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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
COMMISSION FILE NUMBER 33-99970
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AIRPLANES LIMITED AIRPLANES U.S. TRUST
(Exact Name of Registrants as specified in memorandum of association or trust agreement)
JERSEY, CHANNEL ISLANDS DELAWARE
(State or other jurisdiction of incorporation or organization)
7359 13-3521640
(SIC Code) (I.R.S. Employer Identification No.)
AIRPLANES LIMITED AIRPLANES U.S. TRUST
22 GRENVILLE STREET, ST. HELIER 1100 NORTH MARKET STREET,
JERSEY, JE4 8PX RODNEY SQUARE NORTH
CHANNEL ISLANDS WILMINGTON, DELAWARE 19890-0001
(011 44 1534 609 000) (1-302-651-1000)
</TABLE>
(Addresses and telephone numbers, including area codes, of Registrants'
principal executive offices)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None None
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</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
None
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(Title of class)
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(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 or Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
<TABLE>
<S> <C> <C>
OUTSTANDING AT
ISSUER CLASS JUNE 30, 2000
Airplanes Limited Ordinary Shares, $1.00 par value 30
</TABLE>
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AIRPLANES LIMITED AND AIRPLANES U.S. TRUST
2000 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 40
Item 3. Legal Proceedings........................................... 40
Item 4. Submission of Matters to a Vote of Security-Holders......... 41
PART II
Item 5. Market for Registrants' Common Equity and Related
Stockholder Matters......................................... 42
Item 6. Selected Combined Financial Data............................ 43
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 46
Item 7A. Quantitative and Qualitative Disclosures about Market
Risks....................................................... 60
Item 8. Financial Statements and Supplementary Data................. 64
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 64
PART III
Item 10. Directors and Executive Officers of the Registrants......... 64
Item 11. Executive Compensation...................................... 76
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 77
Item 13. Certain Relationships and Related Transactions.............. 77
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 78
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Airplanes Limited is a limited liability company ("Airplanes Limited")
formed under the laws of Jersey, Channel Islands. Airplanes U.S. Trust is a
Delaware business trust ("Airplanes Trust"). Airplanes Limited and Airplanes
Trust together with, unless the context otherwise requires, each of their
subsidiaries are referred to as "Airplanes Group". Airplanes Group is in the
business of leasing aircraft to aircraft operators around the world. At March
31, 2000, Airplanes Group owned 199 aircraft (the "Aircraft") which it leased to
72 lessees in 39 countries.
On March 28, 1996, Airplanes Group issued debt in order to purchase the
Aircraft. On March 16, 1998, a significant amount of that debt was refinanced
(approximately 60% of original debt issued on March 28, 1996). The rental
payments that are received from leasing the Aircraft are used to pay interest
and principal on such debt. Airplanes Group also issued a class of debt, the
Class E Notes, which represent certain limited current income rights and rights
to the residual interest in Airplanes Group. Prior to November 20, 1998, AerFi
Group plc and its subsidiaries held a majority of the Airplanes Group Class E
Notes. On November 20, 1998, GE Capital acquired the Airplanes Group Class E
Notes previously held by AerFi Group plc.
AIRPLANES PASS THROUGH TRUST
On March 28, 1996, Airplanes Pass Through Trust (the "Trust") issued $4,048
million of Pass Through Certificates (collectively, the "1996 Certificates").
The 1996 Certificates were issued 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 Certificate represents an interest
in two corresponding classes or subclasses of notes (collectively, the "1996
Notes") issued by Airplanes Limited and Airplanes Trust. Airplanes Limited and
Airplanes Trust have each 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 Class E Notes,
to acquire certain subsidiaries of AerFi Group plc ("AerFi Group" and, together
with its subsidiaries and affiliates, "AerFi"). Of the $604 million of Class E
Notes issued, $13 million were cancelled in July 1996 based on the purchase
price adjustment provisions in the agreements that governed the sale of these
AerFi Group subsidiaries to Airplanes Group. On March 28, 1996, these AerFi
Group subsidiaries owned 229 Aircraft which were on lease to approximately 83
aircraft operators in approximately 40 different countries. The acquisition of
these subsidiaries and the resulting acquisition of the Aircraft and related
leases is referred to as the "Acquisition".
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 "1998 Refinancing Guarantees" and
together with the 1996 Guarantees, the "Guarantees"). The proceeds of this
offering were used to repay the Trust's Subclass A-1, Subclass A-2, Subclass A-3
and existing Class B 1996 Certificates.
At March 31, 2000, 29 of the original 229 Aircraft had been sold and one
had suffered a constructive total loss. A "constructive total loss" occurs when
an aircraft is damaged and the cost of repair exceeds the value of
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the aircraft. At March 31, 2000, of the remaining 199 Aircraft in the portfolio
owned by Airplanes Group (the "Portfolio"), 193 were on lease to 72 operators in
39 countries.
AIRPLANES LIMITED
Airplanes Limited is a special purpose limited liability company formed
under the laws of Jersey, Channel Islands for an unlimited duration. Airplanes
Limited was created for certain limited purposes, including the following:
- directly or indirectly acquiring, financing, re-financing, owning,
leasing, re-leasing, maintaining and modifying the Aircraft;
- selling the Aircraft within the limits set forth in the Airplanes
Limited Trust Indenture (the "Airplanes Limited Trust Indenture") dated
as of March 28, 1996 among Airplanes Limited, Airplanes Trust and
Bankers Trust Company, as Trustee (the "Airplanes Limited Indenture
Trustee");
- guaranteeing the obligations of Airplanes Trust and the subsidiaries of
Airplanes Trust;
- entering into certain hedging contracts as described in "Item 7A.
Quantitative and Qualitative Disclosures About Market Risks"; and
- establishing and providing loans or guarantees in connection with its
subsidiaries.
Airplanes Limited has one direct subsidiary, Airplanes Holdings Limited
("Holding Co."). Airplanes Limited holds 95% of the ordinary share capital in
Holding Co. GE Capital Aviation Services, Limited ("GECAS") holds the remaining
5% of the ordinary share capital of Holding Co. As a result, Holding Co. and
certain of the other Transferred Companies (as defined below) continue to be
entitled to certain corporate tax benefits for Shannon, Ireland certified
companies. Airplanes Limited operates its business through its direct and
indirect subsidiaries. Airplanes Limited and its subsidiaries are permitted to
lease Aircraft to or from, or sell Aircraft to or buy Aircraft from, other
members of Airplanes Group.
On March 28, 1996, Airplanes Limited indirectly acquired 206 of the
Aircraft and related leases through the acquisition of the Holding Co. capital
stock. As of March 31, 2000, Holding Co. owned (i) 25 of the Aircraft and
related leases, (ii) twelve wholly owned subsidiaries which owned 156 of the
Aircraft (the "Aircraft Owning Companies") and (iii) eleven other wholly owned
subsidiaries ("Special Lessors"). The Special Lessors do not own any Aircraft.
The business of the Special Lessors is to lease certain of the Aircraft from the
Aircraft Owning Companies and sublease such Aircraft to various aircraft
operators. The Aircraft Owning Companies, the Special Lessors, AeroUSA (as
defined below) and AeroUSA 3 (as defined below) are collectively referred to as
the "Transferred Companies". The Special Lessors are largely incorporated in
various European jurisdictions. Additional Special Lessors may be incorporated
or liquidated in other jurisdictions in the future.
Airplanes Limited has a Board of Directors but has, and will have, no
employees or executive officers. Accordingly, the Board relies, for all asset
servicing, executive and administrative functions, upon (i) GECAS, as Servicer
(the "Servicer"), pursuant to the Servicing Agreement (the "Servicing
Agreement") dated as of March 28, 1996, as amended, among Airplanes Limited,
AeroUSA (as defined below), Holding Co., Airplanes Trust, AerFi Cash Manager
Limited ("AerFi Cash Manager") and GECAS; (ii) AerFi Financial Services
(Ireland) Limited ("AerFi Financial"), as Administrative Agent (the
"Administrative Agent"), pursuant to the Administrative Agency Agreement (the
"Administrative Agency Agreement") dated as of March 28, 1996 among AerFi
Financial, AerFi Group, Airplanes Limited, Holding Co., Airplanes Trust and
AeroUSA (as defined below); (iii) AerFi Cash Manager, as Cash Manager (the "Cash
Manager"), pursuant to the Cash Management Agreement (the "Cash Management
Agreement") dated as of March 28, 1996 among AerFi Cash Manager, AerFi Group,
Airplanes Limited, Airplanes Trust and Bankers Trust Company, as Indenture
Trustee, (as defined below) under each of the Trust Indentures (as defined
below) and as Security Trustee (the "Security Trustee") pursuant to the Security
Trust Agreement (the "Security Trust Agreement") dated as of March 28, 1996
among Airplanes Limited, Airplanes Trust,
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Mourant & Co. Secretaries Limited, the Issuer Subsidiaries listed therein, AerFi
Financial, AerFi Cash Manager, AerFi Group, GECAS, the Indenture Trustees (as
defined below), the Reference Agent named therein and the Security Trustee; and
(iv) various other service providers.
The Airplanes Limited Board consists of five members, one of whom is
appointed by the holder or holders of a majority in aggregate principal amount
of the Class E Notes and the other four of whom are Independent Directors (as
defined below). Certain significant transactions or proceedings of Airplanes
Limited may only be approved by a unanimous vote of all the Directors of
Airplanes Limited. These transactions and proceedings principally relate to
certain insolvency proceedings, amendments to Airplanes Limited's Memorandum or
Articles of Association, mergers or, subject to certain exceptions, sale of all
or substantially all of Airplanes Limited's assets. The succeeding Independent
Directors (as defined below) generally will be appointed by a majority of the
then standing Directors. "Independent Directors" will not be officers, directors
or employees of AerFi Group, GECAS, GE Capital, any holder of the Class E Notes
or any affiliate of these persons.
Airplanes Limited has an authorized share capital of 10,000 ordinary
shares, $1 par value per share. Thirty of these shares have been issued. All of
the issued capital stock of Airplanes Limited is held by Juris Limited and
Lively Limited, each a Jersey company, for the benefit of certain charitable
trusts (the "Charitable Trusts") established under the laws of Jersey. The
holders of the issued capital stock of Airplanes Limited are entitled under the
Articles of Association of Airplanes Limited to an annual fixed cumulative
preferential dividend of $4,500 (the "Annual Dividend Amount"). The Annual
Dividend Amount will be paid only when Airplanes Limited has distributable
profits which may lawfully be so paid as dividends and no event of default
("Event of Default") with respect to any class of Certificates has occurred and
is continuing. An "Event of Default" under the Certificates is defined as the
occurrence and continuance of a "Note Event of Default" under either the
Airplanes Limited Trust Indenture or the Airplanes Trust Trust Indenture (the
"Airplanes Trust Trust Indenture" and, together with the Airplanes Limited Trust
Indenture, the "Trust Indentures") dated as of March 28, 1996 among Airplanes
Trust, Airplanes Limited and Bankers Trust Company, as Trustee (the "Airplanes
Trust Indenture Trustee" and, together with the Airplanes Limited Indenture
Trustee, the "Indenture Trustees").
AIRPLANES TRUST
Airplanes Trust is a business trust formed pursuant to the Airplanes Trust
Agreement under the laws of Delaware for certain limited purposes, including:
- acquiring, financing, re-financing and owning the shares of capital
stock of AeroUSA, Inc. ("AeroUSA"), a Connecticut corporation and a
wholly owned subsidiary of Airplanes Trust;
- guaranteeing the obligations of Airplanes Limited;
- entering into certain hedging contracts as described in "Item 7A.
Quantitative and Qualitative Disclosures About Market Risks"; and
- establishing and providing loans or guarantees in connection with its
subsidiaries.
AerFi, Inc., a wholly owned subsidiary of AerFi Group ("AerFi, Inc."),
holds the residual ownership interest in all of the property of Airplanes Trust,
including the AeroUSA shares. GE Capital holds an option to purchase this
residual ownership interest in Airplanes Trust. If GE Capital does not exercise
its option, then upon repayment in full of all indebtedness of Airplanes Trust,
the AeroUSA shares will be transferred back to AerFi, Inc. pursuant to its
residual ownership interest. On March 28, 1996, Airplanes Trust indirectly
acquired 23 of the Aircraft and related leases through the acquisition of all of
the capital stock of AeroUSA. AeroUSA was an indirect wholly owned
aircraft-owning subsidiary of AerFi Group. As of March 31, 2000, Airplanes Trust
indirectly owned 18 Aircraft and related leases.
Airplanes Trust has one direct subsidiary, AeroUSA. AeroUSA itself has one
direct subsidiary, AeroUSA 3, Inc., a Connecticut corporation ("AeroUSA 3"). The
shares of AeroUSA and AeroUSA 3 are held by separate voting trusts 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. First Security Bank,
National
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Association acts as trustee of the voting trusts. Airplanes Trust holds voting
trust certificates representing shares of AeroUSA. Airplanes Trust operates its
business through AeroUSA. AeroUSA and its subsidiary are also permitted to lease
Aircraft to or from or sell Aircraft to, or buy Aircraft from, other members of
Airplanes Group.
The trustees of Airplanes Trust consist of Wilmington Trust Company, as
Delaware Trustee, and the "Controlling Trustees". The Controlling Trustees are
the same individuals who act as Directors of Airplanes Limited. Airplanes Trust
has no, and will have no, employees or executive officers. Accordingly, the
Controlling Trustees rely upon the Servicer, the Administrative Agent, the Cash
Manager and the other service providers for all asset servicing, executive and
administrative functions pursuant to the respective service provider agreements.
One member of the Board of Controlling Trustees is appointed by the holder of a
majority in aggregate principal amount of the Class E Notes and the other four
are Independent Trustees. Any succeeding Independent Trustees (the "Independent
Trustees") will be appointed by a majority of the then acting Independent
Trustees and will not be officers, directors or employees of AerFi 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. 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 will be determined in the same
manner as the composition of the Board of Directors of Airplanes Limited is
determined.
The indirect ownership of the Aircraft by two entities (Airplanes Limited
and Airplanes Trust) reflects AerFi Group's corporate structure prior to the
Acquisition. It would not be tax-efficient in Ireland or the United States to
have a single direct or indirect owner of the Aircraft.
THE TRUST AND TRUSTEE
The Trust consists of eight separate trusts, each of which has been
organized under the laws of the State of New York pursuant to a Trust Agreement
(the "Trust Agreement") among Airplanes Trust, Airplanes Limited and the Trustee
thereunder (the "Trustee") on behalf of the holders of each class or subclass of
Certificates. The Trust was created to acquire and hold 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 to the Certificates and engaging in certain other activities
related to the Certificates. Bankers Trust Company is the Trustee for each of
the Trusts. The Trustee is also the Indenture Trustee under each of the Trust
Indentures pursuant to which the Notes are issued.
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RISK FACTORS
The following summarizes certain risks which may materially affect the
ability of Airplanes Limited and Airplanes Trust to pay the interest, principal
and premium, if any, on the Notes (and hence, the ability of the Trust to pay
interest, principal and premium, if any, on the Certificates) in full at or
before their respective final maturity dates. There can be no assurance that
Rental Payments (as defined below) under the leases will be adequate to pay the
interest, principal and premium, if any, on the Notes in accordance with their
terms.
RISKS RELATING TO AIRPLANES GROUP AND CERTAIN THIRD PARTIES
LIMITED RESOURCES OF THE TRUST
The Notes and the Guarantees are solely obligations of Airplanes Limited
and Airplanes Trust. The Trust does not have, nor is it expected to have, any
significant assets or sources of funds other than the Notes and the Guarantees.
Neither the Certificates nor the Notes are obligations of, or guaranteed by, the
Trustee, the Indenture Trustees, AerFi Group or any affiliate of the foregoing.
Furthermore, neither the Certificates nor the Notes are obligations of, or
guaranteed by, GE Capital, GECAS or any of their affiliates.
RELIANCE ON SUBSIDIARIES TO MAKE PAYMENTS
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. Accordingly, Airplanes Limited and Airplanes Trust depend
on intercompany loan and other payments from their direct and indirect
subsidiaries to make payments on the Notes. The ability of Airplanes Limited and
Airplanes Trust to make payments on the Notes will therefore be affected by,
among other things, 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. Payments on these guarantees comprise part of the expenses incurred by
any Airplanes Group member in the course of the business activities permitted to
be conducted by it under the Trust Indenture (the "Expenses"). These payments
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-4, A-7 and A-8 Notes, the ability of
Airplanes Group to refinance the Outstanding Principal Balance of such Notes by
issuing new notes ("Refinancing Notes") in the future. 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 (together with
certain other payments the lessees are obliged to make pursuant to the terms of
the leases, the "Rental Payments") and the ability of the lessees to make such
payments; (ii) the ability to re-lease any Aircraft upon expiration or
termination of a lease without excessive levels of downtime and at sufficient
rental rates; (iii) the possible exercise by a lessee of a Purchase Option or an
early termination option and (iv) future maintenance costs associated with
re-leasing Aircraft. There can be no assurance that the Rental Payments actually
received during the term of the leases will be sufficient to meet amounts due
under the Notes.
LACK OF SECURITY INTEREST
As stated above, none of the Trustee, the Indenture Trustees or the
Certificateholders has or will have any security interest, mortgage, charge or
other similar interest in any of the Aircraft or the leases. As a result, such
parties do not have available to them certain rights upon a Note Event of
Default which would have been available to them had their interests in the
Aircraft and the leases been directly secured by such assets. The Security
Trustee has been granted a security interest in one-third of the ordinary share
capital of Holding Co.,
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certain of its subsidiaries and the subsidiaries of Airplanes Trust. In
addition, the Accounts (other than certain "Rental Accounts") are held in the
name of the Security Trustee.
POSSIBLE CONTINGENT LIABILITIES OF TRANSFERRED COMPANIES
The Aircraft and leases were acquired through the purchase by Airplanes
Limited of 95% of the issued and outstanding capital stock of Holding Co. and
the purchase by Airplanes Trust of all of the issued and outstanding capital
stock of AeroUSA. Holding Co. and AeroUSA in turn own, directly or indirectly,
100% of the ordinary share capital of the Transferred Companies. Prior to the
sale of the Transferred Companies, AerFi Group took steps to ensure that there
were no material contingent liabilities related to any of the Transferred
Companies. No assurances can be given that pre-transfer liabilities will not be
identified in the future.
TAX LIABILITIES OF AEROUSA. For so long as AerFi held the Class E Notes
and residual interest in Airplanes U.S. Trust, AeroUSA and AeroUSA 3 continued
to file U.S. federal consolidated tax returns and certain state and local tax
returns with AerFi, Inc. and its subsidiaries (the "AerFi U.S. Tax Group").
AeroUSA, Airplanes Trust, AerFi, Inc. and AerFi Group entered into a Tax Sharing
Agreement (the "Tax Sharing Agreement") dated as of March 28, 1996 pursuant to
which AerFi indemnified AeroUSA against any U.S. federal, state or local tax
liabilities ("Tax Liabilities"), if any, suffered by AeroUSA or AeroUSA 3 that
are (i) related to any tax period or portion thereof prior to March 28, 1996 or
(ii) related to any tax period or portion thereof on or following March 28, 1996
and are Tax Liabilities that AeroUSA or AeroUSA 3 would not have incurred if
they were not and never had been members of the AerFi U.S. Tax Group.
Furthermore, under the Tax Sharing Agreement, with respect to AerFi U.S. Tax
Group returns, (i) AeroUSA shall be liable to AerFi, Inc. for its share of Tax
Liabilities based on the amount of Tax Liabilities that AeroUSA would have
incurred if it and AeroUSA 3 were not and never had been members of the AerFi
U.S. Tax Group (the "Stand-alone Tax Liability") and (ii) to the extent that any
amount payable by any member of the AerFi U.S. Tax Group (other than AeroUSA or
AeroUSA 3) in respect of Tax Liabilities for any tax period following March 28,
1996 is reduced to reflect a tax asset generated by AeroUSA or AeroUSA 3, then
AerFi 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 AerFi, 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 AerFi, Inc. described in clause (i) will be paid in the form of
subordinated, non-interest paying AeroUSA notes. Tax warranties of AerFi and the
indemnity of AerFi for Tax Liabilities related to any tax period or portion
thereof prior to March 28, 1996 only survive until March 28, 2003. Following the
acquisition by GE Capital of the Airplanes Group Class E Notes previously held
by AerFi Group, AeroUSA and AeroUSA 3 now file United States federal
consolidated tax returns and certain state and local tax returns together with
GE Capital. On November 20, 1998, AeroUSA, AeroUSA 3 and Airplanes Trust entered
into a Tax Sharing Agreement with GE Capital which is substantially similar to
the Tax Sharing Agreement between AeroUSA, AeroUSA 3, Airplanes Trust, AerFi
Group and AerFi, Inc. which was in place prior to that date, and which
terminated on November 20, 1998, except with respect to those provisions
relating to the position prior to the date on which AeroUSA and AeroUSA 3 were
deconsolidated from AerFi, Inc. In relation to the tax year ended December 31,
1999, GE Capital utilised $38.8 million of current year losses. Under the Tax
Sharing Agreement entered into with GE Capital, GE Capital will compensate
Airplanes Group in the amount of $7.8 million. There are ongoing tax audits by
certain state and local tax authorities with respect to tax returns previously
made by the AerFi U.S. Tax Group. AerFi Group believes that none of these audits
will have a material adverse impact upon the financial condition or liquidity of
AeroUSA or AeroUSA 3.
The receipt by Airplanes Group from AerFi of any amounts pursuant to
indemnities against tax and other liabilities of the Transferred Companies will
depend upon the financial condition and liquidity of AerFi 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 AerFi or paid from
Airplanes Group's available cash flow, because the Notes are not secured
directly or indirectly by the Aircraft or the leases, substantially all of the
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assets of the Transferred Companies, including the Aircraft, would be available
for attachment and satisfaction of any such claim.
INABILITY OF CERTIFICATEHOLDERS OR TRUSTEE TO PARTICIPATE IN MANAGEMENT
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.
RELIANCE UPON SERVICE PROVIDERS
Because Airplanes Group neither has nor will have executive management
resources of its own, Airplanes Group relies upon the Servicer, the
Administrative Agent, the Cash Manager and other service providers for all asset
servicing, executive and administrative functions pursuant to the respective
service provider agreements. While Airplanes Group has retained GECAS as the
Servicer and wholly owned subsidiaries of AerFi Group as the Cash Manager and
Administrative Agent, there can be no assurance that Airplanes Group will
continue its arrangements with these organizations until the Notes are paid in
full or that such organizations will continue their relationship with Airplanes
Group until such time. Failure of these foregoing organizations to perform their
respective contractual obligations to Airplanes Group could have a material
adverse effect upon Airplanes Group's operations, which could adversely affect
Airplanes Group's ability to repay the Notes and consequently affect the amount
of payments made in respect of the Certificates. In the event that the Servicer,
the Administrative Agent or the Cash Manager were to resign or have their
respective contracts terminated pursuant to their respective contractual
arrangements with, or on behalf of, Airplanes Group, there can be no assurance
that suitable replacement service providers could be found, or found in a timely
manner, and engaged on terms acceptable to Airplanes Group or that would not
cause a downgrading in the then current rating relating to the Certificates. The
loss of the Servicer, the Administrative Agent or the Cash Manager under such
circumstances could have a material adverse effect on Airplanes Group's ability
to make payments on the Notes.
RELIANCE UPON SERVICE PROVIDERS FOR CERTAIN TAX BENEFITS. In addition, in
the event that GECAS no longer serves as Servicer on behalf of Airplanes Group
or fails to maintain, among other things, certain employment levels in Ireland,
or GECAS fails to hold 5% of the capital stock of Holding Co., certain corporate
tax and other tax benefits currently afforded to Holding Co. and other Irish tax
resident Transferred Companies may be lost. Holding Co. and other Irish tax
resident Transferred Companies are currently entitled to pay Irish corporate tax
at a reduced rate of 10% until December 31, 2005, and 12.5% thereafter and may
deduct interest payments to Airplanes Limited on intercompany loans from their
income in computing their liability to Irish tax. If such benefits were lost,
these companies would be subject to Irish corporate taxation at general Irish
statutory rates (currently 24%) and may lose the ability to deduct such interest
payments to Airplanes Limited. The loss of such tax benefits would likely lead
to a downgrade in the current ratings of the Certificates and would have a
material adverse effect on Airplanes Limited's ability to pay interest,
principal and premium, if any, on the Airplanes Limited Notes.
CONFLICTS OF INTEREST OF GECAS
In addition to acting as Servicer, GECAS also participates in the
management of certain aircraft assets owned by other securitization vehicles,
including Aircraft Finance Trust ("AFT"), GE Capital and its affiliates and
other third parties, including AerFi and its affiliates. In addition to its role
as Servicer, GE Capital holds the Airplanes Group Class E Notes. 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, such
conflicts will
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not entitle the entities to whom GECAS provides services to replace GECAS as
servicer except in certain limited circumstances.
As of March 31, 2000, the portfolio of aircraft managed by GECAS and its
affiliates (the "GECAS Managed Portfolio") comprised approximately 963 aircraft.
At such date, the owned portfolio of GE Group was comprised of 637 aircraft or
66% of the GECAS Managed Portfolio. Since 1996, GECAS has entered into several
multi-year orders with Boeing and Airbus for the 737, 767, 747 and Airbus A320
families of aircraft. These contracts involve over 400 firm and option aircraft.
To date, GECAS has taken delivery of 121 aircraft under these agreements. In
addition to these contracts, GECAS also purchases aircraft from airlines and
investors.
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 such as AFT, 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 return some of its aircraft and its fleet
consists of a mixture of GE Capital-owned aircraft and GECAS-managed aircraft.
GECAS acts as servicer of 27 Stage 3 and 4 Stage 2 aircraft (as of March
31, 2000) that are owned or leased-in (i.e., an aircraft that is not owned but
is leased from a third party and then sub-leased to an airline) by AerFi
pursuant to an amended and restated servicing agreement between GECAS and AerFi
Group dated as of March 28, 1996, as amended from time to time (the "AerFi
Servicing Agreement").
Pursuant to the terms of the Servicing Agreement, GECAS has agreed to
perform the services required thereby with reasonable care and diligence at all
times (the "GECAS Services Standard"). If a conflict of interest arises
regarding GECAS's management of two particular Aircraft, or aircraft assets
other than those owned by the Airplanes Group, on the one part, and Aircraft, on
the other part, the Servicer is required to perform the services in good faith
and to the extent that two particular Aircraft or the Aircraft and other
aircraft then managed by GECAS are substantially similar in terms of objectively
identifiable characteristics that are relevant for purposes of the particular
services to be performed, the Servicer will not discriminate, (a) among the
Aircraft or (b) between any of the Aircraft and any other aircraft then managed
by GECAS on an unreasonable basis (the "GECAS Conflicts Standard").
Under certain limited circumstances in which a conflict of interest arises
with respect to a particular Aircraft or lease that requires, in the good faith
opinion of the Servicer, an arm's-length negotiation between the Servicer or any
of its affiliates and Airplanes Group, the Servicing Agreement provides that the
Servicer shall be entitled to withdraw from acting as Servicer with respect to
such Aircraft or lease in connection with the negotiation of the issue giving
rise to such conflict of interest. In that event, 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.
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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"). Furthermore Airplanes
Limited, AeroUSA and Holding Co. jointly and severally indemnify the Servicer
and its affiliates on an after-tax basis for any Losses, unless such Losses are
finally adjudicated to have resulted directly from the Servicer's gross
negligence or wilful misconduct in respect of its obligation to apply the GECAS
Services Standard or the GECAS Conflicts Standard in respect of its performance
of the services under the Servicing Agreement. Airplanes Limited, AeroUSA and
Holding Co. also jointly and severally indemnify the Servicer and its affiliates
on an after-tax basis for any losses that may be imposed on, incurred by or
asserted against, the Servicer and its affiliates, directly or indirectly,
arising out of, in connection with or related to, the Servicer or any of its
affiliates' involvement in connection with the structuring or implementation of
any aspect of the Acquisition, the Underwritten Offering or related
transactions. Airplanes Limited, AeroUSA and Holding Co. are entitled to
terminate the Servicing Agreement if the Servicer fails in any material respect
to perform any material service thereunder to either the GECAS Services Standard
or the GECAS Conflicts Standards and such failure has a material adverse effect
on Airplanes Group taken as a whole. The Servicer does not assume any liability
or accountability for (i) the direct or indirect transfer of the Aircraft, the
leases related thereto, the receivables related thereto or any other assets to
any person within the Airplanes Group, (ii) the adequacy of the terms of any
lease relating to any Aircraft to the extent any such lease was novated, amended
or modified in connection with the direct or indirect transfer of the Aircraft
or the leases to or among the Transferred Companies on or prior to March 28,
1996, (iii) the reliability or creditworthiness of any lessee with respect to
its obligations under any lease, (iv) the adequacy of the Rental Payments
derived from the leases to support the various obligations of Airplanes Group,
(v) the adequacy of certain Maintenance Reserves (as defined below) or security
deposits relating to the Aircraft ("Security Deposits"), (vi) the terms and
conditions of the Notes or Refinancing Notes, (vii) the ability of Airplanes
Limited and Airplanes Trust to comply with the terms and conditions of the
Notes, the Guarantees or any Refinancing Notes or any additional Notes and
(viii) the structuring or implementation of any aspect of the various
transactions which established Airplanes Group.
The duties and obligations of the Servicer are limited to those expressly
set forth in the Servicing Agreement and the Servicer does not have any
fiduciary or other implied duties or obligations to Airplanes Group or any other
person, including any Certificateholder.
CONFLICTS OF INTEREST OF AERFI
AerFi Financial acts as Administrative Agent and AerFi Cash Manager acts as
Cash Manager for Airplanes Group. In addition, AerFi holds all of the Class D
and E Notes issued by AerCo Limited ("AerCo"), another securitisation vehicle,
with similar investment objectives to Airplanes Group and, as a result, has
access to certain potential benefits relating to the aircraft owned by AerCo.
Further, subsidiaries of AerFi Group act as administrative agent and cash
manager to AerCo. In addition, it is expected that AerFi Group will become
servicer to AerCo from July 17, 2000. As at March 31, 2000, AerFi owned and
leased-in a significant fleet of 93 aircraft. Of the 93 aircraft, 18 aircraft
are leased-in.
AerFi Financial may from time to time have conflicts of interest in
performing its obligations to Airplanes Group as Administrative Agent resulting
from AerFi's interests in its own aircraft and AerFi's interests in AerCo. These
conflicts may arise, for instance, when AerFi 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, AerFi Financial is
obligated, in performing its services as Administrative Agent, to devote the
same amount of time and attention and will be required to exercise the same
level of skill, care and diligence in the performance of its services as it
would if it were
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administering such services on its own behalf (the "Administrative Agent's
Services Standard"). In addition, if any conflicts of interest arise with
respect to AerFi Financial's role as Administrative Agent and its other
interests, the Administrative Agency Agreement requires AerFi 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 AerFi 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 AerFi's
other interests.
ABSENCE OF PROFITABLE OPERATIONS
Airplanes Group has incurred net losses since its inception and expects to
continue to incur net losses. See "Item 7: Management's Discussion and Analysis
of Financial Condition and Results of Operations". There can be no assurance
that Airplanes Group will achieve or sustain profitability in the future.
CONFLICTS OF INTEREST OF LEGAL COUNSEL
Airplanes Group and AerFi Group are 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 AerFi could disproportionately benefit one party over the other. Should a
significant dispute arise in the future between Airplanes Group and AerFi or any
of their respective affiliates, Airplanes Group anticipates that it will retain
separate counsel to represent it in such matter.
AIRCRAFT RISKS
RISK OF OPERATIONAL RESTRICTIONS AFFECTING AIRPLANES GROUP'S ABILITY TO
COMPETE
In connection with re-leasing of the Aircraft, Airplanes Group may
encounter competition from, among others, other aircraft leasing companies
(including AerFi and International Lease Finance Corporation), airlines,
aircraft manufacturers, aircraft owners, financial institutions (including GE
Capital and its affiliates), aircraft brokers, special purpose vehicles
(including AFT and AerCo) 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 constitutive documents of
Airplanes Limited and Airplanes Trust that will impair Airplanes Group's
operational flexibility. For instance, AerFi 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.
AerFi 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 AerFi. 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.
CYCLICALITY OF SUPPLY OF AND DEMAND FOR AIRCRAFT
GENERAL FACTORS CAUSING FLUCTUATION IN SUPPLY AND DEMAND. 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
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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. The demand for aircraft on operating lease has decreased
within the last twelve months and an oversupply of certain types of used Stage 3
aircraft continues to exist, in particular, for 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 and DHC8s, remains problematic in respect of both the
lease rates achievable and used aircraft values. ATR 42-300 and DHC8 Aircraft
represented 0.69% and 4.4%, respectively of the Portfolio by Appraised Value at
March 31, 2000.
FLUCTUATION OF SUPPLY AND DEMAND DUE TO ISOLATED EVENTS. 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 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. 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. 6.40% 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 ceased production of MD83 aircraft in 1999 and
will cease production of MD11 aircraft in 2000. At March 31, 2000, 19.80% of the
Aircraft in the Portfolio by Appraised Value were 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 on 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 38.71% of the Portfolio by Appraised
Value at March 31, 2000. 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.
RISK OF DECLINE IN AIRCRAFT VALUES
The Purchase Price paid by Airplanes Group to AerFi 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 assumes an "open,
unrestricted stable market environment with a reasonable balance of supply and
demand and with full consideration of the Aircraft's highest and best use,
presuming an arm's length, cash transaction between willing, able and
knowledgeable parties, acting prudently, with an absence of duress and with a
reasonable period of time
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available for marketing adjusted to account for the maintenance status of each
aircraft" (each such value so ascertained is referred to herein as the "Base
Value"). 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 "Aircraft Risks -- 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.
Updated appraisals of the Aircraft were obtained by Airplanes Group on
February 18, 2000. On the basis of these three updated appraisals, the average
appraised Base Value of the Aircraft at February 18, 2000 based on a Portfolio
of 199 Aircraft was approximately $3,335 million compared with $3,488 million
based on the February 5, 1999 appraisals. This decrease was approximately $15
million less than the decrease implied by the Aircraft depreciation schedules
that form part of the terms of the Notes.
The decline in aircraft values for the period to February 5, 1999 resulted
in a Principal Adjustment Amount of $34 million on the Class A Notes which began
to be paid from the February 16, 1999 Payment Date. The payment of Class A
Principal Adjustment Amount resulted in a reallocation of cashflows in favour of
the Class A Notes. Accordingly, during this period there was a suspension of
payments of the Class E Minimum Interest Amount and a deferral of payments of
the Class C and D Scheduled Principal Amounts.
On December 15, 1999, arrears of the Class A Principal Adjustment Amount
were eliminated and payments of the Class C Scheduled Principal Amounts
recommenced. On January 18, 2000, the deferred Class C Scheduled Principal
Amounts were paid in full and on February 15, 2000, the deferred Class D
Scheduled Principal Amounts were paid in full, and payments of the Class E
Minimum Interest Amount recommenced.
As a result of the 2000 Appraisals, there was not an immediate suspension
of any payments. However, Airplanes Group will continue to pay Class A Principal
Adjustment Amount in accordance with the terms of the Notes and will pay items
more junior in the order of priorities to the extent of available cashflows.
However, in May and June 2000, available cashflows were not sufficient to pay
the entire amount of the Class A Principal Adjustment Amount then outstanding.
As a result, payments of the Class C and D Scheduled Principal Amounts ($2.5
million and $1.1 million, respectively) were deferred and payments of the Class
E Minimum Interest Amount were suspended.
There can be no assurances that these arrears will be paid in full or that
variations in future cashflows, which are currently suffering from adverse
pressure on market lease rates, or future appraisals will not lead to further
suspension of payments of Class C and D Scheduled Principal Amounts and the
Class E Minimum Interest Amount.
EXERCISE OF PURCHASE OPTIONS AT PRICES BELOW ESTIMATED FAIR MARKET VALUE OR
NET BOOK VALUE
As of March 31, 2000, Lessees with respect to Aircraft, representing 8.52%
of the Portfolio by Appraised Value, have options to purchase Aircraft at prices
below estimated fair market 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 18, 2000 to the option exercise date from the
Appraised Value of each Aircraft as determined as of February 18, 2000).
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
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amount and timing of principal payments to certain Certificateholders and the
average lives of the Certificates may be adversely affected.
SALES OF AIRCRAFT AT PRICES BELOW AIRCRAFT APPRAISED VALUES
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 these Aircraft in the current market
(as compared with the "stable market environment with a reasonable balance of
supply and demand" and the other factors assumed in the determination of Base
Value) is less than, and is likely to be substantially less than the Initial
Appraised Value or the Appraised Value. Furthermore, neither the Initial
Appraised Value nor the Appraised Value nor the value of the Aircraft in the
current market should be relied upon as a measure of the realizable value of the
Aircraft. If it were necessary to dispose of Aircraft in a distress situation,
and particularly if a large number of Aircraft were required to be sold, the
proceeds from such a sale of Aircraft would be substantially less than the value
in the current market. However, Airplanes Group does not expect to have to sell
Aircraft to provide for payment of principal and interest on the Notes, and does
not anticipate conducting any distress sales. Nevertheless, following a Note
Event of Default, there can be no assurance that Aircraft, if sold, would not be
sold at prices significantly less than the Initial Appraised Value or the
Appraised Value of such Aircraft. In addition, prior to a Note Event of Default,
each Trust Indenture permits Airplanes Group to sell Aircraft at prices below a
specified target price in certain limited circumstances and in limited aggregate
amounts, which may adversely affect the amount and timing of principal payments
to certain Certificateholders and may, in turn, affect the average lives of the
Certificates. At March 31, 2000, Airplanes Group had sold 29 Aircraft (for an
aggregate amount of $227 million) with an appraised value of $274 million (based
on the most recent appraisal before the sale date). While five of the 29
Aircraft were sold at prices below the specified target prices these
transactions were in accordance with the provisions in the Trust Indentures
outlined above.
LESSEE DEFAULTS RESULTING IN LIENS ON AIRCRAFT
Liens which secure the payment of, inter alia, airport taxes, customs
duties, air navigation charges (including charges imposed by Eurocontrol),
landing charges, crew wages, repairer's charges or salvage ("Liens") are likely,
depending on the jurisdiction in question, to attach to the Aircraft in the
normal course of operation. The sums which such Liens secure may be substantial
and may, with certain jurisdictions or limited types of Liens (particularly
fleet liens), exceed the value of the Aircraft in respect of which the Lien is
being asserted.
In some jurisdictions, aircraft Liens may give the holder thereof the right
to detain or, in limited cases, sell or cause the forfeiture of the Aircraft,
and, until discharged, such Liens could adversely affect the ability of
Airplanes Group to repossess, re-lease or sell the Aircraft. In particular,
under the laws of the United Kingdom, if a particular lessee (whether or not it
is a European operator) defaults in payments to Eurocontrol of air navigation
charges (relating to navigation services provided within European airspace by
Eurocontrol), the Civil Aviation Authority of the United Kingdom (the "CAA") has
the right to detain, pending payment, any aircraft operated by the defaulting
operator at the time of detention when a relevant aircraft is located at any
designated airport within the United Kingdom. Furthermore, if such charges are
not paid within a specified period, the CAA has the power to sell the detained
aircraft to satisfy the outstanding charges. These charges may also relate to a
period when the detained aircraft was being operated by a prior operator. A
similar form of "fleet lien" is granted to certain airport authorities under the
laws of the United Kingdom and in Ireland in relation to unpaid airport landing
fees.
Under each of the current Airplanes Group leases, the relevant lessee is
responsible for, and required to discharge, all such Liens arising during the
term of such leases, with the exception of those arising by reason of, inter
alia, Airplanes Group's or the lessor's own acts or those created by, or arising
by reason of, debts or liabilities of Airplanes Group's predecessors in title or
any previous operator. However, there can be no assurance that future leases
will contain such conditions or that the lessees will comply with such
obligations. Any failure to remove Liens could adversely affect Airplanes
Group's ability to repossess, re-lease or sell an
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Aircraft if a lessee defaults. The Servicer is not obligated under the terms of
the Servicing Agreement to remove any Liens from Aircraft.
FAILURE TO MAINTAIN 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 or modification of Aircraft will depend on Airplanes Group's ability to
satisfy the criteria set forth under the Trust Indentures.
AIRCRAFT TYPE CONCENTRATIONS
At March 31, 2000, three aircraft types contained in the Portfolio each
represented over 10% of the Portfolio by Appraised Value: Airbus A320-200s
constituted 10.22%, Boeing 737-400s constituted 16.02% and McDonnell Douglas
MD83s constituted 13.73%. Also, at March 31, 2000, narrowbody Aircraft
constituted 83.06% of the Portfolio by Appraised Value (excluding turboprops,
narrowbody Aircraft constituted 77.87% of the Portfolio by Appraised Value).
At March 31, 2000, 13 Aircraft or 16.94% of the Portfolio by Appraised
Value, were widebody aircraft. These widebody Aircraft include four B767-300ERs
(7.23% of the Portfolio by Appraised Value), three MD11s (6.07% of the Portfolio
by Appraised Value), one B767-200ER (1.33% of the Portfolio by Appraised Value),
one B747-200SF (1.04% of the Portfolio by Appraised Value), two A300-B4-200s
(0.62% of the Portfolio by Appraised Value), one A300-B4-100s (0.15% of the
Portfolio by Appraised Value) and one A300-C4-200 (0.50% of the Portfolio by
Appraised Value). The rental rates obtained by Airplanes Group from the current
lessee in respect of the three MD11 Aircraft are approximately one-third lower
than the contracted rentals under previous lease agreements for these Aircraft
and will adversely affect Airplanes Group's operating cash flows. The decline in
rental rates received for the three MD-11s reflected the uncertainty concerning
future production of MD11 aircraft following the merger between McDonnell
Douglas and Boeing. Boeing has since announced that it will cease production of
MD11 aircraft in 2000 which may further affect the rental rates achievable for
MD11 aircraft. In addition, the rental rates and leasing prospects for certain
B767 aircraft models have declined significantly within the last twelve months.
As a result, Airplanes Group has re-leased two B767 Aircraft in that period at
rates that were materially lower than rentals under the previous lease
agreements for these Aircraft.
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 (or if the Aircraft is not currently subject to a lease),
Airplanes Group may have to bear (or, to the extent required under the relevant
lease, share) the cost of compliance. Other governmental regulations relating to
noise and emissions levels may be imposed not only by the jurisdictions in which
the Aircraft are registered, possibly as part of the airworthiness requirements,
but also in other jurisdictions where the Aircraft operate. A number of
jurisdictions have adopted, or are in the process of adopting, noise regulations
which ultimately will require all aircraft to comply with the most restrictive
currently applicable standards. Such regulations restrict the future operation
of aircraft that do not meet Stage 3 (as defined in "-- The Aircraft, Related
Leases and Collateral") noise requirements and prohibit the operation of such
aircraft in the relevant jurisdictions including the United States. As 5.82% of
the Aircraft by Appraised Value did not meet, at March 31, 2000, the Stage 3
requirements, these regulations may adversely affect Airplanes Group.
Furthermore, there can be no assurance that no new ADs or noise or emissions
reduction requirements will not be adopted in the future that could result in
significant costs to Airplanes Group or adversely affect the value of, or its
ability to re-lease, Stage 2 or Stage 3 Aircraft. Certain organizations and
jurisdictions are currently considering tightening noise and emissions
certification requirements for newly manufactured aircraft.
The U.S. Federal Aviation Administration (the "FAA") recently issued an AD
concerning insulation for the purpose of increasing fire safety on MD-80 and
MD-11 aircraft. At March 31, 2000, 21.27% of the Aircraft in the Portfolio by
Appraised Value were MD11s and MD80s. Airplanes Group could incur significant
costs in ensuring the Aircraft comply with these standards which could impact
adversely on Airplanes Group's results of operations. It is currently not clear
whether or to what extent manufacturers, owners or lessees would be responsible
for the costs necessary to bring aircraft in compliance with such new standards.
RISKS RELATING TO THE LEASES
EXPOSURE TO DOWNSIDE RISK AS OWNER OF AIRCRAFT
Most of the current Airplanes Group leases are operating leases, under
which Airplanes Group retains substantially all of the risks and rewards
associated with ownership of the Aircraft, including the Aircraft's residual
value. Six of the existing leases are finance leases, which effectively transfer
the benefits and risks of ownership of the Aircraft from Airplanes Group to the
finance lessee. The existing operating leases are "net" leases pursuant to which
the lessees are obliged to make Rental Payments and generally assume
responsibility for, among other things, (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).
INABILITY TO RE-LEASE AIRCRAFT ON FAVORABLE TERMS
Upon termination of any lease, the Servicer is obligated, pursuant to the
terms of the Servicing Agreement, to use commercially reasonable efforts on
behalf of Airplanes Group to re-lease the related Aircraft. There can be no
assurance, however, that Airplanes Group will be able to obtain rental rates and
lease terms (including maintenance and redelivery condition agreements) in the
future comparable to those contained in the existing leases. Airplanes Group's
ability to re-lease Aircraft, as well as its ability to obtain such rental rates
and such terms, may be adversely affected by, among other things, 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.
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The expected number of Aircraft that Airplanes Group must place with
lessees through December 31, 2004 is made up of the sum of (i) Aircraft in
Airplanes Group's existing Portfolio that are currently available for marketing,
and (ii) Aircraft coming to the end of their lease terms before December 31,
2004, less the aggregate of (a) Aircraft which are currently the subject of a
lease extending through December 31, 2004, (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, 2004. Additional Aircraft may need to be re-leased if such
Aircraft become available through premature terminations of leases or if letters
of intent do not result in leases or if Aircraft subject to lease agreements are
not delivered. Airplanes Group's expected re-leasing requirements from March 31,
2000 through the year 2004 are shown in the following table:
AIRPLANES GROUP LEASE PLACEMENT REQUIREMENT
AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
TO DECEMBER 31,
--------------------------------
2000 2001 2002 2003 2004
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Aircraft available for marketing(1)...................... 6 -- -- -- --
Contracted lease expirations (including expirations of
leases that are assumed to result from letters of
intent)................................................ 33 47 47 41 17
Less Aircraft subject to contract or letter of
intent(2).............................................. (15) (7) -- -- --
---- ---- ---- ---- ----
Placement requirement(3)(4).............................. 24 40 47 41 17
==== ==== ==== ==== ====
</TABLE>
---------------
(1) Aircraft available for marketing consist of those Aircraft which were not in
revenue service with lessees as of March 31, 2000.
(2) Airplanes Group's lease placement requirement assumes that letters of intent
will in due course be reflected in binding contracts. Although letters of
intent are not legally binding, most of AerFi Group's and Airplanes Group's
letters of intent have, historically, resulted in lease agreements between
the parties thereto.
(3) Assumes that Aircraft coming to the end of currently contracted lease terms
which are not, as of March 31, 2000, the subject of an additional agreement
or letter of intent need to be re-leased only once more before the year
2004.
(4) Assumes that no current Airplanes Group lease entered into by Airplanes
Group terminates prematurely and that there are no sales of Aircraft.
There can be no assurance that, with significant numbers of Aircraft to
re-lease in the future, Airplanes Group will be able continually to re-lease
such Aircraft without significant periods of downtime or without any adverse
effect on the rental rates it is able to obtain, especially during downturns in
demand for aircraft on operating lease and that the ability of Airplanes Group
to make payments of interest, principal and premium, if any, on the Notes will
not be adversely affected thereby.
REQUIREMENT FOR CERTAIN LICENSES AND APPROVALS
A number of leases require specific licenses, consents or approvals for
different aspects of the leases. These include consents from governmental or
regulatory authorities to certain payments under the leases and to the import,
re-export or de-registration of the Aircraft. No assurance can be given that
such requirements 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.
RISK OF DECLINE IN RENTAL RATES
Future rental rates and the ability to re-lease Aircraft worldwide both
depend upon a number of factors that are not within the control of Airplanes
Group. See "-- Aircraft Risks -- Cyclicality of Supply of and
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Demand for Aircraft; Risk of Decline in Aircraft Values" and "-- Failure to
Perform Aircraft Maintenance". Both the bankruptcy of Fokker N.V., the
manufacturer of 6.40% of the Aircraft by Appraised Value, and the combination of
the merger between Boeing and McDonnell Douglas Corporation (McDonnell Douglas
Corporation is the manufacturer of 30.78% of the Aircraft by Appraised Value)
followed by the announcement by Boeing that it would cease production of MD83
aircraft in 1999, 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 Varig, S.A. ("Varig") in 1997 in respect of three MD11
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. Boeing has since announced that it will
cease production of MD11 aircraft which may adversely affect MD11 rental rates
further. 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. Further, in 2000 the rental rates obtained by Airplanes Group in respect
of two B767 Aircraft are materially lower to date than rentals under the
previous lease agreements for these aircraft. This will also adversely affect
Airplanes Group's operating cash flow.
FAILURE TO PERFORM AIRCRAFT MAINTENANCE
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.
RISK OF MAINTENANCE LIABILITIES EXCEEDING MAINTENANCE RESERVES
At March 31, 2000, Airplanes Group had provisions for maintenance of $274
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, AerFi'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.
In addition, remaining cash balances held in the Expense Account and the
Collection Account at any date ($191.8 million at May 9, 2000) will, in
accordance with the priority of payments, be available to discharge maintenance
liabilities together with other Required Expense Amounts as they fall due for
payment.
There can be no assurance, however, that Airplanes Group's future
maintenance requirements will correspond to Airplanes Group's or AerFi's
historical experience, or the industry's experience overall, particularly as the
Aircraft age. Furthermore, there can be no assurance that actual maintenance
reserve payments by lessees and other cash received by Airplanes Group will not
be significantly less than projected. Actual maintenance reserve payments by
lessees will depend upon numerous factors including defaults and the ability of
Airplanes Group to obtain satisfactory maintenance terms in leases. An
increasing number of leases do not provide for any maintenance reserve payments
to be made by lessees as security for their
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maintenance obligations. Any significant variations in such factors may
materially adversely affect the ability of Airplanes Group to make payments of
interest, principal and premium, if any, on the Notes.
LIABILITY, LOSS AND INSURANCE
The lessees are required under Airplanes Group's current leases to
indemnify the related lessor (and generally, if different, the owner) for, and
insure against, liabilities arising out of use and operation of the Aircraft,
including third party claims for death or injury to persons and damage to
property for which Airplanes Group may be deemed liable. Any insurance proceeds
received by Airplanes Group in respect of such claims shall be paid first to the
applicable lessor in the event of loss of the Aircraft, to effect repairs or in
the case of liability insurance, for indemnification of third party liabilities,
with the balance, after deduction for all amounts due and payable by the lessee
under the applicable lease, to be paid to the lessee. The lessees are also
required to maintain public liability, property damage and hull all risks
insurance on the Aircraft at agreed levels subject to hull deductibles which
generally range from $250,000 to $1 million. Although Airplanes Group believes
that the insurance required under the leases will be adequate to cover all
likely claims, there can be no assurance that one or more catastrophic events
will not exceed coverage limits. The lessees are required under the leases to
provide evidence of insurance, and the insurers must notify Airplanes Group if
any lessee insurance is to be cancelled or terminated. In such event, the
Servicer is obligated, pursuant to the terms of the Servicing Agreement, to use
commercially reasonable efforts to procure alternative insurance coverage to the
extent commercially available in the relevant insurance market. However, any
inadequate insurance coverage or default by the lessees in fulfilling their
indemnification or insurance obligations will affect the proceeds that would be
received upon an event of loss under the respective leases or claim under the
relevant liability insurance.
With respect to certain leases, the lessor may arrange separate political
risk repossession insurance for its own benefit, covering (a) confiscation,
nationalization and requisition of title of the relevant Aircraft by the
government of the country of registry and denegation and deprivation of legal
title and rights, and (b) the failure of the authorities in that country to
allow de-registration and export of the Aircraft, subject to the conditions of
the policies.
RISK OF WITHHOLDING TAX ON LEASE RENTALS
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.
RISK OF LESSEE DEFAULT
DETERIORATION IN FINANCIAL CONDITION OF LESSEES
The ability of each lessee to perform its obligations under its lease will
depend primarily on such lessee's financial condition. A lessee's financial
condition may be affected by various factors beyond the control of Airplanes
Group, including competition, fare levels, passenger demand, operating costs
(including the price and availability of jet fuel and labor costs), economic
conditions in the countries in which the lessees operate and environmental and
other governmental regulation of or affecting the air transportation business.
Many of Airplanes Group's existing lessees are in a relatively weak financial
position. There can be no assurance as to the extent to which lessees will be
able to perform their financial and other obligations under the leases.
As of March 31, 2000, 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 $25.1 million in respect of 37 Lessees (who
had a combined total of 86 Aircraft on lease as of such date) and one former
lessee ($1.7 million of the $25.1 million related to this former lessee). Of the
total $25.1 million, $4.9 million was in arrears for a period
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<PAGE> 21
greater than 30 days, $4.8 million was in arrears for a period greater than 60
days and $15.4 million was in arrears for a period greater than 90 days. 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. Of the $25.1 million in
arrears greater than 30 days, $5.1 million represented arrears with respect to
one Brazilian lessee operating one Boeing 767-300ER Aircraft. This Aircraft was
re-delivered by the lessee subsequent to March 31, 2000. The Servicer is in
discussion with the lessee in respect of the amounts outstanding to Airplanes
Group. In addition to these amounts, four further lessees were being allowed
formal deferrals of rent, maintenance and miscellaneous payments totaling
approximately $5.1 million at March 31, 2000. Such lessees are being allowed
deferrals of rentals, maintenance and miscellaneous payments for periods of up
to 70 months.
RISK OF REGIONAL ECONOMIC DOWNTURNS AFFECTING LESSEE FINANCIAL CONDITION
EUROPEAN CONCENTRATION. At March 31, 2000, Airplanes Group leased 62
Aircraft representing 34.97% of the Portfolio by Appraised Value to 26 aircraft
operators in Europe.
The commercial aviation industry in European countries, as in the rest of
the world generally, is highly sensitive to general economic conditions. Because
a substantial portion of airline travel (business and especially leisure) is
discretionary, the industry has tended to suffer severe financial difficulties
during economic downturns. Accordingly, the financial prospects for European
lessees can be expected to depend largely on the level of economic activity in
Europe generally and in the specific countries in which such lessees operate. A
recession or other worsening of economic conditions in one or more of these
countries may have a material adverse effect on the ability of European lessees
to meet their financial and other obligations under the leases. In addition,
commercial airlines in Europe face, and can be expected to continue to face,
increased competitive pressures, in part as a result of the continuing
deregulation of the airline industry by the European Union (the "EU"). There can
be no assurance that competitive pressures resulting from such deregulation will
not have a material adverse impact on the operations of such lessees.
At March 31, 2000, five lessees in Turkey operate 13 Aircraft representing
9.13% of the Portfolio by Appraised Value. Turkey was hit by a severe earthquake
in August 1999. Damage caused by the earthquake and any fall-off in tourist
traffic may adversely affect the ability of these airlines to operate and meet
their obligations under the leases. In addition, the recent fall in value of the
Deutsche Mark, the principal currency in which the Turkish airlines receive
their revenues, may affect the ability of these airlines to meet the dollar
denominated rental and other payments due under the leases. At March 31, 2000,
one Turkish lessee of two Aircraft, representing 1.4% of the Portfolio by
Appraised Value, was $2.0 million in arrears in respect of Rental Payments and
maintenance reserves. The Servicer is currently in discussions with this lessee
regarding its outstanding balance.
LATIN AMERICAN CONCENTRATION. At March 31, 2000, the lessees with respect
to 31.89% 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. 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.
At March 31, 2000, Airplanes Group leased 15 Aircraft representing 12.64%
of the Portfolio by Appraised Value to operators in Brazil. Subsequent to March
31, 2000, one B767 Aircraft representing 1.69% of the Portfolio by Appraised
Value was re-delivered to Airplanes Group. During 1999 Brazil experienced
significant downturns in its economy and financial markets, with large decreases
in financial asset prices and dramatic decreases in the value of its currency.
The loss of confidence in the Brazilian markets and currency was associated with
the economic crisis also affecting "emerging markets" in Asia at that time. See
"-- Asia Pacific Concentration" below. While there has been some stabilisation
in the Brazilian economy in
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recent months, any future general deterioration in the Brazilian economy will
mean that lessees may be unable to generate sufficient revenues in Brazilian
currency to pay the dollar-denominated Rental Payments under the leases. Failure
by Brazil to address such a crisis could result in the crisis spreading to other
Latin American economies and economies in other emerging markets. Future
developments in the political systems or economies of Brazil and other Latin
American countries may have a material adverse effect on lessee operations in
those countries and could adversely affect the operations of Airplanes Group's
Brazilian customers.
Colombia has recently suffered as a result of the deterioration in the
value of the Colombian Peso and the resulting negative impact on the Colombian
economy. Airplanes Group leases to three Colombian lessees which operate ten
Aircraft, representing 6.52% of the portfolio by Appraised Value. Continued
weakness in the value of the Colombian Peso, as well as general deterioration in
the Colombian economy, will mean that these lessees may be unable to generate
sufficient revenues in the Colombian currency to pay the dollar denominated
rental payments under the leases.
Airplanes Group has entered into rent deferral and restructuring
arrangements with certain significant Brazilian and Mexican lessees who have
experienced difficulties in the past five years due to overcapacity and adverse
market conditions. See "-- The Lessees -- Latin America" below.
NORTH AMERICAN CONCENTRATION. At March 31, 2000, Airplanes Group leased 38
Aircraft representing 15.61% 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 1997 and 1998 a number of significant new aircraft orders were announced
by North American airlines. However, even in the prevailing relatively positive
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
Lessees -- North America" below.
ASIAN CONCENTRATION. At March 31, 2000, Airplanes Group leased 15
Aircraft, representing 8.72% 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 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, corporate debt defaults and internationally
organized financial stability measures. This downturn in the region's economies
and the resulting civil unrest has undermined business confidence and has had 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. See "--
The Lessees -- Asia" below. Several airlines in the region 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 now prevail in large parts of the region which may
continue for a significant period of time have had an adverse impact on global
aircraft demand.
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INABILITY TO TERMINATE LEASES OR REPOSSESS AIRCRAFT
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. As a consequence of the large number of jurisdictions Airplanes Group
leases its Aircraft to, 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. In particular, in the year ended March 31, 1999, in
connection with the recovery by Airplanes Group of possession of four Aircraft
from an Indonesian lessee significant expenditures were required in order to
restore such Aircraft to a suitable condition for re-lease. 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
re-leasing the affected Aircraft. Further, the premature termination of leases
may, in certain circumstances, lead Airplanes Group to incur substantial swap
breakage costs under its agreements with Swap Providers ("Swap Agreements").
RISKS RELATING TO PAYMENTS ON THE CERTIFICATES
FACTORS AFFECTING THE AMOUNT AND TIMING OF PAYMENTS UNDER THE CERTIFICATES
The ability of Airplanes Group to re-lease Aircraft upon expiration or
termination of the related leases, as well as other events outside of Airplanes
Group's control, will affect payments on, and the weighted average lives of, the
Notes and, accordingly, the Certificates, and may therefore affect the yield on
the Certificates. Early terminations, whether as a result of lessee defaults or
otherwise, may cause Aircraft to be re-leased earlier and more frequently and at
lower rental rates than expected, and could adversely affect payments on the
Certificates. The exercise of purchase options by certain lessees (the "Purchase
Options") or the occurrence of termination events cannot be predicted and may be
influenced by a variety of economic and other factors, including future interest
rates and the availability and market value of aircraft at future dates.
CASH FLOW FROM AIRCRAFT AND LEASES UNPREDICTABLE; FAILURE OF ACTUAL
EXPERIENCE TO MATCH ASSUMPTIONS
The expected repayment schedules of the Notes were arrived at on the basis
of certain assumptions. It is highly unlikely that the assumptions will be
consistent with Airplanes Group's experience for numerous reasons. 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
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addition, other economic and political factors, such as prevailing interest
rates and the availability of credit and market demand for aircraft rentals
cannot be assured. Rental Payments, insurance recoveries, Maintenance Reserve
payments, expenses and liabilities will often be dependent upon the actions of
third parties, which are difficult to predict and are generally not within
Airplanes Group's control. Accordingly, collections and other realizations with
respect to certain leases and Aircraft could occur at substantially different
times and levels than anticipated and may not occur at all. As a result, there
can be no assurance that Airplanes Group will be able to repay the initial
outstanding principal balance on any class or subclass of the Notes.
SUBORDINATION PROVISIONS
The Expenses and certain other payments are senior in priority of payment
to the Notes and will be paid out of funds on deposit in the Collection Account
before any payments are made on the Notes.
EARLY REDEMPTION AND DEFEASANCE
The Notes, and the corresponding Certificates, may be redeemed on any date
on which an interest payment is due, in whole or in part, at the applicable
redemption price, plus accrued but unpaid interest; provided, however, that
there shall have been paid in full all accrued and unpaid interest and other
amounts with respect to all subclasses and classes of Notes ranking equally or
prior to the Notes to be redeemed on such date. In addition, each class or
subclass of Notes may be redeemed in whole but not in part on any interest
payment date, without premium, upon the occurrence of certain adverse tax events
affecting Airplanes Group. Finally, all classes and subclasses of the Notes may
be redeemed or defeased, in whole, at the applicable redemption price plus
accrued and unpaid interest in the case of any subclass or class of Notes being
redeemed, in connection with any sale of all or substantially all of the assets
of Airplanes Group. Certain classes or subclasses of the Notes may be redeemed
at such time as other classes or subclasses of the Notes are being defeased.
INABILITY TO REFINANCE CERTAIN CERTIFICATES
The Subclass A-4, A-7, and A-8 Certificates and the corresponding
subclasses of Notes are expected to reach their expected final payment dates
before Airplanes Group has received sufficient funds to pay all of the principal
on such Notes and the corresponding Certificates. Airplanes Group will attempt
to refinance each of the Subclass A-4, A-7 and A-8 Certificates with the net
cash proceeds realized from public offerings and sales by a trust of refinancing
certificates (the "Refinancing Certificates"). The Refinancing Certificates will
rank equally 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-4, A-7 and
A-8 Certificates. This may increase the overall cost of borrowing, and may
affect the liquidity and market prices of the Certificates generally.
TAX RISKS
Ownership of the Certificates entails certain risks with respect to the
application of Irish tax laws, United States federal tax laws, Jersey tax laws
and the tax laws of the jurisdictions in which the Transferred Companies and the
lessees are organized, reside or operate. In addition, the tax consequences of
the purchase of the Certificates depend to some extent upon an investor's
individual circumstances.
Whether any of Airplanes Limited, Holding Co. or the Transferred Companies
will be subject to United States federal income tax may depend on the manner in
which the activities of the Servicer and Administrative Agent are performed for
Airplanes Limited, Holding Co. and the Transferred Companies and
23
<PAGE> 25
the application of the 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 or
that Airplanes Limited, Holding Co. and the Transferred Companies would not be
subject to United States federal income tax on some or all of their income.
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.
IMPOSITION OF WITHHOLDING TAX
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.
LOSS OF CERTAIN IRISH TAX BENEFITS
Airplanes Limited owns 95% of the capital stock of Holding Co. and the
remaining 5% is owned by GECAS. The 5% shareholding by GECAS 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 GECAS was to reduce or relocate its operations for any reason such
that it failed to maintain, among other things, certain employment levels in
Ireland or GECAS was to resign or be terminated in accordance with the terms of
the Servicing Agreement, then Holding Co. (and the other Irish tax resident
Transferred Companies) may become subject to Irish corporate taxation at general
Irish statutory rates (currently 24%) and may lose the ability to deduct
interest payments to Airplanes Limited from their income in computing their
liability to Irish tax. Such a loss of tax benefits would likely lead to a
downgrade in the then current rating on the 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.
The Servicing Agreement sets out certain tax-related undertakings
(including maintaining minimum employment levels in Ireland) 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. In the event that
the Servicer fails to perform such undertakings and a material tax event occurs,
Airplanes Group's sole remedy will be to terminate the Servicing Agreement and
replace GECAS as the Servicer. In such circumstances, there is no assurance that
the Airplanes Group would be able to find a servicer to replace GECAS.
Upon the scheduled termination of the preferential tax rate on December 31,
2005, Holding Co. and the other Irish tax resident Transferred Companies 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%. These
laws were enacted in May 1999. 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.
24
<PAGE> 26
THE AIRCRAFT, RELATED LEASES AND COLLATERAL
PORTFOLIO INFORMATION -- THE AIRCRAFT
At March 31, 2000, Aircraft representing 94.18% by Appraised Value 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 5.82% 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 have been shown to comply with the
Stage 2 noise levels ("Stage 2 aircraft") and do not comply with the
requirements for a Stage 3 aircraft. Stage 2 aircraft are noisier than Stage 3
aircraft. A number of jurisdictions, including the EU and the United States,
have adopted or are in the process of adopting, noise regulations restricting
the future operation of aircraft that do not meet Stage 3 noise requirements.
The following table sets forth the exposure of the Portfolio to certain
individual lessees, calculated as of March 31, 2000 by reference to the
Appraised Value of the Aircraft as of February 18, 2000.
<TABLE>
<CAPTION>
NUMBER OF % OF PORTFOLIO BY
LESSEE(1) AIRCRAFT APPRAISED VALUE
--------- --------- -----------------
<S> <C> <C>
Varig....................................................... 3 6.07
Air Canada(2)............................................... 12 5.56
Aerovias Nacionales de Colombia S.A. ("AVIANCA")............ 6 5.01
Turk Hava Yollari A.O. ("THY").............................. 7 4.94
BAX Global.................................................. 10 4.24
Airtours International Airways Limited ("AIRTOURS")......... 4 3.51
Compania Mexicana de Aviacion S.A. de C.V. ("MEXICANA")..... 10 3.48
Transportes Aereos Regionais S.A. ("TAM")................... 8 3.16
Spanair..................................................... 5 2.93
Lan Chile Airlines.......................................... 4 2.39
China Southern.............................................. 4 2.34
Aerovias de Mexico S.A. de C.V. ("AEROMEXICO").............. 9 2.25
Futura...................................................... 3 2.22
Other (59 Lessees).......................................... 108 46.07
Off-Lease(3)................................................ 6 5.83
--- ------
Total.................................................. 199 100.00
=== ======
</TABLE>
---------------
(1) Total number of Lessees = 72
(2) This table reflects the takeover of Canadian Airlines by Air Canada.
(3) Of the six off lease Aircraft at March 31, 2000, three were subsequently
delivered to lessees under lease agreements and one has become subject to an
LOI for lease.
25
<PAGE> 27
The following table sets forth the exposure of Airplanes Group's portfolio
of Aircraft by type of aircraft, calculated by reference to the number of
Aircraft at March 31, 2000 and the Appraised Value of the Aircraft as of
February 18, 2000. For the purpose of the following table, turboprop Aircraft
are assumed to be Stage 3 aircraft.
<TABLE>
<CAPTION>
NUMBER OF ENGINE % OF PORTFOLIO BY
MANUFACTURER TYPE OF AIRCRAFT AIRCRAFT BODY TYPE STAGE APPRAISED VALUE
------------ ---------------- --------- ---------- ------ -----------------
<S> <C> <C> <C> <C> <C>
Boeing (46.14%)................ 727-200A 2 Narrowbody 2 0.24
737-200A 25 Narrowbody 2 3.83
737-200QC 2 Narrowbody 2 0.48
737-300 8 Narrowbody 3 4.96
737-300QC 2 Narrowbody 3 1.11
737-400 22 Narrowbody 3 16.02
737-500 11 Narrowbody 3 6.40
747-200SF 1 Widebody 3 1.04
757-200 3 Narrowbody 3 3.50
767-200ER 1 Widebody 3 1.33
767-300ER 4 Widebody 3 7.23
McDonnell Douglas (30.78%)..... DC8-71F 18 Narrowbody 3 7.69
DC8-73CF 1 Narrowbody 3 0.55
DC9-32 6 Narrowbody 2 0.78
DC9-51 4 Narrowbody 2 0.49
MD11 3 Widebody 3 6.07
MD82 2 Narrowbody 3 1.08
MD83 23 Narrowbody 3 13.73
MD87 1 Narrowbody 3 0.39
Airbus (11.49%)................ A300-B4-100 1 Widebody 3 0.15
A300-B4-203 2 Widebody 3 0.62
A300-C4-203 1 Widebody 3 0.50
A320-200 12 Narrowbody 3 10.22
Fokker (6.40%)................. F100 16 Narrowbody 3 6.40
Bombardier De Havilland
(4.40%)...................... DHC8-100 5 Turboprop 3 0.77
DHC8-102 1 Turboprop 3 0.17
DHC8-300 6 Turboprop 3 1.34
DHC8-300A 9 Turboprop 3 2.12
Other (0.79%).................. METRO-III 3 Turboprop 3 0.10
ATR42-300 3 Turboprop 3 0.49
ATR42-320 1 Turboprop 3 0.20
---
199
===
</TABLE>
26
<PAGE> 28
The following table sets forth the exposure of the Portfolio as of March
31, 2000 to countries in which lessees are domiciled, calculated by reference to
number of Aircraft as of March 31, 2000 and the Appraised Value of the Aircraft
at February 18, 2000.
<TABLE>
<CAPTION>
NUMBER OF % OF PORTFOLIO BY
COUNTRY(1) AIRCRAFT APPRAISED VALUE
---------- --------- -----------------
<S> <C> <C>
Brazil...................................................... 15 12.64
United States............................................... 26 10.05
Turkey...................................................... 13 9.13
Spain....................................................... 10 6.54
Colombia.................................................... 10 6.52
Mexico...................................................... 19 5.73
Canada...................................................... 12 5.56
United Kingdom.............................................. 9 4.83
Italy....................................................... 7 4.32
Chile....................................................... 8 4.10
China....................................................... 6 3.74
France...................................................... 3 2.29
Hungary..................................................... 3 1.69
Other Countries (26 countries).............................. 52 17.03
Off-Lease(2)................................................ 6 5.83
--- ------
Total.................................................. 199 100.00
=== ======
</TABLE>
---------------
(1) Total number of countries = 39
(2) Of the six off lease Aircraft at March 31, 2000, three were subsequently
delivered to lessees under lease agreements and one has become subject to an
LOI for lease.
The following table sets forth the exposure of the Portfolio by regions in
which lessees are domiciled, calculated by reference to number of Aircraft as of
March 31, 2000 and the Appraised Value of the Aircraft as of February 18, 2000.
<TABLE>
<CAPTION>
NUMBER OF % OF PORTFOLIO BY
REGION AIRCRAFT APPRAISED VALUE
------ --------- -----------------
<S> <C> <C>
Europe (excluding CIS Countries)............................ 62 34.97
Latin America............................................... 67 31.89
North America............................................... 38 15.61
Asia & Far East............................................. 15 8.72
Others (including CIS Countries)............................ 5 1.50
Africa...................................................... 2 1.23
Australia & New Zealand..................................... 4 0.25
Off-Lease(1)................................................ 6 5.83
--- ------
Total.................................................. 199 100.00
=== ======
</TABLE>
---------------
(1) Of the six off lease Aircraft at March 31, 2000, three were subsequently
delivered to lessees under lease agreements and one has become subject to an
LOI for lease.
27
<PAGE> 29
The following table sets forth the exposure of the Portfolio by year of
aircraft manufacture or conversion to freighter, calculated as of March 31, 2000
by reference to the Appraised Value of the Aircraft as of February 18, 2000.
<TABLE>
<CAPTION>
NUMBER OF % OF PORTFOLIO BY
YEAR OF MANUFACTURER/FREIGHTER CONVERSION AIRCRAFT APPRAISED VALUE
----------------------------------------- --------- -----------------
<S> <C> <C>
1988........................................................ 15 5.36
1989........................................................ 9 4.54
1990........................................................ 19 10.03
1991........................................................ 43 23.43
1992........................................................ 53 40.09
1993........................................................ 7 3.32
Other....................................................... 53 13.23
--- ------
Total..................................................... 199 100.00
=== ======
</TABLE>
The following table sets forth the exposure of the Portfolio by seat
category calculated as of March 31, 2000 by reference to the Appraised Value as
of February 18, 2000.
<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 5.19
91-120 B737-200, B737-500, DC9-32/51, MD87, F100......... 63 18.29
121-170 B727-200,B737-300/400, MD82/83, A320-200.......... 71 47.36
171-240 B757-200, B767-200ER.............................. 4 4.83
241-350 B767-300ER, MD11, A300............................ 11 14.57
Freighter B747-200SF, B737-200C, DC8-71F/73CF............... 22 9.76
--- ------
199 100.00
=== ======
</TABLE>
28
<PAGE> 30
Further particulars of the Portfolio as of March 31, 2000 (except for Appraised
Values which are as of February 18, 2000) are contained in the table below.
AIRPLANES GROUP PORTFOLIO ANALYSIS
<TABLE>
<CAPTION>
AIRCRAFT ENGINE SERIAL
REGION COUNTRY LESSEE TYPE CONFIGURATION NUMBER
------ ------- ------ ----------- --------------- ------
<S> <C> <C> <C> <C> <C>
Africa................... Tunisia Nouvelair Tunisie MD83 JT8D-219 49672
Tunisia Tuninter B737-300 CFM56-3C1 24905
Asia & Far East.......... China China Southern B737-500 CFM56-3C1 24897
China China Southern B737-500 CFM56-3C1 25182
China China Southern B737-500 CFM56-3C1 25183
China China Southern B737-500 CFM56-3C1 25188
China Xiamen B737-200QC JT8D-17A 23066
China Xinjiang B757-200 RB211-535E4-37 26156
India Jet Airways (India) Pvte Ltd. B737-400 CFM56-3C1 24345
India Jet Airways (India) Pvte Ltd. B737-500 CFM56-3C1 25191
Indonesia PT Mandala Airlines B737-200A JT8D-17A 23023
Malaysia Air Asia Sdn. Bhd. B737-300 CFM56-3C1 24907
Pakistan Pakistan Int Airline A300-B4-203 CF6-50C2 269
Philippines Philippine Airlines B737-300 CFM56-3B1 24770
South Korea Asiana Airlines B737-400 CFM56-3C1 24493
South Korea Asiana Airlines B737-400 CFM56-3C1 24520
Taiwan Far Eastern Air Transport MD83 JT8D-219 49950
Australia & New
Zealand................. Australia National Jet Systems DHC8-100 PW121 229
New Zealand Air Nelson METRO-III TPE331-11 705
New Zealand Air Nelson METRO-III TPE331-11 711
New Zealand Air Nelson METRO-III TPE331-11 712
Europe................... Austria Rheintalflug DHC8-300 PW123 307
Bulgaria Balkan Bulgarian Airlines B737-300 CFM56-3B2 23749
Bulgaria Balkan Bulgarian Airlines B737-300 CFM56-3B2 23923
France Air France A320-200 CFM56-5A3 203
France Air France A320-200 CFM56 220
France Air Liberte S.A. MD83 JT8D-219 49943
Germany Estago Anlagen-Vermietungs MD83 JT8D-219 49620
Hungary Malev B737-200A JT8D-17A 22804
Hungary Malev B737-400 CFM56-3C1 26069
Hungary Malev B737-400 CFM56-3C1 26071
Ireland Transaer International A300-B4-100 CF6-50C2 20
Ireland Transaer International A300-B4-203 CF6-50C2 131
Italy Air One SpA B737-300 CFM56-3C1 25179
Italy Air One SpA B737-300 CFM56-3C1 25187
Italy Eurofly S.P.A MD83 JT8D-219 49390
Italy Eurofly S.P.A MD83 JT8D-219 49631
Italy Meridiana SpA MD83 JT8D-219 49792
Italy Meridiana SpA MD83 JT8D-219 49935
Italy Meridiana SpA MD83 JT8D-219 49951
Macedonia Interimpex-Avioimpex MD83 JT8D-219 49442
Netherlands Schreiner Airways DHC8-300 PW123 232
Netherlands Schreiner Airways DHC8-300 PW123 244
Netherlands Schreiner Airways DHC8-300A PW123 266
Netherlands Schreiner Airways DHC8-300A PW123 276
Netherlands Schreiner Airways DHC8-300A PW123 283
Netherlands Schreiner Airways DHC8-300A PW123 298
Netherlands Schreiner Airways DHC8-300A PW123 300
Norway Wideroe's Flyveselskap a/s DHC8-300 PW123 293
Norway Wideroe's Flyveselskap a/s DHC8-300 PW123 342
Spain Air Europa B737-400 CFM56-3C1 24906
Spain Air Europa B737-400 CFM56-3C1 24912
Spain Futura B737-400 CFM56-3C1 24689
<CAPTION>
APPRAISED
VALUE AT
DATE OF FEBRUARY 18,
MANUFACTURE/ 2000
REGION CONVERSION (US$000'S)
------ ------------ ------------
<S> <C> <C>
Africa................... 01-Jul-88 18,507
01-Feb-91 22,473
Asia & Far East.......... 26-Feb-91 18,467
03-Feb-92 19,990
14-Feb-92 19,760
12-Mar-92 19,687
09-Dec-83 7,497
25-Nov-92 39,423
01-Jun-89 22,333
10-Apr-92 19,020
30-Mar-83 6,047
01-Mar-91 22,330
11-Aug-83 10,417
01-Oct-90 20,480
14-Jul-89 21,397
21-Dec-89 23,060
01-Nov-91 21,123
Australia & New
Zealand................. 01-Sep-90 5,040
01-Aug-88 1,087
01-Mar-88 1,117
01-Jun-88 1,123
Europe................... 01-Dec-91 7,550
01-May-87 18,907
01-Apr-88 18,733
01-Sep-91 27,730
01-Sep-91 27,923
01-Jul-91 20,640
01-Jul-88 18,093
01-Feb-83 5,487
02-Nov-92 25,357
13-Nov-92 25,480
01-Oct-75 5,113
07-Feb-81 10,423
12-Feb-92 23,323
14-Mar-92 23,047
01-Apr-86 17,327
14-Jun-89 18,467
01-Nov-89 19,120
26-Sep-90 21,833
25-Aug-91 20,960
29-Apr-87 17,523
20-Oct-90 7,017
01-Dec-90 7,130
20-Mar-91 7,700
13-May-91 7,890
01-Sep-91 7,997
01-Apr-92 8,287
01-Apr-92 8,503
01-Oct-91 7,600
01-Dec-92 7,770
24-Feb-91 23,120
14-Jun-91 23,567
03-Jul-90 24,130
</TABLE>
29
<PAGE> 31
<TABLE>
<CAPTION>
AIRCRAFT ENGINE SERIAL
REGION COUNTRY LESSEE TYPE CONFIGURATION NUMBER
------ ------- ------ ----------- --------------- ------
<S> <C> <C> <C> <C> <C>
Spain Futura B737-400 CFM56-3C1 24690
Spain Futura B737-400 CFM56-3C1 25180
Spain Spanair MD83 JT8D-219 49624
Spain Spanair MD83 JT8D-219 49626
Spain Spanair MD83 JT8D-219 49709
Spain Spanair MD83 JT8D-219 49936
Spain Spanair MD83 JT8D-219 49938
Sweden Britannia Airways AB B757-200 RB2110-535E4-37 26151
Turkey Istanbul B737-400 CFM56-3C1 24683
Turkey Istanbul B737-400 CFM56-3C1 24691
Turkey MNG Airlines Cargo A300-C4-203 CF6-50C2 83
Turkey Pegasus B737-400 CFM56-3C1 24684
Turkey Pegasus B737-400 CFM56-3C1 26081
Turkey Sun Express B737-400 CFM56-3C1 25190
Turkey Turk Hava Yollari B737-400 CFM56-3C1 24917
Turkey Turk Hava Yollari B737-400 CFM56-3C1 25181
Turkey Turk Hava Yollari B737-400 CFM56-3C1 25184
Turkey Turk Hava Yollari B737-400 CFM56-3C1 25261
Turkey Turk Hava Yollari B737-500 CFM56-3C1 25288
Turkey Turk Hava Yollari B737-500 CFM56-3C1 25289
Turkey Turk Hava Yollari B737-400 CFM56-3C1 26065
United Kingdom Airtours International A320-200 CFM56 294
United Kingdom Airtours International A320-200 CFM56 301
United Kingdom Airtours International A320-200 CFM56 348
United Kingdom Airtours International A320-200 CFM56-5A3 349
United Kingdom British Midland B737-500 CFM56-3C1 25185
United Kingdom Brymon Airways DHC8-300A PW123 296
United Kingdom Brymon Airways DHC8-300 PW123 334
United Kingdom Titan Airways Limited ATR42-300 PW120 109
United Kingdom Titan Airways Limited ATR42-300 PW120 113
Latin America............ Antigua Liat DHC8-102 PW120-A 113
Antigua Liat DHC8-100 PW120-A 140
Antigua Liat DHC8-100 PW120-A 144
Antigua Liat DHC8-100 PW120-A 270
Argentina Aerolineas Argentinas S.A. B737-200A JT8D-17 21192
Argentina LAPA B737-200A JT8D-17 21193
Argentina LAPA B737-200A JT8D-17 21196
Argentina LAPA B737-200A JT8D-15 22278
Argentina LAPA B737-200A JT8D-15 22368
Argentina LAPA B737-200A JT8D-15 22369
Argentina LAPA B737-200A JT8D-15 22633
Argentina LAPA B737-200QC JT8D-17A 23065
Brazil Rio Sul B737-500 CFM56-3C1 25186
Brazil Rio Sul B737-500 CFM56-3C1 25192
Brazil Rio Sul B737-500 CFM56-3C1 26075
Brazil TAM F100 TAY650-15 11304
Brazil TAM F100 TAY650-15 11305
Brazil TAM F100 TAY650-15 11336
Brazil TAM (Meridionais) F100 TAY650-15 11284
Brazil TAM (Meridionais) F100 TAY650-15 11285
Brazil TAM (Meridionais) F100 TAY650-15 11347
Brazil TAM (Meridionais) F100 TAY650-15 11348
Brazil TAM Express S/A F100 TAY650-15 11371
Brazil Transbrasil B767-300ER PW4060 24948
Brazil VARIG MD11 CF6-80C2-D1F 48499
Brazil VARIG MD11 CF6-80C2-D1F 48500
Brazil VARIG MD11 CF6-80C2-D1F 48501
Chile Aircraft Int. Leasing DC8-71F CFM56-2C1 45810
Limited(1)
<CAPTION>
APPRAISED
VALUE AT
DATE OF FEBRUARY 18,
MANUFACTURE/ 2000
REGION CONVERSION (US$000'S)
------ ------------ ------------
<S> <C> <C>
01-Jul-90 24,250
21-Jan-92 25,553
01-Aug-88 18,923
22-Oct-88 18,503
01-Dec-88 18,377
06-Oct-90 21,557
01-Dec-90 20,270
23-Jul-92 39,353
07-Aug-90 23,863
09-Aug-90 23,850
01-May-79 16,787
01-Apr-90 23,893
10-Mar-93 26,293
07-Apr-92 25,127
24-Jun-91 24,780
03-Feb-92 25,093
02-Mar-92 25,343
09-Apr-92 24,990
16-Jun-92 19,773
12-Jun-92 19,870
01-May-92 25,010
02-Apr-92 29,483
22-Apr-92 29,190
17-Jun-92 28,743
30-Oct-92 29,507
18-Feb-92 19,270
01-Oct-91 7,473
08-Oct-92 7,507
14-Oct-88 4,830
18-Nov-88 5,057
Latin America............ 01-Sep-88 5,543
01-Mar-89 4,613
01-Mar-89 4,907
01-May-91 5,680
01-Mar-76 3,827
01-Jul-76 4,010
01-Jul-76 3,740
19-Mar-80 5,077
01-Sep-80 5,100
01-Sep-80 5,030
01-Mar-81 6,390
15-Oct-96 8,467
11-Mar-92 19,127
14-Apr-92 19,073
23-Oct-92 19,263
27-Feb-91 12,980
19-Apr-91 13,220
05-Jun-91 13,267
31-Jul-90 12,133
01-Aug-90 13,010
01-Oct-91 13,503
06-Aug-91 13,587
19-Dec-91 13,840
19-Jul-91 56,300
31-Dec-91 65,727
01-Mar-92 67,820
01-Sep-92 68,740
09-Apr-92 13,940
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
AIRCRAFT ENGINE SERIAL
REGION COUNTRY LESSEE TYPE CONFIGURATION NUMBER
------ ------- ------ ----------- --------------- ------
<S> <C> <C> <C> <C> <C>
Chile Aircraft Int. Leasing DC8-71F CFM56-2C1 45970
Limited(1)
Chile Aircraft Int. Leasing DC8-71F CFM56-2C1 45976
Limited(1)
Chile Aircraft Int. Leasing DC8-71F CFM56-2C1 45996
Limited(1)
Chile Lan Chile Airlines B737-200A JT8D-15 22397
Chile Lan Chile Airlines B737-200A JT8D-17A 22407
Chile Lan Chile Airlines B737-200A JT8D-17A 23024
Chile Lan Chile Airlines B767-300ER PW4060 26204
Colombia ACES ATR42-320 PW121-5A1 284
Colombia Avianca B767-200ER PW4056 25421
Colombia Avianca B757-200 RB211-535E4-37 26154
Colombia Avianca MD83 JT8D-219 49939
Colombia Avianca MD83 JT8D-219 49946
Colombia Avianca MD83 JT8D-219 53120
Colombia Avianca MD83 JT8D-219 53125
Colombia Tampa DC8-71F CFM56-2C1 45849
Colombia Tampa DC8-71F CFM56-2C1 45945
Colombia Tampa DC8-71F CFM56-2C1 46066
Mexico Aeromexico DC9-32 JT8D-17 48125
Mexico Aeromexico DC9-32 JT8D-17 48126
Mexico Aeromexico DC9-32 JT8D-17 48127
Mexico Aeromexico DC9-32 JT8D-17 48128
Mexico Aeromexico DC9-32 JT8D-17 48129
Mexico Aeromexico DC9-32 JT8D-17 48130
Mexico Aeromexico MD82 JT8D-217 49660
Mexico Aeromexico MD82 JT8D-217A 49667
Mexico Aeromexico MD87 JT8D-219 49673
Mexico Mexicana F100 TAY650-15 11266
Mexico Mexicana F100 TAY650-15 11309
Mexico Mexicana F100 TAY650-15 11319
Mexico Mexicana F100 TAY650-15 11339
Mexico Mexicana F100 TAY650-15 11374
Mexico Mexicana F100 TAY650-15 11375
Mexico Mexicana F100 TAY650-15 11382
Mexico Mexicana F100 TAY650-15 11384
Mexico Mexicana B727-200A JT8D-17R 21346
Mexico Mexicana B727-200A JT8D-17R 21600
Netherlands Antilles ALM DHC8-300C PW123 230
Netherlands Antilles ALM DHC8-300C PW123 242
Trinidad & Tobago BWIA International MD83 JT8D-219 49789
North America............ Canada AC Leasing(2) A320-200 CFM56-5A1 174
Canada AC Leasing(2) A320-200 CFM56-5A1 175
Canada AC Leasing(2) A320-200 CFM56-5A1 232
Canada AC Leasing(2) A320-200 CFM56-5A1 284
Canada AC Leasing(2) A320-200 CFM56-5A1 309
Canada AC Leasing(2) A320-200 CFM56-5A1 404
Canada AC Leasing(2),(3) B737-200A JT8D-9A 20958
Canada AC Leasing(2),(3) B737-200A JT8D-9A 20959
Canada AC Leasing(2),(3) B737-200A JT8D-9A 21115
Canada AC Leasing(2),(3) B737-200A JT8D-9A 21639
Canada AC Leasing(2),(3) B737-200A JT8D-9A 21712
Canada AC Leasing(2),(3) B737-200A JT8D-9A 22873
United States of America Allegheny Airlines DHC8-100 PW121 258
United States of America America West B737-300QC CFM56-3B1 23499
United States of America America West B737-300QC CFM56-3B1 23500
United States of America American Airlines MD-83 JT8D-219 49941
United States of America American Airlines MD-83 JT8D-219 49949
United States of America BAX Global DC8-71F CFM56-2C1 45811
United States of America BAX Global DC8-71F CFM56-2C1 45813
<CAPTION>
APPRAISED
VALUE AT
DATE OF FEBRUARY 18,
MANUFACTURE/ 2000
REGION CONVERSION (US$000'S)
------ ------------ ------------
<S> <C> <C>
15-Oct-92 14,617
10-Aug-91 14,377
29-Oct-92 14,290
01-Feb-81 5,690
01-Sep-80 5,390
01-May-83 6,690
01-Oct-92 61,840
01-Jan-92 6,570
14-Jan-92 44,370
22-Sep-92 38,217
26-Oct-90 20,487
18-Jul-91 21,250
29-Jul-92 21,770
02-Apr-92 21,067
09-Mar-91 14,487
19-May-92 14,967
24-Apr-91 14,330
01-Apr-80 3,883
01-Apr-80 4,167
01-Jul-80 4,453
01-Aug-80 4,357
01-Nov-80 4,503
01-Dec-80 4,577
01-Mar-88 17,970
21-Jan-88 17,897
01-Dec-88 13,133
17-Aug-90 12,300
16-May-91 13,330
05-Apr-91 13,087
01-Jul-91 13,187
20-Jan-92 13,797
01-Dec-92 14,080
01-Jan-93 14,097
01-Jan-93 14,097
01-Oct-80 3,800
01-Nov-80 4,310
01-Feb-91 7,600
01-Nov-90 7,450
23-Sep-89 19,203
North America............ 01-Apr-91 26,910
01-Apr-91 27,007
01-Oct-91 27,210
09-Mar-92 28,307
13-May-92 28,130
01-Jan-94 30,657
01-Jan-75 1,200
01-Nov-74 1,200
01-Dec-75 1,700
01-Nov-78 3,271
01-Feb-79 3,704
01-Jul-82 6,064
01-Jan-91 5,877
01-Jun-86 18,610
01-Jun-86 18,510
01-Dec-90 22,327
05-Aug-91 22,153
30-May-91 14,730
28-Apr-92 15,047
</TABLE>
31
<PAGE> 33
<TABLE>
<CAPTION>
AIRCRAFT ENGINE SERIAL
REGION COUNTRY LESSEE TYPE CONFIGURATION NUMBER
------ ------- ------ ----------- --------------- ------
<S> <C> <C> <C> <C> <C>
United States of America BAX Global DC8-71F CFM56-2C1 45946
United States of America BAX Global DC8-71F CFM56-2C1 45971
United States of America BAX Global DC8-71F CFM56-2C1 45973
United States of America BAX Global DC8-71F CFM56-2C1 45978
United States of America BAX Global DC8-71F CFM56-2C1 45993
United States of America BAX Global DC8-71F CFM56-2C1 45994
United States of America BAX Global DC8-71F CFM56-2C1 45998
United States of America BAX Global DC8-71F CFM56-2C1 46065
United States of America Emery Worldwide DC8-71F CFM56-2C1 45997
United States of America Emery Worldwide DC8-73CF CFM56-2C1 46091
United States of America Frontier Airlines, Inc. B737-300 CFM56-3B1 23177
United States of America Hawaiian Airlines DC9-51 JT8D-17 47742
United States of America Hawaiian Airlines DC9-51 JT8D-17 47784
United States of America Hawaiian Airlines DC9-51 JT8D-17 47796
United States of America Hawaiian Airlines DC9-51 JT8D-17 48122
United States of America Idefix ATR42-300 PW120 249
United States of America TWA MD83 JT8D-219 49575
United States of America Vanguard Airlines B737-200A JT8D-15 21735
United States of America Vanguard Airlines B737-200A JT8D-15 22979
Others................... Cyprus Fornax Aircraft Leasing Ltd. B737-200A JT8D-17 21685
Czech Republic Travel Servis B737-400 CFM56-3C1 24911
Kazakstan Air Kazakstan B737-200A JT8D-15 22090
Ukraine AeroSvit airlines B737-200A JT8D-15 22453
Ukraine Ukraine International B737-200A JT8D-17A 22802
Off Lease................ Off Lease DHC8-300A PW123 267
Off Lease B747-200SF JT9D-7Q 21730
Off Lease B767-300ER PW4060 26200
Off Lease -- LOI Pegasus(4) B737-400 CFM56-3C1 24687
Off Lease -- LOI PT B737-200A JT8D-17A 22803
Mandala(4)
Off Lease -- Lease TWA(5) B767-300ER PW4060 25411
<CAPTION>
APPRAISED
VALUE AT
DATE OF FEBRUARY 18,
MANUFACTURE/ 2000
REGION CONVERSION (US$000'S)
------ ------------ ------------
<S> <C> <C>
23-Apr-92 13,583
13-Feb-92 13,960
27-Feb-92 13,287
23-Apr-93 14,340
23-Jun-93 14,433
01-Sep-94 13,943
21-May-93 13,350
12-Jan-92 14,790
07-Dec-93 14,097
01-Dec-89 18,243
01-Apr-86 16,173
01-Jun-77 3,727
01-May-79 3,713
01-Apr-79 4,233
26-Jan-81 4,723
01-Jun-91 6,427
01-Oct-87 18,403
01-Jun-79 7,623
01-Mar-83 8,913
Others................... 01-Jan-79 5,623
01-Apr-91 24,147
01-May-80 5,890
01-Mar-81 6,780
01-Feb-83 7,553
Off Lease................ 04-Apr-91 7,753
07-Jun-79 34,611
01-Sep-92 62,023
25-May-90 23,587
14-Feb-83 5,623
15-Jan-92 60,843
3,335,252
</TABLE>
---------------
Note:
(1) Aircraft Int. Leasing Limited is a subsidiary of Lan Chile.
(2) AC Leasing is a subsidiary of Air Canada.
(3) Aircraft Lease Receivable Book Values are used for the Aircraft subject to
Finance Leases (6 in total) rather than the Appraised Values of these
Aircraft.
(4) These Aircraft are subject to non binding Letters of Intent for lease and
were delivered to the relevant lessee after March 31, 2000.
(5) This Aircraft is subject to a lease contract and was delivered to the
relevant lessee after March 31, 2000.
32
<PAGE> 34
(6) The following table sets forth the date of original manufacture for the
Aircraft that were converted to freighter Aircraft:
<TABLE>
<CAPTION>
DATE OF
SERIAL NO. MANUFACTURE
---------- -----------
<S> <C>
45810.............................. May-67
45811.............................. Aug-67
45813.............................. Jan-67
45849.............................. Apr-67
45945.............................. Mar-68
45946.............................. Mar-68
45970.............................. Mar-68
45971.............................. May-68
45973.............................. May-68
45976.............................. Jul-68
</TABLE>
<TABLE>
<CAPTION>
DATE OF
SERIAL NO. MANUFACTURE
---------- -----------
<S> <C>
45978.............................. Jul-68
45993.............................. Aug-68
45994.............................. Aug-68
45996.............................. Oct-68
45997.............................. Oct-68
45998.............................. Oct-68
46065.............................. Jun-69
46066.............................. Jun-69
46091.............................. Apr-70
</TABLE>
APPRAISALS
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 February 18, 2000, 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 based on a Portfolio of
199 Aircraft are $3,402 million in the case of BK Associates, Inc., $3,434
million in the case of Aircraft Information Services, Inc. and $3,169 million in
the case of Airclaims Limited. The aggregate Appraised Value of the Aircraft is
$3,335 million, which is approximately $19 million lower than the average of the
aggregate Base Values calculated by the three Appraisers because Aircraft
subject to finance leases have been included in the computation of the Appraised
Value of the Portfolio at Airplanes Group's net book value (which represents the
value of amounts payable by the finance lessees) rather than the Aircraft's Base
Value. Airplanes Group believes that, due to current excess supply of certain
aircraft in the market, including in particular certain turboprop, Stage 2 and
older wide-body aircraft, the value of the Aircraft in the current market (as
compared with the "stable market environment with a reasonable balance of supply
and demand" and the other factors assumed in the determination of Base Value) is
less than, and is likely to be substantially less than, the Appraised Value.
Furthermore, neither the Appraised Value nor the value of the Aircraft in the
current market should be relied upon as a measure of the realizable value of the
Aircraft. If it were necessary to dispose of Aircraft in a distress situation,
and particularly if a large number of Aircraft were required to be sold, the
proceeds from such a sale would be substantially less than even the value in the
current market. However, Airplanes Group does not expect to have to sell
Aircraft to provide for payment of principal and interest on the Notes, and does
not anticipate conducting any distress sales. Nevertheless, there can be no
assurance that Airplanes Group would not have to sell one or more Aircraft in a
distress sale situation at prices significantly less than their Appraised Value.
Rental rates and aircraft values depend on a number of factors that are not
within the control of Airplanes Group. See "-- Risk Factors -- Aircraft Risks --
Cyclicality of Supply of and Demand for Aircraft" and "-- Risk of Decline in
Aircraft Values" and "-- Risks Relating to the Leases -- Risk of Decline in
Rental Rates" above.
The standards of maintenance observed by the lessees and the condition of
the Aircraft at the time of sale or re-lease 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 -- Aircraft
33
<PAGE> 35
Risks -- Cyclicality of Supply of and Demand for Aircraft" and "-- Risk of
Decline in Aircraft Values" and "-- Risks Relating to the Leases -- Risk of
Decline in Rental Rates" and "-- Failure to Perform Aircraft Maintenance" above.
THE LEASES
GENERAL
All leases are managed by the Servicer pursuant to the Servicing Agreement.
There is a reasonable degree of standardization in Airplanes Group's
existing lease documentation although variations do exist as a result of lessee
negotiation. Under the majority of the existing leases, the lessee is
responsible for all operating expenses, including maintenance, fuel, crews,
airport and navigation charges, taxes, licenses, registration and insurance,
including public liability insurance as described below.
Each Airplanes Group current lease requires the lessee to make periodic
Rental Payments during the lease term. The majority of current leases had an
original term in excess of five years and certain existing leases include
options for the lessee or the lessor to extend the term of the lease with Rental
Payments either similar to the rent payable during the original term or at
future market rates. Substantially all existing Airplanes Group lessees are
required to make payments to the relevant lessor without set-off or
counterclaim, and most existing leases include an obligation of the relevant
lessee to gross-up payments under such lease where payments are subject to
withholding and other taxes.
Each Airplanes Group existing lease specifies certain provisions regarding
the rights and remedies of the lessor in the event of a default by the relevant
lessee in the performance of its financial or other obligations under such
lease. These remedies include the right to terminate the lease and/or to
repossess the Aircraft. Depending on the jurisdiction, the rights of the lessor
may be significantly impaired if there is an event of default due to the
relevant lessee's bankruptcy, as a result of, inter alia, extended mandatory
waiting periods between default and repossession, or reductions in the amount
of, or delays in the receipt of, payments under the lease.
MAINTENANCE
The leases contain detailed provisions specifying maintenance standards and
the required conditions of Aircraft upon redelivery and these conditions must
generally be met at the lessee's expense. During the term of each lease,
Airplanes Group requires the lessee to maintain the applicable Aircraft in
accordance with a maintenance program approved by the state of registration.
Certain of the leases require the lessee to pay cash Maintenance Reserves
(approximately 53.75% of the leases by Appraised Value) or to provide
maintenance letters of credit or guarantees (approximately 9.67% of the leases
by Appraised Value) or a combination of both (approximately 1.62% of the leases
by Appraised Value). With respect to other leases, there is a specific
redelivery condition whereby the lessor relies on the credit of the lessee and
the ability of the lessee to comply with the maintenance requirements.
At least 90% of the leases provide for the Aircraft to be redelivered in a
specified condition upon expiration of the lease and/or stipulate the payments
to be made by the lessee to the lessor or, in certain cases, by the lessor to
the lessee to reflect the extent to which the actual redelivery condition of the
Aircraft falls below or exceeds the redelivery condition specified in the lease.
Heavy maintenance on significant components of an Aircraft, such as the
airframe and the engines, is generally required to be performed on a cycle of
several years and the cost of such maintenance may be material in relation to
the value of the Aircraft, with the overhaul of a single such component often
exceeding $1 million. Pursuant to the leases, if and when an Aircraft is
transferred from one lessee to another between maintenance overhauls, the
transferring lessee is generally required to pay for that portion of the
succeeding overhaul that can be attributed to its use of the Aircraft under its
lease.
Many of the leases require the lessees to pay maintenance reserves or
"supplemental rent" amounts in respect of their obligations to maintain the
Aircraft. Generally, each such lease in the Portfolio bears an
34
<PAGE> 36
associated liability on the part of the lessor to reimburse the lessee for
maintenance performed on the Aircraft, engines or parts. In addition, Airplanes
Group may have an obligation to lessees not funded by reserves with respect to
maintenance. Such liabilities are included within expenses and thus rank in
priority to any payments on the Notes. At March 31, 2000, Airplanes Group
recorded approximately $274 million of maintenance reserve liabilities. A
Liquidity Reserve Amount of approximately $158.4 million is currently maintained
in the Collection Account of which $80 million relates to the Maintenance
Reserve Amount. Airplanes Group believes, following consultation with the
Administrative Agent, that this amount of $80 million, 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 and AerFi Group to be appropriate
for the funding of Airplanes Group's maintenance reserve liabilities based on an
analysis of Airplanes Group's, AerFi'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 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.
INDEMNIFICATION AND INSURANCE
Under the terms of each lease, the lessees are required to carry the types
of insurance which are customary in the air transportation industry, including
comprehensive liability insurance and aircraft hull insurance. The relevant
lessor (and generally, if different, the owner) is named as an additional
insured on hull and liability policies carried by the lessees. The lessees are
responsible for insurance for any liabilities arising out of the operation of
the Aircraft, including any liabilities for death or injury to persons and
damage to property that ordinarily would attach to the operator of the Aircraft,
subject to customary exclusions. The coverage is usually worldwide, subject to
limitations consistent with individual operators. Under the Servicing Agreement,
the Servicer is required to monitor the lessee's performance of their respective
obligations with the insurance provisions of the applicable leases.
In certain jurisdictions, liabilities for risks for which the lessees are
required to provide insurance may also attach to the lessors and Airplanes
Group, as direct and indirect owners of the Aircraft, irrespective of fault.
Under Airplanes Group's existing leases, the lessees are currently obliged to
indemnify against such claims certain named parties and, in most cases, their
respective successors, assigns, shareholders, employees, affiliates and agents.
Under most leases, each lessee is obliged to indemnify Airplanes Limited or
Airplanes Trust, as applicable, the lessor, the relevant Aircraft Owning Company
and the Indenture Trustee as named indemnitees under the applicable lease. Most
of the leases also require the lessee to maintain the liability insurance for a
specified period between one and three years after termination of such lease to
cover liabilities that may have arisen prior to terminations but that became
known thereafter.
With respect to certain leases, the lessor may arrange separate political
risk repossession insurance for its own benefit, covering (a) confiscation,
nationalization and requisition of title of the relevant Aircraft by the
government of the country of registry and denegation and deprivation of legal
title and rights, and (b) the failure of the authorities in that country to
allow de-registration and export of the Aircraft, subject to the conditions of
the policies.
35
<PAGE> 37
THE LESSEES
As of March 31, 2000, there were 72 lessees in 39 countries throughout the
world.
A number of the lessees are 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 March 31, 2000, 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 $25.1 million in respect of 37
lessees (who had a combined total of 86 Aircraft on lease as of such date) and
one former lessee ($1.7 million of the $25.1 million related to this former
lessee). Of the total $25.1 million, $4.9 million was in arrears for a period
greater than 30 days, $4.8 million was in arrears for a period greater than 60
days and $15.4 million was in arrears for a period greater than 90 days. 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. Of the $25.1 million in
arrears greater than 30 days, $5.1 million represented arrears with respect to
one Brazilian lessee, operating one Boeing 767-300ER Aircraft representing 1.69%
of the Portfolio by Appraised Value. Subsequent to March 31, 2000 this Aircraft
was redelivered to Airplanes Group. The Servicer is in discussion with the
lessee in respect of the amounts outstanding to Airplanes Group. As of March 31,
2000, in addition to the $25.1 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 $5.1 million. Such lessees are being allowed
deferrals of rentals, maintenance and miscellaneous payments for periods of up
to 70 months.
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 70 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 "Item 7A. Quantitative and Qualitative Disclosure about Market
Risks".
Latin America
Lessees with respect to 31.89% 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. 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
Brazil has experienced significant downturns in its economy and financial
markets, including in 1999, large decreases in financial asset prices and
dramatic decreases in the value of its currency. The loss of confidence in the
Brazilian markets and currency was associated with the economic crisis affecting
"emerging markets" in Asia. See "-- Asia Pacific Concentration" below. While
there has been some stabilisation in the Brazilian economy in recent months any
future general deterioration in the Brazilian economy will mean that lessees may
be unable to generate sufficient revenues in Brazilian currency to pay the
dollar-denominated rental payments under the leases. Failure by Brazil to
address such a crisis could result in the crisis spreading to other Latin
American economies and economies in other emerging markets. Future developments
in the political systems or economies of Brazil and other Latin American
countries may have a material adverse effect on lessee operations in those
countries and could adversely affect the operations of Airplanes Group's
Brazilian customers.
36
<PAGE> 38
At March 31, 2000, 15 Aircraft (or 12.64% of Airplanes Group's Portfolio by
Appraised Value) were leased to four Brazilian lessees. At March 31, 2000,
Airplanes Group had three Aircraft on lease to Varig (MD11s) representing 6.07%
of the Portfolio by Appraised Value. In 1994, AerFi 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 AerFi's rights and
obligations under such agreement as part of the Acquisition. AerFi signed this
formal deferral agreement in January 1995, under which all deferred obligations
were repaid by May 1998.
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 by Airplanes Group of all previously paid
maintenance reserves within 12 months. During the year ended March 31, 2000 this
lessee was $1.73 million in arrears. The Servicer negotiated a restructuring in
respect of this amount which provides for the amount to be paid with interest by
December 31, 2003.
During the year to March 31, 1999, the Servicer, on behalf of Airplanes
Group, entered into a restructuring agreement with Transbrasil, which leased two
B767 Aircraft both of which have subsequently redelivered. The restructured
amount of approximately $1.9 million was repaid over 12 months. At March 31,
2000, the lessee had arrears of $6.2 million which has been secured by a second
priority mortgage over two of the lessee's owned aircraft and the Servicer is in
negotiations with the lessee regarding repayment. An accounting provision has
been made against the receivable for the excess over the cash security held.
Colombia
Colombia has recently suffered as a result of the deterioration in the
value of the Colombian Peso and the resulting negative impact on the Colombian
economy. Airplanes Group leases to three Colombian lessees which operate ten
Aircraft, representing 6.52% of the portfolio by Appraised Value. Continued
weakness in the value of the Colombian Peso, as well as general deterioration in
the Colombian economy, will mean that these lessees may be unable to generate
sufficient revenues in the Colombian currency to pay the dollar denominated
rental payments under the leases.
Mexico
Mexico continues to be a significant market for aircraft, and at March 31,
2000, 19 Aircraft representing 5.73% of the Portfolio by Appraised Value, were
being operated by two Mexican operators. In January 1996, a formal deferral
arrangement was signed with Mexicana which operates ten Aircraft representing
3.48% of the Portfolio by Appraised Value. Mexicana repaid its obligations over
the four year period ending December 31, 1999.
North America
North America is an important market for Airplanes Group's Aircraft with
15.61% of the Portfolio by Appraised Value being operated in this region. At
March 31, 2000, Airplanes Group had 26 Aircraft (or 10.05% of the Portfolio by
Appraised Value) on lease to ten U.S.-based aircraft operators and 12 Aircraft
(or 5.56% of the Portfolio by Appraised Value) on lease to one Canadian aircraft
operator. 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 1997 and 1998 a number of significant new aircraft orders were
announced by North American airlines. However, 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
37
<PAGE> 39
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 second largest
lessee at March 31, 2000 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 had 13 Aircraft on lease to Canadian
Airlines, consisting of six A320s on operating leases and seven B737-200A
Aircraft on finance leases. During the year ended March 31, 2000, Canadian
Airlines exercised its purchase option on a seventh B737-200A Aircraft which it
leased. 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 $6.40 million over the six
months to May 1997. At March 31, 2000, the lessee had made all scheduled
payments under the terms of the agreement in principle.
During the year ended March 31, 2000, Canadian Airlines was the subject of
a takeover by Air Canada. Air Canada has assumed the Canadian Airlines leases.
In that context, $4.5 million in security deposits were repaid to Air Canada and
have been replaced by letters of credit.
Airplanes Group had its only B747-200SF (1.04% of the Portfolio by
Appraised Value) on lease to Tower Air. During March 1998, Airplanes Group and
Tower Air reached an agreement which allowed Tower Air a deferral of their
security deposit and of two months rental. These deferrals were repaid by
September 1998. 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 $10 million,
which was completed by April 1998.
The lessee was subsequently $3.2 million in arrears in respect of Rental
Payments and maintenance reserves and the Servicer, on behalf of Airplanes
Group, entered into a restructuring agreement with the lessee to repay the
restructured principal amount in monthly installments through October 1999 and
thereafter, interest on a monthly basis with the final payment due in February
2013.
In March 2000, owing to its deteriorating financial condition, Tower Air
agreed to return the Aircraft. The airline subsequently filed for protection
from its creditors under Chapter 11 of the U.S. Bankruptcy Laws. The Servicer is
currently in discussions with another airline with a view to leasing this
Aircraft.
Asia
As of March 31, 2000, 15 Aircraft representing 8.72% 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 have been adversely affected
by the severe economic and financial difficulties experienced in the region. 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 internationally organized financial stability measures. Several
airlines in the region 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 now prevail in
large parts of the region which may continue for a significant period of time
will have an adverse impact on global aircraft demand.
38
<PAGE> 40
Europe (excluding CIS)
As of March 31, 2000, 62 Aircraft representing 34.97% of the Portfolio by
Appraised Value were on lease to 26 aircraft operators in this region. The
commercial aviation industry in European countries, as in the rest of the world
generally, is highly sensitive to general economic conditions. Because a
substantial portion of airline travel (business and especially leisure) is
discretionary, the industry has tended to suffer severe financial difficulties
during economic downturns. Accordingly, the financial prospects for European
lessees can be expected to depend largely on the level of economic activity in
Europe generally and in the specific countries in which such lessees operate. A
recession or other worsening of economic conditions in one or more of these
countries may have a material adverse effect on the ability of European lessees
to meet their financial and other obligations under the leases. In addition,
commercial airlines in Europe face, and can be expected to continue to face,
increased competitive pressures, in part as a result of the continuing
deregulation of the airline industry by the EU. There can be no assurance that
competitive pressures resulting from such deregulation will not have a material
adverse impact on the operations of such lessees.
Turkey
At March 31, 2000, five lessees in Turkey operate 13 Aircraft representing
9.13% of the Portfolio by Appraised Value. Turkey was hit by a severe earthquake
in August 1999. Damage caused by the earthquake and any fall-off in tourist
traffic may adversely affect the ability of these airlines to operate and meet
their obligations under the leases. In addition, the recent fall in the value of
the Deutsche Mark, the principal currency in which the Turkish airlines receive
their revenues, may affect the ability of these airlines to meet the dollar
denominated rental and other payments due under the leases. At March 31, 2000,
one Turkish lessee of two Aircraft, representing 1.4% of the Portfolio by
Appraised Value, was $2.0 million in arrears in respect of Rental Payments and
maintenance reserves. The Servicer is currently in discussions with this lessee
regarding its outstanding balance.
Ireland
At March 31, 2000, an Irish lessee of two Aircraft, representing 0.47% of
the Portfolio by Appraised Value was $3.5 million in arrears. A rescheduling of
this amount has been negotiated between the lessee and the Servicer, under which
the lessee has undertaken to repay the debt by July 31, 2000.
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 March 31, 2000, six Aircraft were off-lease. Subsequently, three were
delivered to lessees under lease agreements and one has become subject to an LOI
for lease.
PURCHASE OPTIONS
At March 31, 2000, lessees with respect to 50 Aircraft had the benefit of
options to purchase Aircraft at various dates between 2000 and 2004 at prices
generally at or above their estimated appraised value at the exercise date.
Since March 31, 1999, one lessee exercised its option to purchase one B737-200A
Aircraft, which delivered on January 15, 2000. Three lessees with respect to ten
Aircraft, representing 8.52% of the
39
<PAGE> 41
Portfolio by Appraised Value, have options to purchase Aircraft at prices below
estimated appraised value at the option exercise date. (For the purposes of this
analysis, the estimated appraised value has been arrived at by deducting the
estimated depreciation (as calculated by Airplanes Group's existing depreciation
policy) from February 18, 2000 to the option exercise date from the Appraised
Value of each Aircraft).
ITEM 2. PROPERTIES
Airplanes Group has no ownership or leasehold interest in any real
property.
Airplanes Limited's registered and principal office is located at 22
Grenville Street, St. Helier, Jersey, JE4 8PX, Channel Islands and its telephone
number is 011-44-1534-609000.
Airplanes Trust's principal office is located at 1100 North Market Street,
Rodney Square North, Wilmington, Delaware 19890-0001, care of Wilmington Trust
Company and its telephone number is 1-302-651-1000.
For a description of Airplanes Group's interest in other property, see
"Item 1. Business -- The Aircraft, Related Leases and Collateral".
ITEM 3. LEGAL PROCEEDINGS
On November 5, 1992, AerFi 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 AerFi. 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 Paulo (the
"High Court"). On December 18, 1996, the High Court found in favor of VASP in
its appeal against the court order granting AerFi repossession and export of the
Repossessed Assets. AerFi was instructed to return the Repossessed Assets for
lease by VASP under the terms of the original lease agreements between AerFi 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
AerFi in lieu of the return of the Repossessed Assets. AerFi is appealing the
December 1996 decision and the court's responses to the clarificatory motions.
As part of its appeals, AerFi filed a rescission action with the High Court
seeking to overturn the decisions of the High Court and a stay on the 1996
decision pending its determination of the rescission action.
Seven of the thirteen aircraft which were repossessed by AerFi from VASP
following the 1992 injunction and the 1993 decision are in the Portfolio,
although none of them are habitually based in Brazil. However, a number of these
aircraft operate into Brazil from time to time. The judgment of the High Court
only applies to those assets which are the subject matter of the proceedings.
VASP sought to have AerFi return the Repossessed Assets, in connection with
which the High Court served notice on AerFi for return of the Repossessed Assets
for the account, and at the risk, of VASP. AerFi has challenged a number of
matters relating to the notice, including its validity. In addition, VASP filed
a petition for calculation of the amount which it alleges should be paid by
AerFi, based on the High Court decision, seeking damages in respect of (i)
AerFi's alleged failure to comply with the court order requiring return of the
Repossessed Assets and (ii) the period during which VASP was prevented from
using the Repossessed Assets. AerFi has challenged VASP's petition on the basis
that if VASP believes it has an action for alleged damages against AerFi in
respect of the period during which VASP was prevented from using the Repossessed
Assets, VASP must commence such an action in accordance with normal Brazilian
court procedures before a court of first instance. These preliminary matters
still await a decision by the lower court. Before the High Court, AerFi
successfully challenged VASP's petition for calculation of alleged damages
arising from AerFi's alleged failure to comply with the court order requiring
return of the Repossessed Assets. As a consequence, VASP, should it seek to
recover such alleged damages, will have to prove the existence and extent of its
alleged damages. The only immediate risk to the Repossessed Assets would arise
where they are located in Brazil and where VASP was successful in enforcing its
judgment having sought repossession rather than damages.
40
<PAGE> 42
In January 2000, the High Court, pending further consideration of AerFi's
rescission action, stayed all proceedings by VASP which seek to implement the
1996 decision.
AerFi has informed Airplanes Group that it has been advised that the
December 1996 decision of the High Court in this matter is incorrect as a matter
of Brazilian law. AerFi 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. AerFi has advised Airplanes Group
that it believes the outcome of these matters will not have a material adverse
effect on Airplanes Group's liquidity, results of operations or financial
condition.
AeroUSA and AeroUSA 3 have in the past filed U.S. federal consolidated tax
returns and certain state and local tax returns with AerFi, Inc. and its
subsidiaries. There are ongoing tax audits by certain state and local tax
authorities with respect to tax returns previously reported by AerFi, Inc. and
its subsidiaries. AerFi Group believes that none of these audits will have a
material adverse impact upon the liquidity, results of operations or the
financial condition of AeroUSA.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
41
<PAGE> 43
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The ordinary shares of Airplanes Limited are not listed on any national
exchange or traded in any established market. The beneficial ownership of the
Airplanes Limited ordinary shares as of the date of this Report on Form 10-K is
presented below.
<TABLE>
<CAPTION>
TITLE OF CLASS NAME AND ADDRESS NUMBER OF SHARES PERCENT OF CLASS
-------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Common Stock................ Mourant & Co. Trustees Limited, 10 Shares 33 1/3%
as trustee of Holdings Trust I
22 Grenville Street
St. Helier
Jersey, Channel Islands
Common Stock................ Mourant & Co. Trustees Limited, 10 Shares 33 1/3%
as trustee of Holdings Trust II
22 Grenville Street
St. Helier
Jersey, Channel Islands
Common Stock................ Mourant & Co. Trustees Limited, 10 Shares 33 1/3%
as trustee of Holdings Trust III
22 Grenville Street
St. Helier
Jersey, Channel Islands
</TABLE>
Pursuant to the Shareholders Agreement between Mourant & Co. Trustees
Limited, as trustee of the Charitable Trusts (the "Charitable Trust Trustees"),
Juris Limited and Lively Limited and the Airplanes Limited Indenture Trustee
(the "Shareholders Agreement"), the Charitable Trust Trustees have agreed that,
as long as the Airplanes Limited Notes are outstanding, they will not, without
the prior written approval of the Airplanes Limited Indenture Trustee and all
the Directors of Airplanes Limited, transfer any part of the capital stock or
any interest therein unless the transferee (a) is a trustee of a trust formed
for charitable purposes substantially identical to those for which the
Charitable Trusts are established and (b) enters into an agreement substantially
identical to the Shareholders Agreement in favor of the Airplanes Limited
Indenture Trustee. Pursuant to the instruments of trust establishing Holdings
Trust I, Holdings Trust II and Holdings Trust III, a certificate given by the
Directors of Airplanes Limited to the Charitable Trust Trustees that their
voting of the capital stock in a specified manner is in the best commercial
interests of Airplanes Limited shall, for the purposes of the exercise of the
Charitable Trust Trustees' discretion, be conclusive that any such action is in
the best commercial interests of Airplanes Limited.
For additional information regarding the capital stock of Airplanes Limited
and for a discussion relating to the payment of dividends, see "Item 1. Business
-- Airplanes Limited".
42
<PAGE> 44
ITEM 6. SELECTED COMBINED FINANCIAL DATA
The selected combined financial data set out below for each of the years in
the five-year period ended March 31, 2000 have been extracted from the audited
financial statements of Airplanes Limited and Airplanes Trust, which have been
audited by KPMG -- Dublin, Ireland, independent Chartered Accountants. These
financial statements have been prepared in accordance with Generally Accepted
Accounting Principles in the United States ("U.S. GAAP"). The audited financial
statements of Airplanes Limited and Airplanes Trust as at March 31, 1999 and
2000, and for each of the years ended March 31, 1998, 1999 and 2000 are included
elsewhere in this Report on Form 10-K (the "Financial Statements").
The selected combined financial data set forth below are presented on the
basis that the Aircraft have been operated separately from AerFi within the
Airplanes Group for all periods presented or from the date of acquisition by
AerFi, as appropriate. It should be noted, however, that Airplanes Group has
conducted independent business operations only since March 28, 1996.
Accordingly, for prior periods adjustments and allocations have been made of,
among other items, historical indebtedness, net interest expense, selling,
general and administrative expenses and tax amounts, as further described in
Note 2 to the Financial Statements and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations". While Airplanes
Group believes that the selected combined financial data set forth below are an
appropriate presentation, such data for the period prior to March 28, 1996 are
not necessarily indicative of the financial results that might have occurred had
Airplanes Group been an independently financed and managed group during the
periods up to March 28, 1996. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations".
The selected combined financial data set forth below combine the operating
results, assets, liabilities and cash flows of each of Airplanes Limited and
Airplanes Trust. The separate balance sheets, statements of operations,
statements of changes in shareholders' deficit/net liabilities and statements of
cash flows of Airplanes Limited and Airplanes Trust are contained in the
Financial Statements included in Item 8 of this Report on Form 10-K, and it
should be noted that the Notes and the Guarantees comprise obligations of two
different legal entities owning different assets. The Directors of Airplanes
Limited and the Controlling Trustees of Airplanes Trust believe that a combined
presentation is most appropriate because, inter alia, the assets of Airplanes
Limited and Airplanes Trust are to be managed on the basis of one combined
aircraft fleet, and each of Airplanes Limited and Airplanes Trust has fully and
unconditionally guaranteed the performance of the other under their respective
Notes. The Guarantees have been structured to ensure that no payments are made
on a junior class of Notes of Airplanes Trust or Airplanes Limited, as the case
may be, before any amounts due and payable on a more senior class of Notes of
Airplanes Limited or Airplanes Trust, respectively, are paid pursuant to the
Guarantees.
The selected combined financial data should be read in conjunction with,
and are qualified in their entirety by reference to, the Financial Statements
included in this Report on Form 10-K.
Aircraft assets are stated on the predecessor cost basis (i.e., reflecting
AerFi's historical cost less accumulated depreciation). As at the date of the
Underwritten Offering AerFi held substantially all of the Class E Notes through
which it had access to certain of the benefits inherent in the Aircraft. 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. On November 20, 1998, GE Capital acquired
the Airplanes Group Class E Notes previously held by AerFi Group. The transfer
of the Airplanes Group Class E Notes did not require a restatement of the
carrying value of the Aircraft assets.
43
<PAGE> 45
COMBINED STATEMENT OF OPERATIONS DATA(1)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,(1)
------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
($MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenues(2)
Aircraft leasing.................................. 616 604 585 526 501
Aircraft sales.................................... -- -- 94 132 3
Other............................................. -- -- -- -- 1
---- ---- ---- ---- ----
Expenses
Cost of Aircraft sales............................ -- -- (90) (118) (1)
Depreciation and amortization..................... (207) (223) (192) (176) (174)
Net interest expense(3)(4)........................ (368) (383) (411) (428) (468)
Provision for maintenance......................... (97) (91) (88) (69) (64)
Bad and doubtful debts............................ 28 -- -- (11) (4)
Provision for loss making leases and downtime,
net(5)......................................... 15 12 17 12 4
Other lease costs................................. (21) (21) (30) (14) (10)
Selling, general and administrative expenses...... (35) (38) (38) (35) (34)
Income tax benefit/(charge)......................... 13 10 3 3 (7)
---- ---- ---- ---- ----
Net loss............................................ (56) (130) (150) (178) (253)
==== ==== ==== ==== ====
</TABLE>
COMBINED BALANCE SHEET DATA(1)
<TABLE>
<CAPTION>
MARCH 31,(1)
-------------------------------------------------------------------
1996 1997 1998 1999 2000
----------- ----------- ----------- ----------- -----------
($MILLIONS)
<S> <C> <C> <C> <C> <C>
Aircraft, net, and net investment in capital and
sales type leases.............................. 3,965 3,731 3,436 3,128 2,947
----------- ----------- ----------- ----------- -----------
Total assets..................................... 4,236 4,048 3,743 3,453 3,206
=========== =========== =========== =========== ===========
Indebtedness(3)................................ (4,634) (4,397) (4,078) (3,842) (3,636)
Provision for maintenance...................... (311) (313) (315) (283) (274)
Total liabilities................................ (5,252) (5,194) (5,039) (4,927) (4,933)
=========== =========== =========== =========== ===========
Net liabilities.................................. (1,016) (1,146) (1,296) (1,474) (1,727)
</TABLE>
COMBINED STATEMENT OF CASH FLOWS AND OTHER DATA(1)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,(1)
------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
($MILLIONS)
<S> <C> <C> <C> <C> <C>
Cash paid in respect of interest(3)(4).............. 323 265 267 223 214
Net cash provided by operating activities (after
payment of interest).............................. 216 224 214 111 181
Net cash (used in)/provided by investing
activities........................................ 13 19 101 135 8
Net cash (used in)/provided by financing
activities........................................ (144) (238) (322) (240) (210)
---- ---- ---- ---- ----
Net increase/(decrease) in cash..................... 85 5 (7) 6 (21)
==== ==== ==== ==== ====
</TABLE>
SELECTED RATIOS(1)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,(1)
-------------------------------------------------------------
1996 1997 1998 1999 2000
--------- --------- --------- --------- ---------
($MILLIONS)
<S> <C> <C> <C> <C> <C>
Deficiency of Combined Earnings to Combined Fixed
Charges(6)..................................... (69) (140) (153) (181) (246)
</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) Aircraft leasing revenues include Maintenance Reserve receipts. See Note 15
to the Financial Statements.
44
<PAGE> 46
(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 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 $8 million in 1996, $17 million in 1997, $16 million in 1998 and $14
million in 1999, and $13 million in 2000. See Note 2(iii) to the Financial
Statements.
(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 "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 because under FAS 121 Airplanes
Group's assessment of the need for separate downtime provisions is
incorporated in its impairment assessment. See Note 4(b) to the Financial
Statements.
(6) Represents the amount by which Airplanes Group's loss before income taxes
and fixed charges exceeded fixed charges. Fixed charges consists of interest
expense. Because Airplanes Group's fixed charges exceeded earnings for all
periods presented, a ratio of earnings to fixed charges is not presented.
45
<PAGE> 47
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
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,
among other things, 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.
RESULTS OF OPERATIONS -- YEAR ENDED MARCH 31, 2000 COMPARED WITH YEAR ENDED
MARCH 31, 1999
Airplanes Group's results for the year ended March 31, 2000 reflected a
continuation of difficult trading conditions for certain of its lessees, along
with an unfavourable market for some of its Aircraft, in particular, widebody
Aircraft. The net loss for the year ended March 31, 2000 was $253 million,
compared to $178 million for the year ended March 31, 1999. The increase of $75
million was primarily attributable to a reduction in lease rentals of $25
million and an increase of $40 million in net interest expense due to additional
interest being charged on accrued but unpaid Class E Note interest, partially
offset by lower average debt outstanding. Profit on sales also reduced by $12
million. There was a decrease in the provision for bad debts of $7 million; a
net decrease in the utilisation of loss-making lease provisions of $8 million
and there was a decrease in other lease costs of $4 million. Finally, there was
an increase in the deferred tax charge of $10 million.
Overall, Airplanes Group generated $181 million in cash from operations in
the year ended March 31, 2000 compared to $111 million in the year ended March
31, 1999. The increase in cash generated from operations in the year to March
31, 2000 is primarily attributable to a reduction in the level of receivables of
$11 million compared to an increase of $20 million in the year ended March 31,
1999. In addition there was a reduction in the net outflow of maintenance
revenues of $20 million, due largely to the acceleration of maintenance events
in the year ended March 31, 1999 (including as a result of Aircraft
repossessions) in the amount of $15 million and the return of $7 million in
maintenance reserves due to a Latin American lessee as a result of the
restructuring of its leases. There was a reduction in the amount of cash paid as
interest during the year ended March 31, 2000 of $27 million, as a result of
lower average debt and due to the generation of $11 million in cash from the
re-couponing or unwinding of Airplanes Group's portfolio of Swaps (See "-- Item
7A. Quantitative and Qualitative Disclosures About Market Risks"). These factors
were somewhat offset by a reduction of $25 million in leasing revenues, which
arose due to Aircraft sales and an increased level of Aircraft downtime
particularly in respect of certain B767 Aircraft.
46
<PAGE> 48
LEASING REVENUES
Leasing revenues (which include maintenance reserve receipts which
Airplanes Group receives from certain of its lessees) for the year ended March
31, 2000 were $501 million (Airplanes Limited: $460 million; Airplanes Trust:
$41 million) compared with $526 million (Airplanes Limited: $484 million;
Airplanes Trust: $42 million) for the year ended March 31, 1999. The decrease of
$25 million consists of $20 million in lease rentals and $5 million in
maintenance billings. The decrease of $20 million in lease rentals arises
primarily from $4 million foregone as a result of Aircraft sales and $14 million
resulting from a higher level of downtime. At March 31, 2000, Airplanes Group
had 193 of its 199 Aircraft on lease (Airplanes Limited: 175 Aircraft; Airplanes
Trust: 18 Aircraft) compared to 201 of its 202 Aircraft on lease (Airplanes
Limited: 184 Aircraft; Airplanes Trust: 18 Aircraft) at March 31, 1999.
AIRCRAFT SALES
Sales revenues of $3 million (Airplanes Limited: $3 million; Airplanes
Trust: $Nil) in respect of the sale of three Aircraft were received in the year
ended March 31, 2000. The net book value of these three Aircraft at the date of
sale was $1 million (Airplanes Limited: $1 million; Airplanes Trust: $Nil). In
the year ended March 31, 1999, Airplanes Group received sales revenues of $132
million (Airplanes Limited: $37 million, Airplanes Trust: $95 million) in
respect of the sale of nineteen Aircraft. The net book value of these nineteen
Aircraft at the date of disposal was $118 million (Airplanes Limited: $32
million; Airplanes Trust: $86 million).
OTHER INCOME
During the year to March 31, 2000, Airplanes Group exercised an option to
purchase shares in an airline which had been granted to the lessor under the
terms of the lease of an Aircraft to a lessee. The shares were subsequently
sold, yielding a profit of $1 million.
DEPRECIATION AND AMORTIZATION
The charge for depreciation and amortization in the year ended March 31,
2000 amounted to $174 million (Airplanes Limited: $157 million; Airplanes Trust:
$17 million) compared with $176 million (Airplanes Limited: $159 million;
Airplanes Trust: $17 million) in the year ended March 31, 1999. The decrease
arose as a result of the reduction in the number of Aircraft owned by Airplanes
Group.
NET INTEREST EXPENSE
Net interest expense was $468 million (Airplanes Limited: $425 million;
Airplanes Trust: $43 million) in the year ended March 31, 2000 compared to $428
million (Airplanes Limited: $388 million; Airplanes Trust: $40 million) in the
year ended March 31, 1999. The increase of $40 million in net interest expense
was primarily due to additional interest charged on accrued but unpaid Class E
Note interest of $57 million offset by reduced interest on the Class A-D notes
due to a lower average level of debt.
The weighted average interest rate on the Class A-D Notes during the year
to March 31, 2000 was 6.73% and the average debt in respect of the Class A-D
Notes outstanding during the year was $2,395 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 year ended March 31, 1999 was 6.73% and
the average debt in respect of the Class A-D Notes outstanding during the year
was $3,346 million. LIBOR in the year ended March 31, 2000 was comparable with
the year ended March 31, 1999 and the weighted average interest rate on the
Class A-D Notes remained constant during the year ended March 31, 2000 as
compared to the year ended March 31, 1999.
For the year ended March 31, 2000, the difference in Airplanes Group's net
interest expense of $468 million (Airplanes Limited: $425 million; Airplanes
Trust: $43 million) and cash paid in respect of interest of $214 million
(Airplanes Limited: $193 million; Airplanes Trust: $21 million) is substantially
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accounted for by the fact that Airplanes Group accrues interest on the Class E
Notes at a rate substantially higher than amounts paid in cash in the year ended
March 31, 2000.
Net interest expense is stated after deducting interest income earned
during the relevant year. In the year ended March 31, 2000, Airplanes Group
earned interest income (including lessee default interest) of $13 million
(Airplanes Limited: $13 million; Airplanes Trust: Nil) compared with $14 million
in the year ended March 31, 1999 (Airplanes Limited: $14 million; Airplanes
Trust: Nil). The decrease is primarily as a result of lower average cash
balances in the year to March 31, 2000.
At March 31, 2000, Airplanes Group had Swaptions with a notional principal
of $289 million. During the year ended March 31, 2000, the value of the
Swaptions decreased by approximately $1 million as swap rates increased. As
Swaptions do not qualify for hedge accounting under US GAAP, the decrease in
fair value of $1 million has been included in net interest expense in the
statement of operations.
BAD DEBT AND LOSS-MAKING LEASE PROVISIONS
There was a net charge of $4 million in respect of bad and doubtful debts
(Airplanes Limited: $2 million; Airplanes Trust: $2 million) in the year ended
March 31, 2000, compared with a net charge for the year ended March 31, 1999 of
$11 million (Airplanes Limited: $9 million; Airplanes Trust; $2 million).
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
number of Airplanes Group's lessees failed to meet their contractual obligations
in the year ended March 31, 2000, resulting in the requirement for additional
provisions in respect of bad and doubtful debts in respect of these lessees,
while the arrears with regard to certain other carriers reduced in the year. The
overall net charge in 2000 was primarily as a result of provisions required in
respect of one Colombian lessee, one Israeli lessee, one Philippine lessee and
one Irish lessee, which were partially offset by a reduction in the provisions
required in respect of two Brazilian lessees.
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. The only significant
"loss making" leases signed in the year to March 31, 2000 were in respect of two
Fokker 100 Aircraft leased to a Brazilian lessee, one B737-200A Aircraft leased
to an Asian lessee and one B737-200A Aircraft leased to a European lessee.
Consequently, there was an overall net utilisation of $4 million (Airplanes
Limited: $3 million; Airplanes Trust: $1) in respect of "loss making" lease
provisions in the year ended March 31, 2000, compared with the year to March 31,
1999, where there was an overall net utilisation of $12 million (Airplanes
Limited: $10 million; Airplanes Trust: $2 million). The provision required in
the year ended March 31, 1999 was primarily required in respect of one B767
Aircraft on lease to a Latin American lessee and one A320 Aircraft on lease to a
Canadian lessee.
OTHER LEASE COSTS
Other lease costs in the year ended March 31, 2000 amounted to $10 million
(Airplanes Limited: $9 million; Airplanes Trust: $1) compared to other lease
costs of $14 million (Airplanes Limited: $13 million; Airplanes Trust: $1) in
the year ended March 31, 1999. The decrease in other lease costs of $4 million
relate primarily to a release of $11 million of maintenance reserves following a
continuing review of the adequacy of reserves, when Aircraft are re-leased.
There was a release of $9 million withholding tax provisions in the year ended
March 31, 1999, following updated advice that they were no longer required for
certain jurisdictions.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the year ended March 31,
2000 amounted to $34 million (Airplanes Limited: $31 million; Airplanes Trust:
$3 million). This is a comparable expense to that incurred in the year to March
31, 1999 of $35 million (Airplanes Limited: $32 million; Airplanes Trust: $3
million).
The most significant element of selling, general and administrative
expenses are 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 the Servicing Agreement.
Selling, general and administrative expenses of $34 million in the year to March
31, 2000 includes $22 million (Airplanes Limited: $20 million; Airplanes Trust:
$2 million) relating to GECAS servicing fees comparable with the $24 million
incurred in the year to March 31, 1999 (Airplanes Limited: $22 million;
Airplanes Trust: $2 million).
A further significant element of Airplanes Group's actual selling, general
and administrative expenses reported in the year ended March 31, 2000 was $9
million (Airplanes Limited: $8 million; Airplanes Trust: $1 million) in respect
of administrative agency and cash management fees payable to AerFi, similar to
the charge of $9 million for the year to March 31, 1999.
OPERATING LOSS
The operating loss for the year ended March 31, 2000 was $246 million
(Airplanes Limited: $220 million; Airplanes Trust: $26 million) compared with an
operating loss of $181 million for the year ended March 31, 1999 (Airplanes
Limited: $168 million; Airplanes Trust: $13 million). Airplanes Limited and
Airplanes Trust are expected to continue to report substantial losses in the
future.
TAXES
There was an overall tax charge of $7 million (Airplanes Limited: $15
million; Airplanes Trust: tax benefit of $8 million) in the year ended March 31,
2000, as compared with an overall tax benefit of $3 million in the year ended
March 31, 1999 (Airplanes Limited: $3 million; Airplanes Trust: Nil). The
increase in deferred tax arises as a result of the enactment of a 12.5%
corporation tax rate in Ireland applicable to Airplanes Limited's Irish
subsidiaries after December 31, 2005. This has been partially offset by a tax
benefit of $8 million resulting from the utilisation by GE Capital of the
current year losses of Aero USA and Aero USA 3 for which GE Capital will
compensate Airplanes Trust. (See "Risk Factors -- Aircraft Risks -- Possible
Contingent Liabilities of Transferred Companies -- Tax Liabilities of Aero
USA").
NET LOSS
The net loss after taxation for the year ended March 31, 2000 was $253
million (Airplanes Limited: $235 million; Airplanes Trust: $18 million) compared
with a net loss after taxation for the year ended March 31, 1999 of $178 million
(Airplanes Limited: $165 million; Airplanes Trust: $13 million).
RESULTS OF OPERATIONS -- YEAR ENDED MARCH 31, 1999 COMPARED WITH YEAR ENDED
MARCH 31, 1998
Airplanes Group's results for the year ended March 31, 1999 reflected a
continuation of reasonably favourable industry conditions for the year,
notwithstanding the fact that, in the latter part of the year in particular,
certain of its lessees continued to experience difficult trading conditions,
particularly its Brazilian lessees who experienced a recent downturn in the
Brazilian economy and a currency devaluation. See "Item 2: Business -- The
Aircraft, Related Leases and Collateral -- The Lessees -- Latin America". The
net loss for the year ended March 31, 1999 was $178 million, compared to $150
million for the year ended March 31, 1998. The increase of $28 million was
primarily attributable to a reduction in lease rentals of $40 million, that was
partially offset by an associated reduction in depreciation of $17 million,
primarily as a result of Aircraft sales. There was also an increase of $17
million in net interest expense due to additional interest being charged on
accrued but unpaid Class E Note interest, partially offset by lower average debt
outstanding and a lower interest rate environment. There was an increase in the
bad debts provision of $11 million and a net decrease
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in the utilisation of loss-making lease provisions of $5 million. There was also
an increase of $10 million in the profit on Aircraft sold and there was a
reduction in other lease costs of $16 million, due primarily to a release of
withholding tax provisions, following updated advice that they were no longer
required for certain jurisdictions in the year ended March 31, 1999.
Overall, Airplanes Group generated $111 million in cash from operations in
the year ended March 31, 1999 compared to $214 million in the year ended March
31, 1998. The decrease in cash generated from operations in the year to March
31, 1999 is primarily attributable to lease rental and maintenance revenues
foregone of $33 million as a result of Aircraft sales. Lease revenues further
declined by $6 million due to lower rentals and no maintenance billings in
respect of six Fokker 100 Aircraft on lease to a Brazilian lessee, and lower
rentals in relation to three MD11 Aircraft on lease to another Brazilian lessee.
There was also a lease revenue reduction of $8 million in relation to
maintenance billings reaching capped levels for two lessees and a lease revenue
reduction of $12 million resulting from a higher level of downtime and a lower
interest rate environment (which impacts the pricing of certain lease rentals).
In addition there was an increase of $20 million in receivables outstanding.
There was an increase in net outflow of maintenance reserves due to the
acceleration of maintenance events (including as a result of Aircraft
repossessions) in the amount of $15 million and the return of $7 million in
maintenance reserves due to a Latin American lessee as a result of the
restructuring of its leases. In addition, during December 1997, one Latin
American lessee prepaid one year's rental in the amount of $15 million which
represents cash revenue foregone in the year ended March 31, 1999. Finally,
there was a reduction in the amount of cash paid as interest during the year
ended March 31, 1999 of $26 million, as a result of lower average debt and a
lower average interest rate.
LEASING REVENUES
Leasing revenues (which include maintenance reserve receipts which
Airplanes Group receives from certain of its lessees) for the year ended March
31, 1999 were $526 million (Airplanes Limited: $484 million; Airplanes Trust:
$42 million) compared with $585 million (Airplanes Limited: $512 million;
Airplanes Trust: $73 million) for the year ended March 31, 1998. The decrease of
$59 million consists of $40 million in lease rentals and $19 million in
maintenance billings. The decrease of $40 million in lease rentals arises
primarily from $26 million foregone as a result of Aircraft sales, $2 million as
a result of lower rentals in respect of six Fokker 100 Aircraft and three MD11
Aircraft on lease to two Brazilian lessees and a lease revenue reduction of $12
million resulting from a higher level of downtime and a lower interest rate
environment. The $19 million decrease in maintenance billings arises as a result
of $7 million foregone as a result of Aircraft sales, a decrease of $4 million
as a result of no maintenance billings in respect of six Fokker 100 Aircraft on
lease to a Brazilian lessee following the restructuring of its leases and $8
million in relation to maintenance billings reaching capped levels for two
lessees. At March 31, 1999, Airplanes Group had 201 of its 202 Aircraft on lease
(Airplanes Limited: 184 Aircraft; Airplanes Trust: 18 Aircraft) compared to 217
of its 221 Aircraft on lease (Airplanes Limited: 194 Aircraft; Airplanes Trust:
23 Aircraft) at March 31, 1998. In addition, there was a lower interest rate
environment (which impacts the pricing of certain lease rentals) in the year to
March 31, 1999.
AIRCRAFT SALES
Sales revenues of $132 million (Airplanes Limited: $37 million; Airplanes
Trust: $95 million) in respect of the sale of nineteen Aircraft were received in
the year ended March 31, 1999. The net book value of these nineteen Aircraft at
the date of sale was $118 million (Airplanes Limited: $32 million; Airplanes
Trust: $86 million). In the year ended March 31, 1998, Airplanes Group received
sales revenues of $94 million (Airplanes Limited: $37 million, Airplanes Trust:
$57 million) in respect of the sale of seven Aircraft and the insurance proceeds
in respect of one Aircraft which suffered a constructive total loss during
October 1997. The net book value of these eight Aircraft at the date of disposal
was $90 million (Airplanes Limited: $32 million; Airplanes Trust: $58 million).
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DEPRECIATION AND AMORTIZATION
The charge for depreciation and amortization in the year ended March 31,
1999 amounted to $176 million (Airplanes Limited: $159 million; Airplanes Trust:
$17 million) compared with $192 million (Airplanes Limited: $170 million;
Airplanes Trust: $22 million) for the comparative year in 1998. The decrease
arose as a result of the reduction in the number of Aircraft owned by Airplanes
Group.
NET INTEREST EXPENSE
Net interest expense was $428 million (Airplanes Limited: $388 million;
Airplanes Trust: $40 million) in the year ended March 31, 1999 compared to $411
million (Airplanes Limited: $373 million; Airplanes Trust: $38 million) in the
year ended March 31, 1998. The increase of $17 million in net interest expense
was primarily due to a combination of offsetting factors including additional
interest charged on accrued but unpaid Class E Note interest of $35 million, a
reduction in the value of options on interest rate swaps ("SWAPTIONS") of $1
million, a gain realised on the sale of Swaptions of $2 million and lower
average debt in the year ended March 31, 1999.
The weighted average interest rate on the Class A-D Notes during the year
to March 31, 1999 was 6.73% and the average debt in respect of the Class A-D
Notes outstanding during the year was $3,346 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 year ended March 31, 1998 was 6.83% and
the average debt in respect of the Class A-D Notes outstanding during the year
was $3,678 million. Although LIBOR was lower in the year ended March 31, 1999 as
compared with the year ended March 31, 1998, the weighted average interest rate
on the Class A-D Notes only decreased marginally during the year ended March 31,
1999 as compared to the year ended March 31, 1998. This was due to substantial
amounts of Airplanes Group's floating rate notes having paid down over time with
relatively small principal payments on the fixed rate notes resulting in an
increase in the relative proportion of fixed rate notes as compared with
floating rate notes.
For the year ended March 31, 1999 the difference in Airplanes Group's net
interest expense of $428 million (Airplanes Limited: $388 million; Airplanes
Trust: $40 million) and cash paid in respect of interest of $223 million
(Airplanes Limited: $201 million; Airplanes Trust: $22 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 year ended March 31, 1999. (The 1% cash payment has been
suspended from February 1999).
Net interest expense is stated after deducting interest income earned
during the relevant year. In the year ended March 31, 1999, Airplanes Group
earned interest income (including lessee default interest) of $14 million
(Airplanes Limited: $14 million; Airplanes Trust: Nil) compared with $16 million
in the year ended March 31, 1998 (Airplanes Limited: $16 million; Airplanes
Trust: Nil). The decrease is primarily as a result of lower average cash
balances and lower interest rates in the year to March 31, 1999.
At March 31, 1999, Airplanes Group had Swaptions with a notional principal
of $306 million. During the year ended March 31, 1999, the value of the
Swaptions decreased by approximately $1 million as swap rates increased. As
Swaptions do not qualify for hedge accounting under US GAAP, the decrease in
fair value of $1 million has been included in net interest expense in the
statement of operations. During the year, Airplanes Group recognised a gain on
the sale of Swaptions of $2 million.
BAD DEBT AND LOSS-MAKING LEASE PROVISIONS
There was a net charge of $11 million in respect of bad and doubtful debts
(Airplanes Limited: $9 million; Airplanes Trust: $2 million) in the year ended
March 31, 1999, compared with no overall net provision for the year ended March
31, 1998. 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 number of Airplanes Group's lessees failed to meet their
contractual
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obligations in the year ended March 31, 1999, resulting in the requirement for
additional provisions in respect of bad and doubtful debts in respect of these
lessees, while the arrears with regard to certain other carriers reduced in the
year. The overall net charge in 1999 was primarily as a result of provisions
required in respect of two Brazilian lessees, one North American lessee, one
Philippine lessee and one Peruvian lessee, which were partially offset by a
reduction in the provisions required in respect of one Canadian 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. The only significant
"loss making" leases signed in the year to March 31, 1999 were in respect of a
B767 Aircraft on lease to a Latin American lessee and an A320 Aircraft on lease
to a Canadian lessee. Consequently, there was an overall net utilisation of $12
million (Airplanes Limited: $10 million; Airplanes Trust: $2) in respect of
"loss making" lease provisions in the year ended March 31, 1999, compared with
the year to March 31, 1998, where there was an overall net utilisation of $17
million (Airplanes Limited: $14 million; Airplanes Trust: $3 million). The
provision required in the year ended March 31, 1998 was primarily required in
respect of six Fokker 100 Aircraft on lease to a Brazilian lessee which were
restructured during that year. The reduced rental payable under the revised
terms of these leases required an additional "loss making" lease provision of
$13 million in the year ended March 31, 1998.
OTHER LEASE COSTS
Other lease costs in the year ended March 31, 1999 amounted to $14 million
(Airplanes Limited: $13 million; Airplanes Trust: $1) compared to other lease
costs of $30 million (Airplanes Limited: $29 million; Airplanes Trust: $1) in
the year ended March 31, 1998. The decrease in other lease costs of $16 million
relate primarily to a decrease in technical costs relating to two B737-200
Aircraft which were redelivered early to Airplanes Group in the year ended March
31, 1998, and a provision required of $5 million (including $3 million relating
to 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
ceased to trade. In addition, there was a release of $9 million withholding tax
provisions, following updated advice that they were no longer required for
certain jurisdictions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the year ended March 31,
1999 amounted to $35 million (Airplanes Limited: $33 million; Airplanes Trust:
$2 million). This is a comparable expense to that incurred in the year to March
31, 1998 of $38 million (Airplanes Limited: $35 million; Airplanes Trust: $3
million).
The most significant element of selling, general and administrative
expenses are 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 $35 million in the year to March
31, 1999 includes $24 million (Airplanes Limited: $22 million; Airplanes Trust:
$2 million) relating to GECAS servicing fees comparable with the $26 million
incurred in the year to March 31, 1998 (Airplanes Limited: $24 million;
Airplanes Trust: $2 million).
A further significant element of Airplanes Group's actual selling, general
and administrative expenses reported in the year ended March 31, 1999 was $9
million (Airplanes Limited: $9 million; Airplanes Trust: Nil) in respect of
administrative agency and cash management fees payable to AerFi, similar to the
charge of $9 million for the year to March 31, 1998.
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OPERATING LOSS
The operating loss for the year ended March 31, 1999 was $181 million
(Airplanes Limited: $168 million; Airplanes Trust: $13 million) compared with an
operating loss of $153 million for the year ended March 31, 1998 (Airplanes
Limited: $144 million; Airplanes Trust: $9 million). Airplanes Limited and
Airplanes Trust are expected to continue to report substantial losses in the
future.
TAXES
There was an overall tax benefit of $3 million (Airplanes Limited: $3
million; Airplanes Trust: Nil) in the year ended March 31, 1999, as compared
with an overall tax benefit of $3 million in the year ended March 31, 1998
(Airplanes Limited: $3 million; Airplanes Trust: Nil).
NET LOSS
The net loss after taxation for the year ended March 31, 1999 was $178
million (Airplanes Limited: $165 million; Airplanes Trust: $13 million) compared
with a net loss after taxation for the year ended March 31, 1998 of $150 million
(Airplanes Limited: $141 million; Airplanes Trust: $9 million).
FINANCIAL RESOURCES AND LIQUIDITY
Airplanes Group's cash balances at March 31, 2000 amounted to $203 million
(Airplanes Limited: $197 million; Airplanes Trust: $6 million) compared to cash
balances at March 31, 1999 of $224 million (Airplanes Limited: $218 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.
Net cash provided by operating activities in the year ended March 31, 2000
amounted to $181 million (Airplanes Limited: $163 million; Airplanes Trust: $18
million) compared with $111 million in the year ended March 31, 1999 (Airplanes
Limited: $90 million; Airplanes Trust: $21 million). This reflects cash paid in
respect of interest of $214 million in the year ended March 31, 2000 (Airplanes
Limited: $193 million; Airplanes Trust: $21 million) compared with $223 million
in the year ended March 31, 1999 (Airplanes Limited: $201 million; Airplanes
Trust: $22 million). The $70 million increase in cash provided by operating
activities in the year ended March 31, 2000 is primarily attributable to a
reduction in the level of receivables of $11 million compared to an increase of
$20 million in the year ended March 31, 1999. In addition there was a reduction
in the net outflow of maintenance revenues of $20 million, due largely to the
acceleration of maintenance events in the year ended March 31, 1999 (including
as a result of Aircraft repossessions) in the amount of $15 million and the
return of $7 million in maintenance reserves due to a Latin American lessee as a
result of the restructuring of its leases. There was a reduction in the amount
of cash paid as interest during the year ended March 31, 2000 of $27 million, as
a result of lower average debt and the generation of $11 million in cash from
the re-couponing or unwinding of Airplanes Group's portfolio of Swaps (See
"--Item 7A. Quantitative and Qualitative Disclosures About Market Risks"). These
factors were somewhat offset by a reduction of $25 million in leasing revenues,
which arose due to Aircraft sales and an increased level of Aircraft downtime.
INVESTING AND FINANCING ACTIVITIES
Cash flows from investing activities in the year ended March 31, 2000,
amounted to $8 million (Airplanes Limited: $8 million; Airplanes Trust: Nil
million) compared to $135 million in the year ended March 31, 1999. This $127
million decrease primarily reflects the proceeds of $132 million (Airplanes
Limited:
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$37 million; Airplanes Trust: $95 million) from the sale of nineteen Aircraft
during the year ended March 31, 1999 compared with sales proceeds of $3 million
for the year ended March 31, 2000. Cash provided by capital and sales type
leases amounted to $8 million (Airplanes Limited: $8 million; Airplanes Trust;
Nil) as compared with $8 million in the comparative period to March 31, 1999
(Airplanes Limited: $8 million; Airplanes Trust: Nil). In the year ended March
31, 2000, this included the repayment of $1 million as a final bullet payment in
relation to one B737-200A Aircraft.
Cash flows from financing activities in the year to March 31, 2000
primarily reflect the repayment of $210 million of principal on Subclass A-6,
Class B Notes, Class C Notes and Class D Notes by Airplanes Group (Airplanes
Limited: $192 million; Airplanes Trust: $18 million) compared with $240 million
of principal repaid on Subclass A-5, A-6, Class B Notes, Class C Notes and Class
D Notes by Airplanes Group (Airplanes Limited: $219 million; Airplanes Trust:
$21 million) in the year ended March 31, 1999. The decrease in principal
repayments in the year ended March 31, 2000 as compared to the year ended March
31, 1999, is due to a net reduction in cash provided by investing and operating
activities as discussed above.
INDEBTEDNESS
Airplanes Group's indebtedness consisted of Class A-E Notes in the amount
of $3,636 million (Airplanes Limited: $3,313 million; Airplanes Trust: $323
million) at March 31, 2000 and $3,842 million (Airplanes Limited: $3,500
million; Airplanes Trust: $342 million) at March 31, 1999. Airplanes Group had
$591 million of Class E Notes outstanding at March 31, 2000 and 1999.
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 and $700 million in
Subclass A-8 Notes will have to be refinanced through the sale of further
pass-through certificates in 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.
2000 AIRCRAFT VALUE APPRAISALS
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 and interest payments on the Class E Notes.
Updated appraisals of the Aircraft were obtained on February 18, 2000. On
the basis of these appraisals, the average appraised Base Value of the Aircraft,
based on the Portfolio of 199 Aircraft owned by the Group at March 31, 2000 was
approximately $3,335 million compared with $3,488 million at February 5, 1999,
the date of the previous Base Value appraisals. The decrease in the period since
February 5, 1999 was approximately $15 million less than the decrease implied by
the Aircraft depreciation schedules that form part of the terms of the Notes.
The decline in aircraft values for the period to February 5, 1999 resulted
in a Principal Adjustment Amount of $34 million on the Class A Notes which began
to be paid from the February 16, 1999 Payment Date. The payment of Class A
Principal Adjustment Amount resulted in a reallocation of cashflows in favour of
the Class A Notes. Accordingly, during this period there was a suspension of
payments of the Class E Minimum Interest Amount and a deferral of payments of
the Class C and D Scheduled Principal Amounts.
On December 15, 1999, arrears of the Class A Principal Adjustment Amount
were eliminated and payments of the Class C Scheduled Principal Amounts
recommenced. On January 18, 2000, the deferred Class C Scheduled Principal
Amounts were paid in full and on February 15, 2000, the deferred Class D
Scheduled Principal Amounts were paid in full, and payments of the Class E
Minimum Interest Amount recommenced.
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As a result of the 2000 Appraisals, there was not an immediate suspension
of any payments. However, Airplanes Group will continue to pay Class A Principal
Adjustment Amount in accordance with the terms of the Notes and will pay items
more junior in the order of priorities to the extent of available cashflows.
However, in May and June 2000, available cashflows were not sufficient to pay
the entire amount of the Class A Principal Adjustment Amount then outstanding.
As a result, payments of the Class C and D Scheduled Principal Amounts ($2.5
million and $1.1 million, respectively) were deferred and payments of the Class
E Minimum Interest Amount were suspended.
There can be no assurances that these arrears will be paid in full or that
variations in future cashflows, which are currently suffering from adverse
pressure on market lease rates, or future appraisals will not lead to further
suspensions of payments of Class C and D Scheduled Principal Amounts and Class E
Minimum Interest Amounts.
CASHFLOW PERFORMANCE RELATIVE TO MARCH 1998 ASSUMPTIONS
The March 16, 1998 prospectus relating to the Refinancing 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
May 9, 2000 Calculation Date (the "Period"), the cash performance of Airplanes
Group was $13 million behind the 1998 Assumptions. This was due to Net Operating
Cashflows being $102 million lower than the 1998 Assumptions in the Period
partially offset by a positive variance of $88 million in relation to Aircraft
sales. ("Net Operating Cashflows" comprise gross lease revenue cashflows after
selling, general and administrative expenses, maintenance costs, operating costs
(including interest costs) and expenditure due to Aircraft downtime, defaults,
repossession and bad debts). Although for the purposes of this presentation,
lessee deposit movements are included in Net Operating Cashflows, such deposits
are held separately with the Liquidity Reserve Amount and accordingly, do not
impact the level of Net Operating Cashflows available for distribution to the
Noteholders. In addition, during the Period, Airplanes Group exercised an option
to purchase shares in an airline which Airplanes Group had been granted under
the terms of a lease of an Aircraft to this lessee. The shares were subsequently
sold yielding net proceeds of $1 million.
At May 15, 2000, having made the principal and interest distributions on
that date, Airplanes Group held cash balances of $170 million, $158 million in
the Liquidity Reserve Amount and $12 million in the Expense Account. The cash
balances retained by Airplanes Group in the form of the Liquidity Reserve and
Expense Account decreased by $25 million between March 1998 and May 2000 which,
when combined with the negative cash performance of $13 million, resulted in
principal distributions in the Period of $12 million higher than the 1998
Assumptions.
AIRCRAFT SALES
Sales proceeds of $136 million were received in the Period in respect of
the sale of 22 Aircraft which included six DC8-71Fs, one B737-300, five
B737-200As and two A300-B4-100s (which were sold for scrap). In addition,
Airplanes Group disposed of eight DC9 Aircraft pursuant to a lessee purchase
option, all of which were over 25 years old at date of sale and the proceeds
received for these Aircraft were negligible. The 1998 Assumptions reflected
sales proceeds of $48 million in respect of the sale of three DC8-71F Aircraft
and one B737-200A (on expiry of finance lease) only.
NET OPERATING CASHFLOWS
Net Operating Cashflows were $102 million lower than the 1998 Assumptions
in the Period due to the following:
Lease revenue receipts
Lease revenue receipts were $47 million lower than the 1998 Assumptions in
the Period. This negative variance is primarily as a result of a number of
lessees going into arrears on their rental payments ($25 million), revenue
foregone due to Aircraft sales ($31 million) and other net negative variances
($18 million) due to differences in lease rates and interest rate movements.
These factors were partially offset
55
<PAGE> 57
by the fact that revenue lost through downtime and defaults was $27 million
lower than assumed in the 1998 Assumptions.
Net maintenance costs
Net maintenance costs were higher than the 1998 Assumptions by $29 million
(the 1998 Assumptions assumed that net maintenance cashflows would be zero)
primarily due to the acceleration of maintenance events in the amount of $19
million due to Aircraft repossessions, the return of $7 million in maintenance
reserves to a Latin American lessee as a result of the restructuring of its
leases and a greater than expected incidence of maintenance events in the
Period. Maintenance expenditure may vary significantly from period to period as
it is impacted by the timing and incidence of checks, where checks are
performed, the type and age of the Aircraft as well as events such as lease
extensions and early redeliveries. In addition to maintenance expenditure,
Airplanes Group also incurs technical costs with respect to the Aircraft which
are included in "Other leasing/repossession costs".
Other leasing/repossession costs
Other leasing costs were $34 million greater than the 1998 Assumptions in
the Period. The 1998 Prospectus assumed that other leasing costs would amount to
2% of lease revenues. Since March 1998 other leasing costs have amounted to
approximately 5% of lease revenues. In general, other leasing costs have
exceeded the 1998 Assumptions primarily due to high transition costs on Aircraft
delivering to new lessees in the Period and the level of payments made in the
form of lessor contributions to defray certain technical costs during the term
of certain leases. These contributions were substantially comprised of payments
made in the form of lessor contributions to engine refurbishment costs on two
A300 Aircraft.
In addition, repossession costs at 0.6% of lease revenues received were $2
million lower than the 1998 Assumptions of 0.8%. Actual repossession costs in
the Period were primarily in respect of three MD83 Aircraft repossessed from
Sunways (Turkey) and four F100 Aircraft repossessed from Sempati (Indonesia). To
a lesser extent they were also related to one B737-400 Aircraft repossessed from
Nordic East and one B737-200A Aircraft which was redelivered from another
Indonesian lessee. This aircraft was subsequently sold in September 1998.
Net interest payments (including hedging costs)
Interest payments (including hedging costs) were $28 million lower than the
1998 Assumptions due to the following:
Interest payments on the floating rate Class A Notes ($17 million) and
Class B Notes ($2 million) were lower than assumed as a result of a combination
of lower principal balances outstanding due to the greater than assumed
principal amortisation and the lower interest rate environment. Also, there was
a suspension of payments of the Class E Minimum Interest Amount from February
1999 to January 2000 and also in May 2000 ($6 million cumulative to-date) due to
the reallocation of cashflows to the more senior Note classes as a result of a
combination of the operating cashflow performance as compared with the 1998
Assumptions and a greater than assumed reduction in aircraft valuations.
Net interest swap payments which were $2 million lower than the 1998
Assumptions included a net cash inflow of $11 million on the
re-couponing/unwinding of 30 of Airplanes Group's portfolio of 44 Swaps. In
addition, payments of $2 million in respect of the Minimum and Supplemental
Hedge Payments in the Period were not assumed in the 1998 Assumptions.
Interest income receipts were $3 million higher than the 1998 Assumptions
due to higher cash balances retained in Airplanes Group.
Selling, General and Administrative Expenses
Selling, General and Administrative Expenses were $6 million higher than
the 1998 Assumptions due primarily to a higher level of incentive fees paid to
the Servicer than assumed in the 1998 Assumptions.
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<PAGE> 58
Security Deposits
There was a net decrease of $16 million in lessee security deposits held by
Airplanes Group over the Period which was not assumed in the 1998 Assumptions.
This decrease was represented by an equivalent movement in the Liquidity Reserve
and accordingly movements in the level of lessee deposits do not impact the
levels of Net Operating Cashflows available for distribution to the Noteholders.
PRINCIPAL DISTRIBUTIONS
As a result of the above, Airplanes Group repaid $12 million more debt in
the Period than assumed in the 1998 Assumptions. Distributions of principal to
the Class A Noteholders were $20 million greater than assumed and distributions
of principal to the Class B Noteholders were $6 million lower than assumed.
The February 1999 decrease in Aircraft valuations which was $61 million
greater than the decrease implied by the Aircraft depreciation schedules that
form part of the terms of the Notes resulted in a reallocation of cashflows in
favour of the Class A Notes through the payment of Class A Principal Adjustment
Amounts and a deferral of payments of the Class C and D Scheduled Principal
Amounts. However, on December 15, 1999 arrears of the Class A Principal
Adjustment Amounts were eliminated and payments of the Class C Scheduled
Principal Amounts recommenced. On January 18, 2000, the deferred Class C
Scheduled Principal Amounts were paid in full and payments of the Class D
Scheduled Principal Amounts commenced. Arrears of Class D Scheduled Principal
Amounts were subsequently eliminated on February 15, 2000 and payments of Class
E Minimum Interest Amount recommenced on that date.
Based on the new appraisals obtained on February 18, 2000, the decline in
Aircraft valuations in the year to February 2000 was approximately $15 million
less than the decrease implied by the Aircraft depreciation schedules that form
part of the terms of the Notes. However, as a consequence of the decline in
appraised values experienced in the year to February 1999, combined with overall
cashflow performance in the Period, Airplanes Group has continued to pay Class A
Principal Adjustment Amounts from the March 2000 Payment Date (the first Payment
Date for which the 2000 appraisals were effective). Cashflows were sufficient on
the March and April 2000 Payment Dates to pay the Class C and Class D Scheduled
Principal Amounts and Class E Minimum Interest. However, as a result of an
adverse movement in cashflow performance in the Calculation Period ending on May
9, 2000, which arose due to the impact of the level of non revenue earning
Aircraft, a small increase in receivables and the timing of payment of incentive
fees to the Servicer, available cashflows on the May 2000 Payment Date were not
sufficient to pay the full Class A Principal Adjustment Amount outstanding on
that date. As a result, payments of the Class C and D Scheduled Principal
Amounts ($1.2 million and $0.5 million, respectively) were deferred and payments
of the Class E Minimum Interest Amount were suspended on that date.
In addition, available cashflows in the calculation period to June 9, 2000
were not sufficient for similar reasons to pay the full Class A Principal
Adjustment Amount outstanding on that date and as a result, Class C and Class D
Scheduled Principal Amounts were deferred. Consequently, at June 9, 2000 total
deferrals of Class C and Class D Scheduled Principal Amounts amounted to ($2.5
million and $1.1 million respectively). The Class E Minimum Interest Amount was
also suspended on that date.
There can be no assurances that these arrears will be paid in full or that
variations in future cashflows, which are currently suffering from adverse
pressure on market lease rates, or future appraisals will not lead to further
suspension of Class C and D Scheduled Principal Amounts and Class E Minimum
Interest Amounts.
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,
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<PAGE> 59
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, among others, 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).
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,
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<PAGE> 60
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 therefore 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 million as of May 9, 2000, (ii) a
"SECURITY DEPOSIT RESERVE AMOUNT", equal to approximately $38.4 million as of
May 9, 2000, and (iii) a "MISCELLANEOUS RESERVE AMOUNT", equal to $40 million as
of May 9, 2000.
The Liquidity Reserve Amount at May 9, 2000 equaled approximately $158.4
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, among other things, 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 equally with, payments of accrued and unpaid interest on the
Class D Notes and any Permitted Accruals, provided that the balance of funds in
the Collection Account does not fall below the sum of the Maintenance Reserve
Amount and the Miscellaneous Reserve Amount at their then current levels.
However, the balance of funds in the Collection Account may fall below the sum
of the Maintenance Reserve Amount and the Miscellaneous Reserve Amount, at their
then current levels, and Airplanes Group may continue to make payments of (i)
all accrued and unpaid interest on, and, on the final maturity date of any class
or subclass thereof, principal of such class or subclass of, the most senior
class of Notes then outstanding to avoid a Note Event of Default; and (ii)
payments under Airplanes Group's swap agreements.
At such time as the aggregate outstanding principal balance of the Notes is
less than or equal to the Liquidity Reserve Amount, the balance of funds, if
any, in the Collection Account will be distributed in accordance with the
priority of payments established for the Notes.
THE LESSEE FUNDED ACCOUNTS
Pursuant to the terms of the leases, certain lessee Security Deposits and
supplemental rent payments to provide for Maintenance Reserves may be required
to be segregated from other Airplanes Group funds. Amounts received from lessees
in respect of such Security Deposits and maintenance obligations 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
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<PAGE> 61
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 Payment Date
on the Notes, Airplanes Group will be unable to pay the Required Expense Amount
in full on such date, which may lead to a default under one or more of Airplanes
Group's various service agreements or other contracts under which the Expenses
arise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
INTEREST RATE SENSITIVITY
Airplanes Group's principal market risk exposure is to changes in interest
rates. This exposure arises from its Notes and the derivative instruments used
by Airplanes Group to manage interest rate risk.
The terms of each subclass of Notes, including the outstanding principal
amount and estimated fair value as of March 31, 2000, are as follows:
<TABLE>
<CAPTION>
ANNUAL INTEREST PRINCIPAL ESTIMATED
RATE AMOUNT EXPECTED FINAL FINAL FAIR VALUE AT
SUBCLASS OF NOTES (PAYABLE MONTHLY) AT YEAR END PAYMENT DATE MATURITY DATE MARCH 31, 2000
----------------- ----------------- ----------- ---------------- -------------- --------------
$MILLIONS $MILLIONS
<S> <C> <C> <C> <C> <C>
Subclass A-4.......... (LIBOR+.62%) 200 March 15, 2003 March 15, 2019 200
Subclass A-6.......... (LIBOR+.34%) 568 January 15, 2004 March 15, 2019 566
Subclass A-7.......... (LIBOR+.26%) 550 March 15, 2001 March 15, 2019 549
Subclass A-8.......... (LIBOR+.375%) 700 March 15, 2003 March 15, 2019 696
Class B............... (LIBOR+.75%) 291 March 15, 2009 March 15, 2019 286
Class C............... (8.15%) 351 March 15, 2011 March 15, 2019 316
Class D............... (10.875%) 396 March 15, 2012 March 15, 2019 352
----- -----
3,056 2,965
===== =====
</TABLE>
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. 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
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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, AerFi 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 March 31, 2000, Airplanes Group had
unamortized Swaps with an aggregate notional principal balance of $2,085
million. The aggregate notional principal balance of these Swaps will be reduced
to $1,075 million by March 31, 2001, to an aggregate notional principal balance
of $700 million by March 31, 2002 and to an aggregate notional principal balance
of $195 million by March 31, 2003. None of the Swaps have maturity dates
extending beyond December 2003. The fair values of the Swaps at March 31, 2000
was $15.8 million. Airplanes Group is a party to 43 Swaps which are listed
below:
AIRPLANES GROUP SWAP BOOK AT MARCH 31, 2000
<TABLE>
<CAPTION>
NOTIONAL ESTIMATED FAIR
AMOUNT(I) FINAL FIXED RATE MARKET VALUE AS
SWAP NO. (MILLIONS) EFFECTIVE DATE MATURITY DATE PAYABLE(II) AT MARCH 31, 2000
-------- ---------- -------------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
1..................................... 20 5/17/99 4/15/00 5.9800% $434
2..................................... 10 12/15/97 4/15/00 6.3900% ($3,530)
3..................................... 5 2/17/98 6/15/00 5.9500% $2,402
4..................................... 20 6/24/97 6/15/00 5.9825% $4,116
5..................................... 15 7/15/97 6/15/00 6.0600% $2,874
6..................................... 120 2/15/00 7/15/00 6.1950% $15,626
7..................................... 105 1/18/00 7/15/00 6.1400% $26,905
8..................................... 140 10/15/99 7/15/00 5.8650% $28,516
9..................................... 90 2/24/00 8/15/00 6.2525% $32,695
10.................................... 60 2/15/00 8/15/00 6.3200% ($10,083)
11.................................... 5 12/15/97 10/15/00 5.8475% $16,340
12.................................... 15 1/15/97 11/15/00 6.0550% $42,870
13.................................... 10 8/15/97 12/15/00 5.9800% $30,939
14.................................... 75 10/28/99 1/15/01 5.9250% $59,770
15.................................... 20 12/23/97 3/15/01 5.8175% $182,773
16.................................... 70 11/17/99 4/15/01 5.8550% $203,180
17.................................... 115 3/28/96 4/15/01 6.0925% $410,125
18.................................... 40 10/28/97 6/15/01 5.9600% $246,459
19.................................... 30 12/15/99 8/15/01 6.2000% $93,681
20.................................... 20 5/27/98 4/15/02 6.2800% $271,438
21.................................... 45 8/16/99 4/15/02 6.2250% $545,773
22.................................... 20 12/15/99 4/15/02 6.3100% $173,669
23.................................... 10 10/27/98 5/15/02 6.2900% $140,513
24.................................... 0 4/17/00 5/15/02 6.7150% $9,283
25.................................... 425 11/15/99 6/15/02 6.1200% $3,875,751
26.................................... 10 2/16/99 7/15/02 6.2700% $204,626
27.................................... 20 9/15/98 8/15/02 6.1700% $203,476
28.................................... 140 7/15/98 12/15/02 6.2400% $2,249,932
29.................................... 20 8/25/98 2/15/03 6.3900% $555,231
30.................................... 20 10/15/98 2/15/03 6.3800% $367,081
31.................................... 10 11/16/98 2/15/03 6.3900% $199,277
32.................................... 50 12/15/98 2/15/03 6.2840% $925,625
33.................................... 15 2/15/00 3/15/03 6.3965% $290,387
34.................................... 15 1/18/00 3/15/03 6.3850% $313,477
35.................................... 45 6/1/99 3/15/03 6.2200% $721,088
36.................................... 60 12/21/99 3/15/03 6.5875% $370,479
37.................................... 0 4/15/01 4/15/03 7.1850% $27,043
38.................................... 20 6/21/99 6/15/03 6.3100% $1,086,758
</TABLE>
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<PAGE> 63
<TABLE>
<CAPTION>
NOTIONAL ESTIMATED FAIR
AMOUNT(I) FINAL FIXED RATE MARKET VALUE AS
SWAP NO. (MILLIONS) EFFECTIVE DATE MATURITY DATE PAYABLE(II) AT MARCH 31, 2000
-------- ---------- -------------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
39.................................... 60 7/15/99 8/15/03 6.2900% $1,156,622
40.................................... 10 1/18/00 10/15/03 6.4650% $221,138
41.................................... 30 8/17/99 11/15/03 6.3300% ($164,244)
42.................................... 0 12/15/00 11/15/03 7.3625% $635,979
43.................................... 75 3/24/00 12/15/03 6.8450% $29,869
-----------
$15,796,363
===========
</TABLE>
---------------
(i) While some of the above have a fixed notional amount, many amortise over the
period to the final maturity date.
(ii) Each of the above Swaps is calculated on a monthly fixed actual/360
adjusted basis, with the exception of Swap No. 17 which is calculated on a
monthly fixed 30/360 unadjusted basis.
(iii) Under all Swaps Airplanes Group receives floating at one month LIBOR,
reset monthly.
Pursuant to a decision of the Directors of Airplanes Limited and the
Controlling Trustees of Airplanes Trust on November 8, 1999, Airplanes Group
either re-couponed or unwound and replaced thirty of its portfolio of forty four
Swaps. Twenty of these Swaps were adjusted so that Airplanes Group's fixed
payment rate more closely reflected current market rates. Airplanes Group
received a net cash payment of $9.33 million with respect to these twenty Swaps.
In addition, ten of the thirty Swaps were terminated, in return for a net
payment to Airplanes Group of $1.92 million. In aggregate, therefore, Airplanes
Group received a net cash inflow of $11.25 million, but will now have higher
ongoing swap costs as a result of re-calibrating the Swaps to current market
rates. Simultaneously with these terminations, Airplanes Group put in place a
replacement Swap to maintain a hedged position. These adjustments and
terminations released the positive value in Airplanes Group's Swaps and allowed
that value to be available to be applied to additional payments of the Class A
Principal Adjustment Amount. These transactions were conducted in accordance
with Airplane Group's interest rate risk management policies.
The realized gain on the termination of these Swaps has been deferred and
is being recognized over the life of the hedged transaction in accordance with
the guidance provided in ET Issue No. 84-7, "Termination of Interest Rate
Swaps".
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, among other things, changes in the mix of payments
bases under future leases and in the prevailing level of interest rates. 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 fourth in the Airplanes Group order of
priority of payments. The other 50% of any such premium payable is expended as a
"SUPPLEMENTAL HEDGE PAYMENT" and is paid seventeenth in the Airplanes Group
order of 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. As a result of the Principal
Adjustment Amount currently being paid (See -- "2000 Aircraft Value
Appraisals"), no Supplemental Hedge Payments will be possible until such time as
the Class A target loan to value ratios
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<PAGE> 64
implied by the terms of the Notes have been restored. From time to time the
Administrative Agent may also sell at market value or unwind part or all of the
current and any future Swaptions, for example, to reflect any decreases in the
Target Hedge.
In the period from March 28, 1996 to March 31, 2000, Airplanes Group
purchased Swaptions with an aggregate notional principal balance of $483 million
and sold Swaptions with an aggregate notional principal balance of $194 million.
The net aggregate notional principal balance of Swaptions at March 31, 2000
therefore, amounted to $289 million. The fair value of the Swaptions at March
31, 2000 was $0.1 million and because the Swaptions do not qualify for hedge
accounting under U.S. GAAP, the decrease in value of $1.1 million since March
31, 1999 has been included in Net Interest Expense for the fiscal year ended
March 31, 2000.
Airplanes Group is a party to 14 Swaptions, which are listed below:
AIRPLANES GROUP SWAPTION BOOK AT MARCH 31, 2000
<TABLE>
<CAPTION>
NOTIONAL ESTIMATED FAIR
AMOUNT EXERCISE DATE FINAL FIXED RATE MARKET VALUE AS
SWAPTION NO (MILLIONS) (ON OR AFTER) MATURITY DATE RECEIVABLE AT MARCH 31, 2000
----------- ---------- ------------- ------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
1..................................... 4 03/16/98 10/15/00 5.000% 1
2..................................... 10 05/15/98 10/15/00 5.000% 1
3..................................... 25 09/15/98 11/15/00 5.200% 45
4..................................... 7 02/17/98 01/15/01 5.000% 2
5..................................... 24 01/15/98 05/15/01 5.000% 5,716
6..................................... 50 09/15/98 12/15/01 5.300% 3,466
7..................................... 30 01/15/98 04/15/02 5.000% 41,594
8..................................... 20 02/17/98 09/15/02 5.100% 2,503
9..................................... 14 04/15/98 09/15/02 5.100% 1,752
10.................................... 15 03/16/98 03/15/03 5.100% 4,144
11.................................... 50 07/15/98 03/15/03 5.100% 12,757
12.................................... 20 04/15/98 06/15/03 5.100% 6,921
13.................................... 10 09/15/98 09/15/03 5.300% 7,419
14.................................... 10 02/16/99 02/15/04 5.400% 10,182
------
96,503
======
</TABLE>
---------------
(i) Under each Swaption, if exercised, Airplanes Group would receive fixed at
the rate indicated above on a monthly fixed 30/360 unadjusted basis.
(ii) Under each Swaption, if exercised, Airplanes Group would pay floating at
one month LIBOR, reset monthly.
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 who have credit ratings, or provide collateralization arrangements,
which are consistent with maintaining the ratings of the Class A Certificates.
The quantitative disclosure and other statements in this section are
forward-looking statements that involve risks and uncertainties. Although
Airplanes Group's policy is to limit its exposure to changes in interest rates,
it could suffer higher cash flow losses as a result of actual future changes in
interest rates. It should also be noted that Airplanes Group's future exposure
to interest rate movements will change as the composition of its lease portfolio
changes or if it issues new subclasses of additional notes or refinancing notes
with different interest rate provisions from the Notes. Please refer to "Risk
Factors" for more information about risks, especially lessee credit risk, that
could intensify Airplanes Group's exposure to changes in interest rates.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this
report. See "Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
DIRECTORS AND CONTROLLING TRUSTEES
The Directors and the Controlling Trustees of Airplanes Limited and
Airplanes Trust, respectively, their respective ages and principal activities
are as follows:
<TABLE>
<CAPTION>
NAME AGE OFFICES HELD WITH THE REGISTRANTS
---- --- ---------------------------------
<S> <C> <C>
Richard E. Cavanagh............ 54 Independent Director, Airplanes Limited
Controlling Trustee, Airplanes Trust
Roy M. Dantzic................. 55 Independent Director, Airplanes Limited
Controlling Trustee, Airplanes Trust
Hugh R. Jenkins................ 66 Independent Director, Airplanes Limited
Controlling Trustee, Airplanes Trust
William M. McCann.............. 56 Independent Director and Chairman, Airplanes Limited
Controlling Trustee and Chairman, Airplanes Trust
Brian T. Hayden................ 52 E Note Director, Airplanes Limited
E Note Controlling Trustee, Airplanes Trust
</TABLE>
Certain individuals other than the Directors and Controlling Trustees
listed above serve as directors of various subsidiaries of Airplanes Group.
Richard Cavanagh is President and Chief Executive Officer of The Conference
Board, Inc., a global business research and membership enterprise supported by
some 3,000 corporate members in 67 nations and based in New York City. Prior to
taking up his current position in 1995, he earlier served for eight years as
Executive Dean of the Kennedy School of Government at Harvard University. Before
that, he was a partner of McKinsey & Company, Inc., an international management
consulting firm. During his 17 years with McKinsey, he took a two-year public
service leave and held senior positions in The White House Office of Management
& Budget. He co-authored the management book The Winning Performance. Mr.
Cavanagh serves as a director of Aircraft Finance Trust (AFT), the BlackRock
Mutual Fund family, Arch Chemicals (formerly Olin), The Fremont Group (formerly
Bechtel Investments) and The Guardian Life Insurance Company.
Roy Dantzic started his career with Coopers & Lybrand qualifying as a
chartered accountant in 1968. He moved into the City of London in 1970 and spent
the next 10 years in corporate advisory work, principally as a director of
Samuel Montagu. In 1980, the British Government appointed Mr. Dantzic as Finance
Director of British National Oil Corporation and he served in such capacity
until 1984. Between 1985 and 1989 he was a director of the corporate broking
division of Wood McKenzie. In 1989 he joined the board of Stanhope Properties
and served as its Finance Director from 1992 until the company was acquired in
1995. In August 1995, Mr. Dantzic became a director of the corporate broking
division of Merrill Lynch International Ltd. He has served as a non executive
director on the boards of Central Electricity Generating Board, British Nuclear
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<PAGE> 66
Fuels Limited, Saxon Oil Limited and Total Oil Holdings Ltd. Mr. Dantzic is
currently managing director of BG Property Holdings Ltd.
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 of Development Securities Plc and
a non-executive Director of The Rank Group Plc, EMI Group Plc, Johnson Matthey
Plc, Gartmore European Investment Trust Plc and Development Securities
(Investments) plc.
William McCann, a chartered accountant, was from 1987 to 1995 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 and from 1993 to
1998 was a director of the Central Bank of Ireland. Mr. McCann currently is
Chairman of the Electricity Supply Board, Ireland, and Deputy Chairperson of the
Irish Takeover Panel. He is also a Director of Anglo Irish Bank Corporation Plc,
Canada Life Assurance (Ireland) Limited and Readymix plc and is Chairman or a
Director of a number of other companies. He is a member of the Irish National
Competitiveness Council and is a Board Member of the University College Dublin
Graduate School of Business.
Brian Hayden started his career with Aer Lingus having qualified as a
mechanical engineer in 1970. He worked in various management positions within
Aer Lingus during the next 19 years. In 1989, he moved to AerFi to head the
technical division as Senior Vice President -- Technical based in Shannon,
Ireland. In 1993, he joined GECAS and is presently Executive Vice President with
responsibility for Technical Management of the GECAS owned and managed fleet. He
is a director of GECAS and a former director of Irish Helicopters.
The Board of Directors and the Controlling Trustees of Airplanes Limited
and Airplanes Trust, respectively, are non-executive Directors and Controlling
Trustees, as the case may be. Further, as is common with many other special
purpose companies, neither Airplanes Limited nor Airplanes Trust has, or will
have, any employees or executive officers. Accordingly, the Board of Directors
and the Controlling Trustees will each rely upon the Servicer, the
Administrative Agent, the Cash Manager and the other service providers for all
asset servicing, executive and administrative functions pursuant to the
respective service provider agreements.
THE SERVICER
GECAS provides various aircraft-related services to Airplanes Group as
Servicer under the Servicing Agreement. On November 20, 1998, GE Capital
acquired the Airplanes Group Class E Notes previously held by AerFi Group.
GENERAL
GECAS and its affiliates manage one of the world's most significant
portfolios of commercial aircraft. As of March 31, 2000, the GECAS Managed
Portfolio consisted of 963 aircraft, which are on lease to more than 155 lessees
in 54 countries throughout the world. Since 1996, GECAS has entered into several
multi-year orders with Boeing and Airbus for the Boeing 737, 767, 747 and Airbus
A320 families of aircraft. These contracts involve over 400 firm and option
aircraft. To date GECAS has taken delivery of 121 aircraft under these
agreements. In addition to these contracts, GECAS also purchases aircraft from
airlines and investors. As a global commercial aviation financial services
company, GECAS and its affiliates (i) offer a broad range of financial products
to airlines and aircraft operators, aircraft owners, lenders and investors,
including financing leases, operating leases, tax-advantaged and other
incentive-based financing and debt and equity financing and (ii) provide asset
management, marketing and technical support services to aircraft owners, lenders
and investors, including GE Group, AerFi and their respective affiliates, and
certain third parties.
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<PAGE> 67
GECAS, together with GECAS, Inc., has access to approximately 228 employees
worldwide and has operations in Stamford, Connecticut; Shannon, Ireland; Miami,
Florida; and a number of other locations, including Vienna, Beijing, Hong Kong
and Singapore.
GECAS is headquartered in Shannon, Ireland and at March 31, 2000 had 109
employees.
One of GECAS's principal businesses is providing a broad range of financial
products to airlines and aircraft operators and to aircraft owners, lenders and
investors throughout the world. To meet the fleet financing needs of its airline
customers, GECAS and its affiliates offer such financing options as financing
leases (including both direct financing and leveraged leases), operating leases
and other structured finance products, as well as engine and rotable leasing and
flight simulator services. In conjunction with this business, GECAS and its
affiliates are responsible for developing, negotiating and consummating
aircraft-related investment opportunities in the aviation industry for its
affiliate, GE Capital, including the acquisition of aircraft for GE Capital. On
behalf of GE Capital or its affiliates, GECAS will likely offer aircraft or
engine financing to customers of the GE Aircraft Engines Division, and will also
likely offer, on behalf of GE Group, other financial products to such customers,
including in connection with a restructuring or other modification of such
customer's existing financing provided by the GE Aircraft Engines Division, or
otherwise. In addition, GE Capital holds the majority of the Airplanes Group
Class E Notes and may acquire interests in other portfolio securitisations.
With respect to its owner, lender and investor customers, GECAS intends to
continue to market a range of products that are intended to allow financial
institutions and other investors to realize the benefits of aircraft ownership
while the aircraft are managed by GECAS. GECAS expects to arrange and negotiate
the sale of aircraft with operating leases in place, rental rates, tax benefits
and related assets from the portfolio it manages, as well as structured pooled
financings and other incentive-driven transactions.
GECAS offers a broad range of management services to aircraft owners,
lenders and investors, including collection of rental payments, arranging and
monitoring of aircraft maintenance performed by others, limited technical
inspection of aircraft, arranging and monitoring insurance, arranging for
aircraft valuations, registration and deregistration of aircraft, monitoring
compliance with lease agreements and enforcement of lease provisions against
lessees, confirming compliance with applicable ADs and facilitating delivery and
redelivery of aircraft. GECAS devotes substantial resources to marketing for
sale and re-lease of the aircraft that it manages. Generally, to the extent an
aircraft is on lease at the time it is being marketed for sale, it is a more
attractive candidate to be sold to potential financial investors when compared
to an aircraft that is not currently under lease. GECAS arranges for its
customers, including GE Capital, AerFi 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> 68
The table below sets forth the different aircraft comprising the GECAS
Managed Portfolio as of March 31, 2000 by manufacturer and by whether the
aircraft are owned and managed by affiliates of GE Capital or simply managed for
third parties.
<TABLE>
<CAPTION>
GE CAPITAL OTHER MANAGED AIRPLANES
AIRCRAFT TYPE AND CLASS FLEET(1) THIRD PARTIES(2) GROUP TOTAL
----------------------- ---------- ---------------- --------- -----
<S> <C> <C> <C> <C>
Airbus
A300............................................ 18 -- 4 22
A310............................................ 7 1 -- 8
A319............................................ 25 -- -- 25
A320............................................ 39 11 12 62
A321............................................ 4 -- -- 4
A330............................................ 4 -- -- 4
Boeing
B727............................................ 13 -- 2 15
B737-200........................................ 45 5 27 77
B737-300/400/500(3)............................. 196 18 43 257
B737-600/700/800................................ 55 -- -- 55
B747............................................ 27 -- 1 28
B757-200........................................ 27 -- 3 30
B767-200ER...................................... 8 2 1 11
B767-300ER...................................... 33 4 4 41
B777-200........................................ 7 -- -- 7
McDonnell Douglas
DC8............................................. 2 -- 19 21
DC9............................................. 4 24 10 38
DC10............................................ 9 3 -- 12
MD11............................................ 5 2 3 10
MD81............................................ -- 10 -- 10
MD82............................................ 35 21 2 58
MD83............................................ 16 8 23 47
MD87............................................ -- 5 1 6
MD88............................................ 12 -- -- 12
Fokker
F100............................................ 10 5 16 31
Other Jets........................................ 33 1 -- 34
Turboprops........................................ 3 7 28 38
--- --- --- ---
Total........................................ 637 127 199 963
--- --- --- ---
Body Type:
Widebody........................................ 119 12 13 144
Narrowbody...................................... 518 115 186 819
Stage Compliance:(4)
Stage 2......................................... 28 8 39 75
Stage 3......................................... 609 119 160 888
</TABLE>
---------------
(1) Certain aircraft included in the GE Capital fleet are owned by joint
ventures or pursuant to other arrangements in which unaffiliated parties
have interests.
(2) The third parties include AerFi and AFT.
(3) For purposes of this table, 7 B737 aircraft have been included in the GE
Capital fleet but both AerFi and GE Capital are included in the lease chain.
(4) Turboprop aircraft have been classified as Stage 3 compliant.
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<PAGE> 69
THE SERVICING AGREEMENT
The Servicer and its affiliates have not assumed and are not responsible
for, or guarantors of, and shall not assume or be responsible for, or guarantors
of, any liabilities of Airplanes Limited, Airplanes Trust, Holding Co. or any of
their affiliates, including, without limitation, any payments due with respect
to the Notes.
The Servicer provides services pursuant to the terms of the Servicing
Agreement on behalf of Airplanes Group (except in certain circumstances
described below where a substitute servicer may perform such services). The
Servicing Agreement (a) sets forth the various duties of the Servicer with
respect to the management and administration of the Aircraft and the leases, (b)
sets forth certain aircraft marketing activities to be performed by the Servicer
and (c) sets forth certain Aircraft management-related obligations of the
Servicer in connection with offers and sales by Airplanes Group of Refinancing
Certificates.
The Servicer provides the services in accordance with the express terms of
the Servicing Agreement, which, inter alia, provides that the Servicer will act
in accordance with applicable law and with directions given by Holding Co., on
behalf of Airplanes Limited, AeroUSA and Holding Co., from time to time in
accordance with the Servicing Agreement. In addition, under the Servicing
Agreement, the Servicer agrees to perform its services in accordance with the
GECAS Services Standard and the GECAS Conflicts Standard.
The duties and obligations of the Servicer are limited to those expressly
set forth in the Servicing Agreement and the Servicer does not have any
fiduciary or other implied duties or obligations to Airplanes Group or any other
person, including any Certificateholder.
In addition to managing the Aircraft, GECAS also participates in the
management of aircraft assets owned by GE Group and other third parties,
including AerFi and AFT. 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 (other than in the case of
resignation for non-payment of fees) a replacement servicer has been appointed
that complies with certain criteria. With respect to the negotiation of certain
conflicts of interest, the Servicer may withdraw from representing Airplanes
Group, which shall be required to appoint an independent representative to
represent Airplanes Group as to such negotiation, and the Servicer shall be
entitled to act on behalf of itself or any of its affiliates with respect to
such negotiation.
Pursuant to the Servicing Agreement, the Servicer is not liable or
accountable to any person, other than Airplanes Limited, AeroUSA and Holding Co.
to the limited extent described below, under any circumstances, for any Losses
and Airplanes Limited, AeroUSA and Holding Co. jointly and severally indemnify
the Servicer and its affiliates on an after-tax basis for any Losses, unless
such Losses are finally adjudicated to have resulted directly from the
Servicer's gross negligence or wilful misconduct in respect of its obligation to
apply the GECAS Services Standard or the GECAS Conflicts Standard in respect of
its performance of the services under the Servicing Agreement. Airplanes
Limited, AeroUSA and Holding Co. also jointly and severally indemnify the
Servicer and its affiliates on an after-tax basis for any losses that may be
imposed on, incurred by or asserted against, the Servicer or any of its
affiliates, directly or indirectly, arising out of, in connection with or
related to, the Servicer or any of its affiliates' involvement (or alleged
involvement) in connection with the structuring or implementation of any aspect
of the Acquisition, the Underwritten Offering or related transactions. Airplanes
Limited, Holding Co. and AeroUSA are entitled jointly to terminate the Servicing
Agreement if the Servicer fails to perform in any material respect any material
service thereunder to either the GECAS Services Standard or the GECAS Conflicts
Standard and such failure has a material adverse effect on Airplanes Group taken
as a whole.
Notwithstanding anything to the contrary stated above, the Servicer is not
obligated to take or refrain from taking any action that it believes is
reasonably likely to (i) violate any applicable law with respect to GECAS or its
affiliates, (ii) violate any established written policies of GE, in effect from
time to time,
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<PAGE> 70
applicable to GE Group related to business practices with respect to legal,
ethical and social matters ("GE Policy") or (iii) lead to an investigation by
any governmental authority.
AIRCRAFT SERVICES
Pursuant to the Servicing Agreement, the Servicer has, inter alia,
undertaken:
-- to grant Airplanes Group and its agents, including the Administrative
Agent, access to certain information and personnel of the Servicer under
specified circumstances to enable Airplanes Group to monitor the
Servicer's compliance with the Servicing Agreement and otherwise for the
purposes of Airplanes Group's business
-- not to commingle with its own funds any funds of Airplanes Group.
The main categories of services being provided by the Servicer pursuant to
the Servicing Agreement in respect of the Aircraft (the "Services") are:
-- lease marketing services, including, subject to the terms of the Trust
Indentures and the Servicing Agreement, re-marketing, lease negotiation
and execution (including, without limitation, negotiating final lease
terms)
-- Aircraft assets management services, including lease rent collection,
Aircraft maintenance, insurance, contract compliance of, and enforcement
against, lessees, and accepting delivery and re-delivery of Aircraft
-- Aircraft sales services as, when and to the extent directed by Airplanes
Group
-- monitoring of maintenance and provision of records and information with
respect to the Aircraft
-- arranging for valuations and monitoring regulatory developments
-- using commercially reasonable efforts to keep Airplanes Group in
compliance with certain covenants under the Notes directly relating to
the operation of the Aircraft
-- providing to Airplanes Group certain data and information relating to
the Aircraft
-- certain limited Aircraft-related assistance in connection with the
public or private offerings of Refinancing Certificates, including
consenting to public disclosure relating to the Servicer and its
affiliates contained in any prospectus, certain limited Aircraft-related
participation in marketing activities solely with respect to the
Aircraft and the Servicer and the Services, and providing Airplanes
Group, underwriters, rating agencies and/or other advisors with the
reasonable opportunity to conduct due diligence with respect to the
Servicer as it relates to the Aircraft
-- legal and other professional services in relation to the Aircraft (other
than in relation to litigation not arising in the ordinary course of the
operating lease business by or against Airplanes Group, or any of its
affiliates)
-- periodic reporting of operational information relating to the Aircraft
OPERATING GUIDELINES
Under the Servicing Agreement, the Servicer is entitled to exercise such
authority as is necessary to give it a practicable and working autonomy in
performing the Services, while at the same time Holding Co., acting on behalf of
Airplanes Group through the Administrative Agent and in its own capacity, has
established monitoring and control procedures which are expected to enable it
properly to manage the business and assets of the Airplanes Group.
Pursuant to the terms of the Servicing Agreement, the Servicer is required
to comply with the GECAS Services Standard and the GECAS Conflicts Standard in
the performance of the Services. All transactions to be entered into by the
Servicer on behalf of Airplanes Group (other than with other persons within
Airplanes Group) are required to be at arm's length and on fair market value
terms unless otherwise agreed or directed
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<PAGE> 71
by Airplanes Group. Certain transactions or matters with respect to Aircraft
require the specific approval of Airplanes Group, including:
-- sales of Aircraft (other than as required by a lease)
-- the entering into of any leases (including renewals or extensions,
unless any such lease had originally been approved) if the lease does
not comply with any applicable operating covenants governing the
Certificates
-- terminating any lease or leases (without substitution of, or replacement
by, another substantially similar lease) to any single lessee with
respect to Aircraft then having an aggregate depreciated net book value
in excess of $200 million
-- unless provided for in the applicable budget, entering into any contract
for the modification or maintenance of Aircraft where the costs to be
incurred (A) exceed the greater of (i) the estimated aggregate cost of a
heavy maintenance check for similar aircraft and (ii) available
Maintenance Reserves or other collateral under the related lease or (B)
are outside the ordinary course of Airplanes Group's business
-- issuing any guarantee on behalf of, or otherwise pledging the credit of,
other than with respect to trade payables in the ordinary course of
business, Airplanes Limited, Airplanes Trust, Holding Co. or any of
their subsidiaries (other than in connection with entering into a lease
with respect to an Aircraft)
-- any transaction with GE Capital or any of its affiliates not
contemplated in the Servicing Agreement.
BUDGETS
Holding Co. 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 initially 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 fee is indexed annually by reference to the US and Irish consumer price
indices and for the year to March 31, 2000 it was 0.52% of agreed book value.
Airplanes Group is obliged to pay for certain expenses incurred or approved by
the Servicer on behalf of Airplanes Group 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. In the year ended March 31, 2000 Aircraft Maintenance
Reserve expenditures amounted to $60 million. Other expenses, including outside
professional advisory fees, insurance and other out of pocket expenses amounted
to $22 million. 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 $1.5 million. In the year ended March 31, 2000, the
Servicer was paid $1.5 million in such additional fees.
In addition, the Servicer is entitled to certain additional fees in
connection with various Aircraft management-related services required to be
provided by the Servicer pursuant to the Servicing Agreement in connection with
any offerings and sales by the Airplanes Group of Refinancing Certificates.
TERM AND TERMINATION
The Servicing Agreement is for a non-cancellable initial term expiring on
the earlier of (i) March 28, 2014 (which is prior to the final maturity date of
certain Certificates) or (ii) payment in full of all amounts
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outstanding to be paid under the Notes. Each party will have the right to
terminate the Servicing Agreement under certain circumstances. The Servicer has
the right to terminate the Servicing Agreement if, among other things:
-- Airplanes Limited, AeroUSA and/or Holding Co. fails to pay when due (i)
any servicing fees if not paid within five days of notice of such
failure, or (ii) any other amount payable by Airplanes Limited, AeroUSA
or Holding Co. to the Servicer if not paid within ten days of notice of
such failure
-- Airplanes Limited, AeroUSA, Holding Co. or any of their subsidiaries
fail to perform or observe or violate in any material respect any
material term, covenant, condition or agreement to be performed or
observed by it under the Servicing Agreement
-- any material representation or warranty by any person within the
Airplanes Group pursuant to the Servicing Agreement or any other related
document shall be false or misleading in any material respect and such
misrepresentation or breach of warranty is reasonably likely to have a
material adverse effect on the Servicer or its rights and obligations
under the Servicing Agreement
-- an involuntary proceeding is commenced in respect of Airplanes Limited,
Airplanes Trust, AeroUSA, Holding Co. or certain subsidiaries of any of
such entities under applicable bankruptcy, insolvency, receivership or
similar law, and such proceeding shall continue undismissed for 75 days
or any such person shall go into liquidation, suffer a receiver or
mortgagee to take possession of all or substantially all of its assets
or a voluntary proceeding is commenced in respect of Airplanes Limited,
Airplanes Trust, AeroUSA, Holding Co. or certain subsidiaries of any of
such entities under bankruptcy, insolvency, receivership or similar law
or any such person shall make a general assignment for the benefit of
its creditors
-- no person within Airplanes Group owns any Aircraft
-- the Trust Indentures shall cease to be in full force and effect
-- any guarantee in favor of the Servicer by any person within Airplanes
Group ceases to be legal, valid and binding.
Airplanes Limited, AeroUSA and Holding Co. have the right to terminate the
Servicing Agreement upon:
-- the Servicer ceasing to be at least 75% owned, directly or indirectly,
by GE Capital or GE
-- the Servicer failing in any material respect to perform any material
services required pursuant to the Servicing Agreement in accordance with
the GECAS Services Standard or the GECAS Conflicts Standard and such
failure having a material adverse effect on Airplanes Group taken as a
whole
-- commencement of an involuntary proceeding in respect of GE, GE Capital
or the Servicer under bankruptcy, insolvency, receivership or similar
law, if such proceeding continues undismissed for 75 days or any such
person shall go into liquidation, suffer a receiver or mortgagee to take
possession of all or substantially all of its assets or commencement of
a voluntary proceeding in respect of GE, GE Capital or the Servicer
under bankruptcy, insolvency, receivership or similar law or any such
person shall make a general assignment for the benefit of its creditors.
The Servicer may resign from performing the services pursuant to the
Servicing Agreement if it reasonably determines that directions given, or
services required, would, if carried out (i) be unlawful under applicable law,
(ii) be in violation of GE Policy, (iii) be likely to lead to an investigation
by any governmental authority, (iv) expose the Servicer to liabilities for which
adequate indemnity has not been provided or (v) place the Servicer in a conflict
of interest with respect to which, in the Servicer's good faith opinion, the
Servicer could not continue to perform its obligations under the Servicing
Agreement in accordance with its terms.
The Servicer may not resign from its obligations under the Servicing
Agreement nor may the Servicing Agreement be terminated, except upon expiration
of the Servicing Agreement at the end of the term thereof,
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unless a replacement servicer has been appointed and accepted such appointment
and the applicable rating agencies have confirmed to Airplanes Group that no
lowering or withdrawal of the then current ratings of any Certificates will
result from such appointment. In the event that a replacement servicer has not
been appointed within 90 days after any termination of the Servicing Agreement
or resignation by the Servicer, the Servicer may petition any court of competent
jurisdiction for the appointment of a replacement servicer. Notwithstanding any
other term to the contrary, the Servicer may terminate the Servicing Agreement,
whether or not a replacement servicer has been appointed and accepted such
appointment, in the event that Airplanes Limited, AeroUSA or Holding Co. have
failed, after the applicable cure periods, to pay amounts due to the Servicer.
TAX STATUS
By virtue of GECAS's ownership of 5% of the issued and outstanding ordinary
share capital of Holding Co. and the continued ability of 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. On November 22, 1998, AerFi Group's 5% holding in
Holding Co. was transferred to GECAS. As a result of their status as Shannon
certified companies, the Irish tax resident Transferred Companies are intended
to enjoy reduced rates of corporation tax and advance corporation tax together
with improved entitlements to capital allowances. In addition, the benefits
include the right to pay interest, in certain circumstances, without paying
Irish withholding tax and to deduct payments of interest in computing liability
for corporate tax. There can be no assurance that the future management of the
Aircraft by the Servicer in accordance with the terms of the Servicing Agreement
will not expose Holding Co. or the Irish tax resident Transferred Companies to
tax liabilities outside Ireland. The Servicing Agreement sets out certain
tax-related undertakings with respect to the Servicer which are designed to
maintain a favorable tax treatment in Ireland for Holding Co. and the Irish tax
resident Transferred Companies.
These tax-related undertakings include the following:
-- maintaining minimum levels of employment in Ireland, if required for
Holding Co. or the Irish tax resident Transferred Companies to maintain
their Shannon licences and tax certification
-- holding meetings of the board of directors of the Servicer in Shannon no
less frequently than quarterly and only occasionally outside Shannon
-- the Servicer's transaction approval committee (meeting in Shannon not
less frequently than monthly and meeting outside Ireland only
occasionally) shall be comprised of at least five persons, a majority of
whom shall be employees of the Servicer, and such committee shall have
and regularly exercise the power to approve contracts
-- except in certain circumstances, contracts entered into by the Servicer
with respect to the purchase, sale, lease or other disposition of
Aircraft shall either be signed in Ireland or signed outside of Ireland
pursuant to a limited power of attorney
-- the managing director (but not necessarily the chairman of the board of
directors) of the Servicer will be an officer and employee of the
Servicer based in Shannon
-- the Servicer shall not itself maintain an office outside Shannon
-- the Servicer shall compensate any of its affiliates for services
provided outside Ireland to the Servicer to the extent services are
provided by express agreement in respect of the Aircraft.
In the event that the Servicer breaches a tax-related undertaking as a
result of its gross negligence or wilful misconduct and Airplanes Group
experiences a material tax event (broadly defined as incurrence of aggregate
liability for taxes of $29 million in any one or more years during the term of
the Servicing Agreement, provided that, if the aggregate liability for any one
year does not exceed $4 million, it will not be taken into account), Airplanes
Group's sole remedy, upon six months' prior written notice, will be to terminate
the Servicing Agreement. Subject to compliance with certain procedural
guidelines set forth in the Servicing Agreement, the Servicer has the right for
any good faith commercial reason, as determined in its sole
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discretion, to modify the tax-related undertakings. Any such modification could
lead to a loss of any favorable tax treatment afforded to Holding Co. and other
Irish tax resident Transferred Companies in Ireland.
ASSIGNMENT OF SERVICING AGREEMENT
The Servicing Agreement and the rights and obligations of the Servicer, on
the one hand, and Airplanes Limited, Holding Co. and AeroUSA, jointly and
severally, on the other hand, are not assignable by any of such parties other
than with the prior consent of the other parties. However, the Servicer may
delegate any portion, but not all, of its duties to GE Capital or GE or any 75%
or more owned subsidiary of GE Capital or GE.
PRIORITY PAYMENT OF SERVICING FEES AND REIMBURSABLE EXPENDITURES
The fees and expenses of the Servicer rank senior in priority of payment to
all payments of interest, principal and premium, if any, on the Notes.
The joint and several obligations of Airplanes Limited, Holding Co. and
AeroUSA under the Servicing Agreement have been guaranteed for the benefit of
the Servicer by each entity within Airplanes Group.
AERFI AS ADMINISTRATIVE AGENT AND CASH MANAGER
INTRODUCTION TO AERFI
AerFi is a significant lessor of modern (post-1985) commercial aircraft and
is a major participant in the global commercial aviation industry. AerFi leases
aircraft to a wide range of airlines throughout the world. AerFi Group sold, or
is the parent of the seller of, each of the Transferred Companies and, through
wholly-owned subsidiaries, provides administrative, accounting, liability
management, financial consulting and cash management services to Airplanes Group
in its capacity as Administrative Agent and Cash Manager.
At March 31, 2000, AerFi had a total of 93 aircraft in its portfolio.
Ninety one of these aircraft were on lease to 41 lessees in 17 countries. Of the
93 aircraft, 13 were leased in-leased out where AerFi effectively assumes the
credit risk of the airline by leasing the aircraft from investors to whom it has
previously sold the aircraft. Overall, narrowbody aircraft (including
turboprops) constitute 91.48% of AerFi's portfolio by appraised value and Stage
3 aircraft (including turboprops) constitute 96.94% of AerFi's portfolio by
appraised value. At March 31, 2000, 19.19% of the aircraft were Airbus A320s,
15.38% were Boeing 737-300s, 9.56% were Boeing 737-400s and 6.62% were Boeing
737-500s, in each case calculated on the basis of appraisals of the aircraft's
base values at December 31, 1999 (determined on the same basis as the
calculation for the values of the Aircraft). At March 31, 2000, 22.83% of
AerFi's aircraft were on lease to three airlines in each case by appraised value
at December 31, 1999. As part of AerCo Limited securitisation in 1998, AerFi
subscribed for $112 million of Subclass E-1 Notes and $80 million of Subclass
D-1 Notes in AerCo. At March 31, 2000, AerCo owned 33 aircraft. In future, AerCo
may acquire additional aircraft assets and any related existing leases or
similar arrangements, from various sellers, which may include AerFi.
Subsidiaries of AerFi Group provide administrative agency and cash management
services to AerCo. In addition it is expected that AerFi Group will become
servicer to AerCo from July 17, 2000.
At March 31, 2000, narrowbody aircraft (including turboprops) constituted
81.80% of AerCo's portfolio by appraised value and Stage 3 aircraft (including
turboprops) constituted 98.70% of AerCo's portfolio by appraised value. At March
31, 2000, AerCo owned Boeing aircraft constituting 66.40% by appraised value,
Airbus A320 aircraft constituting 16.90%, Fokker 100 aircraft constituting 4.80%
and MD83 aircraft constituting 7.20%, in each case by appraised value. At March
31, 2000, 15.20% of AerCo's portfolio (by appraised value) were on lease to
North American airlines, 49.00% were on lease to European airlines, 13.60% were
on lease to Latin American airlines and 19.7% were on lease to Asian airlines.
At March 31, 2000, 28.60% of AerCo's portfolio were on lease to three airlines,
of which 11.40% were on lease to one Spanish airline, 6.80% were on lease to one
European airline and 10.40% were on lease to a North American airline, in each
case by appraised value.
AerFi no longer has an indirect interest in the Aircraft owned by Airplanes
Group because the Airplanes Group Class E Notes, which it previously owned, were
transferred to GE Capital on November 20, 1998.
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At March 31, 2000, AerFi employed 55 people who manage AerFi's aircraft
which are not serviced by GECAS and perform those functions for which AerFi has
not delegated responsibility to GECAS pursuant to the AerFi Management
Agreement. These include, inter alia, (a) monitoring GECAS's performance under
the AerFi Management Agreement, (b) decisions with respect to AerFi's orders and
options for future aircraft deliveries, (c) management of all AerFi's
liabilities and certain assets, (d) performance of all finance, treasury and
legal and regulatory functions not specifically provided by GECAS, (e)
performance of all corporate secretarial activities, (f) management of all
shareholder matters, (g) arrangement and procurement of all insurance other than
insurance relating to the assets managed pursuant to the AerFi Management
Agreement, (h) AerFi employee matters and (i) preparation and adoption of annual
budgets. Accordingly, AerFi performs all accounting and financial reporting
functions for its own fleet and a wholly-owned subsidiary of AerFi also performs
such functions for Airplanes Group pursuant to the Administrative Agency
Agreement.
REMAINING AERFI INDEBTEDNESS
The Acquisition was part of a broader restructuring of AerFi that involved
the refinancing of AerFi indebtedness with the net proceeds of the Underwritten
Offering, the elimination or re-scheduling of AerFi's aircraft and engine orders
and the settlement of certain litigation. AerFi's intent was to refinance
substantially all of its bank loans and other senior, secured debt and to
enhance its ability to meet remaining secured and unsecured debt obligations as
they mature. At March 31, 1996, AerFi had approximately $531 million in secured
debt and approximately $1,044 million in unsecured debt. Since March 31, 1996,
AerFi has continued to restructure its indebtedness and capital structure,
including through the purchase of certain notes which it had previously issued.
At March 31, 2000, AerFi had approximately $739 million in secured debt and
approximately $32 million in unsecured debt. As of March 31, 2000, AerFi had
cash on hand of $269 million ($130 million of which were restricted cash
balances). The following table indicates the maturities of AerFi's remaining
indebtedness as of March 31, 2000.
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
------------------------------------------
2001 2002 2003 2004 THEREAFTER
---- ---- ---- ---- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Secured facilities.................................. 193 98 58 83 307
Unsecured facilities................................ -- 32 -- -- --
---- ---- --- --- -----
Total............................................... 193 130 58 83 307
==== ==== === === =====
</TABLE>
AerFi's ability to meet its remaining obligations as they fall due depends
upon various factors, including many of the same factors that will affect the
financial condition and business of Airplanes Group. In particular, AerFi's cash
flow from operations may be adversely affected by any financial difficulties
experienced by certain of its more significant lessees. If AerFi were to become
unable to meet its obligations as they fall due or if AerFi Group or any of its
affiliates were to become subject to a bankruptcy proceeding, a liquidator,
examiner or creditor may be able to challenge the validity of the sale of the
Transferred Companies. Furthermore, any inability of AerFi, AerFi Financial or
AerFi Cash Manager to continue operations may adversely affect the performance
of the roles of the Administrative Agent and Cash Manager.
ADMINISTRATIVE AGENT
AerFi Financial acts as the Administrative Agent of Airplanes Group.
The Administrative Agent is responsible for providing administrative and
accounting services to the Directors and Controlling Trustees. The
Administrative Agent's duties include:
<TABLE>
<S> <C>
(a) monitoring the performance of the Servicer (including the
Servicer's compliance with the Servicing Agreement) and
reporting on such performance to Airplanes Group;
(b) assisting Airplanes Group in establishing a program for
compliance by the Servicer with the Servicing Agreement;
(c) acting as liaison with various rating agencies to confirm
the rating impact of certain decisions and coordinating
responses to rating agency questions;
</TABLE>
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<TABLE>
<S> <C>
(d) the maintenance on behalf of Airplanes Group of accounting
ledgers and the provision on a quarterly and annual basis of
draft accounts on a combined basis for Airplanes Group as
well as, on a quarterly and annual basis, on an individual
company basis for certain companies. However, Airplanes
Group retains responsibility for the ledgers and accounts
including all discretionary decisions and judgments relating
to the preparation and maintenance thereof, and Airplanes
Group retains responsibility for, and prepares, its
financial statements;
(e) preparing annual budgets and presenting them to Airplanes
Group for approval;
(f) authorizing payment of certain bills and expenses;
(g) to the extent required by Airplanes Group or the parties
thereto, coordinating any amendments to the transaction
agreements, subject to the terms of such agreements and
approval by Airplanes Group;
(h) supervising outside counsel and coordinating legal advice
received by Airplanes Group other than with respect to the
Servicer's performance under the Servicing Agreement;
(i) preparing and coordinating reports to investors (including
preparing press releases and managing investor relations)
and to the Securities and Exchange Commission with the
assistance of outside counsel and auditors, if appropriate;
(j) preparing for the approval of Airplanes Group and filing all
required tax returns with the assistance of outside counsel
and auditors, if appropriate;
(k) maintaining, or monitoring the maintenance of, the books and
records of Airplanes Group other than those maintained by
the Company Secretary (as defined below) and the Delaware
Trustee (as defined below);
(l) preparing an agenda and any required papers for meetings of
the governing bodies of the entities within Airplanes Group;
(m) assisting Airplanes Group in developing and implementing its
interest rate management policy and developing financial
models, cash flow projections and forecasts, to the extent
required by Airplanes Group, and in making aircraft lease,
sale and capital investment decisions;
(n) advising Airplanes Group as to the appropriate levels of the
Liquidity Reserve Amount; and
(o) providing additional services upon the request of Airplanes
Group upon terms to be agreed at the time of any such
request.
</TABLE>
The Administrative Agent also provides other administrative services,
including (a) assistance in arranging refinancings of all or a portion of the
Notes, and (b) undertaking an effort to avoid any adverse change in the tax
status of the various members of Airplanes Group. Airplanes Limited, AeroUSA and
Holding Co. are, jointly and severally, obligated to pay a fee (the
"Administrative Fee") to the Administrative Agent in a per annum amount equal to
$6 million, payable monthly in arrears. The Administrative Agent is also
entitled to an additional fee (the "Reducing Fee") in an amount equal to $2
million per annum, payable monthly in arrears, which is reduced by certain
agreed amounts in the event that Airplanes Group sells, retires or disposes of
76 or more of the Aircraft. Both the Administrative Fee and the Reducing Fee
will, from time to time, be adjusted for inflation. The Administrative Agent is
also entitled to be reimbursed for certain expenses incurred in connection with
the performance of its services under the Administrative Agency Agreement. The
Administrative Agent may resign on 60 days' written notice in certain
circumstances. Airplanes Group may remove the Administrative Agent on 120 days'
written notice with or without cause, as long as Airplanes Group has, with the
consent of the Servicer, engaged another person or entity to perform the
services that were being provided by the Administrative Agent.
CASH MANAGER
AerFi Cash Manager acts as the Cash Manager. The Cash Manager provides cash
management and related services to Airplanes Group. In the ordinary course of
Airplanes Group's business, the Cash Manager will inform the Servicer and the
Administrative Agent of the aggregate deposits in the Accounts as required and
provide such other information as shall be required in connection with the
Accounts. Subject to certain limitations and at the direction of Airplanes
Group, the Cash Manager is authorized to invest the funds held
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by Airplanes Group in the Collection Account and the Lessee Funded Account in
certain prescribed investments on permitted terms. At all times, the Accounts
will be maintained in the name of the Security Trustee, except that certain
Rental Accounts which, for certain legal or other regulatory reasons, cannot be
established in the name of the Security Trustee, will be maintained in the names
of such parties as are specified in the relevant leases and maintained with
another bank that has a rating of AA or the equivalent or higher or any other
responsible or reputable bank.
In addition, the Cash Manager receives certain data provided by the
Servicer with respect to the Aircraft and leases of Airplanes Group and
calculates certain monthly payments and makes all other calculations as required
under the Cash Management Agreement. The Cash Manager also provides the Trustee
with such information as is required by the Trustee to provide its reports to
the Certificateholders.
The Cash Manager receives a fee of $1 million per annum from Airplanes
Group in respect of its services to Airplanes Group. The Cash Manager is
entitled to indemnification by Airplanes Group for, and is held harmless
against, any loss or liability incurred by the Cash Manager (other than through
its own deceit, fraud, wilful default or gross negligence (or simple negligence
in the handling of funds) or that of its officers, directors, agents and
employees).
The Cash Manager may resign on 30 days' written notice as long as Airplanes
Group has engaged another person or entity to perform the services that were
being provided by the Cash Manager. Airplanes Group may remove the Cash Manager
at any time with or without cause.
COMPANY SECRETARY
The Company Secretary (with respect to any company, the entity which
provides its secretarial services, the "Company Secretary") maintains company
books and records, including minute books and stock transfer records. It makes
available telephone, telecopy, telex and post office box facilities and
maintains a registered office in the relevant jurisdictions.
Mourant & Co. Secretaries Limited acts as Company Secretary for Airplanes
Limited.
DELAWARE TRUSTEE
Wilmington Trust Company maintains the books and records, including minute
books and records and trust certificate records, of Airplanes Trust. It makes
available telephone, telecopy, telex and post office box facilities and
maintains its principal place of business in Delaware.
ITEM 11. EXECUTIVE COMPENSATION
All Directors and Controlling Trustees are compensated for travel and other
expenses incurred by them in the performance of their duties. Airplanes Limited
and Airplanes Trust pays each Independent Director and Independent Trustee, as
the case may be, an aggregate fee of $75,000 per annum for their services in
both capacities. The Chairman of Airplanes Limited and Airplanes Trust receives
an additional $50,000 per annum for his services in such capacity. Neither the
Director nor the Controlling Trustee appointed by the holder of a majority in
aggregate principal amount of the Class E Notes receives remuneration from
Airplanes Limited or Airplanes Trust for his services. In addition, Mr. Dantzic,
Mr. Jenkins and Mr. McCann receive $7,500, $2,500 and $7,500, respectively, per
annum for their services as directors of Holding Co. and certain of its
subsidiaries. Mr. Dantzic, Mr. Jenkins and Mr. McCann are also entitled to
receive an additional $1,000 in respect of each board meeting of the above
companies which they attend, subject to a maximum payment of $5,000 per annum
for each of them. Mr. Cavanagh and Mr. Dantzic are entitled to receive an
aggregate of $2,500 per annum from AeroUSA and AeroUSA 3 for their services as
directors of those companies and are also entitled to receive an additional
$1,000 in respect of each board meeting of these companies which they attend,
subject to a maximum payment of $5,000 per annum.
Following the approval of the rating agencies and the Directors and
Controlling Trustees, (i) with effect from July 1, 2000 the fees paid to each
Independent Director and Independent Trustee by Airplanes Limited and Airplanes
Trust will be indexed for inflation on an annual basis (the first such
indexation taking into account inflation from April 1, 1996 to April 1, 1999),
and (ii) on July 1, 2000 the Independent Directors and Independent Trustees will
be paid a one-off amount equal to the additional fees which they would have
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received in the period from April 1, 1999 to July 1, 2000 had their fees been
indexed for such period (taking into account inflation from April 1, 1996 to
April 1, 1999). The aggregate fees paid to the Independent Directors and
Independent Trustees by Airplanes Limited and Airplanes Trust under such new
indexation arrangements will not exceed $550,000 per annum.
The Directors and the Controlling Trustees do not and will not receive any
additional cash or non-cash compensation (either in the form of stock options,
stock appreciation rights or pursuant to any long-term incentive plan, benefit
or actuarial plan or any other similar arrangements of any kind) as salary or
bonus for their services as Directors or Controlling Trustees. None of the
Directors or Controlling Trustees has an employment contract with either
Airplanes Limited or Airplanes Trust or serves as a member of a compensation
committee of either Airplanes Limited or Airplanes Trust. The compensation of
the Directors of Airplanes Limited is set forth in the Articles of Association
of Airplanes Limited and that of the Controlling Trustees is set forth in the
Airplanes U.S. Trust Amended and Restated Trust Agreement among AerFi, Inc., as
Settlor, Wilmington Trust Company as the Delaware Trustee, and the Controlling
Trustees referred to therein. None of the Directors or Controlling Trustees has
any beneficial ownership in any of the equity securities of Airplanes Limited,
Airplanes Trust or any of the subsidiaries of Airplanes Limited or Airplanes
Trust.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Not applicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Airplanes Group has had and currently maintains various relationships with
GE Capital and GECAS. First, GECAS acts as Servicer for Airplanes Group. Second,
GECAS is a holder of 5% of the ordinary share capital of Holding Co. Third, Mr
Hayden, an employee of GECAS, is a Director of Airplanes Limited and a
Controlling Trustee of Airplanes Trust. Fourth, GE Capital holds the majority of
the Airplanes Group Class E Notes and has an option over the residual interest
in Airplanes Trust.
Airplanes Group has had and currently maintains various relationships with
AerFi. First, AerFi acted as promoter in establishing the entities that comprise
Airplanes Group. Second, Airplanes Group purchased substantially all of its
assets from AerFi. See "Item 1. Business -- Introduction". Third, AerFi was a
holder of 5% of the ordinary share capital of Holding Co. until November 20
1998. Fourth, subsidiaries of AerFi Group act as the Administrative Agent and
Cash Manager for Airplanes Group. See "Item 10. Directors and Executive Officers
of the Registrants -- Corporate Management". In addition, on November 20, 1998,
GE Capital acquired the Airplanes Group Class E Notes previously held by AerFi
Group.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (2). Financial Statements: the response to this portion of Item
14 is submitted as a separate section of this report beginning on page F-1.
Schedules: Schedule II is submitted as a separate section of this report
beginning on page S-1.
(a)(3) and (c). Exhibits:
<TABLE>
<S> <C>
3.1 Certificate of Incorporation of Atlanta Holdings Limited
dated November 3, 1995 and Certificate of Incorporation on
change of name to Airplanes Limited dated November 29, 1995*
3.2 Memorandum and Articles of Association of Airplanes
Limited**
3.3 Airplanes U.S. Trust Amended and Restated Trust Agreement
among AerFi, 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. 4 dated as of March 28, 1996 to the
Pass Through Trust Agreement**
4.3 Trust Supplement No. 5 dated as of March 28, 1996 to the
Pass Through Trust Agreement**
4.4 Trust Supplement No. 7 dated as of March 28, 1996 to the
Pass Through Trust Agreement**
4.5 Trust Supplement No. 8 dated as of March 28, 1996 to the
Pass Through Trust Agreement**
4.6 Trust Supplement No. 9 dated as of March 16, 1996 to the
Pass Through Trust Agreement***
4.7 Trust Supplement No. 10 dated as of March 16, 1996 to the
Pass Through Trust Agreement***
4.8 Trust Supplement No. 11 dated as of March 16, 1996 to the
Pass Through Trust Agreement***
4.9 Trust Supplement No. 12 dated as of March 16, 1996 to the
Pass Through Trust Agreement***
4.10 Trust Supplement A dated as of March 16, 1996 to the Pass
Through Trust Agreement***
4.11 Form of Subclass A-4 Pass Through Certificate**
4.12 Form of Subclass A-5 Pass Through Certificate**
4.13 Form of Subclass A-6 Pass Through Certificate***
4.14 Form of Subclass A-7 Pass Through Certificate***
4.15 Form of Subclass A-8 Pass Through Certificate***
4.16 Form of Class B Pass Through Certificate***
4.17 Form of Class C Pass Through Certificate**
4.18 Form of Class D Pass Through Certificate**
4.19 Airplanes Limited Indenture dated as of March 28, 1996 among
Airplanes Limited, Airplanes U.S. Trust and Bankers Trust
Company, as Trustee**
4.20 Supplement No. 1 to the Airplanes Limited Indenture***
4.21 Airplanes U.S. Trust Indenture dated as of March 28, 1996
among Airplanes U.S. Trust, Airplanes Limited and Bankers
Trust Company, as Trustee**
4.22 Supplement No. 2 to the Airplanes Trust Indenture***
4.23 Form of Floating Rate Subclass A-4 Note**
4.24 Form of Floating Rate Subclass A-5 Note**
4.25 Form of Floating Rate Subclass A-6 Note***
4.26 Form of Floating Rate Subclass A-7 Note***
4.27 Form of Floating Rate Subclass A-8 Note***
</TABLE>
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<TABLE>
<S> <C>
4.28 Form of Floating Rate Class B Note**
4.29 Form of 8.15% Class C Note**
4.30 Form of 10.875% Class D Note**
4.31 Form of 20.00% (inflation adjusted) Class E Note**
10.1 Stock Purchase Agreement dated as of March 28, 1996 among
AerFi, Inc., AerFi Group plc and Airplanes U.S. Trust**
10.2 Stock Purchase Agreement dated as of March 28, 1996 among
AerFi Group plc, Skyscape Limited and Airplanes Limited**
10.3 Administrative Agency Agreement dated as of March 28, 1996
among AerFi Financial Services (Ireland) Limited, AerFi
Group plc, Airplanes Limited, AerFi 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., AerFi II Limited, Airplanes U.S. Trust and
AerFi 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 AerFi Cash Manager Limited,
as Cash Manager**
10.6 Secretarial Services Agreement dated as of March 28, 1996
between Airplanes Limited and Mourant & Co. Secretaries
Limited, as Company Secretary**
10.7 Cash Management Agreement dated as of March 28, 1996 between
AerFi Cash Manager Limited, as Cash Manager, AerFi 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,
AerFi Financial Services (Ireland) Limited, AerFi Cash
Manager Limited, AerFi 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 the Registrants*
23.1 Consent of Aircraft Information Services, Inc.
23.2 Consent of BK Associates, Inc.
23.3 Consent of Airclaims Limited
27.1 Financial Data Schedule for Airplanes Limited
27.2 Financial Data Schedule for Airplanes US Trust
27.3 Financial Data Schedule for Airplanes Group
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. 33-99970), previously filed with the Securities and Exchange Commission.
** Incorporated by reference to the Report on Form 10-Q for the quarterly
period ended December 31, 1995, previously filed with the Securities and
Exchange Commission.
*** Incorporated by reference to the Registration Statement on Form S-1 (File
No. 333-43453), previously filed with the Securities and Exchange
Commission.
(b) Reports on Form 8-K: filed for event dates January 13, 2000, February
11, 2000 and March 13, 2000 (relating to the monthly report to holders of the
Certificates); February 28, 2000 (relating to Airplanes Group press release).
(d) Not applicable.
79
<PAGE> 81
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.............. F-5
Statements of Cash Flows.................................... F-6
Notes to the Financial Statements........................... F-7
</TABLE>
F-1
<PAGE> 82
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, 2000 and 1999, 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, 2000. These
financial statements represent certain specified leasing operations of AerFi
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, 2000 (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, 2000 and 1999, and the results of their
operations and cash flows for each of the years in the three year period ended
March 31, 2000, in conformity with generally accepted accounting principles in
the United States.
KPMG
Chartered Accountants
Dublin, Ireland
June 15, 2000
F-2
<PAGE> 83
AIRPLANES GROUP
BALANCE SHEETS
<TABLE>
<CAPTION>
1999 MARCH 31, 2000
-------------------------------- --------------------------------
-------------------------------------------------------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
NOTES LIMITED TRUST COMBINED LIMITED TRUST COMBINED
----- --------- --------- -------- --------- --------- --------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash.............................. 5 218 6 224 197 6 203
Accounts receivable............... 6
Trade receivables............... 38 5 43 24 8 32
Allowance for doubtful debts.... (14) (3) (17) (10) (5) (15)
Amounts due from/to Airplanes
Trust........................... 7 -- 35 35 -- 28 28
Intercompany capital lease........ 8 36 -- 36 -- -- --
Net investment in capital and
sales type leases............... 9 20 36 56 15 -- 15
Aircraft, net..................... 10 2,820 252 3,072 2,697 235 2,932
Other assets...................... 4 -- 4 3 8 11
------ ---- ------ ------ ---- ------
Total assets...................... 3,122 331 3,453 2,926 280 3,206
====== ==== ====== ====== ==== ======
LIABILITIES
Accrued expenses and other
liabilities..................... 11 581 51 632 807 74 881
Amounts due to/from Airplanes
Limited......................... 7 35 -- 35 28 -- 28
Intercompany capital lease........ 8 -- 36 36 -- -- --
Indebtedness...................... 12 3,500 342 3,842 3,313 323 3,636
Provision for maintenance......... 13 266 17 283 258 16 274
Deferred income taxes............. 19 51 48 99 66 48 114
------ ---- ------ ------ ---- ------
Total liabilities................. 4,433 494 4,927 4,472 461 4,933
------ ---- ------ ------ ---- ------
Net liabilities................... (1,311) (163) (1,474) (1,546) (181) (1,727)
------ ---- ------ ------ ---- ------
3,122 331 3,453 2,926 280 3,206
====== ==== ====== ====== ==== ======
</TABLE>
Commitments and Contingent Liabilities (Notes 20 and 21)
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 84
AIRPLANES GROUP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------------------------------------------
1998 1999
-------------------------------- --------------------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
NOTES LIMITED TRUST COMBINED LIMITED TRUST COMBINED
----- --------- --------- -------- --------- --------- --------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Aircraft leasing......... 15 512 73 585 484 42 526
Aircraft sales........... 15 37 57 94 37 95 132
Other income............. 15 -- -- -- -- -- --
EXPENSES
Cost of aircraft sold.... (32) (58) (90) (32) (86) (118)
Depreciation and
amortisation........... (170) (22) (192) (159) (17) (176)
Net interest expense..... 16 (373) (38) (411) (388) (40) (428)
Provision for
maintenance............ (68) (20) (88) (67) (2) (69)
Bad and doubtful debts... -- -- -- (9) (2) (11)
Provision for loss making
leases, net............ 17 14 3 17 11 1 12
Other lease costs........ (29) (1) (30) (13) (1) (14)
Selling, general and
administrative
expenses............... 18 (35) (3) (38) (32) (3) (35)
---- --- ---- ---- --- ----
OPERATING LOSS BEFORE
INCOME TAXES........... (144) (9) (153) (168) (13) (181)
Income tax
benefit/(charge)....... 19 3 -- 3 3 -- 3
---- --- ---- ---- --- ----
NET LOSS................. (141) (9) (150) (165) (13) (178)
==== === ==== ==== === ====
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------
2000
--------------------------------
AIRPLANES AIRPLANES
LIMITED TRUST COMBINED
--------- --------- --------
($MILLIONS)
<S> <C> <C> <C>
REVENUES
Aircraft leasing......... 460 41 501
Aircraft sales........... 3 -- 3
Other income............. 1 -- 1
EXPENSES
Cost of aircraft sold.... (1) -- (1)
Depreciation and
amortisation........... (157) (17) (174)
Net interest expense..... (425) (43) (468)
Provision for
maintenance............ (62) (2) (64)
Bad and doubtful debts... (2) (2) (4)
Provision for loss making
leases, net............ 3 1 4
Other lease costs........ (9) (1) (10)
Selling, general and
administrative
expenses............... (31) (3) (34)
---- --- ----
OPERATING LOSS BEFORE
INCOME TAXES........... (220) (26) (246)
Income tax
benefit/(charge)....... (15) 8 (7)
---- --- ----
NET LOSS................. (235) (18) (253)
==== === ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 85
AIRPLANES GROUP
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT/NET LIABILITIES
YEARS ENDED MARCH 31, 1998, 1999 AND 2000
<TABLE>
<CAPTION>
AIRPLANES
AIRPLANES LIMITED TRUST COMBINED
---------------------------------------- ----------- ------------
SHARE SHAREHOLDERS
CAPITAL NET SHAREHOLDERS NET DEFICIT/NET
(NOTE 14) LIABILITIES DEFICIT LIABILITIES LIABILITIES
----------- ----------- ------------ ----------- ------------
($MILLIONS) ($MILLIONS) ($MILLIONS) ($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1998.......... -- 1,146 1,146 150 1,296
--- ----- ----- --- -----
Net loss for the fiscal year....... -- 165 165 13 178
--- ----- ----- --- -----
BALANCE AT MARCH 31, 1999.......... -- 1,311 1,311 163 1,474
--- ----- ----- --- -----
Net loss for the fiscal year....... -- 235 235 18 253
--- ----- ----- --- -----
BALANCE AT MARCH 31, 2000.......... -- 1,546 1,546 181 1,727
=== ===== ===== === =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 86
AIRPLANES GROUP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------------------------------------------------------------
1998 1999 2000
---------------------------------- ---------------------------------- ---------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST COMBINED LIMITED TRUST COMBINED LIMITED
--------- ----------- -------- --------- ----------- -------- ---------
($MILLIONS) ($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss.................. (141) (9) (150) (165) (13) (178) (235)
Adjustments to reconcile
net loss to net cash
provided by operating
activities:
Depreciation and
amortisation............ 170 22 192 159 17 176 157
Aircraft maintenance,
net..................... 9 1 10 (21) (1) (22) (6)
(Profit)/loss on disposal
of aircraft............. (5) 1 (4) (5) (9) (14) (2)
Deferred income taxes..... (3) -- (3) (3) -- (3) 15
Provision for loss making
leases.................. (14) (3) (17) (11) (1) (12) (3)
Accrued and deferred
interest expense........ 147 16 163 187 18 205 249
Changes in operating
assets and liabilities:
Accounts receivable,
net..................... 17 (2) 15 (12) (1) (13) 4
Other accruals and
liabilities............. 3 6 9 (39) 11 (28) (16)
Other assets.............. -- (1) (1) -- -- -- --
------ ------ ------ ------ ------ ----- ------
NET CASH PROVIDED BY
OPERATING ACTIVITIES.... 183 31 214 90 21 111 163
====== ====== ====== ====== ====== ===== ======
CASH FLOWS FROM INVESTING
ACTIVITIES
Sale/(Purchase) of
aircraft................ 63 21 84 48 79 127 --
Intercompany account
movements............... -- -- -- 79 (79) -- --
Capital and sales type
leases.................. 17 -- 17 8 -- 8 8
------ ------ ------ ------ ------ ----- ------
NET CASH PROVIDED
BY/INVESTING
ACTIVITIES.............. 80 21 101 135 -- 135 8
====== ====== ====== ====== ====== ===== ======
CASH FLOWS FROM FINANCING
ACTIVITIES
Repayment of notes........ (2,494) (247) (2,741) (219) (21) (240) (192)
Issue of refinanced notes
(net of costs).......... 2,201 218 2,419 -- -- -- --
Amounts due from Airplanes
Trust to Airplanes
Limited................. 23 (23) -- -- -- -- --
------ ------ ------ ------ ------ ----- ------
NET CASH (USED IN)
FINANCING ACTIVITIES.... (270) (52) (322) (219) (21) (240) (192)
------ ------ ------ ------ ------ ----- ------
NET INCREASE/(DECREASE) IN
CASH.................... (7) -- (7) 6 -- 6 (21)
Cash at beginning of
year.................... 219 6 225 212 6 218 218
------ ------ ------ ------ ------ ----- ------
Cash at end of year....... 212 6 218 218 6 224 197
====== ====== ====== ====== ====== ===== ======
CASH PAID IN RESPECT OF:
Interest.................. 245 22 267 219 23 241 193
====== ====== ====== ====== ====== ===== ======
<CAPTION>
YEARS ENDED MARCH 31,
----------------------
2000
----------------------
AIRPLANES
TRUST COMBINED
----------- --------
($MILLIONS)
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss.................. (18) (253)
Adjustments to reconcile
net loss to net cash
provided by operating
activities:
Depreciation and
amortisation............ 17 174
Aircraft maintenance,
net..................... (1) (7)
(Profit)/loss on disposal
of aircraft............. -- (2)
Deferred income taxes..... (8) 7
Provision for loss making
leases.................. (1) (4)
Accrued and deferred
interest expense........ 23 272
Changes in operating
assets and liabilities:
Accounts receivable,
net..................... 5 9
Other accruals and
liabilities............. 1 (15)
Other assets.............. -- --
------ ------
NET CASH PROVIDED BY
OPERATING ACTIVITIES.... 18 181
====== ======
CASH FLOWS FROM INVESTING
ACTIVITIES
Sale/(Purchase) of
aircraft................ -- --
Intercompany account
movements............... -- --
Capital and sales type
leases.................. -- 8
------ ------
NET CASH PROVIDED
BY/INVESTING
ACTIVITIES.............. -- 8
====== ======
CASH FLOWS FROM FINANCING
ACTIVITIES
Repayment of notes........ (18) (210)
Issue of refinanced notes
(net of costs).......... -- --
Amounts due from Airplanes
Trust to Airplanes
Limited................. -- --
------ ------
NET CASH (USED IN)
FINANCING ACTIVITIES.... (18) (210)
------ ------
NET INCREASE/(DECREASE) IN
CASH.................... -- (21)
Cash at beginning of
year.................... 6 224
------ ------
Cash at end of year....... 6 203
====== ======
CASH PAID IN RESPECT OF:
Interest.................. 21 214
====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 87
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS
1. SECURITIZATION TRANSACTION
On March 28, 1996 ("THE CLOSING DATE") AerFi Group plc and its subsidiary
undertakings ("AERFI") 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 AerFi a portfolio of 229 commercial aircraft (collectively
the "AIRCRAFT") and related leases (the "LEASES"). The Transaction was effected
by transferring existing subsidiaries of AerFi 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 AerFi 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.
On March 16, 1998 Airplanes Group successfully completed a refinancing of
$2,437 million related to Class A and Class B Notes.
On November 20, 1998 AerFi transferred its holding of E Notes to GE Capital
Corporation ("GE CAPITAL"). However, this transfer does not require any change
to the accounting treatment adopted.
2. BASIS OF PREPARATION
The accompanying financial statements of Airplanes Limited, Airplanes Trust
and the combined balance sheets, statements of operations, statements of changes
in shareholders' deficit/net liabilities and cash flows of Airplanes Group
(together the "FINANCIAL STATEMENTS") have been prepared on a going concern
basis and on the bases and using the assumptions set out below and in accordance
with the accounting policies set out in Note 4 and in conformity with United
States generally accepted accounting principles:
The financial statements are presented on an historical cost basis as if
Airplanes Limited and Airplanes Trust had been organised as single economic
entities for all periods presented.
Accordingly, the financial statements reflect the results of operations,
assets and liabilities relating to the aircraft transferred to Airplanes Limited
and Airplanes Trust, from the date of original acquisition of controlling
interest by AerFi 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 AerFi 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. Management believes that the bases for these allocations are
reasonable.
F-7
<PAGE> 88
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
2. BASIS OF PREPARATION -- (CONTINUED)
Airplanes Group has entered into a Servicing Agreement with GE Capital
Aviation Services Limited ("GECAS") under which GECAS provides, inter alia,
lease management and aircraft asset management services in return for a fee.
Airplanes Group has also entered into an Administration Agency Agreement and a
Cash Management Agreement with AerFi. In the year to March 31, 2000 $21.8
million and $9.4 million (1999: $23.5 million and $9.2 million) were charged by
GECAS and AerFi respectively.
(ii) In the period prior to the Closing Date it was assumed that Airplanes
Group was financed with indebtedness to AerFi 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 AerFi (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 12.
Indebtedness at March 31, 2000 represents the aggregate of the Class A -- E
Notes in issue. The $992 million decrease since the Closing Date represents
actual cash repayments.
(iii) The interest charged on Airplanes Group's indebtedness to AerFi in
the periods prior to the Closing Date is based on AerFi'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 12.
In respect of the portion of the indebtedness to AerFi 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 give 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
AerFi. The cash balances as at March 31, 2000, and March 31, 1999, 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 AerFi.
At March 31, 2000 and March 31, 1999 the deferred income tax assets and
liabilities represent the assets and liabilities of Airplanes Limited and
Airplanes Trust at that Date.
3. RELATIONSHIP WITH AERFI GROUP PLC AND MANAGEMENT ARRANGEMENTS
Airplanes Group's portfolio has been acquired entirely from AerFi 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
F-8
<PAGE> 89
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
3. RELATIONSHIP WITH AERFI GROUP PLC AND MANAGEMENT ARRANGEMENTS --
(CONTINUED)
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.
As a holder of the majority of the Class E Notes, GE Capital has the right
to appoint one director to the board of Airplanes Limited and one of the
controlling trustees of Airplanes Trust. Airplanes Limited 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. During the year to March 31, 2000, GE Capital, GECAS' indirect
parent, exercised its option to acquire 18.36% of the fully diluted ordinary
shares of AerFi Group.
Certain cash management and administrative services are being provided by
AerFi subsidiaries to Airplanes Group, pursuant to a cash management agreement
and administrative agency agreement entered into by such AerFi 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 recognised as income as it
accrues over the period of the leases. Unearned revenue from capital and sales
type leases is amortised and included in income.
(b) Aircraft
Aircraft, including engines, are stated at cost less accumulated
depreciation.
Airplanes Group considers the need, and accounts for Aircraft impairments
in accordance with 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"). The statement requires the recognition of an
impairment loss for an asset held for use when the estimate of un-discounted
future cashflows expected to be generated by the asset is less than its carrying
amount. Measurement of impairment loss is to be recognised based on the fair
value of the asset. Fair market values reflects the underlying economic value of
the 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> 90
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Cost comprises the invoiced cost net of manufacturers' discounts.
Depreciation is calculated on a straight line basis. The estimates of useful
lives and residual values are reviewed periodically. The current estimates for
residual values are generally 15% of cost, and for useful lives are as follows:
<TABLE>
<CAPTION>
YEARS FROM
----- ----------------
<S> <C> <C>
Stage 2 aircraft............................................ 20-25 Manufacture date
Refurbished and upgraded aircraft -- converted to
freighters................................................ 20 Conversion date
Turboprop aircraft.......................................... 22.5 Manufacture date
All other aircraft.......................................... 25 Manufacture date
</TABLE>
(c) Net Investment in Capital and Sales Type Leases
The amounts due from lessees under capital leases, where the entire cost of
the asset is recovered, are shown in the balance sheet at the net amount
receivable under these leases. The related finance revenue is recognised as
income over the period of the lease in proportion to the amounts outstanding.
(d) Provision for Maintenance
In most lease contracts the lessee has the obligation for maintenance costs
on airframes and engines and in many lease contracts the lessee makes a full or
partial prepayment, calculated at an hourly rate, from which maintenance
expenditures for major checks are disbursed. The undisbursed portion of these
prepayments are included in the provision for maintenance which may from time to
time include prepayments made by current lessees and prior lessees. At the time
an aircraft is re-leased to a new lessee, an assessment is made of the expected
maintenance revenue requirements, any excess reserve is then released through
the Statement of Operations.
Maintenance provisions also include the directors' 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. 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.
F-10
<PAGE> 91
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(g) Taxation
Income taxes are accounted for under the asset and liability method.
Deferred income tax assets and liabilities are recognised for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred income tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred income tax assets and
liabilities of a change in tax rates is recognised in the period that includes
the enactment date.
Income tax is provided based on the results for the year. Airplanes
Limited's underlying taxable entities in Ireland are subject to Irish Corporate
Income Tax on approved trading operations at a rate of 10% until December 31,
2005. Airplanes Trust's underlying taxable entities in the US are subject to US
Federal and State taxes on their trading operations.
(h) Concentrations of Credit Risk
Financial instruments which potentially subject Airplanes Group to
significant concentrations of credit risk consist primarily of trade accounts
receivable and interest rates swaps and similar hedging instruments. Details of
Airplanes Group's interest rate swaps and similar hedging instruments are set
out at (i) below.
Credit risk with respect to trade accounts receivable is generally
diversified due to the number of lessees comprising Airplanes Group's customer
base and the different geographic areas in which they operate. At March 31, 2000
Airplanes Group owned 199 aircraft which it leased to 72 lessees in 39
countries. The geographic concentrations of leasing revenues is set out in Note
15.
Many of Airplanes Group's lessees are in a relatively weak financial
position because of the difficult economic conditions in the civil aviation
industry as a whole and because, in general, weakly capitalised airlines are
more likely to seek operating leases.
The exposure of Airplanes Group's aircraft to particular countries and
customers is managed partly through concentration limits provided for under the
terms of the notes and through obtaining security from lessees by way of
deposits, letters of credit and guarantees. Airplanes Group will continue to
manage its exposure to particular countries, regions and lessees through
concentration limits. In the normal course of its business Airplanes Group (and
in the past AerFi) 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.
Airplanes Group's Brazilian lessees also continue to experience significant
difficulties due to over-capacity and adverse market conditions. At March 31,
2000, 15 of Airplanes Group's aircraft were being operated by 4 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 $8.2 million at
March 31, 2000. During the year a rescheduling agreement was signed with a
Brazilian lessee. Its debts of $1.7m will be repaid over the 36 month period to
December 2003.
Canadian Airlines, Airplanes Group's second largest lessee at March 31,
2000 by Appraised Value, approached its creditors including Airplanes Group,
with proposals to reschedule its obligations. A rescheduling plan 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 1997. 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, 2000 were $0.9 million which is fully covered by available
security.
F-11
<PAGE> 92
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Trading conditions in the civil aviation industry in Asia have been
adversely affected by the severe economic and financial difficulties experienced
in the region where at March 31, 2000 6 of Airplanes Group's aircraft were being
operated by 5 lessees. During the year to March 31, 2000 a rescheduling
agreement was signed with a Philippine lessee, whose balance of $2.7m was
deferred and will be repaid over 36 months to September 2002.
(i) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 "Disclosures about Fair
Value of Financial Instruments" defines the fair value of a financial instrument
as the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
Fair values of financial instruments have been determined with reference to
available market information and the valuation methodologies discussed below.
However, considerable management judgement is required in interpreting market
data to arrive at estimates of fair values. Accordingly, the estimates presented
herein may not be indicative of the amounts that Airplanes Group could realise
in a current market exchange.
(i) The fair value of cash, trade receivables and trade payables
approximates the carrying amount because of the nature and short maturity
of these instruments.
(ii) The fair value of the A, B, C and D Notes issued by Airplanes
Group outstanding at March 31, 2000 and 1999 was $2,965 million and $3,261
million 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, 2000 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, 2000 and 1999 Airplanes Group had entered into
interest rate swaps with an aggregate notional principal amount of $2.09
billion and $2.32 billion respectively. Under these swap arrangements
Airplanes Group will pay fixed and receive floating amounts on a monthly
basis. The objective of Airplanes Group's interest rate risk management
policy is to correlate the contracted fixed and floating rental payments in
its portfolio to the fixed and floating interest payments on the bonds,
taking into account the expected amortisation of Class A and Class B Notes.
The fair value of these Swaps at March 31, 2000 and 1999 was an unrealised
profit of $15.8 million and an unrealised loss of $7.77 million
respectively.
Interest rate exposures which may arise in the event that lessees paying
fixed rate rentals default is managed in part through the purchase of Swaptions.
At March 31, 2000 and 1999 Airplanes Group had entered into swaptions with a
notional value of $289 million and $306 million respectively. The fair value of
the swaptions at March 31, 2000 and 1999 was $0.1 million and $1.2 million
respectively.
Airplanes Group is exposed to losses in the event of non-performance by
counterparties to interest rate swap agreements or in the event of defaults by
lessees. However, Airplanes Group does not anticipate non-performance by the
counterparties and other parties and accounts for hedging losses resulting from
lessee defaults as they are incurred.
Counterparty risk is monitored on an ongoing basis. Counterparties are
subject to the prior approval of the Directors of Airplanes Limited and the
Controlling Trustees of Airplanes Trust. Airplanes Group's counterparties at
March 31, 2000 comprise three major U.S./European financial institutions.
F-12
<PAGE> 93
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(j) Foreign Currency Transactions
Airplanes Group's foreign currency transactions are not significant as
virtually all revenues and most costs are denominated in US dollars.
5. CASH
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------------------
1999 2000
---------------------- ----------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C>
Cash.............................................. 218 6 197 6
=== === === ===
</TABLE>
Substantially all of the cash balances at March 31, 2000 and 1999 are held
for specific purposes under the terms of the Transaction. Included in the cash
balances at March 31, 2000 and 1999 is restricted cash of $6 million.
6. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------------------
1999 2000
---------------------- ----------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C>
Trade receivables................................. 38 5 24 8
Allowance for doubtful debts...................... (14) (3) (10) (5)
--- --- --- ---
24 2 14 3
=== === === ===
Included in trade receivables are deferred amounts
as follows:-
Gross deferred lease receivables................ 7 1 5 --
Allowance for doubtful debts.................... -- (1) (1) --
--- --- --- ---
7 -- 4 --
=== === === ===
</TABLE>
Deferred lease receivables at March 31, 2000 represent deferrals of rent,
maintenance and miscellaneous payments due from lessees. The most significant of
these lessees are located in Brazil and the Philippines where the air transport
sector is suffering from substantial over capacity and the effects of difficult
economic conditions (see Note 4(h)).
Receivables include amounts classified as due after one year of $2.3
million (Airplanes Limited $2.3 million and Airplanes Trust $Nil) at March 31,
2000 and $1 million (Airplanes Limited $1 and Airplanes Trust $Nil) at March 31,
1999.
F-13
<PAGE> 94
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
7. AMOUNTS DUE FROM AIRPLANES TRUST TO AIRPLANES LIMITED
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------------------
1999 2000
---------------------- ----------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C>
Amount receivable from Airplanes Trust............ (35) 35 (28) 28
=== === === ===
</TABLE>
Included in the balance at March 31, 1999 and March 31, 2000 was $80
million in respect of aircraft sales and purchases. The remaining balance
represents the net amount due to Airplanes Limited in respect of Airplanes
Trust's trading activities, including servicing of its debt obligations.
8. INTERCOMPANY CAPITAL LEASE
During the year ended March 31, 1999 an aircraft owned by Airplanes Limited
was leased to Airplanes Trust for onward lease to a third party, both of these
leases were capital leases. During the year ended March 31, 2000, the aircraft
was returned from the lessee who was experiencing financial difficulties. A
summary of the net components (payable by Airplanes Trust to Airplanes Limited)
of the investment in this lease as at March 31, 2000 is as follows:-
<TABLE>
<CAPTION>
MARCH 31,
------------
1999 2000
---- ----
($MILLIONS)
<S> <C> <C>
Total minimum lease payments receivable/payable............. 56 --
Less unearned revenue....................................... (20) --
--- ---
36 --
=== ===
</TABLE>
The capital lease with the third party as at March 31, 1999 is included in
Note 9.
9. NET INVESTMENT IN CAPITAL AND SALES TYPE LEASES
The following are the components of the net investment in capital and sales
type leases:
<TABLE>
<CAPTION>
1999 2000
---------------------- ----------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C>
Total minimum lease payments receivable........... 13 56 16 --
Estimated residual values of leased assets........ 11 -- 10 --
Less unearned revenue............................. (4) (20) (11) --
--- --- --- ---
Net investment in capital and sales type leases... 20 36 15 --
=== === === ===
</TABLE>
Aggregate lease rentals in respect of such capital and sales type leases
for the years ended March 31, 1998, 1999 and 2000 amounted to $26 million,
(Airplanes Limited $25 million, Airplanes Trust $1), $20 million (Airplanes
Limited $15 million, Airplanes Trust $5) and $10 million (Airplanes Limited $5
million, Airplanes Trust $5 million) respectively.
Unearned revenue of $9 million (Airplanes Limited $9 million, Airplanes
Trust $nil) $8 million (Airplanes Limited $5 million, Airplanes Trust $3
million) and $4 million (Airplanes Limited $1 million,
F-14
<PAGE> 95
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
9. NET INVESTMENT IN CAPITAL AND SALES TYPE LEASES -- (CONTINUED)
Airplanes Trust $3 million) for the years ended March 31, 1998, 1999 and 2000,
respectively, was amortised and included in revenue.
Minimum future payments to be received on such capital leases for aircraft
at March 31, 2000 are as follows:
<TABLE>
<CAPTION>
MINIMUM LEASE
PAYABLES RECEIVABLE
-------------------
AIRPLANES
LIMITED
-------------------
($MILLIONS)
<S> <C>
Years ending March 31,
2001...................................................... 9
2002...................................................... 7
Thereafter................................................ --
---
16
===
</TABLE>
10. AIRCRAFT
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------------------
1999 2000
---------------------- ----------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C>
AIRCRAFT
Cost................................................ 4,096 386 4,137 386
Less accumulated depreciation....................... (1,276) (134) (1,440) (151)
------ ---- ------ ----
2,820 252 2,697 235
====== ==== ====== ====
FLEET ANALYSIS
On operating lease for a further period of:
More than five years.............................. 252 -- 310 --
From one to five years............................ 2,109 206 1,992 220
Less than one year................................ 445 46 276 15
Non revenue earning aircraft:
Available for lease............................... -- -- 94 --
Available for lease, subject to letters of
intent......................................... 14 -- 25 --
------ ---- ------ ----
2,820 252 2,697 235
====== ==== ====== ====
</TABLE>
Certain aircraft are subject to purchase options granted to existing
lessees.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------------------------
1998 1999 2000
---------------------- ---------------------- ----------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST LIMITED TRUST
--------- --------- --------- --------- --------- ---------
($MILLIONS) ($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Depreciation expense........... 168 22 158 17 156 17
=== === === === === ===
</TABLE>
F-15
<PAGE> 96
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
10. AIRCRAFT -- (CONTINUED)
Depreciation expense for 1998 includes $2.1m of additional depreciation
charged during the year in relation to the write down of the carrying values of
three A300 aircraft, in accordance with FAS 121
At March 31, 2000 Airplanes Group owned 199 (1999:202) aircraft.
11. ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------------------
1999 2000
---------------------- ----------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C>
Accrued expenses and other liabilities include:
Unearned revenue.................................. 15 1 14 2
Provisions for loss making leases (Note 18)....... 34 1 31 --
Interest accrued.................................. 453 45 685 69
Other accruals.................................... 31 1 38 --
Trade payables.................................... -- -- 3 --
Deposits received................................. 48 3 36 3
--- --- --- ---
581 51 807 74
=== === === ===
Of which:
Payable within one year........................... 99 3 77 4
Payable after one year............................ 482 48 730 70
--- --- --- ---
581 51 807 74
=== === === ===
</TABLE>
12. INDEBTEDNESS
The components of the debt are as follows:
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------------------
1999 2000
---------------------- ----------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C>
Indebtedness in respect of Notes issued:
Subclass A-4........................................ 182 18 182 18
Subclass A-6........................................ 671 65 518 50
Subclass A-7........................................ 501 49 501 49
Subclass A-8........................................ 638 62 638 62
Class B............................................. 286 27 265 26
Class C............................................. 334 33 321 30
Class D............................................. 364 36 360 36
Class E............................................. 538 53 538 53
----- --- ----- ---
3,514 343 3,323 324
Discounts/costs arising on issue of Notes........... (14) (1) (10) (1)
----- --- ----- ---
3,500 342 3,313 323
===== === ===== ===
</TABLE>
F-16
<PAGE> 97
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
12. INDEBTEDNESS -- (CONTINUED)
Debt maturity
The repayment terms of the A, B, C and D Notes are such that certain
principal amounts are expected to be repaid based on certain assumptions (the
"Expected Final Payment Date") or refinanced through the issue of new Notes by
specified Expected Final Payment Dates but in any event are ultimately due for
repayment on specified final maturity dates (the "Final Maturity Date"). The
Expected Final Payment Dates, Final Maturity Dates, Principal Amount and
interest rates applicable to each class of note are set out below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT EXPECTED FINAL FINAL
CLASS/ SUBCLASS OF NOTES INTEREST RATES AT YEAR END PAYMENT DATE MATURITY DATE
------------------------ ----------------- ---------------- -------------- -------------
($M)
<S> <C> <C> <C> <C>
Subclass A-4........... (LIBOR+.62%) 200 March 15, 2003 March 15, 2019
Subclass A-6........... (LIBOR+.34%) 568 January 15, 2004 March 15, 2019
Subclass A-7........... (LIBOR+.26%) 550 March 15, 2001 March 15, 2019
Subclass A-8........... (LIBOR+.375%) 700 March 15, 2003 March 15, 2019
Class B................ (LIBOR+.75%) 291 March 15, 2009 March 15, 2019
Class C................ (8.15%) 351 March 15, 2011 March 15, 2019
Class D................ (10.875%) 396 March 15, 2012 March 15, 2019
Class E................ (See below) 591 See below See below
-----
3,647
=====
</TABLE>
Discounts on Notes issues and costs arising on refinanced Notes are netted
against debt on the balance sheet. These amounts are accreted to the income
statement over the expected life of the refinance Notes.
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-4, A-7 and A-8 are not repaid or refinanced by the Expected Final
Payment Date, additional interest will arise.
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 for each Interest Accrual Period at a
rate of 20% per annum. 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 are paid at a rate of 1% and 10% multiplied by the Outstanding
Principal Balance of the Class E Note, 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 the interest on the
Class E Notes.
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.
F-17
<PAGE> 98
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
12. INDEBTEDNESS -- (CONTINUED)
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-6, A-7 and A-8 in that order.
13. PROVISION FOR MAINTENANCE
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------------------
1999 2000
---------------------- ----------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C>
Balance at April, 1............................... 292 23 266 17
Receivable during year............................ 67 2 62 2
Expenditure/transfers............................. (93) (8) (70) (3)
--- -- --- --
Balance at March, 31.............................. 266 17 258 16
=== == === ==
</TABLE>
The reserve for maintenance includes maintenance reserve funds received
from lessees and provisions to cover the directors' estimate of maintenance
costs where Airplanes Group has the primary obligation for maintenance.
14. SHARE CAPITAL
<TABLE>
<CAPTION>
AIRPLANES LIMITED
MARCH 31,
------------------
1999 2000
------- -------
($)
<S> <C> <C>
Ordinary shares, par value $1
Authorised 10,000........................................... 10,000 10,000
------ ------
Issued 30................................................... 30 30
====== ======
</TABLE>
The holders of the issued ordinary shares are entitled to an annual
cumulative preferential dividend of $4,500. As Airplanes Limited does not have
distributable profits this dividend has not been paid. As at March 31, 2000 the
total unpaid cumulative preferential dividend amounted to $18,000.
F-18
<PAGE> 99
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
15. REVENUES
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------------------
1998 1999 2000
--------------------- --------------------- ---------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST LIMITED TRUST
--------- --------- --------- --------- --------- ---------
($MILLIONS) ($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
The distribution of revenues by
geographic area is as follows:
Europe................................. 192 1 203 1 181 1
North America.......................... 57 118 41 126 49 36
South America.......................... 222 9 215 8 177 2
Asia/rest of world..................... 78 2 63 1 57 2
--- --- --- --- --- ---
549 130 521 137 464 41
=== === === === === ===
Of which: Aircraft sales to third parties
represents............................. (37) (57) (37) (95) (3) --
Sale of Shares to third parties
represents............................. -- -- -- -- (1) --
--- --- --- --- --- ---
Leasing revenue.......................... 512 73 484 42 460 41
--- --- --- --- --- ---
Of which, maintenance revenue
represents............................. 68 20 67 2 62 2
=== === === === === ===
</TABLE>
At March 31, 2000, Airplanes Group had contracted to receive the following
minimum rentals under operating leases:
<TABLE>
<CAPTION>
2000
----------------------
AIRPLANES AIRPLANES
LIMITED TRUST
--------- ---------
($MILLIONS)
<S> <C> <C>
Year ending March 31,
2001...................................................... 375 37
2002...................................................... 308 31
2003...................................................... 192 20
2004...................................................... 104 4
2005...................................................... 56 --
Thereafter................................................ 72 --
----- ---
1,107 92
===== ===
</TABLE>
Contracted rentals are based on actual rates up to the first recalculation
date, and thereafter are based on a budget LIBOR of 6.2%, and include aircraft
subject to Letters of Intent to lease.
Each of Airplanes Limited and Airplanes Trust operates in one business
segment, the leasing of aircraft.
For Airplanes Limited no customer accounted for more than 10% of revenue in
fiscal 1998, 1999 or 2000. For Airplanes Trust: (a) two lessees each accounted
for more than 10% of leasing revenue for the year ended March 31, 1998, and
individually these lessees accounted for 38% and 29% of leasing revenue,
respectively, (b) two lessees each accounted for more than 10% of leasing
revenue for the year ended March 31, 1999, and individually these lessees
accounted for 39% and 14% of leasing revenue respectively and (c) two lessees
each accounted for more than 10% of leasing revenue in the year ended March 31,
2000 and individually these lessees accounted for 34% and 13% of leasing revenue
respectively.
F-19
<PAGE> 100
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
16. NET INTEREST EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------------------
1998 1999 2000
--------------------- --------------------- ---------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST LIMITED TRUST
--------- --------- --------- --------- --------- ---------
($MILLIONS) ($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Interest on Notes issued................. 389 38 402 40 438 43
Interest income.......................... (16) -- (14) -- (13) --
--- --- --- --- --- ---
373 38 388 40 425 43
=== === === === === ===
Cash paid in respect of interest......... 245 22 201 22 193 21
=== === === === === ===
</TABLE>
17. LOSS MAKING LEASES
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------------
1999 2000
---------------------- ----------------------
AIRPLANES AIRPLANES AIRPLANES AIRPLANES
LIMITED TRUST LIMITED TRUST
--------- --------- --------- ---------
($MILLIONS) ($MILLIONS)
<S> <C> <C> <C> <C>
Provision......................................... 7 -- 8 --
Utilisation....................................... (18) (1) (11) (1)
--- --- --- ---
Net utilisation................................... (11) (1) (3) (1)
=== === === ===
</TABLE>
Provision is made for the expected losses where a lease agreement is deemed
to be loss making. The charge in respect of the loss making lease provisions and
the utilisation of these provisions are reflected on a net basis in the
Statement of Operations. These provisions are utilised as the corresponding
actual losses arise over the period of the lease. The actual losses are
reflected within the depreciation expense, interest expense or other costs
within the Statement of Operations.
18. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------------------
1998 1999 2000
--------------------- --------------------- ---------------------
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.................... 24 2 22 2 20 2
Other selling, general and administrative
expenses............................... 11 1 10 1 11 1
--- --- --- --- --- ---
35 3 32 3 31 3
=== === === === === ===
</TABLE>
In the years ended March 31, 2000 and 1999 other selling, general and
administrative expenses included an amount of $9 million (Airplanes Limited $8
million, Airplanes Trust $1 million) payable to AerFi in respect of
Administration and Cash Management fees.
19. PROVISION FOR INCOME TAXES
References to Airplanes Limited and Airplanes Trust in the context of this
footnote refer to the underlying taxable entities of Airplanes Limited
(primarily Irish entities) and Airplanes Trust (primarily US entities).
F-20
<PAGE> 101
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
19. PROVISION FOR INCOME TAXES -- (CONTINUED)
(a) Airplanes Limited
Income tax benefit of Airplanes Limited consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------
1998 1999 2000
----- ----- -----
($MILLIONS)
<S> <C> <C> <C>
Current income tax.......................................... -- -- --
Deferred income tax......................................... 3 3 (15)
--- --- ---
3 3 (15)
=== === ===
</TABLE>
Airplanes Limited's income from approved activities in Ireland is taxable
at a rate of 10% until December 31, 2005. Thereafter, income from trading
activities will be taxable at a rate of 12.5%.
A reconciliation of differences between actual income tax benefit of
Airplanes Limited for 1998, 1999 and 2000 and the expected tax benefit based on
a tax rate of 10%, 10% and 12.5% is shown below:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------
1998 1999 2000
----- ----- -----
($MILLIONS)
<S> <C> <C> <C>
Tax benefit at 10%.......................................... 16 17 22
Non deductible E Note interest.............................. (13) (17) (23)
Increase in deferred income tax due to change in Irish tax
rates..................................................... -- -- (14)
Release of over provision in respect of prior year.......... -- 3 --
--- --- ---
Actual deferred tax benefit/(charge)........................ 3 3 (15)
=== === ===
</TABLE>
E Note interest is not deductible for tax purposes in Ireland.
The deferred tax provision at March 31, 1998 was based on calculations of
losses forward and capital allowances of Airplanes Limited at December 31, 1996
adjusted on an estimated basis to March 31, 1998. The release of the over
provision in respect of the prior year primarily relates to the finalisation of
these estimates.
Airplanes Limited has net operating loss carryforwards of approximately
$1,517 million as of March 31, 2000, which are available for offset against
future taxable income with no restrictions to expiration.
The deferred tax assets and liabilities of Airplanes Limited are summarised
below:
<TABLE>
<CAPTION>
MARCH 31,
------------
1999 2000
---- ----
($MILLIONS)
<S> <C> <C>
Deferred tax assets relating to:
Net operating loss carryforwards.......................... 132 190
Deferred tax liability relating to:
Aircraft.................................................. 183 256
--- ---
Net deferred tax liability.................................. 51 66
=== ===
</TABLE>
F-21
<PAGE> 102
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
19. PROVISION FOR INCOME TAXES -- (CONTINUED)
(b) Airplanes Trust
Income tax benefit of Airplanes Trust consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------
1998 1999 2000
----- ----- -----
($MILLIONS)
<S> <C> <C> <C>
Current income tax:
Federal................................................... -- -- 8
State..................................................... -- -- --
--- --- ---
Total current............................................... -- -- 8
--- --- ---
Deferred income tax:
Federal................................................... -- -- --
State..................................................... -- -- --
--- --- ---
Total deferred.............................................. -- -- --
--- --- ---
-- -- 8
=== === ===
</TABLE>
A reconciliation of differences between actual income tax benefit of
Airplanes Trust for 1998, 1999, and 2000 and the expected tax benefit based on
the U.S. Federal statutory tax rate of 35% in 1998, 1999, and 2000 is shown
below:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------
1998 1999 2000
----- ----- -----
($MILLIONS)
<S> <C> <C> <C>
Tax benefit at statutory rate............................... 3 5 9
Post acquisition net operating losses -- not utilised....... -- 4 --
State taxes not based on income............................. -- (1) --
Non deductible E-Note interest.............................. (6) (6) (8)
Increase in valuation allowance/other....................... 3 (2) 7
--- --- ---
-- -- 8
=== === ===
</TABLE>
Airplanes Trust has Federal tax net operating loss carryforwards of
approximately $75 million as of March 31, 2000, which expire beginning in 2007
through 2020.
F-22
<PAGE> 103
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
19. PROVISION FOR INCOME TAXES -- (CONTINUED)
Deferred tax assets and liabilities of Airplanes Trust are summarised
below:
<TABLE>
<CAPTION>
YEARS ENDED
MARCH 31,
------------
1999 2000
---- ----
($MILLIONS)
<S> <C> <C>
Deferred tax assets relating to:
Net operating loss carryforwards.......................... 38 38
Other..................................................... 4 3
Valuation allowance....................................... (17) (10)
--- ---
25 31
--- ---
Deferred tax liabilities relating to:
Aircraft.................................................. 73 79
--- ---
Net deferred tax liability.................................. 48 48
=== ===
</TABLE>
Although all of the aircraft are owned by Airplanes Trust, for tax
purposes, certain of the aircraft are treated as being leased from third parties
under US "safe-harbor lease" tax rules. Under existing tax laws, certain events
could reverse the cumulative effect of this tax treatment, in which case
Airplanes Trust would be required to make payments to the third parties under
the tax indemnification clauses included in the lease agreements. As of March
31, 1998, 1999 and 2000 the maximum potential exposure under these provisions is
$4 million, $1.3 million and $0.7 million, respectively. The Trust believes that
no events have taken place which could cause such payments to become due.
Pursuant to a tax sharing agreement between Airplanes Trust and AerFi,
Airplanes Trust was liable to AerFi for its share of the consolidated tax
liability in years subsequent to the completion of the Transaction, in which
Airplanes Trust generated taxable income. However, Airplanes Trust was obliged
to satisfy this liability in cash only to the extent that payments due to tax
authorities from AerFi were attributable to Airplanes Trust's share of the
consolidated tax liability; the remainder was to be paid in the form of
subordinated notes. Conversely, Airplanes Trust was entitled to be reimbursed by
AerFi for any tax benefits provided subsequent to the completion of the
Transaction, to AerFi from Airplanes Trust's tax losses. AerFi 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.
Subsequent to November 20, 1998, AeroUSA, Inc. and AeroUSA 3, Inc. now file
consolidated United States federal tax returns and certain state and local tax
returns with GE Capital, such returns being filed on a calendar basis. In
addition, on November 20, 1998, Airplanes Trust entered into a Tax Sharing
Agreement with GE Capital which is substantially similar to the Tax Sharing
Agreement between Airplanes Trust and AerFi which was in place prior to that
date, and which terminated on November 20, 1998, except with respect to those
provisions relating to the position prior to the date on which AeroUSA, Inc. and
AeroUSA 3, Inc. were deconsolidated from AerFi Inc.
In relation to the tax year ended December 31, 1999 GE Capital utilised
$38.8 million of current year losses. As GE Capital is an Alternative Minimum
Tax (AMT) payer the benefit realised will be $7.8 million and this amount will
be paid to Airplanes Group. The receivable for this amount has been included in
other assets at year end.
F-23
<PAGE> 104
AIRPLANES GROUP
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
20. COMMITMENTS
Capital Commitments
Airplanes Group did not have any material contractual commitments for
capital expenditures at March 31, 2000.
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 Transaction, details of which are
set out in Note 1.
Foreign Taxation
The international character of the Group's operations gives rise to some
uncertainties with regard to the impact of taxation in certain countries. The
position is kept under continuous review and the Group provides for all known
liabilities.
22. PRIOR YEAR FIGURES
Amounts in the prior years financial statements have been reclassified to
conform to the current year presentation.
F-24
<PAGE> 105
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
TO THE BOARD OF DIRECTORS OF AIRPLANES LIMITED
AND THE CONTROLLING TRUSTEES OF AIRPLANES U.S. TRUST:
Under date of June 15, 2000, we reported on the balance sheets of Airplanes
Limited and Airplanes U.S. Trust as of March 31, 1999 and 2000, 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, 2000,
which are included in this Report on Form 10-K. In connection with our audits of
the aforementioned financial statements, we also audited the related financial
statement schedule in this Report on Form 10-K. This financial statement
schedule is the responsibility of the companies' management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
KPMG
Chartered Accountants
Dublin, Ireland
June 15, 2000
S-1
<PAGE> 106
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,
1998.................................... 12 (1) (4) 9
1999.................................... 9 11 (4) 14
2000.................................... 14 2 (6) 10
</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,
1998.................................... 1 -- -- 1
1999.................................... 1 2 -- 3
2000.................................... 3 2 -- 5
</TABLE>
S-2
<PAGE> 107
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Airplanes U.S. Trust has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
AIRPLANES U.S. TRUST
By: /s/ ROY M. DANTZIC
-------------------------------
Roy M. Dantzic
Controlling Trustee
Dated: June 29, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on June 29, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ HUGH R. JENKINS Controlling Trustee
--------------------------------------------- (principal executive officer)
Hugh R. Jenkins
/s/ ROY M. DANTZIC Controlling Trustee
--------------------------------------------- (principal financial officer)
Roy M. Dantzic
/s/ WILLIAM M. MCCANN Controlling Trustee
--------------------------------------------- (principal accounting officer)
William M. McCann
/s/ BRIAN T. HAYDEN Controlling Trustee
---------------------------------------------
Brian T. Hayden
/s/ RICHARD E. CAVANAGH Controlling Trustee
---------------------------------------------
Richard E. Cavanagh
</TABLE>
<PAGE> 108
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Airplanes Limited has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AIRPLANES LIMITED
By: /s/ ROY M. DANTZIC
-------------------------------
Director
Dated: June 29, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on June 29, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ HUGH R. JENKINS Director
--------------------------------------------- (principal executive officer)
Hugh R. Jenkins
/s/ ROY M. DANTZIC Director
--------------------------------------------- (principal financial officer)
Roy M. Dantzic
/s/ WILLIAM M. MCCANN Director
--------------------------------------------- (principal accounting officer)
William M. McCann
/s/ BRIAN T. HAYDEN Director
---------------------------------------------
Brian T. Hayden
/s/ RICHARD E. CAVANAGH Director
---------------------------------------------
Richard E. Cavanagh
</TABLE>
<PAGE> 109
AIRPLANES LIMITED AND AIRPLANES U.S. TRUST
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
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 AerFi, 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. 4 dated as of March 28, 1996 to the
Pass Through Trust Agreement**
4.3 Trust Supplement No. 5 dated as of March 28, 1996 to the
Pass Through Trust Agreement**
4.4 Trust Supplement No. 7 dated as of March 28, 1996 to the
Pass Through Trust Agreement**
4.5 Trust Supplement No. 8 dated as of March 28, 1996 to the
Pass Through Trust Agreement**
4.6 Trust Supplement No. 9 dated as of March 16, 1996 to the
Pass Through Trust Agreement***
4.7 Trust Supplement No. 10 dated as of March 16, 1996 to the
Pass Through Trust Agreement***
4.8 Trust Supplement No. 11 dated as of March 16, 1996 to the
Pass Through Trust Agreement***
4.9 Trust Supplement No. 12 dated as of March 16, 1996 to the
Pass Through Trust Agreement***
4.10 Trust Supplement A dated as of March 16, 1996 to the Pass
Through Trust Agreement***
4.11 Form of Subclass A-4 Pass Through Certificate**
4.12 Form of Subclass A-5 Pass Through Certificate**
4.13 Form of Subclass A-6 Pass Through Certificate***
4.14 Form of Subclass A-7 Pass Through Certificate***
4.15 Form of Subclass A-8 Pass Through Certificate***
4.16 Form of Class B Pass Through Certificate***
4.17 Form of Class C Pass Through Certificate**
4.18 Form of Class D Pass Through Certificate**
4.19 Airplanes Limited Indenture dated as of March 28, 1996 among
Airplanes Limited, Airplanes U.S. Trust and Bankers Trust
Company, as Trustee**
4.20 Supplement No. 1 to the Airplanes Limited Indenture***
4.21 Airplanes U.S. Trust Indenture dated as of March 28, 1996
among Airplanes U.S. Trust, Airplanes Limited and Bankers
Trust Company, as Trustee**
4.22 Supplement No. 2 to the Airplanes Trust Indenture***
4.23 Form of Floating Rate Subclass A-4 Note**
4.24 Form of Floating Rate Subclass A-5 Note**
4.25 Form of Floating Rate Subclass A-6 Note***
4.26 Form of Floating Rate Subclass A-7 Note***
4.27 Form of Floating Rate Subclass A-8 Note***
4.28 Form of Floating Rate Class B Note***
4.29 Form of 8.15% Class C Note**
4.30 Form of 10.875% Class D Note**
4.31 Form of 20.00% (inflation adjusted) Class E Note**
10.1 Stock Purchase Agreement dated as of March 28, 1996 among
AerFi, Inc., AerFi Group plc and Airplanes U.S. Trust**
</TABLE>
<PAGE> 110
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10.2 Stock Purchase Agreement dated as of March 28, 1996 among
AerFi Group plc, Skyscape Limited and Airplanes Limited**
10.3 Administrative Agency Agreement dated as of March 28, 1996
among AerFi Financial Services (Ireland) Limited, AerFi
Group plc, Airplanes Limited, AerFi 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., AerFi II Limited, Airplanes U.S. Trust and
AerFi 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 AerFi Cash Manager Limited,
as Cash Manager**
10.6 Secretarial Services Agreement dated as of March 28, 1996
between Airplanes Limited and Mourant & Co. Secretaries
Limited, as Company Secretary**
10.7 Cash Management Agreement dated as of March 28, 1996 between
AerFi Cash Manager Limited, as Cash Manager, AerFi 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,
AerFi Financial Services (Ireland) Limited, AerFi Cash
Manager Limited, AerFi Group plc, GE Capital Aviation
Services, Limited, Bankers Trust Company, as Airplanes U.S.
Trust Indenture Trustee and Airplanes Limited Indenture
Trustee, Bankers Trust Company, as Reference Agent, and
Bankers Trust Company, as Security Trustee**
21 Subsidiaries of the Registrants*
23.1 Consent of Aircraft Information Services, Inc.
23.2 Consent of BK Associates, Inc.
23.3 Consent of Airclaims Limited
27.1 Financial Data Schedule for Airplanes Limited
27.2 Financial Data Schedule for Airplanes U.S. Trust
27.3 Financial Data Schedule for Airplanes Group
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. 33-99970), previously filed with the Securities and Exchange Commission.
** Incorporated by reference to the Report on Form 10-Q for the quarterly
period ended December 31, 1995, previously filed with the Securities and
Exchange Commission.
*** Incorporated by reference to the Registration Statement on Form S-1 (File
No. 333-43453), previously filed with the Securities and Exchange
Commission.
