A
small number of Airplanes Group's lessees failed to meet their contractual
obligations in the three month period ended June 30, 1998, resulting in the
requirement for additional provisions in respect of bad and doubtful debts in
respect of these lessees. Overall, there was a net charge of $5 million in
respect of bad and doubtful debts (Airplanes Limited: $4 million; Airplanes
Trust: $1 million) in the three months ended June 30, 1998 compared with a net
charge of $2 million for the three months ended June 30, 1997 (Airplanes
Limited: $2 million; Airplanes Trust: nil). In the three months ended June 30,
1998, the charge was required primarily in respect of one Indonesian Lessee,
which ceased to trade on June 5, 1998. See "Recent Developments". In addition,
provisions were required in respect of one North American lessee and one
Brazilian lessee.
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 principal balance of the Notes
and the Class E Notes (excluding, in the case of the Class E Notes, the
element of interest (9% per annum) which is payable only in the event that the
principal amount of all the Notes is repaid). This results in a significant
number of leases being 'loss making' while still being cash positive. In the
three months to June 30, 1998, there was an overall net utilization of $1
million (Airplanes Limited: $1 million; Airplanes Trust: nil) in respect of
'loss making leases' compared with an overall net utilization of $9 million
(Airplanes Limited: $8 million; Airplanes Trust: $1 million) in the three
month period to June 30, 1997. In the three months ended June 30, 1998, the
only significant provision required was in respect of three DC8-
71F Aircraft on lease to one Latin American lessee.
Other Lease Costs
Other lease costs in the three months ended June 30, 1998 amounted to $5
million (Airplanes Limited: $4 million; Airplanes Trust: $1 million)
comparable with other lease costs of $6 million (Airplanes Limited: $6
million; Airplanes Trust: nil) in the three months to June 30, 1997.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three month period to
June 30, 1998 amounted to $9 million (Airplanes Limited: $8 million; Airplanes
Trust: $1 million) which is comparable to that incurred in the three months to
June 30, 1997 of $10 million (Airplanes Limited: $9 million; Airplanes Trust:
$1 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 $9 million in the three months
to June 30, 1998 include $6 million (Airplanes Limited: $5 million; Airplanes
Trust: $1 million) relating to GECAS servicing fees comparable with the $6
million (Airplanes Limited: $5 million; Airplanes Trust: $1 million) incurred
in the comparative period to June 30, 1997.
A further significant element of Airplanes Group's selling, general and
administrative expenses reported in the period to June 30, 1998 was $2 million
(Airplanes Limited: $2 million; Airplanes Trust: nil) in respect of
administrative agency and cash management fees payable to GPA, similar to the
charge of $2 million for the period to June 30, 1997.
Operating Profit/(Operating Loss)
The operating loss for the three months ended June 30, 1998 was $38 million
(Airplanes Limited: $41 million; Airplanes Trust: a net profit of $3 million)
compared with an operating loss of $30 million for the three months ended June
30, 1997 (Airplanes Limited: $27 million; Airplanes Trust: $3 million).
Airplanes Limited and Airplanes Trust are expected to continue to report
substantial losses in the future.
Taxes
There was no overall tax charge/benefit in either the three months ended June
30, 1998 or the three months ended June 30, 1997.
Net Profit/(Net Loss)
The net loss after taxation for the three months ended June 30, 1998 was $38
million (Airplanes Limited: $41 million; Airplanes Trust: a net profit of $3
million) compared with a net loss after taxation for the three months ended
June 30, 1997 of $30 million (Airplanes Limited: $27 million; Airplanes Trust:
$3 million). The profit in Airplanes Trust for the three months ended June 30,
1998, is primarily due to the sale of six DC8 Aircraft which generated a
profit of $9 million.
Financial Resources and Liquidity
The was an overall net increase of $5 million in cash for the three months to
June 30, 1998 compared with a $2 million increase for the three months to June
30, 1997.
Liquidity
The cash balances at June 30, 1998 amounted to $223 million (Airplanes
Limited: $217 million; Airplanes Trust: $6 million) compared to cash balances
at June 30, 1997 of $227 million (Airplanes Limited: $221 million; Airplanes
Trust: $6 million.)
Operating Activities
Net cash provided by operating activities in the three months ended June 30,
1998 amounted to $23 million (Airplanes Limited: $12 million; Airplanes
Trust: $11 million) compared with $46 million in the three months ended June
30, 1997 (Airplanes Limited: $50 million; Airplanes Trust: a net cash outflow
of $4 million). This reflects cash paid in respect of interest of $59 million
in the three months to June 30, 1998 (Airplanes Limited: $53 million;
Airplanes Trust: $6 million) compared with $66 million in the three months to
June 30, 1997 (Airplanes Limited: $56 million; Airplanes Trust: $10 million).
The decrease in cash from operations generated in the three month period to
June 30, 1998 is primarily attributable to lease revenues foregone following
the Aircraft sales and also an increase in technical expenditure in the three
months to June 30, 1998, relating primarily to three MD83 Aircraft which were
repossessed from Sunways. In addition, there was an increase in both
maintenance payments and security deposits returned in the three months to
June 30, 1998 compared with the three months to June 30, 1997.
Investing and Financing Activities
Cash flows from investing activities in the three months to June 30, 1998
primarily reflects the proceeds from the sale of eight Aircraft. These
Aircraft consist of six DC8-71F Aircraft sold to Emery as part of an agreement
to sell to Emery nine DC8-71F Aircraft. The three other DC8 aircraft were
delivered to Emery on December 30, 1997. In addition, one B737-200A Aircraft
was sold to Ryanair and one B737-300 Aircraft was sold to VARIG under the
early exercise of its purchase option. The cash provided by capital and sale
type leases was $3 million (Airplanes Limited: $3 million; Airplanes Trust:
nil) as compared with $5 million in the comparative period to June 30, 1997
(Airplanes Limited: $5 million; Airplanes Trust: nil).
Cash flows from financing activities in the three months to June 30, 1998
reflect the repayment of $139 million of principal on Subclass A-5, Subclass
A-6, Class B and Class C Notes by Airplanes Group (Airplanes Limited: $128
million; Airplanes Trust: $11 million) compared with $58 million of principal
repaid on Subclass A-5, and Class B Notes by Airplanes Group (Airplanes
Limited: $53 million; Airplanes Trust: $5 million) in the three months to June
30, 1997. The higher amount of principal repayments in the three months ended
June 30, 1998 is due primarily to a higher amount of cash provided by
investing activities as a result of aircraft sales discussed above.
Indebtedness
Airplanes Group's indebtedness consisted of Class A-E Notes in the amount of
$3,940 million (Airplanes Limited: $3,589 million; Airplanes Trust: $351
million) at June 30, 1998 and $4,339 million (Airplanes Limited: $3,952
million; Airplanes Trust: $387 million) at June 30, 1997. Airplanes Group had
$591 million of Class E Notes outstanding at June 30, 1998. In order to repay
principal on the Subclass A-4, A-7 and A-8 Notes on their expected maturity
dates, Airplanes Group will have to refinance such Notes in the capital
markets. In order to avoid stepped up interest costs, $200 million of
Subclass A-4 Notes, $550 million of Subclass A-7 Notes, $700 million in
Subclass A-8 Notes will have to be refinanced through the sale of further
pass-through certificates by March 2003, 2001 and 2003, respectively. There
can be no assurance that the Trust will be able to sell further pass-through
certificates in the amounts and at the times required and any failure to do so
may have the impact of increasing Airplanes Group's borrowing costs.
Interest Rate Management
The leasing revenues of Airplanes Group are generated primarily from lease
rental payments which are either fixed or floating. In the case of floating
rate leases, an element of the rental varies in line with changes in LIBOR,
generally six-month LIBOR. Some leases carry fixed and floating rental
payments for different rental periods. Approximately two thirds 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 rates leases. At least every three months, and
in practice more frequently, GPA Financial Services (Ireland) Limited, a
subsidiary of GPA Group, as Airplanes Group's administrative agent (the
"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 June 30, 1998, Airplanes Group had
unamortized Swaps with an aggregate notional principal balance of $2,420
million. The aggregate notional principal of these Swaps will be reduced to
$1,090 million by the end of the fiscal year ended March 31, 1999. These
Swaps will be further reduced to an aggregate notional principal balances of
$710 million by the year ended March 31, 2000, to an aggregate notional
principal balance of $405 million by the year ended March 31, 2001 and to an
aggregate notional principal balance of $85 million by the year ended March
31, 2002. None of the Swaps have maturity dates extending beyond July 2002.
The fair values of the Swaps at June 30, 1998 was a negative $4.2 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 will purchase Swaptions which, if exercised, will allow
Airplanes Group to enter into interest rate swap transactions under which it
will pay floating amounts and receive fixed amounts. These Swaptions can be
exercised in the event of defaults by lessees owing fixed rate rental payments
in circumstances where interest rates have declined since the contract date of
such leases. Because not all lessees making fixed rate rental payments are
expected to default and not all lessee defaults are expected to occur
following a decline in interest rates, Airplanes Group will purchase Swaptions
in aggregate 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 prevailing
interest rates. From time to time the Administrative Agent may also sell at
market value or unwind part or all of the outstanding Swaptions, for example,
to reflect any decreases in the Target Hedge. In the period from March 28,
1996 to June 30, 1998, Airplanes Group purchased Swaptions for interest rate
swaps with an aggregate notional principal balance of $321 million and sold
Swaptions with an aggregate notional principal balance of $71 million. The net
aggregate notional principal balance of Swaptions at June 30, 1998 therefore
amounted to $250 million. The fair value of the Swaptions at June 30, 1998 was
$2.0 million and because the Swaptions do not qualify for hedge accounting
under U.S. GAAP, the increase in this amount since March 31, 1998 ($0.2
million) has been included in income for the three months ended June 30, 1998.
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
which have credit ratings, or which provide collateralisation arrangements,
consistent with maintaining the ratings of the Class A Notes.
Year 2000 Compliance
Many existing computer systems use only two digits to identify a year in the
date field. These systems were designed and developed without considering the
impact of the Year 2000. If not corrected, many computer applications could
fail or create erroneous results by or at the Year 2000.
Airplanes Group is in the process of assessing the potential impact of the
Year 2000 issue on its operations. Because all of its operational functions
have been delegated to GECAS (as "Servicer"), the Administrative Agent and GPA
Cash Manager Limited (as "Cash Manager"), in accordance with the terms of
their respective service agreements, Airplanes Group has no information systems
of its own. As Airplanes Group does not have information systems of its own it
is unlikely to incur any material expenditure making information systems Year
2000 compliant. Airplanes Group may, however, suffer a material adverse
impact on its business and results of operations if information technology
upon which the Servicer, Administrative Agent and Cash Manager rely is not Year
2000 compliant.
The Servicer, Administrative Agent and Cash Manager are in the process of
reviewing their Year 2000 exposure and identifying the steps that will need to
be taken to ensure that their systems are Year 2000 compliant. The
Administrative Agent has established a Task Force to oversee the development
and implementation of a Year 2000 Plan for Airplanes Group, (a) to achieve Year
2000 compliance in its own computer systems (b) to assess Year 2000 compliance
of suppliers and customers (c) to obtain details of the Servicer's Year 2000
review of its information systems and its overall Year 2000 compliance as
Servicer to Airplanes Group and (d) to report to Airplanes Group on the
adequacy of the measures and procedures to address that risk. The Year 2000
Plan will address contingency planning in case any of the measures outlined
fails to deal with Year 2000 issues. The Administrative Agent expects to
report to Airplanes Group by December 31, on Airplanes Group's Year 2000
exposure and to identify the steps that have been, or should be, taken to
minimise that exposure.
Airplanes Group may also suffer an adverse impact on its business and results
of operations if its suppliers, financial institutions, technical advisors,
lessees and others with which it conducts business are not Year 2000
compliant. The Servicer has circulated a survey of the third parties with
which it deals on behalf of Airplanes Group to determine the extent of such
third parties' exposure to Year 2000 risks and the status of their Year 2000
compliance efforts.
In addition, aircraft and air traffic control infrastructures depend heavily
upon microprocessors and software technology. Major manufacturers, including
Boeing, have begun a Year 2000 review of the systems employed on their
aircraft and are expected to advise owners, operators and service providers of
the steps to be taken to address any Year 2000 problems that are identified.
Among the aircraft systems that have been identified as being susceptible to
Year 2000 are certain on-board aircraft management and navigation systems. The
Servicer has circulated a survey of aircraft and aircraft parts manufacturers
and suppliers to determine the extent to which their products are Year 2000
compliant. These review programs are still ongoing and thus, the nature and
the extent of the risks posed by the potential failure of aircraft and
aircraft control systems as a result of Year 2000 problems has not been fully
determined. Any failure of the systems employed by Airplanes Group's Aircraft
to be Year 2000 compliant could have a material adverse effect on Airplanes
Group's business and results of operations. Moreover, it is currently not
clear whether or to what extent manufacturers, owners or lessees will be
responsible for the costs necessary to bring aircraft systems into Year 2000
compliance.
Pending a report to Airplanes Group from the Administrative Agent, the Cash
Manager and the Servicer of the outcome of their Year 2000 reviews, it is not
possible to determine at this time the extent, if any, to which Airplanes
Group's business and results of operations may be exposed as a result of any
failure by lessees, aircraft or engine manufacturers or aviation or airport
authorities to address Year 2000 issues. Failure by lessees, aircraft or
engine manufacturers or aviation or airport authorities to address the Year
2000 issue could have a material adverse impact on the ability of Airplanes
Group to make payments on the Notes.
New Accounting Pronouncement
Statement of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133") was issued in June 1998.
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognizes
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value.
Airplanes Group will review implementing the requirements of SFAS No. 133 in
the quarter ended September 30, 1998.
Part II. Other Information
Item 1. Legal Proceedings
VASP
On November 5, 1992, GPA obtained a preliminary injunction for repossession
and export of thirteen aircraft and three spare engines (the "Repossessed
Assets") from VASP, a Brazilian airline, which had defaulted under its lease
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 on 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 will challenge a
number of matters relating to the notice including its validity. In addition,
VASP sought an order against GPA from the Brazilian courts for alleged damages
arising from the repossession and export of the Repossessed Assets and GPA's
alleged failure to comply with the court order requiring return of the
Repossessed Assets. GPA has challenged VASP's request on a number of grounds,
including its validity and GPA's appeals to Brazil's superior courts. The only
immediate risk to the Repossessed Assets would arise where they are located in
Brazil and if VASP was successful in enforcing its judgment having sought
repossession rather than damages.
GPA has informed Airplanes Group that it has been advised that the decision of
the High Court in this matter is incorrect as a matter of Brazilian law. GPA
has further informed Airplanes Group that it is actively pursuing all courses
of action that may be available to it, including appeals to superior courts
and intends to defend its position vigorously and to pursue each of its claims
and counter claims against VASP. GPA has advised Airplanes Group that it
believes the outcome of these matters will not have a material adverse effect
on Airplanes Group's liquidity, results of operations or financial condition.
Other Matters
AeroUSA, Inc. and AeroUSA 3, Inc., both Connecticut corporations, have in the
past filed and will continue to file United States federal consolidated tax
returns and certain state and local tax returns with GPA, Inc., and its
subsidiaries. GPA, Inc. is a Delaware corporation and a wholly-owned
subsidiary of GPA Group. There are ongoing tax audits by certain state and
local tax authorities with respect to taxes previously reported by GPA. Inc.
and its subsidiaries. GPA believes that none of these audits will have a
material adverse impact upon the liquidity, results of operations, financial
condition or liquidity of AeroUSA, Inc or AeroUSA 3, Inc..
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule of Airplanes Limited
27.2 Financial Data Schedule of Airplanes U.S. Trust
(b) Reports on Form 8-K: Filed for event dates April 15, 1998;
May 15, 1998, June 15, 1998 and July 15, 1998 (relating
to the monthly report to holders of the Certificates)
and June 8, 1998 (relating to a press release by GPA
Group plc).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, each registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: August 13, 1998 AIRPLANES LIMITED
By: /s/ WILLIAM M. MCCANN
------------------------------
William M. McCann
Director and Principal
Accounting Officer
Date: August 13, 1998 AIRPLANES U.S. TRUST
By: /s/ WILLIAM M. MCCANN
------------------------------
William M. McCann
Controlling Trustee and
Principal Accounting Officer
AIRPLANES LIMITED AND AIRPLANES U.S. TRUST
INDEX TO EXHIBITS
EXHIBIT NUMBER
27.1 Financial Data Schedule of Airplanes Limited
27.2 Financial Data Schedule of Airplanes U.S. Trust
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