<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1998
REGISTRATION STATEMENT NO. 333-56575
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------------
MORGAN STANLEY AIRCRAFT FINANCE
(Exact name of Registrant as specified in its charter)
DELAWARE
(Jurisdiction of organization)
7359
(Primary Standard Industrial Classification Code Number)
13-3375162
(I.R.S. Employer Identification Number)
MORGAN STANLEY AIRCRAFT FINANCE
C/O WILMINGTON TRUST COMPANY
1100 NORTH MARKET STREET
RODNEY SQUARE NORTH
WILMINGTON, DELAWARE 19890-1000
ATTENTION: CORPORATE TRUST ADMINISTRATION
(302) 651-1000
(Address and telephone number of Registrant's principal executive offices)
------------------------------------
WILMINGTON TRUST COMPANY
1100 NORTH MARKET STREET
RODNEY SQUARE NORTH
WILMINGTON, DELAWARE 19890-1000
ATTENTION: CORPORATE TRUST ADMINISTRATION
(302) 651-1000
(Name, address and telephone number of agent for service)
Copy to:
THOMAS J. REID, ESQ.
DAVIS POLK & WARDWELL
1 FREDERICK'S PLACE
LONDON EC2R 8AB
ENGLAND
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION FEE
OF SECURITIES TO BE REGISTERED REGISTERED PER NOTE (1) OFFERING PRICE (1) (2)
- ---------------------------------------------------------------------------------------------------------------------
Notes due March 15, 2023............... $1,050,000,000 100% $1,050,000,000 $309,750
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933.
(2) Previously paid.
------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to the registration or qualification under the securities laws of such State.
PROSPECTUS (Subject to Completion)
Issued October 30, 1998
$1,050,000,000
Offer to Exchange Notes due March 15, 2023
for Any and All Outstanding Notes due March 15, 2023
of
Morgan Stanley Aircraft Finance
The Exchange Offer will expire at 5:00 P.M., New York City time, [on the 20th
business day following the commencement of the Offer], 1998, unless extended
------------------------
Morgan Stanley Aircraft Finance ("MSAF" and, together with its subsidiaries,
"MSAF Group") hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal (the "Letter
of Transmittal", which together with this Prospectus constitutes the "Exchange
Offer") to exchange five subclasses of Notes due March 15, 2023 (collectively
the "New Notes") for each subclass of the issued and outstanding Notes due March
15, 2023 (the "Old Notes" and together with the New Notes, the "Notes") of MSAF
from the holders ("Holders") thereof. As of the date of this Prospectus there
were outstanding $1,050,000,000 aggregate initial principal amount of Old Notes.
The terms of the New Notes are identical in all material respects to the Old
Notes, except that the offer of the New Notes will have been registered under
the Securities Act of 1933, as amended (the "Securities Act") and therefore, the
New Notes will not be subject to certain transfer restrictions, registration
rights and certain provisions providing for an increase in the interest rate on
each subclass of the Old Notes under certain circumstances relating to the
Registration Agreement (as defined).
The Subclass A-1 Notes bear interest at the London interbank offered rate for
one month U.S. dollar deposits ("LIBOR") + 0.21%, have an expected final payment
date of March 15, 2000 and a final maturity date of March 15, 2023. The Subclass
A-2 Notes bear interest at a rate of LIBOR + 0.35%, have an expected final
payment date of September 15, 2005 and a final maturity date of March 15, 2023.
The Subclass B-1 Notes bear interest at a rate of LIBOR + 0.65%, have an
expected final payment date of March 15, 2013 and a final maturity date of March
15, 2023. The Subclass C-1 Notes bear interest at a rate of 6.90%, have an
expected final payment date of March 15, 2013 and a final maturity date of March
15, 2023. The Subclass D-1 Notes bear interest at a rate of 8.70%, have an
expected final payment date of March 15, 2014 and a final maturity date of March
15, 2023.
The New Notes are being offered hereunder in order to satisfy certain
obligations of MSAF under the Registration Rights Agreement dated March 3, 1998,
among MSAF and the other signatories thereto (the "Registration Agreement").
Based upon interpretations contained in letters to third parties by the staff of
the Securities and Exchange Commission (the "Commission"), MSAF believes that
the New Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold and otherwise transferred by Holders thereof
(other than a broker-dealer, as set forth below, or any such Holder which is an
"affiliate" of MSAF within the meaning of Rule 405 under the Securities Act),
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such New Notes are acquired in the ordinary
course of such Holders' business and such Holders have no arrangement or
understanding with any person to participate in the distribution of such New
Notes. Eligible Holders wishing to accept the Exchange Offer must represent to
MSAF in the Letter of Transmittal that such conditions have been met and must
represent, if such Holder is not a broker-dealer, or is a broker-dealer but will
not receive New Notes for its own account in exchange for Old Notes, that
neither such Holder nor the person receiving such New Notes, if other than the
Holder, is engaged in or intends to participate in the distribution of such New
Notes. Each broker-dealer that receives New Notes for its own account pursuant
to the Exchange Offer must represent that the Old Notes tendered in exchange
therefor were acquired as a result of market-making activities or other trading
activities and must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. MSAF has
agreed that, starting on the Expiration Date (as defined herein) and ending on
the close of business on the 180th day following the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution."
MSAF will not receive any proceeds from the Exchange Offer. MSAF will pay all
the expenses incident to the Exchange Offer. Tenders of Old Notes pursuant to
the Exchange Offer may be withdrawn at any time prior to the Expiration Date. In
the event MSAF terminates the Exchange Offer and does not accept for exchange
any Old Notes, MSAF will promptly return all previously tendered Old Notes to
the Holders thereof. See "The Exchange Offer."
Prior to this Exchange Offer, there has been no public market for the Notes.
MSAF does not intend to apply for listing of the New Notes on any securities
exchange (other than the Luxembourg Stock Exchange) or to seek approval for
quotation through any automated quotation system. There can be no assurance that
an active public market for the New Notes will develop.
------------------------
ALL OF THE BENEFICIAL INTEREST IN MSAF IS INDIRECTLY OWNED BY MORGAN STANLEY BUT
THE NOTES ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, MORGAN STANLEY OR ANY PERSON
OTHER THAN MSAF GROUP. THE NOTES ARE NOT OBLIGATIONS OF, OR GUARANTEED BY,
BANKERS TRUST COMPANY, AS TRUSTEE, SECURITY TRUSTEE OR CASH MANAGER, OR ILFC OR
ANY OF THEIR AFFILIATES.
------------------------
THE OLD NOTES WERE LISTED ON THE LUXEMBOURG STOCK EXCHANGE ON MARCH 3, 1998. THE
NEW NOTES WILL BE LISTED THEREON UPON ISSUANCE, SUBJECT ONLY TO NOTICE OF
ISSUANCE.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 20 HEREOF FOR A DISCUSSION OF CERTAIN
FACTORS ASSOCIATED WITH THE EXCHANGE OFFER AND THE NEW NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
, 1998
<PAGE> 3
MSAF WILL PROVIDE THE TRUSTEE FOR DISTRIBUTION TO NOTEHOLDERS ON THE SECOND
BUSINESS DAY BEFORE EACH PAYMENT DATE A STATEMENT WITH RESPECT TO ANY PAYMENT TO
BE MADE ON SUCH PAYMENT DATE SETTING FORTH THE INFORMATION SPECIFIED UNDER
"REPORTS TO NOTEHOLDERS" (EACH, A "MONTHLY REPORT"). FOLLOWING EFFECTIVENESS OF
THE REGISTRATION STATEMENT, EACH MONTHLY REPORT WILL BE FILED BY MSAF WITH THE
COMMISSION IN A REPORT ON FORM 8-K. THE MONTHLY REPORTS FOR EACH APRIL 15, JULY
15 AND OCTOBER 15, BEGINNING ON JULY 15, 1998 WILL BE ACCOMPANIED BY A STATEMENT
SETTING FORTH AN ANALYSIS OF COLLECTION ACCOUNT ACTIVITY FOR THE PRECEDING
FISCAL QUARTER ENDED FEBRUARY 28, MAY 31 AND AUGUST 31, RESPECTIVELY, TOGETHER
WITH A DISCUSSION AND ANALYSIS OF SUCH ACTIVITY AND OF ANY SIGNIFICANT
DEVELOPMENTS AFFECTING MSAF GROUP IN SUCH QUARTER (EACH, A "QUARTERLY REPORT").
EACH QUARTERLY REPORT WILL ALSO INCLUDE AN UPDATED DESCRIPTION OF THE AIRCRAFT
THEN IN THE PORTFOLIO AND THE RELATED LESSEES IN SUBSTANTIALLY SIMILAR FORMAT TO
THE DESCRIPTION SET FORTH UNDER "THE INITIAL AIRCRAFT AND LEASES -- MSAF GROUP
PORTFOLIO ANALYSIS". FOLLOWING EFFECTIVENESS OF THE REGISTRATION STATEMENT, EACH
SUCH QUARTERLY REPORT WILL BE FILED WITH THE COMMISSION IN A REPORT ON FORM
10-Q. FINALLY, THE MONTHLY REPORT FOR EACH FEBRUARY 15 WILL BE ACCOMPANIED BY A
STATEMENT SETTING FORTH AN ANALYSIS OF COLLECTION ACCOUNT ACTIVITY FOR THE
PRECEDING FISCAL YEAR ENDED NOVEMBER 30, TOGETHER WITH A DISCUSSION AND ANALYSIS
OF SUCH ACTIVITY AND OF ANY SIGNIFICANT DEVELOPMENTS AFFECTING MSAF GROUP IN
SUCH YEAR (EACH, AN "ANNUAL REPORT"). EACH ANNUAL REPORT WILL ALSO INCLUDE
UPDATED INFORMATION REGARDING THE AIRCRAFT THEN IN THE PORTFOLIO (INCLUDING
ADDITIONAL AIRCRAFT), THE THEN CURRENT LEASES AND THEN CURRENT LESSEES TO
SUBSTANTIALLY THE SAME EFFECT AS THE INFORMATION SET FORTH UNDER "THE INITIAL
AIRCRAFT AND LEASES". FOLLOWING EFFECTIVENESS OF THE REGISTRATION STATEMENT,
EACH ANNUAL REPORT WILL BE FILED WITH THE COMMISSION IN A REPORT ON FORM 10-K
AND THE FINANCIAL DATA RELATING TO ANNUAL COLLECTION ACCOUNT ACTIVITY IN SUCH
ANNUAL REPORTS WILL BE AUDITED BY DELOITTE & TOUCHE LLP. MONTHLY REPORTS,
QUARTERLY REPORTS AND ANNUAL REPORTS ARE REFERRED TO HEREIN AS "CASH REPORTS".
PRIOR TO EFFECTIVENESS OF THE REGISTRATION STATEMENT, MSAF WILL MAKE SUFFICIENT
COPIES OF ANY QUARTERLY REPORTS AND ANNUAL REPORTS AVAILABLE TO THE TRUSTEE FOR
DELIVERY TO NOTEHOLDERS UPON REQUEST. SEE "REPORTS TO NOTEHOLDERS".
UNLESS OTHERWISE STATED, ALL MONETARY AMOUNTS ARE EXPRESSED HEREIN IN
UNITED STATES DOLLARS ("$"). VARIOUS NUMBERS AND PERCENTAGES SET OUT IN THIS
PROSPECTUS HAVE BEEN ROUNDED AND ACCORDINGLY MAY NOT TOTAL EXACTLY.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. MSAF'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
MARKET DATA AND CERTAIN INDUSTRY FORECASTS USED THROUGHOUT THIS PROSPECTUS
WERE OBTAINED FROM PUBLICLY AVAILABLE INFORMATION AND INDUSTRY PUBLICATIONS.
INDUSTRY PUBLICATIONS GENERALLY STATE THAT THE INFORMATION CONTAINED THEREIN HAS
BEEN OBTAINED FROM SOURCES BELIEVED TO BE RELIABLE, BUT THAT THE ACCURACY AND
COMPLETENESS OF SUCH INFORMATION IS NOT GUARANTEED. SIMILARLY, SUCH INFORMATION,
WHILE BELIEVED TO BE RELIABLE, HAS NOT BEEN INDEPENDENTLY VERIFIED.
UNTIL , 1998 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER)
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
No person has been authorized to give any information or to make any
representations other than as contained herein, and, if given or made, such
information or representation must not be relied upon as having been authorized
by MSAF. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy by any Person in any jurisdiction in which it is unlawful for
such Person to make such an offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that the information contained herein is correct as of any time
subsequent to its date.
<PAGE> 4
EXPLANATORY NOTE
THIS REGISTRATION STATEMENT CONTAINS A PROSPECTUS RELATING TO THE EXCHANGE
OFFER OF UP TO $400,000,000 AGGREGATE INITIAL PRINCIPAL AMOUNT OF SUBCLASS A-1
NOTES DUE MARCH 15, 2023, $340,000,000 AGGREGATE INITIAL PRINCIPAL AMOUNT OF
SUBCLASS A-2 NOTES DUE MARCH 15, 2023, $100,000,000 AGGREGATE INITIAL PRINCIPAL
AMOUNT OF SUBCLASS B-1 NOTES DUE MARCH 15, 2023, $100,000,000 AGGREGATE INITIAL
PRINCIPAL AMOUNT OF SUBCLASS C-1 NOTES DUE MARCH 15, 2023 AND $110,000,000
AGGREGATE INITIAL PRINCIPAL AMOUNT OF SUBCLASS D-1 NOTES DUE MARCH 15, 2023
(COLLECTIVELY THE "NOTES") OF MSAF TOGETHER WITH SEPARATE PROSPECTUS PAGES
RELATING TO CERTAIN MARKET-MAKING TRANSACTIONS IN THE NOTES. THE COMPLETE
PROSPECTUS FOR THE EXCHANGE OFFER FOLLOWS IMMEDIATELY AFTER THIS EXPLANATORY
NOTE. FOLLOWING SUCH PROSPECTUS ARE CERTAIN PAGES OF THE PROSPECTUS RELATING TO
SUCH MARKET-MAKING TRANSACTIONS, INCLUDING AN ALTERNATE COVER PAGE, ALTERNATE
PAGE INCLUDING THE "TABLE OF CONTENTS", A SECTION ENTITLED "CERTAIN RISK FACTORS
- -- TRADING MARKET FOR THE NOTES" TO BE USED IN LIEU OF "CERTAIN RISK FACTORS --
RISKS RELATING TO THE CAPITAL MARKETS -- ABSENCE OF PUBLIC MARKET" SECTION AND
AN ADDITIONAL SECTION ENTITLED "MARKET-MAKING ACTIVITIES OF MS&CO.".
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.............................. 1
Summary Description of the New Notes............ 10
Risk Factors.................................... 20
Consequences of Failure to Exchange........... 20
Exchange Offer Procedures..................... 21
Risks Relating to MSAF Group and
Certain Third Parties....................... 21
Risks Relating to the Aircraft................ 23
Year 2000 Risk................................ 25
Risks Relating to the Leases.................. 28
Risks Relating to the Lessees................. 29
Lease Termination and Aircraft Repossession... 32
Risks Relating to Payments on the Notes....... 33
Risks Relating to the Capital Markets......... 33
Certain Bankruptcy Considerations............. 34
Risks Relating to Tax......................... 34
The Exchange Offer.............................. 35
Terms of the Exchange Offer; Period for
Tendering Old Notes......................... 35
Procedures for Tendering Old Notes............ 35
Acceptance of Old Notes for Exchange; Delivery
of New Notes................................ 37
Interest on the New Notes..................... 37
Book-Entry Transfer........................... 37
Guaranteed Delivery Procedures................ 37
Withdrawal Rights............................. 38
Certain Conditions to the Exchange Offer...... 38
Exchange Agent................................ 39
Fees and Expenses............................. 39
Transfer Taxes................................ 39
Consequences of Failure to Exchange........... 39
The Parties..................................... 41
MSAF Group.................................... 41
Servicer...................................... 41
Administrative Agent.......................... 43
Cash Manager, Trustee, Security Trustee and
Reference Agent............................. 43
Financial Advisor............................. 43
The Initial Aircraft and Leases................. 44
MSAF's Ownership of the Aircraft.............. 44
Appraisers' Reports........................... 44
Portfolio Information......................... 44
MSAF Group Portfolio Analysis................. 49
Acquisition of Additional Aircraft............ 49
Initial Leases................................ 50
Indemnification and Insurance of the
Aircraft.................................... 52
The Lessees................................... 54
The Commercial Aircraft Industry................ 59
Introduction.................................. 59
Demand for Aircraft........................... 59
The World Fleet of Commercial Jet Aircraft
(Excluding Aircraft Manufactured in the
CIS)........................................ 60
Supply of Aircraft............................ 61
Operating Leasing............................. 62
Management of MSAF Group........................ 63
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Trustees...................................... 63
Beneficial Ownership of MSAF.................. 64
Servicer...................................... 65
Corporate Management.......................... 69
Selected Consolidated Financial Data............ 72
Management's Discussion and Analysis of Results
of Operations and Financial Condition......... 73
Introduction.................................. 73
Recent Developments........................... 73
Results of Operations -- Seven Months Ended
June 30, 1998............................... 74
Financial Resources and Liquidity............. 75
Interest Rate Management...................... 79
Description of the Notes........................ 81
General....................................... 81
Registration Requirements..................... 82
Payments...................................... 83
Assumptions................................... 84
Payment of Principal and Interest............. 94
Priority of Payments.......................... 103
Indenture Covenants........................... 106
Operating Covenants........................... 114
Events of Default and Remedies................ 117
Intercreditor Rights.......................... 119
Modification and Waiver....................... 119
Notices to Noteholders........................ 120
Governing Law and Jurisdiction................ 121
Beneficial Interest........................... 121
Cash Management Agreement..................... 121
Accounts...................................... 121
Reports to Noteholders.......................... 125
Book-Entry Registration, Global Clearance and
Settlement.................................... 127
Book-Entry Registration....................... 127
Definitive Notes.............................. 129
CUSIP, ISIN and Common Code Numbers........... 130
Taxation........................................ 131
U.S. Federal Income Tax Considerations........ 131
Plan of Distribution............................ 133
ERISA Considerations............................ 134
Legal Matters................................... 135
Experts......................................... 135
Index to Financial Statements................... F-1
Appendix 1. Index of Defined Terms.............. A-1
Appendix 2. Aircraft Types Data................. A-4
Appendix 3. Monthly Gross Revenues
Based on the Assumptions...................... A-5
Appendix 4. Assumed Portfolio Values for
the Initial Portfolio......................... A-7
Appendix 5. Class A Class Percentages........... A-9
Appendix 6. Class B Class Percentages........... A-12
Appendix 7. Class C Target Principal Balances... A-14
Appendix 8. Class D Target Principal Balances... A-17
Appendix 9. Pool Factors........................ A-20
Appendix 10. Extended Pool Factors.............. A-22
</TABLE>
i
<PAGE> 6
AVAILABLE INFORMATION
MSAF is not currently subject to the information reporting requirements of
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") . MSAF will
become subject to such requirements upon the effectiveness of the Registration
Statement, and in accordance therewith will file reports, proxy statements and
other information with the Commission. Any reports and other information filed
by MSAF with the Commission may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and will also be available for inspection
and copying at the regional offices of the Commission located at 7 World Trade
Center, New York, New York 10048 and at Northwestern Atrium Center, 500 West
Madison Street (Suite 1400), Chicago, Illinois 60661 at prescribed rates. The
Commission maintains a Web site (http://www.sec.gov) that contains reports and
other information, including the Registration Statement (of which this
Prospectus is a part) filed by MSAF.
MSAF has filed with the Commission a Registration Statement on Form S-4
(herein together with all amendments and exhibits thereto, called the
"REGISTRATION STATEMENT") under the Securities Act with respect to the New Notes
being offered by this Prospectus. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions of which have been omitted as permitted by
the rules and regulations of the Commission. For further information with
respect to MSAF and the securities offered by this Prospectus, reference is made
to the Registration Statement and the exhibits filed or incorporated as a part
thereof, which are on file at the offices of the Commission and may be obtained
upon payment of the fee prescribed by the Commission, or may be examined without
charge at the offices of the Commission. Statements contained in this Prospectus
as to the contents of any documents referred to are not necessarily complete,
and, in each such instance, are qualified in all respects by reference to the
applicable documents filed with the Commission.
The Old Notes were listed on the Luxembourg Stock Exchange on March 3,
1998, and the New Notes will be listed upon issuance, subject only to notice of
issuance. The constitutive documents of MSAF and the legal notice relating to
the issuance of the Notes have been deposited with the Registrar of the District
Court in Luxembourg (Greffier en Chef du Tribunal d'Arrondissement de et a
Luxembourg) where such documents will be available for inspection and where such
documents will be obtainable upon request. Copies of the Prospectus, the annual
report of independent public accountants and the reports to Noteholders referred
to under "Reports to Noteholders" are available at the office of the listing
agent (the "LISTING AGENT") in Luxembourg: Banque Internationale a Luxembourg,
69, route d'Esch, L-1470 Luxembourg. Financial information regarding MSAF will
be included in MSAF's Quarterly Reports on Form 10-Q and Annual Reports on Form
10-K and will be available at the office of the Listing Agent in Luxembourg
after the respective reports are filed with the Commission.
ii
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Capitalized terms
used in this Summary without definition have the meanings assigned in the text
of this Prospectus. Unless the context otherwise requires, the terms Initial
Aircraft and Aircraft include any spare engine, the terms Initial Leases and
Leases include any conditional sale agreement and the terms Initial Lessees and
Lessees include the lessee of any spare engine. An Index referencing defined
terms is attached as Appendix 1 hereto. Investors should thoroughly consider
this Prospectus in its entirety, including the information set forth herein
under "Risk Factors", prior to accepting the Exchange Offer.
TRANSACTION OVERVIEW
MSAF. MSAF is a special-purpose vehicle established to purchase and own a
portfolio of aircraft assets and related leases (such portfolio at any time, the
"PORTFOLIO"). MSAF's initial portfolio of aircraft assets consists of 32
aircraft and one spare engine purchased from ILFC (the "INITIAL AIRCRAFT") and
the related leases (the "INITIAL LEASES").
MSAF Assets. MSAF Group agreed to acquire the Initial Aircraft pursuant to
an Asset Purchase Agreement between MSAF and ILFC dated as of November 10, 1997.
As of August 31, 1998, MSAF Group had acquired all of the Initial Aircraft and
their related existing Leases. The Initial Aircraft had an aggregate Initial
Appraised Value of $1,086.69 million at September 30, 1997. As of August 31,
1998, all the Initial Aircraft were subject to lease contracts (or in one case,
a conditional sale agreement) with 29 lessees based in 20 countries. See "The
Initial Aircraft and Leases".
MSAF Notes. MSAF issued $1,050 million in aggregate principal amount of
the Old Notes in four classes: Class A, composed of two subclasses, and Class B,
Class C and Class D, each composed of one subclass. The terms of the New Notes
and the Old Notes are identical in all material respects, except for certain
transfer restrictions and registration rights relating to the Old Notes and
except for certain special interest provisions relating to the Old Notes
summarized below under "-- Summary Description of the New Notes."
Servicer. International Lease Finance Corporation ("ILFC") acts as
Servicer with respect to the Initial Aircraft (the "SERVICER") pursuant to an
incentive fee based servicing agreement among MSAF, Bankers Trust Company, as
Cash Manager, Cabot Aircraft Services Limited ("CABOT"), an indirect
wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. ("MORGAN STANLEY"),
as Administrative Agent, and ILFC dated as of November 10, 1997 (the "SERVICING
AGREEMENT"). ILFC will perform certain aircraft-related services with respect to
the Initial Aircraft including marketing the Initial Aircraft for lease or sale
and monitoring lessee compliance with lease terms including terms relating to
payment, maintenance and insurance. The Servicer agrees to perform its services
pursuant to the Servicing Agreement with a view towards maximizing the present
value of the cash flows over the life of the Initial Aircraft, subject to
certain conditions.
Additional Aircraft. MSAF intends to acquire additional aircraft assets
(the "ADDITIONAL AIRCRAFT" and, together with the Initial Aircraft, the
"AIRCRAFT") and any related existing leases or similar arrangements (the
"ADDITIONAL LEASES" and, together with the Initial Leases and any future leases
or similar arrangements (the "FUTURE LEASES"), the "LEASES") from various
sellers. Additional Aircraft may include, among other things, aircraft, engines
and entities with an ownership or leasehold interest in aircraft or engines.
Additional Aircraft may be subject to different aircraft servicing arrangements
than those in place for the Initial Aircraft. MSAF will finance acquisitions of
Additional Aircraft with external funds, including issuing debt securities in up
to four classes (Class A, Class B, Class C and Class D, each of which may
consist of one or more subclasses) that will rank pari passu in right of payment
of principal and interest with the corresponding classes of the Notes (the
"ADDITIONAL NOTES" and, together with the Notes, the "MSAF NOTES"). Any
acquisition of Additional Aircraft and issuance of Additional Notes and other
debt securities in connection therewith will be subject to various conditions
under the Indenture, including rating agency confirmation that such acquisition
and related issuance of Additional Notes will not result in the lowering or
withdrawal by them of their current rating of the MSAF Notes then outstanding.
1
<PAGE> 8
Subordination and Ranking. After the payment of amounts due and owing in
respect of, inter alia, taxes and obligations to Lessees and various service
providers (including, without limitation, the Servicer, the Administrative
Agent, the Cash Manager, the Financial Advisor and the Swap Providers), the cash
flows derived from the Initial Leases and the Initial Aircraft will be applied,
indirectly, towards the payment of amounts due to Noteholders. Payments of
interest on the Class A, Class B, Class C and Class D Notes will be made in
alphabetical order. However, certain amounts of principal on the Class A Notes
will be paid in priority to interest payments on the Class B, C and D Notes,
certain amounts of principal on the Class B Notes will be paid in priority to
interest payments on the Class C and D Notes and certain amounts of principal on
the Class C Notes will be paid in priority to interest on the Class D Notes. See
"-- Overview of Priority of Payments" and "Description of the Notes -- Priority
of Payments".
Ownership of MSAF. 100% of the beneficial interest in MSAF (the
"BENEFICIAL INTEREST") is held indirectly by Morgan Stanley. The transactions
described herein are intended to establish MSAF and its subsidiaries as legal
entities distinct from Morgan Stanley which would be unaffected by the
bankruptcy or insolvency of Morgan Stanley or any of its affiliates. If such
steps are not successful and such entities were to be consolidated with Morgan
Stanley or otherwise affected by any bankruptcy or insolvency of Morgan Stanley
and its affiliates, payments to Noteholders could be materially adversely
affected. See "Risk Factors -- Certain Bankruptcy Considerations".
Governance of MSAF. Three of the six trustees of MSAF and one alternate
trustee (the "CONTROLLING TRUSTEES") are officers of affiliates of Morgan
Stanley. Two trustees (the "INDEPENDENT TRUSTEES") are independent from Morgan
Stanley and are only permitted to vote in trustee meetings on certain
significant decisions relating to insolvency proceedings. Such decisions may
only be approved by a unanimous vote of all the Controlling Trustees and
Independent Trustees. The remaining trustee of MSAF is Wilmington Trust Company,
the Delaware trustee (the "DELAWARE TRUSTEE"). MSAF Group has no employees or
executive officers. Accordingly, MSAF Group will rely upon the Servicer, the
Administrative Agent, the Cash Manager, the Financial Advisor and other service
providers for all asset servicing, executive and administrative functions
pursuant to the respective service provider agreements. See "Management of MSAF
Group".
Insurance. The Lessees are required under the Leases to obtain customary
insurance coverage for any liabilities arising out of the operation of their
respective Aircraft. The Lessees are also required to obtain customary coverage
for damage to, and replacement of spare parts for, the Aircraft. The Servicer is
required to monitor Lessees' compliance with the insurance provisions of the
Leases. In addition, MSAF Group also has in place its own contingent liability
insurance program to cover liability both in excess of the coverage provided by
a Lessee's policy and where a Lessee's policy lapses for any reason. See "The
Initial Aircraft and Leases -- Indemnification and Insurance of the Aircraft".
THE EXCHANGE OFFER
Securities Offered......... Up to $1,050,000,000 principal amount at maturity
of New Notes. The terms of the New Notes and the
Old Notes are identical in all material respects,
except for certain transfer restrictions and
registration rights relating to the Old Notes and
except for certain special interest provisions
relating to the Old Notes summarized below under
"-- Summary Description of the New Notes."
The Exchange Offer......... MSAF is offering, upon the terms and subject to the
conditions of the Exchange Offer, to exchange
$1,000 principal amount of New Notes for each
$1,000 principal amount of Old Notes. See "The
Exchange Offer" for a description of the procedures
for tendering the Old Notes. The issuance of the
New Notes is intended to satisfy obligations of
MSAF contained in the Registration Agreement.
Tenders, Expiration Date;
Withdrawal................. The Exchange Offer will expire at 5:00p.m., New
York City time, on , , 1998, or
such later date and time to which it is
2
<PAGE> 9
extended. The tender of Old Notes pursuant to the
Exchange Offer may be withdrawn at any time prior
to the Expiration Date. Any Old Notes not accepted
for exchange for any reason will be returned
without expense to the tendering Holder thereof as
promptly as practicable after the expiration or
termination of the Exchange Offer.
Federal Income Tax
Consequences............... The exchange pursuant to the Exchange Offer will
not result in any income, gain or loss to the
Holders or MSAF for federal income tax purposes,
See "Certain U.S. Federal Income Tax
Considerations."
Exchange Agent............. Bankers Trust Company is serving as Exchange Agent
("EXCHANGE AGENT") in connection with the Exchange
Offer.
Shelf Registration
Statement.................. Under certain circumstances, certain holders of
Notes (including holders who may not participate in
the Exchange Offer, or who may not freely resell
New Notes received in the Exchange Offer) may
require MSAF to file, and cause to become
effective, a shelf registration statement under the
Securities Act, which would cover resales of Notes
by such holders. See "Description of Notes --
Registration Rights".
CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT TO THE EXCHANGE OFFER
Based upon interpretations contained in letters issued to third parties by
the staff of the Commission, MSAF believes that any Holder of Old Notes (other
than a broker-dealer, as set forth below, or any Holder who is an "affiliate" of
MSAF within the meaning of Rule 405 under the Securities Act) who exchanges its
Old Notes for New Notes pursuant to the Exchange Offer may offer such New Notes
for resale, resell such New Notes, or otherwise transfer such New Notes without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided such New Notes are acquired in the ordinary course of
the Holder's business and such Holder has no arrangement or understanding with
any person to participate in a distribution of such New Notes. Eligible Holders
wishing to accept the Exchange Offer must represent to MSAF in the Letter of
Transmittal that such conditions have been met and must represent, if such
Holder is not a broker-dealer, or is a broker-dealer but will not receive New
Notes for its own account in exchange for Old Notes, that neither such Holder
nor the person receiving such new Notes, if other than the Holder, is engaged in
or intends to participate in the distribution of such New Notes. Each
broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must represent that the Old Notes tendered in exchange therefor
were acquired as a result of market-making activities or other trading
activities and must acknowledge that it will deliver a prospectus in connection
with any release of such New Notes; however, by so acknowledging and by delivery
of a prospectus, the broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. See "Plan of
Distribution". To comply with the securities laws of certain jurisdictions, it
may be necessary to qualify for sale or register the New Notes prior to offering
or selling such New Notes. MSAF has agreed, pursuant to the Registration
Agreement and subject to certain specified limitations therein, to register or
qualify the New Notes held by broker-dealers for offer or sale under the
securities or blue sky laws of such jurisdictions as any such Holder reasonably
requests in writing. Unless MSAF is so requested, MSAF does not intend to take
any action to register or qualify the New Notes for resale in any such
jurisdictions. If a Holder of Old Notes does not exchange such Old Notes for New
Notes pursuant to the Exchange Offer, such Old Notes will continue to be subject
to the restrictions on transfer contained in the legend thereon. In general, the
Old Notes may not be offered or sold, unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. Any Holder who tenders
in the Exchange Offer with the intention to participate, or for the purpose of
participating, in a distribution of New Notes will not be able to rely on the
position of the staff of the Commission enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988) or similar no-action letters and, in the
absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. Failure to comply with such requirements in such
instance may result in such
3
<PAGE> 10
Holder incurring liability under the Securities Act for which the Holder is not
indemnified by MSAF. See "The Exchange Offer -- Consequences of Failure to
Exchange" and "Description of Notes -- Registration Rights."
THE NOTES
The following table summarizes certain of the principal terms of the Notes.
<TABLE>
<CAPTION>
SUBCLASS A-1 SUBCLASS A-2 SUBCLASS B-1 SUBCLASS C-1 SUBCLASS D-1
NOTES NOTES NOTES NOTES NOTES
------------- ------------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Aggregate Initial Principal Amount...... $400,000,000 $340,000,000 $100,000,000 $100,000,000 $110,000,000
Ratings
DCR.................................... AA AA A BBB BB
Moody's................................ Aa2 Aa2 A2 Baa2 Ba2
Standard & Poor's...................... AA AA A BBB BB
Interest Rate........................... LIBOR + 0.21% LIBOR + 0.35% LIBOR + 0.65% 6.90% 8.70%
Initial Loan to Value(1)................ 63.8% 63.8% 72.4% 81.0% 90.5%
Initial Loan to Assumed First Year's Net
Revenue(1)(2).......................... 5.81x 5.81x 6.60x 7.38x 8.25x
Assumed Interest Coverage Ratio(2)(3)... 2.81x 2.81x 2.32x 1.93x 1.68x
Assumed Debt Service Coverage
Ratio(2)(4)............................ 1.68x 1.68x 1.68x 1.68x 1.68x
Expected Weighted Average Life
(Years)................................ 2.0 3.8 8.6 10.6 12.1
March 15, March 15,
Expected Final Payment Date............. 2000 September 15, 2005 2013 March 15, 2013 March 15, 2014
March 15, March 15,
Final Maturity Date..................... 2023 March 15, 2023 2023 March 15, 2023 March 15, 2023
</TABLE>
- ---------------
(1) "INITIAL LOAN TO VALUE" represents the initial aggregate principal amount of
each subclass of Notes, plus the initial aggregate principal amount of any
other subclass of Notes that ranks equally or senior in priority of payment
("INITIAL LOAN"), expressed as a percentage of the aggregate Initial
Appraised Value (as of September 30, 1997) of the Initial Aircraft plus the
sum of (i) $25 million, the amount of cash held on the date of issuance of
the Old Notes, plus (ii) $20 million, the amount available to be drawn under
Eligible Credit Facilities, excluding the amount of security deposits
reimbursable to Lessees on March 3, 1998. After March 3, 1998, the loan to
value ratio will fluctuate and may be higher or lower than the Initial Loan
to Value ratio. Furthermore, acquisitions of Additional Aircraft and related
issuances of Additional Notes are not subject to loan to value ratio
conditions and, accordingly, an acquisition of Additional Aircraft may
result in an increase in loan to value ratios to levels in excess of the
Initial Loan to Value percentages set forth above.
(2) "ASSUMED FIRST YEAR'S NET REVENUE" means MSAF Group's assumed Gross Revenue
for the 12 months ending February 28, 1999 less MSAF's assumed leasing
costs, Servicer fees, Administrative Agent fees, Cash Manager fees,
Financial Advisor fees and other general and administrative costs assumed to
be incurred by MSAF in the 12 months ending February 28, 1999 in accordance
with the applicable Assumptions. See "Description of the Notes --
Assumptions". In calculating Assumed First Year's Net Revenue, it has been
assumed that MSAF Group's maintenance expenditures will exactly equal MSAF
Group's maintenance reserve receipts from the Initial Lessees. However,
actual net revenues may be significantly lower than assumed net revenues
because, among other things, the amounts payable under the Leases may not be
paid, and MSAF Group's expenses may be higher than assumed (including as a
result of maintenance expenditures being greater than anticipated).
Accordingly, the ratios presented above may be significantly lower.
(3) "ASSUMED INTEREST COVERAGE RATIO" means Assumed First Year's Net Revenue
expressed as a ratio of First Year's Interest. "FIRST YEAR'S INTEREST" means
(i) the interest assumed to be payable on each subclass of Notes and each
subclass that ranks equally with such subclass in accordance with the
Assumptions for the 12 months ending February 28, 1999, plus (ii) the
interest and minimum principal payments assumed to be payable on each
subclass of Notes that ranks senior in priority of payment to the relevant
subclass of Notes in accordance with the Assumptions for the 12 months
ending February 28,
4
<PAGE> 11
1999. For the same reasons as discussed above in Note 2, the ratios
presented above may be significantly lower. See "Description of the Notes
-- Assumptions".
(4) "ASSUMED DEBT SERVICE COVERAGE RATIO" means Assumed First Year's Net Revenue
expressed as a percentage of First Year's Interest and Minimum and Scheduled
Principal. "FIRST YEAR'S INTEREST AND MINIMUM AND SCHEDULED PRINCIPAL" means
(i) the interest and minimum and scheduled principal payments on each
subclass of Notes in accordance with the Assumptions for the 12 months
ending February 28, 1999 plus (ii) the interest and minimum and scheduled
principal payments assumed to be payable on each subclass of Notes that
ranks equally or senior in priority of payment with or to the relevant
subclass of Notes in accordance with the Assumptions for the 12 months
ending February 28, 1999. For the same reasons as discussed above in Note 2,
the ratios presented above may be significantly lower. See "Description of
the Notes -- Assumptions".
RATINGS OF THE NOTES
The ratings of the Notes address the likelihood of the timely payment of
interest and the ultimate payment of principal and premium, if any, on the Notes
as described herein. Payments of principal and interest on all subclasses of the
Notes will be payable only after any Expenses and certain other amounts have
been paid or provided for in full and only to the extent that Available
Collections are sufficient therefor in accordance with the priority of payments
established for the Notes. In addition, MSAF's ability to pay Step-Up Interest
or principal in full on the Subclass A-1 Notes on the Expected Final Payment
Date (as indicated in the table above for each subclass of Notes, the "EXPECTED
FINAL PAYMENT DATE") or on any other date prior to the Final Maturity Date (as
indicated in the table above, the "FINAL MATURITY DATE") has not been rated by
any of the Rating Agencies. The ratings assigned to the Notes do not address the
effect of any imposition of any withholding tax on any payments under the
Leases, the Notes or otherwise. See "Risk Factors -- Risks Relating to Tax".
A rating is not a recommendation to buy, sell or hold Notes inasmuch as
ratings do not comment as to market price or suitability for a particular
investor and may be subject to revision, suspension or withdrawal at any time by
the assigning Rating Agency. In the event that a rating initially assigned to
any subclass of the Notes is subsequently lowered, suspended or withdrawn for
any reason, no person or entity is obliged to provide any additional support or
credit enhancement with respect to the Notes.
5
<PAGE> 12
THE INITIAL AIRCRAFT AND LESSEES
The following pie charts summarize MSAF Group's exposure as of August 31,
1998 to various types of Initial Aircraft, Lessees, ages of Initial Aircraft,
noise restrictions applying to Initial Aircraft and the regions and countries in
which Lessees are based. All percentages have been calculated by reference to
the Initial Appraised Value (as of September 30, 1997) of the Initial Aircraft.
<TABLE>
<S> <C>
Type of Aircraft Aircraft Manufacture
Exposure to Region Exposure to Countries
Exposure to Individual Lessees Exposure of Aircraft to Noise
</TABLE>
6
<PAGE> 13
PAYMENT FLOWS(1)
PAYMENT FLOWS
- ---------------
(1) Assumes that MSAF Group does not acquire any Additional Aircraft. See "--
Summary Description of the New Notes -- Acquisition of Additional
Aircraft".
(2) MSAF may also establish additional direct and indirect subsidiaries from
time to time for the purpose of directly or indirectly leasing Aircraft
from other MSAF subsidiaries and sub-leasing them to operators where
commercial, tax or other reasons make it desirable to do so.
(3) MSAF may from time to time establish or acquire additional subsidiaries in
connection with the acquisition of Additional Aircraft from various
sellers. The acquisition of Additional Aircraft may take the form of (i)
the acquisition of individual Additional Aircraft directly by MSAF or
indirectly by one or more existing or newly-formed subsidiaries or (ii) the
acquisition by MSAF or one of its subsidiaries of the shares or other
beneficial ownership interests in one or more aircraft-owning subsidiaries
of various sellers.
7
<PAGE> 14
OVERVIEW OF PRIORITY OF PAYMENTS
The following chart summarizes the order of priority of payments on the
Notes, the Beneficial Interest and other obligations of MSAF Group as described
in more detail in "Description of the Notes -- Priority of Payments".
Overview of Priority
8
<PAGE> 15
OWNERSHIP STRUCTURE(1)
OWNERSHIP STRUCTURE
- ---------------
(1) MSAF may also establish additional direct and indirect subsidiaries from
time to time for the purpose of directly or indirectly leasing Aircraft
from other MSAF subsidiaries and sub-leasing them to operators where
commercial, tax or other reasons make it desirable to do so.
(2) The 100% Beneficial Interest is currently held by a subsidiary of Morgan
Stanley. Such subsidiary may dispose of all or a portion of such Beneficial
Interest in the future to related or unrelated persons.
(3) MSAF may from time to time establish or acquire additional subsidiaries in
connection with the acquisition of Additional Aircraft from various
sellers. The acquisition of Additional Aircraft may take the form of (i)
the acquisition of individual Additional Aircraft directly by MSAF or
indirectly by one or more existing or newly-formed subsidiaries or (ii) the
acquisition by MSAF or one of its subsidiaries of the shares or other
beneficial ownership interests in one or more aircraft-owning subsidiaries
of various sellers.
9
<PAGE> 16
SUMMARY DESCRIPTION OF THE NEW NOTES
MSAF....................... Morgan Stanley Aircraft Finance is a statutory
business trust organized under the laws of the
State of Delaware pursuant to an amended and
restated trust agreement among MS Financing Inc.,
as depositor, the Controlling Trustees, the
Independent Trustees and the Delaware Trustee,
dated as of March 3, 1998 (the "AMENDED AND
RESTATED TRUST AGREEMENT"). MSAF's principal office
is located care of the Delaware Trustee at 1100
North Market Street, Rodney Square North,
Wilmington, Delaware 19890. See "The Parties --
MSAF Group".
Payment Dates.............. Interest will be payable monthly in arrears on the
15th day of each month, commencing April 15, 1998
(each a "PAYMENT DATE"); provided that if any
Payment Date would otherwise fall on a day which is
not a Business Day, the relevant Payment Date will
be the first following day which is a Business Day.
For the purposes of the Notes, "BUSINESS DAY" means
a day on which (i) U.S. dollar deposits may be
dealt in on the London inter-bank market and (ii)
commercial banks and foreign exchange markets are
open in New York, New York and London, England. See
"Description of the Notes -- Payments".
Record Date................ The record date (the "RECORD DATE") with respect to
each Payment Date will be the close of business on
the day that is 15 days prior to such Payment Date,
whether or not such day is a Business Day. See
"Description of the Notes -- Payments".
Reference Date............. The reference date (the "REFERENCE DATE") with
respect to each Payment Date will be the day that
is two Business Days before the Payment Date on
which such Interest Accrual Period commences. See
"Description of the Notes -- Payment of Principal
and Interest -- Reference Agency Agreement".
Calculation Date........... The calculation date (the "CALCULATION DATE") with
respect to each Payment Date will be the fourth
Business Day immediately preceding each Payment
Date.
Interest Accrual Period.... The period beginning on (and including) March 3,
1998 and ending on (but excluding) the first
Payment Date and each successive period beginning
on (and including) a Payment Date and ending on
(but excluding) the next succeeding Payment Date is
called an "INTEREST ACCRUAL PERIOD"; provided that
the final Interest Accrual Period will end on but
exclude the Final Maturity Date (or, if earlier
with respect to any subclass of Notes, the date on
which such subclass of Notes is paid in full).
Account balances with respect to each Interest
Accrual Period shall be determined by reference to
the balance of funds on deposit in Accounts on the
Calculation Date immediately preceding each Payment
Date. See "Description of the Notes -- Payments".
Accrued Interest........... Accrued interest that, as a result of the
allocation of Available Collections, is not paid on
any Payment Date will bear interest at the then
current stated rate of the Notes to which such
accrued and unpaid interest relates.
Sources of Note Payments... The only source of payment for the Notes and the
other obligations of MSAF Group will be the
payments made by the Lessees under the Leases,
amounts drawn under any available credit or
liquidity enhancement facility, proceeds from
dispositions, if any, of the assets of
10
<PAGE> 17
MSAF Group, net payments, if any, under the Swap
Agreements and other hedging instruments, interest
earned on investments of cash in the Accounts and
net cash proceeds received from the sale of
Refinancing Notes. Payments of interest, principal
and premium, if any, on each subclass of Notes will
be made on each Payment Date to holders of such
subclass of Notes on the Record Date for such
Payment Date (the "NOTEHOLDERS" and, together with
the holders of the Additional Notes, the "MSAF
NOTEHOLDERS") and only to the extent of amounts on
deposit in the Collection Account on the
Calculation Date relating to each Payment Date net
of Expenses (other than Permitted Accruals in
respect of Modification Payments) then due and
payable or reasonably anticipated to become due and
payable during the next six months (the "REQUIRED
EXPENSE AMOUNT") and other amounts set forth in
"Description of the Notes -- Priority of Payments"
(the "AVAILABLE COLLECTIONS"). See "Description of
the Notes -- Priority of Payments", "Risk Factors
-- Risks Relating to Payments on the Notes" and "--
Risks Relating to the Capital Markets".
Ratings of the Notes....... Each subclass of Notes has received ratings from
Duff & Phelps Credit Rating Co. ("DCR"), Moody's
Investors Service, Inc. ("MOODY'S") and Standard &
Poor's Ratings Group, a division of The McGraw-Hill
Companies, Inc. ("STANDARD & POOR'S" and, together
with DCR and Moody's, the "RATING AGENCIES"), as
set forth above. See "Description of the Notes --
General -- Ratings".
Listing.................... The Notes were listed on the Luxembourg Stock
Exchange on March 3, 1998, in the case of the New
Notes, subject only to issuance of a Global Note
(as defined) and notice of issuance. See "Listing
and General Information".
Denominations.............. The Notes of each subclass will be available for
purchase in minimum denominations of $100,000 and
integral multiples of $1,000 in excess thereof. See
"Description of the Notes -- General".
MSAF Group................. MSAF and its subsidiaries on a combined basis. See
"The Parties -- MSAF Group".
Notes...................... MSAF will issue the New Notes pursuant to an
indenture between MSAF and Bankers Trust Company,
as trustee (the "TRUSTEE"), dated as of March 3,
1998 (the "INDENTURE"). The Class A Notes are
initially subdivided into two subclasses, the
Subclass A-1 and A-2 Notes. The Class B, C and D
Notes will initially be subdivided into one
subclass each, the Subclass B-1, C-1 and D-1 Notes.
Each of the Subclass A-1, A-2 and B-1 Notes will be
entitled to receive interest from March 3, 1998 at
a rate per annum equal to one month LIBOR on the
applicable Reference Date plus the applicable
margin set forth on the cover page of this
Prospectus. The interest rates on the Subclass A-1,
A-2 and B-1 Notes will be determined for the
initial Interest Accrual Period two Business Days
prior to the scheduled delivery thereof. The
Subclass C-1 and D-1 Notes will be entitled to
receive interest at the fixed rate per annum set
forth on the cover page of this Prospectus.
Additional subclasses of Class A and B Notes may be
issued on a fixed rate basis and additional
subclasses of Class C and D Notes may be issued on
a floating rate basis.
11
<PAGE> 18
Status of Notes;
Security................... The Notes will constitute direct obligations of
MSAF. None of the Trustee, the Security Trustee or
any Noteholder has any security interest, mortgage,
charge or other similar interest in any of the
Aircraft. The Security Trustee has been granted a
security interest in 100% of the beneficial
interest in MSA I, a Delaware statutory business
trust ("MSA I"), and in all of the issued and
outstanding capital stock of Aircraft SPC-5, Inc.,
a California corporation ("SPC-5"), and the other
subsidiaries, direct or indirect, of MSAF. The
Security Trustee has been granted a security
interest in the respective interests of each MSAF
Group member in the Leases and in leases within
MSAF Group relating to the Aircraft, in any loans
extended by MSAF to MSA I, SPC-5 and its other
subsidiaries and in any cash contained in the
Accounts. MSAF Group's ability to incur
indebtedness is limited to indebtedness required in
connection with refinancings and acquisitions of
Additional Aircraft and under credit and liquidity
enhancement facilities. See "Description of the
Notes -- Indenture Covenants -- Limitation on
Indebtedness".
MSAF will have the ability, in certain
circumstances, to refinance the Notes through the
issuance by MSAF of new notes (the "REFINANCING
NOTES"). Such Refinancing Notes will rank pari
passu with the applicable subclasses of refinanced
Notes and will never rank higher in priority than
the Class A Notes. MSAF will also have the ability
to finance the acquisition of Additional Aircraft
in part through the issuance of Additional Notes
under the Indenture. The Additional Notes may be
issued in up to four classes (Class A, Class B,
Class C and Class D, each of which may consist of
one or more subclasses) that will rank pari passu
in right of payment of principal and interest with
the corresponding classes of the Notes. See
"Description of the Notes".
Payments on the Notes...... Interest, principal and premium, if any, on each
subclass of Notes will be paid only out of
Available Collections with respect to any Interest
Accrual Period received on or prior to the
Calculation Date relating to such Interest Accrual
Period. On each Payment Date, principal will be
payable in respect of each subclass of Notes to the
extent of Available Collections, if any, on such
Payment Date but only to the extent that funds are
available for such purpose after having made the
payments ranking in priority thereto. The expected
principal payments of the Notes have been
determined on the basis of certain assumptions as
set forth under "Description of the Notes" (the
"ASSUMPTIONS"), including, inter alia, assumptions
regarding the timing and amount of payments under
the Initial Leases, assumptions regarding the terms
of and payments under Future Leases and assumptions
regarding the ability of MSAF to refinance maturing
Subclass A-1 Notes with Refinancing Notes. It is
highly likely that the Assumptions will not
correspond to actual experience and as a result the
actual principal payments received are likely to
vary from the expected principal payments in
respect of such subclass of Notes, and the actual
maturity of any subclass of Notes is likely to
occur earlier or later than its Expected Final
Payment Date. See "Description of the Notes --
Priority of Payments", "Risk Factors -- Risks
Relating to Payments on the Notes" and "-- Risks
Relating to the Capital Markets".
Step-Up Interest........... If the Subclass A-1 Notes are not repaid on or
before the Expected Final Payment Date for such
subclass, such subclass of Notes will accrue
12
<PAGE> 19
interest thereafter at a rate equal to the stated
interest rate therefor, plus 0.50% per annum
("STEP-UP INTEREST"). MSAF may also issue certain
subclasses of Additional Notes in connection with
the acquisition of Additional Aircraft and may
issue Refinancing Notes that by their terms provide
they will bear Step-Up Interest after their
Expected Final Payment Date. Payments of Step-Up
Interest will be subordinated to certain other
obligations of MSAF Group, including payment of
Scheduled Principal Payment Amounts with respect to
the Notes and will not be rated by the Rating
Agencies. See "Description of the Notes -- Payment
of Principal and Interest -- Interest".
Priority of Payments....... On each Payment Date, distributions from Available
Collections will be made in accordance with the
priority of payments set forth in "Description of
the Notes -- Priority of Payments". Payments on the
Notes will be subordinated to all fees, costs, or
expenses incurred by any MSAF Group member in the
course of the business activities permitted to be
conducted by it under the Indenture (the
"EXPENSES") and (other than interest payments on
the Class A Notes with respect to which such
amounts are ranked pari passu) certain amounts due
to parties providing interest rate swaps and other
hedging instruments (the "SWAP PROVIDERS").
Furthermore, payments of interest and principal on
the Class D Notes will be effectively subordinated
in priority of payment to payments of interest and
certain principal, respectively, on the Class A, B
and C Notes and payments of interest and principal
on the Class C Notes will be effectively
subordinated in priority of payment to payments of
interest and certain principal, respectively, on
the Class A and B Notes, and payments of interest
and principal on the Class B Notes will be
effectively subordinated in priority of payment to
payments of interest and certain principal on the
Class A Notes.
Redemption of the Notes.... Subject to certain conditions described in
"Description of the Notes -- Payment of Principal
and Interest -- Redemption", each subclass of the
Notes may be redeemed on any Payment Date (after
giving effect to Available Collections) in whole or
in part, at the "REDEMPTION PRICE" plus accrued but
unpaid interest. Within any subclass of Notes being
redeemed in part, the Redemption Price will be
applied pro rata among all such Notes.
The Redemption Price of the Subclass A-1, A-2 and
B-1 Notes redeemed (i) with the application of
funds other than Available Collections (including
proceeds from Refinancing Notes and proceeds from
third parties), will equal the product of the
applicable Redemption Premium set out below and the
principal balance of such subclass (the
"OUTSTANDING PRINCIPAL BALANCE") of Notes being
redeemed and (ii) with the application of Available
Collections, will equal the Outstanding Principal
Balance of the amount of such subclass of Notes
being redeemed, without premium.
The Redemption Price of the Subclass C-1 Notes will
equal the higher of (i) the discounted present
value of Scheduled Principal Payment Amounts and
interest on such subclass from the Redemption Date
to and including the Expected Final Payment Date
for the Subclass C-1 Notes computed by discounting
such payments at a discount rate equal
13
<PAGE> 20
to the applicable Treasury Yield plus 0.50% and
(ii) the Outstanding Principal Balance of such
subclass being redeemed.
The Redemption Price of the Subclass D-1 Notes will
equal (i) if such redemption occurs prior to March
15, 2003, the higher of (A) the discounted present
value of Scheduled Principal Payment Amounts and
interest from the Redemption Date through, but not
including, March 15, 2003, plus the product of the
applicable Redemption Premium set out below and the
assumed Outstanding Principal Balance for March 15,
2003, discounted at a rate equal to the applicable
Treasury Yield plus 1.00% and (B) the Outstanding
Principal Balance of the Notes of such subclass
being redeemed or (ii) if such redemption occurs on
or after March 15, 2003, the product of the
applicable Redemption Premium set out below and the
Outstanding Principal Balance of such subclass
being redeemed.
<TABLE>
<CAPTION>
REDEMPTION DATE REDEMPTION PREMIUM
--------------- ---------------------------------------------
SUBCLASS SUBCLASS SUBCLASS SUBCLASS
A-1 NOTES A-2 NOTES B-1 NOTES D-1 NOTES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
After March 3, 1998.......... 101.00% 102.00% 103.00% --
On or after March 15, 1999... 100.50% 101.50% 102.50% --
On or after March 15, 2000... 100.00% 101.00% 102.00% --
On or after March 15, 2001... -- 100.50% 101.50% --
On or after March 15, 2002... -- 100.00% 101.00% --
On or after March 15, 2003... -- 100.00% 100.50% 105.25%
On or after March 15, 2004... -- 100.00% 100.00% 104.50%
On or after March 15, 2005... -- 100.00% 100.00% 103.75%
On or after March 15, 2006... -- -- 100.00% 103.00%
On or after March 15, 2007... -- -- 100.00% 102.25%
On or after March 15, 2008... -- -- 100.00% 101.50%
On or after March 15, 2009... -- -- 100.00% 100.75%
On or after March 15, 2010... -- -- 100.00% 100.00%
On or after March 15, 2011... -- -- 100.00% 100.00%
On or after March 15, 2012... -- -- 100.00% 100.00%
On or after March 15, 2013... -- -- 100.00% 100.00%
On or after March 15, 2014... -- -- -- 100.00%
</TABLE>
The Notes may be redeemed on any Payment Date, in
whole, but not in part, without premium, upon the
occurrence of certain adverse tax events affecting
MSAF Group, at a Redemption Price equal to the
Outstanding Principal Balance thereof, plus accrued
and unpaid interest thereon. See "Description of
the Notes -- Payment of Principal and Interest --
Redemption".
Appraised Value............ MSAF Group has obtained from Aircraft Information
Services, Inc., BK Associates, Inc. and Airclaims
Limited (the "APPRAISERS") three desktop appraisals
(the "APPRAISALS") of the value of each of the
Initial Aircraft as of September 30, 1997. The
Appraisers ascertained the value of each Aircraft
on the basis of an open, unrestricted, stable
market environment with a reasonable balance of
supply and demand, and with full consideration of
the Aircraft's "highest and best use", presuming an
arm's-length, cash transaction between willing,
able and knowledgeable parties, acting prudently,
with an absence of duress and with a reasonable
period of time available for marketing, adjusted to
account for the maintenance status of each Aircraft
(with certain assumptions as to use since the last
reported status) (each value so ascertained for the
Aircraft, a "BASE VALUE"). None of the Appraisals
attribute any value to the Lease, the maintenance
reserves, the security deposits or the related
collateral, if any, related to the particular
Aircraft. The aggregate Initial Appraised Value of
the Initial Aircraft at
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<PAGE> 21
September 30, 1997 was $1,086.69 million. As used
herein, "INITIAL APPRAISED VALUE" means the average
of the Base Values of each of the Aircraft,
determined, in the case of the Initial Aircraft, as
of September 30, 1997 and, in the case of any
Additional Aircraft, as of a date not more than six
months prior to the closing date for the issue of
the relevant Additional Notes. An appraisal is only
an estimate of value and should not be relied upon
as a measure of realizable value. The proceeds
received upon a sale of any Aircraft are likely to
be less than, and may be significantly less than,
the Initial Appraised Value thereof. See "Risk
Factors -- Risks Relating to the Aircraft --
Cyclicality of Supply of and Demand for Aircraft;
Risk of Decline in Aircraft Values and Rental
Rates".
Leases..................... At August 31, 1998, the average remaining term to
re-lease, weighted by Initial Appraised Value
(without giving effect to Purchase Options, early
termination options or extension options), of the
Initial Aircraft was approximately 46 months. All
of the Initial Leases will expire under their terms
(without giving effect to Purchase Options, early
termination options or extension options) on or
prior to December 23, 2006. Therefore, MSAF Group
must re-lease all of the Initial Aircraft one or
more times prior to the Final Maturity Date except
to the extent that Aircraft are sold prior to the
Final Maturity Date. Other than one A310 Aircraft
which is subject to a Conditional Sale Agreement,
each Initial Lease is an operating lease for a
fixed term pursuant to which MSAF Group will retain
title to the Aircraft and substantially all of the
risks and rewards associated with ownership,
including the residual value of the Aircraft
(although nine of the Initial Leases (including the
Conditional Sale Agreement) contain, and a certain
portion of the Future Leases may contain, Purchase
Options). See "Risk Factors -- Risks Relating to
the Leases -- Re-leasing" and "The Initial Aircraft
and Leases -- The Initial Leases".
Related Collateral......... MSAF Group holds (either directly or through its
agents), (i) security deposits required to be paid
or provided by the Lessee under each Initial Lease
as security for its obligations under such Initial
Lease, both in cash and as letters of credit and
(ii) certain other letters of credit, third-party
guarantees or bank guarantees or the equivalent
thereof required under the relevant Initial Leases.
No cash maintenance reserves will be transferred to
MSAF upon acquisition of any of the Initial
Aircraft. There are no non-cash maintenance
reserves with respect to the Initial Aircraft.
ILFC Facility.............. Under a Custody and Loan Agreement between ILFC and
MSAF Group dated as of March 3, 1998 (the "ILFC
FACILITY"), ILFC holds substantially all of the
cash security deposits paid by Lessees with respect
to the Initial Aircraft and retains the interest
earnings on such security deposits. Under the ILFC
Facility, ILFC also has agreed to make loans to
MSAF for the purpose of providing MSAF with
liquidity to meet its obligations, including
certain of its obligations under the Notes. MSAF
may draw on the ILFC Facility for loans in a
maximum amount equal to $10 million plus the
aggregate amount of cash security deposits then
held by ILFC as custodian. As of June 30, 1998, the
amount available to be drawn under the ILFC
Facility was approximately $31.2 million. Such
loans shall accrue interest at 3% per annum and are
repayable, to the extent that there are Available
Collections sufficient therefor, after
15
<PAGE> 22
payment of all interest and certain principal
amounts with respect to the Notes. As of August 31,
1998, ILFC's short-term unsecured debt was rated
A-1+ by Standard & Poor's. See "Management's
Discussion and Analysis of Results of Operations
and Financial Condition -- Liquidity" for a
discussion of the ILFC Facility.
Morgan Stanley Facility.... Under a Loan Agreement dated as of March 3, 1998
between Morgan Stanley and MSAF (the "MORGAN
STANLEY FACILITY"), Morgan Stanley has agreed to
make loans to MSAF for the purpose of providing
MSAF with liquidity to meet its obligations,
including certain of its obligations under the
Notes. MSAF may draw on the Morgan Stanley Facility
for loans in a maximum amount of $10 million. Such
loans shall accrue interest at 3% per annum and are
repayable, to the extent that there are Available
Collections sufficient therefor, after payment of
all interest and certain principal amounts with
respect to the Notes. See "Management's Discussion
and Analysis of Results of Operations and Financial
Condition -- Liquidity" for a discussion of the
Morgan Stanley Facility.
Lessees.................... As of August 31, 1998, there were 28 aircraft
lessees (excluding any sub-lessees operating the
Aircraft, other than pursuant to a sub-lease from a
subsidiary of MSAF) and one engine lessee (the
"INITIAL LESSEES" and, together with the lessees in
respect of the Additional Leases, if any, and the
Future Leases, if any, the "LESSEES") of the
Initial Aircraft pursuant to the Initial Leases in
20 different countries. At August 31, 1998, six of
the Lessees each accounted for more than 5% of the
Initial Aircraft by Initial Appraised Value,
representing in aggregate approximately 34.6% of
the Initial Aircraft by Initial Appraised Value. No
Lessee accounted for more than 7% of the Initial
Aircraft by Initial Appraised Value. Certain of the
Lessees are in a weak financial condition and some
face or have recently faced serious financial
difficulties. As of August 31, 1998, two Initial
Lessees were in arrears. The aggregate amount of
Rental Payments, maintenance reserves and other
miscellaneous amounts (net of default interest and
certain cash in transit) that were in arrears with
respect to these two Lessees was approximately $1.8
million. The weighted average number of days past
due of such arrears was 28.5. See "Risk Factors --
Risks Relating to the Lessees".
Collection Account......... The "COLLECTION ACCOUNT" is the account into which
all Collections received by or on behalf of MSAF
Group in the course of conducting its business,
including payments made by Lessees under the Leases
(including payments by Lessees of Additional
Aircraft) and any amounts drawn under any credit or
liquidity enhancement facility, will be deposited.
Except as noted below, the Collection Account will
be maintained at a balance at least equal to the
Liquidity Reserve Amount. The "LIQUIDITY RESERVE
AMOUNT" may be funded with cash in the Collection
Account and amounts available to be drawn under
Eligible Credit Facilities and, as of March 3, 1998
was approximately $65.5 million and is intended to
provide a source of liquidity for (i) MSAF Group's
maintenance obligations, (ii) MSAF Group's
obligation to repay Lessee security deposits, (iii)
certain other contingencies in respect of the
Aircraft and (iv) payments of interest and
principal on the Notes. The balance of funds in the
Collection Account may fall below the Liquidity
Reserve Amount at any time and MSAF Group may
continue to make all payments which rank prior to
or pari
16
<PAGE> 23
passu with payments of the Minimum Principal
Payment Amount on the Class D Notes under
"Description of the Notes -- Priority of Payments".
See "Description of the Notes -- Accounts". The
"MINIMUM LIQUIDITY RESERVE AMOUNT" may be funded
with cash in the Collection Account and amounts
available to be drawn under Eligible Credit
Facilities and, as of March 3, 1998 was
approximately $15 million. The balance of funds in
the Collection Account may fall below the Minimum
Liquidity Reserve Amount at any time and MSAF may
continue to pay (i) Expenses, (ii) interest on the
most senior class of Notes then Outstanding to
avoid an Event of Default and (iii) Swap Payments.
The ILFC Facility and the Morgan Stanley Facility
represented approximately $31.2 million and $10
million, respectively, of the Liquidity Reserve
Amount as of March 3, 1998. The balance of the
Liquidity Reserve Amount of $25 million is funded
with cash.
Expense Account............ The "EXPENSE ACCOUNT" is the account into which the
Administrative Agent will deposit the Required
Expense Amount (other than certain Expenses
transferred directly to payees from the Collection
Account) on each Payment Date. See "Description of
the Notes -- Accounts".
Servicer................... ILFC is the lease and aircraft manager and the
re-leasing and marketing agent for the Initial
Aircraft under the Servicing Agreement. ILFC
performs certain aircraft-related services with
respect to the Initial Aircraft including marketing
the aircraft for lease or sale and monitoring
lessee compliance with lease terms including terms
relating to payment, maintenance and insurance. The
Servicer agrees to perform its services pursuant to
the Servicing Agreement with a view towards
maximizing the present value of the cash flows over
the life of the Initial Aircraft, subject to
certain conditions. If a conflict of interest
arises regarding ILFC's management of Initial
Aircraft and other assets owned or managed by ILFC,
ILFC agrees to perform the Services in good faith
and without discrimination. See "Risk Factors --
Risks Relating to MSAF Group and Certain Third
Parties -- Conflicts of Interest of ILFC".
Cash Manager............... Bankers Trust Company acts as Cash Manager (the
"CASH MANAGER") pursuant to a Cash Management
Agreement among MSAF Group, the Cash Manager and
the Security Trustee dated as of March 3, 1998 (the
"CASH MANAGEMENT AGREEMENT"). The Cash Manager
invests the funds held by MSAF Group in the
Accounts in certain prescribed investments on
permitted terms.
Administrative Agent....... Cabot acts as Administrative Agent (the
"ADMINISTRATIVE AGENT") pursuant to an
administrative agency agreement among MSAF Group,
the Administrative Agent and the Security Trustee,
dated as of March 3, 1998 (the "ADMINISTRATIVE
AGENCY AGREEMENT"). The Administrative Agent
provides certain corporate administrative, bank
account management, calculation and accounting
services to MSAF Group. See "Management of MSAF
Group -- Corporate Management". In addition, it
monitors the performance of the Servicer (including
the Servicer's compliance with the Servicing
Agreement) and reports on such performance to MSAF
Group.
Financial Advisor.......... Morgan Stanley & Co. Incorporated acts as Financial
Advisor (the "FINANCIAL ADVISOR") pursuant to a
financial advisory agreement between MSAF Group and
the Financial Advisor, dated as of March 3,
17
<PAGE> 24
1998 (the "FINANCIAL ADVISORY AGREEMENT"). The
Financial Advisor assists MSAF Group in developing
and implementing its interest rate risk management
policies and developing models for the purpose of
analyzing the financial impact of aircraft lease,
sale and capital investment decisions.
Acquisition of Additional
Aircraft................. MSAF Group may at any time acquire Additional
Aircraft and related Additional Leases. Cash flows
derived from the Additional Aircraft, if any, and
the related Leases will be available to satisfy
MSAF's payment obligations, including payments of
interest, principal and premium, if any, on the
MSAF Notes.
An acquisition of Additional Aircraft may take the
form of the acquisition of individual Additional
Aircraft and the related Additional Leases or the
acquisition of the shares of one or more
aircraft-owning subsidiaries of the sellers. There
is no limit on the value of Additional Aircraft
that may be acquired. Any acquisition of Additional
Aircraft will be subject to certain conditions
under the Indenture. See "Risk Factors -- Risks
Relating to the Aircraft -- Risks Relating to
Additional Aircraft", "The Parties -- MSAF Group",
"The Initial Aircraft and Leases -- Acquisition of
Additional Aircraft" and "Description of the Notes
-- Indenture Covenants -- Limitation on Aircraft
Acquisitions".
Issuance of Additional
Notes...................... In connection with the acquisition of Additional
Aircraft, Additional Notes may be issued in up to
four classes (Class A, Class B, Class C and Class
D, each of which will consist of one or more
subclasses) that will rank pari passu in right of
payment of principal and interest with the
corresponding class of the Notes. The Additional
Notes may be issued and sold through one or more
public offerings or private placements of
securities or otherwise. The issuance of Additional
Notes will be subject to certain conditions under
the Indenture, including, inter alia, confirmation
by the Rating Agencies that the issuance of such
notes will not result in the lowering or withdrawal
by them of their current ratings on any subclass of
MSAF Notes then outstanding. See "Description of
the Notes -- Indenture Covenants -- Limitation on
Indebtedness".
Aircraft Dispositions...... MSAF Group may sell Aircraft (i) pursuant to the
exercise of Purchase Options held by Lessees
(including the Conditional Sale Agreement), (ii)
within MSAF Group, without limitation, provided
that such sale does not materially adversely affect
the MSAF Noteholders and (iii) in other
circumstances, provided that any such sale does not
result in a default under the Indenture's portfolio
concentration limits and certain other conditions
are met, including conditions with respect to
target prices for the Aircraft. See "Description of
the Notes -- Indenture Covenants -- Limitation on
Aircraft Sales".
Operating Covenants........ MSAF Group may not enter into any Future Lease
(other than a renewal, extension or restructuring
of any Lease) unless after entering into such
Future Lease, MSAF Group is in compliance with
certain criteria in respect of, inter alia,
geographic and other concentration limits (the
"RE-LEASING GUIDELINES"); provided that MSAF Group
may enter into a Future Lease not meeting such
criteria if the Rating Agencies shall have
confirmed in writing that entering into such Lease
will not result in the lowering or withdrawal by
them of their then current ratings
18
<PAGE> 25
on any subclass of the Notes then outstanding. See
"Description of the Notes -- Operating Covenants".
Certain Taxation Matters... Neither MSAF nor any of its subsidiaries will be
obliged to make any additional payments with
respect to the Notes or any inter-company loans,
and thus no payments will be passed through to the
Noteholders, in respect of any withholding or
deduction required to be made under applicable law
from payments on the Notes or the inter-company
loans. If any withholding or deduction is required
with respect to the Notes and the Notes are not
redeemed, the net amount of interest received by
the Noteholders will be reduced by the amount of
such withholding or deduction. See "Risk Factors --
Risks Relating to Tax" and "Taxation".
Certain ERISA Matters...... The Notes are expected to be eligible for purchase
under certain circumstances by an employee benefit
plan or other plan subject to Title I of the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and/or Section 4975 of the
United States Internal Revenue Code of 1986, as
amended (the "CODE"). See "ERISA Considerations".
19
<PAGE> 26
RISK FACTORS
The following summarizes certain risks involved in an investment in the
Notes which may materially affect the ability of MSAF Group to pay the interest,
principal and premium, if any, on the Notes in full at or before their
respective Final Maturity Dates. Investors should read and carefully consider,
among other things, the following factors prior to accepting the Exchange Offer.
There can be no assurance that payments with respect to the Aircraft will
be adequate to pay the interest, principal and premium, if any, on the Notes in
accordance with their terms.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legends thereon. In general,
the Old Notes may not be offered or sold, unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. MSAF does not intend to
register the Old Notes under the Securities Act.
MSAF believes that, based upon interpretations contained in letters issued
to third parties by the staff of the Commission, New Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
or otherwise transferred by each Holder thereof (other than a broker-dealer, as
set forth below, or any such Holder which is an "affiliate" of MSAF within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such New Notes are acquired in the ordinary course of such Holder's
business and such Holder has no arrangement or understanding with any person to
participate in the distribution of such New Notes. Eligible Holders wishing to
accept the Exchange Offer must represent to MSAF in the Letter of Transmittal
that such conditions have been met and must represent, if such Holder is not a
broker-dealer, or is a broker-dealer but will not receive New Notes for its own
account in exchange for Old Notes, that neither such Holder nor the person
receiving such New Notes, if other than the Holder, is engaged in or intends to
participate in the distribution of such New Notes. If any Holder has any
arrangement or understanding with respect to the distribution of the New Notes
to be acquired pursuant to the Exchange Offer, such Holder (i) will not be able
to rely on the applicable interpretations of the staff of the Commission and
(ii) in the absence of an exemption therefrom, must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction. Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer must represent that the Old Notes
tendered in exchange therefor were acquired as a result of market-making
activities or other trading activities and must acknowledge that it will deliver
a prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with the resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. MSAF has agreed that, starting on the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution". However, to
comply with the securities laws of certain jurisdictions, if applicable, the New
Notes may not be offered or sold unless they have been registered or qualified
for sale in such jurisdictions or an exemption from registration or
qualification is available and is complied with. MSAF has agreed, pursuant to
the Registration Agreement and subject to certain specified limitations therein,
to register or qualify the New Notes for offer or sale under the securities or
blue sky laws of such jurisdictions as any holder of the Notes reasonably
requests in writing. Unless so required, MSAF does not intend to register or
qualify the sale of the New Notes in any such jurisdictions. In addition, the
tender of Old Notes pursuant to the Exchange Offer will reduce the principal
amount of the Old Notes outstanding, which may have an adverse effect upon, and
increase the volatility of, the market price of the Old Notes due to a reduction
in liquidity.
20
<PAGE> 27
EXCHANGE OFFER PROCEDURES
To participate in the Exchange Offer, and avoid the restrictions on Old
Notes, each Holder of Old Notes (which term, for purposes of the Exchange Offer,
includes any participant in the Book-Entry Transfer Facility (as defined) system
whose name appears on a security position listing as a holder of such Old Notes)
who wishes to tender Old Notes for exchange pursuant to the Exchange Offer must
transmit to the Exchange Agent on or prior to the Expiration Date either (i) a
properly completed Letter of Transmittal, or (ii) an Agent's Message (as
defined) transmitted by means of the Book-Entry Transfer Facility's ATOP system
(as defined) and received by the Exchange Agent and forming part of a Book-Entry
Confirmation, in which such Holder acknowledges and agrees to be bound by the
terms of the Letter of Transmittal. In addition, in order to deliver Old Notes
(i) a timely Book-Entry Confirmation of such Old Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the procedure for
book-entry transfer described below, must be received by the Exchange Agent
prior to the Expiration Date or (ii) the Holder must comply with the guaranteed
delivery procedures described below. See "The Exchange Offer."
RISKS RELATING TO MSAF GROUP AND CERTAIN THIRD PARTIES
HOLDING ENTITY RISK
Substantially all of the assets of MSAF are the beneficial interest in MSA
I, which owns 31 Aircraft and the spare engine, and 100% of the share capital of
SPC-5, which owns one Aircraft (collectively, the "AIRCRAFT-OWNING
SUBSIDIARIES"). None of the Trustee, the Security Trustee or any Noteholder has
any security interest in the Aircraft. Accordingly, MSAF's ability to make
payments on the Notes will be affected by the obligations of Aircraft-Owning
Subsidiaries and MSAF Group's other subsidiaries to creditors other than
Noteholders, 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.
LACK OF SECURITY INTEREST IN AIRCRAFT
As stated above, none of the Trustee, the Security Trustee or any
Noteholder has any security interest, mortgage, charge or other similar interest
in any of the Aircraft. As a result, such parties do not have available to them
certain rights upon an Event of Default which would have been available to them
had their interests in the Aircraft been secured by such assets. MSAF Group
will, however, pledge to the Security Trustee as security for MSAF's obligations
under the Notes, 100% of the beneficial interest in MSA I, 100% of the share
capital of SPC-5, all of MSAF's ownership interest in MSAF's other subsidiaries,
the respective interests of each MSAF Group member in the Leases and in leases
within MSAF Group relating to the Aircraft, any intercompany loans from MSAF to
the Aircraft-Owning Subsidiaries and any cash contained in the Accounts.
DELEGATION OF RESPONSIBILITIES
Except to the limited extent described herein, neither the Trustee nor any
Noteholder has any right to participate in the management or affairs of MSAF
Group. In particular, such parties cannot supervise the functions relating to
the Leases and the re-lease of the Aircraft, which functions have generally been
delegated to the Servicer under the Servicing Agreement. See "Management of MSAF
Group -- Corporate Management", "Description of the Notes -- Indenture
Covenants" and "-- Events of Default and Remedies".
MSAF Group will have no executive management resources of its own (although
MSAF will have a Board of Controlling Trustees) and, as such, MSAF Group will
rely upon the Servicer, the Administrative Agent, the Cash Manager, the
Financial Advisor and other service providers for all asset servicing, executive
and administrative functions pursuant to the respective service provider
agreements. While MSAF Group has retained ILFC as the Servicer, Cabot as the
Administrative Agent, Bankers Trust Company as the Cash Manager and Morgan
Stanley & Co. Incorporated as the Financial Advisor, there can be no assurance
that MSAF Group will continue its arrangements with these organizations until
the Notes are paid in full or that such organizations will continue their
relationship with MSAF Group until such time. Failure of these
21
<PAGE> 28
foregoing organizations to perform their respective contractual obligations to
MSAF Group could have a material adverse effect upon MSAF Group's operations,
which could adversely affect MSAF's ability to make payments on the Notes.
Furthermore, MSAF's ability to terminate the Servicing Agreement is limited. In
the event that the Servicer, the Administrative Agent, the Cash Manager or the
Financial Advisor were to resign or be terminated pursuant to their respective
contractual arrangements with, or on behalf of, MSAF 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 MSAF Group or that would
not cause a lowering in or withdrawal of the then current rating relating to the
Notes. The loss of the Servicer, the Administrative Agent, the Cash Manager or
the Financial Advisor under such circumstances could have a material adverse
effect on MSAF's ability to make payments on the Notes.
Accordingly, no investor should accept the Exchange Offer unless such
investor accepts the terms (summarized in this Prospectus) upon which the
various services are to be provided by the Servicer, the Administrative Agent,
the Cash Manager, and the Financial Advisor pursuant to the Servicing Agreement,
the Administrative Agency Agreement, the Cash Management Agreement and the
Financial Advisory Agreement, respectively. See "Management of MSAF Group --
Corporate Management".
CONFLICTS OF INTEREST OF ILFC
In addition to acting as Servicer with respect to the Initial Aircraft for
a term of 25 years, ILFC also participates in the management of certain aircraft
assets owned by itself, its affiliates and other third parties. ILFC will from
time to time have conflicts of interest in performing its obligations to MSAF
Group and the other entities to which it provides management services and with
respect to the aircraft for which it provides such services. Such conflicts may
be particularly acute in situations involving ILFC's or its affiliates' own
aircraft.
As of December 31, 1997, and giving effect to MSAF's acquisition of all the
Initial Aircraft, the portfolio of aircraft managed by ILFC and its affiliates
for third parties (including MSAF Group) comprised 43 aircraft and one spare
engine. The portfolio of aircraft owned by ILFC and its affiliates comprised 297
aircraft. On September 2, 1997, ILFC announced that it had placed new aircraft
orders with both Airbus Industrie G.I.E. ("AIRBUS") and The Boeing Company
("BOEING"). The order with Airbus is for 65 aircraft and the order with Boeing
is for 61 aircraft. ILFC has committed to purchase a total of 335 aircraft from
all aircraft manufacturers, deliverable through 2006.
From time to time, ILFC and its affiliates will acquire ownership or
management interests in additional new and used aircraft. ILFC and its
affiliates may also participate in the formation and operation of vehicles with
similar investment and operational objectives to those of MSAF Group. As a
result of ILFC's various interests in other aircraft assets, it is possible
that, at various times when the Initial Aircraft are being marketed for re-lease
or sale, ILFC's aircraft assets will be in competition with the Initial Aircraft
and ILFC will have conflicts of interest. Particularly acute conflicts of
interest will arise when a lessee in financial distress needs to re-lease some
of its aircraft and its fleet consists of a mixture of ILFC-owned aircraft and
ILFC-managed Initial Aircraft.
Pursuant to the terms of the Servicing Agreement, ILFC has agreed to
perform the services required thereby with reasonable care and diligence at all
times as if it were the owner of the Initial Aircraft (the "ILFC SERVICES
STANDARD"). If a conflict of interest arises regarding ILFC's management of (a)
two particular Initial Aircraft or (b) Initial Aircraft, on the one part, and
other assets then managed by ILFC, on the other part, the Servicer is required
to perform the services in good faith. To the extent that (a) the two particular
Initial Aircraft or (b) the Initial Aircraft and the other assets then managed
by ILFC 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 between (a) the Initial Aircraft
or (b) any of the Initial Aircraft and any other assets then managed by ILFC
(the "ILFC CONFLICTS STANDARD").
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<PAGE> 29
LIMITATION OF LIABILITY ON THE PART OF THE SERVICER
Pursuant to the Servicing Agreement, the Servicer will not be liable to
MSAF Group for any damages, losses, liabilities or expenses (including
reasonable legal fees, expenses and related charges and costs of investigation)
("LOSSES") arising (i) as a result of an Initial Aircraft being sold, leased or
purchased on less favorable terms than might have been achieved at any time,
provided such transactions were entered into on the basis of a commercial
decision of the Servicer, or (ii) in respect of the Servicer's obligation to
apply the ILFC Conflicts Standard in respect of its performance of the services,
except, in either situation, in the case of wilful misconduct or fraud on the
part of the Servicer. MSAF Group shall indemnify, reimburse and hold harmless
the Servicer on an after-tax basis for any Loss arising as a result of the
performance of any of the Servicer's obligations as Servicer or as a result of
any action which the Servicer is requested to take or refrain from taking by
MSAF, unless (i) such Loss has arisen as a result of the wilful misconduct of
the Servicer,(ii) such Loss has directly resulted from a breach by the Servicer
of the express terms and conditions of the Servicing Agreement or (iii) such
Loss is a Loss for which the Servicer has indemnified MSAF and its affiliates
and arises as a result of any material misstatements or omissions in any public
filings relating to information on the Initial Aircraft, the services and the
Servicer provided by the Servicer for disclosure in such public filings.
The duties and obligations of the Servicer will be limited to those
expressly set forth in the Servicing Agreement and the Servicer will not have
any fiduciary or other implied duties or obligations to MSAF Group or any other
person, including any Noteholder.
RISKS RELATING TO THE AIRCRAFT
CYCLICALITY OF SUPPLY OF AND DEMAND FOR AIRCRAFT; RISK OF DECLINE IN
AIRCRAFT VALUES AND RENTAL RATES
The aircraft leasing market is affected by various cyclical factors that
are not within the control of MSAF Group such as: interest rates, the
availability of credit, fuel costs and general economic conditions affecting
lessee operations; manufacturer production levels; passenger demand; retirement
and obsolescence of aircraft models; manufacturers merging or exiting the
industry or ceasing to produce aircraft types; re-introduction into service of
aircraft previously in storage; governmental regulation; and air traffic control
infrastructure constraints. The availability of commercial jet aircraft for
lease or sale has periodically experienced cycles of oversupply and undersupply,
producing sharp decreases and increases in aircraft values and lease rates. The
aircraft leasing market may currently be experiencing a cyclical peak but at the
times when Aircraft are being marketed for re-lease or sale, there can be no
assurance that prevailing industry conditions will allow re-lease or, where
applicable, sale, on satisfactory terms. Furthermore, there currently exists an
oversupply of certain types of used Stage 3 aircraft, in particular, certain
widebody aircraft such as the A300 and A310 of which there are four among the
Initial Aircraft, representing in aggregate 12.83% of the Initial Aircraft by
Initial Appraised Value.
In addition to general industry factors that may affect aircraft values and
lease rates, the value of specific aircraft will depend on a number of other
factors that are not within the control of MSAF Group, such as the particular
maintenance and operating history of the aircraft, the number of operators using
the type of aircraft and the supply of such type of aircraft, whether the
aircraft is subject to a Lease and any regulatory and legal requirements that
must be satisfied before the aircraft can be sold. Values of aircraft may be
adversely affected by changes in the competitive and financial position of the
relevant commercial aircraft manufacturer, by the withdrawal of such
manufacturer from that market or by unexpected manufacturing defects that may
surface subsequently. For example, the bankruptcy of Fokker N.V. in 1996 and the
discontinuation of its aircraft manufacturing operations have resulted in
significant reductions of values and lease rates for Fokker aircraft, which
reductions are likely to continue. Three Fokker 70s represent 5.01% of the
Initial Aircraft by Initial Appraised Value. Only 46 Fokker 70s were ever sold
and the potential customer base is very small. Additionally, following the
merger between Boeing and McDonnell Douglas Corporation, Boeing announced on
November 3, 1997 that it will discontinue production of MD-80 aircraft in mid
1999. This is likely to adversely affect the value and rental rates of MSAF
Group's MD-80 Aircraft. One MD-82 and two MD-83s represent in aggregate 5.59% of
the Initial Aircraft by Initial Appraised Value.
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<PAGE> 30
Currently, a significant threat to used commercial aircraft values and
lease rates is the supply effects of the significant numbers of new aircraft
ordered recently from Boeing and Airbus at discounted prices. Despite the
cyclically high demand for aircraft experienced over the last few years and the
significant consolidation in the aircraft manufacturing industry, competition
between Boeing and Airbus has resulted in decreases in the price of new aircraft
when adjusted for inflation, which in turn has led airlines and others to order
increasing quantities of new aircraft. Assuming most of the aircraft currently
on order from Boeing and Airbus are delivered, the displacement effect of such
new aircraft will depress used aircraft values and lease rates, particularly in
geographic regions such as Asia where there is currently perceived to be a
significant excess of commercial aircraft capacity. Since the most recent
cyclical low of 483 new aircraft delivered in 1995, Boeing and Airbus have both
announced and implemented increased production levels. This means that new jet
aircraft production levels are likely to increase to approximately 900 newly
delivered aircraft by 1999. This level of production is above the long-term
requirement implied by industry forecasts, including those published by Boeing
and Airbus and assumes aircraft retirements significantly in excess of those
seen historically to be sustainable. Decreases in the values and rental rates
achievable on used commercial aircraft as a result of the above factors may have
a material adverse effect on MSAF Group's operations and cash flows.
RISKS ASSOCIATED WITH APPRAISED VALUES
The Initial Appraised Value of the Initial Aircraft and the appraised
values expected to be obtained for the Initial Aircraft going forward assume an
"open, unrestricted stable market environment with a reasonable balance of
supply and demand" and certain other factors set out in the definition of Base
Value. As discussed above, at any point in the aircraft leasing market cycle,
there will be imbalances of aircraft supply and demand generally and there may
be particularly pronounced imbalances for specific aircraft types. Accordingly,
given the current peak in the cycle, certain of the Initial Aircraft may have
current market values approximating appraised Base Values while others, such as
Fokker aircraft and older Airbus equipment, have current market values that
remain below, and in certain cases significantly below, appraised Base Values.
At a cyclical low, the current market value of most aircraft types is likely to
be less than, and in many cases significantly less than, appraised Base Values.
Accordingly, investors should not place undue reliance on appraised Base Values
as an accurate representation of market or realizable values at any one point in
time.
The Scheduled Principal Payments payable on the Class A Notes will be
accelerated if there is a significantly greater than expected decline in Base
Values as demonstrated by the appraisals of the Aircraft which MSAF will obtain
at least annually. See "Description of the Notes -- Payment of Principal and
Interest -- Principal Amortization". These accelerated principal payments on the
Class A Notes may have the effect of suspending Scheduled Principal Payments on
more junior Notes and extending the weighted average lives of such junior Notes.
Investors should note that aircraft appraisers have recently been reducing their
appraised values for aircraft, reflecting the supply effects of new aircraft
orders, manufacturers' price discounting and more specific factors for certain
aircraft types such as Fokker aircraft and older widebody aircraft. See "--
Cyclicality of Supply and Demand for Aircraft; Risk of Decline in Aircraft
Values and Rental Rates". There can be no assurance that aircraft appraisers
will not reduce appraised values of the Aircraft significantly in the future
with a material adverse effect on the expected average lives of MSAF's more
junior Notes.
Any reduction in Aircraft values or rental rates may adversely affect MSAF
Group's rental rates and may adversely affect MSAF's ability to make payments on
the Notes.
TECHNOLOGICAL RISKS
MSAF 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 is
particularly significant for MSAF 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 MSAF Group is able to manage these
technological risks through modifications to Aircraft and sale of the Aircraft
is expected to be limited and any sales of
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<PAGE> 31
Aircraft will depend on MSAF Group's ability to satisfy the criteria set forth
under "Description of the Notes -- Indenture Covenants".
YEAR 2000 RISK
Many existing computer systems use only two digits to identify a year in
the date field. These systems were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000. MSAF has recently begun a process of assessing the potential impact of
this issue on its operations. Because all of its operational functions have been
delegated to the Servicer, Administrative Agent, Cash Manager and other service
providers in accordance with the terms of their respective service agreements,
MSAF has no information systems of its own. MSAF may, however, suffer a material
adverse impact on its business and results of operations if information
technology upon which the Servicer, Administrative Agent, Cash Manager and other
service providers rely is not Year 2000 compliant. The Servicer, Administrative
Agent, Cash Manager and other service providers are in the process of reviewing
their Year 2000 exposure and identifying the steps that will need to be taken to
ensure that their systems are Year 2000 compliant.
MSAF may also suffer an adverse impact on its business and results of
operations if its suppliers, financial institutions, technical advisors, Lessees
and others with which it conducts business are not Year 2000 compliant. The
Servicer is currently contacting the third parties with which it deals on behalf
of MSAF to determine the extent of such third parties' exposure to Year 2000
risks and the status of their Year 2000 compliance efforts.
In addition, aircraft and air traffic control infrastructure depend heavily
upon microprocessors and software technology. Major manufacturers, including
Boeing, have begun a Year 2000 review of the systems employed on their aircraft
and are expected to advise owners, operators and service providers of the steps
to be taken to address any Year 2000 problems that are identified. Among the
aircraft systems that have been identified as being susceptible to Year 2000 are
certain on-board aircraft management and navigation systems. The Servicer is
also contacting aircraft and aircraft parts manufacturers and suppliers to
determine the extent to which their products are Year 2000 compliant. These
efforts are still at a relatively early stage and thus, the nature and the
extent of the risks posed by the potential failure of aircraft and aircraft
control systems as a result of Year 2000 problems has not been fully determined.
Any failure of the systems employed by MSAF's Aircraft to be Year 2000 compliant
could have a material adverse effect on MSAF's business and results of
operations. Moreover, it is currently not clear whether or to what extent
manufacturers, owners or lessees will be responsible for the costs necessary to
bring aircraft systems into Year 2000 compliance.
Because the assessment of the Year 2000 risks relevant to MSAF is still at
an early stage, MSAF is currently not able to make any estimate of the amount,
if any, it may be required to spend to remediate Year 2000 problems. Such
expenditures could, however, have an adverse impact on MSAF's business and
results of operations.
AIRCRAFT TYPE CONCENTRATIONS
The Initial Aircraft include 14 aircraft types, five of which represent
together 59.80% of the Initial Aircraft by Initial Appraised Value: Boeing
767-300s constitute 18.32%, Boeing 737-300s constitute 14.18%, Boeing 757-200s
constitute 10.87%, Boeing 737-400s constitute 7.50% and Airbus A320-200s
constitute 8.93%. Also, narrowbody Aircraft constitute 58.43% of the Initial
Aircraft by Initial Appraised Value. See "The Initial Aircraft and Leases --
Portfolio Information".
RISKS RELATING TO ADDITIONAL AIRCRAFT
MSAF Group may acquire Additional Aircraft and related Additional Leases.
The cash flows derived from Additional Aircraft and Additional Leases are
expected to be, together with the cash flows derived from the Initial Aircraft
and the Initial Leases as well as any Future Leases, the principal source of
payment of interest, principal and premium, if any, on the MSAF Notes. Depending
on the extent to which MSAF Group exercises its ability to acquire Additional
Aircraft under the Indenture, the cash flows derived from Additional
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<PAGE> 32
Aircraft may become a more important source of payment for the Notes than the
cash flows derived from the Initial Aircraft. However, because the Additional
Aircraft, if any, have not been identified as of the date of this Prospectus,
the statements contained under "-- Risks Relating to the Aircraft", "-- Risks
Relating to the Leases" and "-- Risks Relating to the Lessees" are necessarily
based primarily on risks associated with the Initial Aircraft, the related
Leases and the Lessees thereunder.
The servicing arrangements with the Servicer do not apply to any Additional
Aircraft and additional servicing arrangements will need to be procured upon
acquisition of Additional Aircraft. There can be no assurance that such
additional arrangements will be with an existing servicer or on similar terms to
an existing servicing agreement.
It is expected that most, if not all, of the risks described herein will be
relevant, and may be relevant to a significantly greater extent, to any
Additional Aircraft acquired by MSAF Group. Under the Indenture, the issuance of
Additional Notes to acquire Additional Aircraft is subject to conditions that
are designed to protect the ability of MSAF to meet its obligations under the
Notes. Despite these protections, there can be no assurance that the acquisition
of Additional Aircraft and Additional Leases will not increase some or all of
the risks identified herein or expose MSAF Group to other risks not so
identified and that such increase or additional risks will not adversely affect
MSAF's ability to make payments on the Notes.
COMPETING AIRCRAFT AVAILABLE FOR LEASE; MSAF'S OPERATIONAL AND FINANCIAL
RESTRICTIONS
In connection with re-leasing of the Aircraft, MSAF Group may encounter
competition from, inter alia, other aircraft leasing companies (including ILFC),
airlines, aircraft manufacturers, aircraft owners, financial institutions,
aircraft brokers, special purpose vehicles 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 MSAF Group. MSAF Group will
be subject to restrictions in the Indenture and the constituent documents of
MSAF Group that will impair MSAF Group's operational flexibility. For instance,
MSAF will not be able to grant privileged 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. Certain competing aircraft lessors enter 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. In addition, certain competing
aircraft lessors (including ILFC) have, or have access to, financial resources
substantially greater than those of MSAF Group, may have a lower overall cost of
capital and may provide financial services or other inducements to potential
lessees that MSAF Group cannot provide. MSAF Group will also be 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 Notes.
MSAF Group's competitors may not be subject to such limitations.
RISKS RELATING TO AIRCRAFT PURCHASE OPTIONS
Six Lessees with respect to eight Initial Aircraft, representing 27.37% of
the Initial Aircraft by Initial Appraised Value, have options to purchase
(including pursuant to the Conditional Sale Agreement) such Aircraft ("PURCHASE
OPTIONS"). To the extent that the applicable purchase price is less than the
Note Target Price assumed for any such Aircraft on any option exercise date, the
Assumptions have assumed that the applicable Purchase Option will be exercised.
The present value of all amounts payable with respect to the Initial Aircraft
subject to the Conditional Sale Agreement (discounted to March 3, 1998 at 6.7%)
is approximately $8.8 million less than the Note Target Price for such Initial
Aircraft on March 3, 1998. In addition, to the extent that, at the time any
option is exercised, principal of the Notes has not been repaid in line with the
Assumptions, exercise of a Purchase Option may result in proceeds less than the
then applicable Note Target Price being realized from such exercise, which will
affect the amount and timing of principal payments to certain Noteholders and
may extend the average lives of the Notes.
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<PAGE> 33
AIRCRAFT LIENS
Liens which secure the payment of, inter alia, airport taxes, customs
duties, air navigation charges (including charges imposed by Eurocontrol),
landing charges, crew wages, repairer's charges or salvage ("LIENS") are likely,
depending on the jurisdiction in question, to attach to the Aircraft in the
normal course of operation. The sums which such Liens secure may be substantial
and may, in certain jurisdictions or for 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 MSAF Group to repossess, re-lease or sell the Aircraft. There can be
no assurance that the Lessees will comply with their obligations under the
Leases to discharge Liens arising during the terms of the Leases.
REGISTRATION OF AIRCRAFT
All of the Aircraft which are being or will be operated must be duly
registered at all times with the appropriate aviation authority. Generally,
failure to maintain the registration of any Aircraft which is on lease would be
a default under the applicable Initial Lease, entitling MSAF 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 MSAF 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.
GOVERNMENT REGULATION
In addition to the general requirements regarding maintenance of the
Aircraft, aviation authorities from time to time issue Airworthiness Directives
("ADS") requiring the operators of aircraft to take particular maintenance
actions or make particular modifications with respect to all aircraft of certain
designated types. Certain manufacturer recommendations may also be issued. To
the extent that a Lessee fails to perform ADs required to maintain its
Certificate of Airworthiness or other manufacturer requirements in respect of an
Aircraft (or if the Aircraft is not currently subject to a Lease), MSAF Group
may have to bear (or, to the extent required under the relevant Lease, share)
the cost of compliance. Other governmental regulations relating to noise and
emissions levels may be imposed not only by the jurisdictions in which the
Aircraft are registered, possibly as part of the airworthiness requirements, but
also in other jurisdictions where the Aircraft operate. A number of
jurisdictions have adopted, or are in the process of adopting, noise regulations
which ultimately will require all aircraft to comply with the most restrictive
currently applicable standards. Such regulations restrict the future operation
of aircraft that do not meet Stage 3 noise requirements and ultimately will
prohibit the operation of such aircraft in the relevant jurisdictions early in
the next century (and by December 31, 1999 in the case of the United States).
Although all of the Initial Aircraft meet Stage 3 requirements, certain of the
Additional Aircraft may not meet Stage 3 requirements. There can be no assurance
that no new ADs or more stringent noise or emissions reduction requirements will
not be adopted in the future that could result in significant costs to MSAF
Group or adversely affect the value of, or its ability to re-lease, Aircraft.
Certain organizations and jurisdictions are now considering tightening noise and
emissions certification requirements for newly manufactured aircraft.
Finally, the effects of deregulation of commercial aviation in the United
States and the European Union ("EU") where Lessees currently, or may in the
future, operate aircraft, may contribute to further uncertainty in the
commercial aviation industry.
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<PAGE> 34
RISKS RELATING TO THE LEASES
RE-LEASING
Upon termination of any Lease, the Servicer will be obligated pursuant to
the terms of the Servicing Agreement on behalf of MSAF Group to re-lease the
related Initial Aircraft. There can be no assurance, however, that MSAF Group
will be able to obtain rental payments and lease terms (including maintenance
and redelivery condition agreements) in the future comparable to those contained
in the Initial Leases. MSAF Group's ability to re-lease Initial Aircraft, as
well as its ability to obtain such rental payments and such terms, may be
adversely affected by, among other things, restrictions imposed by the
Indenture, 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
MSAF Group.
The number and types of Initial Aircraft that MSAF Group must place with
lessees through December 31, 2002 is presented in the table below, which shows
the years in which the Leases are contracted to expire (including expirations of
Leases that are assumed to result from letters of intent). The table assumes
that no Initial Lease terminates prematurely and that there are no sales of
Initial Aircraft or purchases of Additional Aircraft. See "-- Risks Relating to
the Lessees" and "-- Lease Termination and Aircraft Repossession" below. More
Initial Aircraft will need to be re-leased if any such Initial Aircraft become
available through premature terminations of Leases.
MSAF GROUP LEASE PLACEMENT REQUIREMENT AT AUGUST 31, 1998
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------------------
AIRCRAFT TYPE 1998 1999 2000 2001 2002
- ------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
A310................................................ -- 2 -- -- --
A320................................................ -- 1 -- -- --
A321................................................ -- -- 1 -- --
B737................................................ -- 1 1 3 2
B757................................................ 1 1 -- -- --
B767................................................ -- -- 1 1 --
MD82................................................ -- -- -- -- --
MD83................................................ -- -- -- 1 --
Engine.............................................. -- -- -- -- 1
</TABLE>
As illustrated by the table above, the terms of the Initial Leases with
respect to 16 Aircraft and the spare engine, representing approximately 48.11%
of the Portfolio by Initial Appraised Value, are scheduled to expire before
December 31, 2002. There can be no assurance that MSAF Group will be able to
re-lease such Initial Aircraft or any other Initial Aircraft upon the expiration
of the Initial Leases or any Future Leases without incurring significant periods
of downtime or without any adverse effect on the rental rates it is able to
obtain, especially during any period of downturn in demand for aircraft on
operating lease, and that the ability of MSAF to make payments of interest,
principal and premium, if any, on the Notes will not be adversely affected
thereby.
FUNDING OF MAINTENANCE RESERVES
The standards of maintenance observed by the various Lessees and the
condition of the Aircraft at the time of sale or lease may affect the future
values and rental rates for the Aircraft. Under the Initial 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 MSAF Group has agreed to share the cost of complying
with certain ADs and manufacturer service bulletins). Failure of a Lessee to
perform required or recommended maintenance with respect to an Aircraft during
the term of such Lease could result in a grounding of such Aircraft and is
likely
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<PAGE> 35
to require MSAF Group to incur costs, which could be substantial, to restore
such Aircraft to an acceptable maintenance condition prior to sale or
re-leasing. In most cases, the Initial Leases impose an associated liability on
the Lessor to reimburse the Lessee for maintenance performed on the related
Aircraft, based on formulas tied to the extent of any maintenance reserve
payments made by the Lessees which serve as security for the Lessee's obligation
to maintain the Aircraft. In some cases, MSAF Group is obliged to contribute to
the cost of maintenance work performed by the Lessee.
There can be no assurance that MSAF Group's operational cash flow and
available liquid resources will be sufficient to fund maintenance requirements,
particularly as the Aircraft age. Actual rental and maintenance payments by
Lessees and other cash received by MSAF Group may be significantly less than
projected as a result of numerous factors including defaults and any inability
of MSAF Group to obtain satisfactory maintenance terms in Leases. An increasing
number of aircraft operators 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 MSAF
Group to make payments of interest, principal and premium, if any, on the Notes
because MSAF Group's maintenance obligations are an Expense that ranks senior to
all payments on the Notes.
LIABILITY, LOSS AND INSURANCE
The Lessees are required under the Initial Leases to indemnify the related
lessor for, and insure against, liabilities arising out of use and operation of
the Initial Aircraft, including third party claims for death or injury to
persons and damage to property for which MSAF Group may be deemed liable. Any
insurance proceeds received by MSAF 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 standard
market hull deductibles based on aircraft type which generally range from
$500,000 to $1,000,000. There can be no assurance that one or more catastrophic
events will not exceed coverage limits. 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.
MSAF Group 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.
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
MSAF Group's ability to re-lease or sell Aircraft.
RISKS RELATING TO THE LESSEES
LESSEE DEFAULTS AND OTHER CREDIT PROBLEMS
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 MSAF 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 Lessee
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<PAGE> 36
operates and environmental and other governmental regulation of or affecting the
air transportation business. Many of MSAF Group's existing Lessees under the
Initial Leases are in a weak financial position and investors should expect this
to be the case with future Lessees of the Initial Aircraft and any Additional
Aircraft. As a result, a large proportion of Lessees over time may consistently
be significantly in arrears in their Rental Payments or maintenance payments and
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 August 31, 1998, two Initial Lessees were in arrears. The amounts
outstanding and overdue in respect of Rental Payments, Maintenance Reserves, and
other miscellaneous amounts due under the Initial Leases (net of default
interest and certain cash in transit) with respect to these two Lessees amounted
to approximately $1.8 million. The weighted average number of days past due of
such arrears was 28.5.
In addition, certain Lessees may experience periodic difficulties in
meeting their maintenance obligations under the Leases. Such difficulties may
arise 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 the 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 MSAF Group to incur costs,
which may be substantial, in restoring such Aircraft to an acceptable
maintenance condition and (c) would be likely to affect the value of the
Aircraft adversely.
The environment for airlines and freight operators has, in almost all
geographic regions, been extremely favorable in the past few years and the
current level of defaults and Lessee arrears should not be seen as
representative of the level to be expected as economic conditions deteriorate.
There can be no assurance that defaults and amounts in arrears will not
increase, and increase significantly, as the market for aircraft on operating
lease experiences its next cyclical downturn, particularly in regions such as
Asia, where demand for aircraft on operating lease has been high but where there
are soon expected to be acute economic difficulties. Increasing levels of Lessee
defaults and arrears will adversely affect MSAF's ability to make payments on
the Notes.
LESSEE CONCENTRATIONS
European Concentration
At August 31, 1998, the Lessees of 50.96% of the Initial Aircraft by
Initial Appraised Value were operators based in Europe with 38.21% based in
"developed" European markets and 12.75% based in "emerging" European markets
including Russia (using MSCI designations). See "Description of the Notes --
Operating Covenants -- Concentration Limits -- Region Covenants".
The economy of Russia has recently experienced severe economic and
financial difficulties, including the significant devaluation of the rouble
against the dollar (the currency in which lease payments are payable). The
downturn in Russia's economy is likely to undermine business confidence, reduce
demand for air travel and have an adverse impact on the results of operations of
MSAF Group's one Lessee in Russia (3.41% of the Initial Aircraft by Initial
Appraised Value).
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 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.
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Asia Pacific Region Concentration
At August 31, 1998, the Lessees of 12.89% of the Initial Aircraft by
Initial Appraised Value were based in the Asia Pacific region, including Korea,
China and Taiwan, all of which are in "emerging" markets (using MSCI
designations).
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 the region have experienced
particularly acute difficulties resulting in many business failures, significant
depreciation of local currencies against the dollar (the currency in which
Initial Lease payments are payable), sovereign and corporate credit ratings
downgrades and internationally organized financial stability measures. The
downturn in the region's economies is likely to undermine business confidence,
reduce demand for air travel and have an adverse impact on the results of
operations of MSAF Group's Lessees in the region, and consequently on MSAF
Group's revenues and cash flows. Several airlines in the region, including
certain Lessees, have recently announced their intention to reschedule their
aircraft purchase obligations, eliminate certain routes and reduce employees.
The downturn in Asia is likely to be exacerbated by the large number of aircraft
currently on order by Asian airlines. Since 1990, the Asian market has
demonstrated the most significant growth rates, albeit from a relatively smaller
base, compared with other regional markets and the recessionary conditions that
are now expected to prevail in large parts of the region for a significant
period of time will have a significant adverse impact on global aircraft demand.
In particular, one Lessee, China Airlines, may experience heightened
difficulties in the short term as a result of the crash of one of its A300
aircraft on February 16, 1998 and the consequent grounding by the Taiwanese
civil aviation authorities of all of its A300 aircraft. China Airlines is likely
to suffer a significant loss of revenue for so long as such aircraft are
grounded and, in the longer term, its business and operations may suffer from,
among other things, the negative impact on consumer confidence caused by the
crash. Among the grounded aircraft is one of the Initial Aircraft, although
under the terms of the relevant Initial Lease the Lessee is obliged to continue
to make all Rental Payments.
Latin American Concentration
At August 31, 1998, the Lessees with respect to 17.67% of the Initial
Aircraft by Initial Appraised Value were based in Latin America. As in Asia, the
prospects for Lessee operations in these countries can be expected to depend in
part on the general level of political stability and economic activity and
policies in those countries. Although certain countries in Latin America have
experienced substantial improvement in their economies in the past several years
which has resulted in increased political stability, overall increased economic
growth, lower inflation rates and revitalized economies, there can be no
assurance that such progress can be maintained or that further progress will be
made.
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. The downturn in Asia and in Russia has recently begun to
undermine business confidence in Latin America and to adversely affect the
economies of Latin American countries. Brazil has experienced significant
downturns in its financial markets, with large decreases in financial asset
prices and considerable pressure for a devaluation of the Brazilian currency.
Three of the Initial Lessees and 11.36% of the Initial Aircraft by Initial
Appraised Value operate in Brazil. The loss of confidence in the Brazilian
markets and currency has been associated with the economic crises currently
affecting "emerging markets" in Asia. The Brazilian government has responded to
these pressures with a series of austerity measures including increased interest
rates, public spending cuts and tax increases. This has led to widespread
expectations that economic growth in Brazil will be significantly reduced
through at least 1998 with the real possibility of a recession that may
adversely affect the operations of MSAF Group's Brazilian Lessees.
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North American Concentration
At August 31, 1998, the Lessees with respect to 6.47% of the Initial
Aircraft by Initial Appraised Value were based in North America. As in Europe,
the commercial aviation industry in North America 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. Over the last several
years, nearly half of the major North American passenger airlines have filed
Chapter 11 bankruptcy proceedings and several major U.S. airlines have ceased
operations altogether, including a recent former lessee of MSAF Group. While
airline profitability in the region has improved, increasing competition from
low-cost, low-fare air carriers, in conjunction with an inability to reduce
labor and other costs to sustainable levels, continues to put pressure on North
American airline margins. Of MSAF Group's two North American Initial Lessees,
one has in the past several years emerged from bankruptcy and there can be no
assurance that such Lessee will not re-enter, or that other Lessees in this
region will not enter, bankruptcy, insolvency or other similar proceedings. Such
proceedings may adversely affect the ability of such Lessees to make timely and
full Rental Payments under their respective Leases.
LEASE TERMINATION AND AIRCRAFT REPOSSESSION
MSAF Group's rights and remedies in the event of a default under each Lease
include termination and repossession. 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 MSAF Group to enforce its
rights and the relevant Aircraft may be off-lease for a prolonged period. MSAF
Group may incur direct costs associated with repossession of an Aircraft,
including legal and similar costs and the direct costs of returning the Aircraft
to an appropriate jurisdiction and any necessary maintenance to make the
Aircraft available for re-leasing or sale. Maintenance costs with respect to
repossessed aircraft may be significant. Repossession does not necessarily imply
an ability to export or deregister and profitably redeploy the Aircraft. In
cases where a Lessee or other operator flies only domestic routes, repossession
may be more difficult, especially if the jurisdiction permits the Lessee or such
other operator 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 or taxes to the extent not paid by the Lessee or other
operator. Significant costs may also be incurred in retrieving or recreating
aircraft records, required for reregistration of the Aircraft and obtaining a
Certificate of Airworthiness for the Aircraft.
MSAF 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. MSAF Group's rights upon a Lessee default also may be subject to the
limitations of applicable law, including the need to obtain a court order for
repossession of the Aircraft and/or consents for deregistration or re-export of
the Aircraft. When a defaulting Lessee is in bankruptcy, protective
administration, insolvency or similar event, additional limitations 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). Accordingly, MSAF
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 MSAF Group to incur
swap breakage costs under its agreements with Swap Providers.
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RISKS RELATING TO PAYMENTS ON THE NOTES
CASH FLOW FROM AIRCRAFT AND LEASES NOT PREDICTABLE; FAILURE OF ACTUAL
EXPERIENCE TO MATCH ASSUMPTIONS
The expected repayment of the Notes described in this Prospectus was
arrived at on the basis of the Assumptions. It is highly unlikely that the
Assumptions will be consistent with MSAF Group's experience for numerous
reasons. Any inability of MSAF Group to find financially able and willing
Lessees of the Aircraft at acceptable rental rates will affect the timing and
amount of proceeds realized from Leases of Aircraft. In addition, other economic
and political factors, such as prevailing interest rates and the availability of
credit and market demand for aircraft, 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 MSAF Group's control. Accordingly,
collections and other realizations with respect to certain Leases and Aircraft
could occur at substantially different times and levels than expected and may
not occur at all. As a result, there can be no assurance that MSAF Group will be
able to repay the initial Outstanding Principal Balance on any subclass of the
Notes.
SUBORDINATION PROVISIONS
The Expenses and certain other payments will be 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, as more fully described
below. Under certain circumstances, the rights of the Noteholders, as holders of
each subclass of Notes, to receive payments of principal in respect of such
subclass of Notes and to exercise remedies upon default will be subordinated to
the rights of the Noteholders with respect to the most senior class of Notes
then outstanding. Upon the occurrence of an Event of Default, the security
trustee (the "SECURITY TRUSTEE"), acting on behalf of the Noteholders and each
other secured creditor under a Security Trust Agreement dated as of March 3,
1998 among Bankers Trust Company, in its capacity as Security Trustee, the
Trustee and the service providers described therein (the "SECURITY TRUST
AGREEMENT"), shall have the exclusive right to direct the Administrative Agent
in the exercise of remedies. The Security Trustee will have sole discretion as
to the exercise and enforcement of any and all remedies with respect to the
Collateral. Accordingly, if an Event of Default occurs and is continuing, the
holders of each class of Notes will not be permitted to enforce certain rights
with respect to such default until all amounts owing under any Notes outstanding
("OUTSTANDING") ranking senior thereto and certain other amounts have been paid
in full.
RISKS RELATING TO THE CAPITAL MARKETS
ABSENCE OF PUBLIC MARKET
The New Notes are being offered to the holders of the Old Notes. The Old
Notes were issued to a limited number of institutional investors. The New Notes
are new securities for which there is currently no market. MSAF does not intend
to apply for listing of the New Notes on any securities exchange (other than the
Luxembourg Stock Exchange) or to seek approval for quotation through any
automated quotation system. There can be no assurance that an active public
market for the New Notes will develop. If a market for the New Notes were to
develop, future trading prices of such securities will depend upon many factors,
including general economic conditions and the financial condition, performance
and prospects of MSAF.
REFINANCING OF CERTAIN NOTES
The Subclass A-1 Notes and certain subclasses of Refinancing Notes and
Additional Notes are expected to reach their Expected Final Payment Dates before
MSAF has received sufficient Available Collections to pay all of the principal
on such Notes. MSAF will attempt to refinance the Subclass A-1 Notes and such
subclasses of Refinancing Notes and Additional Notes with the net cash proceeds
realized from public offerings and sales of Refinancing Notes. The Refinancing
Notes will rank pari passu with the remaining outstanding subclasses of Notes
belonging to the same class as the Notes to be refinanced but their interest
rate, average life, principal payment provisions, redemption provisions and
other economic terms will be determined by the Controlling Trustees of MSAF at
the time of issuance and may be substantially different
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from those applicable to the Notes to be refinanced. No assurance can be given,
however, as to MSAF's ability to refinance Notes in this manner. Any attempt to
issue Refinancing Notes 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 MSAF Group in particular. Any
failure to sell Refinancing Notes on acceptable terms at the required times will
result in failure to refinance the Subclass A-1 Notes and any similar subclass
of Refinancing Notes and Additional Notes. This may increase the overall cost of
borrowing under Refinancing Notes or Additional Notes, may affect the liquidity
and market prices of the Notes generally and may affect the timing of repayment
of principal on lower ranked Notes as a result of the need to make principal
payments from operational cash flow on the Subclass A-1 Notes and any similar
subclass of Refinancing Notes and Additional Notes earlier than expected.
CERTAIN BANKRUPTCY CONSIDERATIONS
If Morgan Stanley or any of its affiliates were to become a debtor in a
proceeding under the U.S. Bankruptcy Code and a creditor or
trustee-in-bankruptcy of such debtor or such debtor itself were to request a
court to order that the assets and liabilities of Morgan Stanley or any such
affiliate should be substantively consolidated with those of MSAF Group, delays
in payments on the Notes could result. In addition, a creditor of Morgan Stanley
or any of its affiliates may seek to attach MSAF's assets, including the
Aircraft. Should the bankruptcy court rule in favor of any such creditor or
trustee-in-bankruptcy or such debtor, such court could substantively consolidate
MSAF Group with Morgan Stanley or any such affiliate or otherwise consider MSAF
and the Aircraft-Owning Subsidiaries to be part of Morgan Stanley's or such
affiliate's estate or take other actions that would be adverse to the
Noteholders and that could result in reductions in payments on the Notes.
Davis Polk & Wardwell has delivered a reasoned opinion to Morgan Stanley
and MSAF Group to the effect that, based on various assumptions and
qualifications set forth in the opinion, in a proceeding under Chapter 11 of the
Bankruptcy Reform Act of 1978, as amended (the "U.S. BANKRUPTCY CODE") relating
to Morgan Stanley or the subsidiary of Morgan Stanley that owns the Beneficial
Interest, a court properly presented with the facts and exercising reasonable
discretion and applying New York law would not grant an order consolidating the
assets and liabilities of MSAF Group with those of Morgan Stanley or such
subsidiary.
There is no case law directly on point, however, and there can be no
assurance that a court would not decide differently from the views expressed in
counsel's opinion and such opinion represents only the best judgment of counsel
and is not binding in the courts. In particular, such opinion depends on certain
factual assumptions and the occurrence of different facts could lead a court to
reach a different conclusion. The assumptions and qualifications contained in
this opinion include an assumption that the representations and warranties set
forth in the Amended and Restated Trust Agreement and the Administrative Agency
Agreement are and will continue to be accurate and that the parties thereto will
continue to be in compliance with their obligations thereunder.
RISKS RELATING TO TAX
Neither the Trustee nor MSAF will make any additional payments to
Noteholders in respect of any withholding or deduction required to be made by
applicable law with respect to payments made on the Notes. In the event that
MSAF 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 in the event such withholding taxes
cannot be avoided. In the event any withholding taxes are imposed with respect
to the Notes and MSAF does not redeem the Notes, the net amount of interest
received by Noteholders will be reduced by the amount of the withholding or
deduction.
MSAF believes that it will not become subject to any material taxes in any
of the jurisdictions in which any of the Lessees are organized or operate under
the present tax laws of such jurisdictions. However, there can be no assurance
that other Leases to which MSAF Group may become a party as a result of the
re-leasing of the Aircraft or acquisition of Additional Aircraft will not result
in the imposition of withholding or other taxes.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), MSAF will accept for exchange Old Notes which are properly
tendered on or prior to the Expiration Date and not withdrawn as permitted
below. As used herein, the term "Expiration Date" means 5:00 p.m., New York City
time, on , 1998; provided, however, that if MSAF, in its sole
discretion, has extended the period of time for which the Exchange Offer is
open, the term "Expiration Date" means the latest time and date to which the
Exchange Offer is extended.
As of the date of this Prospectus, $1,050,000,000 aggregate initial
principal amount of the Old Notes were outstanding. This Prospectus, together
with the Letter of Transmittal, is first being sent on or about the date set
forth on the cover page hereof to all Holders of Old Notes known to MSAF. MSAF's
obligations to accept Old Notes for exchange pursuant to the Exchange Offer is
subject to certain conditions as set forth under "Certain Conditions to the
Exchange Offer" below.
MSAF expressly reserves the right, at any time or from time to time, to
extend the period of time during which the Exchange Offer is open, and thereby
delay acceptance of any Old Notes, by giving oral or written notice of such
extension to the Exchange Agent and notice of such extension to the Holders as
described below. During any such extension, all Old Notes previously tendered
will remain subject to the Exchange Offer and may be accepted for exchange by
MSAF. Any Old Notes not accepted for exchange for any reason will be credited to
an account maintained with the Book-Entry Transfer Facility without expense to
the tendering Holder thereof as promptly as practicable after the expiration or
termination of the Exchange Offer. Notwithstanding the foregoing, pursuant to
the Registration Agreement, MSAF has agreed to keep the Exchange Offer open for
not less than 20 business days after the date notice thereof is mailed to the
holders of the Old Notes (or longer if required by applicable law).
MSAF expressly reserves the right to amend or terminate the Exchange Offer,
and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified below under "Certain Conditions to the Exchange Offer." MSAF will give
oral or written notice of any extension, amendment, non-acceptance or
termination to the Holders of the Old Notes as promptly as practicable, such
notice in the case of any extension to be issued by means of a press release or
other public announcement no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the Indenture in connection with the Exchange Offer. MSAF intends to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission thereunder.
PROCEDURES FOR TENDERING OLD NOTES
The tender to MSAF of Old Notes by a Holder thereof as set forth below and
the acceptance thereof by MSAF will constitute a binding agreement between the
tendering Holder and MSAF upon the terms and subject to the conditions set forth
in this Prospectus and in the accompanying Letter of Transmittal. Except as set
forth below, a Holder (which term, for purposes of the Exchange Offer, includes
any participant in the Book-Entry Transfer Facility system whose name appears on
a security position listing as a holder of such Old Notes) who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit to the
Exchange Agent on or prior to the Expiration Date either (i) a properly
completed and duly executed Letter of Transmittal or a facsimile thereof,
including all other documents required by such Letter of Transmittal, to the
Exchange Agent at the address set forth below under "Exchange Agent" or (ii) a
computer-generated message (an "AGENT'S MESSAGE"), transmitted by means of the
Book-Entry Transfer Facility's ATOP (as defined below) system and received by
the Exchange Agent and forming part of a Book-Entry Confirmation, in which such
Holder acknowledges and agrees to be bound by the terms of the Letter of
Transmittal. In addition, in order to deliver Old Notes (i) a timely
confirmation of a book-entry transfer (a "BOOK-ENTRY CONFIRMATION") of such Old
Notes into the Exchange Agent's account at The Depository Trust Company
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<PAGE> 42
(the "BOOK-ENTRY TRANSFER FACILITY") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date or (ii) the Holder must comply with the guaranteed delivery
procedures described below.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, WITH RETURN RECEIPT
REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL SHOULD BE SENT TO MSAF.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a Holder of the Old Notes who has not
completed the box entitled "Special Issuance Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution (as defined
below). In the event that signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantees
must be by a firm which is a member of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc. or by a
commercial bank or trust company having an office or correspondent in the United
States (collectively, "ELIGIBLE INSTITUTIONS").
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
MSAF in its sole discretion, which determination shall be final and binding.
MSAF reserves the absolute right to reject any and all tenders of any particular
Old Notes not properly tendered or to not accept any particular Old Notes which
acceptance might, in the judgment of MSAF or its counsel, be unlawful. MSAF also
reserves the absolute right in its sole discretion to waive any defects or
irregularities or conditions of the Exchange Offer as to any particular Old
Notes either before or after the Expiration Date (including the right to waive
the ineligibility of any Holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer as
to any particular Old Notes either before or after the Expiration Date
(including the Letter of Transmittal and the instructions thereto) by MSAF shall
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with the tenders of Old Notes for exchange must be
cured within such reasonable period of time as MSAF shall determine. Neither
MSAF, the Exchange Agent nor any other person shall be under any duty to give
notification of any defect or irregularity with respect to any tender of Old
Notes for exchange, nor shall any of them incur any liability for failure to
give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the Holders of Old Notes, such Letter of Transmittal must be accompanied by
appropriate powers of attorney, in either case signed exactly as the name or
names of the Holders that appear on the security position listing maintained by
DTC.
If the Letter of Transmittal or powers of attorney are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
person should so indicate when signing and, unless waived by MSAF, proper
evidence satisfactory to MSAF of its authority to so act must be submitted.
By tendering (including transmission of an Agent's Message), each Holder of
Old Notes will represent to MSAF that, among other things, (i) the New Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such New Notes, whether or not such
person is such Holder, (ii) neither the Holder of Old Notes nor any such other
person has an arrangement or understanding with any person to participate in the
distribution of such New Notes, (iii) if the Holder is not a broker-dealer, or
is a broker-dealer but will not receive New Notes for its own account in
exchange for Old Notes, neither the Holder nor any such other person is engaged
in or intends to participate in the distribution of such New Notes and (iv)
neither the Holder nor any such other person is an "affiliate" of MSAF, within
the meaning of Rule 405 under the Securities Act. By tendering (including
transmission of an Agent's Message) each Holder of Old Notes that is a
broker-dealer (whether or not it is also an "affiliate") that will receive New
Notes for its own account pursuant to the Exchange Offer will represent that Old
Notes to be exchanged for New Notes were acquired by it as a result of
market-making activities or other trading activities
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<PAGE> 43
and will acknowledge that it will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of such New Notes; however,
by so acknowledging and by delivering a prospectus, it will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
MSAF will accept, promptly after the Expiration Date, all Old Notes properly
tendered and will issue the New Notes promptly after acceptance of the Old
Notes. See "Certain Conditions to the Exchange Offer" below. For purposes of the
Exchange Offer, MSAF shall be deemed to have accepted properly tendered Old
Notes for exchange when, as and if MSAF has given oral or written notice thereof
to the Exchange Agent.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of Book-Entry Confirmation of such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described below and either (i) a properly
completed and duly executed Letter of Transmittal or facsimile thereof,
including all other documents required by such Letter of Transmittal or (ii) a
properly transmitted Agent's Message. If any tendered Old Notes are not accepted
for any reason set forth in the terms and conditions of the Exchange Offer, such
unaccepted or non-exchanged Old Notes will be credited to an account maintained
with such Book-Entry Transfer Facility as promptly as practicable after the
expiration or termination of the Exchange Offer.
INTEREST ON THE NEW NOTES
Holders of Old Notes that are accepted for exchange will not receive
accrued interest thereon at the time of exchange. However, each New Note will
bear interest from the most recent date to which interest has been paid on the
Old Notes or New Notes, or if no interest has been paid on the Old Notes or New
Notes.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer promptly after the date of this Prospectus. All deliveries of Old
Notes must be made by book-entry transfer to the account maintained by the
Exchange Agent at the Book-Entry Transfer Facility. Any financial institution
that is a participant in the Book-Entry Transfer Facility's systems may make
book-entry delivery of Old Notes by causing the Book-Entry Transfer Facility to
transfer such Old Notes into the Exchange Agent's account in accordance with the
Book-Entry Transfer Facility's Automated Tender Offer Program ("ATOP")
procedures for transfer. Holders of Old Notes who are unable to deliver
confirmation of the book-entry tender of their Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility or all other documents
required by the Letter of Transmittal to the Exchange Agent on or prior to the
Expiration Date, must tender their Old Notes according to the guaranteed
delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If a Holder of the Old Notes desires to tender such Old Notes and time will
not permit such Holder's required documents to reach the Exchange Agent on or
prior to the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) on or prior to the Expiration Date, the
Exchange Agent receives from such Eligible Institution either a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof) or a
properly transmitted Agent's Message and Notice of Guaranteed Delivery,
substantially in the form provided by MSAF (by telegram, telex, facsimile
transmission, mail or hand delivery), setting forth the name and address of such
Holder of Old Notes and the amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that within five New York Stock
Exchange ("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, a Book-Entry Confirmation and all other documents required
by the Letter of Transmittal will be deposited by the Eligible Institution with
the
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Exchange Agent, and (iii) a Book-Entry Confirmation and all other documents
required by the Letter of Transmittal, are received by the Exchange Agent within
five NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, either (i) a written notice of withdrawal
must be received by the Exchange Agent at one of the addresses set forth below
under "Exchange Agent" or (ii) the appropriate procedures of the Book-Entry
Transfer Facility's ATOP system must be complied with. Any such notice of
withdrawal must specify the name of the person having tendered the Old Notes to
be withdrawn and identify the Old Notes to be withdrawn (including the principal
amount of such Old Notes). Any notice of withdrawal must specify the name and
number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn Old Notes and otherwise comply with the procedures of such
facility. All questions as to the validity, form and eligibility (including time
of receipt) of such notices will be determined by MSAF, whose determination
shall be final and binding on all parties. Any Old Notes so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Old Notes which have been tendered for exchange but which
are not exchanged for any reason will be credited to an account maintained with
Book-Entry Transfer Facility for the Old Notes as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described under "Procedures for Tendering Old Notes" above at any time on or
prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, MSAF shall not
be required to accept for exchange, or to issue New Notes in exchange for, any
Old Notes and may terminate or amend the Exchange Offer, if at any time before
the acceptance of such Old Notes for exchange or the exchange of the New Notes
for such Old Notes, such acceptance or issuance would violate applicable law or
any interpretation of the staff of the Commission.
The foregoing condition is for the sole benefit of MSAF and may be asserted
by MSAF regardless of the circumstances giving rise to such condition or may be
waived by MSAF in whole or in part at any time and from time to time in its sole
discretion. The failure by MSAF at any time to exercise the foregoing rights
shall not be deemed a waiver of any such right and each such right shall be
deemed an ongoing right which may be asserted at any time and from time to time.
In addition, MSAF will not accept for exchange any Old Notes tendered, and
no New Notes will be issued in exchange for any such Old Notes, if at such time
any stop order shall be threatened or in effect with respect to either the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended.
38
<PAGE> 45
EXCHANGE AGENT
Bankers Trust Company has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be delivered to the
Exchange Agent at one of the addresses set forth below. Questions and requests
for assistance, requests for additional copies of this Prospectus or of the
Letter of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent, addressed as follows:
Delivery To: Bankers Trust Company, as Exchange Agent
If by Mail, Hand or Overnight Courier:
Bankers Trust Company
Four Albany Street
Mail Stop 5091
New York, New York 10006
Attention: Structured Finance Group
or
If by Facsimile:
(212) 250-6439
Confirm by Telephone:
(212) 250-6549
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The principal solicitation is being made by mail; however, additional
solicitation may be made by telegraph, telephone or in person by the Financial
Advisor, on behalf of MSAF. No additional compensation will be paid to the
Financial Advisor who engages in soliciting tenders. MSAF will not make any
payment to brokers, dealers, or others soliciting acceptances of the Exchange
Offer. MSAF however, will pay the Exchange Agent reasonable and customary fees
for its services and will reimburse it for its reasonable out-of-pocket expenses
in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by MSAF and are estimated in the aggregate to be $500,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith. If, however, a transfer tax is
imposed for any reason other than the transfer of Old Notes to MSAF or its order
pursuant to the Exchange Offer, the amount of any such transfer taxes (whether
imposed on the Holder or any other person) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted, the amount of such transfer taxes will be billed directly to
such tendering Holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legends thereon. In general,
the Old Notes may not be offered or sold, unless registered under the Securities
Act,
39
<PAGE> 46
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. MSAF does not intend to
register the Old Notes under the Securities Act.
MSAF believes that, based upon interpretations contained in letters issued
to third parties by the staff of the Commission, New Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
or otherwise transferred by each Holder thereof (other than a broker-dealer, as
set forth below, or any such Holder which is an "affiliate" of MSAF within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such New Notes are acquired in the ordinary course of such Holder's
business and such holder has no arrangement or understanding with any person to
participate in the distribution of such New Notes. Eligible Holders wishing to
accept the Exchange Offer must represent to MSAF in the Letter of Transmittal
that such conditions have been met and must represent, if such Holder is not a
broker-dealer, or is a broker-dealer but will not receive New Notes for its own
account in exchange for Old Notes, that neither such Holder nor the person
receiving such New Notes, if other than the Holder, is engaged in or intends to
participate in the distribution of such New Notes. If any Holder has any
arrangement or understanding with respect to the distribution of the New Notes
to be acquired pursuant to the Exchange Offer, such Holder (i) will not be able
to rely on the applicable interpretations of the staff of the Commission and
(ii) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each broker-dealer
that receives New Notes for its own account pursuant to the Exchange Offer must
represent that the Old Notes tendered in exchange therefor were acquired as a
result of market-making activities or other trading activities and must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with the resales of New Notes received in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. MSAF has agreed
that, starting on the Expiration Date and ending on the close of business on the
180th day following the Expiration Date, it will make this Prospectus available
to any broker-dealer for use in connection with any such resale. See "Plan of
Distribution". However, to comply with the securities laws of certain
jurisdictions, if applicable, the New Notes may not be offered or sold unless
they have been registered or qualified for sale in such jurisdictions or an
exemption from registration or qualification is available and is complied with.
MSAF has agreed, pursuant to the Registration Agreement and subject to certain
specified limitations therein, to register or qualify the New Notes for offer or
sale under the securities or blue sky laws of such jurisdictions as any holder
of the Notes reasonably request in writing. Unless so requested, MSAF does not
intend to register or qualify the sale of the New Notes in any such
jurisdictions. In addition, the tender of Old Notes pursuant to the Exchange
Offer will reduce the principal amount of the Old Notes outstanding, which may
have an adverse effect upon, and increase the volatility of, the market price of
the Old Notes due to a reduction in liquidity.
40
<PAGE> 47
THE PARTIES
MSAF GROUP
MSAF is a special-purpose statutory business trust formed on October 30,
1997 under the laws of Delaware for an unlimited duration for certain limited
purposes, including owning all of the beneficial interest in or share capital
of, as applicable, the Aircraft-Owning Subsidiaries and acquiring, financing,
re-financing, owning, leasing, re-leasing, selling, maintaining and modifying
the Initial Aircraft and any Additional Aircraft. MSAF Group may also enter into
certain hedging contracts as described under "Management's Discussion and
Analysis of Results of Operation and Financial Condition -- Interest Rate
Management", and establish and provide loans or guarantees to, or in respect of,
its subsidiaries and any entities that may be established or acquired in the
future in connection with acquisitions of Additional Aircraft ("FUTURE MSAF
GROUP ENTITIES").
MSAF initially has four direct subsidiaries: MSA I (formed on October 30,
1997), in which it holds all of the beneficial interest, and SPC-5 (incorporated
on August 8, 1997), Greenfly (Ireland) Limited (incorporated on September 22,
1997), and Redfly (UK) Limited (incorporated on November 19, 1997), in each of
which it holds 100% of the capital stock.
All of the Beneficial Interest is owned by a wholly-owned subsidiary of
Morgan Stanley although such subsidiary may transfer all or a portion of such
Beneficial Interest to related or unrelated third parties in the future.
Prior to the issuance of the Old Notes, MSAF Group received approximately
$920 million in non-interest bearing loans from Morgan Stanley Financing Inc.
("MSF"), a wholly-owned subsidiary of Morgan Stanley, which were utilized to
purchase 31 of the 32 Initial Aircraft. At the time of the issuance of the Old
Notes, the loans were automatically converted into a beneficial interest. A
beneficial interest distribution of approximately $976 million was paid to MSF,
which included repayment of the interest free loans and payment of the rentals
accrued up to the date of the Offering of the Old Notes.
There are six trustees of MSAF. The Delaware Trustee is Wilmington Trust
Company. The Controlling Trustees are three individuals appointed by a
subsidiary of Morgan Stanley. The Independent Trustees are two individuals, each
of whom will not be an officer, director, employee or affiliate of Morgan
Stanley. One of the Independent Trustees is a partner of Shearman & Sterling, a
law firm that regularly provides legal services to Morgan Stanley and its
affiliates. The controlling or independent trustees or directors, as applicable,
of each Aircraft-Owning Subsidiary are the same persons as the Controlling
Trustees and the Independent Trustees, unless otherwise required by any
provisions of local law mandating a particular citizenship for trustees or
directors. Neither MSAF nor any of the Aircraft-Owning Subsidiaries has any
employees or executive officers. Accordingly, the Controlling Trustees rely upon
the Servicer, the Administrative Agent, the Cash Manager, the Financial Advisor
and the other service providers for all asset servicing, executive and
administrative functions pursuant to the respective service provider agreements.
Transactions or proceedings relating to certain insolvency proceedings of MSAF
may only be approved by a unanimous vote of all the Controlling Trustees and
Independent Trustees.
Neither MSAF nor any of its subsidiaries is involved in or subject to any
legal or arbitration proceedings relating to claims or amounts which are
material in the context of the issue of the Notes nor is MSAF aware that any
such proceedings are pending or threatened.
MSAF's registered office is located at 1100 North Market Street, Rodney
Square North, Wilmington, Delaware 19890-0001 care of Wilmington Trust Company,
attention: Corporate Trust Administration and its telephone number is
1-302-651-1000.
SERVICER
ILFC provides various aircraft-related services to MSAF Group as Servicer
under the Servicing Agreement.
41
<PAGE> 48
ILFC is engaged in the leasing and management of commercial jet aircraft
under operating leases for its own portfolio as well as for third party lessors.
As of December 31, 1997, and giving effect to MSAF Group's acquisition of all
the Initial Aircraft, the portfolio of aircraft managed by ILFC (the "ILFC
MANAGED PORTFOLIO") comprised 364 aircraft, of which ILFC and its affiliates
owned 297, valued at greater than $17 billion and operated by approximately 100
airlines in more than 49 countries throughout the world. On September 2, 1997,
ILFC announced that it had placed new aircraft orders with Airbus, for 65
aircraft, and with Boeing, for 61 Aircraft. ILFC has committed to purchase a
total of 335 aircraft from manufacturers, deliverable through 2006. In addition,
ILFC is engaged in the remarketing of commercial jets for its own account, for
airlines and for third party lessors.
ILFC is headquartered in Los Angeles, California, from where its staff of
approximately 75 employees handles all of the leasing, management and
remarketing relationships. ILFC's management services include collecting rental
payments, arranging and monitoring aircraft maintenance performed by others,
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. ILFC may also arrange the sale of its customers'
aircraft to third parties. See "Risk Factors -- Risks Relating to MSAF Group and
Certain Third Parties".
42
<PAGE> 49
The table below sets forth the different aircraft comprising the ILFC
Managed Portfolio as of December 31, 1997 by manufacturer and by whether the
aircraft are owned and managed by affiliates of ILFC or simply managed for third
parties (including MSAF Group), and giving effect to MSAF Group's acquisition of
all the Initial Aircraft as of August 31, 1998.
<TABLE>
<CAPTION>
OTHER MANAGED
AIRCRAFT TYPE AND CLASS MSAF GROUP ILFC FLEET(1) THIRD PARTIES TOTAL
----------------------- ---------- ------------- ------------- -----
<S> <C> <C> <C> <C>
Airbus
A300.................................... 1 7 -- 8
A310.................................... 3 12 -- 15
A319.................................... -- 4 1 5
A320.................................... 3 38 -- 41
A321.................................... 1 13 -- 14
A330.................................... -- 11 -- 11
A340.................................... -- 9 -- 9
Boeing
B737-300/400/500........................ 10 114 8 132
B747-200................................ -- 3 -- 3
B747-300................................ 1 2 -- 3
B747-400................................ -- 9 -- 9
B757-200................................ 3 50 -- 53
B767-200................................ 1 4 -- 5
B767-300................................ 3 32 1 36
McDonnell Douglas Corporation
MD11.................................... -- 6 -- 6
MD82.................................... 1 -- -- 1
MD83.................................... 2 7 -- 9
MD87.................................... -- 1 -- 1
Fokker N.V.
F70..................................... 3 -- -- 3
--- --- --- ---
Total................................... 32 321 10 364
=== === === ===
Body Type:
Widebody................................ 9 95 1 105
Narrowbody.............................. 23 226 9 259
Stage Compliance:
Stage 3................................. 32 321 10 364
</TABLE>
- ---------------
(1) Certain aircraft included in the ILFC fleet are owned by joint ventures or
pursuant to sale leaseback or other arrangements in which unaffiliated
parties have interests.
ADMINISTRATIVE AGENT
Cabot, an indirect wholly-owned subsidiary of Morgan Stanley, acts as
Administrative Agent to MSAF Group and will provide administrative services
including monitoring compliance by the Servicer with the Servicing Agreement and
by any servicer of Additional Aircraft under their respective servicing
agreements.
CASH MANAGER, TRUSTEE, SECURITY TRUSTEE AND REFERENCE AGENT
Bankers Trust Company acts as Cash Manager. Subject to certain limitations
and at the direction of MSAF Group, the Cash Manager is authorized to invest the
funds held by MSAF Group in the Collection Account and the Lessee Funded Account
in certain prescribed investments. Bankers Trust Company also acts as Trustee
under the Indenture, as Security Trustee under the Security Trust Agreement and
as initial Reference Agent under the Reference Agency Agreement.
FINANCIAL ADVISOR
Morgan Stanley & Co. Incorporated, a wholly owned subsidiary of Morgan
Stanley, acts as the Financial Advisor. The Financial Advisor is responsible for
assisting MSAF Group in developing and implementing its interest rate risk
management policies and developing models for the purposes of analyzing the
financial impact of Aircraft lease, sale and capital investment decisions.
43
<PAGE> 50
THE INITIAL AIRCRAFT AND LEASES
The following discussion assumes that MSAF Group takes delivery of the
Remaining Aircraft and that there are no failed deliveries or Substitute
Aircraft. See "Risk Factors -- Risks Relating to the Aircraft -- Risks Relating
to Failed Deliveries".
MSAF'S OWNERSHIP OF THE AIRCRAFT
Substantially all of the assets of MSAF consist of 100% of the beneficial
interest in MSA I, 100% of the issued and outstanding capital stock of SPC-5,
Greenfly (Ireland) Limited and Redfly (UK) Limited and certain loans made to MSA
I and SPC-5. Assuming all of the Remaining Aircraft are delivered to MSAF Group,
MSAF will indirectly own (i) the Initial Aircraft, (ii) the rights under the
related Initial Leases and (iii) cash and cash equivalents on deposit in the
Collection Account. As of September 30, 1997, the Initial Aircraft had an
Initial Appraised Value of $1,086.69 million. The Initial Appraised Value is
equal to the average of the opinions of the Appraisers as to the Base Value of
each Initial Aircraft as of September 30, 1997 without taking into account the
value of the Initial Leases, maintenance reserves or security deposits.
APPRAISERS' REPORTS
The Appraisers have provided Appraisals of the value of each of the Initial
Aircraft at normal utilization rates in an open, unrestricted and stable market
as of September 30, 1997, adjusted to account for the reported maintenance
standard of the Initial Aircraft. The Appraisals were not based on a physical
inspection of the Initial Aircraft. The Appraisals explain the methodology used
to determine the values for the Initial Aircraft. See "Risk Factors -- Risks
Relating to the Aircraft -- Risks Associated With Appraised Values". Based on
the Appraisals, the aggregate Base Values calculated by each of the three
Appraisers for the Initial Aircraft are $1,112.06 million in the case of BK
Associates, Inc., $1,128.37 million in the case of Aircraft Information
Services, Inc. and $1,019.64 million in the case of Airclaims Limited. The
Initial Appraised Values for the Initial Aircraft by type and class are set out
below. The Initial Appraised Value should not be relied upon as a measure of the
market or realizable value of any Initial Aircraft. See "Risk Factors -- Risks
Relating to the Aircraft -- Cyclicality of Supply of and Demand for Aircraft;
Risk of Decline in Aircraft Values and Rental Rates" and "-- Risks Associated
With Appraised Values".
PORTFOLIO INFORMATION
THE INITIAL AIRCRAFT
All of the Initial Aircraft 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").
44
<PAGE> 51
The following table sets forth the exposure of the Initial Aircraft by type
of aircraft calculated by reference to the number of Initial Aircraft and their
Initial Appraised Value.
<TABLE>
<CAPTION>
% OF CURRENT
NUMBER OF ENGINE PORTFOLIO BY INITIAL
MANUFACTURER TYPE OF AIRCRAFT AIRCRAFT BODY TYPE STAGE APPRAISED VALUE
- ------------ ---------------- ----------- ---------- ------ --------------------
<S> <C> <C> <C> <C> <C>
Boeing (62.74%)................ 767-200ER 1 Widebody 3 3.60%
767-300ER(1) 3 Widebody 3 18.32
757-200ER 3 Narrowbody 3 10.87
747-300B 1 Widebody 3 6.25
737-300 6 Narrowbody 3 14.18
737-400 3 Narrowbody 3 7.50
737-500 1 Narrowbody 3 2.02
Airbus (26.10%)................ A321-100 1 Narrowbody 3 4.33
A320-200 3 Narrowbody 3 8.93
A310-300 3 Widebody 3 7.83
A300-600R 1 Widebody 3 5.00
McDonnell Douglas
Corporation (5.59%).......... MD82 1 Narrowbody 3 1.75
MD83 2 Narrowbody 3 3.84
Fokker N.V.(5.01%)............. F70 3 Narrowbody 3 5.01
General Electric
Company (0.56%).............. CF6-80C2B6F engine -- 3 .56
----------- ------
Total........................ 32 + engine 100.00%
=========== ======
</TABLE>
- ---------------
(1) One of these Aircraft is not currently capable of extended range missions
but ILFC has agreed to pay for the cost of an extended range modification to
such Aircraft upon MSAF's request at any time following the termination or
expiration of the Initial Lease for such Aircraft. The Appraisals of such
Aircraft assume that such extended range modification has been carried out.
45
<PAGE> 52
The following table sets forth the exposure of the Initial Aircraft to the
Initial Lessees calculated by reference to the Initial Appraised Value of the
Initial Aircraft.
<TABLE>
<CAPTION>
% OF CURRENT
NUMBER OF PORTFOLIO BY INITIAL
LESSEE(1) AIRCRAFT APPRAISED VALUE
- --------- ----------- --------------------
<S> <C> <C>
Air Pacific Limited ("AIR PACIFIC")......................... 1 6.60%
Unijet Leisure Limited ("UNIJET")........................... 1 6.42
"VARIG", S.A. (Viacao Aerea Rio-Grandense) ("VARIG")........ 1 6.25
TransAer ("TRANSAER")....................................... 1 2.99
Asiana Airlines, Inc. ("ASIANA")............................ 1 5.30
Malev Hungarian Airlines, PLC ("MALEV")..................... 3 5.01
China Airlines, Ltd. ("CHINA AIRLINES")..................... 1 5.00
Flightlease AG ("FLIGHTLEASE")(2)........................... 2 4.84
Alaska Airlines, Inc. ("ALASKA AIRLINES")................... 1 2.73
Onur Air Tasimacilik A.S. ("ONUR AIR")...................... 1 4.33
Aerovias de Mexico, S.A. de C.V. ("AERO MEXICO")............ 1 4.14
Britannia Airways Limited ("BRITANNIA")(3).................. 1 3.60
Transaero Airlines ("TRANSAERO")............................ 1 3.41
Guyana Airways Corporation ("GUYANA AIRWAYS")............... 1 3.31
Passaredo, Transportes Aeros ("PASSAREDO")(4)............... 1 2.99
Monarch Airlines Limited ("MONARCH")........................ 1 2.97
Transavia Airlines C.V. ("TRANSAVIA")....................... 1 2.95
China Hainan Airlines ("CHINA HAINAN")...................... 1 2.58
Transportes Aereos Portugueses, S.A. ("TAP")................ 1 2.42
Flugleidir H.F. ("ICELANDAIR")(5)........................... 1 2.09
Societe D'Exploitation Aeropostale S.A. ("AEROPOSTALE")..... 1 2.02
Trans World Airlines, Inc. ("TWA").......................... 2 3.74
Air Liberte, S.A. ("AIR LIBERTE")........................... 1 1.85
Caledonian Airways ("CALEDONIAN")........................... 1 2.97
Olympic Airways ("OLYMPIC")................................. 1 2.60
Transportes Aereos Ejecutivos SA de CV ("TAESA")............ 1 2.16
Viacio Aerea Sao Paulo SA ("VASP").......................... 1 2.11
Braathans SAFE Sverige AB ("TRANSWEDE")..................... 1 2.02
Koninklijke Luchtvaart Maatschappij N.V. ("KLM")............ engine 0.56
----------- ------
Total..................................................... 32 + engine 100.00%
=========== ======
</TABLE>
- ---------------
(1) Total number of Initial Lessees = 29.
(2) As part of the recent restructuring of its business by SAir Group Ltd.
(formerly Swiss Air, Swiss Air Transport Company Ltd.) ("SWISS AIR"), the
leasehold interest in all of the aircraft previously leased by Swiss Air has
been transferred to its wholly-owned subsidiary Flightlease. The applicable
Initial Aircraft will continue to be operated by an airline affiliate of
Swiss Air.
(3) The Initial Aircraft leased to Britannia is subleased to Ansett Australia
Limited ("ANSETT").
(4) Passaredo leases the applicable Initial Aircraft from Navasota, which is
party to the Conditional Sale Agreement with MSAF Group. See "-- Initial
Leases -- Conditional Sale Agreement".
(5) The Initial Aircraft leased to Icelandair is subleased to Falcon Air AB
("FALCON").
46
<PAGE> 53
The following table sets forth the exposure of the Initial Aircraft to
countries in which the Initial Lessees are domiciled calculated by reference to
the Initial Appraised Value of the Initial Aircraft.
<TABLE>
<CAPTION>
% OF CURRENT
NUMBER OF PORTFOLIO BY INITIAL
COUNTRY(1) AIRCRAFT APPRAISED VALUE
- ---------- ----------- --------------------
<S> <C> <C>
United Kingdom.............................................. 4 15.96
United States............................................... 3 6.47
Brazil...................................................... 3 11.36
Turkey...................................................... 1 4.33
Fiji........................................................ 1 6.60
Ireland..................................................... 1 2.99
Korea....................................................... 1 5.30
Hungary..................................................... 3 5.01
Taiwan...................................................... 1 5.00
Switzerland................................................. 2 4.84
Mexico...................................................... 2 6.31
France...................................................... 2 3.87
The Netherlands............................................. 1 + engine 3.51
Russia...................................................... 1 3.41
Guyana...................................................... 1 3.31
China....................................................... 1 2.58
Portugal.................................................... 1 2.42
Iceland..................................................... 1 2.09
Greece...................................................... 1 2.60
Sweden...................................................... 1 2.02
----------- ------
Total..................................................... 32 + engine 100.00%
=========== ======
</TABLE>
- ---------------
(1) Total number of countries = 20.
The following table sets forth the exposure of the Initial Aircraft by
regions in which the Initial Lessees are domiciled calculated by reference to
number of Initial Aircraft and their Initial Appraised Value.
<TABLE>
<CAPTION>
% OF CURRENT
NUMBER OF PORTFOLIO BY INITIAL
REGION(1) AIRCRAFT APPRAISED VALUE
- --------- ----------- --------------------
<S> <C> <C>
Developed Markets
Europe.................................................... 13 + engine 38.21%
North America............................................. 3 6.47
Emerging Markets
Europe and Middle East.................................... 5 12.75
Latin America............................................. 5 17.67
Asia...................................................... 3 12.89
Other....................................................... 3 12.00
----------- ------
Total..................................................... 32 + engine 100.00%
=========== ======
</TABLE>
- ---------------
(1) Regions are defined according to MSCI designations. See "Description of the
Notes -- Operating Covenants -- Concentration Limits -- Region Covenants".
47
<PAGE> 54
The following table sets forth the exposure of the Initial Aircraft by year
of aircraft manufacture calculated by reference to the Initial Appraised Value
of the Initial Aircraft. The weighted average age of the fleet as of August 31,
1998 is approximately 7.3 years.
<TABLE>
<CAPTION>
% OF CURRENT
NUMBER OF PORTFOLIO BY INITIAL
YEAR OF MANUFACTURE AIRCRAFT APPRAISED VALUE
- ------------------- ----------- --------------------
<S> <C> <C>
1985........................................................ 2 4.84%
1986........................................................ 1 2.99
1987........................................................ 3 7.71
1988........................................................ 5 15.70
1989........................................................ 3 7.15
1990........................................................ 2 10.31
1992........................................................ 3 7.99
1993........................................................ 6 19.73
1994........................................................ 2 10.74
1995........................................................ 2 + engine 5.12
1996........................................................ 3 7.72
----------- ------
Total..................................................... 32 + engine 100.00%
=========== ======
</TABLE>
The following table sets forth the exposure of the Initial Aircraft by seat
category calculated by reference to the Initial Appraised Value of the Initial
Aircraft, excluding the spare engine and one Aircraft which is a freighter
aircraft. Passenger Aircraft are assumed to be configured with the typical
number of seats as set forth in Appendix 2.
<TABLE>
<CAPTION>
% OF CURRENT
NUMBER OF PORTFOLIO BY INITIAL
SEAT CATEGORY AIRCRAFT TYPES AIRCRAFT APPRAISED VALUE
------------- -------------- --------- --------------------
<S> <C> <C> <C>
51-120................ F-70, B737-500 4 7.04%
121-170............... B737-300/300QC/400, A320-200, MD82/83 14 34.11
171-240............... B757-200, A321-100, B767-200ER,
B767-300ER, A300-600R, A310-300 12 49.95
351+.................. B747-300 1 6.25
-- -----
Total............... 31 97.36%
== =====
</TABLE>
48
<PAGE> 55
MSAF GROUP PORTFOLIO ANALYSIS
Further particulars of the Initial Aircraft as of August 31, 1998 (except
for Initial Appraised Values, which are as of September 30, 1997) are contained
in the table below.
<TABLE>
<CAPTION>
COUNTRY ENGINE SERIAL DATE OF
REGION(1) OF INITIAL LESSEE INITIAL LESSEE TYPE CONFIGURATION NUMBER MANUFACTURE
--------- ----------------- -------------- ---- ------------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Europe.................. France Aeropostale B737-300QC CFM 56-3C1 23788 5/87
(Developed) France Air Liberte MD83 JT8D-219 49822 12/88
Greece Olympic B737-400 CFM 56-3C1 25371 1/92
Portugal TAP B737-300 CFM 56-3B2 25161 2/92
Sweden Transwede B737-500 CFM 56-3B1 25165 4/93
Switzerland Flightlease A310-300 JT9D-7R4E1 410 11/85
Switzerland Flightlease A310-300 JT9D-7R4E1 409 11/85
The Netherlands Transavia B737-300 CFM 56-3C1 27635 5/95
The Netherlands KLM engine CF6-80C2B6F 704279 6/95
United Kingdom Britannia B767-200ER CF6-80A 23807 8/87
United Kingdom Caledonian A320-200 V2500-Al 393 2/93
United Kingdom Monarch A320-200 CFM 56-5A3 279 2/92
United Kingdom Unijet B767-300ER CF6-80C2B6F 26256 4/93
Ireland TransAer A320-200 V2500-A1 414 5/93
North America........... United States Alaska Airlines B737-400 CFM 56-3C1 25104 5/93
(Developed) United States TWA MD-83 JT8D-219 49824 3/89
United States TWA MD-82 JT8D-217C 49825 3/89
Europe and
Middle East............. Hungary Malev F-70 TAY MK620-15 11569 3/96
(Emerging) Hungary Malev F-70 TAY MK620-15 11565 2/96
Hungary Malev F-70 TAY MK620-15 11564 12/95
Russia Transaero B757-200ER RB211-535-E4-37 24367 2/89
Turkey Onur Air A321-100 V2530-A5 597 5/96
Asia.................... China China Hainan B737-300 CFM 56-3C1 26295 12/93
(Emerging) Korea Asiana B767-300 CF6-80C2B6F 24798 10/90
Taiwan China Airlines A300-600R PW 4158 555 3/90
Latin America........... Brazil Varig B747-300B CF6-80C2 24106 4/88
(Emerging) Brazil Passaredo A310-300 JT9D-7R4E1 437 11/86
Brazil VASP B737-300 CFM 56-3B2 24299 11/88
Mexico Aero Mexico B757-200ER PW 2037 26272 3/94
Mexico TAESA B737-400 CFM 56-3B2 24234 10/88
Other................... Fiji Air Pacific B767-300ER CF6-80C2B4 26260 9/94
Iceland Icelandair B737-300F CFM 56-3B2 23811 10/87
Guyana Guyana Airways B757-200ER RB211-535-E4 24260 12/88
Total
<CAPTION>
INITIAL
APPRAISED
VALUE AT
SEPTEMBER 30,
1997
REGION(1) ($000'S)
--------- -------------
<S> <C>
Europe.................. $ 21,973
(Developed) 20,097
28,263
26,310
21,973
26,273
26,310
32,053
6,037
39,067
32,310
32,260
69,780
32,520
North America........... 29,713
(Developed) 21,627
19,010
Europe and
Middle East............. 18,533
(Emerging) 18,423
17,530
37,090
47,030
Asia.................... 28,073
(Emerging) 57,627
54,377
Latin America........... 67,953
(Emerging) 32,543
22,973
44,993
23,527
Other................... 71,727
22,697
36,017
----------
Total $1,086,690
==========
</TABLE>
- ---------------
(1) Regions are defined according to MSCI designations. See "Description of the
Notes -- Operating Covenants -- Concentration Limits -- Region Covenants".
ACQUISITION OF ADDITIONAL AIRCRAFT
MSAF Group may acquire additional commercial passenger or freight aircraft
from various sellers. Cash flows derived from the Additional Aircraft, if any,
and the related Leases will be available to satisfy MSAF's payment obligations,
including payments of interest, principal and premium, if any, on the Notes and
any Additional Notes. See "Risk Factors -- Risks Relating to the Aircraft --
Risks Relating to Additional Aircraft". There is no limit on the aggregate value
of Additional Aircraft that may be acquired or on the period in which such
Additional Aircraft must be acquired. Any acquisition of Additional Aircraft and
related issuance of Additional Notes will be subject to certain conditions under
the Indenture. See "Description of the Notes -- Indenture Covenants --
Limitation on Indebtedness" and "-- Limitation on Aircraft Acquisitions".
49
<PAGE> 56
INITIAL LEASES
GENERAL
All Leases of the Initial Aircraft will be managed by the Servicer pursuant
to the Servicing Agreement. References in this Prospectus to "LESSOR" will mean
the relevant subsidiary of MSAF which leases the Aircraft to the operator.
The following description relates only to the leases (the "CONTRACT
LEASES") related to the aircraft MSAF agreed to acquire pursuant to the Asset
Purchase Agreement (the "CONTRACT AIRCRAFT") (other than the Conditional Sale
Agreement with respect to one A310 Aircraft. See "-- Conditional Sale Agreement"
below). MSAF believes that the following description of the Contract Leases is
representative of the Initial Leases.
Any Additional Leases acquired in connection with the acquisition of
Additional Aircraft and any Future Leases entered into in connection with the
re-lease of any Aircraft may differ from the description of the Initial Leases
set forth below. However, any Additional Leases or Future Leases will be
required to comply with the Operating Covenants. See "Description of the Notes
- -- Operating Covenants".
Except for the Conditional Sale Agreement, the Contract Leases are all
operating leases under which MSAF generally will retain the benefit, and bear
the risk, of the residual value of the Contract Aircraft upon expiry or early
termination of the Contract Lease (although in the case of certain Contract
Aircraft MSAF has granted an option to purchase such Aircraft to the Lessee or
an affiliate and/or to extend or shorten the term of the related Lease. See "--
Lessees' Options" below). Under the Contract Leases, the Lessees have agreed to
lease the Contract Aircraft for a fixed term (but subject, in some cases, to the
aforementioned right to terminate the Lease early and/or to extend the Lease
term. See "-- Lessees' Options" below). Although the Contract Lease
documentation is fairly standardized in many respects, significant variations do
exist as a result of Lessee negotiation.
LEASE PAYMENTS AND SECURITY
Each Contract Lease requires the Lessee to pay periodic rentals during the
Lease term. Certain of the Contract Leases require the Lessee to pay periodic
amounts by way of maintenance reserves. See "-- Maintenance and Maintenance
Reserves" below.
The Lessees are required to make payments to the Lessor without set-off or
counterclaim, and each Lease includes an obligation of the Lessee to gross-up
payments under the Lease where payments are subject to certain withholding and
other taxes, although, in certain cases, such amount will be limited to the
extent of the amount that would have been payable, if any, if the Lease had
never been transferred from ILFC to MSAF Group. The Contract Leases also contain
indemnification of the Lessor for certain taxation liabilities (including, in
some Leases, value added tax and stamp duties, but generally excluding net
income tax or its equivalent imposed on the Lessor) and taxation of indemnity
payments. The Lessees also are obliged to pay default interest on any overdue
amounts. In some cases, the Lessee may exercise certain remedies if the Lessor
breaches its covenant of quiet enjoyment.
Under the Contract Leases, the Lessees are liable through various
operational indemnities for operating expenses accrued or payable during the
term of the respective Lease, which would normally include maintenance,
operating, overhaul, airport and navigation charges, certain taxes, licenses,
consents and approvals, Aircraft registration and hull all risks and public
liability insurance premiums. The Lessees are obliged to remove liens on the
Aircraft other than certain liens permitted under the Initial Leases.
Under all but three of the Contract Leases, the Lessee has provided
security for its obligations in the nature of security deposits. In the case of
29 of such Leases, the Lessee has provided cash security deposits and in the
case of the other Lease, the Lessee has provided a letter of credit. Under one
of the Leases, the Lessee has also provided a letter of credit to secure
payments to certain aviation authorities and Eurocontrol. Under one Lease, the
Lessee has procured the issuance to the Lessor of a general guarantee by its
parent company in respect of the Lessee's payment and performance obligations.
50
<PAGE> 57
RENTALS
All of the rental payments are payable on a fixed rate basis and are not
adjustable by reference to market interest rate changes. Rentals under most of
the Leases are payable monthly in advance. Rentals under the balance of the
Leases are payable quarterly in advance. One Lease requires a base rental to be
paid monthly in advance and a separate payment for flight hours flown and
revenue sector passenger flown rent to be paid monthly in arrears, subject to a
guaranteed minimum rental payable.
OPERATION OF THE CONTRACT AIRCRAFT
The Contract Leases require the Lessees to operate the Aircraft in
compliance with all laws and regulations applicable to the Aircraft. The
Aircraft generally must remain in the possession of the Lessees, and any
subleases of the Aircraft generally must be approved by the Lessor. Under most
of the Leases, the Lessees may enter into charter or "wet lease" arrangements in
respect of the Aircraft (i.e., a lease with crew and services provided by the
Lessee), provided the Lessee does not part with operational control of the
Aircraft. Under certain Leases, the Lessee is permitted to enter into subleases
to specified operators without the Lessor's consent, provided certain conditions
are met. As of the date of this Prospectus, Britannia subleases its Aircraft to
Ansett and Icelandair subleases its Aircraft to Falcon.
All of the Contract Leases permit the Lessees to subject the engines, and
other equipment or components in certain cases, to removal or replacement and,
in certain cases, to pooling arrangements (temporary borrowing of equipment), in
some cases with permitted entities (which may include certain manufacturers,
suppliers, other airlines or aircraft operators) without the Lessor's consent
but subject to conditions and criteria set forth in the Lease. Under all of the
Contract Leases, the Lessees may deliver possession of the Aircraft, engines and
other equipment or components to the manufacturer thereof for testing or similar
purposes, or to a third party for service, maintenance, repair or other work
required or permitted under the Lease. The Lessor's ability to repossess the
Aircraft or engines, equipment or components from any such sublessee,
transferee, manufacturer, or other person may be restricted by liens or similar
rights of detention and by applicable bankruptcy and insolvency laws.
MAINTENANCE AND MAINTENANCE RESERVES
The Contract Leases contain detailed provisions specifying maintenance
standards and the required condition of the Aircraft upon redelivery. In
addition, under certain of the Leases, depending upon the specific maintenance
condition of the Aircraft or specified items (airframe, engines, certain
components, auxiliary power unit or landing gear) at redelivery, the Lessee may
be required to make certain adjustment payments to the Lessor. During the term
of each Lease, the Lessee is required to ensure that the Aircraft is maintained
in accordance with an agreed maintenance program designed to ensure that the
Aircraft meets applicable airworthiness and other regulatory requirements in the
jurisdiction in which the Aircraft is registered or, in the case of the Contract
Lease for the spare engine (the "ENGINE LEASE"), the jurisdiction of the Lessee.
Under the Contract Leases, the agreed maintenance program is generally performed
by the Lessee. Under most of the Leases, the Lessee is required to provide
monthly maintenance reserves. In cases where the Lessee has paid maintenance
reserves, such payments are used to reimburse the Lessee for significant
maintenance charges, including major airframe and engine overhauls.
Under the balance of the Contract Leases there is no provision for the
payment of maintenance reserves. In these cases the Lessor must rely on the
credit of the Lessee or, if available, any credit support, and the ability of
the Lessee to return the Aircraft in the condition required by the Lease upon
termination, to make any required payments based on the Aircraft's return
condition upon termination of the related Lease and to perform scheduled
maintenance throughout the Lease term.
The Lessees are required under the Contract Leases to comply with ADs of
the applicable aviation authorities specified in the Leases and with
manufacturer's service bulletins and the Lessees primarily bear the cost of
compliance. However, under some of the Leases, the Lessor may be required by the
Lease to contribute to the cost of certain ADs or manufacturer's service
bulletins or to the cost above a specified threshold.
51
<PAGE> 58
LESSEES' OPTIONS
Purchase Options with respect to nine of the Contract Aircraft have been
granted to Lessees (or affiliates) pursuant to either the applicable Lease or a
separate purchase option agreement. Five of the Purchase Options are presently
exercisable. The duration of some Purchase Options depends on whether the Lessee
exercises a separate option to extend the Lease. Assuming that all Lease
extension options are exercised, the latest date on which a Purchase Option may
be exercised is June 8, 2008 for a purchase on March 8, 2009. Under the
Assumptions, none of the Contract Aircraft (other than the Aircraft subject to
the Conditional Sale Agreement) is subject to a Purchase Option where the
purchase price is less than the Note Target Price for such Contract Aircraft on
the earliest exercise date. Upon the exercise of a Purchase Option, in two cases
the Lessor is relieved of an obligation to contribute to the costs of complying
with ADs and, conversely, in seven cases the Leases provide that the Lessor
refund unused maintenance reserves and/or security deposits to the Lessee.
Fifteen of the Contract Leases include options for the Lessee to extend the
term of the Lease (including in one Lease an extension which could accommodate a
D-check (a major overhaul of the airframe which occurs every 5 to 8 years and
usually costs between $1.0 million to $4.0 million depending on the aircraft
type, condition and age)) and one other Lease allows the Lessee to extend the
term solely to accommodate a D-check. The rent payable during the extension
period under these Leases varies from Lease to Lease. Seven of the Leases
contain provisions under which the relevant Lessee may terminate its Lease prior
to its scheduled expiration date, subject, in certain instances, to specified
conditions and the payment of a fee.
The Engine Lease has no purchase option. The term of the Engine Lease may
be extended by five successive one-year terms which have not yet been exercised.
At the end of the fifth and sixth years of the term, the Lessee may terminate
the Engine Lease with 12 months' notice and payment of a fee.
CONDITIONAL SALE AGREEMENT
MSAF Group has entered into a conditional sale agreement (the "CONDITIONAL
SALE AGREEMENT") with Navasota Holdings Inc., a British Virgin Islands
corporation ("NAVASOTA"), pursuant to which MSAF Group will be obliged, assuming
that Navasota complies with its payment and other obligations, to transfer title
to an A310 Aircraft on December 15, 2003, although Navasota may prepay all
purchase price instalments under the Conditional Sale Agreement at any time.
Navasota has entered into an operating lease (the "PASSAREDO LEASE") with
Passaredo. All payments under both the Conditional Sale Agreement and the
Passaredo Lease are unconditionally guaranteed by six Brazilian tour operators
for whose benefit Passaredo will use the Aircraft to operate charter flights.
The present value of all amounts payable with respect to the A310 Aircraft
(discounted to March 3, 1998 at 6.7%) is $8.8 million less than the Note Target
Price for such Contract Aircraft on March 3, 1998.
INDEMNIFICATION AND INSURANCE OF THE AIRCRAFT
GENERAL
The Lessees are required under the Initial Leases to bear responsibility
(through an operational indemnity) and carry 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. In addition,
the Lessees are required to carry other types of insurance that are customary in
the air transportation industry, including all risks aircraft hull and hull war
risks insurance (in each case at a value stipulated in the relevant Lease,
subject to adjustment in certain circumstances) and aircraft spares insurance
(on a replacement cost basis), in each case subject to customary deductibles.
The Servicer is required to monitor the performance of the obligations of the
Lessees with the insurance provisions of the Initial Leases. In addition, MSAF
Group also has in place its own contingent liability coverage. This operates
both to cover a liability that is in excess of the coverage provided by a
Lessee's policy and where a Lessee's policy lapses for any reason (including an
early termination of a Lease and repossession of an Aircraft). MSAF's contingent
third-party liability insurance covers all of the Aircraft and its contingent
hull and hull war risks insurance covers certain of the Aircraft. The amount of
such contingent
52
<PAGE> 59
liability policies may or may not be the same as required under the relevant
Lease. The amount of third-party contingent liability insurance is subject to
certain limitations imposed by the air transportation insurance industry.
In the event that any of the existing insurance policies are canceled or
terminated and in the case of the re-lease of an Aircraft, MSAF may from time to
time engage insurance experts, to advise and recommend to ILFC, as Servicer, the
appropriate amount of insurance coverage MSAF should procure.
LIABILITY INSURANCE
Third party liability insurance is required under the Initial Leases for a
combined single limit for bodily injury and property damage in minimum amounts
ranging between $250 million and $1.25 billion for each Initial Aircraft. In
general, liability coverage on each Initial Aircraft includes third party legal
liability, passenger legal liability, baggage legal liability, cargo legal
liability, mail and aviation general third party (including products) legal
liability.
In some jurisdictions liabilities for risks that are insured against by the
Lessees also may attach to MSAF Group as owner of the Initial Aircraft
irrespective of whether it is in any way responsible for the loss for which
liability is asserted. In addition, claimants may assert claims against MSAF
Group on the basis of alleged responsibility for a loss, even if such claim is
not ultimately sustained. Under the Initial Leases, the Lessees are currently
obligated to indemnify the Lessor against claims, including the costs of
defending against such claims, by third parties against them for such
liabilities while the Initial Aircraft are owned by MSAF and under lease to the
Lessees.
The indemnified losses include both operating costs relating to the actual
operation of the Initial Aircraft as well as losses to persons and property
resulting from the operation of the Initial Aircraft. The latter types of losses
are generally covered by the Lessees' liability insurance.
AIRCRAFT PROPERTY INSURANCE
In addition to liability insurance, the Lessees are obligated under the
Initial Leases to carry other types of insurance that are customary in the air
transportation industry, including all risks aircraft hull and hull war risks
insurance (in each case at a value stipulated in the relevant Lease, subject to
adjustment in certain circumstances) and aircraft spares insurance (on a
replacement cost basis), in each case subject to customary deductibles. In
addition to such stipulated lease value coverage obtained by the Lessees, MSAF
Group has also purchased declining "total loss only" coverage with respect to
certain Initial Aircraft. As of January 10, 1998, in no case was the sum of the
stipulated lease value and MSAF Group's additional coverage in place for all
risks aircraft hull and hull war risks insurances less than 96% of the Initial
Appraised Value of the applicable Initial Aircraft, and on average the sum of
such coverages in place for each Initial Aircraft was approximately 118% of the
Initial Appraised Value of the applicable Initial Aircraft. In most cases, the
Lessor is permitted to increase the insured value above the stipulated lease
value consistent with industry practice with the Lessee being responsible for
any increased premium that results. Permitted deductibles range from $500,000 to
$1,000,000; however, the deductible generally applies only in the case of a
partial loss. In the case of a total loss of an Initial Aircraft, no deductible
would be applied against the insurance proceeds received.
The Initial Leases include provisions defining an event of loss or a
casualty occurrence such that where a total loss of the airframe occurs, with or
without loss of the engines installed on the airframe, the agreed value is
payable by the Lessee. This payment is generally funded with insurance proceeds.
However, the air transportation insurance industry practice is to treat only a
loss of greater than 75% of the value of the Aircraft, including the engines, as
a total loss. In such a case, the Lessee would be responsible for the payment of
the difference between the insurance proceeds and the stipulated Lease value.
Where insurance proceeds do cover a total loss, most Leases require the Lessor
to pay to the Lessee the balance of the insurance proceeds received under the
hull all risks or war risks policy after deduction of all amounts payable by the
Lessee to the Lessor under the Lease.
53
<PAGE> 60
All insurance certificates contain a breach of warranty endorsement so that
the additional insureds continue to be protected even if the Lessee violates one
or more of the terms, conditions or warranties of the insurance policies,
provided that such additional insured has not caused, contributed to or
knowingly condoned such breach.
The insurance advisor will confirm to MSAF Group, inter alia, that the
insurance requirements currently detailed in the insurance certificates meet
customary practices.
The Leases require the Lessee to maintain as part of its hull war and
allied perils insurance coverage for confiscation or requisition of the
applicable Initial Aircraft (including confiscation or requisition by the
relevant state of registration), although in certain countries (including France
and the People's Republic of China) such insurance may not be obtainable.
THE LESSEES
As of August 31, 1998, there were 29 Initial Lessees in 20 different
countries.
PAYMENT HISTORY
As a general matter, weakly capitalized airlines are more likely than well
capitalized airlines to seek operating leases and at any point in time,
investors should expect varying numbers of Lessees to be experiencing payment
difficulties.
As of August 31, 1998, two Initial Lessees were in arrears. The amounts
outstanding and overdue in respect of Rental Payments, Maintenance Reserves and
other miscellaneous amounts due under the Initial Leases (net of default
interest and certain cash in transit) with respect to these two Lessees amounted
to approximately $1.8 million representing 17.4% of average monthly revenue. The
weighted average number of days past due of such arrears was 28.5.
In certain cases, MSAF Group may respond to the needs of Lessees in
financial difficulty including, in certain instances, restructuring the
applicable Leases. Such restructurings may involve reduced rental payments for a
specified period (which may be several months). In addition, certain
restructurings may involve the voluntary termination of a Lease prior to its
expiration and the arrangement of subleases from the Lessee to another aircraft
operator.
DESCRIPTION OF THE INITIAL LESSEES
The table below sets forth certain available information with respect to
the country of domicile, first year of operation, service type, nature of
ownership and fleet size and composition of each Initial Lessee. See "--
Portfolio Information" above for additional tables setting forth the exposure of
the Initial Aircraft (as a percentage of Initial Appraised Value) to each
Initial Lessee and the countries in which the Initial Lessees are domiciled.
<TABLE>
<CAPTION>
BEGAN SERVICE OPERATING
LESSEE DOMICILE OPERATION TYPE OWNERSHIP FLEET(1)
- ------ -------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Aero Mexico Mexico 1934 Scheduled Cintra (90%) 7 B757-200
Staff (10%) 2 B767-200ER
2 B767-300ER
2 DC-9-31
15 DC-9-32
10 MD-82
8 MD-83
3 MD-87
10 MD-88
Aeropostale France 1986 Scheduled, Groupe Air France (50%) 2 B727-200F
Chartered and Groupe La Poste (50%) 4 B737-200C
Postal 15 B737-300QC
</TABLE>
54
<PAGE> 61
<TABLE>
<CAPTION>
BEGAN SERVICE OPERATING
LESSEE DOMICILE OPERATION TYPE OWNERSHIP FLEET(1)
- ------ -------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Air Pacific Fiji 1951 Scheduled Government of Fiji (72%) 1 B737-300
Qantas (18%) 1 B737-500
Air New Zealand (2%) 1 B747-200B
Others (including 1 B767-300ER
EIE Corp.) (3%)
Pacific Islands
governments (5%)
Air Liberte France 1987 Scheduled and British Airways (67%) 3 B737-200
Chartered Banque Rivaud (33%) 2 DC-10-30
1 DC-10-30ER
8 MD-83
Alaska Airlines United States 1932 Scheduled Public (100%) 28 B737-400
4 B737-200C
4 B737-200QC
10 MD-82
31 MD-83
Asiana Republic of Korea 1988 Scheduled and Kumho Group (62%) 19 B737-400
Chartered Korean Development Bank 4 B737-500
(13%) 8 B747-400
Korea Long Term Credit 3 B747-400F
Bank (6%) 8 B767-300
Pacific Investment Capital 8 B767-300ER
(19%)
Britannia United Kingdom 1961 Chartered Thomson Travel Holdings 19 B757-200
(100%) 4 B767-200EM
2 B767-200ER
3 B767-300ER
Caledonian United Kingdom 1969 Chartered Inspirations plc (100%) 1 DC-10-30
5 A320-230
1 TriStar-1
4 TriStar-100
1 DC-10-30
1 TriStar-50
China Airlines Republic of China 1959 Scheduled and China Civil Aviation 10 A300-620R
(Taiwan) Chartered Development Foundation 6 A300-B4-220
(82%) 6 B737-400
Other (18%) 8 B747-200
6 B747-400
1 B747-SP
1 MD-11
2 Beechjet 400
China Hainan People's Republic 1991 Scheduled and Corporate (including 6 B737-300
of China Executive China Southern Airlines, 4 B737-400
Charters American Aviation 9 Fairchild-23
Investment and 1 Learjet-55
Hainan Island) (75%) 1 Learjet-60
Individuals (20%)
People's Republic of China
(5%)
</TABLE>
55
<PAGE> 62
<TABLE>
<CAPTION>
BEGAN SERVICE OPERATING
LESSEE DOMICILE OPERATION TYPE OWNERSHIP FLEET(1)
- ------ -------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Flightlease Switzerland 1931 Scheduled Swiss Air (100%) 8 A310-320
8 A319-110
18 A320-210
8 A321-110
2 B747-200F
5 B747-300
1 DC-10
15 MD-11
Guyana Airways Guyana 1939 Scheduled and Government of Guyana 1 B757-200
Chartered (100%) 2 DHC-6 Twin Otter
Icelandair Iceland 1937 Scheduled and Public (100%) 1 B737-300F
Chartered 4 B737-400
5 B757-200
KLM The Netherlands 1919 Scheduled Dutch Government (25%) 19 B737-300
Public (75%) 19 B737-400
10 B747-200B
1 B747-200SF
3 B747-300
19 B747-400
10 B767-300ER
9 MD-11
Malev Hungary 1946 Scheduled and Government of Hungary (64%) 6 B737-200A
Chartered Alitalia (30%) 4 B737-300
SIMEST (5%) 2 B737-400
Employees (1%) 2 B767-200ER
5 F70
3 TV-134
7 TV-154
Monarch United Kingdom 1967 Scheduled and Cosmos Guide Holding 4 A300-600R
Chartered International NV (100%) 7 A320-210
6 B757-200
1 DC10-30
1 A321-230
Olympic Greece 1957 Scheduled Government (100%) 2 A300-600R
11 B737-200
4 B747-200B
7 B737-400
1 A300-B4-200
2 B727-200
1 B737-300
5 A300-B4-100
Onur Air Turkey 1992 Scheduled Ten Tour International and 4 A300-B4-100
Marmara (100%) 1 A320-210
2 A320-230
3 A321-130
5 MD-88
Passaredo Brazil 1995 Scheduled Passaredo Group (100%) 3 EMB-120-QC
</TABLE>
56
<PAGE> 63
<TABLE>
<CAPTION>
BEGAN SERVICE OPERATING
LESSEE DOMICILE OPERATION TYPE OWNERSHIP FLEET(1)
- ------ -------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
TAESA Mexico 1987 Scheduled and Alberto Abed (60%) 1 B727-100C
Chartered Abed family (10%) 1 B727-100
Others (10%) 1 Falcon-900
2 Learjet 25-B
1 Learjet 31-A
1 Learjet 35-A
2 Gulfstream II
1 Gulfstream IV
3 Jetstar-8
1 Jetstar-731
2 B737-200
2 DC-9-14
2 DC-9-15
1 Jetstar-II
1 Challenger-601-3A
1 C550&C551-550
1 B727-200
2 B737-300
1 B757-200
1 Learjet-24D
TAP Portugal 1945 Scheduled Government (61%); 5 A310-300
Swiss Air (10%); 6 A319-110
SPAC and Others (29%) 6 A320-210
1 A320-230
7 B737-300
3 B737-200Adv
TransAer Ireland 1991 Chartered Translift Holding (100%) 1 A300-B4-200
2 A320-230
1 B727-200Adv
Transaero Russia 1990 Scheduled and Aeroflot (5%) 1 An-124
Chartered Employees (15%) 3 B737-200A
Other (including 5 B757-200
Moscow City Government, 1 I1-86
Ilyushin and Yakovlev 3 DC-10-30
Design Bureaux,
State Property
Committee, Aeronavigatsiya
State Research Institute
and Aerotrans Dispatcher
Service Centre) (80%)
Transavia The Netherlands 1965 Scheduled and KLM (80%) 12 B737-300
Chartered PARNIB Holding NV (20%) 4 B757-200
Transwede SAFE Sverige Sweden 1985 Scheduled Braathens (100%) 4 Fokker 100
AB 1 B737-300
</TABLE>
57
<PAGE> 64
<TABLE>
<CAPTION>
BEGAN SERVICE OPERATING
LESSEE DOMICILE OPERATION TYPE OWNERSHIP FLEET(1)
- ------ -------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
TWA United States 1930 Scheduled Public (50%) 15 B727-200
Employees (45%) 18 B727-200A
Prince Al-Waleed bin Talal 9 B747-100
(5%) 3 B747-200B
15 B757-200
12 B767-200EM
2 B767-300ER
7 DC-9-15
18 DC-9-31
14 DC-9-32
1 DC-9-33CF
3 DC-9-34
3 DC-9-41
12 DC-9-51
1 MD-81
37 MD-82
31 MD-83
Unijet United Kingdom 1992 Charter British Air Transport 2 A320-200
Holdings Ltd. (100%) 1 A321-200
2 B767-300ER
Varig Brazil 1927 Scheduled Rio Grande do Sul 1 B727-100C
State Government (1%) 2 B727-100F
Ruben Berta Foundation 2 B727-100QC
(55%) 30 B737-300
Public (44%) 19 B737-200A
1 B747-200SF
5 B747-300
6 B767-200ER
6 B767-300ER
7 DC-10-30
2 DC-10-30F
9 MD-11
VASP Brazil 1933 Scheduled Canhedo Group (60%) 3 A300-B2-200FF
Varig (12.75) 6 B737-200
1 B737-200F
1 B737-200C
12 B737-200
1 B737-200C
3 B737-300
1 B727-200
3 B727-200F
9 MD-11GE
1 MD-11-73CF
</TABLE>
- ---------------
(1) Source: Airclaims Limited.
58
<PAGE> 65
THE COMMERCIAL AIRCRAFT INDUSTRY
INTRODUCTION
The demand for air travel as measured by the number of fare paying
passengers carried multiplied by the distance flown in miles (revenue passenger
miles ("RPMS")) has increased since 1970 in every year but one, 1991, in which
there was a decline of 3.1% principally due to a worldwide economic slowdown
exacerbated by the Gulf War.
As shown below on the table entitled "WORLD TRAFFIC GROWTH" (excluding
domestic CIS), the compound annual growth rate in RPMs from 1970 to 1997 was
approximately 6.8%. However, the rate of increase varies regionally. In the
period since 1990 the highest rates of annual increase in RPMs have been on
certain routes in Asia, although these growth rates are expected to suffer as a
result of the economic crises that have recently affected many of the Asian
economies. The lowest rates of annual increase in RPMs have been on domestic
routes within the United States and Europe. Asia constitutes 23.8% of the world
market, as measured by RPMs in 1996, and the United States and Europe represent
37.1% and 25.8%, respectively.
WORLD TRAFFIC GROWTH
<TABLE>
<CAPTION>
ANNUAL GROWTH
WORLD TRAFFIC WORLD TRAFFIC
YEAR IN RPMS IN RPMS
- ---- ------------- -------------
(BILLIONS) (%)
<S> <C> <C>
1970........................................................ 287 --
1980........................................................ 645 8.4
1990........................................................ 1,154 6.0
1991........................................................ 1,118 (3.1)
1992........................................................ 1,236 10.6
1993........................................................ 1,282 3.7
1994........................................................ 1,398 9.0
1995........................................................ 1,494 6.9
1996........................................................ 1,605 7.4
1997........................................................ 1,716 6.9
</TABLE>
- ---------------
Source: Airline Monitor.
Demand for air travel has been cyclical as the rate of growth has
historically been most influenced by global and regional economic growth and a
decline in the real cost of air travel. However, other factors can also have an
impact on demand such as global and regional political instability or a sharp
rise in the cost of jet fuel for example. In the long term, technological
developments in the field of transport and communications like high-speed rail
travel and video-conferencing may also have an adverse impact on growth.
DEMAND FOR AIRCRAFT
The demand for air travel as evidenced by the growth in RPMs is met by the
availability of aircraft capacity (as measured typically by available seat miles
("ASMS")). Over time, an increase in RPMs will lead to an increase in ASMs as
new aircraft capacity is added to the world fleet to meet the increased demand.
The other primary factor contributing to the demand for aircraft is the need to
replace aircraft that are retired at the end of their useful economic lives or
are written off for other reasons, including casualties or technical
obsolescence as a result of noise or emission legislation such as the Stage 2
bans introduced in the United States and the European Union.
Over the last four years, new capacity grew at a slower rate than demand,
which has led to a significant reduction in the number of used aircraft
available for lease or sale and ultimately to an increase in the number of new
aircraft ordered from the manufacturers. However, higher load factors and to a
lesser extent, utilization rates over the last five years have resulted in a
lower increase in demand than the change in RPMs would have
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historically indicated. In addition, the number of aircraft retired has remained
low over this period as aircraft have continued in service longer than
previously expected.
The cyclicality of aircraft supply and demand can be illustrated by
reference to the number of aircraft in the world fleet that are available for
sale or lease ("AOG"), as shown in the following table.
PERCENTAGE OF WORLD FLEET
AIRCRAFT AVAILABLE FOR SALE OR LEASE (WESTERN-BUILT AIRCRAFT)
<TABLE>
<CAPTION>
TOTAL AIRCRAFT
IN WORLD AIRCRAFT AVAILABLE % OF
AIRLINE FLEET(1) FOR SALE OR LEASE TOTAL
---------------- ------------------- -----
<S> <C> <C> <C>
1990................................................ 8,912 545 6.1
1991................................................ 9,326 727 7.8
1992................................................ 9,992 661 6.6
1993................................................ 10,514 705 6.7
1994................................................ 10,991 534 4.9
1995................................................ 11,377 473 4.2
1996................................................ 11,803 279 2.4
1997................................................ 12,271 333 2.7
</TABLE>
- ---------------
Source: Airline Monitor.
(1) Excludes aircraft owned privately, by governments, brokers or manufacturers
There are three basic categories of passenger jet aircraft; regional jets,
narrowbody aircraft, which have a single aisle, and widebody aircraft, with twin
aisles.
Regional jets typically have a seating capacity of 35-100 seats and are
used in service to replace turbo-props on very short-haul, domestic routes.
These routes average less than 500 nautical miles. An example of a regional jet
is the Fokker 70.
Narrowbody aircraft currently have a seating capacity of approximately 100
to 250 and typically are used to service short and medium-haul routes. While
such routes may extend up to 3,500 nautical miles, they average between 500 and
1,500 nautical miles. Examples would be the B737 series of aircraft as well as
the A320, the MD-80 series and the B757.
Widebody aircraft currently have a seating capacity of approximately 200 to
450 and are used typically to service long-haul routes of greater than 3,500
nautical miles, although some operators also use widebody aircraft to service
short to medium-haul routes with high passenger densities relative to airport
capacity. Examples would be the B747, B767, A300 and A310 series of aircraft.
Commercial freighter aircraft are almost all variants of passenger models,
and many freighter aircraft are conversions of aircraft previously in passenger
service.
THE WORLD FLEET OF COMMERCIAL JET AIRCRAFT (EXCLUDING AIRCRAFT MANUFACTURED IN
THE CIS)
There were, as of December 31, 1997, 13,038 aircraft of all types in
service of which 12,271 were operated by commercial airlines. Approximately
three-quarters of the aircraft are narrowbody aircraft with the balance being
widebody aircraft.
Of the narrowbody aircraft in operation, approximately 20% were more than
25 years old and are expected to be replaced over the next 10 years. The two
remaining large (i.e., non-regional) aircraft manufacturers, Airbus and Boeing,
continue to upgrade their narrowbody products and in particular, Boeing has
recently introduced a new series of the B737 aircraft, announced the phase-out
of the MD-80 and MD-90 series and is launching an upgraded B757.
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Only approximately 5% of the widebody aircraft in service are more than 25
years old. However there has been considerable product innovation in this sector
over the last ten years with the introduction of six new types of aircraft, the
MD11, B767-300ER, B747-400, B777, A330 and A340, most of which have several
engine configurations. This has led to the growth in particular of the
long-range, widebody, twin-engined sector and has resulted in a continued weak
market for earlier widebody models such as the A300-B4, A310-200, B747-100,
B747-200 and DC-10. The newer models have lower operating costs and allow
airlines to develop new long-haul routes more efficiently as well as to increase
service frequency on established routes. These factors could result in earlier
models of these widebody aircraft being retired or converted to freighters
before the end of their operating lives.
Of the 1,895 freighters in service as of January 1, 1998, 1,267 were
delivered new in freighter configuration; the remaining 628 aircraft having been
converted from passenger aircraft. Some aircraft delivered new with freighter
capability include aircraft in a mixed passenger/freight configuration, known as
"combi" aircraft. As of January 1, 1998, approximately 317 such "combi" aircraft
were in service.
SUPPLY OF AIRCRAFT
NEW AIRCRAFT SUPPLY
There has been a long-term trend toward consolidation of the commercial
aircraft manufacturing industry as evidenced by the recent merger between Boeing
and McDonnell Douglas Corporation, leaving just Boeing and Airbus as
manufacturers of large commercial jet aircraft currently. The long lead time,
high capital cost and technological sophistication required to bring a new
aircraft model to the market create significant barriers to entry into this
sector of the industry.
However, despite the bankruptcy in 1996 of Fokker N.V., there are several
new participants in the rapidly growing regional jet market. As a result, the
regional jet market is somewhat fragmented with three manufacturers (British
Aerospace plc, Bombardier and Embraer) currently producing a total of four
different types of jet aircraft. Fairchild Dornier has entered the regional jet
market and has begun test flying a prototype aircraft. Boeing is also planning
to relaunch the MD95 as the B717, with first deliveries scheduled for 1999. A
consortium of Airbus Industrie Asia, Aviation Industries of China and Singapore
Technologies is planning an aircraft which is expected to take first delivery in
2002.
The manufacturers of commercial jet aircraft in the CIS are currently not a
material factor in supplying the requirements of operators outside the CIS and
the former Eastern Bloc countries.
Although most new aircraft are ordered under long-term, multi-aircraft
contracts, the volume of aircraft production has varied significantly over the
years resulting in an aircraft delivery cycle that often does not match the
airline demand cycle. In 1991, the large aircraft manufacturers reached their
highest production capacity ever delivering 830 new aircraft as the demand for
air travel experienced an all time low. Deliveries reduced over the subsequent
four years with 483 aircraft delivered in 1995. Approximately 900 aircraft are
currently scheduled for delivery in each of 1998 and 1999.
USED AIRCRAFT SUPPLY
The supply of used aircraft depends on the level of utilization of the
existing worldwide fleet, the proportion of this fleet that is not in revenue
earning service and the net change in this fleet based on manufacturers'
production levels and aircraft retirements. Used aircraft are typically supplied
by airlines and intermediaries such as brokers or lessors, although
manufacturers have sometimes agreed to purchase used aircraft as a trade-in
against delivery of new aircraft. According to the Airline Monitor, as of
December 31, 1997, there were approximately 333 commercial jet aircraft
available for sale or lease of which approximately 79.9% (266 aircraft) were
Stage 2 aircraft and approximately 20.1% (67 aircraft) Stage 3 aircraft.
Approximately 65% (216 aircraft) were narrowbodies and 35% (117 aircraft)
widebodies.
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OPERATING LEASING
Operating leasing has grown:
(a) to facilitate the matching of excess aircraft supply and demand in
different geographical regions;
(b) to meet the need for short-medium term capacity (i.e. for less than
the useful life of an aircraft); and
(c) to meet the financing gap for under-capitalized airlines, typically
where financing was not otherwise available.
Until the mid-1970s, almost all commercial aircraft were either owned by
their airline operators or leased under finance leases from financial
institutions, except for short-term leases of surplus aircraft from one airline
to another. In general, airlines enter into such transactions seeking an
economical use for the surplus capacity that has resulted from the replacement
of older aircraft with the new models and cyclical or seasonal declines in the
markets being served. Beginning in the mid-1970s, however, leasing companies
were willing to purchase aircraft and undertake the risk of finding a buyer or
lessee for such aircraft.
Operating lessors typically acquired aircraft for lease through purchases
of used aircraft, often through sale-leaseback arrangements with the operators
of such aircraft. In the mid-1980s a number of leasing companies, principally
ILFC and GPA Group plc ("GPA"), started to acquire new aircraft directly from
manufacturers, with or without lease commitments for such aircraft. Several
additional leasing companies have become significant purchasers of new aircraft
and their combined jet aircraft orders and options constituted approximately 24%
of outstanding jet orders as of January 1, 1998.
The number of airlines taking aircraft on operating and finance leases has
increased from 139 out of a worldwide total of 305 in 1980 (approximately 46% of
total airlines) to 479 out of a worldwide total of 651 as of January 1, 1998
(approximately 74% of total airlines).
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MANAGEMENT OF MSAF GROUP
Except to the limited extent described herein, particularly upon an Event
of Default, neither the Trustee nor any Noteholder has any right to participate
in the management or affairs of MSAF Group. In particular, such parties cannot
supervise the functions relating to the Leases and the re-lease of the Initial
Aircraft, which functions have generally been delegated to the Servicer under
the Servicing Agreement. See "Risk Factors -- Risks Relating to MSAF Group and
Certain Third Parties -- Delegation of Responsibilities", "Description of the
Notes -- Indenture Covenants" and "-- Events of Default and Remedies".
TRUSTEES
There are six trustees of MSAF, including the Delaware Trustee. The
Controlling Trustees listed below manage MSAF. Two of the trustees must be
Independent Trustees. The controlling or independent trustees or directors, as
applicable, of each Aircraft-Owning Subsidiary are the same persons as the
Controlling Trustees and the Independent Trustees, unless otherwise required by
any provisions of local law mandating a particular citizenship for trustees or
directors. The initial Controlling Trustees and Independent Trustees were
appointed by a subsidiary of Morgan Stanley. Any succeeding or additional
Controlling Trustees and Independent Trustees will be appointed by a majority of
the then standing Controlling Trustees. Transactions or proceedings involving
certain insolvency proceedings of MSAF may only be approved by a unanimous vote
of all Controlling Trustees and all Independent Trustees.
The Controlling Trustees and the Independent Trustees, their respective
ages and principal activities are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Karl Essig................................... 46 Controlling Trustee
Alexander C. Frank........................... 40 Controlling Trustee
A. Maurice Mason............................. 34 Controlling Trustee
C. Scott Peterson............................ 37 Alternate Controlling Trustee
Juan C. O'Callahan........................... 64 Independent Trustee
Alexander C. Bancroft........................ 60 Independent Trustee
</TABLE>
Karl Essig is a Managing Director in the International Securitisation Group
at Morgan Stanley & Co. International Limited. Mr. Essig joined Morgan Stanley
in August of 1980 and has worked in the London, New York and Tokyo offices on
corporate finance, capital markets and derivatives transactions. In 1986 he
founded Morgan Stanley's Asset-Backed Finance Group which he headed for five
years. In 1992, Mr. Essig moved to London and established the International
Securitisation Group, which he currently heads. Mr. Essig is a graduate of
Stanford University and the Yale School of Management.
Alexander C. Frank is a Managing Director in the Corporate Treasury
Department, and the Treasurer of Morgan Stanley. Mr. Frank joined Morgan Stanley
in 1985 and has worked in the New York and London offices, in the firm's
Corporate Treasury and Corporate Tax Departments. In 1990 he established Morgan
Stanley Treasury's European Capital and Financing activity in London. In 1993
Mr. Frank assumed responsibility for the firm's Global Capital and Finance
function and became the Treasurer for North and South American activities. Mr.
Frank is a graduate of Dartmouth College and the University of Michigan School
of Business Administration.
A. Maurice Mason is an Executive Director in the International
Securitisation Group at Morgan Stanley & Co. International Limited. He joined
Morgan Stanley's Investment Banking Division in 1994 where he was responsible
for Morgan Stanley's corporate finance activities in the European transportation
sector. In 1997 he transferred to the International Securitisation Group where
he is responsible for the aviation finance sector. Prior to joining Morgan
Stanley, he spent over six years in the capital markets group at GPA. Mr. Mason
received a BA, BAI degree from Trinity College, Dublin.
C. Scott Peterson is a Managing Director in the International
Securitisation Group at Morgan Stanley & Co. International Limited. Mr. Peterson
joined Morgan Stanley in 1988 in the Mortgage-Backed Finance
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Group. In 1989 he joined the Asset-Backed Finance Group and subsequently
established the Equipment Finance Group to focus on transactions backed by
aircraft and other capital equipment. In 1993 he initiated the liability
management effort and led both the Equipment Finance and Liability Management
Groups until his transfer to London in 1996. Mr. Peterson received a BSc from
Oregon State University in 1982 and an MBA from The Wharton School in 1988.
Juan C. O'Callahan is principal of JOCR, an aviation consultancy based in
Connecticut. He joined The Boeing Company in 1961 after a career as a fighter
pilot with the United States Marine Corps and has since worked at Pacific Air
Lines, World Airways and GPA (having founded TAI, a forecasting and valuation
consultancy that was acquired by GPA in 1982). He has served on the boards of
America West Inc., Avitas Inc. and WorldCorp Inc., and is currently a director
of Pembroke Capital Limited. Mr. O'Callahan is a graduate of the University of
Pittsburgh, where he obtained a BSc in Aeronautical Engineering.
Alexander C. Bancroft is a partner of the law firm of Shearman & Sterling.
He specializes in the legal aspects of the financing of aircraft and other
transportation equipment. He joined Shearman & Sterling in 1964 after military
service and became a partner in 1973. Mr. Bancroft is a graduate of Harvard
College and Harvard Law School.
The Independent Trustees will be entitled to participate in all meetings of
the Controlling Trustees but will not be entitled to vote on any matter except
that the Independent Trustees will be entitled to vote on any action (i) to
cause MSAF or any subsidiary of MSAF to institute any proceeding seeking
liquidation or insolvency or similar proceeding, (ii) to consent to any
liquidation, insolvency or similar proceeding instituted against MSAF or any
subsidiary of MSAF, (iii) to take certain other actions related to insolvency
matters, and (iv) to sell, transfer, or otherwise dispose of, directly or
indirectly, any aircraft where the proceeds received from such sale or transfer
are less then certain targets set forth in the Indenture, and the unanimous
consent of all the Controlling Trustees and the Independent Trustees shall be
required to take any action specified in clauses (i), (ii) or (iii) above. See
"Description of the Notes -- Indenture Covenants -- Bankruptcy and Insolvency".
As is common with many other special purpose companies, MSAF will not have
any employees or executive officers. Accordingly, the Controlling Trustees will
rely upon the Servicer, the Administrative Agent, the Cash Manager, the
Financial Advisor and the other service providers for all asset servicing,
executive and administrative functions pursuant to the respective service
provider agreements. See "Risk Factors -- Risks Relating to MSAF Group and
Certain Third Parties". Certain individuals other than the Controlling Trustees
and the Independent Trustees listed above may serve as controlling or
independent trustees or directors of various subsidiaries of MSAF Group where
provisions of local law mandate a particular citizenship for trustees or
directors.
All trustees will be compensated for travel and other expenses incurred by
them in the performance of their duties. MSAF will pay each Independent Trustee
$50,000 per annum for their services in such capacity. The Controlling Trustees
appointed by a subsidiary of Morgan Stanley as the depositor of MSAF will not
receive remuneration from MSAF for their services.
The Controlling Trustees have not received any additional cash or non-cash
compensation as salary or bonus for their services as Controlling Trustees. In
the future, however, Controlling Trustees may receive an interest in the
Beneficial Interest. None of the trustees of MSAF currently has an employment
contract with MSAF.
BENEFICIAL OWNERSHIP OF MSAF
All of the Beneficial Interest is currently owned by a wholly-owned direct
subsidiary of Morgan Stanley but all or a portion of the Beneficial Interest may
be transferred to related or unrelated third parties in the future.
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<PAGE> 71
SERVICER
The Servicer and its affiliates have not assumed and are not responsible
for, or guarantors of, and shall not assume or be responsible for, or guarantors
of, any liabilities of MSAF or any of its affiliates, including, without
limitation, any payments due with respect to the Notes. Any Additional Aircraft
may be serviced by different servicers or on different terms from those
applicable to the servicing of the Initial Aircraft.
The Servicer will provide services with respect to the Initial Aircraft
pursuant to the terms of the Servicing Agreement on behalf of MSAF 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 Initial
Aircraft and the Initial Leases and the Future Leases with respect to the
Initial Aircraft, (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 MSAF Group of
Refinancing Notes or Additional Notes.
The Servicer will provide 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 MSAF Group
from time to time in accordance with the Servicing Agreement. In addition, under
the Servicing Agreement, the Servicer will agree to perform its services in
accordance with the ILFC Services Standard and the ILFC Conflicts Standard.
The duties and obligations of the Servicer will be limited to those
expressly set forth in the Servicing Agreement and the Servicer will not have
any fiduciary or other implied duties or obligations to MSAF Group or any other
person, including any Noteholder.
In addition to managing the Initial Aircraft, ILFC also manages aircraft
assets owned by ILFC and other third parties. In the course of conducting such
activities, ILFC will from time to time have conflicts of interest in performing
its obligations on behalf of MSAF Group. See "Risk Factors -- Risks Relating to
MSAF Group and Certain Third Parties -- Conflicts of Interest of ILFC".
Pursuant to the Servicing Agreement, the Servicer will not be liable to
MSAF Group for any Losses arising (i) as a result of an Initial Aircraft sold,
leased or purchased on less favorable terms than might have been achieved at any
time, provided such transactions were entered into on the basis of a commercial
decision of the Servicer, or (ii) in respect of the Servicer's obligation to
apply the ILFC Conflicts Standard in respect of its performance of the services,
except, in either situation, in the case of wilful misconduct or fraud on the
part of the Servicer. See "Risk Factors -- Risks Relating to MSAF Group and
Certain Third Parties -- Limitation of Liability on the Part of the Servicer".
AIRCRAFT SERVICES
Pursuant to the Servicing Agreement, the Servicer has, inter alia,
undertaken:
- to employ or otherwise engage such staff (including in-house legal
staff) and maintain such supporting resources as the Servicer shall deem
necessary in accordance with its usual business practices with respect to
its own aircraft, both in number and quality to enable it to perform the
Services;
- to grant MSAF Group and its agents, including the Administrative Agent
and auditors, access to certain information and personnel of the Servicer
under specified circumstances to enable MSAF Group to monitor the
Servicer's compliance with the Servicing Agreement and otherwise for the
purposes of MSAF Group's business; and
- not to commingle with its own funds any funds of MSAF Group other than
security deposits held pursuant to the Servicing Agreement and
misdirected funds from Lessees (which shall be promptly redirected to an
MSAF Group bank account).
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The main categories of services being provided by the Servicer pursuant to
the Servicing Agreement in respect of the Initial Aircraft (the "SERVICES") are:
- Lease marketing services, including, subject to the terms of the
Indenture and the Servicing Agreement, remarketing, lease negotiation and
execution (including, without limitation, negotiating final Lease terms);
- Initial Aircraft assets management services, including lease rent
collection, aircraft maintenance, insurance, contract compliance of, and
enforcement against, Lessees, and accepting delivery and redelivery of
aircraft;
- Initial Aircraft sales services as, when and to the extent directed by
MSAF Group;
- monitoring of maintenance and provision of records and information with
respect to the Initial Aircraft;
- arranging for valuations and monitoring regulatory developments;
- providing to MSAF Group certain data and information relating to the
Initial Aircraft;
- assistance in connection with the public or private offerings of any
securities of MSAF or any of its affiliates, including assisting in
public disclosure relating to the Servicer and its affiliates contained
in any disclosure document, certain Initial Aircraft-related
participation in marketing activities solely with respect to the Initial
Aircraft and the Servicer and the Services, and providing MSAF 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 Initial Aircraft;
- legal and other professional services with respect to the lease, sale or
financing of the Initial Aircraft, any amendment or modification of any
Lease, the enforcement of the rights of any person within MSAF Group
under any Lease, any disputes that arise with respect to the Initial
Aircraft or for any other purpose that the Servicer reasonably determines
is necessary in connection with the performance of the Services; and
- periodic reporting of operational information relating to the Initial
Aircraft.
OPERATING GUIDELINES
Under the Servicing Agreement, the Servicer will be entitled to exercise
such authority as is necessary to give it a practicable and working level of
autonomy, responsibility and authority in performing the Services, while at the
same time MSAF Group through the Administrative Agent will establish monitoring
and control procedures which are expected to enable it properly to manage the
business and assets of the MSAF Group.
Pursuant to the terms of the Servicing Agreement, the Servicer is required
to comply with the ILFC Services Standard and the ILFC Conflicts Standard in the
performance of the Services. All transactions to be entered into by the Servicer
on behalf of MSAF Group (other than with other persons within MSAF Group) are
required to be at arm's length and on fair market value terms unless otherwise
agreed or directed by MSAF Group. Certain transactions or matters with respect
to Initial Aircraft require the specific approval of MSAF Group, including:
- sales of (or commitments or agreements to sell) Initial Aircraft (other
than as required by a Lease);
- the entering into of any new Leases (including renewals or extensions,
unless any such Lease had originally been approved) if the Lease does not
comply with any applicable operating covenants set forth under
"Description of the Notes -- Operating Covenants";
- terminating any Lease or Leases to any single Lessee with respect to
Initial Aircraft then having a value in excess of $100 million;
- unless provided for in the applicable budget, entering into any contract
for the modification or maintenance of Initial Aircraft where the costs
to be incurred (A) exceed the greater of (i) the
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<PAGE> 73
estimated aggregate cost of a heavy maintenance or structural check for
similar aircraft and (ii) available maintenance reserves or other
collateral under the related Lease or (B) are outside the ordinary course
of MSAF Group's business;
- entering into any capital commitment or confirming any order or
commitment to acquire or acquiring aircraft or engines on behalf of MSAF
Group, except, with respect to a replacement engine or a spare part for
an Initial Aircraft, (A) if provided for in the applicable budget or (B)
at such times and on such terms and conditions as the Servicer deems
reasonably necessary or appropriate in connection with its performance of
the Services and in no greater quantity than that which is required to
enable the Initial Aircraft to be leased;
- issuing any guarantee on behalf of, or otherwise pledging the credit of,
any person within MSAF Group;
- unless otherwise permitted, entering into any agreement for services to
be provided in respect of Initial Aircraft by third parties at MSAF
Group's cost outside the ordinary course of ILFC's business, except to
the extent provided for in the applicable budget;
- incurring or causing to be incurred on behalf of any person within MSAF
Group any liability (actual or contingent), unless contemplated in the
applicable budget, pursuant to a transaction of a type for which MSAF
Group's specific approval is otherwise required, or incurred in the
ordinary course of MSAF Group's business; and
- any transaction with ILFC or any of its affiliates not contemplated in
the Servicing Agreement.
BUDGETS
MSAF Group will adopt an annual and a three-year budget each year with
respect to all Initial Aircraft. Under the Servicing Agreement, the Servicer has
undertaken to use best efforts to achieve the annual budget for each year.
MANAGEMENT FEES AND SERVICER EXPENSES
MSAF is obligated to pay certain fees to the Servicer, pursuant to the
Servicing Agreement. A base fee is payable in instalments: an initial fee of
$2,000,000 was paid on December 1, 1997 and the balance is payable monthly, in
the amounts of approximately $81,000 per month until November 30, 1998, $243,000
per month thereafter until November 30, 1999 and approximately $162,000 per
month thereafter, in each case subject to pro-rata reduction for any month in
which MSAF Group does not own all the Initial Aircraft. A rent-related fee is
also payable monthly, equal to 1% of the aggregate rent due for any month (or
portion of a month) in which MSAF Group owns the related Aircraft, plus 1% of
the aggregate rent actually paid for such month. In addition, the Servicer will
receive two incentive fees: (i) a results-based incentive fee, equal to 10% of
any excess of actual net results for any year over a target amount contained in
the applicable annual budget and (ii) a sales-based incentive fee with respect
to each sale of an Aircraft, equal to 1.5% of the lesser of the net proceeds of
such sale and the target amount for such Aircraft agreed in advance by MSAF and
the Servicer, plus 5% of any excess of such net proceeds over such target
amount.
The Servicer also will be reimbursed for certain expenses incurred in
connection with the Servicer's performance of the Services. These expenses
include, among other expenses, Initial 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 MSAF Group's total overhead costs.
TERM AND TERMINATION
The Servicing Agreement shall expire on the twenty-fifth anniversary of the
date on which the last Initial Aircraft is delivered to MSAF Group.
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Each party will also 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:
- MSAF fails to pay when due any amount payable by MSAF to the Servicer if
not paid within 5 days of notice of such failure;
- MSAF or any of its subsidiaries shall materially breach any of their
obligations under the Servicing Agreement other than payment obligations;
- all of the public debt of the MSAF Group is repaid or defeased in full
in accordance with the terms of any Indenture;
- all of the Initial Aircraft of MSAF Group are sold; or
- an involuntary proceeding is commenced or an involuntary petition is
filed in respect of MSAF or any subsidiary of MSAF under applicable
bankruptcy, insolvency, receivership or similar law, and such proceeding
or petition shall continue undismissed for 120 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 have an examiner
appointed over it, or a petition or proceeding is presented for any of
the foregoing and not discharged within 120 days; or a voluntary
proceeding is commenced in respect of MSAF or any subsidiary of MSAF
under bankruptcy, insolvency, receivership or similar law, or such person
consents to the institution of, or fails within 120 days to contest the
filing of, any petition described above, or files an answer admitting the
material allegations of any such petition, or makes a general assignment
for the benefit of its creditors.
MSAF has the right to terminate the Servicing Agreement with respect to one
or more Aircraft if:
- the Servicer materially breaches any of its obligations under the
Servicing Agreement;
- the Servicer fails, within a reasonable period of time, to re-lease an
Initial Aircraft upon the termination of any Lease or to sell an Initial
Aircraft upon commercially reasonable written direction from MSAF;
- all of the public debt of the MSAF Group is repaid or defeased in full
in accordance with the terms of any Indenture;
- all of the Initial Aircraft of MSAF Group are sold;
- a Rating Decline occurs as a result of a Change of Control. A "RATING
DECLINE" means that the rating of the outstanding senior unsecured
long-term debt securities of the Servicer is decreased below A1 by
Moody's, below A+ by Standard & Poor's or below AA- by DCR, at any time
between (a) the date of public notice of a Change of Control, or of the
intention of the Servicer or any person to effect a Change of Control and
(b) 90 days after the occurrence of the Change of Control (which period
shall be extended so long as the rating of the outstanding senior
unsecured long-term debt securities of the Servicer is under publicly
announced consideration for possible downgrade by a Rating Agency). A
"CHANGE OF CONTROL" means that either (A) any person or any persons
acting together that would constitute a "group" (a "GROUP") for purposes
of Section 13(d) of the Securities Exchange Act of 1934, together with
any affiliates or persons directly or indirectly owning 5% of the
outstanding common stock or equity interest, or of the combined voting
power of the voting stock, of such person ("RELATED PERSONS"), shall
beneficially own (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934 ("RULE 13D-3")) at least 50% of the aggregate voting
power of all classes of voting stock of the Servicer, or (B) any person
or Group, together with any affiliates or Related Persons, shall succeed
in having a sufficient number of its nominees elected to the Board of
Directors of the Servicer such that such nominees, when added to any
existing director remaining on the Board of Directors of the Servicer
after such election who was a nominee of or is an affiliate or Related
Person of such person or Group, will constitute a majority of the Board
of Directors of the Servicer; provided that with respect to both clauses
(A) and (B) above, a Change of Control shall not be deemed to have
occurred if American International Group, Inc. continues to beneficially
own (within
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the meaning of Rule 13d-3) at least 51% of the aggregate voting power of
all classes of voting stock of the Servicer; or
- an involuntary proceeding is commenced in respect of the Servicer under
bankruptcy, insolvency, receivership or similar law, if such proceeding
continues undismissed for 120 days or the Servicer shall go into
liquidation, suffer a receiver or mortgagee to take possession of all or
substantially all of its assets or have an examiner appointed over it or
if a petition or proceeding is presented for any of the foregoing and not
discharged within 120 days or a voluntary proceeding is commenced in
respect of the Servicer under bankruptcy, insolvency, receivership or
similar law or the Servicer shall make a general assignment for the
benefit of its creditors.
Other than in the case of a termination of the Servicing Agreement by the
Servicer because of MSAF's failure to make a payment to the Servicer, the
Servicing Agreement may not be terminated, unless a replacement servicer has
been appointed and accepted 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.
ASSIGNMENT OF SERVICING AGREEMENT
The Servicing Agreement and the rights and obligations of the Servicer, on
the one hand, and MSAF, on the other hand, are not assignable by either party
other than with the prior consent of the other party.
PRIORITY OF 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.
CORPORATE MANAGEMENT
With regard to the corporate affairs of MSAF Group, management services are
provided by three entities: the Administrative Agent, the Cash Manager and the
Financial Advisor.
ADMINISTRATIVE AGENT
Cabot acts as the Administrative Agent of MSAF Group.
The Administrative Agent is responsible for providing administrative,
accounting, bank account management and calculation and other services to MSAF.
The Administrative Agent's duties include:
- monitoring the performance of the Servicer (including the Servicer's
compliance with the Servicing Agreement) and reporting on such
performance to MSAF;
- assisting MSAF in establishing a program for evaluating the Servicer's
performance under the Servicing Agreement;
- acting as liaison with various rating agencies to assess the impact of
management decisions on the ratings of the Notes and coordinating
responses to rating agency questions;
- the maintenance on behalf of MSAF Group of accounting ledgers and the
provision on a quarterly and annual basis of draft accounts on a combined
basis for MSAF Group as well as, on a quarterly and annual basis, on an
individual company basis for certain companies. However, MSAF Group
retains responsibility for the ledgers and accounts including all
discretionary decisions and judgments relating to the preparation and
maintenance thereof, and MSAF Group retains responsibility for, and
prepares, its financial statements;
- preparing annual budgets and presenting them to MSAF Group for approval;
- authorizing payment of certain bills and expenses;
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- to the extent required by MSAF Group or the parties thereto,
coordinating any amendments to the transaction agreements, subject to the
approval of MSAF Group;
- supervising outside counsel and other professional advisers and
coordinating legal and other professional advice received by MSAF Group
other than with respect to any service or matter which is the
responsibility of the Servicer under the Servicing Agreement;
- preparing and coordinating reports to investors and to the Commission,
including preparing press releases and managing investor relations with
the assistance of outside counsel and auditors, if appropriate;
- preparing for the approval of MSAF Group and filing all required tax
returns with the assistance of outside counsel and auditors, if
appropriate;
- maintaining, or monitoring the maintenance of, the books, records,
registers and associated filings of MSAF Group;
- preparing an agenda and any required papers for meetings of the
governing bodies of the entities within MSAF Group;
- assisting in making aircraft lease, sale and capital investment
decisions;
- overseeing the general operation of the ILFC Facility;
- overseeing the general operation of the Morgan Stanley Facility;
- establishing and maintaining the Accounts and any other accounts;
- advising MSAF Group as to the appropriate levels of the Liquidity
Reserve Amount;
- informing the Servicer of the aggregate deposits in the Accounts as
required;
- directing withdrawals and transfers from the Accounts in accordance with
the Indenture;
- receiving data provided by the Servicer with respect to the Aircraft and
Leases;
- calculating certain monthly payments, and all other calculations
otherwise required pursuant to the Indenture;
- providing the Trustee with information required by the Trustee to
provide its reports to the Noteholders; and
- providing additional services upon the request of MSAF Group upon terms
to be agreed at the time of any such request.
The Administrative Agent may delegate to a third party one or more of the
above administrative services it is responsible for providing to MSAF Group.
The Administrative Agent receives a monthly fee equal to 1.5% of the rental
payments made by the Lessees under the Leases for such month from MSAF Group in
respect of its services to MSAF Group subject to an annual minimum of $200,000.
The Administrative Agent is entitled to indemnification by MSAF Group for, and
will be held harmless against, any loss or liability incurred by the
Administrative Agent arising out of or in connection with its provision of
administrative services to MSAF Group (other than through its own deceit, fraud,
gross negligence or wilful misconduct or that of its officers, directors, agents
and employees).
MSAF Group may remove the Administrative Agent at any time on 120 days'
written notice.
The Administrative Agent may resign on 120 days' written notice in certain
circumstances.
CASH MANAGER
Bankers Trust Company acts as the Cash Manager. Subject to certain
limitations and at the direction of MSAF Group, the Cash Manager is authorized
to invest the funds held by MSAF Group in the Accounts in certain prescribed
investments (the "PERMITTED ACCOUNT INVESTMENTS") on permitted terms.
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The Cash Manager devotes the same amount of time and attention to and is
required to exercise the same level of skill, care and diligence in the
performance of its services as a prudent businessperson would in administering
such services on its own behalf. The Cash Manager's annual fees are not expected
to exceed $50,000 per annum. The Cash Manager is entitled to indemnification by
MSAF Group for, and will be held harmless against, any loss or liability
incurred by the Cash Manager (other than through its own gross negligence (or
simple negligence in the handling of funds), deceit, fraud or wilful misconduct
or that of its officers, directors, agents and employees).
MSAF may remove the Cash Manager at any time on 90 days' written notice as
long as MSAF Group has engaged another person or entity to perform the services
that were being provided by the Cash Manager. The Cash Manager may resign on 90
days' written notice as long as MSAF Group has engaged another person or entity
to perform the services that were being provided by the Cash Manager.
FINANCIAL ADVISOR
Morgan Stanley & Co. Incorporated acts as the Financial Advisor.
The Financial Advisor is responsible for assisting MSAF Group in developing
and implementing its interest rate risk management policies and developing
models for the purposes of analyzing the financial impact of aircraft lease,
sale and capital investment decisions. The Financial Advisor receives a fee of
$50,000 per annum, payable monthly in arrears in equal instalments, from MSAF
Group in respect of its services to MSAF Group. The Financial Advisory Agreement
may be terminated by either MSAF or the Financial Advisor on 30 days' written
notice.
DELAWARE TRUSTEE
Wilmington Trust Company will maintain the books and records, including
minute books and records and trust certificate records, of MSAF. It will make
available telephone, telecopy, telex and post office box facilities and will
maintain MSAF's principal place of business in Delaware.
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SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data in the following table have been
derived from, and should be read in conjunction with, MSAF Group's consolidated
financial statements as of and for the one month period ended November 30, 1997
and as of and for the seven month period ended June 30, 1998, including the
notes thereto (the "Financial Statements") appearing elsewhere in this
Prospectus. MSAF Group's Financial Statements as of and for the one month period
ended November 30, 1997 have been audited by Deloitte & Touche LLP, independent
auditors. MSAF Group's Financial Statements as of and for the seven months ended
June 30, 1998 contain all adjustments that are of a normal and recurring nature
necessary to present fairly the financial position and results of operations for
such period. The results of operations for the seven months ended June 30, 1998
are not necessarily indicative of the results expected for the full fiscal year
1998.
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 30, 1997
(DATE OF FORMATION) SEVEN MONTHS ENDED
TO NOVEMBER 30, 1997 JUNE 30, 1998
-------------------- ------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Lease income............................................. $ 4,747 $ 68,004
Investment income on collection account.................. -- 1,358
-------- --------
Total revenues........................................... 4,747 69,362
-------- --------
Expenses:
Interest expense......................................... -- 23,659
Depreciation expense..................................... 43 19,192
Operating expenses:
Fees payable.......................................... -- 4,984
Maintenance and other aircraft related costs.......... -- 2,221
-------- --------
Total expenses........................................... 43 50,056
-------- --------
Net income................................................. $ 4,704 $ 19,306
======== ========
STATEMENT OF CASH FLOWS DATA:
Net cash provided by operating activities.................. -- 59,104
Net cash used for investing activities..................... (66,370) (887,315)
Net cash provided by financing activities.................. 66,370 862,372
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
NOVEMBER 30, 1997 JUNE 30, 1998
-------------------- ------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ -- $ 34,161
Total Assets............................................... 71,074 1,027,485
Total Liabilities.......................................... 66,369 1,059,872
Total Beneficial Interestholder's Equity/(Deficit)......... 4,705 (32,387)
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
INTRODUCTION
The MSAF Group entities were organized in late 1997 and since that time
their principal business activity has been the acquisition of the Initial
Aircraft and the placement of certain initial aircraft on operating lease. MSAF
Group's future business is expected to consist principally of aircraft operating
lease activities, acquisitions of Additional Aircraft and sales of Aircraft.
Cash flows generated from such activities will be used to service interest and
principal on the Notes, any Refinancing Notes and any Additional Notes but only
after various expenses of MSAF Group have been paid for, including any taxes,
obligations to Lessees including maintenance obligations, fees and expenses of
the Servicer, Administrative Agent, Cash Manager, Financial Advisor, Trustee and
other service providers, and payments to Swap Providers. Upon the issuance of
the Notes, MSAF will have no indebtedness other than the Notes.
MSAF Group's ability to generate sufficient cash from its Initial Aircraft
assets to service the Notes will depend primarily on (i) the rental rates it can
achieve on Leases and the Lessees' ability to perform according to the terms of
those Leases and (ii) the prices it can achieve on any Initial Aircraft sales.
MSAF Group's ability to service the Notes will also depend on the level of its
operating expenses, including maintenance obligations which will increase as the
Initial Aircraft age, and on any unforeseen contingent liabilities arising.
There can be no assurance that cash flows generated from the Initial Aircraft
assets will be sufficient to service interest and principal on the Notes. See
"Risk Factors -- Risks Relating to the Aircraft", "-- Risks Relating to the
Leases" and "-- Risks Relating to the Lessees".
MSAF Group will not use operational cash flow to pay the purchase price for
Additional Aircraft but, instead, will issue Additional Notes to fund such
purchase price. Any such Additional Notes will be issued in compliance with the
limitations set forth under "Description of the Notes -- Indenture Covenants --
Limitation on Indebtedness".
RECENT DEVELOPMENTS
INITIAL AIRCRAFT
As of May 31, 1998, all but one of the Contract Aircraft were acquired by
MSAF. The undelivered aircraft is a B737-400 on lease to the Turkish national
carrier, THY, with an appraised value of $28.82 million. Pursuant to the
Indenture, the Trustees decided not to substitute this aircraft but instead
distributed to Noteholders that portion of the proceeds from the Offering of the
Old Notes relating to this aircraft on June 15, 1998 pursuant to the priority of
payments set forth in the Indenture. As a result, the overall size of the
Initial Aircraft is 32 aircraft plus a spare engine with revised total appraised
value reduced to $1,086.69. No aircraft have been sold or suffered a total loss
since March 3, 1998. As of June 30, 1998, the Initial Aircraft were subject to
leases with 29 lessees in 20 countries.
Since March 3, 1998, three of the Initial Aircraft were aircraft on ground
("AOG") for a period of 36, 42, and 78 days, respectively. Part of the AOG
period was dedicated to performing maintenance work on the aircraft prior to
releasing. As of May 15, 1998 all three of the Initial Aircraft that were
previously AOG were subject to signed lease agreements with new lessees.
LESSEE DIFFICULTIES
Since March 3, 1998, in addition to the Lessee difficulties that resulted
in the repossession of three aircraft as discussed below under "Results of
Operations -- Seven Months Ended June 30, 1998 -- Operating Lease Income", there
have been difficulties with respect to two Lessees in the Europe/Middle East
region, representing approximately 7.7% of the adjusted appraised value of the
portfolio as of June 30, 1998. With respect to one Lessee, lease rentals and
maintenance reserves were restructured in March 1998 and at June 30, 1998 the
lessee was in arrears with respect to the restructured payment amounts. Such
arrears amounted to $256,348 at June 30, 1998 and other amounts in arrears
totalled approximately $889,348 at June 30, 1998. With respect to the other
Lessee, lease rentals of $376,364 were in arrears at June 30, 1998. Another
lessee
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has been publicly reported to be having liquidity difficulties stemming from
both withdrawal of state aid and strikes, although it is not currently in
arrears.
B737 INSPECTIONS
On May 14, 1998, the Federal Aviation Administration (FAA) issued a
directive requiring B737s with between 30,000 and 40,000 hours of flying time to
be inspected within 45 days for chafed wiring in conduits that run through the
plane's fuel tank that could cause a fire or explosion. MSAF owns 10 B737-
300/400/500s. All these aircraft have below 30,000 flight hours and will not be
inspected under the current directive. MSAF does not believe the cost to comply
with this directive in the future will be significant.
B747 INSPECTIONS
On May 25, 1998, Boeing issued a Service Bulletin recommending inspection
of all B747 center fuel tanks to check wiring and grounding straps, pumps, fuel
lines and fittings and other equipment and installation of a "flame arrestor"
for a scavenge pump. MSAF owns one B747-300 on lease to VARIG and does not
believe the cost to comply with this Service Bulletin will be significant.
ECONOMIC CRISES IN EMERGING MARKETS
Emerging market economies have recently been affected by severe economic
and financial difficulties. The economic crisis in Asia has spread to Russia and
to Latin America as well. MSAF currently leases 43.31% of its fleet in emerging
markets, including 12.75% of its fleet in "emerging" European markets, 12.89% in
"emerging" Asian markets and 17.67% in Latin America (using MSCI designations).
Currently, MSAF leases 12.89% of its fleet in Asia (5.3% in South Korea,
5.0% in Taiwan and 2.6% in China) and 6.6% in Pacific and Other regions (6.6% in
Fiji) by assumed appraised value as of June 30, 1998. As of June 30, 1998, none
of these lessees were in arrears although severe financial difficulties have
been reported for certain other air carriers in the region.
The recent economic crisis in Russia continues to threaten that region.
MSAF currently leases 1 aircraft to a lessee in Russia, representing 3.41% of
its portfolio, as measured by assumed appraised value as of June 30, 1998. This
lessee is currently in arrears and negotiations are underway to restructure the
lease with a view to the early return of the aircraft.
MSAF currently leases 17.67% of its fleet in Latin America (11.36% in
Brazil and 6.31% in Mexico). None of the MSAF Group Lessees in Latin America are
currently in arrears.
RESULTS OF OPERATIONS -- SEVEN MONTHS ENDED JUNE 30, 1998
LEASE INCOME
Lease income for the seven month period from December 1, 1997 to June 30,
1998 amounted to $68.0 million. Many of the Initial Aircraft were not owned by
MSAF for all of the period. During the period, there was a loss in lease rental
revenues caused by three AOG ($2.0 million). Three aircraft had been repossessed
from Western Pacific Airlines and Pan Am Airlines (formerly Carnival) but were
all subject to signed lease agreements as of June 30, 1998. The three aircraft
were placed on lease with Olympic Airways, the Greek national carrier, VASP, and
TAESA. Part of the AOG period was spent performing maintenance work on all three
aircraft prior to re-leasing. MSAF Group records the cash prepayments made by
lessees for maintenance as a component of the provision for maintenance
liability account which appears on the consolidated balance sheet. When the
lessee incurs a maintenance expenditure, MSAF Group must return a corresponding
amount of the prepayment to the lessee. At this time, MSAF Group will forward
cash to the lessee, with a corresponding decrease to the provision for
maintenance liability account. MSAF Group will only reimburse the lessee for the
cost of maintenance expenditures to the extent that sufficient prepayments have
been made by the lessee.
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INVESTMENT INCOME
In the seven months ended June 30, 1998, MSAF earned interest income of
$1.4 million. Investment income is expected to decline going forward principally
because cash in the Aircraft Purchase Account has now been used to acquire the
Initial Aircraft except for a balance of $26.1 million which has been refunded
to investors in respect of the undelivered THY aircraft.
INTEREST EXPENSE
Interest expense amounted to $23.7 million in the seven months ended June
30, 1998. Interest expense relates to the cost of the Old Notes which were
issued on March 3, 1998 and, therefore, only outstanding for approximately four
months in the period. The weighted average interest rate on the Subclass A-1 to
D-1 Notes during the period from March 3, 1998 to June 30, 1998 was 6.38% and
the average debt in respect of the Subclass A-1 to D-1 Notes outstanding during
the period since March 3, 1998 was $1,041.8 million.
DEPRECIATION
The charge for depreciation in the seven months ended June 30, 1998
amounted to $19.2 million. The charge is expected to be proportionately higher
in future periods given that MSAF did not own all of the Initial Aircraft
throughout the period from December 1, 1997 to June 30, 1998.
OPERATING EXPENSES
Service Provider Fees. Service provider fees and expenses for the period
ended June 30, 1998 were $5.0 million. The most significant element was the
aircraft servicing fee paid to ILFC, which amounted to $3.4 million for the
period. A significant portion of the fees payable to ILFC are calculated as a
percent of rental revenue actually received. Accordingly, the fees paid to ILFC
reflected the lower rental revenue caused by AOGs and undelivered aircraft
during the period. MSAF's service provider expenses also included $0.6 million
in respect of administrative agency and cash management fees.
Maintenance and Other Aircraft Related Costs. Maintenance and other
aircraft related costs in the seven months ended June 30, 1998 amounted to $2.2
million. These costs reflected additional maintenance work that was performed on
the three aircraft which were repossessed. This work included a "C-check" for
certain of the aircraft and the installation of new landing gear. In the next
six months it is likely that maintenance disbursements will increase
proportionately due to anticipated engine overhauls and the larger number of
aircraft owned by MSAF.
Insurance, re-leasing and other costs incurred in the seven months ended
June 30, 1998 were approximately $1.3 million. It is expected that re-leasing
costs will increase proportionately over the next several months due to certain
aircraft modification payments expected to be reimbursed to lessees and costs
relating to reconfiguring aircraft for new lessees upon redelivery. It is also
expected that additional insurance premiums relating to aircraft AOG will become
payable in the remainder of 1998.
NET INCOME
Net income for the seven month period ended June 30, 1998 was $19.3
million.
MSAF is a Delaware business trust treated as a branch of MS Financing Inc.
for U.S. Federal, state and local income tax purposes. As such, MSAF is not
subject to U.S. Federal, state and local income taxes.
FINANCIAL RESOURCES AND LIQUIDITY
LIQUIDITY
The cash balances at June 30, 1998 were $34.1 million. Of this amount, $25
million represents the cash portion of the Liquidity Reserve Amount (which is
used as a source of liquidity for, among other things, maintenance obligations,
security deposit return obligations, cash operating expenses and contingent
liabilities) and $9.1 represents rental and maintenance receipts.
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In addition to the $25 million cash portion at June 30, 1998, the Liquidity
Reserve Amount also contained $41.2 million of undrawn credit and liquidity
facilities from Morgan Stanley and ILFC. As of June 30, 1998, ILFC's short term
unsecured debt was rated A-1+ by Standard & Poor's, and, accordingly, the letter
of credit previously issued by the Bank of Montreal to support ILFC's
obligations under the ILFC Facility was canceled.
CASH FLOWS FROM OPERATING ACTIVITIES
Operating cash flows depend on many factors including the performance of
lessees and MSAF Group's ability to re-lease Aircraft, the average cost of the
Notes, the efficacy of MSAF Group's interest rate hedging policies, the ability
of MSAF Group's swap providers to perform under the terms of their swap and
similar obligations and whether MSAF 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 seven months ended June
30, 1998 amounted to $59.1 million, principally reflecting non-cash depreciation
expense of approximately $19 million, provisions for maintenance of
approximately $8 million and deferral of recognition of advance rental payments
of $6 million.
CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES
In the seven months ended June 30, 1998, the primary use of cash flows from
investing and financing activities was to acquire the Initial Aircraft. Cash
flows from financing activities in the seven months ended June 30, 1998
primarily reflect the proceeds from the Offering of the Old Notes and the
payment to Morgan Stanley Financing Inc., of a distribution with respect to the
Beneficial Interest.
INDEBTEDNESS
General
MSAF Group's indebtedness primarily consisted of the Subclass A-1 to D-1
Notes in the amount of $1,003.0 million at June 30, 1998.
Aircraft Values
At September 30, 1997, the total appraised value of the 33 aircraft and the
spare engine that MSAF originally agreed to acquire from ILFC was $1,115.5
million and, applying the declining value assumption set out in the terms of the
Notes, $1,103.9 million at June 30, 1998. Giving effect to the non-delivery of
the THY aircraft and applying the declining value assumption, the total
appraised value of MSAF Group's 32 aircraft and spare engine was $1,075.9
million at June 30, 1998.
Under the terms of the Notes, MSAF is obliged to obtain annual appraisals
of the Base Value of each aircraft from three independent appraisers by October
31 of each year. Generally, where the appraisals indicate a Base Value decline
significantly in excess of the value decline assumed under the terms of the
Notes, excess cash flow is redirected to the extent required to the Class A
Notes via the Class A Scheduled Principal Payment Amount. The most recent
appraisals occurred in September 30, 1997 and the next are due to occur no later
than October 31, 1998.
LIQUIDITY RESERVE AMOUNT
The Liquidity Reserve Amount is intended to serve as a source of liquidity
for MSAF Group's maintenance obligations, security deposit return obligations,
operating expenses, contingent liabilities and Note obligations. The Liquidity
Reserve Amount may be funded with cash in the Collection Account and with
letters of credit, guarantees or other credit support instruments ("ELIGIBLE
CREDIT FACILITIES") provided by, or supported with further Eligible Credit
Facilities provided by, a person (an "ELIGIBLE PROVIDER") whose short-term
unsecured debt is rated P-1 by Moody's, A-1+ by Standard & Poor's, or D-1+ by
DCR or is otherwise designated as an Eligible Provider by the Controlling
Trustees. Both the ILFC Facility discussed below under "-- ILFC Facility" and
the Morgan Stanley Facility discussed below under "-- Morgan Stanley Facility"
will
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be Eligible Credit Facilities and will comprise part of the Liquidity Reserve
Amount on and following the Closing Date. There are currently no other Eligible
Credit Facilities in place.
The Liquidity Reserve Amount was approximately $66.2 million on June 30,
1998. The Minimum Liquidity Reserve Amount was approximately $15 million on June
30, 1998. The Liquidity Reserve Amount and the Minimum Liquidity Reserve Amount
may be increased or decreased from time to time for any reason (including upon
acquisitions of Additional Aircraft) by an action of the Controlling Trustees in
light of changes in, inter alia, the condition of the Aircraft, the terms and
conditions of the Leases, the financial condition of the Lessees, sales of
Aircraft and prevailing industry conditions; provided that MSAF Group will
obtain confirmation in advance in writing from the Rating Agencies that any
proposed reduction in the Liquidity Reserve Amount or the Minimum Liquidity
Reserve Amount will not result in a lowering or withdrawal by any such Rating
Agencies of their respective ratings of any MSAF Notes.
If the balance of cash on deposit in the Collection Account, together with
the amount available for drawing under any Eligible Credit Facilities, should
fall below the Liquidity Reserve Amount at any time (including as a result of
MSAF Group's determination that the Liquidity Reserve Amount should be
increased, as required by the Rating Agencies or otherwise), MSAF Group may
continue to make all payments, and any credit or liquidity enhancement
facilities may be drawn to fund such payments, including required payments on
the Notes, which rank prior to, or pari passu with, payments of the Minimum
Principal Payment Amount on the Class D Notes under "Description of the Notes --
Priority of Payments" and any Permitted Accruals other than in respect of
Modification Payments, provided that the balance of funds in the Collection
Account, together with the amount available for drawing under any Eligible
Credit Facilities, does not fall below the Minimum Liquidity Reserve Amount at
its then current level. However, the balance of funds in the Collection Account,
together with the amount available for drawing under any Eligible Credit
Facilities, may fall below the Minimum Liquidity Reserve Amount at its then
current level and MSAF Group may continue to make payments of, and any credit or
liquidity enhancement facilities may be drawn to fund such payments, all accrued
and unpaid interest on any subclass of the most senior class of Notes then
Outstanding to avoid an Event of Default, and, on the Final Maturity Date of any
subclass thereof, principal of, any subclass of the most senior class of Notes
then Outstanding to avoid an Event of Default.
Amounts drawn under any Eligible Credit Facility will either be repayable
at the third level in the priority of payments, as set forth in "Description of
the Notes -- Priority of Payments", before the First Collection Account Top-Up
(any such facility, a "PRIMARY ELIGIBLE CREDIT FACILITY") or at the eleventh
level in the priority of payments, as set forth in "Description of the Notes --
Priority of Payments", before the Second Collection Account Top-Up (any such
facility, a "SECONDARY ELIGIBLE CREDIT FACILITY").
The Liquidity Reserve Amount and the Minimum Liquidity Reserve Amount have
been determined largely based on an analysis of historical experience,
assumptions regarding MSAF Group's future experience and the frequency and cost
of certain contingencies in respect of the Initial Aircraft, and are intended to
provide liquidity for meeting the cost of maintenance obligations and
non-maintenance, aircraft-related contingencies such as removing regulatory
liens, complying with ADs, repossessing and releasing aircraft. In analyzing the
future impact of these costs, assumptions have been made regarding their
frequency and amount based upon historical experience. There can be no
assurance, however, that historical experience will prove to be relevant in the
future or that actual cash received by MSAF Group in the future will not be
significantly less than that assumed. Any significant variation may materially
adversely affect the ability of MSAF Group to make payments of interest and
principal on the Notes.
ILFC FACILITY
Under the ILFC Facility, ILFC will hold certain security deposits with
respect to the Initial Aircraft as custodian for the benefit of the MSAF Group.
ILFC will hold all cash security deposits paid with respect to the Initial
Aircraft other than (i) amounts determined in good faith by ILFC to be no longer
held on behalf of a Lessee, whether upon expiry of or default under the
applicable Lease or otherwise, and (ii) any cash security deposits in an amount
exceeding three months' rent with respect to a single Initial Aircraft and paid
by a single
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<PAGE> 84
Lessee. Any interest accruing on amounts of Initial Aircraft security deposits
that are being held by ILFC will generally accrue for the benefit of ILFC.
In addition, under the ILFC Facility, ILFC will make loans to MSAF which
MSAF may use for the same purposes as those for which the Liquidity Reserve
Amount may be applied as discussed above under "-- Liquidity Reserve Amount",
including to pay interest and Minimum Principal Payment Amounts on the Notes.
ILFC's obligation to make such amounts available shall be limited to the "ILFC
FACILITY COMMITMENT" which was approximately $31.2 million on June 30, 1998. The
ILFC Facility Commitment shall be equal to (i) at any time before a Facility
Reduction Event, the sum of (A) $10 million plus (B) total Initial Aircraft
security deposits held by ILFC for the benefit of MSAF at such time minus (C)
all drawings previously made by MSAF under the ILFC Facility ("ILFC FACILITY
DRAWN AMOUNTS") and required to be repaid to ILFC but not repaid at such time
and (ii) at any time from and after a Facility Reduction Event, $10 million
minus all ILFC Facility Drawn Amounts required to be repaid to ILFC but not
repaid at such time. A "FACILITY REDUCTION EVENT" means a termination of the
Servicing Agreement prior to the twenty-fifth anniversary of the date on which
the last Initial Aircraft is delivered to MSAF Group for a reason other than a
sale of all the Initial Aircraft or the repayment or defeasance of MSAF's debt.
The ILFC Facility is a Secondary Eligible Credit Facility and, accordingly,
on the Payment Date following any drawing on the ILFC Facility, MSAF will be
obligated, to the extent there are Available Collections remaining after payment
of the Minimum Principal Payment Amount on the Class D Notes, to repay ILFC
Facility Drawn Amounts to ILFC, together with interest accrued thereon at 3% per
annum, calculated on the basis of a 360-day year consisting of twelve 30-day
months and compounded daily.
ILFC's agreement to provide the ILFC Facility will expire on the earliest
of (i) the twenty-fifth anniversary of the date on which the last Initial
Aircraft is delivered to MSAF Group, (ii) a sale of all the Initial Aircraft,
and (iii) the repayment or defeasance of all MSAF's debt.
For so long as ILFC is not an Eligible Provider, ILFC's obligations under
the ILFC Facility will be supported by an Eligible Credit Facility satisfactory
to MSAF provided by an Eligible Provider at ILFC's expense (a "BACK-UP
FACILITY").
MSAF may borrow under the ILFC Facility (i) in order to pay interest and
Minimum Principal Payment Amounts on the Notes, (ii) upon a downgrade in the
short-term unsecured debt rating of the provider of the Back-Up Facility such
that it is no longer an Eligible Provider and (iii) upon failure by the provider
of the Back-Up Facility to renew the Back-Up Facility (the events described in
clause (ii) and (iii), each, a "SUSPENSION EVENT"). If for any reason ILFC fails
to make any loan requested when due, MSAF may draw on the Back-Up Facility.
In the event of a loan by ILFC, or a drawing on the Back-Up Facility, in a
Suspension Event (a "SUSPENSION DRAWING"), MSAF will hold the drawing proceeds
in the Collection Account and such proceeds will comprise part of the cash
portion of the Liquidity Reserve Amount. In the event of any drawing, the
obligation to reimburse the provider of the Back-Up Facility shall be solely
ILFC's obligation and the provider of the Back-Up Facility shall have no
recourse to MSAF for any such amounts that are not reimbursed by ILFC.
Immediately following and after giving effect to any Suspension Drawing, ILFC
shall set off and apply the security deposits held by it on the date of such
Suspension Drawing on MSAF Group's behalf against the principal amount of any
ILFC Facility Drawn Amounts then outstanding, which shall be deemed repaid in
the amount of such set-off and application. After giving effect to such set-off
and application, MSAF shall be obliged to repay only up to $10 million of any
outstanding ILFC Facility Drawn Amounts unless and until ILFC has procured, at
its expense, a replacement Back-Up Facility acceptable to MSAF. MSAF shall be
obliged to pay interest on the proceeds of a Suspension Drawing at 3% per annum,
calculated on the basis of a 360-day year consisting of twelve 30-day months and
compounded daily.
MORGAN STANLEY FACILITY
Under the Morgan Stanley Facility, Morgan Stanley will make loans to MSAF
which MSAF may use for the same purposes as those for which the Liquidity
Reserve Amount may be applied as discussed above under
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<PAGE> 85
"-- Liquidity Reserve Amount", including to pay interest and Minimum Principal
Payment Amounts on the Notes. Morgan Stanley's obligation to make such amounts
available shall be limited to the "MORGAN STANLEY FACILITY COMMITMENT". The
Morgan Stanley Facility Commitment, at any time, shall be equal to the sum of
(A) $10 million minus (B) all drawings previously made by MSAF under the Morgan
Stanley Facility ("MORGAN STANLEY FACILITY DRAWN AMOUNTS") and not repaid at
such time.
The Morgan Stanley Facility is a Secondary Eligible Credit Facility and,
accordingly, on the Payment Date following any drawing on the Morgan Stanley
Facility, MSAF will be obligated, to the extent that there are Available
Collections remaining after payment of the Minimum Principal Payment Amount on
the Class D Notes, to repay Morgan Stanley Facility Drawn Amounts to Morgan
Stanley, together with interest accrued thereon at 3% per annum, calculated on
the basis of a 360-day year consisting of twelve 30-day months and compounded
daily.
Morgan Stanley's agreement to provide the Morgan Stanley Facility will
expire on the earlier of (i) a sale of all the Aircraft and (ii) the repayment
or defeasance of all MSAF's debt. Morgan Stanley has been designated by the
Controlling Trustees as an Eligible Provider. As of the date of this Prospectus,
Morgan Stanley's long-term unsecured debt was rated A1 by Moody's, A+ by
Standard & Poor's and AA- by DCR.
OTHER FACILITIES
There are currently no Primary Eligible Credit Facilities in place. MSAF
may put in place other Eligible Credit Facilities from time to time, each of
which shall be designated by the Controlling Trustees as a Primary Eligible
Credit Facility or a Secondary Eligible Credit Facility. In addition, MSAF may
from time to time put in place other credit or liquidity enhancement facilities
which are not Eligible Credit Facilities. Amounts drawn under any such other
facilities are repayable at the eleventh level in the order of priorities as set
forth in "Description of the Notes -- Priority of Payments", before the Second
Collection Account Top-Up.
INTEREST RATE MANAGEMENT
The leasing revenues of MSAF Group will be generated primarily from Rental
Payments. Rental Payments are currently entirely fixed but may be either fixed
or floating with respect to Future Leases. In general, an interest rate exposure
arises to the extent that MSAF Group's fixed and floating interest obligations
in respect of the 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 and other derivative instruments.
The Subclass A-1, A-2 and B-1 Notes will bear floating rates of interest and the
Subclass C-1 and D-1 Notes will bear fixed rates of interest. MSAF is a party to
four interest rate swaps (the "INITIAL SWAPS") with an affiliate of Morgan
Stanley. In all of these swaps MSAF pays a fixed monthly coupon and receives one
month LIBOR on the notional balances as set out below:
<TABLE>
<CAPTION>
NOTIONAL FIXED MONTHLY
BALANCE EFFECTIVE DATE MATURITY DATE PAY RATE
- -------- -------------- ----------------- -------------
($000'S) (%)
<S> <C> <C> <C>
100,000 March 3, 1998 November 15, 1999 6.0550
300,000 March 3, 1998 November 15, 2000 6.1325
200,000 March 3, 1998 November 15, 2002 6.2150
200,000 March 3, 1998 November 15, 2004 6.2650
</TABLE>
At least every three months, MSAF Group expects to seek to enter into
additional swaps or sell at market value or unwind part or all of the initial
and any future swaps in order to rebalance the fixed and floating mix of
interest obligations (including those arising as a result of previous interest
rate swaps entered into) and the fixed and floating mix of rental payments.
Through the use of interest rate swaps, and other interest rate hedging
products, it is MSAF Group's policy not to be adversely exposed to material
movements in interest rates. MSAF Group's interest rate management strategy will
need to be rebalanced with any acquisition of Additional Aircraft to reflect the
adjusted mix of fixed and floating rate rental payments arising from any such
acquisition. There can be no
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<PAGE> 86
assurance, however, that MSAF Group's interest rate risk management strategies
will be effective in this regard. Any change to MSAF Group's policy with regard
to its dealing in interest rate hedging products will be subject to periodic
review by the Rating Agencies.
The Controlling Trustees are responsible for reviewing and approving the
overall interest rate management policies and transaction authority limits.
Counterparty risk will be monitored on an ongoing basis. Counterparties will be
subject to the prior approval of the Controlling Trustees. MSAF Group's
counterparties are currently all affiliates of Morgan Stanley. Future
counterparties will consist primarily of the affiliates of major United States
and European financial institutions (including special-purpose derivative
vehicles) which have credit ratings, or which provide collateralization
arrangements, consistent with maintaining the ratings of the Notes.
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<PAGE> 87
DESCRIPTION OF THE NOTES
The following summary is qualified in its entirety by reference to the
Indenture, the Cash Management Agreement, the Reference Agency Agreement, the
Administrative Agency Agreement, the Notes, the Security Trust Agreement, the
Servicing Agreement, the Asset Purchase Agreement, the Financial Advisory
Agreement, the Swap Agreements, the ILFC Facility and the Morgan Stanley
Facility (collectively, the "RELATED DOCUMENTS"). References to "Related
Documents" shall also include where the context requires, any Refinancing Notes
and any Additional Notes and guarantees, asset or stock purchase agreements,
swap or other interest rate agreements or other agreement entered into by any
member of MSAF Group in connection with any acquisition of Additional Aircraft
and issuance of Additional Notes.
GENERAL
The Old Notes were issued pursuant to the Indenture, a copy of which has
been filed as an exhibit to the Registration Statement, of which this Prospectus
is a part. The New Notes will also be issued pursuant to the Indenture, which
will be qualified under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act") upon effectiveness of the Registration Statement of which this
Prospectus is a part. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act.
The terms of the New Notes will be identical in all material respects to
the Old Notes, except that the offer of the New Notes will have been registered
under the Securities Act and, therefore, the New Notes will not be subject to
certain transfer restrictions, registration rights and certain provisions
providing for an increase in the interest rate on the Notes under certain
circumstances relating to the Registration Agreement.
The Notes, composed of Subclass A-1, Subclass A-2, Subclass B-1, Subclass
C-1 and Subclass D-1 Notes, will be issued in fully registered form only. The
Notes will be issued in minimum denominations of $100,000 and integral multiples
of $1,000 in excess thereof.
The Notes are solely an obligation of MSAF and are not secured by the
Aircraft and do not represent obligations of any Lessee, Morgan Stanley, the
Trustee, ILFC, or any affiliate of any of the foregoing other than MSAF.
The Indenture provides that MSAF will pay the fees and expenses of the
Trustee and further provides that the Trustee will be entitled to
indemnification by MSAF for, and will be held harmless against, any loss,
liability or expenses incurred by the Trustee (other than through its own wilful
misconduct, bad faith or negligence or by reason of a breach of any of its
representations or warranties set forth in the Indenture).
The Trustee may resign with respect to any subclass of MSAF Notes at any
time without cause upon at least 90 days' prior written notice to MSAF, the
Administrative Agent and the holders of such subclass, in which event MSAF will
be obligated to appoint a successor trustee for such subclass of MSAF Notes.
Holders of each subclass may have divergent or conflicting interests from the
MSAF Noteholders of other subclasses. As a result, the occurrence of certain
circumstances, including the occurrence of an Event of Default, may give rise to
a potential conflict of interest on the part of the Trustee in its capacity as
trustee in respect of more than one subclass of MSAF Notes, upon which event the
Trustee may be compelled to resign as trustee in respect of more than one
subclass of MSAF Notes. If the Trustee ceases to be eligible to continue as
trustee with respect to any subclass of MSAF Notes, becomes incapable of acting
as Trustee or becomes insolvent, MSAF may remove the Trustee, or any MSAF
Noteholder of the applicable subclass who has been a bona fide MSAF Noteholder
for at least six months may, on behalf of itself and all other MSAF Noteholders
of the same subclass, petition any court of competent jurisdiction for the
removal of the Trustee as trustee of such subclass and the appointment of a
successor trustee. In addition, holders of not less than a majority in aggregate
Outstanding Principal Balance of any subclass of MSAF Notes may at any time
remove the Trustee with respect to such subclass without cause by delivering
written notice of such removal in writing to MSAF, the Administrative Agent and
the Trustee. Any resignation or removal of the Trustee and appointment of a
successor trustee will not become effective until acceptance of the appointment
by the successor trustee. Pursuant to such resignation, removal and successor
trustee provisions, it is possible that a different trustee
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<PAGE> 88
could be appointed to act as the successor trustee with respect to each subclass
of the MSAF Notes. All references in this Prospectus to the "Trustee" should be
read to include the Trustee and any successor trustee appointed in the event of
such a resignation or removal.
RATINGS
Each subclass of the Notes is rated as of the date of this Prospectus as
follows:
<TABLE>
<CAPTION>
RATING AGENCIES
-----------------------------------
SUBCLASS OF NOTES MOODY'S STANDARD & POOR'S DCR
- ----------------- ------- ----------------- ---
<S> <C> <C> <C>
Subclass A-1............................................. Aa2 AA AA
Subclass A-2............................................. Aa2 AA AA
Subclass B-1............................................. A2 A A
Subclass C-1............................................. Baa2 BBB BBB
Subclass D-1............................................. Ba2 BB BB
</TABLE>
The ratings of the Notes address the likelihood of the timely payment of
interest and the ultimate payment of principal and premium, if any, on the
Notes. Payments of principal and interest on all subclasses of the Notes will be
payable only after any Expenses and certain other amounts have been paid or
provided for in full and only to the extent that Available Collections are
sufficient therefor in accordance with the priority of payments established for
the Notes. In addition, MSAF's ability to pay Step-Up Interest in full on the
Subclass A-1 Notes has not been rated by any of the Rating Agencies. The ratings
assigned to the Notes do not address the imposition of any withholding tax on
any payments under the Leases, the Notes or otherwise. See "Risk Factors --
Risks Relating to Tax".
A rating is not a recommendation to buy, sell or hold Notes inasmuch as
such ratings do not comment as to market price or suitability for a particular
investor and may be subject to revision or withdrawal at any time by the
assigning Rating Agency. In the event that the rating initially assigned to any
subclass of the Notes is subsequently lowered, suspended or withdrawn for any
reason, no person or entity is obliged to provide any additional support or
credit enhancement with respect to the Notes.
REGISTRATION REQUIREMENTS
Holders of New Notes are not generally entitled to any registration rights
with respect to such New Notes. Pursuant to the Registration Agreement, MSAF has
filed with the Commission the Registration Statement of which this Prospectus is
a part with respect to the Exchange Offer to exchange the Old Notes for New
Notes.
In the event that applicable interpretations of the staff of the Commission
do not permit MSAF to effect the Exchange Offer, or under certain other
circumstances, MSAF shall, at MSAF's cost, use its best efforts to cause to
become effective a shelf registration statement (the "SHELF REGISTRATION
STATEMENT") with respect to resales of the Notes and to keep such registration
statement effective until March 3, 2000 or until all Notes have been sold
thereunder. MSAF shall, in the event of such a shelf registration, provide to
each Noteholder copies of the prospectus, notifying each Noteholder when the
Shelf Registration Statement for the Notes has become effective and take certain
other actions as are required to permit resales of the Notes. A Noteholder that
sells its Notes pursuant to the Shelf Registration Statement generally will be
required to be named as a selling security holder in the related prospectus and
to deliver a prospectus to purchasers. In addition, such Noteholder will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement that are applicable to such Noteholder (including
certain indemnification obligations).
In the event that the Exchange Offer is not consummated, or a Shelf
Registration Statement is not declared effective on or prior to November 30,
1998, then, from and after such date, the applicable annual interest rate borne
by each subclass of the Notes shall be increased by 0.50% per annum over the
rate then applicable to such subclass of Notes in accordance with the rate shown
on the cover page of this Offering
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<PAGE> 89
Memorandum until the Exchange Offer is consummated or the Shelf Registration
Statement is declared effective. So long as the Notes are listed on the
Luxembourg Stock Exchange, any such increase in the interest rates applicable to
any subclass of Notes shall be published in accordance with the notification
requirements specified in the Indenture. See "-- Notices to Noteholders".
PAYMENTS
On each Payment Date, commencing April 15, 1998, payments of interest,
principal and, in certain limited circumstances described herein, premium on
each subclass of Notes will be determined and made in accordance with the
provisions described below under "-- Priority of Payments".
On each Payment Date, the Trustee will pay (or will instruct a paying agent
appointed in Luxembourg to pay) to the Noteholders all interest, principal and
premium, if any, on the Notes of each subclass (other than payments received
following an Event of Default in respect of any subclass of Notes), the receipt
of which is confirmed by the Trustee or paying agent by 1:00 p.m. (New York
time) on such Payment Date or, if such receipt is confirmed after 1:00 p.m. (New
York time) on such Payment Date or on any Business Day thereafter, then on the
Business Day following the Business Day on which payment is received. Each
payment on any Payment Date other than the Final Payment Date with respect to
any subclass of Notes will be made by the Trustee or paying agent to the
Noteholders as of the Record Date immediately preceding such Payment Date. The
final payment with respect to any Note, however, will be made only upon
presentation and surrender of such Note by the Noteholder or its agent
(including any holder in street name) at the office or agency of the applicable
Trustee or paying agent specified in the notice given by the Trustee or paying
agent with respect to such final payment. So long as the Notes are listed on the
Luxembourg Stock Exchange, MSAF shall appoint and maintain a paying agent in
Luxembourg.
At such time, if any, as the Notes of any subclass are issued in the form
of Definitive Notes, payments from the applicable Account on a Payment Date will
be made by check mailed to each Noteholder of a Definitive Note on the
applicable Record Date at its address appearing on the register maintained with
respect to such subclass. Alternatively, upon application in writing to the
Trustee, not later than the applicable Record Date, by a Noteholder of one or
more Definitive Notes of such subclass having an aggregate principal amount of
not less than $1,000,000, any such payments will be made by wire transfer to an
account designated by such Noteholder at a financial institution in New York,
New York; provided that the final payment for each subclass of Notes will be
made only upon presentation and surrender of the Definitive Notes of such
subclass by the Noteholder or its agent (including any holder in street name) at
the office or agency of the Trustee specified in the notice of such final
payment given by the Trustee. The Trustee will mail such notice of the final
payment of such subclass to each of the Noteholders of such subclass, specifying
the date and amount of such final payment.
If any Payment Date or other date specified herein for any payments to
Noteholders is not a Business Day, the payment scheduled to be made on such
Payment Date or other date shall be made on the next succeeding Business Day.
The following table sets forth the Expected Weighted Average Life, the
Expected Final Payment Date and the Final Maturity Date of each subclass of
Notes. The Expected Final Payment Date for each subclass of Notes represents the
date on which the final payment of principal of and interest on such subclass of
Notes is expected to be made based on the Assumptions. The Final Maturity Date
for each subclass of Notes represents the date on which all principal not
previously paid, if any, on the corresponding subclass of Notes is due and
payable. The actual final payment date for each subclass of Notes is likely to
occur earlier or later than the Expected Final Payment Date as a result of
numerous factors, including that the Assumptions are unlikely to correspond to
actual experience. For a description of certain Redemption events and other
factors which could cause the Notes to be paid prior to the Expected Final
Payment Date applicable to each corresponding subclass of Notes, see "-- Payment
of Principal and Interest -- Redemption". Holders of the Subclass A-1 Notes will
receive payments of Step-Up Interest in respect of any amounts Outstanding on
and after the Expected Final Payment Date for such subclass.
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<PAGE> 90
EXPECTED WEIGHTED AVERAGE LIFE, EXPECTED FINAL PAYMENT DATES
AND FINAL MATURITY DATES OF THE NOTES
<TABLE>
<CAPTION>
EXPECTED
WEIGHTED
AVERAGE LIFE EXPECTED FINAL FINAL MATURITY
SUBCLASS OF NOTES IN YEARS PAYMENT DATE DATE
- ----------------- ------------ ------------------ --------------
<S> <C> <C> <C>
Subclass A-1............................. 2.0 March 15, 2000 March 15, 2023
Subclass A-2............................. 3.8 September 15, 2005 March 15, 2023
Subclass B-1............................. 8.6 March 15, 2013 March 15, 2023
Subclass C-1............................. 10.6 March 15, 2013 March 15, 2023
Subclass D-1............................. 12.1 March 15, 2014 March 15, 2023
</TABLE>
ASSUMPTIONS
The Assumptions and tables set forth below represent possible revenue
scenarios designed to illustrate certain payment characteristics of the Notes
and are not intended to be projections, estimates, forecasts or forward-looking
statements. The tables have been developed by fixing certain of the Assumptions
and by varying other Assumptions and certain other factors which affect MSAF
Group's revenues and costs and expenses. The Assumptions do not represent a
complete list of factors which may affect the revenues and costs and expenses of
MSAF Group, but rather indicate those factors which are likely to significantly
affect the performance of MSAF Group in future years. In addition, the range of
possible outcomes with respect to each Assumption and the combinations of
Assumptions set forth above do not indicate a comprehensive set of possible
results for MSAF Group. In particular, more severe stresses may lead to payments
of principal on the Notes being delayed or decreased, or in certain cases, an
Event of Default.
Accordingly, investors should understand that the following tables are
intended merely to illustrate certain, but not all, payment sensitivities of the
Notes to certain, but not all, market and economic stresses. MSAF Group does not
intend to update or revise the information presented to reflect changes
occurring after March 31, 1998. As of the date of this Prospectus, however, MSAF
Group is not aware of events or circumstances since March 31, 1998 that would
cause the Assumptions to be unreliable. It is highly likely that actual
experience will vary from the Assumptions and the possible revenue scenarios
represented by the tables. The principal factors that could cause MSAF Group's
actual revenues to differ materially from such scenarios are the Stresses and
certain "Risk Factors" as set out herein. See "Risk Factors".
REVENUE ASSUMPTIONS:
(i) One month LIBOR remains constant at 5.75% per annum and the U.S.
Treasury rate used for Make-Whole Premium calculations is 5.5%.
(ii) Funds on deposit in the Collection Account and any other cash
balances held by MSAF earn interest at a rate of one month LIBOR.
(iii) Aircraft coming off-lease in the future are assumed to be re-leased
at a monthly rate that is a function of the current contracted
monthly lease rate as of February 1, 1998 for such Aircraft, and the
age of such Aircraft. Lease rates are assumed to remain constant at
the monthly lease rate for the first 60% of an Aircraft's expected
useful life, thereafter declining on a straight-line basis to 40% of
such lease rate over the remainder of its expected useful life (the
"FUTURE LEASE RATE"). All types of Initial Aircraft in the Portfolio
are assumed to have an expected useful life of 25 years (the
"EXPECTED USEFUL LIFE").
(iv) Initial Aircraft are assumed to have no scrap value at the end of
their Expected Useful Life.
(v) All contracted and assumed future payments in respect of the Leases
are timely received by MSAF Group on the due date therefor.
(vi) Future Lease terms are assumed to be five years.
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<PAGE> 91
(vii) No new Purchase Options with respect to the Initial Aircraft are
granted to Lessees by MSAF Group and the only existing Purchase
Option exercised is the option associated with the Conditional Sale
Agreement.
(viii) No new Lease termination or extension options are granted to Lessees
by MSAF Group and no existing termination or extension options are
exercised.
(ix) The Remaining Aircraft are delivered to MSAF Group and with the
exception of the Initial Aircraft sale assumed pursuant to the
Conditional Sale Agreement as detailed in paragraph (vii) above, MSAF
Group sells no Initial Aircraft.
(x) MSAF Group acquires no Additional Aircraft.
(xi) MSAF makes and receives Swap Payments in accordance with the
contracted terms of the Initial Swaps.
(xii) Security deposits, Modification Payments and Subordinated Swap
Payments are assumed to be zero.
The above Assumptions (i) to (xii) are used to determine the assumed gross
monthly revenue to MSAF Group before interest payments, principal payments,
selling, general and administrative expenses and before lost rental payments and
expenditures required due to Aircraft downtime, Lessee defaults, aircraft
repossession costs, bad debts and operating costs incurred in the ordinary
course of the operating lease business ("GROSS REVENUE"). See Appendix 3 to this
Prospectus for further data regarding Gross Revenue.
INTEREST, EXPENSE AND OPERATING COST ASSUMPTIONS:
(xiii) The Notes are issued in amounts and with coupons as set forth in the
following table and payments are made in accordance with the order
of priorities set forth under "-- Priority of Payments".
<TABLE>
<CAPTION>
SUBCLASS OF NOTES AMOUNT MONTHLY COUPON
----------------- ------------ --------------------
($ MILLIONS)
<S> <C> <C>
Subclass A-1................................ 400 1 Month LIBOR+ 0.21%
Subclass A-2................................ 340 1 Month LIBOR+ 0.35%
Subclass B-1................................ 100 1 Month LIBOR+ 0.65%
Subclass C-1................................ 100 6.90%
Subclass D-1................................ 110 8.70%
------
$1,050
======
</TABLE>
(xiv) Refinancing Notes are assumed to be issued and sold on the Expected
Final Payment Date of the Subclass A-1 Notes (and on each subsequent
expected final payment dates of any such Refinancing Notes) on the
same terms with respect to priority, coupon and redemption as the
Notes being refinanced and with maturities and amortization schedules
paid with the application of the Minimum, Scheduled and Supplemental
Principal Payment Amounts. Issuance expenses are assumed to be
one-twelfth of 0.05% of the Outstanding Principal Balance.
(xv) The Servicer's fees are as described under "Management of MSAF Group
-- Servicer" and the results-based incentive fee is assumed to be
equal to 1% of Gross Revenue. The Administrative Agent's fee is as
described in "Management of MSAF Group -- Corporate Management".
MSAF's other selling, general and administrative expenses in the
amount of $1 million per annum are deducted from Gross Revenue and
include fees to the Cash Manager and Financial Advisor.
(xvi) Gross Revenues are reduced each year by 3.5% to account for certain
operating costs incurred in the ordinary course of the operating
lease business including insurance expenses, Aircraft related costs
and leasing transaction expenses.
(xvii) The maximum Beneficial Interest Distribution Amount that can be paid
on any Payment Date in accordance with the above Assumptions is
paid.
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<PAGE> 92
ASSUMED CASE STRESS SCENARIO:
(xviii) Gross Revenues are assumed to be reduced by 4.5% per annum in
respect of lost rental payments and expenditures required due to
AOG, Lessee defaults, aircraft repossession costs and bad debts
("STRESSES"). The following set of Stresses are presented for
illustrative purposes and only represent an example of a
combination of Stresses which result in approximately a 4.5%
reduction in Gross Revenues. Other Stress combinations could result
in Gross Revenue reductions which exceed 4.5%.
<TABLE>
<S> <C> <C>
A: Weighted Average Portfolio Turnover:......... 20% per annum (Assumption (vi))
B: Average Re-marketing Time:................... 4 weeks (.08 years)
C: Weighted Average Default Rate:............... 4% per annum
D: Average Repossession Time:................... 14 weeks (.27 years)
E: Average Repossession Cost:................... $500,000 per Aircraft
F: Weighted Average Bad Debt Expense:........... 1% per annum
</TABLE>
<TABLE>
<S> <C>
AOG = (A X B) + (C X (B + D))
Annual Repossession Expense ("ARE") = (C X(E/Average
Gross Revenue per Aircraft)) (See Appendix 3)
AOG = (20% X .08 yrs) + (4% X (.08 yrs + .27 yrs)).......... 3.0%
ARE = (4% X 13%)............................................ 0.5
Bad Debt Expense............................................ +1.0
-----
Stress Related Gross Revenue Reduction...................... 4.5%
Operating costs (see Assumption (xvi))...................... +3.5
-----
Gross Revenue Reduction in the assumed case................. 8.0%
=====
</TABLE>
Increasing the above Stresses would result in a greater reduction in annual
Gross Revenues. The following table shows the effect upon Gross Revenues of
doubling the severity of each Stress (other than Average Repossession Cost)
outlined in the above example (in each case holding other Stresses unchanged).
<TABLE>
<CAPTION>
GROSS
REVENUE
STRESS SEVERITY REDUCTION
- ------ ------------- ---------
<S> <C> <C>
Portfolio Turnover........................... 40% per annum 9.6%
Re-marketing Time............................ 8 weeks 9.9%
Default Rate................................. 8% per annum 9.9%
Repossession Time............................ 28 weeks 9.1%
Bad Debt Expense............................. 2% per annum 9.0%
</TABLE>
It is highly likely that actual experience will differ from the Assumptions
and the Stresses and, therefore, principal payments on certain Notes will likely
occur earlier or later, and may occur significantly earlier or later, than
assumed.
PRINCIPAL REPAYMENTS UNDER THE ASSUMED CASE
The table below shows, for each Payment Date presented, the percentage of
the initial Outstanding Principal Balance of the aggregate Class A Notes,
including Refinancing Notes, and the Subclass A-1, Subclass A-2, Subclass B-1,
Subclass C-1 and Subclass D-1 Notes expected to be Outstanding on such Payment
Date based on the Assumptions. It is highly unlikely that the Assumptions will
correspond to actual experience. Therefore, principal payments on the Notes may
occur earlier or later than as set forth in the table. The failure of MSAF to
pay principal of any subclass of the Notes prior to the Final Maturity Date of
such subclass because funds are not available therefor in accordance with the
order of priorities described under "-- Priority of Payments" will not
constitute an Event of Default.
86
<PAGE> 93
PERCENT OF INITIAL PRINCIPAL BALANCE OF THE
NOTES BASED ON THE ASSUMED CASE(1)
<TABLE>
<CAPTION>
AGGREGATE CLASS A
NOTES, INCLUDING
PAYMENT DATE OCCURRING IN MARCH A-1 A-2 REFINANCING NOTES B-1 C-1 D-1
------------------------------- ---- ---- ----------------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1998 (March 3, 1998).................. 100% 100% 100% 100% 100% 100%
1999.................................. 100% 87% 94% 96% 100% 100%
2000.................................. 0% 74% 88% 92% 100% 100%
2001.................................. 0% 61% 82% 88% 99% 100%
2002.................................. 0% 48% 76% 83% 97% 99%
2003.................................. 0% 34% 69% 78% 94% 98%
2004.................................. 0% 19% 63% 71% 89% 96%
2005.................................. 0% 6% 57% 64% 84% 93%
2006.................................. 0% 0% 51% 57% 77% 88%
2007.................................. 0% 0% 45% 50% 70% 83%
2008.................................. 0% 0% 39% 42% 61% 76%
2009.................................. 0% 0% 33% 33% 51% 67%
2010.................................. 0% 0% 28% 24% 40% 57%
2011.................................. 0% 0% 22% 15% 28% 45%
2012.................................. 0% 0% 18% 7% 14% 32%
2013.................................. 0% 0% 12% 0% 0% 17%
2014.................................. 0% 0% 6% 0% 0% 0%
Weighted Average Life (Years)(2)...... 2.0 3.8 8.4 8.6 10.6 12.1
</TABLE>
- ---------------
(1) See Appendices 3 and 9, respectively, for further data regarding Gross
Revenues and Pool Factors.
(2) The weighted average life of a Note equals (i) the sum of the products on
each Payment Date of (A) the principal payments assumed to be made on such
Payment Date and (B) the number of years from the date of issuance of such
Note to such Payment Date (ii) divided by the Initial Principal Balance of
such Note ("WEIGHTED AVERAGE LIFE").
DECLINING BALANCES OF THE NOTES AND ASSUMED PORTFOLIO VALUE
BASED ON THE ASSUMED CASE
In each of the following tables, "EXPECTED MATURITY" means the period
(expressed in years) from March 3, 1998 through the expected final payment of
principal of the relevant Notes.
87
<PAGE> 94
EFFECT OF INABILITY TO REFINANCE SUBCLASS A-1 NOTES
The table below is based on the Assumptions, except that no Refinancing
Notes are assumed to be issued and sold and the Subclass A-1 Notes are assumed
to amortize according to the Priority of Payments. If such Refinancings do not
occur, the Expected Maturities ("EXP") and Weighted Average Lives ("AVG") of the
respective subclasses of Notes would be as set forth below.
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF NOTES
<TABLE>
<CAPTION>
EXPECTED MATURITY/
WEIGHTED AVERAGE LIFE
--------------------------------
ASSUMED CASE NO REFINANCINGS
------------- ---------------
EXP AVG EXP AVG
---- ---- ----- -----
<S> <C> <C> <C> <C>
Subclass A-1................................................ 2.0 2.0 17.3 12.6
Subclass A-2................................................ 7.5 3.8 8.9 4.0
Subclass B-1................................................ 15.0 8.6 15.0 8.6
Subclass C-1................................................ 15.0 10.6 15.0 10.6
Subclass D-1................................................ 16.0 12.1 16.3 12.6
</TABLE>
MINIMUM REVENUE PERCENTAGE REQUIRED TO RETIRE NOTES
The table below indicates the minimum percentage of Gross Revenue that will
be necessary to repay all interest and principal on each class of Notes by their
respective Final Maturity Dates. If the actual revenue received by MSAF Group
were to fall below the percentages of Gross Revenue indicated below and all of
the other Assumptions were to occur as assumed, MSAF would be unable to meet its
required payment obligations which would constitute an Event of Default with
respect to the Notes.
PERCENTAGE OF GROSS REVENUE NECESSARY TO REPAY THE
NOTES BY THE APPLICABLE FINAL MATURITY DATE ASSUMING ACTUAL
EXPERIENCE CORRESPONDS TO THE ASSUMED CASE UNTIL THE BEGINNING OF THE YEAR
STATED
<TABLE>
<CAPTION>
MARCH 3, 1998 YEAR 3 YEAR 6 YEAR 10
------------- ------ ------ -------
<S> <C> <C> <C> <C>
Aggregate Class A Notes............................... 59.4% 58.2% 54.7% 47.5%
Subclass B-1 Notes.................................... 67.1% 65.7% 61.6% 53.0%
Subclass C-1 Notes.................................... 75.8% 74.2% 70.6% 61.4%
Subclass D-1 Notes.................................... 84.8% 83.3% 80.0% 72.1%
</TABLE>
88
<PAGE> 95
EFFECT OF A PERMANENT CHANGE IN GROSS REVENUE
The tables below have been prepared based on the Assumptions, except that
the revenue received by MSAF Group varies from Gross Revenues by the indicated
percentages, beginning in years 3 and 6. If the actual revenues received by MSAF
Group were to vary as indicated below and all of the other Assumptions were to
occur as assumed, then the Expected Maturities and Weighted Average Lives of the
respective subclasses of Notes would be as set forth below.
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF NOTES
ASSUMING A PERMANENT CHANGE IN GROSS REVENUE, BEGINNING IN YEAR 3
<TABLE>
<CAPTION>
PERMANENT CHANGE IN GROSS REVENUE
--------------------------------------------------------------------
+10% 0% -8%* -15% -20%
----------- ----------- ----------- ----------- ------------
EXP AVG EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subclass A-1........................ 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
Subclass A-2........................ 5.9 3.2 6.4 3.4 7.5 3.8 8.9 4.4 9.2 4.6
Subclass B-1........................ 11.2 6.8 12.0 8.0 15.0 8.6 18.5 9.2 18.5 9.2
Subclass C-1........................ 11.0 9.2 14.0 10.5 15.0 10.6 20.0 14.2 20.0 14.7
Subclass D-1........................ 9.7 7.6 13.5 11.3 16.0 12.1 21.3 16.9 (1)
</TABLE>
- ---------------
*Assumed case
(1) Not all principal repaid prior to the Final Maturity Date. (Yield = 6.17%)
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF NOTES
ASSUMING A PERMANENT CHANGE IN GROSS REVENUE, BEGINNING IN YEAR 6
<TABLE>
<CAPTION>
PERMANENT CHANGE IN GROSS REVENUE
-------------------------------------------------------------------
+10% 0% -8%* -15% -20%
----------- ----------- ----------- ----------- -----------
EXP AVG EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subclass A-1......................... 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
Subclass A-2......................... 6.6 3.7 7.0 3.8 7.5 3.8 8.9 4.0 8.9 4.1
Subclass B-1......................... 12.0 7.6 13.8 8.5 15.0 8.6 15.0 8.6 18.5 9.2
Subclass C-1......................... 12.8 10.2 14.7 10.6 15.0 10.6 17.4 12.2 20.0 14.0
Subclass D-1......................... 12.2 10.4 14.6 11.8 16.0 12.1 19.5 15.5 24.9 18.9
</TABLE>
- ---------------
*Assumed case
89
<PAGE> 96
EFFECT OF PERMANENT DECLINE IN PORTFOLIO VALUE
To the extent that the Adjusted Portfolio Value is significantly less than
the Assumed Portfolio Value, the Scheduled Principal Payment Amount payable to
holders of the Class A Notes may be increased. See "-- Principal Amortization".
Payment of such increased amount may shorten the Weighted Average Lives of the
Class A Notes and lengthen the Weighted Average Lives of the subclasses of Notes
that rank behind the Class A Notes in priority of payment. The following tables
show the Expected Maturity and Weighted Average Life of each subclass of Notes
if the Adjusted Portfolio Value was to permanently decline to a given percentage
of the Assumed Portfolio Value, beginning in years 1 and 5, respectively.
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF NOTES
ASSUMING A PERMANENT CHANGE IN PORTFOLIO VALUE, BEGINNING IN YEAR 1
<TABLE>
<CAPTION>
ADJUSTED PORTFOLIO VALUE AS PERCENTAGE OF
ASSUMED PORTFOLIO VALUE BEGINNING IN YEAR 1
-----------------------------------------------------
100%* 90% 80% 70%
----------- ----------- ----------- -----------
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subclass A-1.................................... 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
Subclass A-2.................................... 7.5 3.8 7.5 3.8 7.0 3.7 7.0 3.7
Subclass B-1.................................... 15.0 8.6 15.0 8.6 15.0 8.6 15.0 8.6
Subclass C-1.................................... 15.0 10.6 15.0 10.6 15.0 10.9 15.0 11.4
Subclass D-1.................................... 16.0 12.1 16.0 12.1 16.0 12.3 16.0 13.5
</TABLE>
- ---------------
*Assumed case
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF NOTES
ASSUMING A PERMANENT CHANGE IN PORTFOLIO VALUE, BEGINNING IN YEAR 5
<TABLE>
<CAPTION>
ADJUSTED PORTFOLIO VALUE AS PERCENTAGE OF
ASSUMED PORTFOLIO VALUE BEGINNING IN YEAR 5
-----------------------------------------------------
100%* 90% 80% 70%
----------- ----------- ----------- -----------
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subclass A-1.................................... 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
Subclass A-2.................................... 7.5 3.8 7.5 3.8 7.0 3.7 7.0 3.7
Subclass B-1.................................... 15.0 8.6 15.0 8.6 15.0 8.6 15.0 8.6
Subclass C-1.................................... 15.0 10.6 15.0 10.6 15.0 10.8 15.0 11.3
Subclass D-1.................................... 16.0 12.1 16.0 12.1 16.0 12.3 16.0 13.5
</TABLE>
- ---------------
*Assumed case
EFFECT OF CYCLICAL VARIATIONS IN GROSS REVENUE AND PORTFOLIO VALUE --
"RECESSION SCENARIOS"
Historically, the aviation industry has experienced cyclical swings in the
supply and demand for aircraft. MSAF Group would be negatively affected by a
decline in the demand for aircraft. Such a decline or "RECESSION" (as used in
this discussion) is assumed to result in a decline in Aircraft values and an
increase in defaults and downtime, as well as a decline in operating lease
rental rates. These effects would result in a decline in Gross Revenues.
90
<PAGE> 97
The following tables have been prepared on the basis of a number of
assumptions to show the effect on Expected Maturities and Weighted Average Lives
of Subclass B-1, Subclass C-1 and Subclass D-1 Notes if recessions having given
durations were to occur at certain given times in the future. Actual experience
will likely differ from that which is assumed and, therefore, Expected
Maturities and Weighted Average Lives of the Notes actually experienced will
likely differ from those shown in the tables below. In preparing the following
tables it has been assumed that a recession would have the following effect on
MSAF Group: First, Aircraft values would fall on the first day of the recession
to a given percentage of the Assumed Portfolio Value which, in turn, may trigger
payment of increased Scheduled Principal Payment Amounts on the Class A Notes if
amounts are available to do so. Second, after a period of two years following
the first day of the recession, Gross Revenues fall by a given percentage as
Aircraft are re-leased or Lessees default which would result in less cash flow
being available to make payments of interest and principal on the Notes. Third,
the recession lasts a given period of time followed by the Adjusted Portfolio
Value returning to the then Assumed Portfolio Value on the first day after the
recession and, two years following the end of the recession, Gross Revenues
returning to the Assumed Case. However, MSAF Group can give no assurance that
periods of weak traffic growth and lower demand for aircraft will be followed by
periods of strong growth and high demand for aircraft nor can it be assured that
following a recession Aircraft values and Gross Revenues will return to assumed
case levels.
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF SUBCLASS B-1
NOTES ASSUMING A RECESSION LASTING THREE YEARS
<TABLE>
<S> <C> <C> <C> <C>
DECLINE IN GROSS REVENUES..................... 0% 8%* 10% 20%
ADJUSTED PORTFOLIO VALUE AS A PERCENTAGE OF
ASSUMED PORTFOLIO VALUE..................... 100% 100%* 90% 80%
</TABLE>
<TABLE>
<CAPTION>
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Recession begins at start of
Year......................... 1 (Closing Date) 15.0 8.6 15.0 8.6 15.0 8.6 15.0 8.6
3 15.0 8.6 15.0 8.6 15.0 8.6 15.0 8.6
5 15.0 8.6 15.0 8.6 15.0 8.6 15.0 8.6
10 15.0 8.6 15.0 8.6 15.0 8.6 15.0 8.6
</TABLE>
- ---------------
*Assumed case
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF SUBCLASS B-1
NOTES ASSUMING A RECESSION LASTING FIVE YEARS
<TABLE>
<S> <C> <C> <C> <C>
DECLINE IN GROSS REVENUES..................... 0% 8%* 10% 20%
ADJUSTED PORTFOLIO VALUE AS A PERCENTAGE OF
ASSUMED PORTFOLIO VALUE..................... 100% 100%* 90% 80%
</TABLE>
<TABLE>
<CAPTION>
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Recession begins at start of
Year......................... 1 (Closing Date) 14.8 8.6 15.0 8.6 15.0 8.6 16.3 9.1
3 15.0 8.6 15.0 8.6 15.0 8.6 15.0 8.6
5 15.0 8.6 15.0 8.6 15.0 8.6 15.0 8.7
10 15.0 8.6 15.0 8.6 15.0 8.6 15.0 8.6
</TABLE>
- ---------------
*Assumed case
91
<PAGE> 98
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF SUBCLASS C-1
NOTES ASSUMING A RECESSION LASTING THREE YEARS
<TABLE>
<S> <C> <C> <C> <C>
DECLINE IN GROSS REVENUES..................... 0% 8%* 10% 20%
ADJUSTED PORTFOLIO VALUE AS A PERCENTAGE OF
ASSUMED PORTFOLIO VALUE..................... 100% 100%* 90% 80%
</TABLE>
<TABLE>
<CAPTION>
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Recession begins at start of
Year......................... 1 (Closing Date) 15.0 10.6 15.0 10.6 15.0 10.6 15.6 11.1
3 15.0 10.6 15.0 10.6 15.0 10.6 15.1 10.9
5 15.0 10.6 15.0 10.6 15.0 10.6 15.0 10.9
10 15.0 10.6 15.0 10.6 15.0 10.6 15.0 10.7
</TABLE>
- ---------------
*Assumed case
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF SUBCLASS C-1
NOTES ASSUMING A RECESSION LASTING FIVE YEARS
<TABLE>
<S> <C> <C> <C> <C>
DECLINE IN GROSS REVENUES..................... 0% 8%* 10% 20%
ADJUSTED PORTFOLIO VALUE AS A PERCENTAGE OF
ASSUMED PORTFOLIO VALUE..................... 100% 100%* 90% 80%
</TABLE>
<TABLE>
<CAPTION>
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Recession begins at start of
Year........................... 1 (Closing Date) 15.0 10.6 15.0 10.6 15.0 10.6 18.2 14.1
3 15.0 10.6 15.0 10.6 15.0 10.6 17.2 13.2
5 15.0 10.6 15.0 10.6 15.0 10.6 16.3 12.2
10 15.0 10.6 15.0 10.6 15.0 10.6 15.0 10.8
</TABLE>
- ---------------
*Assumed case
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF SUBCLASS D-1
NOTES ASSUMING A RECESSION LASTING THREE YEARS
<TABLE>
<S> <C> <C> <C> <C>
DECLINE IN GROSS REVENUES..................... 0% 8%* 10% 20%
ADJUSTED PORTFOLIO VALUE AS A PERCENTAGE OF
ASSUMED PORTFOLIO VALUE..................... 100% 100%* 90% 80%
</TABLE>
<TABLE>
<CAPTION>
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Recession begins at start of
Year........................... 1 (Closing Date) 15.9 12.1 16.0 12.1 16.0 12.3 17.9 15.2
3 16.0 12.1 16.0 12.1 16.0 12.2 17.5 14.7
5 16.0 12.1 16.0 12.1 16.0 12.1 17.1 14.0
10 16.0 12.1 16.0 12.1 16.0 12.1 16.5 12.9
</TABLE>
- ---------------
*Assumed case
92
<PAGE> 99
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF SUBCLASS D-1
NOTES ASSUMING A RECESSION LASTING FIVE YEARS
<TABLE>
<S> <C> <C> <C> <C>
DECLINE IN GROSS REVENUES..................... 0% 8%* 10% 20%
ADJUSTED PORTFOLIO VALUE AS A PERCENTAGE OF
ASSUMED PORTFOLIO VALUE..................... 100% 100%* 90% 80%
</TABLE>
<TABLE>
<CAPTION>
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Recession begins at start of
Year........................... 1 (Closing Date) 15.3 12.0 16.0 12.1 16.0 12.4 19.9 16.6
3 15.5 12.1 16.0 12.1 16.0 12.3 19.0 16.1
5 15.6 12.1 16.0 12.1 16.0 12.2 18.3 15.7
10 16.0 12.1 16.0 12.1 16.0 12.1 17.2 13.8
</TABLE>
- ---------------
*Assumed case
EFFECT OF CHANGES IN GROSS REVENUES ON YIELDS OF FIXED RATE NOTES
The tables below have been prepared based on the Assumptions, except that
the revenue received by MSAF Group varies from Gross Revenues by the indicated
percentages, beginning in certain years, for a period of three years in one case
and permanently in the other. If the actual revenues received by MSAF Group were
to vary as indicated below and all of the other Assumptions were to occur as
assumed, then the yield to maturity for the Subclass C-1 and Subclass D-1 Notes
would be as set forth below. If significant declines in Gross Revenues were to
occur, there may not be sufficient revenues available to meet interest payments
(as well as principal payments) on the Notes. In such cases, interest on the
Notes would be deferred.
YIELD, DATE OF FIRST DEFERRAL AND NUMBER OF MONTHS IN WHICH INTEREST IS DEFERRED
ON THE SUBCLASS C-1 NOTES GIVEN THE ASSUMPTIONS BUT WITH A THREE YEAR CHANGE IN
GROSS REVENUE OF THE MAGNITUDE SHOWN
<TABLE>
<CAPTION>
CHANGE IN GROSS REVENUES BEGINNING IN YEAR:
------------------------------------------------------------------------------------------
3 6 9
---------------------------- ---------------------------- ----------------------------
DATE OF MONTHS OF DATE OF MONTHS OF DATE OF MONTHS OF
YIELD DEFERRAL DEFERRALS YIELD DEFERRAL DEFERRALS YIELD DEFERRAL DEFERRALS
----- -------- --------- ----- -------- --------- ----- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase of 10%.................. 7.01% none 0 7.01% none 0 7.01% none 0
Decrease of 8%*.................. 7.01% none 0 7.01% none 0 7.01% none 0
Decrease of 20%.................. 7.01% none 0 7.01% none 0 7.01% none 0
Decrease of 30%.................. 7.01% none 0 7.01% none 0 7.01% none 0
</TABLE>
YIELD, DATE OF FIRST DEFERRAL AND NUMBER OF MONTHS IN WHICH INTEREST IS DEFERRED
ON THE SUBCLASS C-1 NOTES GIVEN THE ASSUMPTIONS BUT WITH A PERMANENT CHANGE IN
GROSS REVENUE OF THE MAGNITUDE SHOWN
<TABLE>
<CAPTION>
CHANGE IN GROSS REVENUES BEGINNING IN YEAR:
------------------------------------------------------------------------------------------
3 6 9
---------------------------- ---------------------------- ----------------------------
DATE OF MONTHS OF DATE OF MONTHS OF DATE OF MONTHS OF
YIELD DEFERRAL DEFERRALS YIELD DEFERRAL DEFERRALS YIELD DEFERRAL DEFERRALS
----- -------- --------- ----- -------- --------- ----- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase of 10%.................. 7.12% none 0 7.04% none 0 7.01% none 0
Decrease of 8%*.................. 7.01% none 0 7.01% none 0 7.01% none 0
Decrease of 20%.................. 7.01% none 0 7.01% none 0 7.01% none 0
Decrease of 30%.................. 3.38% Jul-03 237 6.72% Apr-07 122 7.01% May-11 17
</TABLE>
93
<PAGE> 100
YIELD, DATE OF FIRST DEFERRAL AND NUMBER OF MONTHS IN WHICH INTEREST IS DEFERRED
ON THE SUBCLASS D-1 NOTES, GIVEN THE ASSUMPTIONS BUT WITH A THREE YEAR CHANGE IN
GROSS REVENUE OF THE MAGNITUDE SHOWN
<TABLE>
<CAPTION>
CHANGE IN GROSS REVENUES BEGINNING IN YEAR:
------------------------------------------------------------------------------------------
3 6 9
---------------------------- ---------------------------- ----------------------------
DATE OF MONTHS OF DATE OF MONTHS OF DATE OF MONTHS OF
YIELD DEFERRAL DEFERRALS YIELD DEFERRAL DEFERRALS YIELD DEFERRAL DEFERRALS
----- -------- --------- ----- -------- --------- ----- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase of 10%.................. 8.86% none 0 8.86% none 0 8.86% none 0
Decrease of 8%*.................. 8.86% none 0 8.86% none 0 8.86% none 0
Decrease of 20%.................. 8.86% none 0 8.86% none 0 8.86% none 0
Decrease of 30%.................. 8.86% none 0 8.86% none 0 8.86% none 0
</TABLE>
- ---------------
*Assumed case
YIELD, DATE OF FIRST DEFERRAL AND NUMBER OF MONTHS IN WHICH INTEREST IS DEFERRED
ON THE SUBCLASS D-1 NOTES, GIVEN THE ASSUMPTIONS BUT WITH A PERMANENT CHANGE IN
GROSS REVENUE OF THE MAGNITUDE SHOWN
<TABLE>
<CAPTION>
CHANGE IN GROSS REVENUES BEGINNING IN YEAR:
---------------------------------------------------------------------------------------------
3 6 9
------------------------------ ----------------------------- ----------------------------
DATE OF MONTHS OF DATE OF MONTHS OF DATE OF MONTHS OF
YIELD DEFERRAL DEFERRALS YIELD DEFERRAL DEFERRALS YIELD DEFERRAL DEFERRALS
------- -------- --------- ------ -------- --------- ----- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase of 10%.............. 9.21% none 0 8.90% none 0 8.86% none 0
Decrease of 8%*.............. 8.86% none 0 8.86% none 0 8.86% none 0
Decrease of 20%.............. 6.17% Jul-07 189 8.86% May-13 15 8.86% none 0
Decrease of 30%.............. -25.02% Jun-03 238 -3.88% Apr-07 192 7.00% May-11 143
</TABLE>
- ---------------
*Assumed case
EFFECT OF PRINCIPAL ALLOCATION ACCORDING TO THE EXTENDED POOL FACTOR ONLY FOR
THE SUBCLASS A-2, SUBCLASS B-1, SUBCLASS C-1 AND SUBCLASS D-1 NOTES.
The following table has been prepared on the basis of a number of
assumptions to show the effect on Expected Maturities and Weighted Average Lives
of Subclass A-2, Subclass B-1, Subclass C-1 and Subclass D-1 Notes if subclasses
of Additional Notes are issued to fund the acquisition of Additional Aircraft
but Gross Revenues from the Aircraft are only sufficient to amortize such
subclasses with the application of Available Collections in accordance with the
applicable Extended Pool Factors in accordance with clause "First" under "--
Allocation of Principal Among Subclasses of Notes".
<TABLE>
<CAPTION>
SUBCLASSES OF NOTES EXP. AVG.
------------------- ---- ----
<S> <C> <C>
Subclass A-2 Notes.......................................... 8.9 4.9
Subclass B-1 Notes.......................................... 16.0 9.6
Subclass C-1 Notes.......................................... 17.0 12.6
Subclass D-1 Notes.......................................... 18.0 14.1
</TABLE>
PAYMENT OF PRINCIPAL AND INTEREST
GENERAL
Pursuant to the terms of the Leases, the Lessees are obliged to make rental
payments and certain other payments (collectively, the "RENTAL PAYMENTS") to
certain subsidiaries of MSAF. Pursuant to the terms of the Leases, all Rental
Payments and certain other amounts will be made directly to the Rental Account
held in the name of the Security Trustee on behalf of the Secured Parties.
Unsegregated amounts received by MSAF Group in respect of the assets of MSAF
Group will be transferred directly to the Collection Account pursuant to the
Indenture and the Administrative Agency Agreement. Any amounts received by MSAF
Group which are required to be segregated will be transferred to the Lessee
Funded Account. On the
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<PAGE> 101
basis of the Assumptions, such Rental Payments, together with such other
amounts, are expected to be sufficient to pay the principal, interest and
premium, if any, on the Notes and all other amounts payable by MSAF Group to the
creditors referred to in the Administrative Agency Agreement, including the
Servicer, the Trustee, the Cash Manager, the Administrative Agent, the Financial
Advisor and each Swap Provider in each case when and as due.
The Notes constitute direct obligations of MSAF and are subordinated to the
Expenses and certain obligations and pari passu or senior to certain other
obligations specified in the Indenture. The only source of payment for the Notes
and the obligations of MSAF to creditors is (i) the payments made by the Lessees
under the Leases, (ii) payments or drawdowns under any credit or liquidity
enhancement facility, (iii) proceeds from dispositions, if any, of the assets of
MSAF Group, (iii) net payments, if any, under the Swap Agreements and (iv) net
cash proceeds received from the sale of Refinancing Notes. See "-- Payment of
Principal and Interest" and "-- Priority of Payments".
Each class and subclass of the Notes has the priority set forth in the
Indenture and the Notes. Pursuant to the subordination provisions of the
Indenture and the various classes of Notes, no payment of principal, interest
and premium, if any, on any class of Notes may be made on any Payment Date
unless certain required payments have been made in respect of the Notes of each
class ranking prior to such class of Notes on such Payment Date. The
subordination provisions contained in the Indenture may not be amended or
modified without the consent of each Swap Provider, each holder of the class of
Notes affected thereby and each holder of any class of Notes ranking senior to
such Notes. In no event shall the provisions relating to the priority of the
Expenses or any payments under Swap Agreements in the Indenture be amended or
modified.
In addition, the Administrative Agent, on behalf of MSAF, may replace the
bank with which the Accounts are held (1) if such bank fails to maintain a
short-term unsecured debt rating of A-1+ by Standard & Poor's, P-1 by Moody's or
D-1+ by DCR or better by each Rating Agency (or A-1 by Standard & Poor's, P-1 by
Moody's or D-1 by DCR or better if the amount on deposit at any time in any
Accounts held with such bank does not exceed 20% of the Outstanding Principal
Balance of the Notes for any period in excess of 30 days), (2) if such bank is
adjudged a bankrupt or an insolvent, (3) if a receiver or public officer takes
charge of such bank or its property, (4) if such bank becomes incapable of
acting or (5) upon 120 days' notice, for any reason, with Rating Agency
approval.
Holders of each class of Notes (other than Class A Notes) will not be
permitted to give a Default Notice with respect to any Event of Default or to
exercise any remedy in respect of such Event of Default until all amounts with
respect to Notes of each class ranking senior to such class of Notes have been
paid in full. See "-- Events of Default and Remedies".
INTEREST
Each Note will bear interest on the Outstanding Principal Balance thereof
from March 3, 1998, payable monthly in arrears on each Payment Date. The initial
Interest Accrual Period is the period commencing on and including March 3, 1998,
and ending on but excluding the first Payment Date. Each subsequent Interest
Accrual Period will include each period from and including the last preceding
Payment Date to but excluding the next succeeding Payment Date. The final
Interest Accrual Period with respect to each subclass of Notes will end on but
exclude the Final Maturity Date, or, if earlier, the date upon which all
principal, interest and premium, if any, on such subclass of Notes is paid in
full. Each subclass of Notes will bear interest for each Interest Accrual Period
at the rate per annum set forth on the cover page of this Prospectus.
Interest on the Subclass A-1, A-2 and B-1 Notes will be calculated on the
basis of a 360-day year and the actual number of days elapsed in an Interest
Accrual Period. Interest on Subclass C-1 and D-1 Notes will be calculated on the
basis of one-twelfth of an annual interest payment on the Outstanding Principal
Balance and in the case of an incomplete Interest Accrual Period on the basis of
a 360-day year consisting of twelve 30-day months.
The interest rate borne by the Subclass A-1 Notes will increase after the
Expected Final Payment Date of such subclass, to the extent such Notes are then
Outstanding, by the amount of Step-Up Interest. Payments
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<PAGE> 102
of Step-Up Interest on the Subclass A-1 Notes and any Step-Up Interest on
Additional Notes and Refinancing Notes will be subordinated to certain other
obligations of MSAF Group, including the payment of the Minimum Principal
Payment Amounts and Scheduled Principal Payment Amounts with respect to, and
accrued and unpaid interest on, the MSAF Notes, and will not be rated by the
Rating Agencies. See "-- Priority of Payments".
REFERENCE AGENCY AGREEMENT
For the purpose of calculating the rate of interest payable on the Subclass
A-1, A-2 and B-1 Notes, MSAF has entered into the Reference Agency Agreement
with the Trustee, Bankers Trust Company, as reference agent (the "REFERENCE
AGENT") and the Administrative Agent. The Reference Agent will determine LIBOR
for each Interest Accrual Period following the Initial Interest Accrual Period,
on a Reference Date (a date that is two Business Days before the Payment Date on
which such Interest Accrual Period commences). The Reference Agent will
determine LIBOR in accordance with the following provisions of the Reference
Agency Agreement:
On each Reference Date, the Reference Agent will determine LIBOR as the per
annum offered rate for deposits in U.S. dollars for a period of one month that
appears on the display designated as page "3750" on the Telerate Monitor (or
such other page or service as may replace it for the purpose of displaying LIBOR
of major banks for U.S. dollar deposits) at approximately 11:00 a.m. (London
time).
If the offered rate so appearing is replaced by the corresponding rates of
more than one bank then the determination described in the foregoing paragraph
shall be made, with any necessary consequential changes, on the basis of the
arithmetic mean of the rates (being at least two) which so appear, as determined
by the Reference Agent. If for any other reason such offered rate does not so
appear, or if the relevant page is unavailable, the Reference Agent will request
that each of the banks whose offered rates would have been used for the purposes
of the relevant page if the event leading to the application of this sentence
had not happened or any duly appointed substitute reference bank acting in each
case through its principal London office (the "REFERENCE BANKS"), to provide the
Reference Agent with its offered quotation to prime banks for dollar deposits in
London for the next Interest Accrual Period concerned as at 11:00 a.m. (London
time) on the applicable Reference Date. The floating rates of interest for such
Interest Accrual Period for each subclass of Subclass A-1, A-2 and B-1 Notes
shall be the aggregate of the arithmetic mean of such quotations (or of such of
them, being at least two, as are so provided), as determined by the Reference
Agent, plus the applicable interest rate spread over LIBOR set forth opposite
such subclass on the cover page of this Prospectus, plus Step-Up Interest, if
applicable.
If, on any Reference Date, one only or none of the Reference Banks provides
such quotation, the interest rate for the next Interest Accrual Period shall be
the rate per annum which the Reference Agent determines to be the aggregate of
the arithmetic mean of the U.S. dollar lending rates which New York City banks
selected by the Reference Agent are quoting on the relevant Reference Date to
leading European banks for the next Interest Accrual Period, plus the applicable
interest rate spread over LIBOR set forth opposite such subclass on the cover
page of this Prospectus, plus, if applicable, any Step-up Interest, except that,
if the banks so selected by the Reference Agent are not quoting as mentioned
above, the applicable rate of interest shall be the interest rate in effect for
the last preceding Interest Accrual Period.
Once having obtained LIBOR or its substitute, the Reference Agent will
calculate the interest rate for each subclass of Subclass A-1, A-2 and B-1 Notes
and the amount of interest payable on the relevant Payment Date in respect of
each subclass of Subclass A-1, A-2 and B-1 Notes. The interest amount for each
subclass of Subclass A-1, A-2 and B-1 Notes will be calculated by the Reference
Agent by multiplying the rate of interest for such subclass for the relevant
Interest Accrual Period by the estimated Outstanding Principal Balance of such
subclass of Subclass A-1, A-2 and B-1 Notes on the first day of such Interest
Accrual Period and by multiplying the product by the actual number of days in
such Interest Accrual Period divided by 360 and rounding the resulting amount to
the nearest cent (with half a cent being rounded upwards). The Reference Agent's
determination of LIBOR, the interest rate and the interest amount for each
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<PAGE> 103
subclass of Subclass A-1, A-2 and B-1 Notes (in the absence of negligence,
wilful default, bad faith or manifest error) will be conclusive and binding upon
all parties.
As promptly as is practicable after the determination thereof, the
Reference Agent will give notice of applicable LIBOR, the Payment Date, the
interest rate for each subclass of Subclass A-1, A-2 and B-1 Notes for the
relevant Interest Accrual Period and the amount of interest on each subclass of
Subclass A-1, A-2 and B-1 Notes to MSAF, the Listing Agent, the Luxembourg Stock
Exchange and the Administrative Agent. Noteholders may obtain such information
at the offices of the Listing Agent or paying agent in Luxembourg or otherwise
in the Cash Reports provided to Noteholders by the Trustee on the second
Business Day before each Payment Date and any other date for distribution of any
payments with respect to the Notes.
If the Reference Agent does not determine the interest rate for each
subclass of Subclass A-1, A-2 and B-1 Notes or calculate the amount of interest
on each subclass of Subclass A-1, A-2 and B-1 Notes for the relevant Interest
Accrual Period in accordance with the provisions described above, the
Administrative Agent will determine such rate of interest or calculate such
interest amount in accordance with the provisions described above, and each such
determination or calculation will be deemed to have been made by the Reference
Agent.
MSAF reserves the right to terminate the appointment of the Reference Agent
at any time on 30 days' notice and to appoint a replacement reference agent in
its place. Notice of any such termination will be given to the holders of the
Subclass A-1, A-2 and B-1 Notes. The Reference Agent may not be removed or
resign its duties without a successor having been appointed.
PRINCIPAL AMORTIZATION
With respect to each class of the Notes, there may be distributed on any
Payment Date, to the extent there are sufficient funds in the Collection
Account, the sum of the Minimum Principal Payment Amount, if any, the Scheduled
Principal Payment Amount, if any, and, with respect to the Class A and B Notes
only, the Supplemental Principal Payment Amount, if any, and, principal
redemptions pursuant to priorities (xxi) through (xxiv) set forth under "--
Priority of Payments". If MSAF issues any Additional Notes or Refinancing Notes,
each such issuance constitutes a new and subsequent subclass of the respective
class of Notes. See "-- Allocation of Principal among Subclasses of Notes".
Minimum Principal Payment Amount. With respect to each class of the Notes,
the "MINIMUM PRINCIPAL PAYMENT AMOUNT" on any Payment Date will equal the
difference, if positive, between the Outstanding Principal Balance of such class
and the Minimum Target Principal Balance for such class on such Payment Date.
On each Payment Date, the "MINIMUM TARGET PRINCIPAL BALANCE" for the Class
A and B Notes will equal the product of (i) the applicable "MINIMUM CLASS
PERCENTAGE" on such Payment Date (as set forth in Appendices 5 and 6 to this
Prospectus) and (ii) the Assumed Portfolio Value (as set forth in Appendix 4 to
this Prospectus with respect to the Initial Aircraft) in respect of such Payment
Date; provided that with respect to only the Class A Notes, if on any Payment
Date the Outstanding Principal Balance of the Class A Notes (including
Refinancing Notes and Additional Notes) is greater than the Adjusted Portfolio
Value in respect of such Payment Date, then the Minimum Target Principal Balance
of the Class A Notes shall be equal to the Scheduled Target Principal Balance of
the Class A Notes.
For each Payment Date, the Minimum Target Principal Balance for the Class C
and D Notes is set out in Appendices 7 and 8 to this Prospectus.
In respect of each Payment Date, the "ASSUMED PORTFOLIO VALUE" with respect
to the Initial Aircraft will equal the aggregate sum of the products of (A) the
Initial Appraised Value of each Aircraft in the Portfolio on the Calculation
Date preceding such Payment Date and (B) the quotient obtained by dividing the
applicable Depreciation Factor (each, a "DEPRECIATION FACTOR") for such Aircraft
(as set forth below) on such Calculation Date by the Depreciation Factor for
such Aircraft on March 3, 1998. The Depreciation Factors produce a "depreciation
curve" that assumes an accelerating decline in the value of Initial Aircraft of
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<PAGE> 104
increasing age. The accelerating annual decline in aircraft values that is
assumed by the depreciation curve has been expressed as an equation below:
Depreciation Factor = (1 - (kn)) X (1 + g)(n) but not less than zero
Where, with respect to the Initial Aircraft:
<TABLE>
<S> <C>
n = age of the Aircraft expressed in years
1
k =
-----------------------------------------
Expected Useful Life
g = 0.02
</TABLE>
The Depreciation Factors are used solely for the purposes of determining
repayments of principal to Noteholders and do not correlate to or predict actual
declines in aircraft values over any period. Furthermore, the Depreciation
Factor variables and therefore the depreciation curve will change as the
composition of the Portfolio changes through acquisitions and sales of
Additional Aircraft and Initial Aircraft. Finally, MSAF Group may in the future
apply different depreciation factors or alternative methodologies more generally
to express the assumed decline in values of Additional Aircraft. In addition,
the Minimum Class Percentages, the Scheduled Class Percentages and the
Supplemental Class Percentages for the Class A and B Notes and Minimum Target
Principal Balances and Scheduled Target Principal Balances for the Class C and D
Notes will change as Additional Aircraft are acquired; however, the Pool Factors
and the Extended Pool Factors for each subclass will not change as the
composition of the Portfolio changes.
Scheduled Principal Payment Amount. With respect to each class of Notes,
the "SCHEDULED PRINCIPAL PAYMENT AMOUNT" on any Payment Date will equal the
difference, if positive, between the Outstanding Principal Balance of such class
(after giving effect to any payment of the Minimum Principal Payment Amount for
such class) and the Scheduled Target Principal Balance for such class on such
Payment Date.
On each Payment Date, the "SCHEDULED TARGET PRINCIPAL BALANCE" for the
Class A Notes will equal the product of (i) the applicable "SCHEDULED CLASS
PERCENTAGE" on such Payment Date (as set forth in Appendix 5 to this Prospectus)
and (ii) the lesser of (A) the Assumed Portfolio Value in respect of such
Payment Date and (B) the product of the Adjusted Portfolio Value in respect of
such Payment Date and 105%. On each Payment Date, the Scheduled Target Principal
Balance for the Class B Notes will equal the product of (i) the applicable
Scheduled Class Percentage on such Payment Date (as set forth in Appendix 6 to
this Prospectus) and (ii) the Assumed Portfolio Value in respect of such Payment
Date.
For each Payment Date, the Scheduled Target Principal Balance for the Class
C and D Notes is set out in Appendices 7 and 8 to this Prospectus.
In respect of each Payment Date, the "ADJUSTED PORTFOLIO VALUE" will equal
the sum of the products, for each Aircraft in the Portfolio on the Calculation
Date preceding such Payment Date, of (A) the Adjusted Base Value of such
Aircraft and (B) the quotient obtained by dividing the applicable Depreciation
Factor for such Aircraft on such Calculation Date by the Depreciation Factor for
such Aircraft as of the Relevant Appraisal.
The "ADJUSTED BASE VALUE" of each Aircraft will be the Base Value of such
Aircraft as determined in the most recent Appraisal (the "RELEVANT APPRAISAL")
preceding such Calculation Date.
Supplemental Principal Payment Amount. With respect to the Class A and B
Notes the "SUPPLEMENTAL PRINCIPAL PAYMENT AMOUNT" on any Payment Date will equal
the difference, if positive, between the Outstanding Principal Balance of such
class (after giving effect to the payment of any Minimum Principal Payment
Amount and Scheduled Principal Payment Amount) and the Supplemental Target
Principal Balance for such class on such Payment Date.
On each Payment Date, the "SUPPLEMENTAL TARGET PRINCIPAL BALANCE" for the
Class A and B Notes will equal the product of (i) the applicable "SUPPLEMENTAL
CLASS PERCENTAGE" on such Payment Date (as set forth
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in Appendices 5 and 6 to this Prospectus) and (ii) the Assumed Portfolio Value
in respect of such Payment Date.
ALLOCATION OF PRINCIPAL AMONG SUBCLASSES OF NOTES
Subclass A-1 Notes. On the Expected Final Payment Date of the Subclass A-1
Notes, MSAF Group intends to refinance 100% of the Outstanding Principal Balance
of the Subclass A-1 Notes by issuing Refinancing Notes and selling such
Refinancing Notes in the capital markets. Failure to repay any Subclass A-1 Note
in full at its Expected Final Payment Date will not result in an Event of
Default. If the Subclass A-1 Notes are not repaid in full on their Expected
Final Payment Date, such subclass of Notes will convert automatically into a
subclass of Notes having a principal repayment schedule intended to ensure that
the remaining Outstanding Principal Balance of the Subclass A-1 Notes will be
repaid in full on or before its Final Maturity Date in accordance with the
Subclass A-1 Pool Factors set forth in Appendix 9.
MSAF may also refinance any other subclass of Notes, at any time, at the
Redemption Price that would be payable if MSAF were to have redeemed such Notes
instead. See "-- Refinancing" and "-- Indenture Covenants -- Limitation on
Indebtedness".
Subclass A-2, B-1, C-1 and D-1 Notes. The terms of the Subclass A-2, B-1,
C-1 and D-1 Notes will require amortization of the Outstanding Principal Balance
thereof on each or certain Payment Dates prior to each of their respective
Expected Final Payment Dates, to the extent there are funds available therefor
in accordance with the order of priorities set forth under "-- Priority of
Payments".
To the extent that any principal amount is required to be paid in
accordance with the priorities as described in "-- Priority of Payments" with
respect to any class of Notes on any Payment Date, Available Collections, to the
extent there are sufficient Available Collections therefor, will be applied to
the various subclasses of the relevant class in the following order after giving
effect to all prior subclass principal payments of such class:
(i) First, to each subclass, in order of the earliest issued subclass, the
difference, if positive, between the Outstanding Principal Balance of
each such subclass and the product of the applicable Extended Pool
Factor (as set forth in Appendix 10 to this Prospectus) on such
Payment Date and the Initial Principal Balance of each such subclass
(the "EXTENSION AMOUNT"); provided that in the case of two or more
subclasses issued on the same date, Available Collections will be
applied to each such subclass pro rata according to the amount of, but
not to exceed, the Extension Amount of such subclass.
(ii) Second, to each subclass, in no order of priority inter se, but pro
rata according to the amount of, but not to exceed, the difference,
if positive, between the Outstanding Principal Balance of each such
subclass (after giving effect to any payment under clause (i) above)
and the product of the applicable Pool Factor (as set forth in
Appendix 9 to this Prospectus) on such Payment Date and the Initial
Principal Balance of each such subclass.
(iii) Third, to each subclass with an Expected Final Payment Date on or
before such Payment Date, in order of the earliest issued subclass;
provided that in the case of two or more subclasses issued on the
same date, Available Collections will be applied to such subclasses
in order of the subclass with the earliest Expected Final Payment
Date and, with respect to any two or more subclasses having the same
Expected Final Payment Date, Available Collections will be applied to
such subclasses pro rata according to the Outstanding Principal
Balance of each such subclass (after giving effect to any payments
under clauses (i) and (ii) above) on such Payment Date.
(iv) Fourth, to each subclass with an Excess Amortization Date on or before
such Payment Date, in no order inter se, but pro rata according to the
Outstanding Principal Balance of each such subclass (after giving
effect to any payments under clauses (i), (ii) and (iii) above) on
such Payment Date.
(v) Fifth, to each subclass in order of the earliest Expected Final
Payment Date, provided, in the case of two or more subclasses having
the same Expected Final Payment Date, in no order of priority
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inter se, but pro rata according to the Outstanding Principal Balance of
each such subclass (after giving effect to any payments under clauses
(i), (ii), (iii) and (iv) above) on such Payment Date.
"INITIAL PRINCIPAL BALANCE" means the initial Outstanding Principal Balance
on the relevant closing date of the Notes of such subclass.
The "EXCESS AMORTIZATION DATE" for each subclass of the Notes is as set out
below:
<TABLE>
<CAPTION>
SUBCLASS OF NOTES EXCESS AMORTIZATION DATE
- ----------------- ------------------------
<S> <C>
Subclass A-1................................................ March 15, 2000
Subclass A-2................................................ April 15, 1998
Subclass B-1................................................ April 15, 1998
Subclass C-1................................................ March 15, 2013
Subclass D-1................................................ March 15, 2010
</TABLE>
REFINANCING
MSAF may repay any subclass of the Notes, in whole but not in part, on any
date (a "REFINANCING DATE") with the proceeds of the issuance of any Refinancing
Notes issued in accordance with the "Limitation on Indebtedness" covenant under
the Indenture (any such repayment, a "REFINANCING"). See "-- Indenture Covenants
- -- Limitation on Indebtedness". The amount to be repaid by MSAF in connection
with the Refinancing of any subclass of Notes shall be equal to the Redemption
Price for such subclass on the Refinancing Date plus accrued and unpaid
interest.
In respect of any Refinancing of any subclass of Notes, at least five days
but not more than 30 days before the proposed Refinancing Date, the Trustee will
give notice of such Refinancing (a "NOTICE OF REFINANCING") to each holder of
such subclass of Notes in accordance with the notice provisions contained in the
Indenture. See "-- Notices to Noteholders". In connection with any Refinancing,
MSAF will deposit, or will cause to be deposited, in the Refinancing Account an
amount equal to the Redemption Price, together with an amount sufficient to pay
or provide for all accrued and unpaid interest as of the Refinancing Date. Each
Notice of Refinancing will state (i) the applicable Refinancing Date, (ii) the
Redemption Price of the Notes to be repaid and the amount of accrued but unpaid
interest payable thereon, (iii) that Notes of the subclass to be repaid must be
surrendered (which action may be taken by any holder of the Notes or its
authorized agent) and (iv) that, unless MSAF defaults in the payment of the
Redemption Price and any accrued and unpaid interest, interest on the subclass
of Notes to be refinanced will cease to accrue on and after the Refinancing
Date. Once a Notice of Refinancing in respect of any Refinancing is published,
each subclass of Notes to which such Notice of Refinancing applies will become
due and payable on the Refinancing Date stated in such Notice of Refinancing at
their Redemption Price, together with accrued and unpaid interest.
REDEMPTION
MSAF may redeem any subclass of the Notes (a "REDEMPTION") out of amounts
available for such purpose, if any, on any Payment Date (any such date, a
"REDEMPTION DATE"), in whole or in part, at the Redemption Price plus accrued
but unpaid interest. In addition, MSAF will be required on each Payment Date to
redeem Notes to the extent of any Available Collections, in the manner described
in "-- Principal Amortization" above and "-- Priority of Payments" below. Within
each subclass of Notes being redeemed in part, the amount of the Outstanding
Principal Balance being prepaid will be applied in each case pro rata among all
Notes of such subclass.
The Redemption Price on the Subclass A-1, A-2 and B-1 Notes redeemed (i)
with the application of funds other than from Available Collections (including
proceeds from Refinancing Notes and proceeds from third parties) will equal the
product of the applicable Redemption Premium set out below and Outstanding
Principal Balance of the amount of such subclass being redeemed and (ii) with
respect to redemptions from Available Collections, will equal the Outstanding
Principal Balance of the amount of such subclass being redeemed, without
premium.
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The Redemption Price of the Subclass C-1 Notes will equal the higher of (i)
the discounted present value of Scheduled Principal Payment Amounts and interest
on such subclass from the Redemption Date to and including the applicable
Expected Final Payment Date computed by discounting such payments at a discount
rate equal to the applicable Treasury Yield plus 0.50% and (ii) the Outstanding
Principal Balance of such subclass being redeemed.
The Redemption Price of the Subclass D-1 Notes will equal (i) if such
redemption occurs prior to March 15, 2003, the higher of (A) the discounted
present value of Scheduled Principal Payment Amounts and interest from the
Redemption Date through, but not including, March 15, 2003, plus the product of
the applicable Redemption Premium set out below and the assumed Outstanding
Principal Balance for March 15, 2003 discounted at a rate equal to the
applicable Treasury Yield plus 1.00% and (B) the Outstanding Principal Balance
of such subclass being redeemed or (ii) if such redemption occurs on or after
March 15, 2003, the product of the applicable Redemption Premium set out below
and the Outstanding Principal Balance of such subclass being redeemed.
<TABLE>
<CAPTION>
REDEMPTION DATE REDEMPTION PREMIUM
--------------- ------------------------------------------------
SUBCLASS SUBCLASS SUBCLASS SUBCLASS
A-1 NOTES A-2 NOTES B-1 NOTES D-1 NOTES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
After March 3, 1998.......................... 101.00% 102.00% 103.00% --
On or after March 15, 1999................... 100.50% 101.50% 102.50% --
On or after March 15, 2000................... 100.00% 101.00% 102.00% --
On or after March 15, 2001................... -- 100.50% 101.50% --
On or after March 15, 2002................... -- 100.00% 101.00% --
On or after March 15, 2003................... -- 100.00% 100.50% 105.25%
On or after March 15, 2004................... -- 100.00% 100.00% 104.50%
On or after March 15, 2005................... -- 100.00% 100.00% 103.75%
On or after March 15, 2006................... -- -- 100.00% 103.00%
On or after March 15, 2007................... -- -- 100.00% 102.25%
On or after March 15, 2008................... -- -- 100.00% 101.50%
On or after March 15, 2009................... -- -- 100.00% 100.75%
On or after March 15, 2010................... -- -- 100.00% 100.00%
On or after March 15, 2011................... -- -- 100.00% 100.00%
On or after March 15, 2012................... -- -- 100.00% 100.00%
On or after March 15, 2013................... -- -- 100.00% 100.00%
On or after March 15, 2014................... -- -- -- 100.00%
</TABLE>
"TREASURY YIELD" means a per annum rate (expressed as a monthly equivalent
yield) determined to be the per annum rate equal to the semiannual yield to
maturity of the 6 1/4% United States Treasury Note maturing on February 15,
2003, and with respect to redemptions of the Subclass C-1 Notes, means, on any
Payment Date the interest rate (expressed as a semiannual decimal and, in the
case of United States Treasury bills, converted to a bond equivalent yield)
determined to be the per annum rate equal to the semiannual yield to maturity
for United States Treasury securities maturing on the Average Life Date of such
subclass and trading in the public securities markets either (x) as determined
by interpolation between the most recent weekly average yield to maturity for
two series of United States Treasury securities trading in the public securities
markets, (A) one maturing as close as possible to, but earlier than, the Average
Life Date of such subclass and (B) the other maturing as close as possible to,
but later than, the Average Life Date of such subclass in each case as published
in the most recent H.15 (519) or (y) if a weekly average yield to maturity for
United States Treasury securities maturing on the Average Life Date of such
subclass is reported in the most recent H.15 (519), such weekly average yield to
maturity as published in such H.15 (519).
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"H.15 (519)" means the weekly statistical release designated as such, or any
successor publication, published by the Board of Governors of the Federal
Reserve System. The date of determination of the Treasury Yield with respect to
the Subclass C-1 Notes shall be the fourth business day prior to the applicable
Payment Date and the "MOST RECENT H.15 (519)" means the H.15 (519) published
prior to the close of business on the fourth business day prior to the
applicable Payment Date.
"AVERAGE LIFE DATE" shall be the date which follows the applicable Payment
Date by a period equal to the Remaining Weighted Average Life of such subclass.
"REMAINING WEIGHTED AVERAGE LIFE", with respect to the Subclass C-1 Notes on any
Payment Date shall be (a) the sum of the products of (i) each Scheduled
Principal Payment Amount for such subclass on each subsequent Payment Date
(each, a "SUBSEQUENT DATE") and (ii) the number of days remaining until such
Subsequent Date divided by (b) the then Outstanding Principal Balance of such
subclass on such Payment Date.
Redemption for Taxation Purposes. All payments of principal, interest and
premium, if any, made by MSAF in respect of any Notes will be made without
withholding or deduction for or on account of any present or future taxes or
duties of whatever nature unless required by law. Should such withholding or
deduction be required by law, MSAF will not be obliged to pay any additional
amounts in respect of such withholding or deduction. If at any time:
(a) MSAF is, or on the next Payment Date will be, required to make any
withholding or deduction under the laws or regulations of any applicable
tax authority with respect to any payment in respect of any subclass of
Notes; or
(b) MSAF is or will be subject to any circumstance (whether by reason of
any law, regulation, regulatory requirement or double-taxation
convention, or the interpretation or application thereof, or otherwise)
leading to the imposition of a tax (whether by direct assessment or by
withholding at source) or other similar imposition by any jurisdiction
which would (i) materially increase the cost to MSAF of making payments
in respect of any subclass of Notes or of complying with its obligations
under or in connection with any Notes; (ii) materially increase the
operating or administrative expenses of MSAF; or (iii) otherwise
obligate MSAF or any of its subsidiaries to make any material payment
on, or calculated by reference to, the amount of any sum received or
receivable by MSAF, or by the Administrative Agent on behalf of MSAF as
contemplated by the Administrative Agency Agreement;
then MSAF will inform the Trustee at such time of any such requirement or
imposition and shall use its or their best efforts to avoid the effect of the
same; provided that no actions shall be taken by MSAF to avoid such effects
unless each Rating Agency has confirmed that such action will not result in the
lowering or withdrawal by it of its current rating of any subclass of MSAF Notes
then outstanding. If, after using its best efforts to avoid the adverse effect
described above, MSAF or any of its subsidiaries has not avoided such effects,
MSAF may, at its election, redeem the Notes of any or all subclasses to which
such withholding or deduction applies in whole with accrued and unpaid interest
but without premium on any Payment Date. However, any such redemptions may not
occur more than 30 days prior to such time as the requirement or imposition
described in (a) or (b) above is to become effective.
Method of Redemption. In respect of any Redemption of any subclass of
Notes to be made out of amounts available for such purposes, if any, other than
Available Collections on any Payment Date, at least 20 days but not more than 60
days before such Redemption Date, the Trustee will give notice of such
Redemption (a "NOTICE OF REDEMPTION") to each holder of such subclass of Notes
in accordance with the notice provisions contained in the Indenture; provided
that the Trustee shall have determined in advance of giving any such notice that
funds are or will, on the Redemption Date, be available therefor. See "--
Notices to Noteholders". If a Redemption is of less than all of the Notes of any
subclass, Notes of such subclass to be redeemed will be repaid principal pro
rata, to the extent moneys are available therefor. In the case of any Redemption
in whole (other than a Redemption resulting from taxation reasons), MSAF will
deposit, or will cause to be deposited, in the Defeasance/Redemption Account an
amount equal to the Redemption Price, together with an amount sufficient to pay
or provide for all of the accrued and unpaid interest as of the Redemption Date.
In the case of any required Redemption by MSAF from Collections on any Payment
Date
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pursuant to the Priority of Payments, such Redemptions will be made only in
conformance with the order of payments set forth under "Priority of Payments",
and no Notice of Redemption will be sent. Each Notice of Redemption will state
(i) the applicable Redemption Date, (ii) the Trustee's arrangements for making
payments due, (iii) the Redemption Price of the Notes to be redeemed, (iv) in
the case of Redemptions in whole, that Notes of the subclass to be redeemed must
be surrendered (which action may be taken by any holder of the Notes or its
authorized agent) to the Trustee to collect the Redemption Price and accrued and
unpaid interest on such Notes and (v) in the case of Redemptions in whole, that,
unless MSAF defaults in the payment of the Redemption Price and any accrued and
unpaid interest thereon, interest on the subclass of Notes called for Redemption
will cease to accrue on and after the Redemption Date. Once a Notice of
Redemption in respect of a Redemption in whole is published, each subclass of
Notes to which such Notice of Redemption applies will become due and payable on
the Redemption Date stated in such Notice of Redemption at its Redemption Price,
together with accrued and unpaid interest thereon.
DEFEASANCE
MSAF at any time may terminate all of its obligations under the Notes and
the Indenture ("LEGAL DEFEASANCE"), except for certain obligations, including
those respecting the defeasance trust and obligations to register the transfer
or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes
and to maintain a register in respect of the Notes. MSAF at any time may
terminate its obligations under the covenants described under "Indenture
Covenants" and "Operating Covenants" and the Events of Default described under
"Events of Default and Remedies" other than clauses (a), (b), (c), (e) (solely
with respect to MSAF) and (f) (solely with respect to MSAF) set forth under "--
Events of Default and Remedies" ("COVENANT DEFEASANCE").
MSAF may exercise its legal defeasance options notwithstanding its prior
exercise of the covenant defeasance option. If MSAF exercises its legal
defeasance options, payment of the Notes may not be accelerated because of an
Event of Default with respect thereto. If MSAF exercises its covenant defeasance
options, payment of the Notes may not be accelerated because of the Events of
Default described under "Events of Default and Remedies" other than clauses (a),
(b), (c), (e) (solely with respect to MSAF) and (f) (solely with respect to
MSAF) set forth under "-- Events of Default and Remedies".
In order to exercise either defeasance option, MSAF must irrevocably
deposit in trust (the "DEFEASANCE TRUST") with the Trustee cash or obligations
of the U.S. Government or any combination thereof in such amounts as will be
sufficient for the payment of principal, premium (if any), and interest on the
Notes to redemption or maturity, as the case may be, and must comply with
certain other conditions, including delivering to the Trustee an opinion of
counsel to the effect that holders of the Notes will not recognize income, gain
or loss for Federal income tax purposes as a result of such deposit and
defeasance and will be subject to Federal income tax on the same amount and in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such opinion of counsel must be based on a ruling of the IRS or other
change in applicable Federal income tax law).
PRIORITY OF PAYMENTS
Pursuant to the terms of the Indenture and the Administrative Agency
Agreement, on each Payment Date, the Administrative Agent will withdraw all
amounts on deposit in the Collection Account and distribute such amounts in the
order of priority set forth below but, in each case, only to the extent that all
amounts ranking prior thereto have been paid in full.
(i) First, to the Expense Account, or in certain cases directly to the
relevant Expense payees, an amount equal to the Required Expense
Amount and then to the relevant Expense payees;
(ii) Second, in no order of priority inter se, but pro rata, (A) to
the holders of each subclass of Class A Notes, all accrued and
unpaid interest excluding Step-Up Interest, if applicable, on
such subclass of Class A Notes in no order of priority inter se,
but pro rata according to the amount of accrued and unpaid
interest on such subclass of Class A Notes; and (B) pro rata, to
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any Swap Provider, an amount equal to any payment (other than
Subordinated Swap Payments) due from MSAF pursuant to any Swap
Agreement;
(iii) Third, first, to any persons providing Primary Eligible Credit
Facilities, any amounts payable to such persons under the terms
of their respective Primary Eligible Credit Facilities and then,
retain in the Collection Account an amount (the "FIRST COLLECTION
ACCOUNT TOP-UP"), if positive, equal to (A) the Minimum Liquidity
Reserve Amount less (B) amounts available for drawing under any
Primary Eligible Credit Facilities;
(iv) Fourth, to the holders of Class A Notes, in the order of priority
by subclass set forth under "-- Allocation of Principal among
Subclasses of Notes", an amount equal to the Minimum Principal
Payment Amount with respect to the Class A Notes;
(v) Fifth, to the holders of each subclass of Class B Notes, all
accrued and unpaid interest, excluding Step-Up Interest, if
applicable, on such subclass of Class B Notes in no order of
priority inter se, but pro rata according to the amount of accrued
and unpaid interest on such subclass of Class B Notes;
(vi) Sixth, to the holders of Class B Notes, in the order of priority
by subclass set forth under "-- Allocation of Principal among
Subclasses of Notes", an amount equal to the Minimum Principal
Payment Amount with respect to the Class B Notes;
(vii) Seventh, to the holders of each subclass of Class C Notes, all
accrued and unpaid interest, excluding Step-Up Interest, if
applicable, on such subclass of Class C Notes in no order of
priority inter se, but pro rata according to the amount of such
accrued and unpaid interest on such subclass of Class C Notes;
(viii) Eighth, to the holders of Class C Notes, in the order of priority
by subclass set forth under "-- Allocation of Principal among
Subclasses of Notes", an amount equal to the Minimum Principal
Payment Amount with respect to the Class C Notes;
(ix) Ninth, to the holders of each subclass of Class D Notes, all
accrued and unpaid interest, excluding Step-Up Interest, if
applicable, on such subclass of Class D Notes in no order of
priority inter se, but pro rata according to the amount of such
accrued and unpaid interest on such subclass of Class D Notes;
(x) Tenth, to the holders of Class D Notes, in the order of priority
by subclass set forth under "-- Allocation of Principal among
Subclasses of Notes", an amount equal to the Minimum Principal
Payment Amount with respect to the Class D Notes;
(xi) Eleventh, first, to any persons providing credit or liquidity
enhancement facilities that are not Primary Eligible Credit
Facilities, any amounts payable to such persons under the terms of
their respective facilities and then, retain in the Collection
Account an amount (the "SECOND COLLECTION ACCOUNT TOP-UP"), if
positive, equal to (A) the Liquidity Reserve Amount less (B) an
amount equal to cash amounts reserved under (iii) above plus
amounts available for drawing under any Eligible Credit
Facilities;
(xii) Twelfth, to the holders of Class A Notes, in the order of priority
by subclass set forth under "-- Allocation of Principal among
Subclasses of Notes", an amount equal to the Scheduled Principal
Payment Amount with respect to the Class A Notes;
(xiii) Thirteenth, to the holders of Class B Notes, in the order of
priority by subclass set forth under "-- Allocation of Principal
among Subclasses of Notes", an amount equal to the Scheduled
Principal Payment Amount with respect to the Class B Notes;
(xiv) Fourteenth, to the holders of Class C Notes, in the order of
priority by subclass set forth under "-- Allocation of Principal
among Subclasses of Notes", an amount equal to the Scheduled
Principal Payment Amount with respect to the Class C Notes;
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(xv) Fifteenth, to the holders of Class D Notes, in the order of
priority by subclass set forth under "-- Allocation of Principal
among Subclasses of Notes", an amount equal to the Scheduled
Principal Payment Amount with respect to the Class D Notes;
(xvi) Sixteenth, to the Permitted Accruals balance in the Expense
Account, an amount equal to Permitted Accruals in respect of any
Modification Payments (or any part thereof);
(xvii) Seventeenth, to the holders of each subclass of Notes entitled
thereto, an amount equal to all accrued and unpaid Step-Up
Interest on such subclass, if any, in no order of priority inter
se, but pro rata according to the amount of such accrued and
unpaid Step-Up Interest;
(xviii) Eighteenth, to the holders of the Beneficial Interest, the
Beneficial Interest Distribution Amount;
(xix) Nineteenth, to the holders of Class A Notes, in the order of
priority by subclass set forth under "-- Allocation of Principal
among Subclasses of Notes", an amount equal to the Supplemental
Principal Payment Amount with respect to the Class A Notes;
(xx) Twentieth, to the holders of Class B Notes, in the order of
priority by subclass set forth under "-- Allocation of Principal
among Subclasses of Notes", an amount equal to the Supplemental
Principal Payment Amount with respect to Class B Notes;
(xxi) Twenty-first, to the holders of Class D Notes, in the order of
priority by subclass set forth under "Allocation of Principal
among Subclasses of Notes" an amount equal to the Redemption Price
of the Outstanding Principal Balance, if any, of any subclass of
Class D Notes;
(xxii) Twenty-second, to the holders of Class C Notes, in the order of
priority by subclass set forth under "Allocation of Principal
among Subclasses of Notes" an amount equal to the Redemption Price
of the Outstanding Principal Balance, if any, of any subclass of
Class C Notes;
(xxiii) Twenty-third, to the holders of Class B Notes, in the order of
priority by subclass set forth under "Allocation of Principal
among Subclasses of Notes" an amount equal to the Redemption
Price of the Outstanding Principal Balance, if any, of any
subclass of Class B Notes;
(xxiv) Twenty-fourth, to the holders of Class A Notes, in the order of
priority by subclass set forth under "Allocation of Principal
among Subclasses of Notes" an amount equal to the Redemption Price
of the Outstanding Principal Balance, if any, of any subclass of
Class A Notes;
(xxv) Twenty-fifth, payments to Swap Providers which are subordinated in
accordance with the relevant Swap Agreement ("SUBORDINATED SWAP
PAYMENTS"); and
(xxvi) Twenty-sixth, to the holders of the Beneficial Interest, all
remaining amounts.
PRIORITY OF PAYMENTS FOLLOWING A DEFAULT NOTICE
Following delivery to MSAF or the Administrative Agent of a Default Notice
or if any Event of Default described in clause (e) or (f) under "-- Events of
Default and Remedies" shall have occurred and be continuing, the allocation of
payments described above will not apply and all amounts on deposit in the
Collection Account and the Expense Account will be applied in the following
order of priority:
(i) First, to the Expense Account, or in certain cases directly to the
relevant Expense payees, an amount equal to the Required Expense
Amount and then to the relevant Expense payees;
(ii) Second, in no order of priority inter se, but pro rata, to the
providers of any Primary Eligible Credit Facilities, such amounts
as are required to make any payments due to such providers
pursuant to their respective Primary Eligible Credit Facilities;
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(iii) Third, in no order of priority inter se, but (A) pro rata to the
holders of each subclass of Class A Notes, all accrued and unpaid
interest (including Step-Up Interest, if any) on, and all
Outstanding principal of, such subclass and (B) pro rata to any
Swap Provider, such amounts as are required to make any payments
(other than Subordinated Swap Payments) due to such Swap Provider
pursuant to any Swap Agreement;
(iv) Fourth, in no order of priority inter se, but pro rata, to the
holders of each subclass of Class B Notes, all accrued and unpaid
interest (including Step-Up Interest, if any) on and all
Outstanding principal of such subclass of Class B Notes;
(v) Fifth, in no order of priority inter se, but pro rata, to the
holders of each subclass of Class C Notes, all accrued and unpaid
interest (including Step-Up Interest, if any) on and all
Outstanding principal of such subclass of Class C Notes;
(vi) Sixth, in no order of priority inter se, but pro rata, to the
holders of each subclass of Class D Notes, all accrued and unpaid
interest (including Step-Up Interest, if any) on and all
Outstanding principal of such subclass of Class D Notes;
(vii) Seventh, in no order of priority inter se, but pro rata, to the
providers of any credit or liquidity enhancement facilities in
favor of MSAF other than Primary Eligible Credit Facilities, such
amounts as are required to make any payments due to such
providers pursuant to their respective facilities;
(viii) Eighth, in no order of priority inter se, but pro rata, to any
Swap Provider, such amounts as are required to make any
Subordinated Swap Payments due to such Swap Provider pursuant to
any Swap Agreement; and
(ix) Ninth, to the holders of the Beneficial Interest, all remaining
amounts.
INDENTURE COVENANTS
No Release of Obligations. MSAF will not take, or knowingly permit any
subsidiary to take, any action which would amend, terminate (other than any
termination in connection with the replacement of such agreement with an
agreement on terms substantially no less favorable to MSAF and its subsidiaries
than the agreement being terminated) or discharge or prejudice the validity or
effectiveness of the Indenture (other than as permitted therein), the Security
Trust Agreement, the Cash Management Agreement, the Administrative Agency
Agreement, the Financial Advisory Agreement or any Servicing Agreement or permit
any party to any such document to be released from such obligations, except, in
each case, as permitted or contemplated by the terms of such document, and
provided that such actions may be taken or permitted, and such releases may be
permitted, if MSAF shall have first obtained an authorizing resolution of the
Controlling Trustees determining that such action, permitted action or release
does not materially adversely affect the interests of the Noteholders, and
provided further, that in any case (i) MSAF will not take any action which would
result in any amendment or modification to any conflicts standard or duty of
care in such agreements and (ii) there must be at all times an administrative
agent, a cash manager, a financial advisor and, unless a Servicer resigns prior
to the appointment of a replacement servicer as a result of any failure to pay
amounts due and owing to it, one or more Servicers with respect to all Aircraft
in the Portfolio.
Limitation on Encumbrances. Under the terms of the Indenture, MSAF will
not, and will not permit any subsidiary to, create, incur, assume or suffer to
exist any mortgage, pledge, lien, encumbrance, charge or security interest (in
each case, an "ENCUMBRANCE"), including, without limitation, any conditional
sale, any sale with recourse against the seller or any affiliate of the seller,
or any agreement to give any security interest over or with respect to any of
MSAF's or any subsidiary's assets (excluding Lessee funds required to be
segregated from MSAF Group's other funds under the terms of any Lease)
including, without limitation, all beneficial interests in trusts, ordinary
shares and preferred shares, any options, warrants and other rights to acquire
such shares of capital stock ("STOCK") and any Indebtedness of any subsidiary
held by MSAF or a subsidiary thereof.
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Notwithstanding the foregoing, MSAF may create, incur, assume or suffer to
exist (i) any Permitted Encumbrance, (ii) any security interest created or
required to be created under the Security Trust Agreement, (iii) Encumbrances
over rights in or derived from leases, upon confirmation from the Rating
Agencies in advance that such action or event will not result in the lowering or
withdrawal of any rating assigned by any Rating Agency to any of the Notes,
provided that any transaction or series of transactions resulting in such
Encumbrance, taken as a whole, does not materially adversely affect the amount
of Collections that would have been received by MSAF from such Lease had such
Encumbrance not been created or (iv) any other Encumbrance the validity or
applicability of which is being contested in good faith in appropriate
proceedings by MSAF or any of its subsidiaries.
As used in this Prospectus, "AFFILIATE" means, with respect to any person,
any other person that, directly or indirectly, controls, is controlled by or is
under common control with, such person or is a director or officer of such
person; "CONTROL" of a person means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of such
person, whether through the ownership of voting Stock, by contract or otherwise;
and "PERMITTED ENCUMBRANCE" means (i) any lien for taxes, assessments and
governmental charges or levies not yet due and payable or which are being
contested in good faith by appropriate proceedings; (ii) in respect of any
Aircraft, any liens of a repairer, carrier or hanger keeper arising in the
ordinary course of business by operation of law or any engine or parts-pooling
arrangements or other similar lien; (iii) any permitted lien or encumbrance on
any Aircraft, Engines or Parts as defined under any Lease thereof (other than
liens or encumbrances created by the relevant lessor); (iv) any liens created by
or through or arising from debt or liabilities or any act or omission of any
Lessee in each case either in contravention of the relevant Lease (whether or
not such Lease has been terminated) or without the consent of the relevant
Lessor (provided that if such Lessor becomes aware of any such lien, such Lessor
shall use commercially reasonable efforts to have any such liens lifted); (v)
any head lease, lease, conditional sale agreement or Purchase Option existing on
March 3, 1998, with respect to the Initial Aircraft, or, with respect to any
Additional Aircraft, on the date such Aircraft is acquired by MSAF or any of its
subsidiaries or affiliates, or any Aircraft Agreement meeting the requirements
of (iii) or (v) of the second paragraph under the "Limitation on Aircraft Sales"
covenant: (vi) any lien for air navigation authority, airport tending, gate or
handling (or similar) charges or levies; (vii) any lien created in favor of MSAF
or any of its subsidiaries or the Security Trustee; (viii) any lien not referred
to in (i) through (vii) above which would not adversely affect the owner's
rights and does not exceed the greater of 1% of the aggregate Initial Appraised
Value of the Portfolio from time to time and $250,000 per Aircraft; and (ix) any
Encumbrance arising under the ILFC Facility or any other agreements the terms of
which contemplate that custody of security deposits held for Lessees with
respect to Additional Aircraft is held by a third party.
Limitation on Restricted Payments. Under the terms of the Indenture, MSAF
will not, and will not permit any of its subsidiaries to, (i) declare or pay any
dividend or make any distribution on its Stock held by persons other than MSAF
or any of its subsidiaries; provided that, so long as no Event of Default shall
have occurred and be continuing, MSAF may make payments on its Beneficial
Interest to the extent permitted by the Indenture; (ii) purchase, redeem, retire
or otherwise acquire for value any beneficial interest in MSAF or any stock of
its subsidiaries held by and on behalf of persons other than MSAF, any of its
subsidiaries or other Persons permitted under the requirements of (ii)(B) under
the "Limitation on the Issuance, Delivery and Sale of Capital Stock" covenant;
(iii) make any interest, principal or premium payment on the Notes or make any
voluntary or optional repurchase, defeasance or other acquisition or retirement
for value of Indebtedness of MSAF or any of its subsidiaries that is not owed to
MSAF or any of its subsidiaries other than in accordance with the Notes and the
Indenture; provided that MSAF or any of its affiliates may repurchase, defease
or otherwise acquire or retire any of the Notes other than from Available
Collections so long as any new notes of MSAF issued in connection with such
transaction rank pari passu with the Notes being repurchased, defeased, acquired
or retired; provided further that the Controlling Trustees shall determine that
such action does not materially adversely affect the Noteholders and shall have
obtained confirmation in advance that such action will not result in the
lowering or withdrawal of any rating assigned by any Rating Agency to any of the
MSAF Notes or (iv) make any investments (other than Permitted Account
Investments, investments permitted under the "Limitation on Engaging in Business
Activities" covenant, Allowed Restructurings and investments in any subsidiaries
that own Additional Aircraft).
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The term "INVESTMENT" for purposes of the above restriction shall mean any
loan or advance to a person or entity, any purchase or other acquisition of any
beneficial interest, capital stock, warrants, rights, options, obligations or
other securities of such person or entity, any capital contribution to such
person or entity or any other investment in such person or entity. For the
avoidance of doubt, "investment" shall not include any obligation of a purchaser
of an Aircraft to make deferred or installment payments pursuant to any Aircraft
Agreement specified in clauses (iii) or (v) of the second paragraph under
"Limitations on Aircraft Sales" below so long as MSAF Group retains a security
interest in the relevant Aircraft until all such obligations are discharged.
Limitation on Dividends and Other Payment Restrictions. Under the terms of
the Indenture, MSAF will not, and will not permit any of its subsidiaries to,
create or otherwise suffer to exist any consensual encumbrance or restriction of
any kind on the ability of any subsidiary to (i) declare or pay dividends or
make any other distributions permitted by applicable law, or purchase, redeem or
otherwise acquire for value, any beneficial interest in MSAF or the stock of any
such subsidiary, as the case may be, (ii) pay any Indebtedness owed to MSAF or
such subsidiary, (iii) make loans or advances to MSAF or such subsidiary or (iv)
transfer any of its property or assets to MSAF or any other subsidiary thereof.
The foregoing provisions shall not restrict any consensual encumbrances or
other restrictions: (i) existing on March 3, 1998, with respect to the Initial
Aircraft, or, with respect to any Additional Aircraft, on the date such Aircraft
is acquired, under any Related Document, and any amendments, extensions,
refinancings, renewals or replacements of such documents; provided that such
consensual encumbrances and restrictions in any such amendments, extensions,
refinancings, renewals or replacements are no less favorable in any material
respect to the holders of the MSAF Notes than those previously in effect and
being amended, extended, refinanced, renewed or replaced; or (ii) in the case of
clause (iv) in the preceding paragraph, (A) that restrict in a customary manner
the subletting, assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset or (B) existing by
virtue of any transfer of, agreement to transfer, option or right with respect
to, or consensual encumbrance on, any property or assets of MSAF or any
subsidiary not otherwise prohibited by the Indenture. Nothing contained in this
covenant shall prevent MSAF or any subsidiary from creating, incurring, assuming
or suffering to exist any Encumbrances not otherwise prohibited under the
Indenture.
Limitation on Engaging in Business Activities. Under the terms of the
Indenture, MSAF will not, and will not permit any subsidiary to, engage in any
business or activity other than:
(i) (A) purchasing or otherwise acquiring aircraft assets (subject to the
limitations set forth in the "Limitation on Aircraft Acquisitions"
covenant) and (B) owning, holding, converting, maintaining,
modifying, managing, operating, leasing, re-leasing and, subject to
the limitations set forth in the "Limitations on Aircraft Sales"
covenant, selling or otherwise disposing of aircraft assets and
entering into all contracts and engaging in all related activities
incidental thereto, including from time to time accepting,
exchanging, holding or permitting any of its subsidiaries to accept,
exchange or hold (an "ALLOWED RESTRUCTURING") promissory notes,
contingent payment obligations or equity interests, of Lessees or
their affiliates issued in connection with the bankruptcy,
reorganization or other similar process, or in settlement of
delinquent obligations or obligations anticipated to be delinquent,
of such Lessees or their respective affiliates in the ordinary course
of business;
(ii) providing loans to, and guaranteeing or otherwise supporting the
obligations and liabilities of, MSAF's subsidiaries or any Future
MSAF Group Entity, in each case on such terms and in such manner as
the Controlling Trustees see fit and (whether or not such member of
MSAF Group derives a benefit therefrom) so long as such loans,
guarantees or other supports are provided in connection with the
purposes set forth in clause (i) of this covenant;
(iii) financing or refinancing the business activities described in clause
(i) of this covenant through the offer, sale and issuance of any
securities of MSAF, upon such terms and conditions as the Controlling
Trustees see fit, for cash or in payment or in partial payment for
any property purchased or otherwise acquired by MSAF Group or any
Future MSAF Group Entity;
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(iv) engaging in currency and interest rate exchange transactions for the
purposes of avoiding, reducing, minimizing, hedging against or
otherwise managing the risk of any loss, cost, expense or liability
arising, or which may arise, directly or indirectly, from any change
or changes in any interest rate or currency exchange rate or in the
price or value of any of the property or assets of MSAF or any of its
subsidiaries within limits determined by the Controlling Trustees from
time to time and submitted to the Rating Agencies, including but not
limited to dealings, whether involving purchases, sales or otherwise,
in foreign currency, spot and forward interest rate exchange
contracts, forward interest rate agreements, caps, floors and collars,
futures, options, swaps, and any other currency, interest rate and
other similar hedging arrangements and such other instruments as are
similar to, or derivatives of, any of the foregoing;
(v) (A) establishing, promoting and aiding in promoting, constituting,
forming or organizing companies, trusts, syndicates, partnerships or
other entities of all kinds in any part of the world for the purposes
set forth in clause (i) above, (B) acquiring, holding and disposing of
shares, securities and other interests in any such entity or
partnership and (C) disposing of shares, securities and other
interests in, or causing the dissolution of, any existing subsidiary;
provided that any such disposition which results in the disposition of
an Aircraft meets the requirements set forth under the "Limitation on
Aircraft Sales" covenant; and
(vi) taking out, acquiring, surrendering and assigning policies of
insurance and assurances with any insurance company or companies which
MSAF or any of its subsidiaries may think fit and to pay the premiums
thereon.
Limitation on Indebtedness. Under the terms of the Indenture, MSAF will
not, and will not permit any of its subsidiaries to, incur, create, issue,
assume, guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, whether present or
future (in any such case, to "INCUR"), Indebtedness.
For the purposes of the Indenture, "INDEBTEDNESS" means, with respect to
any person at any date of determination (without duplication), (i) all
indebtedness of such person for borrowed money, (ii) all obligations of such
person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto), (iv) all
obligations of such person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months after the
date of purchasing such property or service or taking delivery and title thereto
or the completion of such services, and payment deferrals arranged primarily as
a method of raising finance or financing the acquisition of such property or
service, (v) all obligations of such person under a lease of (or other agreement
conveying the right to use) any property, whether real, personal or mixed, that
is required to be classified and accounted for as a capital lease obligation
under generally accepted accounting principles in the United States ("U.S.
GAAP"), (vi) all Indebtedness (as defined in clauses (i) through (v) of this
paragraph) of other persons secured by a lien on any asset of such person,
whether or not such Indebtedness is assumed by such person, and (vii) all
Indebtedness (as defined in clauses (i) through (v) of this paragraph) of other
persons guaranteed by such person.
Notwithstanding the foregoing, MSAF and any subsidiary may incur each and
all of the following: (i) Indebtedness in respect of any Note issued on March 3,
1998, (ii) Indebtedness in respect of any Refinancing Notes or other
Indebtedness issued in connection with the repurchase, acquisition, defeasance
or retirement for value of Notes; provided that (A) such Refinancing Notes or
other Indebtedness receive ratings from the Rating Agencies at the close of such
Refinancing or issuance equal to or higher than those of the subclass being
refinanced or repurchased, acquired, defeased or retired (determined at the date
of incurrence), (B) taking into account such Refinancing or repurchase,
acquisition, defeasance or retirement for value, MSAF receives confirmation
prior to such Refinancing from the Rating Agencies that such transaction will
not result in the lowering or withdrawal of any rating assigned by any Rating
Agency to any of the MSAF Notes Outstanding at such time, and (C) the net
proceeds of any such Refinancing or issuance shall be used only to repay the
Outstanding Principal Balance of the subclass of the Notes being so refinanced
or
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repurchased, acquired, defeased or retired (plus any Redemption Premium and
transaction expenses relating thereto); (iii) Indebtedness in respect of
guarantees by MSAF or any subsidiary of any other member of MSAF Group (other
than guarantees described in clause (v)), provided that no such Indebtedness in
respect of any member of MSAF Group other than MSAF or any subsidiary of MSAF
shall be incurred if it would materially adversely affect the Noteholders; (iv)
Indebtedness in respect of any Additional Notes incurred in connection with a
Permitted Additional Aircraft Acquisition; provided that (A) taking into account
the incurrence of such Indebtedness, MSAF receives confirmation prior thereto
that the incurrence of such Indebtedness will not result in the lowering or
withdrawal of any rating assigned by any Rating Agency to any of the MSAF Notes
Outstanding at such time and (B) the net proceeds of such Indebtedness shall be
used only to finance such Permitted Additional Aircraft Acquisition; (v)
Indebtedness in respect of guarantees by MSAF or any subsidiary of Indebtedness
incurred by any Future MSAF Group Entity (other than a subsidiary of MSAF) in
connection with a Permitted Additional Aircraft Acquisition; provided that (A)
such Future MSAF Group Entity shall have guaranteed the Notes, (B) the
Indebtedness being guaranteed would be permitted pursuant to clause (ii) or (iv)
above if such Indebtedness were incurred directly by MSAF or any subsidiary in
connection with such Permitted Additional Aircraft Acquisition and (C) the
Indebtedness being guaranteed was issued by such Future MSAF Group Entity under
an indenture, the terms of which (including the covenants and other obligations
of such Future MSAF Group Entity thereunder) are substantially similar to those
of the Indenture; (vi) Indebtedness to aircraft sellers pursuant to aircraft
acquisition or similar agreements; (vii) Indebtedness under intercompany loans
or any agreement between MSAF or any of its subsidiaries and any other members
of MSAF Group (each an "INTERCOMPANY LOAN"); provided that any Indebtedness owed
by any member of MSAF Group to MSAF shall be evidenced by promissory notes; and
(viii) Indebtedness of MSAF Group under any credit or liquidity enhancement
facility provided in favor of MSAF Group.
As used in this Prospectus, "GUARANTEE" means any obligation, contingent or
otherwise, of any person directly or indirectly guaranteeing any Indebtedness or
other obligation of any other person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other person or (ii)
entered into for purposes of assuring in any other manner the obligee of such
Indebtedness or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part); provided that the
term "guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "guarantee" when used as a verb has a
corresponding meaning.
Limitation on Aircraft Sales. Under the terms of the Indenture, MSAF will
not, and will not permit any of its subsidiaries to, sell, transfer or otherwise
dispose of any Aircraft or any interest therein.
Notwithstanding the foregoing, MSAF and any of its subsidiaries will be
permitted to sell, transfer or otherwise dispose of, directly or indirectly, (a)
any engines owned on March 3, 1998, with respect to the Initial Aircraft, or,
with respect to any Additional Aircraft, on the date such Aircraft is acquired,
or any replacements thereof ("ENGINES") or parts installed in or attached to any
Aircraft other than Engines ("PARTS"), or (b) one or more Aircraft or an
interest therein (i) pursuant to a Purchase Option or other agreements of a
similar character existing on March 3, 1998, with respect to the Initial
Aircraft, or, with respect to any Additional Aircraft, on the closing date of
the related issue of Additional Notes, (ii) within or among MSAF and its
subsidiaries without limitation, and among MSAF or any of its subsidiaries and
any other member of MSAF Group if such sale, transfer or disposition, as the
case may be, would not materially adversely affect the Noteholders, (iii)
pursuant to any Aircraft Agreement as long as such sale does not result in a
Concentration Default, and the net present value of the cash Net Sale Proceeds
is not less than the Note Target Price, (iv) pursuant to receipt of insurance
proceeds in connection with an event of loss, or (v) pursuant to an Aircraft
Agreement and, in any one calendar year, not exceeding 10% of the Adjusted
Portfolio Value as determined by the most recent Appraisal obtained for such
calendar year; provided that (x) the Controlling Trustees unanimously confirm
that each such sale does not materially adversely affect MSAF and the
Noteholders and (y) such sale does not result in a Concentration Default.
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For the purpose of this covenant, the net present value of the cash Net
Sale Proceeds of any sale, transfer or other disposition of any Aircraft shall
mean the present value of all payments received or to be received by MSAF Group
from the date of execution or option granting date, as the case may be, of the
relevant Aircraft Agreement through and including the date of transfer of title
to such Aircraft, discounted back to the date of execution or option granting
date, as the case may be, of such Aircraft Agreement at the weighted average
cost of funds of MSAF Group (based on the cost of funds represented by the Notes
on the Payment Date immediately preceding such date and taking into account any
Swap Agreements).
The "NOTE TARGET PRICE" means, in respect of any Aircraft, an amount equal
to 103% of the aggregate Outstanding Principal Balance of the MSAF Notes,
together with any accrued but unpaid interest thereon, allocable to such
Aircraft on the date of the sale agreement or purchase option date, as the case
may be. On any date, the Outstanding Principal Balance of MSAF Notes allocable
to an Aircraft will equal the product of (i) (A) the Adjusted Base Value of such
Aircraft divided by (B) the Adjusted Portfolio Value and (ii) the aggregate
Outstanding Principal Balance of the MSAF Notes, in each case on the most recent
Payment Date.
"AIRCRAFT AGREEMENT" means any lease, sub-lease, conditional sale
agreement, finance lease, hire purchase agreement or other agreement (other than
an agreement relating to maintenance, modification or repairs) or any purchase
option granted to a person other than MSAF or its subsidiaries or any other
member of MSAF Group to purchase an Aircraft pursuant to a purchase option
agreement, in each case pursuant to which any person acquires or is entitled to
acquire legal title, or the economic benefits of ownership of, such aircraft.
"NET SALE PROCEEDS" means, with respect to any sale or other disposition of
any assets, the aggregate amount of cash received or to be received from time to
time (whether as initial or deferred consideration) by or on behalf of the
seller in connection with such transaction after deducting therefrom (without
duplication) (a) reasonable and customary brokers' commissions and other similar
fees and commissions (including fees received by the Servicer under the
Servicing Agreement) and (b) the amount of taxes payable in connection with or
as a result of such transaction, in each case to the extent, but only to the
extent, that the amounts so deducted are, at the time of receipt of such cash,
actually paid to a person that is not an affiliate of the seller and are
properly attributable to such transaction or to the asset that is the subject
thereof.
"CONCENTRATION DEFAULT" means an Event of Default under "Operating
Covenants -- Concentration Limits", as such covenant may be adjusted from time
to time upon approval by the Rating Agencies, which would arise if effect were
given to any sale, transfer or other disposition or any purchase or other
acquisition as of the date of the binding sale or purchase agreement regardless
of whether such sale, transfer or other disposition or purchase or other
acquisition is scheduled or expected to occur after the date of such binding
agreement.
Limitation on Aircraft Acquisitions. Under the terms of the Indenture,
MSAF will not, and will not permit any of its subsidiaries, to purchase or
otherwise acquire any Aircraft other than the Initial Aircraft, any Substitute
Aircraft or any interest therein.
Notwithstanding the foregoing, MSAF and any of its subsidiaries will be
permitted to: (A) purchase or otherwise acquire, directly or indirectly,
Additional Aircraft; provided that (i) no Event of Default shall have occurred
and be continuing, (ii) all Scheduled Principal Payment Amounts on the Notes
have been paid, (iii) the acquisition does not result in a Concentration
Default, and (iv) after giving effect to such acquisition, no more than 90% by
appraised Base Value of the Portfolio consists of Stage 3 narrowbody aircraft
and regional jets, no more than 50% consists of Stage 3 widebody aircraft and no
more than 15% consists of Stage 2 aircraft and turboprop aircraft without the
Controlling Trustees having obtained confirmation in advance that such action
will not result in the lowering or withdrawal of any rating assigned by any
Rating Agency to any of the MSAF Notes Outstanding at such time; (B) act as
sponsor of a Future MSAF Group Entity other than a subsidiary of MSAF that would
fund an acquisition of aircraft assets with indebtedness guaranteed by MSAF
pursuant to the "Limitation on Indebtedness" covenant as described above;
provided that, if such acquisition of aircraft assets had been consummated
indirectly by MSAF, such acquisition would have been permitted pursuant to the
preceding clause (A) (each of the transactions described in clauses (A)
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and (B), a "PERMITTED ADDITIONAL AIRCRAFT ACQUISITION"); and (C) purchase or
otherwise acquire, directly or indirectly, (x) the Remaining Aircraft or (y)
Substitute Aircraft.
Limitation on Modification Payments and Capital Expenditures. Under the
terms of the Indenture, MSAF will not, and will not permit any of its
subsidiaries to, make any capital expenditures for the purpose of effecting any
optional improvement or modification of any Aircraft, or for the optional
conversion of any Aircraft from a passenger aircraft to a freighter or mixed-use
aircraft, for the purpose of purchasing or otherwise acquiring any Engines or
Parts outside of the ordinary course of business (each such expenditure, a
"MODIFICATION PAYMENT"). Notwithstanding the foregoing, MSAF may, and may permit
any of its subsidiaries to, make Modification Payments; provided that (i) each
Modification Payment, together with all other Modification Payments made after
March 3, 1998 with respect to any single Aircraft, do not exceed the aggregate
amount of funds that would be necessary to perform heavy maintenance (as
described in the applicable servicing agreement) on such Aircraft, including the
airframe and the related Engines thereof; (ii) such Modification Payment is
included in the annual operating budget of the MSAF Group and approved by the
Controlling Trustees; (iii) the amount of funds necessary to make such
Modification Payment shall have been accrued in advance as a Permitted Accrual
in the Expense Account through transfers into the Expense Account pursuant to
the Indenture or otherwise allowed to be paid under Permitted Indebtedness; and
(iv) the aggregate amount of all Modification Payments made by members of MSAF
Group, taken as a whole, pursuant to this covenant after March 3, 1998,
including such Modification Payment, shall not exceed 5% of the aggregate
Initial Appraised Value of all Aircraft acquired by MSAF Group.
Limitation on Consolidation, Merger and Transfer of Assets. Under the
terms of the Indenture, MSAF will not, and will not permit any subsidiary to,
consolidate with, merge with or into, or sell, convey, transfer, lease or
otherwise dispose of its property and assets (as an entirety or substantially as
an entirety in one transaction or in a series of related transactions) to, any
other person, or permit any other person to merge with or into MSAF or any
subsidiary, unless (i) the resulting entity is a special purpose entity, the
constituent document of which is substantially similar to the Amended and
Restated Trust Agreement or the equivalent charter document of such subsidiary,
as the case may be, and, after such consolidation, merger, sale, conveyance,
transfer, lease or other disposition, payments from such resulting entity to the
holders of the Notes do not give rise to any withholding tax payments less
favorable to the holders of the Notes than the amount of any withholding tax
payments which would have been required had such event not occurred, (ii) in the
case of consolidation, merger or transfer by MSAF, the surviving successor or
transferee entity shall expressly assume all of the obligations of MSAF in the
Indenture, the Notes and each other Related Document to which MSAF is then a
party, (iii) the Controlling Trustees shall have obtained confirmation in
advance that such action or event will not result in the lowering or withdrawal
of any rating assigned by any Rating Agency to any of the Notes, (iv)
immediately after giving effect to such transaction, no Event of Default shall
have occurred and be continuing, and (v) MSAF delivers to the Trustee an
officers' certificate and an opinion of counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture comply with
the above criteria and, if applicable, the "Limitation on Aircraft Sales"
covenant and that all conditions precedent provided for in the Indenture
relating to such transaction have been complied with; provided that this
covenant shall not apply to any such consolidation, merger, sale, conveyance,
transfer, lease or disposition (a) within and among MSAF and any of its
subsidiaries and among MSAF Group if such consolidation, merger, sale,
conveyance, transfer, lease or disposition, as the case may be, would not
materially adversely affect the holders of the Notes, (b) complying with the
terms of the "Limitation on Aircraft Sales" covenant or (c) effected as part of
a single transaction providing for the redemption or defeasance of the MSAF
Notes in accordance with the terms thereof as described under "-- Redemption" or
"-- Defeasance", respectively.
Limitation on Transactions with Affiliates. Under the terms of the
Indenture, MSAF will not, and will not permit any subsidiary to, directly or
indirectly, enter into, renew or extend any transaction (including, without
limitation, the purchase, sale, lease or exchange of property or assets, or the
rendering of any service) with any affiliate of MSAF or any subsidiary, except
upon fair and reasonable terms no less favorable to MSAF or such subsidiary than
could be obtained, at the time of such transaction or at the time of the
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execution of the agreement providing therefor, in a comparable arm's-length
transaction with a person that is not such an affiliate.
The foregoing limitation does not limit, and shall not apply to: (i) any
transaction in connection with the establishment of MSAF Group, its acquisition
of the Initial Aircraft, any Substitute Aircraft or pursuant to the terms of the
Related Documents; (ii) any transaction within and among MSAF or any of its
subsidiaries and any other member of MSAF Group, provided that no such
transaction, other than between MSAF and any of its subsidiaries, shall be
consummated if it would materially adversely affect the holders of the MSAF
Notes; (iii) the payment of reasonable and customary fees to, and the provision
of reasonable and customary liability insurance in respect of, the Controlling
Trustees; (iv) any payments on the Beneficial Interest in accordance with the
Indenture and the "Order of Priorities"; (v) any Permitted Additional Aircraft
Acquisition or any transaction complying with the "Limitation on Aircraft Sales"
covenant; (vi) any payments of the types referred to in clauses (i) or (ii) of
the "Limitation on Restricted Payments" covenant and not prohibited thereunder;
(vii) entering into any transaction effected as part of a single transaction
providing for the redemption or defeasance of the MSAF Notes, in accordance with
the terms thereof as described under "-- Redemption" or "-- Defeasance",
respectively; (viii) entering into an interest rate swap or option on an
interest rate swap or other instrument used for the management of interest rate
risk with Morgan Stanley or any of its affiliates; or (ix) the tax
indemnification agreement between MSAF and Morgan Stanley.
Limitation on the Issuance, Delivery and Sale of Stock. Under the terms of
the Indenture, MSAF will not (i) issue, deliver or sell any shares,
participations or other equivalents (however designated, whether voting or
non-voting, other than beneficial interests, shares, participations or other
equivalents existing on March 3, 1998) in equity, or (ii) sell, or permit any
subsidiary, directly or indirectly, to issue, deliver or sell, any beneficial
interests, shares, participations or other equivalents (however designated,
whether voting or non-voting, other than such shares, interests, participations
or other equivalents existing on March 3, 1998) in equity except (A) issuances
or sales of further Beneficial Interests in MSAF having economic terms that are
no less favorable to the Noteholders than those of the Beneficial Interest
existing on March 3, 1998, (B) issuances or sales of shares of Stock of foreign
subsidiaries of MSAF to nationals in the jurisdiction of incorporation or
organization of such subsidiary, as the case may be, to the extent required by
applicable law or necessary in the determination of the Controlling Trustees to
avoid an adverse tax consequence in any such jurisdiction, (C) the pledge of the
beneficial interests and shares in MSAF's subsidiaries pursuant to the Security
Trust Agreement, (D) the sale, delivery or transfer of any Stock of any member
of the MSAF Group as part of a single transaction providing for the redemption
or defeasance of the MSAF Notes, in accordance with the terms set forth under
"-- Redemption" or "-- Defeasance", respectively, (E) the sale of any Stock in
connection with any sale of Aircraft in compliance with the terms of the
"Limitation on Aircraft Sales" covenant and (F) the sale, delivery, transfer or
pledge of beneficial interests or shares of any MSAF Group member to or for the
benefit of any other MSAF Group member.
Bankruptcy and Insolvency. Under the terms of the Indenture, (i) MSAF will
promptly provide the Trustee and the Rating Agencies with notice of the
institution of any proceeding by or against MSAF or any of its subsidiaries, as
the case may be, seeking to adjudicate any of them a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of their debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking an
entry of an order for relief or the appointment of a receiver, trustee or other
similar official for either or for any substantial part of their property, (ii)
MSAF will not amend any provision of the Amended and Restated Trust Agreement
that would adversely affect the rights, privileges or preferences of any holder
of the Notes, as determined by the Controlling Trustees, and (iii) MSAF will
not, without an affirmative unanimous written resolution of the Controlling
Trustees and the Independent Trustees take any action to waive, repeal, amend,
vary, supplement or otherwise modify the provision of the Amended and Restated
Trust Agreement which requires a unanimous resolution of the Controlling
Trustees and the Independent Trustees, or limits the actions of beneficial
interest holders, with respect to voluntary insolvency proceedings or consents
to involuntary insolvency proceedings.
In addition, under the terms of the Amended and Restated Trust Agreement
the Controlling Trustees and Independent Trustees will agree that while the
Notes are outstanding they will not take any action (i) to
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cause MSAF to institute any proceeding seeking liquidation or insolvency (or
similar proceeding), (ii) in the case of any such proceeding instituted against
MSAF, to authorize or consent to such proceedings or (iii) to terminate MSAF's
existence.
OPERATING COVENANTS
Concentration Limits. Unless the Controlling Trustees obtain prior written
confirmation from each of the Rating Agencies that no lowering or withdrawal of
the then current rating of any subclass of Notes will result, MSAF will not
permit any of its subsidiaries to lease or re-lease any Aircraft if entering
into such proposed lease would cause the Portfolio (excluding any Aircraft then
subject to an Aircraft Agreement and expected to be disposed of within one year
from the date of effectiveness of such lease pursuant to clauses (iii) and (v)
under "-- Indenture Covenants -- Limitation on Aircraft Sales" above but
including any Aircraft with respect to which MSAF Group has entered into a
binding agreement to acquire and which the Controlling Trustees reasonably
expect to acquire within 180 days from the date of effectiveness of such
agreement) to exceed any of the concentration limits set forth below (the
"CONCENTRATION LIMITS"); provided that the Indenture will permit breaches of
such Concentration Limits upon any renewal, extension or restructuring of any
Lease.
<TABLE>
<CAPTION>
LESSEE CONCENTRATION LIMITS PERCENTAGE OF
MOST RECENT APPRAISED
VALUE OF PORTFOLIO(1)
---------------------
<S> <C>
Single Lessee rated BBB/Baa2 (or the equivalent) or
better.................................................... 15%
Other single Lessees........................................ 10%
Five largest Lessees........................................ 35%
</TABLE>
<TABLE>
<CAPTION>
COUNTRY CONCENTRATION LIMITS PERCENTAGE OF
MOST RECENT APPRAISED
VALUE OF PORTFOLIO(1)
---------------------
<S> <C>
United States............................................... 25%
Countries rated BBB/Baa2 (or the equivalent) or better(2)... 20%
Other....................................................... 15%
</TABLE>
<TABLE>
<CAPTION>
REGION CONCENTRATION LIMITS PERCENTAGE OF
MOST RECENT APPRAISED
VALUE OF PORTFOLIO(1)
---------------------
<S> <C>
Developed Market Region(3).................................. 50%
Emerging Market Region(3)................................... 25%
Other(3).................................................... 20%
</TABLE>
- ---------------
(1) Percentage to be obtained by dividing the aggregate most recent Appraised
Values of all Aircraft leased or to be leased to Lessees habitually based in
the applicable country by the aggregate most recent Appraised Values of all
Aircraft then owned by MSAF Group and any future MSAF Group member.
(2) Based on the sovereign foreign currency debt rating assigned by the Rating
Agencies to the country in which a Lessee is habitually based at the time
the relevant Lease is executed.
(3) The designations of Emerging Markets and Developed Markets are as determined
and published by Capital International Perspective S.A. ("MSCI") from time
to time based on, among other things, gross domestic product levels,
regulation of foreign ownership of assets, the regulatory environment,
exchange controls and perceived investment risk. The current designations
are as set out below:
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<TABLE>
<CAPTION>
REGION COUNTRY
------ -------
<S> <C>
Developed Markets
Europe....................... EU (except Greece and Luxembourg), Norway and Switzerland
North America................ Canada and United States
Pacific...................... Australia, Hong Kong, Japan, New Zealand and Singapore
Emerging Markets
Asia......................... China, India, Indonesia, Korea, Malaysia, Pakistan,
Philippines, Sri Lanka, Taiwan and Thailand
Europe and Middle East....... Czech Republic, Greece, Hungary, Israel, Jordan, Poland,
Russia and Turkey
Latin America................ Argentina, Brazil, Chile, Colombia, Mexico, Peru and
Venezuela
Other
All other countries (generally those that have small or underdeveloped capital markets,
including Iceland, Fiji and Guyana)
</TABLE>
In addition, the Indenture will not permit MSAF or any subsidiary to lease
Aircraft operated or to be operated by Lessees domiciled in (i) certain
countries and (ii) certain other countries without procuring political risk
insurance. The list of prohibited countries and countries with respect to which
political risk insurance must be procured may be modified from time to time upon
the approval of the Rating Agencies.
The Indenture contains no limitations with respect to the country or region
where any sublessees of Aircraft operated or to be operated are domiciled if (i)
such sublease is permitted under the relevant Lease (including by reason of
consent or waiver, if applicable) or renewed Lease (including by reason of
consent or waiver, if applicable) and (ii) the relevant Lessee is either a
signatory to a Lease or a renewed Lease.
Compliance with Law, Maintenance of Permits. Under the terms of the
Indenture, MSAF will (i) comply, and cause each of its subsidiaries to comply,
in all material respects with all applicable laws, (ii) obtain, and cause each
of its subsidiaries to obtain, all material governmental (including regulatory)
registrations, certificates, licenses, permits and authorizations required for
such person's use and operation of the Aircraft, including, without limitation,
a current certificate of airworthiness for each Aircraft (issued by the
applicable aviation authority and in the appropriate category for the nature of
operations of such Aircraft), except that (A) no certificate of airworthiness
shall be required for any Aircraft (x) during any period when such Aircraft is
undergoing maintenance, modification or repair, (y) following the withdrawal or
suspension by such applicable aviation authority of certificates of
airworthiness in respect of all aircraft of the same model or period of
manufacture as such Aircraft (in which case MSAF shall comply, and cause each of
its subsidiaries to comply, with all directions of such applicable aviation
authority in connection with such withdrawal or suspension), (B) no
registration, certificates, licenses, permits or authorizations required for the
use or operation of any Aircraft need be obtained with respect to any period
when such Aircraft is not being operated and (C) no such registrations,
certificates, licenses, permits or authorizations shall be required to be
maintained for any Aircraft that is not the subject of a Lease, except to the
extent required under applicable laws, (iii) not cause or knowingly permit,
directly or indirectly, through any of its subsidiaries, any Lessee to operate
any Aircraft under any Lease in any material respect contrary to any applicable
law and (iv) not knowingly permit, directly or indirectly, through any of its
subsidiaries, any Lessee not to obtain all material governmental (including
regulatory) registrations, certificates, licenses, permits and authorizations
required for such Lessee's use and operation of any Aircraft under any operating
Lease except as provided, mutatis mutandis, in clauses (ii)(A) and (ii)(B)
above.
The foregoing covenant shall not be deemed to have been breached by virtue
of any act or omission of a Lessee or sub-lessee, or of any person which has
possession of the Aircraft or any Engine for the purpose of repairs,
maintenance, notification or storage, or by virtue of any requisition, seizure,
or confiscation of the Aircraft (other than seizure or confiscation arising from
a breach by MSAF or a subsidiary of such covenant) (each, a "THIRD PARTY
EVENT"); provided that (i) no member of MSAF Group consents or has consented to
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such Third Party Event; and (ii) the member of MSAF Group which is the lessor or
owner of such Aircraft promptly and diligently takes such commercially
reasonable actions as a leading international aircraft operating lessor or owner
would reasonably take in respect of such Third Party Event, including, as deemed
appropriate (taking into account, inter alia, the laws of the jurisdictions in
which the Aircraft are located), seeking to compel such Lessee or other relevant
person to remedy such Third Party Event or seeking to repossess the relevant
Aircraft or Engine.
Appraisal of Portfolio. Under the terms of the Indenture, MSAF will, at
least once each year and in any case no later than October 31 of each year,
deliver to the Trustee appraisals of the Base Value of each of the Aircraft,
from at least three independent appraisers that are members of the International
Society of Transport Aircraft Trading or any similar organization, each such
appraisal to be dated within 30 days prior to its delivery to the Trustee.
Maintenance of Assets. Under the terms of the Indenture, MSAF will (i)
with respect to each Aircraft and Engine that is subject to a Lease, cause
directly or indirectly, through any of its subsidiaries, such Aircraft and
Engine to be maintained in a state of repair and condition consistent with the
reasonable commercial practice of leading international aircraft operating
lessors with respect to similar aircraft under lease, taking into consideration,
among other things, the identity of the relevant Lessee (including the credit
standing and operating experience thereof), the age and condition of the
Aircraft and the jurisdiction in which such Aircraft will be operated or
registered under such Lease, and (ii) with respect to each Aircraft that is not
subject to a Lease, maintain, and cause each of its subsidiaries to maintain,
such Aircraft in a state of repair and condition consistent with the reasonable
commercial practice of leading international aircraft operating lessors with
respect to aircraft not under lease. No breach of this covenant, however, shall
be deemed to have occurred by virtue of any Third Party Event; provided that (i)
no member of MSAF Group consents or has consented to such Third Party Event; and
(ii) the member of MSAF Group which is the lessor or owner of such Aircraft
promptly and diligently takes such commercially reasonable actions as a leading
international aircraft operating lessor would reasonably take in respect of such
Third Party Event, including as deemed appropriate, seeking to compel such
Lessee or other relevant person to remedy such Third Party Event or seeking to
repossess the relevant Aircraft or Engine.
Notification of Trustee and Administrative Agent. Under the terms of the
Indenture, MSAF will notify the Trustee and Administrative Agent as soon as MSAF
or any of its subsidiaries becomes aware of any loss, theft, damage or
destruction to any Aircraft or Engine if the potential cost of repair or
replacement of such asset (without regard to any insurance claim related
thereto) may exceed $2,000,000.
Leases. Under the terms of the Indenture, MSAF shall adopt and has agreed
to cause the Servicer to use, and will adopt and will agree to cause any
additional Servicer replacing the Servicer pursuant to the terms of the
Servicing Agreement (an "ADDITIONAL SERVICER") to use, the pro forma lease
agreement or agreements then used by the Servicer or such Additional Servicer,
as the case may be, in connection with its aircraft operating leasing services
business generally, as such pro forma lease agreement or agreements may be
revised for purposes of MSAF Group specifically or generally from time to time
by the Servicer or Additional Servicer (the "PRO FORMA LEASE"), on behalf of
each member of MSAF Group as a starting point in the negotiation of Future
Leases; provided, that with respect to any Future Lease entered into in
connection with (x) the renewal or extension of a Lease, (y) the leasing of an
Aircraft to a person that is or was a Lessee under a pre-existing Lease or (z)
the leasing of an Aircraft to a person that is or was a lessee under an
operating lease of an aircraft that is being managed or serviced by the Servicer
or such Additional Servicer, as the case may be (such Future Lease, a "RENEWAL
LEASE"), a form of lease substantially similar to such pre-existing Lease or
operating lease (a "PRECEDENT LEASE"), as the case may be, may, in lieu of the
Pro Forma Lease, be used by the Servicer or such Additional Servicer, as the
case may be, on behalf of any member of the MSAF Group as a starting point in
the negotiation of such future lease with persons who are not members of the
MSAF Group or any Future MSAF Group Entity.
Opinions. Under the terms of the Indenture, MSAF will not enter into, and
will not permit any of its subsidiaries to enter into, any Future Lease with any
person that is not a member of MSAF Group or change the jurisdiction of
registration of any Aircraft that is subject to a Lease, unless, upon entering
into such Future
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Lease or changing the jurisdiction or registration of such Aircraft (or within a
commercially reasonable period thereafter), the Servicer or Additional Servicer,
as the case may be, obtains such legal opinions, if any, with regard to
compliance with the registration requirements of the relevant jurisdiction,
enforceability of the Future Lease and such other matters customary for such
transactions to the extent that receiving such legal opinions is consistent with
the reasonable commercial practice of leading international aircraft operating
lessors.
Insurance. Under the terms of the Indenture, MSAF will maintain or cause,
directly or indirectly through its subsidiaries, to be maintained with reputable
and responsible insurers or with insurers that maintain relevant reinsurance
with reputable and responsible reinsurers (i) airline hull insurance for each
Aircraft in an amount at least equal to the Note Target Price for such Aircraft
(or the equivalent thereof from time to time if such insurance is denominated in
a currency other than United States dollars), (ii) airline liability insurance
for each Aircraft and occurrence in an amount at least equal to the relevant
amounts set forth in the Indenture for each model of aircraft and (iii) airline
political risk insurance ("PRI") for each Aircraft subject to a Lease and
habitually based in a jurisdiction determined in accordance with the PRI
guidelines, as set forth in the Indenture and as amended from time to time with
the consent of the Rating Agencies, in an amount at least equal to the Note
Target Price (or the equivalent thereof from time to time if such insurance is
denominated in a currency other than United States Dollars) for such Aircraft;
provided, however, that with respect to any such insurance for any Aircraft
subject to a Lease, such insurance may be subject to commercially reasonable
deductible and self-insurance arrangements (taking into account, inter alia, the
creditworthiness and experience of the Lessee, if any, the type of aircraft and
market practices in the aircraft insurance industry generally). The coverage and
terms (including endorsements, deductibles and self-insurance arrangements) of
any insurance maintained with respect to any Aircraft not subject to a Lease
shall be substantially consistent with the commercial practices of leading
international aircraft operating lessors regarding similar aircraft.
In determining the amount of insurance required to be maintained, MSAF may
take into account any indemnification from, or insurance provided by, any
governmental, supranational or inter-governmental authority or agency (other
than, with respect to PRI, any governmental authority or agency of any
jurisdiction for which PRI must be obtained), the sovereign foreign currency
debt rating of which is rated AA, or the equivalent, by at least one of the
Rating Agencies, against any risk with respect to an Aircraft at least in an
amount which, when added to the amount of insurance against such risk maintained
by MSAF (or which MSAF has caused to be maintained), shall be at least equal to
the amount of insurance against such risk otherwise required by the covenant
(taking into account self-insurance permitted by the covenant). Any such
indemnification or insurance provided by such government shall provide
substantially similar protection as the insurance required by the covenant. MSAF
will not be required to maintain (or to cause to be maintained) any insurance
otherwise required hereunder to the extent that such insurance is not generally
available in the relevant insurance market at commercially reasonable rates from
time to time.
Indemnity. Under the terms of the Indenture, MSAF will, and will cause
each of its subsidiaries to, include in each Lease between a member of MSAF
Group and a person who is not a member of MSAF Group an indemnity in respect of
the Lease in respect of any losses or liabilities arising from the use or
operation of the Aircraft during the term of such Lease, subject to such
exceptions, limitations and qualifications as are consistent with the reasonable
commercial practices of leading international aircraft operating lessors.
EVENTS OF DEFAULT AND REMEDIES
Each of the following events will constitute an "EVENT OF DEFAULT" with
respect to any class of Notes under the Indenture (unless otherwise specified
below):
(a) failure to pay interest on the Notes of such class or any subclass
thereof (other than Step-Up Interest), in each case when such amount
becomes due, and such default continues for a period of five or more
Business Days;
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(b) failure to pay principal or premium, if any, on the Notes of such
class or any subclass thereof either on or prior to the applicable
Final Maturity Date;
(c) failure to pay any amount (other than interest) when due and payable
in connection with any Note of such class or any subclass thereof, to
the extent that there are at such time Available Collections therefor,
and such default continues for a period of five or more Business Days;
(d) failure by MSAF to comply with any of the covenants, obligations,
conditions or provisions binding on it under the Indenture or the
Notes (other than a payment default for which provision is made in
clause (a), (b) or (c) above), if such failure materially adversely
affects the holders of such class of Notes and continues for a period
of 30 days or more after written notice thereof has been given to MSAF
by the Cash Manager, the Administrative Agent, the Servicer or
Additional Servicer, as the case may be, or by holders of at least 25%
of the aggregate Outstanding Principal Balance of the Notes of the
Senior Class;
(e) a court having jurisdiction in the premises enters a decree or order
for (i) relief in respect of MSAF, or any subsidiary thereof (other
than a subsidiary which owns or leases Aircraft having an aggregate
Base Value of less than 10% of the Adjusted Portfolio Value at that
time) (each, a "SIGNIFICANT SUBSIDIARY"), under any applicable law
relating to bankruptcy, insolvency, receivership, winding-up,
liquidation, reorganization, examination, relief of debtors or other
similar law now or hereafter in effect, (ii) appointment of a
receiver, liquidator, examiner, assignee, custodian, trustee,
sequestrator or similar official of MSAF or any Significant
Subsidiary; or (iii) the winding up or liquidation of the affairs of
MSAF or any Significant Subsidiary and, in each case, such decree or
order shall remain unstayed or such writ or other process shall not
have been stayed or dismissed within 90 days from entry thereof;
(f) MSAF or any Significant Subsidiary (i) commences a voluntary case
under any applicable law relating to bankruptcy, insolvency,
receivership, winding-up, liquidation, reorganization, examination,
relief of debtors or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in any voluntary case
under any such law, (ii) consents to the appointment of or taking
possession by a receiver, liquidator, examiner, assignee, custodian,
trustee, sequestrator or similar official of MSAF or any Significant
Subsidiary or for all or substantially all of the property and assets
of MSAF or any Significant Subsidiary or (iii) effects any general
assignment for the benefit of creditors;
(g) any judgment or order for the payment of money in excess of 5% of the
aggregate Adjusted Portfolio Value shall be rendered against MSAF or
any subsidiary or any other member of MSAF Group and either (i)
enforcement proceedings shall have been commenced by any creditor upon
such judgment or order or (ii) there shall be any period of 10
consecutive days during which a stay of enforcement of such judgment
or order, by reason of a pending appeal or otherwise, shall not be in
effect; provided, however, that any such judgment or order shall not
be an Event of Default under the Indenture if and for so long as (i)
the amount of such judgment or order is covered by a valid and binding
policy of insurance between the defendant and the insurer covering
payment thereof and (ii) such insurer, which shall be rated at least A
by A.M. Best Company or any similar successor entity, has been
notified of, and has not disputed the claim made for payment of, the
amount of such judgment or order; or
(h) the constitutional documents of MSAF cease to be in full force and
effect without replacement documents having the same terms being in
full force and effect.
The Indenture provides that, within 30 days of the occurrence of an Event
of Default in respect of any class of Notes, the Trustee will give to the
Noteholders of such class notice, transmitted by mail, of all uncured or
unwaived defaults under the Indenture known to it on such date. If an Event of
Default (other than an Event of Default under (e) or (f) above) with respect to
the Senior Class of Notes shall have occurred and be continuing, the Senior
Trustee may, and, when instructed by the holders of 25% of the aggregate
Outstanding Principal Balance of the Senior Class of Notes, shall, give a
Default Notice to MSAF,
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the Administrative Agent, the Trustee and the Cash Manager declaring the
Outstanding Principal Balance of the Notes and all accrued and unpaid interest
thereon to be due and payable. At any time after the Senior Trustee has declared
the Outstanding Principal Balance of the Notes to be due and payable and prior
to the exercise of any other remedies pursuant to the Indenture, holders of a
majority of the Outstanding Principal Balance of the Senior Class of Notes, by
written notice to MSAF, the Senior Trustee and the Administrative Agent, may,
except in the case of (i) a default in the deposit or distribution of any
payment required to be made on the Notes of such class, (ii) a payment default
on such class of Notes or (iii) a default in respect of any covenant or
provision of the Indenture that cannot by the terms thereof be modified or
amended without the consent of each Noteholder affected thereby, rescind and
annul such declaration and thereby annul its consequences if: (i) there has been
paid to or deposited with the Senior Trustee an amount sufficient to pay all
overdue installments of interest on the Notes, and the principal of and premium,
if any, on the Notes that would have become due otherwise than by such
declaration of acceleration, (ii) the rescission would not conflict with any
judgment or decree and (iii) all other defaults and Events of Default, other
than nonpayment of interest and principal on the Notes that have become due
solely because of such acceleration, have been cured or waived. If an Event of
Default under clause (e) or (f) occurs, the Outstanding Principal Balance of the
Notes and all accrued and unpaid interest thereon shall automatically become due
and payable without any further action by any party. After the occurrence and
during the continuation of an Event of Default, (i) the Class B Noteholders will
not be permitted to give or direct the giving of a Default Notice or to exercise
any remedy in respect of such Event of Default until all interest and principal
on the Class A Notes have been paid in full, (ii) the Class C Noteholders will
not be permitted to give a Default Notice or to exercise any remedy in respect
of such Event of Default until all interest and principal on the Class A Notes
and the Class B Notes have been paid in full and (iii) the Class D Noteholders
will not be permitted to give a Default Notice or to exercise any remedy in
respect of such Event of Default until all interest and principal on the Class A
Notes, the Class B Notes and the Class C Notes have been paid in full. The
Trustee shall provide each Rating Agency with a copy of any Default Notice it
receives pursuant to the Indenture.
The Indenture contains a provision entitling the Trustee, subject to the
duty of the Trustee during a default to act with the required standard of care,
to be indemnified by the holders of any class of the Notes before proceeding to
exercise any right or power under the Indenture or the Administrative Agency
Agreement at the request or direction of such holders. Except in limited
circumstances, no holder of the Notes will have the right, other than through
the Senior Trustee acting in accordance with the Indenture, to sue for recovery
or take any other actions to enforce the obligations of MSAF to pay any and all
amounts due and payable under the Notes, and no holder of the Notes will have
the right to take any steps to cause the filing for bankruptcy of MSAF. However,
such limitation does not apply to a suit instituted by any holder of a Note for
the enforcement of payment of principal or interest on such Note on or after the
respective due dates therefor unless such holder shall have consented thereto.
The Senior Trustee is entitled to exercise any and all remedies available under
the Indenture.
For the purposes of the Indenture, the term "DEFAULT" shall mean the
occurrence of any event which is, or after notice or lapse of time, or both,
would constitute an Event of Default.
INTERCREDITOR RIGHTS
Subject to the terms of the Indenture, the Senior Trustee will have sole
discretion as to whether to direct the Administrative Agent to exercise and
enforce any and all remedies with respect to the Notes. The Senior Trustee may
take various actions in respect of the Notes, without regard to the interests of
any other creditors.
MODIFICATION AND WAIVER
In the event that the Trustee receives a request for its consent to an
amendment, modification or waiver under the Indenture, the Notes or any Related
Document relating to the Notes, the Trustee shall mail a notice of such proposed
amendment, modification or waiver to each Noteholder as to whether or not to
consent to such amendment, modification or waiver.
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The Indenture will provide that, with the consent of the holders of a
majority of the Outstanding Principal Balance of the Notes (acting as a single
class), modifications may be made to the Notes or the Indenture; provided that
any modification of the provisions setting forth the frequency or the currency
of payment of, the maturity of, or the method of calculation of the amount of
any interest, principal and premium, if any, payable in respect of any subclass
of Notes, or reducing the percentage of the aggregate Outstanding Principal
Balance of any subclass of Notes required to approve any such amendment or
waiver, or altering the manner or priority of payment of any subclass of Notes
(each, a "BASIC TERMS MODIFICATION") is not permitted without the consent of any
Swap Provider and the holder of each Outstanding Note affected thereby; provided
further however, that the Senior Trustee may waive any Event of Default. Any
such modification approved by the required holders of any subclass of Notes will
be binding on the holders of the relevant subclass of Notes and each party to
the Indenture. The foregoing, however, shall not prevent MSAF or any subsidiary
from amending any Lease; provided that such amendment is otherwise permitted by
the Indenture.
The subordination provisions contained in the Indenture may not be amended
or modified without the consent of each Swap Provider, each holder of the class
of Notes affected thereby and each holder of any class of Notes ranking senior
to such Notes.
Without the consent of each Noteholder, no amendment or modification of the
Indenture or the Administrative Agency Agreement may, inter alia, (a) modify the
provisions of the Indenture or the Administrative Agency Agreement with respect
to Account payment instructions and the payment thereunder by the Administrative
Agent or (b) result in the sale of MSAF's assets other than pursuant to the
provisions of "Indenture Covenants". In no event shall the provisions relating
to the priority of the Expenses or Swap Payments in the Indenture be amended or
modified.
NOTICES TO NOTEHOLDERS
Save as provided below, any notice to the Noteholders shall be validly
given (i) by publication in the Luxemburger Wort or, if such newspaper shall
cease to be published or timely publication therein shall not be practicable, in
such English language newspaper or newspapers as the Trustee shall approve
having a general circulation in Europe, (ii) by either of (a) the information
contained in such notice appearing on the relevant page of the Reuters Screen or
such other medium for the electronic display of data as may be approved by the
Trustee and notified to Noteholders or (b) publication in the Financial Times
and The Wall Street Journal (National Edition) or, if either newspaper shall
cease to be published or timely publication therein shall not be practicable, in
such English language newspaper or newspapers as the Trustee shall approve
having a general circulation in Europe and the United States and (iii) until
such time as any Definitive Notes are issued and, so long as the Notes are
registered in the name of a nominee for DTC, Euroclear and/or Cedel Bank,
delivery of the relevant notice to DTC, Euroclear and/or Cedel Bank for
communication by them to Noteholders.
The Trustee shall be at liberty to sanction some other method of giving
notice to the Noteholders if, in its opinion, such other method is reasonable,
having regard to the number and identity of the Noteholders and/or to market
practice then prevailing, is in the best interests of the Noteholders and will
comply with the rules of the Luxembourg Stock Exchange or such other stock
exchange (if any) on which the Notes are then listed, and any such notice shall
be deemed to have been given on such date as the Trustee may approve; provided
that notice of such method is given to the Noteholders in such manner as the
Trustee shall require.
Notwithstanding the above, any notice specifying the rate, amount or
Payment Date in respect of any Floating Rate Notes, or in respect of any
repayment of principal on any Notes shall, for so long as the Notes are listed
on the Luxembourg Stock Exchange and so long as the rules of the Luxembourg
Stock Exchange so require, be given to the Luxembourg Stock Exchange; provided
that such requirement shall be satisfied until such time as any Definitive Notes
are issued to all Noteholders and so long as the Notes are held on behalf of
DTC, Cedel Bank and Euroclear by (i) delivery of the relevant notice to DTC,
Cedel Bank and Euroclear for communication by them to the Noteholders without
the need for publication in the Luxemburger Wort and (ii) delivery of the notice
to the Luxembourg Stock Exchange and the paying agent in Luxembourg; provided
further, however, that any notice specifying (a) an increase in the interest
rate of any subclass of Notes due to Step-Up Interest or failure by MSAF to
comply with the registration requirements for the Notes or
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(b) redemption of principal of any Notes must be published in the Luxemburger
Wort or another daily newspaper of general circulation in Luxembourg. Any such
notice shall be deemed to have been given on the first day on which any of such
conditions shall have been met.
GOVERNING LAW AND JURISDICTION
The Indenture, the Notes, the Administrative Agency Agreement and the Cash
Management Agreement are to be governed by and construed in accordance with the
laws of the State of New York. In the Indenture, the Administrative Agency
Agreement and the Cash Management Agreement, MSAF has submitted to the
jurisdiction of the United States Federal and New York State courts located in
The City of New York for all purposes of or in connection with the Notes, the
Administrative Agency Agreement and Cash Management Agreement, as the case may
be, and has designated a person in The City of New York to accept service of any
process on its behalf.
BENEFICIAL INTEREST
The nominal value of the Beneficial Interest is $1.00. Morgan Stanley
indirectly holds 100% of the Beneficial Interest, but Morgan Stanley may
transfer all or a portion of the Beneficial Interest to a related or unrelated
person in the future. The Beneficial Interest will rank junior in priority of
payment to certain payments on the Notes and certain other obligations of MSAF
and, to the extent held by more than one person, pari passu among such persons.
Pursuant to the subordination provisions of the Indenture, payments on the
Beneficial Interest, other than the Beneficial Interest Distribution Amount, as
set forth in "-- Priority of Payments", are subordinated to all payments of
interest and principal on the Notes and no payments may be made on the
Beneficial Interest other than the Beneficial Interest Distribution Amount while
the Notes remain Outstanding.
When, as and if declared by the Controlling Trustees, a "BENEFICIAL
INTEREST DISTRIBUTION AMOUNT" shall only be payable on any Payment Date
occurring after March 15, 2003 and will not exceed the lesser of (i) 3% of the
difference, if positive, between the Adjusted Portfolio Value on such Payment
Date and the Outstanding Principal Balance of the MSAF Notes (determined prior
to application of Available Collections on such Payment Date) and (ii) 15% of
Available Collections on such Payment Date after application of payments and
retentions (i) through (xvii) as set forth above under "-- Priority of
Payments".
CASH MANAGEMENT AGREEMENT
The Cash Management Agreement among MSAF Group, the Cash Manager and the
Security Trustee, appoints the Cash Manager to invest the funds held by MSAF
Group in the Accounts in the Permitted Account Investments.
ACCOUNTS
The Administrative Agent, acting on behalf of the Security Trustee, has
established the following accounts: (i) the Collection Account, (ii) the Expense
Account, (iii) the initial Rental Account and (iv) an aircraft purchase account
(the "AIRCRAFT PURCHASE ACCOUNT") in which amounts were deposited to purchase
certain of the Initial Aircraft which had not been delivered as of March 3,
1998, the closing date of the Offering of the Old Notes (collectively with the
Lessee Funded Account, the Refinancing Account and the Defeasance/Redemption
Account, and including any ledger or subledger accounts maintained therein, the
"ACCOUNTS"). Each of the Collection Account, the Expense Account, the Rental
Accounts, the Lessee Funded Account and the Aircraft Purchase Account has been
established at a bank having (i) a long-term unsecured debt rating of not less
than AA, or the equivalent, by the Rating Agencies or (ii) a certificate of
deposit rating of A-1+ by Standard & Poor's and P-1 by Moody's and that is
acceptable to the other 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 the Rating Agencies, or a
certificate of deposit rating of less than A-1+ by Standard and Poor's and P-1
by Moody's. Except where local legal or regulatory reasons do not permit, all of
such Accounts will be held in the names of the Security Trustee, who will have
sole dominion and control over the Accounts, including, inter alia, the sole
power to direct withdrawals from
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or transfers among such Accounts. Subject to certain conditions set forth in the
Administrative Agency Agreement, the Security Trustee will delegate such
authority over the Accounts to the Administrative Agent; provided that the
Security Trustee will not be responsible for the acts or omissions of the
Administrative Agent.
For as long as any Notes remain Outstanding, funds on deposit in the
Accounts will be invested and reinvested by the Cash Manager at MSAF Group's
written direction (or, following delivery to MSAF or the Administrative Agent of
a Default Notice or if any Event of Default described in clause (e) or (f) under
" -- Events of Default and Remedies" shall have occurred and be continuing, at
the Security Trustee's written direction) in one or more Permitted Account
Investments 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 Payment Date after such Permitted Account 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 or Aircraft Agreements, as the case may be.
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 will make all payments under the Leases directly into the
applicable Rental Accounts. Pursuant to the Administrative Agency Agreement, the
Administrative Agent will transfer, or cause to be transferred, all funds
deposited into the Rental Accounts into the Collection Account as collections
within one Business Day of receipt thereof (other than certain limited amounts,
if any, required to be left on deposit for local legal or regulatory reasons).
COLLECTION ACCOUNT
Collections will include all amounts received by MSAF Group, including (i)
Rental Payments, (ii) amounts drawn under any credit or liquidity enhancement
facility, (iii) 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, (iv) the cash portion of the Liquidity Reserve Amount, (v) amounts
received in respect of claims for damages or in respect of any breach of
contract for nonpayment of any of the foregoing (including any amounts received
from any MSAF Group subsidiary, whether by way of distribution, dividend,
repayment of a loan or otherwise and any proceeds received in connection with
any Allowed Restructuring), (vi) net proceeds of any Aircraft sale or amounts
received under any Aircraft Agreement, (vii) proceeds of any insurance payments
in respect of any Aircraft or any indemnification proceeds, (viii) certain
amounts transferred from the Lessee Funded Account to the Collection Account,
(ix) certain security deposits transferred from ILFC, (x) net payments to MSAF
Group under any Swap Agreement, (xi) 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 (xii) any other amounts received by any member
of the MSAF Group other than segregated funds, certain funds to be applied in
connection with a redemption, certain funds received in connection with a
Refinancing and other amounts required to be paid over to any third party
pursuant to any Related Document (collectively, the "COLLECTIONS").
Collections on deposit in the Collection Account will be calculated by the
Administrative Agent on the Calculation Date. The portion of the Required
Expense Amount that has not been paid directly by the Administrative Agent to
Expense payees will be transferred into the Expense Account on each Payment Date
and the Administrative Agent may, from time to time, transfer other amounts into
the Expense Account in respect of unanticipated Expenses falling due and payable
within such Interest Accrual Period. To the extent funds are available therefor
on any Payment Date, the Administrative Agent will also transfer amounts in
respect of expenses and costs that are not regular, monthly recurring expenses,
including Modification Payments and refinancing expenses, if any, 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 (as described below) will be transferred directly into
the Lessee Funded Account.
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LIQUIDITY RESERVE AMOUNT
All Collections received by MSAF Group will either be transferred to
another Account as described above and below, paid to the appropriate third
party on behalf of MSAF Group or held in the Collection Account as a part of the
cash portion of the Liquidity Reserve Amount, a balance required to be held by
MSAF Group in the Collection Account pursuant to the Indenture. The Liquidity
Reserve Amount is intended to provide liquidity for MSAF Group to meet its
aircraft maintenance obligations and its lessee security deposit repayment
obligations and to provide for certain other contingencies that may arise in the
course of MSAF Group's activities. The Liquidity Reserve Amount may be funded
with cash in the Collection Account or with amounts available under Eligible
Credit Facilities.
The initial Liquidity Reserve Amount was approximately $65.2 million on
March 3, 1998. The Liquidity Reserve Amount may be increased or decreased from
time to time for any reason (including upon acquisitions of Additional Aircraft)
by an action of the Controlling Trustees in light of significant changes in,
inter alia, the condition of the Aircraft, the terms and conditions of the
Leases, the financial condition of the Lessees or prevailing industry
conditions; provided that MSAF Group will obtain confirmation in advance in
writing from the Rating Agencies that any such proposed reduction in the
Liquidity Reserve Amount will not result in a lowering or withdrawal by any such
Rating Agencies of their respective ratings of any class of Notes.
If the balance of cash on deposit in the Collection Account, together with
the amount available for drawing under any Eligible Credit Facilities, should
fall below the Liquidity Reserve Amount at any time (including as a result of
MSAF Group's determination that the Liquidity Reserve Amount should be
increased, as required by the Rating Agencies or otherwise), MSAF Group may
continue to make all payments, and any credit or liquidity enhancement
facilities may be drawn to fund such payments, including required payments on
the Notes, which rank prior to, or pari passu with, payments of Minimum
Principal Payment Amount on the Class D Notes under "Description of the Notes --
Priority of Payments" and any Permitted Accruals other than in respect of
Modification Payments, provided that the balance of funds in the Collection
Account, together with the amount available for drawing under any Eligible
Credit Facilities, does not fall below the Minimum Liquidity Reserve Amount at
its then current level. However, the balance of funds in the Collection Account,
together with the amount available for drawing under any Eligible Credit
Facilities, may fall below the Minimum Liquidity Reserve Amount at its then
current level and MSAF Group may continue to make payments of, and any credit or
liquidity enhancement facilities may be drawn to fund such payments, all accrued
and unpaid interest on any subclass of the most senior class of Notes then
Outstanding to avoid an Event of Default, and, on the Final Maturity Date of any
subclass thereof, principal of, any subclass of the most senior class of Notes
then Outstanding to avoid an Event of Default.
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.
LESSEE FUNDED ACCOUNT
Certain Lessee security deposits and supplemental rent payments to provide
for maintenance reserves may be required to be segregated from other MSAF Group
funds in the future. Amounts received from Lessees in respect of such security
deposits and maintenance obligations will be held in the Lessee Funded Account.
Funds on deposit in the Lessee Funded Account will be used to make certain
maintenance and security deposit repayment related payments (or such other
payments as may be required or permitted under the terms of the relevant Leases)
or may be applied against maintenance-related payments otherwise required to be
made by the Lessee during the term of the related Lease and will not be used to
make payments in respect of the Notes or the Notes at any time, including after
the delivery of a Default Notice. In certain circumstances where Lessees
relinquish their rights to receive certain maintenance and security deposit
payments upon the expiration of a lease, surplus funds may be credited from the
Lessee Funded Account to the Collection Account.
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EXPENSE ACCOUNT
On each Payment Date, the Administrative Agent will withdraw from the funds
deposited in the Collection Account, in the priority of payments established for
the Notes, an amount equal to the Required Expense Amount, which amount will
then be used to pay the Expenses. To the extent that the Required Expense Amount
has not been paid directly by the Administrative Agent to Expense payees, the
Required Expense Amount will be deposited into the Expense Account. In addition,
in the period between Payment Dates, the Administrative Agent may make further
withdrawals of cash from the Collection Account in order to satisfy Expenses due
and payable prior to the next Payment Date that were not previously anticipated
to become so due and payable on the previous Payment Date. If funds on deposit
in the Collection Account are less than the Required Expense Amount on any
Payment Date, MSAF 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 the Related
Documents or MSAF Group's various service agreements. All Available Collections
remaining in the Collection Account will be used by the Administrative Agent to
make payments on the Notes in accordance with the priority of payments
established therefor under "-- Priority of Payments".
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REPORTS TO NOTEHOLDERS
On the second Business Day before each Payment Date and any other date for
distribution of any payments with respect to each subclass of Notes then
Outstanding, the Trustee will distribute to each Noteholder a Monthly Report
with respect to any payment to be made on such Payment Date or other date, as
the case may be, setting forth the following information:
<TABLE>
<S> <C> <C>
With respect to each Payment Date, (A) the balances on deposit on the
(i) Calculation Date immediately preceding the prior Payment Date, (B) the
aggregate amounts of deposits and withdrawals between such Calculation
Date and the Calculation Date immediately preceding the Payment Date
and (C) the balances on deposit in the Expense Account, Collection
Account and Lessee Funded Account on the Calculation Date immediately
preceding such Payment Date.
(ii) Analysis of Expense Account Activity
Balance on Preceding Calculation Date; .....................
Net Transfer to the Expense Account during the period
between the prior Calculation Date and the relevant
Calculation Date ...........................................
Payments during period between prior Calculation Date and
the relevant Calculation Date;
(1) Payments on prior Payment Date..........................
(2) Other payments..........................................
Balance on relevant Calculation Date........................
(iii) Analysis of Collection Account Activity
Balance on Preceding Calculation Date.......................
-- Required Expense Amount (including on preceding Payment
Date).....................................................
-- Net Transfer to Lessee Funded Accounts during period.....
-- Collections during period................................
-- Transfer from the Aircraft Purchase Account..............
-- Drawings under credit or liquidity enhancement
facilities................................................
-- Aggregate Note Payments..................................
-- Swap Payments............................................
-- Repayments of drawings under credit or liquidity
enhancement facilities....................................
Balance on relevant Calculation Date (separately stating the
Liquidity Reserve Amount)...................................
Analysis of current Payment Date distributions..............
(iv) Payments on the Notes
(a) Floating Rate Notes (by class and, if applicable,
subclass)...............................................
-- Applicable LIBOR for the current Interest Accrual
Period....................................................
-- Applicable Margin for the current Interest Accrual
Period....................................................
-- Applicable Interest Rate for the current Interest Accrual
Period....................................................
-- Interest Amount Payable..................................
-- Step-Up Interest.........................................
-- Opening Outstanding Principal Balance....................
-- Minimum Principal Payment Amount.........................
-- Scheduled Principal Payment Amount.......................
-- Supplemental Principal Payment Amount....................
-- Redemption Amount........................................
-- amount allocable to principal............................
-- amount allocable to premium..............................
-- Closing Outstanding Principal Balance....................
</TABLE>
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<PAGE> 132
<TABLE>
<S> <C> <C>
(b) Fixed Rate Notes (by class and, if applicable, subclass)
Applicable Interest Rate....................................
Interest Amount Payable.....................................
Opening Outstanding Principal Balance.......................
Minimum Principal Payment Amount............................
Scheduled Principal Payment Amount..........................
Redemption Amount
-- amount allocable to principal............................
-- amount allocable to premium..............................
Closing Outstanding Principal Balance.......................
(v) Floating Rate Note information for next Interest Accrual
Period (by subclass)
Applicable LIBOR............................................
Applicable Margin...........................................
Applicable Interest Rate....................................
(vi) Payments per $100,000 Initial Outstanding Principal Balance
of Notes (by subclass)
Opening Outstanding Principal Balance.......................
Total Principal Payments....................................
Closing Outstanding Principal Balance.......................
Total Interest..............................................
Total Premium...............................................
</TABLE>
Following effectiveness of the Registration Statement of which this
Prospectus constitutes a part, such Monthly Reports are expected to be filed by
MSAF with the Commission in a Report on Form 8-K and the Quarterly Reports
accompanying the Monthly Reports for each April 15, July 15 and October 15 are
expected to be filed with the Commission in a Report on Form 10-Q. Following
effectiveness of the Registration Statement of which this Prospectus constitutes
a part, the Annual Report accompanying the Monthly Report for each February 15
is expected to be filed with the Commission in a Report on Form 10-K. The
financial data relating to annual Collection Account activity contained in
Annual Reports will be audited by Deloitte & Touche LLP.
After the end of each calendar year, the Trustee will furnish to each
person who at any time during such calendar year was a holder of any subclass of
Notes a statement containing the sum of the amounts determined pursuant to
clause (iv) above with respect to such subclass for such calendar year or, in
the event such person was a holder of record of any subclass of Notes during a
portion of such calendar year, for the applicable portion of such calendar year,
and such other items as are readily available to such Trustee and which a
Noteholder shall reasonably request as necessary for the purpose of such
Noteholder's preparation of its United States federal income tax returns. So
long as the Notes of any subclass are registered in the name of DTC or its
nominee, such report and such other items will be prepared on the basis of such
information supplied to the Indenture Trustee by DTC and the DTC Participants,
and will be delivered by the Trustee to such DTC Participants to be available
for forwarding by such DTC Participants to the applicable Noteholders in the
manner described above
The Trustee will publish or will cause to be published following each
Payment Date and other date specified above in a daily newspaper in Luxembourg
(expected to be the Luxemburger Wort) a notice to the effect that the
information set forth above will be available for review at the main office of
the Listing Agent for the Notes in Luxembourg City, Luxembourg. Notices to
Noteholders in respect of the Notes will be given by publication in a daily
newspaper in Luxembourg, which is expected to be the Luxemburger Wort. The
Luxembourg Stock Exchange will receive notice promptly following each
distribution date. In addition, the Trustee intends to provide such information
to Bloomberg Financial Markets promptly following each Payment Date for
publication on the BLOOMBERG.
At such time, if any, as the Notes of any subclass are issued in the form
of Definitive Notes, the Trustee will prepare and deliver the information
described above to each holder of record of a Definitive Note of such subclass
as the name and period of beneficial ownership of such holder of record of a
Definitive Note of such subclass appears on the records of the Trustee. The
Trustee maintains the records concerning the holders of such Notes.
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BOOK-ENTRY REGISTRATION, GLOBAL CLEARANCE AND SETTLEMENT
BOOK-ENTRY REGISTRATION
Investors will hold their Notes through The Depository Trust Company
("DTC") (in the United States) or Cedel Bank, societe anonyme ("CEDEL BANK") or
Morgan Guaranty Trust Company of New York, Brussels Office, as operator of the
Euroclear System ("EUROCLEAR") (in Europe) if they are participants in such
systems, or indirectly through organizations which are participants in such
systems. Except as set forth below, the Notes will be registered in the name of
Cede as the nominee for DTC. Investors will be entitled to receive a physical
certificate representing such person's interest therein only in the limited
circumstances described herein. Unless and until Definitive Notes are issued,
all references herein to actions by Noteholders will refer to actions taken by
DTC upon instructions from participants whose securities are held by DTC (the
"DTC PARTICIPANTS"), and all references herein to distributions, notices,
reports and statements to Noteholders will refer to distributions, notices,
reports and statements, respectively, to DTC or Cede, as the registered holder
of the Notes, or to DTC Participants for distribution to Noteholders in
accordance with DTC procedures.
Cedel Bank and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in the names of Cedel Bank
and Morgan Guaranty Trust Company of New York, Brussels office, on the books of
their respective Depositaries which, in turn, will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
Citibank, N.A. will act as depositary for Cedel Bank and Morgan Guaranty Trust
Company of New York will act as depositary for Euroclear (in such capacities,
the "DEPOSITARIES").
Transfers between DTC Participants will occur in the ordinary way in
accordance with DTC rules. Transfers between participating organizations whose
securities are held by Cedel Bank (the "CEDEL PARTICIPANTS") and participants in
Euroclear (the "EUROCLEAR PARTICIPANTS") will occur in the ordinary way in
accordance with the applicable rules and operating procedures of Cedel Bank and
Euroclear.
Cross-market transfers between persons holding directly or indirectly
through DTC Participants, on the one hand, and directly or indirectly through
Cedel Participants or Euroclear Participants, on the other, will be effected by
DTC in accordance with DTC rules on behalf of Cedel Bank or Euroclear, as the
case may be, by its respective Depositary. However, such cross-market
transactions will require delivery of instructions to Cedel Bank or Euroclear,
as the case may be, by the counterparty in such system in accordance with its
rules and procedures and within its established deadlines. If the transaction
meets its settlement requirements, Cedel Bank or Euroclear, as the case may be,
will deliver instructions to its respective Depositary to take action to effect
final settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of beneficial interests in the
Notes received in Cedel Bank or Euroclear as a result of a transaction with a
DTC Participant will be made during the securities settlement processing day
dated the Business Day following the DTC settlement date. Such credits or any
transactions in such Notes settled during such processing will be reported to
the relevant Cedel Participant or Euroclear Participant on such Business Day.
Cash received in Cedel Bank or Euroclear as a result of sales of beneficial
interests in the Global Notes by or through a Cedel Participant or Euroclear
Participant to a DTC Participant will be received with value on the DTC
settlement date but will be available in the relevant Cedel Bank or Euroclear
cash account only as of the Business Day following settlement in DTC.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for DTC Participants and to
facilitate the clearance and settlement of securities transactions between DTC
Participants through electronic book-entry changes in accounts of DTC
Participants, thereby eliminating the need for physical movement of
certificates. DTC Participants include securities brokers and dealers (including
the Initial Purchasers), banks, trust companies and clearing corporations and
may in the future include certain other organizations. Indirect access to the
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<PAGE> 134
DTC system also is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a DTC
Participant either directly or indirectly ("INDIRECT PARTICIPANTS").
Investors who are not DTC Participants but desire to purchase, sell or
otherwise transfer ownership of, or other interests in, beneficial interests in
the Notes may do so only through DTC Participants. Indirect Participants are
required to effect transfers through a DTC Participant. Payments of interest,
principal, and premium, if any, in respect of the Notes will be made to DTC and
are the responsibility of MSAF. Noteholders will receive all distributions of
interest, principal and premium, if any, in respect of the Notes from the
Trustee or a paying agent through DTC Participants and Indirect Participants.
Disbursement of such payments to DTC Participants will be the responsibility of
DTC and disbursement of such payments to the Noteholders will be the
responsibility of DTC Participants and Indirect Participants. DTC's practice is
to credit DTC Participants' accounts on the payment date in accordance with
their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payment on such payment date. Payments by DTC
Participants to Noteholders will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such DTC Participant. So long as the Notes are registered in
the name of Cede & Co., the only "Noteholder" will be Cede & Co., as nominee for
DTC and such nominee will be considered the sole owner or holder of the Notes
for all purposes under the Indenture and the Notes. While so registered,
Noteholders will be permitted to exercise the rights of Noteholders only
indirectly through DTC and DTC Participants.
Under the rules, regulations and procedures governing DTC and its
operations (the "RULES"), DTC is required to make book-entry transfers of the
Notes among the DTC Participants on whose behalf it acts with respect to the
Notes and to receive and transmit distributions of interest, principal and
premium, if any, in respect of the Notes. DTC Participants and Indirect
Participants similarly are required to make book-entry transfers and receive and
transmit such payments on behalf of their respective Notes. The Rules provide a
mechanism by which Noteholders will receive payments and will be able to
transfer their interests.
DTC has advised MSAF that it will take any action permitted to be taken by
a Noteholder in respect of each subclass of Notes under the Indenture only at
the direction of one or more DTC Participants to whose accounts that subclass of
Notes is credited. Additionally, DTC has advised MSAF that it will take such
actions with respect to any percentage of the outstanding principal amount of
any subclass of Notes only at the direction of and on behalf of the DTC
Participants whose customers own such outstanding principal amount. DTC may take
conflicting actions with respect to different subclasses of Notes to the extent
that such actions are taken on behalf of DTC Participants whose holdings include
such different subclasses of Notes.
Distributions with respect to Notes held beneficially through Cedel Bank
will be credited to cash accounts of Cedel Participants in accordance with Cedel
Bank's rules and procedures, to the extent received by its Depositary. Cedel
Bank will take any other action permitted to be taken by a Noteholder under the
Indenture on behalf of a Cedel Participant only in accordance with its rules and
procedures and subject to its Depositary's ability to effect such actions on its
behalf through DTC.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "TERMS AND CONDITIONS"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear and receipts of payments with respect to securities in
Euroclear. All securities of a particular subclass in Euroclear are held on a
fungible basis without attribution of specific certificates to specific
securities clearance accounts. The Euroclear Operator acts under the Terms and
Conditions only on behalf of Euroclear Participants, and has no record of or
relationship with persons holding through Euroclear Participants.
Distributions with respect to Notes beneficially held through Euroclear
will be credited to the cash accounts of Euroclear Participants in accordance
with the Terms and Conditions, to the extent received by its Depositary. The
Euroclear Operator will take any other action permitted to be taken by a
Noteholder under
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<PAGE> 135
the Indenture on behalf of a Euroclear Participant only in accordance with the
Terms and Conditions and subject to its Depositary's ability to effect such
actions on its behalf through DTC.
Although DTC, Cedel Bank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Notes among participants of DTC,
Cedel Bank and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
DEFINITIVE NOTES
The Notes of any subclass may be issued in fully registered, certificated
form ("DEFINITIVE NOTES") to individual Noteholders of that subclass or their
nominees only if (i) MSAF advises the Trustee in writing that DTC is no longer
willing or able to properly discharge its responsibilities as depositary with
respect to the Notes and the Trustee or MSAF is unable to appoint a qualified
successor within 90 days of such notice, (ii) MSAF, at its option, elects to
terminate the book-entry system through DTC or (iii) after the occurrence of an
Event of Default with respect to any class of Notes, Noteholders of a subclass
within such class representing an aggregate of not less than 51% of the
aggregate outstanding principal amount of Notes of such subclass advise MSAF,
the Trustee and DTC through DTC Participants in writing that the continuation of
a book-entry system through DTC (or a successor thereto) is no longer in such
Noteholders' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee will be required to notify all Noteholders of each
affected subclass through DTC of the availability of Definitive Notes of such
subclass. Upon surrender by DTC of the Global Notes of that subclass and receipt
of instructions for registration, the Trustee will reissue the Notes of that
subclass as Definitive Notes to Noteholders of that subclass.
Distributions of principal of, and interest and premiums, if any, on any
Definitive Notes will thereafter be made by the Trustee or a paying agent in
accordance with the procedures set forth in the Indenture directly to holders of
Definitive Notes in whose names the Definitive Notes were registered at the
close of business on the Record Date. Such distributions will be made by check
mailed to the address of such holder as it appears on the register maintained by
the registrar. The final payment on any such Definitive Notes, however, will be
made only upon presentation and surrender of such Definitive Notes at the office
or agency specified in the notice of final distribution to Noteholders.
Definitive Notes will be freely transferable and exchangeable for
Definitive Notes of the same subclass at the office of the Trustee or the
offices of the co-registrar in Luxembourg upon compliance with the requirements
set forth in the Indenture. No service charge will be imposed for any
registration of transfer or exchange, but payment of a sum sufficient to cover
any tax or other governmental charge may be required.
A Note that is mutilated, destroyed, lost or stolen may be exchanged or
replaced, as the case may be, at the offices of the Trustee or of the
co-registrar in Luxembourg upon presentation of the Note or satisfactory
evidence of destruction, loss or theft thereof to the Trustee or such
co-registrar. An indemnity satisfactory to the Trustee or such co-registrar may
be required at the expense of the Noteholder before a replacement Note will be
issued. The Noteholder will be required to pay any tax or other governmental
charge imposed in connection with such exchange or replacement and any other
expenses (including the fees and expenses of the Trustee and co-registrar)
connected therewith.
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CUSIP, ISIN AND COMMON CODE NUMBERS
The Notes have been accepted for clearance through Euroclear and Cedel
Bank. The CUSIP numbers, International Securities Identification Numbers
("ISIN") and the Common Code Numbers ("CCN") are set forth in the table below.
<TABLE>
<CAPTION>
SUBCLASS CUSIP ISIN CCN
- -------- ------------ ------------ ---------
<S> <C> <C> <C>
Subclass A-1................................. 61745WAL5 US61745WAL54 009188126
Subclass A-2................................. 61745WAM3 US61745WAM38 009188363
Subclass B-1................................. 61745WAN1 US61745WAN11 009188380
Subclass C-1................................. 61745WAP6 US61745WAP68 009188436
Subclass D-1................................. 61745WAQ4 US61745WAQ42 009188452
</TABLE>
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TAXATION
U.S. FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Davis Polk & Wardwell, the following discussion sets
forth the material United States federal tax consequences resulting from the
purchase, ownership and disposition of Notes to the U.S. Holders and Non-U.S.
Holders described herein. It does not purport to consider all the possible tax
consequences of the purchase, ownership or disposition of the Notes, and it is
not intended to reflect the individual tax position of any holder. It deals only
with Notes held as capital assets. Except as expressly indicated, it is
addressed only to initial holders that purchased Notes at their issue price (as
defined below) in the offering (the "OFFERING") and does not deal with holders
with a special tax status or special tax situation, such as financial
institutions or dealers in securities or currencies, Notes held as a hedge
against currency risks or as part of a straddle with other investments or as
part of a "synthetic security" or other integrated investment (including a
"conversion transaction") consisting of a Note and one or more other
investments, or situations in which the functional currency of the Noteholder is
not the U.S. dollar. Except to the extent discussed below, this discussion is
not applicable to Non-U.S. Holders (as defined below). This discussion is based
upon the United States federal tax laws and regulations as now in effect and as
currently interpreted, and does not take into account possible changes in such
tax laws or such interpretations, all of which may be applied retroactively.
This discussion does not include any description of the tax laws of any state or
local governments within the United States, or of any foreign government, that
may be applicable to the Notes or holders thereof. Holders of Notes should
consult their own tax advisors concerning the application of the United States
federal tax laws to their particular situations as well as any consequences
arising under the laws of any other taxing jurisdiction.
For purposes of the discussion below, (i) "U.S. HOLDER" means a beneficial
owner of a Note that is for United States federal income tax purposes a citizen
or resident of the United States, a corporation, partnership or certain other
entities created or organized in or under the laws of the United States, or any
political subdivision thereof, or an estate or trust the income of which is
subject to United States federal income taxation regardless of its source and
(ii) "NON-U.S. HOLDER" means a person other than a U.S. Holder. The "issue
price" of a Note is the first price to the public (not including bond houses,
brokers or similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers) at which a substantial amount of
Notes was sold for money.
TAXATION OF U.S. HOLDERS
Payments of interest on a Note generally will be includible in income by a
U.S. Holder as ordinary income at the time such payments are accrued or received
in accordance with the U.S. Holder's regular method of accounting for U.S.
federal income tax purposes.
Except as noted below, upon the sale, exchange or retirement of a Note, a
U.S. Holder generally will recognize gain or loss equal to the difference
between the amount realized from such sale or exchange (exclusive of any portion
thereof reflecting accrued but unpaid interest accrued between interest payment
dates on the Notes, which will be includible in income in accordance with the
United States person's method of accounting as described above) and its tax
basis in the Note. A U.S. Holder's adjusted basis in a Note generally will equal
such U.S. Holder's purchase price for such Note, decreased by any principal
repayments. Any capital gain will generally be U.S. source gain. U.S. Holders
should consult their tax advisors regarding the United States federal income tax
treatment of capital gains (which may be taxed at lower rates than ordinary
income for certain taxpayers who are individuals) and losses (the deductibility
of which is subject to limitations).
An exchange of New Notes for Old Notes will not be treated as a taxable
exchange for U.S. federal income tax purposes. Accordingly, holders (including
holders that are not initial holders) who exchange their Old Notes for New Notes
will not recognize income, gain or loss for U.S. federal income tax purposes. A
U.S. Holder's tax basis in the New Notes will be equal to its adjusted basis in
the Old Notes and its holding period will include the period during which it
held the Old Notes.
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TAXATION OF NON-U.S. HOLDERS
Payments of interest (including original issue discount, if any), principal
and premium, if any, on the Notes to any Non-U.S. Holder will not be subject to
United States federal withholding tax, providing that, in the case of interest,
such person (i) does not own, actually or constructively, 10% or more of the
total combined voting power of all classes of stock entitled to vote in the
Morgan Stanley subsidiary that owns the Beneficial Interest, (ii) is not a
controlled foreign corporation related, directly or indirectly, to the issuer
through stock ownership and (iii) is not a bank receiving interest described in
Section 881(c)(3)(A) of the Code, and provided that the statement requirement
described in the next sentence has been fulfilled with respect to the beneficial
owner. Sections 871(h) and 881(c) of the Code require that, in order to obtain
the exemption from withholding tax described in the previous sentence, either
the beneficial owner of the Note, or a securities clearing organization, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business (a "FINANCIAL INSTITUTION") and that is holding
the Note on behalf of such beneficial owner, file a statement with the
withholding agent to the effect that the beneficial owner of the Note is not a
United States person. Under temporary United States Treasury Regulations which
apply to both stated interest and sale or exchange proceeds if either is paid
with respect to a Note on or before December 31, 1999, such requirement will be
fulfilled if (i) the beneficial owner of a Note certifies on Internal Revenue
Service ("IRS") Form W-8, under penalties of perjury, that it is not a United
States person and provides its name and address and (ii) any Financial
Institution holding the Note on behalf of the beneficial owner files a statement
with the withholding agent to the effect that it has received such a statement
from the Noteholder (and furnishes the withholding agent with a copy thereof).
Recently issued final Treasury Regulations (the "FINAL REGULATIONS"), which
apply to interest (including original issue discount) and sale or exchange
proceeds paid with respect to a Note after December 31, 1999, also provide that
the requirement of Section 871(h) and 881(c) generally will be fulfilled if
beneficial owners (including partners of certain foreign partnerships), as well
as certain foreign partnerships, meet the two conditions set forth in the
preceding sentence. However, a beneficial owner that is a foreign estate or
trust (or fiduciary thereof), a foreign partnership that has entered into a
withholding agreement with the IRS, or a Non-U.S. Holder holding a Note through
its United States branch will be required to provide its "taxpayer
identification number" in addition to its name and address on Form W-8. Foreign
partnerships and their partners should consult their tax advisors regarding
possible additional reporting requirements.
Notwithstanding the foregoing, if interest or other income received with
respect to the Note is effectively connected with a United States trade or
business conducted by a Non-U.S. Holder, such Noteholder, although exempt from
the withholding tax described in the preceding paragraph, may be subject to
United States federal income tax on such interest in the same manner as if it
were a United States person. In addition, if such Noteholder is a corporation,
it may be subject to a branch profits tax equal to 30% (or a lower treaty rate)
of its effectively connected earnings and profits for the taxable year, subject
to certain adjustments.
A Non-U.S. Holder will not be subject to United States federal income tax
on gain realized on the sale, exchange or other disposition of a Note, unless
(i) such Noteholder is an individual who is present in the United States for 183
days or more in the taxable year of disposition, and either (a) such individual
has a "tax home" (as defined in code Section 911(d)(3)) in the United States
(unless such gain is attributable to a fixed place of business in a foreign
country maintained by such individual and has been subject to foreign tax of at
least 10%) or (b) the gain is attributable to an office or other fixed place of
business maintained by such individual in the United States or (ii) such gain is
effectively connected with the conduct by such Noteholder of a trade or business
in the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Trustee will be required to report annually to the IRS, and to each
Noteholder of record, certain information, including the Noteholder's name,
address and taxpayer identification number (either the Noteholder's Social
Security number or its employer identification number, as the case may be), the
aggregate amount of principal and interest paid and the amount of tax withheld,
if any. This obligation, however, does not apply with respect to certain U.S.
Holders, including corporations, tax-exempt organizations, qualified pension and
profit-sharing trusts and individual retirement accounts.
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In the event a U.S. Holder subject to the reporting requirements described
above fails to supply its correct taxpayer identification number in the manner
required by applicable law or underreports its tax liability, MSAF, its agents
or paying agents may be required to "backup" withhold a tax equal to 31% of each
payment of interest and principal on the Notes. This backup withholding is not
an additional tax and may be credited against the Noteholder's United States
federal income tax liability, provided that the required information is
furnished to the IRS.
Under current Treasury regulations, information reporting and backup
withholding will not apply to payments made by MSAF or any agent thereof to a
Noteholder that is a Non-U.S. Holder if the certifications required by Section
871(h) and 881(c) of the Code (described above) are received, provided that MSAF
or such agent does not have actual knowledge that the payee is a United States
person.
The Final Regulations modify the backup withholding and information
reporting procedures in certain respects for payments made after December 31,
1999. Holders are urged to consult their tax advisors regarding the application
of the backup withholding and information reporting rules.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. MSAF has agreed that, starting on the Expiration Date and
ending on the close of business on the 180th day following the Expiration Date,
it will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale.
MSAF will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is "underwriter"
within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, MSAF will promptly send
additional copies of this Prospectus and any amendment or supplement to this
Prospectus to any broker-dealer that requests such documents in the letter of
Transmittal. MSAF has agreed to pay all expenses incident to the Exchange Offer
(including the expenses of one counsel for the holders of the Old Notes) other
than commissions or concessions of any brokers or dealers and will indemnify the
holders of the Old Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
133
<PAGE> 140
ERISA CONSIDERATIONS
ERISA and the Code impose certain requirements on employee benefit plans
and certain other retirement plans and arrangements, including individual
retirement accounts and annuities, that are subject to ERISA and/or the Code or
any entity which may be deemed to hold the assets of any such plan (all of which
are hereinafter referred to as "PLANS") and or persons who are fiduciaries with
respect to such Plans. A person who exercises discretionary authority or control
with respect to the management or assets of a Plan will be considered a
fiduciary of the Plan under ERISA. In accordance with ERISA's general fiduciary
standards, before investing in a Note, a Plan fiduciary should determine whether
such an investment is permitted under the governing Plan instruments and is
appropriate for the Plan in view of its overall investment policy and the
composition and diversification of its portfolio, taking into account the
limited liquidity of the Notes. Other provisions of ERISA and the Code prohibit
certain transactions ("PROHIBITED TRANSACTIONS") involving the assets of a Plan
and persons who have certain specified relationships to the Plan ("PARTIES IN
INTEREST" within the meaning of ERISA or "DISQUALIFIED PERSONS" within the
meaning of the Code). By virtue of its relationship with Morgan Stanley, MSAF
may be a party in interest or a disqualified person with respect to a Plan
purchasing the Notes. Any Plan that proposes to purchase Notes must determine
that its purchase of Notes will not give rise to a direct or indirect Prohibited
Transaction.
Certain statutory or administrative exemptions from the Prohibited
Transaction rules under ERISA and the Code may be available to a Plan which is
purchasing the Notes. Included among these exemptions are: Prohibited
Transaction Class Exemption ("PTCE") 84-14 (regarding transactions directed by
an independent qualified professional asset manager), PTCE 91-38 (regarding
investments by bank collective investment funds), PTCE 90-1 (regarding
investments by insurance company pooled separate accounts), PTCE 95-60
(regarding investments by insurance company general accounts) or PTCE 96-23
(regarding transactions directed by a qualified in-house asset manager).
Governmental plans and certain church plans (as defined under ERISA) are
not subject to the Prohibited Transaction rules. Such plans may, however, be
subject to federal, state or local laws or regulations which may affect their
investment in the Notes. Any fiduciary of such a governmental or church plan
considering a purchase of the Notes must determine the need for, and the
availability, if necessary, of any exemptive relief under any such laws or
regulations.
The foregoing discussion is general in nature and is not intended to be all
inclusive. Any fiduciary of a Plan, governmental plan or church plan considering
the purchase and holding of the Notes should consult with its legal advisors
regarding the consequences of such purchase and holding. By its purchase and
acceptance of a Note, each such purchaser will be deemed to have represented and
warranted that either (i) no Plan assets have been used to purchase such Notes
or (ii) one or more Prohibited Transaction statutory or administrative
exemptions applies such that the use of such Plan assets to purchase and hold
such Notes will not constitute a non-exempt Prohibited Transaction.
134
<PAGE> 141
LEGAL MATTERS
Certain legal matters relating to the New Notes offered hereby will be
passed upon for MSAF by Davis Polk & Wardwell, New York, New York, counsel for
MSAF Group and by Richards, Layton & Finger, Wilmington, Delaware, special
Delaware counsel for MSAF Group.
In accordance with the rules of the Luxembourg Stock Exchange, MSAF states
that there has been no material adverse change in the financial condition of
MSAF since the date of its formation on October 30, 1997.
EXPERTS
The financial statements as of November 30, 1997 and for the period ended
November 30, 1997 included in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein,
and have been so included in reliance upon the report of such firm given their
authority as experts in accounting and auditing.
Valuations of the Aircraft have been made by three expert aircraft
appraisers: Aircraft Information Services, Inc., BK Associates, Inc. and
Airclaims Limited. These valuations are discussed in detail elsewhere in this
Prospectus and are included herein in reliance upon the authority of such firms
as experts in giving such appraisals.
135
<PAGE> 142
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheet.................................. F-3
Consolidated Statement of Income............................ F-4
Consolidated Statement of Cash Flows........................ F-5
Consolidated Statement of Changes in Beneficial Interest.... F-6
Notes to the Consolidated Financial Statements.............. F-7
Interim Condensed Consolidated Financial Statements
(Unaudited)............................................... F-12
Notes to the Interim Condensed Consolidated Financial
Statements (Unaudited).................................... F-16
</TABLE>
F-1
<PAGE> 143
INDEPENDENT AUDITORS' REPORT
To the Trustees of
Morgan Stanley Aircraft Finance and Subsidiaries
We have audited the accompanying consolidated balance sheet of Morgan Stanley
Aircraft Finance and Subsidiaries (the "Group") as of November 30, 1997, and the
related consolidated statements of income, changes in beneficial interest, and
cash flows for the period from October 30, 1997 (date of formation) to November
30, 1997. These consolidated financial statements are the responsibility of the
Group's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Group at November 30, 1997, and
the results of its operations and its cash flows for the period from October 30,
1997 to November 30, 1997 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
New York, New York
September 25, 1998
F-2
<PAGE> 144
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 30,
1997
------------
<S> <C>
ASSETS
Receivables:
Lease income.............................................. $ 137
Aircraft under operating leases, net........................ 45,937
Investment in capital lease, net............................ 25,000
Total Assets................................................ $ 71,074
========
LIABILITIES AND BENEFICIAL INTERESTHOLDER'S EQUITY
Payables:
To Morgan Stanley Financing Inc........................... $ 66,369
--------
Commitments and contingencies
Beneficial Interestholder's equity:
Beneficial Interest....................................... 1
Retained Earnings......................................... 4,704
--------
Total Beneficial Interestholder's equity.................. 4,705
--------
Total Liabilities and Beneficial Interestholder's equity.... $ 71,074
========
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE> 145
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 30, 1997
(DATE OF FORMATION)
TO NOVEMBER 30, 1997
--------------------
<S> <C>
Revenues:
Lease income.............................................. $ 4,747
--------
Total revenues............................................ 4,747
--------
Expenses:
Depreciation expense...................................... 43
--------
Total expenses............................................ 43
--------
Net income.................................................. $ 4,704
========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE> 146
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 30, 1997
(DATE OF FORMATION)
TO NOVEMBER 30, 1997
--------------------
<S> <C>
Cash flows from operating activities
Net income................................................ $ 4,704
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense -- equipment under operating
leases................................................. 43
Gain on capital lease..................................... (4,610)
Changes in assets and liabilities:
Receivables:
Lease income......................................... (137)
--------
Net cash provided by operating activities................... --
--------
Cash flows from investing activities
Purchase of aircraft...................................... (66,370)
--------
Net cash used for investing activities...................... (66,370)
--------
Cash flows from financing activities
Issuance of beneficial interest to Morgan Stanley
Financing Inc.......................................... 1
Borrowings from Morgan Stanley Financing Inc.............. 66,369
--------
Net cash provided by financing activities................... 66,370
--------
Net increase in cash and cash equivalents................... --
Cash and cash equivalents at beginning of period............ --
--------
Cash and cash equivalents at end of period.................. $ --
========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE> 147
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN BENEFICIAL INTEREST
(DOLLARS IN THOUSANDS)
PERIOD FROM OCTOBER 30, 1997 (DATE OF FORMATION) THROUGH NOVEMBER 30, 1997
<TABLE>
<CAPTION>
TOTAL
BENEFICIAL RETAINED BENEFICIAL
INTEREST EARNINGS INTEREST
---------- -------- ----------
<S> <C> <C> <C>
Issuance of beneficial interest............................. $ 1 $ -- $ 1
Net income.................................................. -- 4,704 4,704
------ ------ ------
Balance at November 30, 1997................................ $ 1 $4,704 $4,705
====== ====== ======
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE> 148
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
WNOTE 1 -- BASIS OF PRESENTATION
Morgan Stanley Aircraft Finance ("MSAF") is a special purpose business
trust that was formed on October 30, 1997 under the laws of Delaware. MSAF and
its subsidiaries ("MSAF Group") were formed to conduct certain limited
activities, including acquiring, financing, leasing, selling and maintaining
commercial aircraft. All of the beneficial interest of MSAF Group is owned by
Morgan Stanley Financing, Inc. ("MSF"), a wholly-owned subsidiary of Morgan
Stanley Dean Witter & Co. ("MSDW"). MSAF's obligations, including its financial
debt obligations, are not obligations of, or guaranteed by, MSDW, MSF or any
person other than MSAF.
The consolidated financial statements are prepared in accordance with
generally accepted accounting principles, which require management to make
estimates and assumptions that affect the financial statements and related
disclosures. Management believes that the estimates utilized in the preparation
of the consolidated financial statements are prudent and reasonable. Actual
results could differ materially from these estimates.
All material intercompany transactions have been eliminated.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments
with a maturity of three months or less.
Revenue Recognition
Revenue from aircraft on operating leases is recognised on a straight-line
basis.
Certain lease contracts may require the lessee to make separate payments
for flight hours flown and revenue sector passenger miles flown. In such
instances, MSAF Group recognizes rental revenues as they are earned in
accordance with the terms of the lease contract.
Aircraft
Aircraft, including engines, are stated at cost less accumulated
depreciation. Cost is comprised of the cash purchase price paid plus any
maintenance liabilities that MSAF Group assumed from the seller at the date of
purchase. 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 10% of cost and useful lives are
generally 25 years from the date of manufacture.
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" ("SFAS 121"), the recognition of an impairment loss for an asset
held for use is required when the estimate of undiscounted future cash flows
expected to be generated by the asset is less than its carrying amount.
Measurement of impairment loss is to be recognised based on the fair value of
the asset. Fair value 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 value of
the assets is based on independent valuations of the aircraft in the fleet and
estimates of discounted future cash flows. SFAS 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. At November 30, 1997, no
impairment losses had been recognized.
F-7
<PAGE> 149
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Provision for Maintenance
In most lease contracts the lessee has the obligation for maintenance costs
on airframes and engines. In many lease contracts the lessee makes a full or
partial prepayment to the lessor, calculated at an hourly rate, which is used to
reimburse the lessee for significant maintenance charges, including major
airframe and engine overhauls. Such prepayments are generally non-refundable.
MSAF Group records the cash prepayments made by lessees for maintenance as a
component of the provision for maintenance liability account which appears on
the consolidated balance sheet. When the lessee incurs a maintenance
expenditure, MSAF Group must return a corresponding amount of the prepayment to
the lessee. At this time, MSAF Group will forward cash to the lessee, with a
corresponding decrease to the provision for maintenance liability account. MSAF
Group will only reimburse the lessee for the cost of maintenance expenditures to
the extent that sufficient prepayments have been made by the lessee. At the time
an aircraft is re-leased to a new lessee, an assessment is made of the expected
maintenance reserve requirements; any excess reserve is then released to lease
income.
MSAF Group also estimates the amount of maintenance expenditures for which
it will be primary responsibility. Such expenditures typically are required when
an aircraft must be prepared prior to the commencement of a new lease. MSAF
Group also makes estimates of the amounts that, in certain circumstances
(including lessees defaulting on payment obligations), could result in MSAF
Group incurring maintenance costs which are the lessee's primary responsibility.
When MSAF Group determines that it will be primarily responsible for certain
maintenance expenditures, the amount of such expenditure is charged directly to
earnings and is included as a component of the provision for maintenance
liability account appearing the consolidated balance sheet.
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 deposits held (if any), together with an assessment of the
financial strength and condition of a lessee and the economic conditions
existing in the lessee's operating environment. At November 30, 1997, no
allowances for doubtful debts were recorded.
Income Taxes
MSAF is a Delaware business trust treated as a branch of MSF for U.S.
Federal, State and local income tax purposes. As such, MSAF is not subject to
U.S. Federal, State and local income taxes.
Concentrations of Credit Risk
Credit risk with respect to operating lease receivables is generally
diversified due to the number of lessees comprising MSAF Group's customer base
and the different geographic areas in which they operate. At November 30, 1997
MSAF Group had leased aircraft to three lessees in two countries. The geographic
concentrations of the Company's leasing revenues is set forth in Note 6.
Many of MSAF 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 MSAF Group's aircraft to particular
countries and customers is managed partly through concentration limits and
through obtaining security from lessees by way of deposits. MSAF Group will
continue to manage its exposure to particular countries, regions and lessees
through concentration limits.
F-8
<PAGE> 150
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- RELATED PARTY TRANSACTIONS
At November 30, 1997, MSAF Group had borrowings of approximately $66
million outstanding from MSF. MSAF Group used the proceeds from these borrowings
primarily to finance the acquisition of its aircraft portfolio. Subsequent to
November 30, 1997, MSAF Group borrowed additional funds from MSF in order to
finance the purchase of additional aircraft (see Note 7). The loan from MSF was
non-interest bearing. At the time of the issuance of the Notes (see Note 7) this
loan was automatically converted into a beneficial interest and a final payment
was made in the form of a distribution on such beneficial interest.
Under service agreements with MSAF Group, Cabot Aircraft Services Limited
and Morgan Stanley & Co. Incorporated, both wholly-owned subsidiaries of MSDW,
act as Administrative Agent and Financial Advisor, respectively. No fees were
paid to either Cabot Aircraft Services Limited or Morgan Stanley & Co.
Incorporated during the period from October 30, 1997 (date of formation) through
November 30, 1997.
MSAF Group's management is comprised of six trustees, as MSAF Group has no
employees or executive officers. Three of MSAF Group's six trustees and one
alternate trustee are employees of MSDW. MSAF Group's remaining three trustees
are unaffiliated with MSDW.
NOTE 4 -- AIRCRAFT
<TABLE>
<CAPTION>
NOVEMBER 30, 1997
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Stage 3 Aircraft:
Cost........................................................ $ 45,980
Less Accumulated depreciation............................... (43)
--------
$ 45,937
========
Fleet Analysis:
On lease for a further period of:
Less than five years........................................ 1
More than five years........................................ 2
--------
Total aircraft in portfolio............................... 3
========
</TABLE>
At November 30, 1997, there were no non-revenue earning aircraft in MSAF
Group's portfolio.
NOTE 5 -- INVESTMENT IN CAPITAL LEASE
One of MSAF Group's aircraft has been leased to a customer under a
sales-type capital lease. The components of MSAF Group's investment in this
lease are as follows:
<TABLE>
<CAPTION>
NOVEMBER 30, 1997
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Minimum lease payments receivable........................... $31,542
Less: Unearned income....................................... (6,542)
-------
Net investment in capital lease............................. $25,000
=======
</TABLE>
At November 30, 1997, minimum lease payments for each of the five
succeeding years are $4 million.
The Company recorded a gain of $4.6 million at the inception of this lease,
which represented the excess of the present value of the minimum lease payments
over the cost of the aircraft.
Unearned income is recognized over the term of the lease using the interest
method.
F-9
<PAGE> 151
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- REVENUES
The distribution of revenues by geographic area is as follows (dollars in
thousands):
<TABLE>
<S> <C>
North America............................................... $ 137
Latin America............................................... 4,610
------
Total....................................................... $4,747
======
</TABLE>
At November 30, 1997, MSAF Group had contracted to receive the following
minimum rentals under operating leases (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDING NOVEMBER 30,
- ------------------------
<S> <C>
1998........................................................ $ 83
1999........................................................ 110
2000........................................................ 101
2001........................................................ 75
2002........................................................ 67
Thereafter.................................................. 70
</TABLE>
NOTE 7 -- SUBSEQUENT EVENTS: ADDITIONAL AIRCRAFT PURCHASES AND SECURITIZATION
TRANSACTION
Subsequent to November 30, 1997, MSAF Group acquired 29 additional aircraft
and one spare engine having an aggregate cost of $926 million. These purchases
were financed primarily through additional borrowings from MSF and from the net
proceeds from MSAF Group's private placement of securitized notes as discussed
below.
On March 3, 1998, MSAF Group completed an offering of $1,050 million of
securitized notes (the "Notes") on a basis exempt from registration under the
Securities Act of 1933, as amended. Simultaneous with the private placement, the
interest free loan provided by MSF was automatically converted into a beneficial
interest held by MSF. MSAF Group primarily utilized the proceeds from the Notes
to pay a beneficial interest distribution to MSF and to acquire an additional
aircraft. The Notes are not obligations of, or guaranteed by, MSDW or any of its
other subsidiaries, including MSF. The beneficial interest distribution paid to
MSF represented a final repayment of the interest free loan and rentals accrued
up to the date of the offering of $20.9 million.
The repayment terms of each subclass of 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 issuance of new Notes,
but in any event are ultimately due for repayment on specified final maturity
dates (the "Final Maturity Date"). The Expected Final Payment Dates, Final
Maturity Dates and interest rates applicable to each subclass of the Notes are
listed below:
<TABLE>
<CAPTION>
INITIAL PRINCIPAL
AMOUNT EXPECTED FINAL
SUBCLASS OF NOTE (IN THOUSANDS) INTEREST RATE PAYMENT DATE FINAL MATURITY DATE
- ---------------- ----------------- ------------- -------------- -------------------
<S> <C> <C> <C> <C>
Subclass A-1.............. $400,000 LIBOR+0.21% March 15, 2000 March 15, 2023
Subclass A-2.............. 340,000 LIBOR+0.35% Sept. 15, 2005 March 15, 2023
Subclass B-1.............. 100,000 LIBOR+0.65% March 15, 2013 March 15, 2023
Subclass C-1.............. 100,000 6.90% March 15, 2013 March 15, 2023
Subclass D-1.............. 110,000 8.70% March 14, 2014 March 15, 2023
</TABLE>
F-10
<PAGE> 152
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
If the Subclass A-1 Notes are not repaid on or before the Expected Final
Payment Date for such subclass, such subclass of Notes will accrue interest
thereafter at a rate equal to the stated interest rate therefor, plus 0.50% per
annum ("Step-Up Interest").
MSAF Group is obligated to use its best efforts to consummate an exchange
offer (the "Exchange Offer") pursuant to which the Notes would be exchanged for
substantially similar securities issued pursuant to an effective registration
statement under the Securities Act of 1933. If the Exchange Offer is not
consummated or a shelf registration statement is not declared effective on or
prior to November 30, 1998, thereafter an additional incremental interest amount
will accrue on each subclass of Notes, at an annual rate of 0.50%. Such
additional incremental interest on the Notes will be payable until the date that
the Exchange Offer is consummated or until such time as MSAF Group causes a
shelf registration statement with respect to resales of the Notes to become
effective.
The dates on which principal repayments on the Notes will actually occur
will depend on the cash flows generated by the rental income from MSAF Group's
portfolio of aircraft. Amounts received by MSAF Group and available for
distribution are paid in accordance with the priorities specified in the Note
Indenture.
NOTE 8 -- COMMITMENTS
In accordance with the terms of a servicing agreement (the "Servicing
Agreement"), International Lease Finance Corporation ("ILFC") is performing
certain aircraft related activities with respect to MSAF Group's aircraft
portfolio. Such activities include marketing MSAF Group's aircraft for lease or
sale and monitoring lessee compliance with lease terms including terms relating
to payment, maintenance and insurance. In accordance with the Servicing
Agreement, fees payable to ILFC by MSAF Group are calculated as a percentage of
the lease rentals received, in addition to certain incentive-based fees.
The Servicing Agreement expires in 2023, although each party has the right
to terminate the Servicing Agreement under certain circumstances.
F-11
<PAGE> 153
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
1998
-----------
(UNAUDITED)
<S> <C>
ASSETS
Cash and cash equivalents................................... $ 34,161
Receivables:
Lease income.............................................. 1,560
Investment income and other............................... 207
Aircraft under operating leases, net........................ 952,795
Investment in capital lease, net............................ 21,294
Underwriting and other issuance related costs, net of
amortisation.............................................. 17,468
----------
Total Assets................................................ $1,027,485
==========
LIABILITIES AND BENEFICIAL INTERESTHOLDER'S DEFICIT
Payables:
To Morgan Stanley Financing Inc........................... $ 1
Interest payable to Noteholders........................... 2,808
Deferred rental income...................................... 5,843
Provision for maintenance................................... 46,843
Other liabilities........................................... 1,349
Notes payable:
Class A-1................................................. 400,000
Class A-2................................................. 296,938
Class B-1................................................. 96,090
Class C-1................................................. 100,000
Class D-1................................................. 110,000
----------
1,059,872
----------
Commitments and contingencies
Beneficial Interestholder's Deficit:
Beneficial Interest....................................... 1
Accumulated Deficit....................................... (32,388)
----------
Total Beneficial Interestholder's Deficit................. (32,387)
----------
Total Liabilities and Beneficial Interestholder's Deficit... $1,027,485
==========
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
F-12
<PAGE> 154
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
JUNE 30, 1998
------------------
(UNAUDITED)
<S> <C>
Revenues:
Lease income.............................................. $ 68,004
Investment income on collection account................... 1,358
--------
Total revenues............................................ 69,362
--------
Expenses:
Interest expense.......................................... 23,659
Depreciation expense...................................... 19,192
Operating expenses:
Fees payable........................................... 4,984
Maintenance and other aircraft related costs........... 2,221
--------
Total expenses............................................ 50,056
--------
Net income.................................................. $ 19,306
========
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
F-13
<PAGE> 155
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
JUNE 30, 1998
------------------
(UNAUDITED)
<S> <C>
Cash flows from operating activities
Net income................................................ $ 19,306
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense--equipment under operating leases.... 19,192
Amortisation of underwriting and issuance related costs... 423
Changes in assets and liabilities:
Receivables:
Investment income and other.......................... (207)
Lease income......................................... (1,423)
Investment in capital lease............................ 3,706
Provision for maintenance.............................. 8,108
Interest payable to Noteholders........................ 2,808
Deferred rental income................................. 5,843
Other liabilities...................................... 1,349
-----------
Net cash provided by operating activities................... 59,105
-----------
Cash flows from investing activities
Purchase of aircraft...................................... (887,315)
-----------
Net cash used for investing activities...................... (887,315)
-----------
Cash flows from financing activities
Proceeds from Notes, net of underwriting costs............ 1,041,610
Proceeds from borrowings from Morgan Stanley Financing
Inc.................................................... 853,490
Beneficial Interest Distribution.......................... (976,257)
Repayments of Notes....................................... (46,972)
Underwriting and other issuance related costs............. (9,500)
-----------
Net cash provided by financing activities................... 862,371
-----------
Net increase in cash and cash equivalents................... 34,161
Cash and cash equivalents at beginning of period............ --
-----------
Cash and cash equivalents at end of period.................. $ 34,161
===========
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
F-14
<PAGE> 156
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN BENEFICIAL
INTEREST/(DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
EARNINGS TOTAL
BENEFICIAL (ACCUMULATED BENEFICIAL INTEREST
INTEREST DEFICIT) (DEFICIT)
---------- ------------ -------------------
(UNAUDITED)
<S> <C> <C> <C>
Issuance of Beneficial Interest................... $ 1 $ -- $ 1
Net income........................................ -- 4,704 4,704
-------- -------- ---------
Balance at November 30, 1997...................... 1 4,704 4,705
Net income........................................ -- 19,306 19,306
Borrowings from Morgan Stanley Financing Inc.
converted into Beneficial Interest.............. 919,859 -- 919,859
Payment of Beneficial Interest Distribution to
Morgan Stanley Financing Inc.................... (919,859) (56,398) (976,257)
-------- -------- ---------
Balance at June 30, 1998.......................... $ 1 $(32,388) $ (32,387)
======== ======== =========
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
F-15
<PAGE> 157
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
Morgan Stanley Aircraft Finance ("MSAF") is a special purpose business
trust that was formed on October 30, 1997 under the laws of Delaware. MSAF and
its subsidiaries ("MSAF Group") were formed to conduct certain limited
activities, including acquiring, financing, leasing, selling and maintaining
commercial aircraft. All of the beneficial interest of MSAF Group is owned by
Morgan Stanley Financing, Inc. ("MSF"), a wholly-owned subsidiary of Morgan
Stanley Dean Witter & Co. ("MSDW"). MSAF's obligations, including its financial
debt obligations, are not obligations of, or guaranteed by, MSDW, MSF or any
person other than MSAF.
The condensed consolidated financial statements are prepared in accordance
with generally accepted accounting principles, which require management to make
estimates and assumptions that affect the financial statements and related
disclosures. Management believes that the estimates utilized in the preparation
of the condensed consolidated financial statements are prudent and reasonable.
Actual results could differ materially from these estimates.
All material intercompany transactions have been eliminated.
The condensed consolidated financial statements should be read in
conjunction with MSAF Group's consolidated financial statements and notes
thereto as of and for the period ended November 30, 1997. The condensed
consolidated financial statements reflect all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion of management, necessary
for the fair statement of the results for the interim period. The results of
operations for interim periods are not necessarily indicative of results for the
entire year.
NOTE 2 -- CONCENTRATIONS OF CREDIT RISK
Credit risk with respect to operating lease receivables is generally
diversified due to the number of lessees comprising MSAF Group's customer base
and the different geographic areas in which they operate. At June 30, 1998 MSAF
Group had leased aircraft to 29 lessees in 20 countries.
Many of MSAF 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. In addition, at June 30, 1998, 16 of MSAF Group's
aircraft are being leased to lessees domiciled in certain emerging market
nations, including those located in Eastern Europe, the Middle East, Latin
America and Asia. Emerging market economies have recently been affected by
severe economic and financial difficulties. The exposure of MSAF Group's
aircraft to particular countries and customers is managed partly through
concentration limits and through obtaining security from lessees by way of
deposits. MSAF Group will continue to manage its exposure to particular
countries, regions and lessees through concentration limits.
F-16
<PAGE> 158
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --
(CONTINUED)
NOTE 3 -- AIRCRAFT
<TABLE>
<CAPTION>
JUNE 30, 1998
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Stage 3 Aircraft and one spare engine:
Cost........................................................ $972,030
Less Accumulated depreciation............................... (19,235)
--------
$952,795
========
Aircraft cost includes $38.7 million of maintenance
liabilities that MSAF Group assumed at the date of purchase.
Fleet Analysis:
On lease for a further period of:
More than five years........................................ 9
From one to five years...................................... 21
Less than one year.......................................... 3
--------
Total aircraft portfolio (including one spare engine)....... 33
========
</TABLE>
At June 30, 1998, there were no non-revenue earning aircraft in MSAF
Group's portfolio.
NOTE 4 -- INVESTMENT IN CAPITAL LEASE
One of MSAF Group's aircraft has been leased to a customer under a
sales-type capital lease. The components of MSAF Group's investment in this
lease are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1998
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Minimum lease payments receivable........................... $27,002
Less: Unearned income....................................... (5,708)
-------
Net investment in capital lease............................. $21,294
=======
</TABLE>
At June 30, 1998, minimum lease payments for each of the five succeeding
years are $4 million.
Unearned income is recognized over the term of the lease using the interest
method.
NOTE 5 -- NOTES PAYABLE
During the seven month period ended June 30, 1998, MSAF Group acquired 29
aircraft and one spare engine having an aggregate cost of $926 million. MSAF
Group financed these purchases primarily through additional borrowings from MSF
and from the net proceeds from MSAF Group's private placement of securitized
notes as discussed below.
On March 3, 1998, MSAF Group completed an offering of $1,050 million of
securitized notes (the "Notes") on a basis exempt from registration under the
Securities Act of 1933, as amended. Simultaneous with the private placement, the
loan provided by MSF was automatically converted into a beneficial interest held
by MSF. MSAF Group primarily utilized the proceeds from the Notes to pay a
beneficial interest distribution to MSF and to acquire an additional aircraft.
With the exception of MSAF Group, the Notes are not obligations of, or
guaranteed by, MSDW or any of its subsidiaries, including MSF.
Underwriting and other issuance related costs of $17.4 million which were
incurred in connection with the offering are being amortised over the expected
life of the Notes, which is currently estimated to be 16 years.
F-17
<PAGE> 159
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --
(CONTINUED)
The repayment terms of each subclass of 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 issuance of new Notes,
but in any event are ultimately due for repayment on specified final maturity
dates (the "Final Maturity Date"). The Expected Final Payment Dates, Final
Maturity Dates and interest rates applicable to each subclass of the Notes are
listed below:
<TABLE>
<CAPTION>
INITIAL
PRINCIPAL
AMOUNT EXPECTED FINAL FINAL MATURITY
SUBCLASS OF NOTE (IN THOUSANDS) INTEREST RATE PAYMENT DATE DATE
---------------- -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Subclass A-1............. 400,000 LIBOR+0.21% March 15, 2000 March 15, 2023
Subclass A-2............. 340,000 LIBOR+0.35% Sept. 15, 2005 March 15, 2023
Subclass B-1............. 100,000 LIBOR+0.65% March 15, 2013 March 15, 2023
Subclass C-1............. 100,000 6.90% March 15, 2013 March 15, 2023
Subclass D-1............. 110,000 8.70% March 14, 2014 March 15, 2023
</TABLE>
If the Subclass A-1 Notes are not repaid on or before the Expected Final
Payment Date for such subclass, such subclass of Notes will accrue interest
thereafter at a rate equal to the stated interest rate therefor, plus 0.50% per
annum ("Step-Up Interest").
MSAF Group is obligated to use its best efforts to consummate an exchange
offer (the "Exchange Offer") pursuant to which the Notes would be exchanged for
substantially similar securities issued pursuant to an effective registration
statement under the Securities Act of 1933. If the Exchange Offer is not
consummated or a shelf registration statement is not declared effective on or
prior to November 30, 1998, thereafter an additional incremental interest amount
will accrue on each subclass of Notes, at an annual rate of 0.50%. Such
additional incremental interest on the Notes will be payable until the date that
the Exchange Offer is consummated or until such time as MSAF Group causes a
shelf registration statement with respect to resales of the Notes to become
effective.
The dates on which principal repayments on the Notes will actually occur
will depend on the cash flows generated by the rental income from MSAF Group's
portfolio of aircraft. Amounts received by MSAF Group and available for
distribution are paid in accordance with the priorities specified in the Note
Indenture.
NOTE 6 -- LINES OF CREDIT
MSAF Group requires liquidity in order to finance many of its primary
business activities, including maintenance obligations, security deposit return
obligations, operating expenses and obligations under the Notes. MSAF Group's
primary sources of liquidity are cash bank deposits and lines of credit.
The Company's cash account (the "Collection Account") is primarily funded
through the receipt of rental payments from lessees.
In connection with the issuance of the Notes, the Company entered into two
credit agreements. Under a Custody and Loan Agreement (the "ILFC Facility")
between International Lease Finance Corporation ("ILFC") and MSAF Group, ILFC
will hold substantially all of the cash security deposits paid by lessees with
respect to MSAF Group's aircraft portfolio and will retain the interest earnings
on such security deposits. In addition, ILFC has agreed to extend loans to MSAF
Group in a maximum amount of $10 million plus the aggregate amount of cash
security deposits held by ILFC. Under a Loan Agreement (the "MSF Facility")
between MSF and MSAF Group, MSF has agreed to extend loans in a maximum amount
of $10 million.
As of June 30, 1998, the aggregate amount available under the ILFC Facility
and the MSF Facility was approximately $41.2 million.
F-18
<PAGE> 160
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --
(CONTINUED)
NOTE 7 -- DERIVATIVE FINANCIAL INSTRUMENTS
MSAF Group has entered into interest rate swap contracts as hedges to
manage the interest rate exposure arising from the Notes. The differential paid
or received on interest rate swap contracts is recognized as an adjustment to
interest expense. Gains and losses resulting from the termination of interest
rate swap contracts prior to their stated maturity are recognized ratably over
the remaining life of the hedged indebtedness.
At June 30, 1998 MSAF Group had entered into interest rate swaps with an
aggregate gross notional principal amount of $800 million. Under these swap
arrangements MSAF Group will pay fixed and receive floating amounts on a monthly
basis. The objective of MSAF Group's interest rate risk management policy is to
correlate the contracted operating lease payments in its portfolio of aircraft
to the fixed and floating interest payments on the Notes, taking into account
the expected amortisation of the Notes. The fair value of these interest rate
swaps at June 30, 1998 was $(10) million.
The gross notional amounts of these swaps are indicative of MSAF Group's
degree of use of such swaps but do not represent MSAF Group's exposure to credit
or market risk. Credit risk arises from the failure of the counterparty to
perform according to the terms of the swap contract. MSAF Group's exposure to
credit risk at any point in time is represented by the fair value of the swap
contracts reported as assets. MSAF Group does not currently require collateral
to support swap contracts with credit risk. The credit risk of these swap
contracts is monitored by MSAF Group's Trustees.
MSAF Group does not utilize derivative financial instruments for trading
purposes.
NOTE 8 -- RELATED PARTY TRANSACTIONS
Under service agreements with MSAF Group, Cabot Aircraft Services Limited
and Morgan Stanley & Co. Incorporated, both subsidiaries of MSDW, act as
Administrative Agent and Financial Advisor, respectively. During the seven month
period ended June 30, 1998, Cabot Aircraft Services Limited received a fee of
$0.5 million for providing these services, which is calculated as a percentage
of the operating lease rentals received. Morgan Stanley & Co. Incorporated
received advisory fees of $.01 million in this period.
Prior to the issuance of the Notes, MSAF Group received approximately $926
million of non-interest bearing financing from MSF which was utilized to
purchase 31 of the 32 aircraft in its aircraft portfolio. At the time of the
issuance of the Notes, this loan was automatically converted into a beneficial
interest and a payment was made in the form of a distribution on such beneficial
interest.
MSAF Group's counterparty to its interest rate swap agreements is Morgan
Stanley Capital Services, a wholly-owned subsidiary of MSDW.
MSAF Group's management is comprised of six trustees, as MSAF Group has no
employees or executive officers. Three of MSAF Group's six trustees and one
alternate trustee are employees of MSDW. MSAF Group's remaining three trustees
are unaffiliated with MSDW.
NOTE 9 -- COMMITMENTS
MSAF Group did not have any material contractual commitments for capital
expenditures at June 30, 1998.
In accordance with the terms of a servicing agreement (the "Servicing
Agreement"), ILFC is performing certain aircraft related activities with respect
to MSAF Group's aircraft portfolio. Such activities include marketing MSAF
Group's aircraft for lease or sale and monitoring lessee compliance with lease
terms including terms relating to payment, maintenance and insurance. In
accordance with the Servicing
F-19
<PAGE> 161
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --
(CONTINUED)
Agreement, fees payable to ILFC by MSAF Group are calculated as a percentage of
the lease rentals received, in addition to certain incentive-based fees.
The Servicing Agreement expires in 2023, although each party has the right
to terminate the Servicing Agreement under certain circumstances.
F-20
<PAGE> 162
APPENDIX 1
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Accounts.............................. 121
Additional Aircraft................... 1
Additional Leases..................... 1
Additional Notes...................... 1
Additional Servicer................... 116
Adjusted Base Value................... 98
Adjusted Portfolio Value.............. 98
Administrative Agency Agreement....... 17
Administrative Agent.................. 17
ADs................................... 27
Aero Mexico........................... 46
Aeropostale........................... 46
affiliate............................. 107
Agent's Message....................... 35
Airbus................................ 22
Air Liberte........................... 46
Air Pacific........................... 46
Aircraft.............................. 1
Aircraft Agreement.................... 110
Aircraft-Owning Subsidiaries.......... 21
Aircraft Purchase Account............. 121
Alaska Airlines....................... 46
Allowed Restructuring................. 108
Amended and Restated Trust
Agreement........................... 10
Annual Report......................... Cover
Ansett................................ 46
AOG................................... 60
Appraisals............................ 14
Appraisers............................ 14
ARE................................... 86
Asiana................................ 46
ASMs.................................. 59
Assumed Debt Service Coverage Ratio... 5
Assumed First Year's Net Revenue...... 4
Assumed Interest Coverage Ratio....... 4
Assumed Portfolio Value............... 97
Assumptions........................... 12
ATOP.................................. 37
Available Collections................. 11
Average Life Date..................... 102
Avg................................... 88
Back-Up Facility...................... 78
Base Value............................ 14
Basic Terms Modification.............. 120
Beneficial Interest................... 2
Beneficial Interest Distribution
Amount.............................. 121
Boeing................................ 22
Book-Entry Confirmation............... 35
Book-Entry Transfer Facility.......... 36
Britannia............................. 46
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business Day.......................... 10
Cabot................................. 1
Caledonian............................ 46
Calculation Date...................... 10
Cash Management Agreement............. 17
Cash Manager.......................... 17
Cash Reports.......................... Cover
CCN................................... 130
Cedel Bank............................ 127
Cedel Participants.................... 127
Change of Control..................... 68
Chicago Convention.................... 44
China Airlines........................ 46
China Hainan.......................... 46
Code.................................. 19
Collection Account.................... 16
Collections........................... 122
Commission............................ Cover
Concentration Default................. 111
Concentration Limits.................. 114
Conditional Sale Agreement............ 52
control............................... 107
Contract Aircraft..................... 50
Contract Leases....................... 50
Controlling Trustees.................. 2
covenant defeasance................... 103
DCR................................... 11
default............................... 119
defeasance trust...................... 103
Definitive Notes...................... 129
Delaware Trustee...................... 2
Depositaries.......................... 127
Depreciation Factor................... 97
disqualified persons.................. 134
DTC................................... 127
DTC Participants...................... 127
Eligible Institutions................. 36
Eligible Provider..................... 76
Eligible Credit Facilities............ 76
Encumbrance........................... 107
Engine Lease.......................... 51
Engines............................... 110
ERISA................................. 19
EU.................................... 27
Euroclear............................. 127
Euroclear Participants................ 127
Event of Default...................... 117
Excess Amortization Date.............. 100
Exchange Act.......................... Cover
Exchange Agent........................ 3
</TABLE>
A-1
<PAGE> 163
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Exchange Offer........................ Cover
Exp................................... 88
Expected Final Payment Date........... 5
Expected Maturity..................... 87
Expected Useful Life.................. 84
Expense Account....................... 17
Expenses.............................. 13
Expiration Date....................... 35
Extension Amount...................... 99
Facility Reduction Event.............. 78
Falcon................................ 46
Final Maturity Date................... 5
Final Regulations..................... 132
Financial Advisor..................... 17
Financial Advisory Agreement.......... 18
Financial Institution................. 132
First Collection Account Top-Up....... 104
First Year's Interest................. 4
First Year's Interest and Minimum and
Scheduled Principal................. 5
Flightlease........................... 46
Future Lease Rate..................... 84
Future Leases......................... 1
Future MSAF Group Entities............ 41
GPA................................... 62
Gross Revenue......................... 85
Group................................. 68
guarantee............................. 110
Guyana Airways........................ 46
H.15 (519)............................ 101
Holders............................... Cover
Icelandair............................ 46
ILFC.................................. 1
ILFC Conflicts Standard............... 22
ILFC Facility......................... 15
ILFC Facility Commitment.............. 78
ILFC Facility Drawn Amounts........... 78
ILFC Services Standard................ 22
ILFC Managed Portfolio................ 41
incur................................. 109
Indebtedness.......................... 109
Indenture............................. 11
Independent Trustees.................. 2
Indirect Participants................. 128
Initial Aircraft...................... 1
Initial Appraised Value............... 15
Initial Leases........................ 1
Initial Lessees....................... 16
Initial Loan.......................... 4
Initial Loan to Value................. 4
Initial Principal Balance............. 100
Initial Swaps......................... 79
Intercompany Loan..................... 110
Interest Accrual Period............... 10
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
investment............................ 108
IRS................................... 132
ISIN.................................. 130
KLM................................... 46
Leases................................ 1
legal defeasance...................... 103
Lessees............................... 16
Lessor................................ 50
Letter of Transmittal................. Cover
LIBOR................................. Cover
Liens................................. 27
Liquidity Reserve Amount.............. 16
Listing Agent......................... Cover
Losses................................ 23
Malev................................. 46
Minimum Class Percentage.............. 97
Minimum Liquidity Reserve Amount...... 17
Minimum Principal Payment Amount...... 97
Minimum Target Principal Balance...... 97
Modification Payment.................. 112
Monarch............................... 46
Monthly Report........................ Cover
Moody's............................... 11
Morgan Stanley........................ 1
Morgan Stanley Facility............... 16
Morgan Stanley Facility Commitment.... 78
Morgan Stanley Facility Drawn
Amounts............................. 79
most recent H.15(519)................. 102
MSA I................................. 12
MSAF.................................. Cover
MSAF Group............................ Cover
MSAF Noteholders...................... 11
MSAF Notes............................ 1
MSCI.................................. 114
Navasota.............................. 52
Net Sale Proceeds..................... 111
New Notes............................. Cover
Non-U.S. Holder....................... 131
Noteholders........................... 11
Notes................................. Cover
Notice of Redemption.................. 102
Notice of Refinancing................. 100
Note Target Price..................... 111
NYSE.................................. 37
Offering.............................. 131
Old Notes............................. Cover
Olympic............................... 46
Onur Air.............................. 46
Outstanding........................... 33
Outstanding Principal Balance......... 13
parties in interest................... 134
Parts................................. 110
Passaredo............................. 46
Passaredo Lease....................... 52
</TABLE>
A-2
<PAGE> 164
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Payment Date.......................... 10
Permitted Account Investments......... 70
Permitted Accruals.................... 122
Permitted Additional Aircraft
Acquisition......................... 112
Permitted Encumbrance................. 107
Plans................................. 134
Portfolio............................. 1
Precedent Lease....................... 116
PRI................................... 117
Primary Eligible Credit Facility...... 77
Pro Forma Lease....................... 116
Prohibited Transactions............... 134
PTCE.................................. 134
Purchase Options...................... 26
Quarterly Report...................... Cover
Rating Agencies....................... 11
Rating Decline........................ 68
recession............................. 90
Record Date........................... 10
Redemption............................ 100
Redemption Date....................... 100
Redemption Price...................... 13
Reference Agent....................... 96
Reference Banks....................... 96
Reference Date........................ 10
Refinancing........................... 100
Refinancing Date...................... 100
Refinancing Notes..................... 12
Registration Agreement................ Cover
Registration Statement................ Cover
Related Documents..................... 81
Related Persons....................... 68
Re-Leasing Guidelines................. 18
Relevant Appraisal.................... 98
Remaining Weighted Average Life....... 102
Renewal Lease......................... 116
Rental Payments....................... 94
Required Expense Amount............... 11
RPMs.................................. 59
Rule 13d-3............................ 68
Rules................................. 128
Scheduled Class Percentage............ 98
Scheduled Principal Payment Amount.... 98
Scheduled Target Principal Balance.... 98
Second Collection Account Top-Up...... 104
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Secondary Eligible Credit Facility.... 77
Securities Act........................ Cover
Security Trust Agreement.............. 33
Security Trustee...................... 33
Servicer.............................. 1
Services.............................. 66
Servicing Agreement................... 1
Shelf Registration Statement.......... 82
Significant Subsidiary................ 118
SPC-5................................. 12
Stage 3 aircraft...................... 44
Standard & Poor's..................... 11
Step-Up Interest...................... 13
Stock................................. 106
Stresses.............................. 86
Subordinated Swap Payments............ 105
Subsequent Date....................... 102
Supplemental Class Percentage......... 98
Supplemental Principal Payment
Amount.............................. 98
Supplemental Target Principal
Balance............................. 98
Suspension Drawing.................... 78
Suspension Event...................... 78
Swap Providers........................ 13
Swiss Air............................. 46
TAESA................................. 46
TAP................................... 46
Terms and Conditions.................. 128
Third Party Event..................... 115
TransAer.............................. 46
Transaero............................. 46
Transavia............................. 46
Transwede............................. 46
Treasury Yield........................ 101
Trustee............................... 11
TWA................................... 46
U.S. Bankruptcy Code.................. 34
U.S. GAAP............................. 109
U.S. Holder........................... 131
Unijet................................ 46
Varig................................. 46
VASP.................................. 46
Weighted Average Life................. 87
World Traffic Growth.................. 59
$..................................... Cover
</TABLE>
A-3
<PAGE> 165
APPENDIX 2
AIRCRAFT TYPES DATA(1)
<TABLE>
<CAPTION>
NO. & STAGE 3
NARROW/ MFR. OF NOISE
TYPE & VARIANT WIDEBODY TYPICAL SEATS ENGINES COMPLIANCE PROD. YEARS NO. DELIVERED(2)
-------------- -------- ------------- ------------ ---------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Airbus A300-600R............... Wide 220 (3 class) 2 X GE/PW Yes 1987- 156
Airbus A310-300................ Wide 180 (3 class) 2 X GE/PW Yes 1985- 169
Airbus A320-200................ Narrow 150 (2 class) 2 X CFM/IAE Yes 1988- 591
Airbus A321-100................ Narrow 185 (2 class) 2 X CFM/IAE Yes 1993- 65
Boeing 737-300................. Narrow 130 (2 class) 2 X CFM Yes 1984- 1032(4)
Boeing 737-300F................ Narrow 0 2 X CFM Yes (all conversions) (all conversions)
Boeing 737-300QC............... Narrow 130/freight 2 X CFM Yes (all conversions) (all conversions)
Boeing 737-400................. Narrow 150 (2 class) 2 X CFM Yes 1988- 442
Boeing 737-500................. Narrow 110 (2 class) 2 X CFM Yes 1989- 354
Boeing 747-300................. Wide 400 (3 class) 4 X GE/PW/RR Yes 1982-90 81
Boeing 757-200................. Narrow 200 (2 class) 2 X PW/RR Yes 1982- 783
Boeing 767-200ER............... Wide 180 (3 class) 2 X GE/PW Yes 1984- 133
Boeing 767-300ER............... Wide 220 (3 class) 2 X GE/PW/RR Yes 1986- 362
Fokker 70...................... Narrow 70 (2 class) 2 X RR Yes 1994-97 48
MDC MD-82(6)................... Narrow 140 (2 class) 2 X PW Yes 1981- 577
MDC MD-83(6)................... Narrow 140 (2 class) 2 X PW Yes 1984- 224
<CAPTION>
CURRENT ON NO. OF
TYPE & VARIANT FLEET ORDER OPERATORS(3)
-------------- ------- ----- -------------
<S> <C> <C> <C>
Airbus A300-600R............... 154 8 18
Airbus A310-300................ 166 7 43
Airbus A320-200................ 588 297 80
Airbus A321-100................ 65 59 13
Boeing 737-300................. 992 88 95
Boeing 737-300F................ 3 0 2
Boeing 737-300QC............... 29 0 6
Boeing 737-400................. 439 37 54
Boeing 737-500................. 353 29 41
Boeing 747-300................. 79 0 22
Boeing 757-200................. 779 128 63
Boeing 767-200ER............... 130 0 26
Boeing 767-300ER............... 361 77 38
Fokker 70...................... 48 0 11
MDC MD-82(6)................... 570 0 24
MDC MD-83(6)................... 246(5) 10 31
</TABLE>
- ---------------
Source: Airclaims Limited.
(1) Data is as at January 1, 1998.
(2) Includes demonstrators/test aircraft.
(3) Excludes lessors.
(4) 737-300 deliveries include aircraft later converted to - 300F or 300QC.
(5) MD-83 current fleet includes aircraft converted from MD-81 and -82.
(6) Boeing has announced that production of these aircraft types is expected to
end in 1999.
A-4
<PAGE> 166
APPENDIX 3
MONTHLY GROSS REVENUES BASED ON THE ASSUMPTIONS
<TABLE>
<CAPTION>
<S> <C>
GROSS
MONTH REVENUES
- ------------------------- ----------
($)
April 1998............... 20,127,090
May 1998................. 11,041,661
June 1998................ 11,898,636
July 1998................ 9,998,636
August 1998.............. 11,070,411
September 1998........... 11,898,636
October 1998............. 9,998,636
November 1998............ 11,070,411
December 1998............ 11,875,636
January 1999............. 9,978,787
February 1999............ 10,440,562
March 1999............... 11,890,312
April 1999............... 10,617,053
May 1999................. 9,858,828
June 1999................ 12,545,803
July 1999................ 10,645,803
August 1999.............. 9,887,578
September 1999........... 12,545,803
October 1999............. 10,645,803
November 1999............ 9,887,578
December 1999............ 12,522,803
January 2000............. 10,624,379
February 2000............ 9,866,154
March 2000............... 12,534,330
April 2000............... 10,646,906
May 2000................. 9,897,643
June 2000................ 12,563,720
July 2000................ 10,663,720
August 2000.............. 9,906,095
September 2000........... 12,563,720
October 2000............. 10,663,720
November 2000............ 9,906,095
December 2000............ 11,317,631
January 2001............. 11,292,706
February 2001............ 10,535,081
March 2001............... 11,329,154
April 2001............... 10,736,600
May 2001................. 10,806,275
June 2001................ 11,590,400
July 2001................ 10,736,600
August 2001.............. 10,806,875
September 2001........... 11,590,400
October 2001............. 10,736,600
November 2001............ 10,806,875
December 2001............ 11,590,400
January 2002............. 10,738,176
February 2002............ 10,808,451
March 2002............... 11,601,927
April 2002............... 10,749,703
May 2002................. 10,819,978
June 2002................ 11,603,503
July 2002................ 10,749,703
August 2002.............. 10,772,967
September 2002........... 11,626,767
October 2002............. 10,737,967
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
GROSS
MONTH REVENUES
- ------------------------- ----------
($)
November 2002............ 10,737,967
December 2002............ 11,591,767
January 2003............. 10,739,543
February 2003............ 10,739,543
March 2003............... 11,310,319
April 2003............... 10,742,695
May 2003................. 11,026,611
June 2003................ 11,026,611
July 2003................ 11,026,611
August 2003.............. 11,026,611
September 2003........... 11,026,611
October 2003............. 11,055,921
November 2003............ 11,055,921
December 2003............ 11,055,921
January 2004............. 15,613,844
February 2004............ 10,707,385
March 2004............... 10,711,291
April 2004............... 10,586,731
May 2004................. 10,586,731
June 2004................ 10,586,731
July 2004................ 10,586,731
August 2004.............. 10,586,731
September 2004........... 10,586,731
October 2004............. 10,552,625
November 2004............ 10,552,625
December 2004............ 10,552,625
January 2005............. 10,552,625
February 2005............ 10,552,625
March 2005............... 10,532,565
April 2005............... 10,532,565
May 2005................. 10,532,565
June 2005................ 10,532,565
July 2005................ 10,532,565
August 2005.............. 10,532,565
September 2005........... 10,532,565
October 2005............. 10,532,565
November 2005............ 10,532,565
December 2005............ 10,456,449
January 2006............. 10,456,449
February 2006............ 10,432,224
March 2006............... 10,432,224
April 2006............... 10,343,761
May 2006................. 10,309,593
June 2006................ 10,309,593
July 2006................ 10,270,089
August 2006.............. 10,270,089
September 2006........... 10,270,089
October 2006............. 10,270,089
November 2006............ 10,270,089
December 2006............ 10,270,089
January 2007............. 10,228,759
February 2007............ 10,228,759
March 2007............... 10,227,930
April 2007............... 10,227,930
May 2007................. 10,227,541
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
GROSS
MONTH REVENUES
- ------------------------- ----------
($)
June 2007................ 10,227,541
July 2007................ 10,227,541
August 2007.............. 10,227,541
September 2007........... 10,227,541
October 2007............. 10,227,541
November 2007............ 10,227,541
December 2007............ 10,227,541
January 2008............. 10,227,541
February 2008............ 10,227,541
March 2008............... 10,226,619
April 2008............... 10,226,619
May 2008................. 9,843,805
June 2008................ 9,842,377
July 2008................ 9,842,377
August 2008.............. 9,842,377
September 2008........... 9,842,377
October 2008............. 9,734,411
November 2008............ 9,734,411
December 2008............ 9,653,636
January 2009............. 9,653,636
February 2009............ 9,653,636
March 2009............... 9,653,636
April 2009............... 9,431,656
May 2009................. 9,431,656
June 2009................ 9,431,656
July 2009................ 9,431,656
August 2009.............. 9,431,656
September 2009........... 9,431,656
October 2009............. 9,359,938
November 2009............ 9,359,938
December 2009............ 9,359,938
January 2010............. 9,359,938
February 2010............ 9,359,938
March 2010............... 9,335,730
April 2010............... 9,335,730
May 2010................. 9,335,730
June 2010................ 9,335,730
July 2010................ 9,335,730
August 2010.............. 9,335,730
September 2010........... 9,335,730
October 2010............. 9,335,730
November 2010............ 9,335,730
December 2010............ 9,191,116
January 2011............. 9,191,116
February 2011............ 9,056,116
March 2011............... 9,056,116
April 2011............... 8,737,419
May 2011................. 8,666,319
June 2011................ 8,666,319
July 2011................ 8,593,314
August 2011.............. 8,593,314
September 2011........... 8,593,314
October 2011............. 8,593,314
November 2011............ 8,593,314
December 2011............ 8,593,314
</TABLE>
A-5
<PAGE> 167
MONTHLY GROSS REVENUES BASED ON THE ASSUMPTIONS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
GROSS
MONTH REVENUES
- ------------------------- ----------
($)
January 2012............. 8,519,289
February 2012............ 8,519,289
March 2012............... 8,444,739
April 2012............... 8,444,739
May 2012................. 8,344,530
June 2012................ 8,344,530
July 2012................ 8,344,530
August 2012.............. 8,341,451
September 2012........... 8,341,451
October 2012............. 8,341,451
November 2012............ 8,341,451
December 2012............ 8,341,451
January 2013............. 8,341,451
February 2013............ 8,341,451
March 2013............... 8,254,151
April 2013............... 8,254,151
May 2013................. 7,330,081
June 2013................ 7,234,864
July 2013................ 7,234,864
August 2013.............. 7,234,864
September 2013........... 7,050,432
October 2013............. 6,872,139
November 2013............ 6,872,139
December 2013............ 6,791,139
January 2014............. 6,758,168
February 2014............ 6,725,939
March 2014............... 6,693,561
April 2014............... 6,300,808
May 2014................. 6,300,808
June 2014................ 6,300,808
July 2014................ 6,300,808
August 2014.............. 6,300,808
September 2014........... 6,300,808
October 2014............. 6,167,572
November 2014............ 6,167,572
December 2014............ 6,167,572
January 2015............. 6,167,572
February 2015............ 6,167,572
March 2015............... 6,051,063
April 2015............... 6,051,063
May 2015................. 6,051,063
June 2015................ 5,966,095
July 2015................ 5,966,095
August 2015.............. 5,966,095
September 2015........... 5,966,095
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
GROSS
MONTH REVENUES
- ------------------------- ----------
($)
October 2015............. 5,966,095
November 2015............ 5,966,095
December 2015............ 5,700,476
January 2016............. 5,700,476
February 2016............ 5,409,701
March 2016............... 5,409,701
April 2016............... 4,804,828
May 2016................. 4,673,096
June 2016................ 4,673,096
July 2016................ 4,542,254
August 2016.............. 4,542,254
September 2016........... 4,542,254
October 2016............. 4,542,254
November 2016............ 4,542,254
December 2016............ 4,542,254
January 2017............. 4,410,860
February 2017............ 4,410,860
March 2017............... 4,237,738
April 2017............... 4,237,738
May 2017................. 4,004,307
June 2017................ 4,004,307
July 2017................ 4,004,307
August 2017.............. 3,997,328
September 2017........... 3,997,328
October 2017............. 3,997,328
November 2017............ 3,997,328
December 2017............ 3,997,328
January 2018............. 3,997,328
February 2018............ 3,997,328
March 2018............... 3,794,549
April 2018............... 3,794,549
May 2018................. 3,192,249
June 2018................ 2,971,504
July 2018................ 2,971,504
August 2018.............. 2,971,504
September 2018........... 2,740,804
October 2018............. 2,432,753
November 2018............ 2,432,753
December 2018............ 2,324,528
January 2019............. 2,270,820
February 2019............ 2,217,156
March 2019............... 2,163,540
April 2019............... 1,995,242
May 2019................. 1,995,242
June 2019................ 1,995,242
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
GROSS
MONTH REVENUES
- ------------------------- ----------
($)
July 2019................ 1,995,242
August 2019.............. 1,995,242
September 2019........... 1,995,242
October 2019............. 1,995,242
November 2019............ 1,995,242
December 2019............ 1,995,242
January 2020............. 1,995,242
February 2020............ 1,995,242
March 2020............... 1,747,595
April 2020............... 1,747,595
May 2020................. 1,747,595
June 2020................ 1,643,127
July 2020................ 1,643,127
August 2020.............. 1,643,127
September 2020........... 1,643,127
October 2020............. 1,643,127
November 2020............ 1,643,127
December 2020............ 1,502,065
January 2021............. 1,502,065
February 2021............ 1,502,065
March 2021............... 1,502,065
April 2021............... 918,578
May 2021................. 918,578
June 2021................ 918,578
July 2021................ 918,578
August 2021.............. 918,578
September 2021........... 918,578
October 2021............. 918,578
November 2021............ 918,578
December 2021............ 918,578
January 2022............. 918,578
February 2022............ 918,578
March 2022............... 918,578
April 2022............... 918,578
May 2022................. 918,578
June 2022................ 918,578
July 2022................ 918,578
August 2022.............. 905,372
September 2022........... 905,372
October 2022............. 905,372
November 2022............ 905,372
December 2022............ 905,372
January 2023............. 905,372
February 2023............ 905,372
March 2023............... 905,372
</TABLE>
A-6
<PAGE> 168
APPENDIX 4
ASSUMED PORTFOLIO VALUES FOR THE INITIAL PORTFOLIO
<TABLE>
<CAPTION>
<S> <C>
EXPECTED
MONTH PORTFOLIO VALUE
- ---------------------- ---------------
($ MILLIONS)
Closing............... 1,115.51
April 1998............ 1,110.73
May 1998.............. 1,107.30
June 1998............. 1,103.85
July 1998............. 1,100.39
August 1998........... 1,096.92
September 1998........ 1,093.43
October 1998.......... 1,089.93
November 1998......... 1,086.41
December 1998......... 1,082.88
January 1999.......... 1,079.33
February 1999......... 1,075.77
March 1999............ 1,072.19
April 1999............ 1,068.60
May 1999.............. 1,064.99
June 1999............. 1,061.37
July 1999............. 1,057.74
August 1999........... 1,054.08
September 1999........ 1,050.42
October 1999.......... 1,046.74
November 1999......... 1,043.04
December 1999......... 1,039.33
January 2000.......... 1,035.61
February 2000......... 1,031.86
March 2000............ 1,028.11
April 2000............ 1,024.34
May 2000.............. 1,020.55
June 2000............. 1,016.75
July 2000............. 1,012.93
August 2000........... 1,009.10
September 2000........ 1,005.25
October 2000.......... 1,001.39
November 2000......... 997.51
December 2000......... 993.61
January 2001.......... 989.70
February 2001......... 985.78
March 2001............ 981.83
April 2001............ 977.88
May 2001.............. 973.90
June 2001............. 969.92
July 2001............. 965.91
August 2001........... 961.89
September 2001........ 957.85
October 2001.......... 953.80
November 2001......... 949.73
December 2001......... 945.65
January 2002.......... 941.55
February 2002......... 937.43
March 2002............ 933.30
April 2002............ 929.15
May 2002.............. 924.98
June 2002............. 920.80
July 2002............. 916.60
August 2002........... 912.39
September 2002........ 908.16
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
EXPECTED
MONTH PORTFOLIO VALUE
- ---------------------- ---------------
($ MILLIONS)
October 2002.......... 903.91
November 2002......... 899.65
December 2002......... 895.37
January 2003.......... 891.07
February 2003......... 886.76
March 2003............ 882.43
April 2003............ 878.08
May 2003.............. 873.72
June 2003............. 869.34
July 2003............. 864.94
August 2003........... 860.53
September 2003........ 856.09
October 2003.......... 851.65
November 2003......... 847.18
December 2003......... 842.70
January 2004.......... 817.34
February 2004......... 813.02
March 2004............ 808.67
April 2004............ 804.31
May 2004.............. 799.94
June 2004............. 795.54
July 2004............. 791.13
August 2004........... 786.70
September 2004........ 782.26
October 2004.......... 777.80
November 2004......... 773.32
December 2004......... 768.83
January 2005.......... 764.31
February 2005......... 759.79
March 2005............ 755.24
April 2005............ 750.68
May 2005.............. 746.10
June 2005............. 741.50
July 2005............. 736.89
August 2005........... 732.25
September 2005........ 727.60
October 2005.......... 722.94
November 2005......... 718.25
December 2005......... 713.55
January 2006.......... 708.83
February 2006......... 704.10
March 2006............ 699.35
April 2006............ 694.57
May 2006.............. 689.78
June 2006............. 684.98
July 2006............. 680.15
August 2006........... 675.31
September 2006........ 670.45
October 2006.......... 665.57
November 2006......... 660.68
December 2006......... 655.76
January 2007.......... 650.83
February 2007......... 645.88
March 2007............ 640.91
April 2007............ 635.93
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
EXPECTED
MONTH PORTFOLIO VALUE
- ---------------------- ---------------
($ MILLIONS)
May 2007.............. 630.92
June 2007............. 625.90
July 2007............. 620.86
August 2007........... 615.80
September 2007........ 610.72
October 2007.......... 605.62
November 2007......... 600.51
December 2007......... 595.38
January 2008.......... 590.22
February 2008......... 585.05
March 2008............ 579.86
April 2008............ 574.66
May 2008.............. 569.43
June 2008............. 564.18
July 2008............. 558.92
August 2008........... 553.63
September 2008........ 548.33
October 2008.......... 543.01
November 2008......... 537.67
December 2008......... 532.31
January 2009.......... 526.93
February 2009......... 521.53
March 2009............ 516.12
April 2009............ 510.68
May 2009.............. 505.22
June 2009............. 499.75
July 2009............. 494.25
August 2009........... 488.74
September 2009........ 483.20
October 2009.......... 477.65
November 2009......... 472.08
December 2009......... 466.48
January 2010.......... 460.87
February 2010......... 455.24
March 2010............ 449.59
April 2010............ 443.91
May 2010.............. 438.22
June 2010............. 432.51
July 2010............. 426.78
August 2010........... 421.02
September 2010........ 415.25
October 2010.......... 409.46
November 2010......... 403.65
December 2010......... 398.11
January 2011.......... 392.70
February 2011......... 387.27
March 2011............ 381.82
April 2011............ 376.36
May 2011.............. 370.87
June 2011............. 365.37
July 2011............. 359.84
August 2011........... 354.30
September 2011........ 348.74
October 2011.......... 343.16
November 2011......... 337.56
</TABLE>
A-7
<PAGE> 169
ASSUMED PORTFOLIO VALUES FOR THE INITIAL PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
EXPECTED
MONTH PORTFOLIO VALUE
- ---------------------- ---------------
($ MILLIONS)
December 2011......... 331.94
January 2012.......... 326.30
February 2012......... 320.64
March 2012............ 314.96
April 2012............ 309.26
May 2012.............. 303.54
June 2012............. 297.89
July 2012............. 292.31
August 2012........... 286.70
September 2012........ 281.28
October 2012.......... 276.01
November 2012......... 270.82
December 2012......... 265.62
January 2013.......... 260.39
February 2013......... 255.15
March 2013............ 249.89
April 2013............ 244.61
May 2013.............. 239.57
June 2013............. 234.76
July 2013............. 229.93
August 2013........... 225.09
September 2013........ 220.23
October 2013.......... 215.36
November 2013......... 210.71
December 2013......... 206.14
January 2014.......... 201.90
February 2014......... 197.83
March 2014............ 193.89
April 2014............ 190.08
May 2014.............. 186.40
June 2014............. 182.71
July 2014............. 179.00
August 2014........... 175.29
September 2014........ 171.56
October 2014.......... 167.81
November 2014......... 164.06
December 2014......... 160.29
January 2015.......... 156.51
February 2015......... 152.72
March 2015............ 148.91
April 2015............ 145.38
May 2015.............. 141.92
June 2015............. 138.45
July 2015............. 134.97
August 2015........... 131.47
September 2015........ 127.97
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
EXPECTED
MONTH PORTFOLIO VALUE
- ---------------------- ---------------
($ MILLIONS)
October 2015.......... 124.58
November 2015......... 121.44
December 2015......... 118.28
January 2016.......... 115.12
February 2016......... 111.95
March 2016............ 108.76
April 2016............ 105.57
May 2016.............. 102.36
June 2016............. 99.14
July 2016............. 95.91
August 2016........... 92.67
September 2016........ 89.42
October 2016.......... 86.16
November 2016......... 82.89
December 2016......... 79.61
January 2017.......... 76.32
February 2017......... 73.20
March 2017............ 70.36
April 2017............ 67.59
May 2017.............. 64.86
June 2017............. 62.26
July 2017............. 59.64
August 2017........... 57.02
September 2017........ 54.39
October 2017.......... 51.75
November 2017......... 49.10
December 2017......... 46.45
January 2018.......... 43.78
February 2018......... 41.11
March 2018............ 38.55
April 2018............ 36.26
May 2018.............. 34.29
June 2018............. 32.68
July 2018............. 31.12
August 2018........... 29.55
September 2018........ 27.98
October 2018.......... 26.41
November 2018......... 24.82
December 2018......... 23.27
January 2019.......... 21.85
February 2019......... 20.42
March 2019............ 19.12
April 2019............ 17.95
May 2019.............. 16.79
June 2019............. 15.61
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
EXPECTED
MONTH PORTFOLIO VALUE
- ---------------------- ---------------
($ MILLIONS)
July 2019............. 14.44
August 2019........... 13.26
September 2019........ 12.07
October 2019.......... 11.30
November 2019......... 10.53
December 2019......... 9.76
January 2020.......... 8.99
February 2020......... 8.22
March 2020............ 7.45
April 2020............ 6.67
May 2020.............. 5.89
June 2020............. 5.30
July 2020............. 4.73
August 2020........... 4.17
September 2020........ 3.60
October 2020.......... 3.04
November 2020......... 2.47
December 2020......... 1.89
January 2021.......... 1.40
February 2021......... 0.93
March 2021............ 0.59
April 2021............ 0.32
May 2021.............. 0.05
June 2021............. 0.00
July 2021............. 0.00
August 2021........... 0.00
September 2021........ 0.00
October 2021.......... 0.00
November 2021......... 0.00
December 2021......... 0.00
January 2022.......... 0.00
February 2022......... 0.00
March 2022............ 0.00
April 2022............ 0.00
May 2022.............. 0.00
June 2022............. 0.00
July 2022............. 0.00
August 2022........... 0.00
September 2022........ 0.00
October 2022.......... 0.00
November 2022......... 0.00
December 2022......... 0.00
January 2023.......... 0.00
February 2023......... 0.00
March 2023............ 0.00
</TABLE>
A-8
<PAGE> 170
APPENDIX 5
CLASS A CLASS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS A
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
Closing.............. 66.34% 66.34% 59.70%
April 1998........... 66.34% 66.34% 59.69%
May 1998............. 66.34% 66.34% 59.66%
June 1998............ 66.34% 66.34% 59.63%
July 1998............ 66.34% 66.34% 59.58%
August 1998.......... 66.34% 66.34% 59.53%
September 1998....... 66.34% 66.34% 59.47%
October 1998......... 66.33% 66.33% 59.40%
November 1998........ 66.33% 66.33% 59.33%
December 1998........ 66.33% 66.33% 59.26%
January 1999......... 66.33% 66.33% 59.18%
February 1999........ 66.33% 66.33% 59.09%
March 1999........... 66.32% 66.32% 59.00%
April 1999........... 66.32% 66.32% 58.91%
May 1999............. 66.32% 66.32% 58.81%
June 1999............ 66.31% 66.31% 58.71%
July 1999............ 66.31% 66.31% 58.60%
August 1999.......... 66.30% 66.30% 58.49%
September 1999....... 66.30% 66.30% 58.38%
October 1999......... 66.29% 66.29% 58.26%
November 1999........ 66.29% 66.28% 58.13%
December 1999........ 66.28% 66.27% 58.01%
January 2000......... 66.27% 66.26% 57.88%
February 2000........ 66.26% 66.25% 57.75%
March 2000........... 66.25% 66.24% 57.61%
April 2000........... 66.24% 66.23% 57.47%
May 2000............. 66.23% 66.22% 57.33%
June 2000............ 66.22% 66.21% 57.18%
July 2000............ 66.21% 66.19% 57.03%
August 2000.......... 66.19% 66.18% 56.88%
September 2000....... 66.18% 66.16% 56.73%
October 2000......... 66.16% 66.14% 56.57%
November 2000........ 66.15% 66.12% 56.41%
December 2000........ 66.13% 66.10% 56.24%
January 2001......... 66.11% 66.08% 56.07%
February 2001........ 66.09% 66.06% 55.90%
March 2001........... 66.07% 66.04% 55.73%
April 2001........... 66.05% 66.01% 55.55%
May 2001............. 66.03% 65.99% 55.38%
June 2001............ 66.01% 65.96% 55.20%
July 2001............ 65.98% 65.93% 55.01%
August 2001.......... 65.96% 65.90% 54.82%
September 2001....... 65.93% 65.87% 54.63%
October 2001......... 65.90% 65.84% 54.44%
November 2001........ 65.87% 65.81% 54.25%
December 2001........ 65.84% 65.77% 54.05%
January 2002......... 65.81% 65.74% 53.85%
February 2002........ 65.78% 65.70% 53.65%
March 2002........... 65.75% 65.66% 53.44%
April 2002........... 65.71% 65.62% 53.24%
May 2002............. 65.68% 65.58% 53.03%
June 2002............ 65.64% 65.53% 52.81%
July 2002............ 65.60% 65.49% 52.60%
August 2002.......... 65.56% 65.44% 52.38%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS A
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
September 2002....... 65.52% 65.39% 52.16%
October 2002......... 65.48% 65.34% 51.94%
November 2002........ 65.43% 65.29% 51.72%
December 2002........ 65.39% 65.23% 51.49%
January 2003......... 65.34% 65.18% 51.26%
February 2003........ 65.29% 65.12% 51.03%
March 2003........... 65.24% 65.06% 50.80%
April 2003........... 65.19% 65.00% 50.56%
May 2003............. 65.14% 64.93% 50.32%
June 2003............ 65.09% 64.87% 50.08%
July 2003............ 65.03% 64.80% 49.84%
August 2003.......... 64.97% 64.73% 49.60%
September 2003....... 64.91% 64.66% 49.35%
October 2003......... 64.85% 64.58% 49.10%
November 2003........ 64.79% 64.51% 48.85%
December 2003........ 64.73% 64.43% 48.60%
January 2004......... 64.66% 64.35% 48.34%
February 2004........ 64.59% 64.27% 48.08%
March 2004........... 64.53% 64.19% 47.82%
April 2004........... 64.46% 64.10% 47.56%
May 2004............. 64.38% 64.01% 47.30%
June 2004............ 64.31% 63.92% 47.03%
July 2004............ 64.23% 63.83% 46.76%
August 2004.......... 64.16% 63.73% 46.49%
September 2004....... 64.08% 63.64% 46.22%
October 2004......... 63.99% 63.54% 45.95%
November 2004........ 63.91% 63.43% 45.67%
December 2004........ 63.83% 63.33% 45.39%
January 2005......... 63.74% 63.22% 45.11%
February 2005........ 63.65% 63.11% 44.83%
March 2005........... 63.56% 63.00% 44.55%
April 2005........... 63.47% 62.89% 44.26%
May 2005............. 63.37% 62.77% 43.97%
June 2005............ 63.28% 62.65% 43.68%
July 2005............ 63.18% 62.53% 43.39%
August 2005.......... 63.08% 62.40% 43.10%
September 2005....... 62.98% 62.28% 42.80%
October 2005......... 62.87% 62.15% 42.50%
November 2005........ 62.76% 62.01% 42.20%
December 2005........ 62.66% 61.88% 41.90%
January 2006......... 62.54% 61.74% 41.60%
February 2006........ 62.43% 61.60% 41.29%
March 2006........... 62.32% 61.46% 40.99%
April 2006........... 62.20% 61.31% 40.68%
May 2006............. 62.08% 61.16% 40.37%
June 2006............ 61.96% 61.01% 40.05%
July 2006............ 61.84% 60.85% 39.74%
August 2006.......... 61.71% 60.70% 39.42%
September 2006....... 61.58% 60.54% 39.10%
October 2006......... 61.45% 60.37% 38.78%
November 2006........ 61.32% 60.21% 38.46%
December 2006........ 61.18% 60.04% 38.14%
January 2007......... 61.05% 59.86% 37.81%
February 2007........ 60.91% 59.69% 37.49%
</TABLE>
A-9
<PAGE> 171
CLASS A CLASS PERCENTAGES (CONTINUED)
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS A
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
March 2007........... 60.77% 59.51% 37.16%
April 2007........... 60.62% 59.33% 36.83%
May 2007............. 60.47% 59.14% 36.49%
June 2007............ 60.33% 58.96% 36.16%
July 2007............ 60.17% 58.77% 35.82%
August 2007.......... 60.02% 58.57% 35.48%
September 2007....... 59.86% 58.37% 35.14%
October 2007......... 59.71% 58.17% 34.80%
November 2007........ 59.55% 57.97% 34.46%
December 2007........ 59.38% 57.76% 34.12%
January 2008......... 59.22% 57.55% 33.77%
February 2008........ 59.05% 57.34% 33.42%
March 2008........... 58.88% 57.12% 33.07%
April 2008........... 58.70% 56.90% 32.72%
May 2008............. 58.53% 56.68% 32.37%
June 2008............ 58.35% 56.45% 32.01%
July 2008............ 58.17% 56.22% 31.65%
August 2008.......... 57.98% 55.99% 31.30%
September 2008....... 57.80% 55.75% 30.94%
October 2008......... 57.61% 55.51% 30.57%
November 2008........ 57.41% 55.26% 30.21%
December 2008........ 57.22% 55.01% 29.85%
January 2009......... 57.02% 54.76% 29.48%
February 2009........ 56.82% 54.51% 29.11%
March 2009........... 56.62% 54.25% 28.74%
April 2009........... 56.42% 53.99% 28.37%
May 2009............. 56.21% 53.72% 28.00%
June 2009............ 56.00% 53.45% 27.62%
July 2009............ 55.78% 53.18% 27.25%
August 2009.......... 55.57% 52.90% 26.87%
September 2009....... 55.35% 52.62% 26.49%
October 2009......... 55.12% 52.33% 26.11%
November 2009........ 54.90% 52.04% 25.72%
December 2009........ 54.67% 51.75% 25.34%
January 2010......... 54.44% 51.45% 24.95%
February 2010........ 54.21% 51.15% 24.57%
March 2010........... 53.97% 50.85% 24.18%
April 2010........... 53.73% 50.54% 23.79%
May 2010............. 53.49% 50.23% 23.40%
June 2010............ 53.24% 49.91% 23.00%
July 2010............ 53.00% 49.59% 22.61%
August 2010.......... 52.74% 49.27% 22.21%
September 2010....... 52.49% 48.94% 21.81%
October 2010......... 52.23% 48.61% 21.41%
November 2010........ 51.97% 48.27% 21.01%
December 2010........ 51.71% 47.93% 20.61%
January 2011......... 51.44% 47.59% 20.20%
February 2011........ 51.17% 47.24% 19.80%
March 2011........... 50.90% 46.88% 19.39%
April 2011........... 50.62% 46.53% 18.98%
May 2011............. 50.34% 46.17% 18.57%
June 2011............ 50.06% 45.80% 18.16%
July 2011............ 49.78% 45.43% 17.74%
August 2011.......... 49.49% 45.06% 17.33%
September 2011....... 49.20% 44.68% 16.91%
October 2011......... 48.90% 44.29% 16.49%
November 2011........ 48.60% 43.91% 16.07%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS A
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
December 2011........ 48.30% 43.52% 15.65%
January 2012......... 48.00% 43.12% 15.23%
February 2012........ 47.69% 42.72% 14.80%
March 2012........... 47.38% 42.31% 14.38%
April 2012........... 47.07% 41.90% 13.95%
May 2012............. 46.75% 41.49% 13.52%
June 2012............ 46.43% 41.07% 13.09%
July 2012............ 46.10% 40.65% 12.66%
August 2012.......... 45.77% 40.22% 12.23%
September 2012....... 45.44% 39.79% 11.79%
October 2012......... 45.11% 39.35% 11.36%
November 2012........ 44.77% 38.91% 10.92%
December 2012........ 44.43% 38.46% 10.48%
January 2013......... 44.09% 38.01% 10.04%
February 2013........ 43.74% 37.56% 9.60%
March 2013........... 43.39% 37.10% 9.16%
April 2013........... 43.03% 36.63% 8.71%
May 2013............. 42.67% 36.16% 8.27%
June 2013............ 42.31% 35.69% 7.82%
July 2013............ 41.94% 35.21% 7.37%
August 2013.......... 41.58% 34.73% 6.92%
September 2013....... 41.20% 34.24% 6.47%
October 2013......... 40.83% 33.74% 6.02%
November 2013........ 40.45% 33.24% 5.56%
December 2013........ 40.06% 32.74% 5.11%
January 2014......... 39.68% 32.23% 4.65%
February 2014........ 39.29% 31.72% 4.19%
March 2014........... 38.89% 31.20% 3.73%
April 2014........... 38.49% 30.68% 3.27%
May 2014............. 38.09% 30.15% 2.81%
June 2014............ 37.69% 29.61% 2.34%
July 2014............ 37.28% 29.07% 1.88%
August 2014.......... 36.86% 28.53% 1.41%
September 2014....... 36.45% 27.98% 0.94%
October 2014......... 36.03% 27.43% 0.47%
November 2014........ 35.60% 26.87% 0.00%
December 2014........ 35.18% 26.30% 0.00%
January 2015......... 34.74% 25.73% 0.00%
February 2015........ 34.31% 25.16% 0.00%
March 2015........... 33.87% 24.58% 0.00%
April 2015........... 33.43% 23.99% 0.00%
May 2015............. 32.98% 23.40% 0.00%
June 2015............ 32.53% 22.80% 0.00%
July 2015............ 32.07% 22.20% 0.00%
August 2015.......... 31.62% 21.60% 0.00%
September 2015....... 31.15% 20.98% 0.00%
October 2015......... 30.69% 20.37% 0.00%
November 2015........ 30.22% 19.74% 0.00%
December 2015........ 29.74% 19.11% 0.00%
January 2016......... 29.27% 18.48% 0.00%
February 2016........ 28.78% 17.84% 0.00%
March 2016........... 28.30% 17.20% 0.00%
April 2016........... 27.81% 16.54% 0.00%
May 2016............. 27.31% 15.89% 0.00%
June 2016............ 26.81% 15.23% 0.00%
July 2016............ 26.31% 14.56% 0.00%
August 2016.......... 25.81% 13.89% 0.00%
</TABLE>
A-10
<PAGE> 172
CLASS A CLASS PERCENTAGES (CONTINUED)
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS A
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
September 2016....... 25.30% 13.21% 0.00%
October 2016......... 24.78% 12.52% 0.00%
November 2016........ 24.26% 11.83% 0.00%
December 2016........ 23.74% 11.14% 0.00%
January 2017......... 23.21% 10.44% 0.00%
February 2017........ 22.68% 9.73% 0.00%
March 2017........... 22.15% 9.02% 0.00%
April 2017........... 21.61% 8.30% 0.00%
May 2017............. 21.07% 7.57% 0.00%
June 2017............ 20.52% 6.84% 0.00%
July 2017............ 19.97% 6.10% 0.00%
August 2017.......... 19.41% 5.36% 0.00%
September 2017....... 18.85% 4.61% 0.00%
October 2017......... 18.29% 3.86% 0.00%
November 2017........ 17.72% 3.10% 0.00%
December 2017........ 17.14% 2.33% 0.00%
January 2018......... 16.57% 1.56% 0.00%
February 2018........ 15.98% 0.78% 0.00%
March 2018........... 15.40% 0.00% 0.00%
April 2018........... 14.81% 0.00% 0.00%
May 2018............. 14.21% 0.00% 0.00%
June 2018............ 13.61% 0.00% 0.00%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS A
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
July 2018............ 13.01% 0.00% 0.00%
August 2018.......... 12.40% 0.00% 0.00%
September 2018....... 11.79% 0.00% 0.00%
October 2018......... 11.17% 0.00% 0.00%
November 2018........ 10.55% 0.00% 0.00%
December 2018........ 9.93% 0.00% 0.00%
January 2019......... 9.30% 0.00% 0.00%
February 2019........ 8.66% 0.00% 0.00%
March 2019........... 8.02% 0.00% 0.00%
April 2019........... 7.38% 0.00% 0.00%
May 2019............. 6.73% 0.00% 0.00%
June 2019............ 6.08% 0.00% 0.00%
July 2019............ 5.42% 0.00% 0.00%
August 2019.......... 4.76% 0.00% 0.00%
September 2019....... 4.09% 0.00% 0.00%
October 2019......... 3.42% 0.00% 0.00%
November 2019........ 2.75% 0.00% 0.00%
December 2019........ 2.07% 0.00% 0.00%
January 2020......... 1.38% 0.00% 0.00%
February 2020........ 0.69% 0.00% 0.00%
March 2020........... 0.00% 0.00% 0.00%
</TABLE>
A-11
<PAGE> 173
APPENDIX 6
CLASS B CLASS PERCENTAGES
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS B
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
Closing.............. 8.96% 8.96% 8.96%
April 1998........... 8.96% 8.96% 8.96%
May 1998............. 8.96% 8.96% 8.96%
June 1998............ 8.96% 8.96% 8.96%
July 1998............ 8.96% 8.96% 8.96%
August 1998.......... 8.96% 8.96% 8.96%
September 1998....... 8.96% 8.96% 8.96%
October 1998......... 8.96% 8.96% 8.95%
November 1998........ 8.96% 8.96% 8.95%
December 1998........ 8.96% 8.96% 8.95%
January 1999......... 8.96% 8.96% 8.94%
February 1999........ 8.96% 8.96% 8.94%
March 1999........... 8.96% 8.96% 8.93%
April 1999........... 8.96% 8.96% 8.93%
May 1999............. 8.96% 8.96% 8.92%
June 1999............ 8.96% 8.96% 8.91%
July 1999............ 8.96% 8.96% 8.90%
August 1999.......... 8.96% 8.96% 8.89%
September 1999....... 8.96% 8.96% 8.88%
October 1999......... 8.96% 8.96% 8.87%
November 1999........ 8.96% 8.96% 8.86%
December 1999........ 8.96% 8.96% 8.85%
January 2000......... 8.96% 8.96% 8.84%
February 2000........ 8.96% 8.96% 8.82%
March 2000........... 8.96% 8.96% 8.81%
April 2000........... 8.96% 8.96% 8.79%
May 2000............. 8.96% 8.96% 8.78%
June 2000............ 8.96% 8.96% 8.76%
July 2000............ 8.96% 8.96% 8.74%
August 2000.......... 8.96% 8.96% 8.72%
September 2000....... 8.96% 8.96% 8.71%
October 2000......... 8.96% 8.96% 8.69%
November 2000........ 8.95% 8.95% 8.67%
December 2000........ 8.95% 8.95% 8.64%
January 2001......... 8.95% 8.95% 8.62%
February 2001........ 8.95% 8.95% 8.60%
March 2001........... 8.95% 8.95% 8.57%
April 2001........... 8.95% 8.95% 8.55%
May 2001............. 8.95% 8.95% 8.52%
June 2001............ 8.94% 8.94% 8.50%
July 2001............ 8.94% 8.94% 8.47%
August 2001.......... 8.94% 8.94% 8.44%
September 2001....... 8.94% 8.94% 8.41%
October 2001......... 8.94% 8.93% 8.38%
November 2001........ 8.93% 8.93% 8.35%
December 2001........ 8.93% 8.93% 8.32%
January 2002......... 8.93% 8.92% 8.28%
February 2002........ 8.92% 8.92% 8.25%
March 2002........... 8.92% 8.92% 8.22%
April 2002........... 8.92% 8.91% 8.18%
May 2002............. 8.92% 8.91% 8.14%
June 2002............ 8.91% 8.90% 8.11%
July 2002............ 8.91% 8.90% 8.07%
August 2002.......... 8.90% 8.89% 8.03%
September 2002....... 8.90% 8.89% 7.99%
October 2002......... 8.90% 8.88% 7.95%
November 2002........ 8.89% 8.88% 7.90%
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS B
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
December 2002........ 8.89% 8.87% 7.86%
January 2003......... 8.88% 8.86% 7.82%
February 2003........ 8.88% 8.86% 7.77%
March 2003........... 8.87% 8.85% 7.72%
April 2003........... 8.87% 8.84% 7.68%
May 2003............. 8.86% 8.83% 7.63%
June 2003............ 8.85% 8.82% 7.58%
July 2003............ 8.85% 8.81% 7.53%
August 2003.......... 8.84% 8.81% 7.48%
September 2003....... 8.83% 8.80% 7.43%
October 2003......... 8.83% 8.78% 7.37%
November 2003........ 8.82% 8.77% 7.32%
December 2003........ 8.81% 8.76% 7.26%
January 2004......... 8.81% 8.75% 7.21%
February 2004........ 8.80% 8.74% 7.15%
March 2004........... 8.79% 8.73% 7.09%
April 2004........... 8.78% 8.71% 7.03%
May 2004............. 8.77% 8.70% 6.97%
June 2004............ 8.76% 8.68% 6.91%
July 2004............ 8.75% 8.67% 6.85%
August 2004.......... 8.74% 8.65% 6.79%
September 2004....... 8.73% 8.64% 6.72%
October 2004......... 8.72% 8.62% 6.66%
November 2004........ 8.71% 8.60% 6.59%
December 2004........ 8.70% 8.58% 6.52%
January 2005......... 8.69% 8.56% 6.45%
February 2005........ 8.68% 8.55% 6.38%
March 2005........... 8.66% 8.52% 6.31%
April 2005........... 8.65% 8.50% 6.24%
May 2005............. 8.64% 8.48% 6.17%
June 2005............ 8.62% 8.46% 6.09%
July 2005............ 8.61% 8.44% 6.02%
August 2005.......... 8.60% 8.41% 5.94%
September 2005....... 8.58% 8.39% 5.87%
October 2005......... 8.57% 8.36% 5.79%
November 2005........ 8.55% 8.33% 5.71%
December 2005........ 8.53% 8.31% 5.63%
January 2006......... 8.52% 8.28% 5.55%
February 2006........ 8.50% 8.25% 5.46%
March 2006........... 8.48% 8.22% 5.38%
April 2006........... 8.47% 8.19% 5.29%
May 2006............. 8.45% 8.16% 5.21%
June 2006............ 8.43% 8.12% 5.12%
July 2006............ 8.41% 8.09% 5.03%
August 2006.......... 8.39% 8.05% 4.94%
September 2006....... 8.37% 8.02% 4.85%
October 2006......... 8.35% 7.98% 4.76%
November 2006........ 8.33% 7.94% 4.67%
December 2006........ 8.31% 7.90% 4.57%
January 2007......... 8.29% 7.86% 4.48%
February 2007........ 8.26% 7.82% 4.38%
March 2007........... 8.24% 7.78% 4.29%
April 2007........... 8.22% 7.73% 4.19%
May 2007............. 8.19% 7.69% 4.09%
June 2007............ 8.17% 7.64% 3.99%
July 2007............ 8.14% 7.59% 3.88%
August 2007.......... 8.12% 7.54% 3.78%
</TABLE>
A-12
<PAGE> 174
CLASS B CLASS PERCENTAGES (CONTINUED)
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS B
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
September 2007....... 8.09% 7.49% 3.68%
October 2007......... 8.06% 7.44% 3.57%
November 2007........ 8.03% 7.39% 3.47%
December 2007........ 8.01% 7.33% 3.36%
January 2008......... 7.98% 7.28% 3.25%
February 2008........ 7.95% 7.22% 3.14%
March 2008........... 7.92% 7.16% 3.03%
April 2008........... 7.89% 7.10% 2.91%
May 2008............. 7.86% 7.04% 2.80%
June 2008............ 7.82% 6.98% 2.69%
July 2008............ 7.79% 6.91% 2.57%
August 2008.......... 7.76% 6.85% 2.45%
September 2008....... 7.72% 6.78% 2.34%
October 2008......... 7.69% 6.71% 2.22%
November 2008........ 7.65% 6.64% 2.09%
December 2008........ 7.62% 6.56% 1.97%
January 2009......... 7.58% 6.49% 1.85%
February 2009........ 7.54% 6.41% 1.73%
March 2009........... 7.50% 6.34% 1.60%
April 2009........... 7.47% 6.26% 1.47%
May 2009............. 7.43% 6.18% 1.35%
June 2009............ 7.39% 6.09% 1.22%
July 2009............ 7.34% 6.01% 1.09%
August 2009.......... 7.30% 5.92% 0.95%
September 2009....... 7.26% 5.83% 0.82%
October 2009......... 7.22% 5.74% 0.69%
November 2009........ 7.17% 5.65% 0.55%
December 2009........ 7.13% 5.55% 0.42%
January 2010......... 7.08% 5.46% 0.28%
February 2010........ 7.03% 5.36% 0.14%
March 2010........... 6.99% 5.26% 0.00%
April 2010........... 6.94% 5.15% 0.00%
May 2010............. 6.89% 5.05% 0.00%
June 2010............ 6.84% 4.94% 0.00%
July 2010............ 6.79% 4.83% 0.00%
August 2010.......... 6.74% 4.72% 0.00%
September 2010....... 6.68% 4.61% 0.00%
October 2010......... 6.63% 4.49% 0.00%
November 2010........ 6.58% 4.37% 0.00%
December 2010........ 6.52% 4.25% 0.00%
January 2011......... 6.46% 4.13% 0.00%
February 2011........ 6.41% 4.00% 0.00%
March 2011........... 6.35% 3.88% 0.00%
April 2011........... 6.29% 3.74% 0.00%
May 2011............. 6.23% 3.61% 0.00%
June 2011............ 6.17% 3.48% 0.00%
July 2011............ 6.11% 3.34% 0.00%
August 2011.......... 6.04% 3.20% 0.00%
September 2011....... 5.98% 3.06% 0.00%
October 2011......... 5.92% 2.91% 0.00%
November 2011........ 5.85% 2.76% 0.00%
December 2011........ 5.78% 2.61% 0.00%
January 2012......... 5.72% 2.46% 0.00%
February 2012........ 5.65% 2.30% 0.00%
March 2012........... 5.58% 2.14% 0.00%
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS B
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
April 2012........... 5.51% 1.98% 0.00%
May 2012............. 5.43% 1.81% 0.00%
June 2012............ 5.36% 1.65% 0.00%
July 2012............ 5.29% 1.48% 0.00%
August 2012.......... 5.21% 1.30% 0.00%
September 2012....... 5.13% 1.13% 0.00%
October 2012......... 5.06% 0.95% 0.00%
November 2012........ 4.98% 0.76% 0.00%
December 2012........ 4.90% 0.58% 0.00%
January 2013......... 4.82% 0.39% 0.00%
February 2013........ 4.74% 0.20% 0.00%
March 2013........... 4.65% 0.00% 0.00%
April 2013........... 4.57% 0.00% 0.00%
May 2013............. 4.48% 0.00% 0.00%
June 2013............ 4.40% 0.00% 0.00%
July 2013............ 4.31% 0.00% 0.00%
August 2013.......... 4.22% 0.00% 0.00%
September 2013....... 4.13% 0.00% 0.00%
October 2013......... 4.04% 0.00% 0.00%
November 2013........ 3.95% 0.00% 0.00%
December 2013........ 3.85% 0.00% 0.00%
January 2014......... 3.76% 0.00% 0.00%
February 2014........ 3.66% 0.00% 0.00%
March 2014........... 3.56% 0.00% 0.00%
April 2014........... 3.47% 0.00% 0.00%
May 2014............. 3.37% 0.00% 0.00%
June 2014............ 3.26% 0.00% 0.00%
July 2014............ 3.16% 0.00% 0.00%
August 2014.......... 3.06% 0.00% 0.00%
September 2014....... 2.95% 0.00% 0.00%
October 2014......... 2.85% 0.00% 0.00%
November 2014........ 2.74% 0.00% 0.00%
December 2014........ 2.63% 0.00% 0.00%
January 2015......... 2.52% 0.00% 0.00%
February 2015........ 2.40% 0.00% 0.00%
March 2015........... 2.29% 0.00% 0.00%
April 2015........... 2.18% 0.00% 0.00%
May 2015............. 2.06% 0.00% 0.00%
June 2015............ 1.94% 0.00% 0.00%
July 2015............ 1.82% 0.00% 0.00%
August 2015.......... 1.70% 0.00% 0.00%
September 2015....... 1.58% 0.00% 0.00%
October 2015......... 1.46% 0.00% 0.00%
November 2015........ 1.33% 0.00% 0.00%
December 2015........ 1.21% 0.00% 0.00%
January 2016......... 1.08% 0.00% 0.00%
February 2016........ 0.95% 0.00% 0.00%
March 2016........... 0.82% 0.00% 0.00%
April 2016........... 0.69% 0.00% 0.00%
May 2016............. 0.55% 0.00% 0.00%
June 2016............ 0.42% 0.00% 0.00%
July 2016............ 0.28% 0.00% 0.00%
August 2016.......... 0.14% 0.00% 0.00%
September 2016....... 0.00% 0.00% 0.00%
</TABLE>
A-13
<PAGE> 175
APPENDIX 7
CLASS C TARGET PRINCIPAL BALANCES
<TABLE>
<CAPTION>
CLASS C CLASS C
MINIMUM SCHEDULED
PAYMENT DATE TARGET PRINCIPAL TARGET PRINCIPAL
OCCURRING IN BALANCE BALANCE
- ------------ ---------------- ----------------
($) ($)
<S> <C> <C>
Closing.............. 100,000,000 100,000,000
April 1998........... 100,000,000 100,000,000
May 1998............. 100,000,000 100,000,000
June 1998............ 100,000,000 100,000,000
July 1998............ 100,000,000 100,000,000
August 1998.......... 100,000,000 100,000,000
September 1998....... 100,000,000 100,000,000
October 1998......... 100,000,000 100,000,000
November 1998........ 100,000,000 100,000,000
December 1998........ 100,000,000 100,000,000
January 1999......... 100,000,000 100,000,000
February 1999........ 100,000,000 100,000,000
March 1999........... 100,000,000 100,000,000
April 1999........... 100,000,000 100,000,000
May 1999............. 100,000,000 100,000,000
June 1999............ 100,000,000 100,000,000
July 1999............ 100,000,000 100,000,000
August 1999.......... 100,000,000 100,000,000
September 1999....... 100,000,000 100,000,000
October 1999......... 99,999,825 99,996,772
November 1999........ 99,999,043 99,986,794
December 1999........ 99,997,412 99,969,890
January 2000......... 99,994,757 99,945,967
February 2000........ 99,990,934 99,914,956
March 2000........... 99,985,819 99,876,807
April 2000........... 99,979,299 99,831,475
May 2000............. 99,971,272 99,778,925
June 2000............ 99,961,645 99,719,125
July 2000............ 99,950,328 99,652,047
August 2000.......... 99,937,239 99,577,666
September 2000....... 99,922,300 99,495,959
October 2000......... 99,905,436 99,406,905
November 2000........ 99,886,576 99,310,486
December 2000........ 99,865,651 99,206,683
January 2001......... 99,842,596 99,095,480
February 2001........ 99,817,348 98,976,860
March 2001........... 99,789,845 98,850,810
April 2001........... 99,760,027 98,717,316
May 2001............. 99,727,838 98,576,363
June 2001............ 99,693,222 98,427,941
July 2001............ 99,656,123 98,272,036
August 2001.......... 99,616,490 98,108,638
September 2001....... 99,574,270 97,937,736
October 2001......... 99,529,413 97,759,319
November 2001........ 99,481,870 97,573,377
December 2001........ 99,431,592 97,379,901
January 2002......... 99,378,533 97,178,882
February 2002........ 99,322,645 96,970,309
March 2002........... 99,263,883 96,754,176
April 2002........... 99,202,204 96,530,472
May 2002............. 99,137,562 96,299,191
June 2002............ 99,069,916 96,060,325
July 2002............ 98,999,222 95,813,865
August 2002.......... 98,925,439 95,559,804
</TABLE>
<TABLE>
<CAPTION>
($) ($)
CLASS C CLASS C
MINIMUM SCHEDULED
PAYMENT DATE TARGET PRINCIPAL TARGET PRINCIPAL
OCCURRING IN BALANCE BALANCE
- ------------ ---------------- ----------------
<S> <C> <C>
September 2002....... 98,848,527 95,298,136
October 2002......... 98,768,445 95,028,853
November 2002........ 98,685,153 94,751,948
December 2002........ 98,598,612 94,467,415
January 2003......... 98,508,784 94,175,248
February 2003........ 98,415,631 93,875,439
March 2003........... 98,319,115 93,567,983
April 2003........... 98,219,199 93,252,875
May 2003............. 98,115,847 92,930,107
June 2003............ 98,009,023 92,599,674
July 2003............ 97,898,690 92,261,571
August 2003.......... 97,784,815 91,915,791
September 2003....... 97,667,362 91,562,331
October 2003......... 97,546,296 91,201,184
November 2003........ 97,421,584 90,832,345
December 2003........ 97,293,192 90,455,810
January 2004......... 97,161,088 90,071,572
February 2004........ 97,025,237 89,679,628
March 2004........... 96,885,608 89,279,972
April 2004........... 96,742,168 88,872,601
May 2004............. 96,594,886 88,457,508
June 2004............ 96,443,729 88,034,690
July 2004............ 96,288,668 87,604,143
August 2004.......... 96,129,670 87,165,861
September 2004....... 95,966,705 86,719,841
October 2004......... 95,799,743 86,266,077
November 2004........ 95,628,753 85,804,568
December 2004........ 95,453,706 85,335,307
January 2005......... 95,274,572 84,858,290
February 2005........ 95,091,322 84,373,515
March 2005........... 94,903,927 83,880,977
April 2005........... 94,712,357 83,380,672
May 2005............. 94,516,585 82,872,597
June 2005............ 94,316,582 82,356,747
July 2005............ 94,112,319 81,833,119
August 2005.......... 93,903,770 81,301,709
September 2005....... 93,690,906 80,762,514
October 2005......... 93,473,699 80,215,530
November 2005........ 93,252,123 79,660,753
December 2005........ 93,026,151 79,098,181
January 2006......... 92,795,755 78,527,809
February 2006........ 92,560,908 77,949,634
March 2006........... 92,321,585 77,363,654
April 2006........... 92,077,759 76,769,864
May 2006............. 91,829,404 76,168,262
June 2006............ 91,576,494 75,558,844
July 2006............ 91,319,004 74,941,607
August 2006.......... 91,056,907 74,316,549
September 2006....... 90,790,178 73,683,665
October 2006......... 90,518,792 73,042,952
November 2006........ 90,242,724 72,394,409
December 2006........ 89,961,949 71,738,032
January 2007......... 89,676,442 71,073,817
February 2007........ 89,386,179 70,401,762
</TABLE>
A-14
<PAGE> 176
CLASS C TARGET PRINCIPAL BALANCES (CONTINUED)
<TABLE>
<CAPTION>
CLASS C CLASS C
MINIMUM SCHEDULED
PAYMENT DATE TARGET PRINCIPAL TARGET PRINCIPAL
OCCURRING IN BALANCE BALANCE
- ------------ ---------------- ----------------
($) ($)
<S> <C> <C>
March 2007........... 89,091,135 69,721,865
April 2007........... 88,791,286 69,034,121
May 2007............. 88,486,607 68,338,529
June 2007............ 88,177,075 67,635,085
July 2007............ 87,862,666 66,923,788
August 2007.......... 87,543,356 66,204,633
September 2007....... 87,219,121 65,477,618
October 2007......... 86,889,938 64,742,742
November 2007........ 86,555,784 64,000,000
December 2007........ 86,216,635 63,249,391
January 2008......... 85,872,469 62,490,911
February 2008........ 85,523,262 61,724,559
March 2008........... 85,168,991 60,950,331
April 2008........... 84,809,635 60,168,225
May 2008............. 84,445,170 59,378,239
June 2008............ 84,075,573 58,580,370
July 2008............ 83,700,823 57,774,616
August 2008.......... 83,320,898 56,960,973
September 2008....... 82,935,774 56,139,441
October 2008......... 82,545,431 55,310,016
November 2008........ 82,149,846 54,472,696
December 2008........ 81,748,998 53,627,479
January 2009......... 81,342,865 52,774,362
February 2009........ 80,931,424 51,913,343
March 2009........... 80,514,656 51,044,420
April 2009........... 80,092,538 50,167,590
May 2009............. 79,665,050 49,282,851
June 2009............ 79,232,169 48,390,202
July 2009............ 78,793,876 47,489,639
August 2009.......... 78,350,148 46,581,161
September 2009....... 77,900,966 45,664,765
October 2009......... 77,446,308 44,740,449
November 2009........ 76,986,154 43,808,212
December 2009........ 76,520,484 42,868,050
January 2010......... 76,049,276 41,919,962
February 2010........ 75,572,510 40,963,946
March 2010........... 75,090,167 40,000,000
April 2010........... 74,602,225 39,028,121
May 2010............. 74,108,665 38,048,308
June 2010............ 73,609,467 37,060,559
July 2010............ 73,104,610 36,064,870
August 2010.......... 72,594,075 35,061,242
September 2010....... 72,077,843 34,049,671
October 2010......... 71,555,892 33,030,155
November 2010........ 71,028,205 32,002,693
December 2010........ 70,494,760 30,967,283
January 2011......... 69,955,540 29,923,923
February 2011........ 69,410,523 28,872,610
March 2011........... 68,859,692 27,813,343
April 2011........... 68,303,027 26,746,121
May 2011............. 67,740,508 25,670,940
June 2011............ 67,172,117 24,587,800
July 2011............ 66,597,834 23,496,698
August 2011.......... 66,017,641 22,397,633
September 2011....... 65,431,519 21,290,603
October 2011......... 64,839,448 20,175,606
</TABLE>
<TABLE>
<CAPTION>
($) ($)
CLASS C CLASS C
MINIMUM SCHEDULED
PAYMENT DATE TARGET PRINCIPAL TARGET PRINCIPAL
OCCURRING IN BALANCE BALANCE
- ------------ ---------------- ----------------
<S> <C> <C>
November 2011........ 64,241,412 19,052,639
December 2011........ 63,637,389 17,921,703
January 2012......... 63,027,363 16,782,794
February 2012........ 62,411,314 15,635,910
March 2012........... 61,789,225 14,481,051
April 2012........... 61,161,076 13,318,214
May 2012............. 60,526,849 12,147,398
June 2012............ 59,886,527 10,968,601
July 2012............ 59,240,091 9,781,821
August 2012.......... 58,587,523 8,587,057
September 2012....... 57,928,804 7,384,306
October 2012......... 57,263,918 6,173,568
November 2012........ 56,592,845 4,954,840
December 2012........ 55,915,569 3,728,121
January 2013......... 55,232,071 2,493,409
February 2013........ 54,542,333 1,250,702
March 2013........... 53,846,339 0
April 2013........... 53,144,070 0
May 2013............. 52,435,508 0
June 2013............ 51,720,637 0
July 2013............ 50,999,439 0
August 2013.......... 50,271,896 0
September 2013....... 49,537,991 0
October 2013......... 48,797,707 0
November 2013........ 48,051,027 0
December 2013........ 47,297,933 0
January 2014......... 46,538,409 0
February 2014........ 45,772,437 0
March 2014........... 45,000,000 0
April 2014........... 44,221,082 0
May 2014............. 43,435,665 0
June 2014............ 42,643,733 0
July 2014............ 41,845,269 0
August 2014.......... 41,040,256 0
September 2014....... 40,228,678 0
October 2014......... 39,410,518 0
November 2014........ 38,585,759 0
December 2014........ 37,754,384 0
January 2015......... 36,916,378 0
February 2015........ 36,071,725 0
March 2015........... 35,220,406 0
April 2015........... 34,362,407 0
May 2015............. 33,497,710 0
June 2015............ 32,626,301 0
July 2015............ 31,748,162 0
August 2015.......... 30,863,277 0
September 2015....... 29,971,630 0
October 2015......... 29,073,206 0
November 2015........ 28,167,988 0
December 2015........ 27,255,960 0
January 2016......... 26,337,107 0
February 2016........ 25,411,412 0
March 2016........... 24,478,859 0
April 2016........... 23,539,434 0
May 2016............. 22,593,119 0
June 2016............ 21,639,901 0
</TABLE>
A-15
<PAGE> 177
CLASS C TARGET PRINCIPAL BALANCES (CONTINUED)
<TABLE>
<CAPTION>
CLASS C CLASS C
MINIMUM SCHEDULED
PAYMENT DATE TARGET PRINCIPAL TARGET PRINCIPAL
OCCURRING IN BALANCE BALANCE
- ------------ ---------------- ----------------
($) ($)
<S> <C> <C>
July 2016............ 20,679,761 0
August 2016.......... 19,712,686 0
September 2016....... 18,738,660 0
October 2016......... 17,757,667 0
November 2016........ 16,769,691 0
December 2016........ 15,774,718 0
January 2017......... 14,772,731 0
February 2017........ 13,763,716 0
March 2017........... 12,747,657 0
April 2017........... 11,724,539 0
May 2017............. 10,694,346 0
</TABLE>
<TABLE>
<CAPTION>
($) ($)
CLASS C CLASS C
MINIMUM SCHEDULED
PAYMENT DATE TARGET PRINCIPAL TARGET PRINCIPAL
OCCURRING IN BALANCE BALANCE
- ------------ ---------------- ----------------
<S> <C> <C>
June 2017............ 9,657,064 0
July 2017............ 8,612,676 0
August 2017.......... 7,561,169 0
September 2017....... 6,502,527 0
October 2017......... 5,436,735 0
November 2017........ 4,363,778 0
December 2017........ 3,283,641 0
January 2018......... 2,196,309 0
February 2018........ 1,101,767 0
March 2018........... 0 0
</TABLE>
A-16
<PAGE> 178
APPENDIX 8
CLASS D TARGET PRINCIPAL BALANCES
<TABLE>
<CAPTION>
CLASS D CLASS D
MINIMUM SCHEDULED
PAYMENT DATE TARGET PRINCIPAL TARGET PRINCIPAL
OCCURRING IN BALANCE BALANCE
- ------------ ---------------- ----------------
($) ($)
<S> <C> <C>
Closing.............. 110,000,000 110,000,000
April 1998........... 110,000,000 110,000,000
May 1998............. 110,000,000 110,000,000
June 1998............ 110,000,000 110,000,000
July 1998............ 110,000,000 110,000,000
August 1998.......... 110,000,000 110,000,000
September 1998....... 110,000,000 110,000,000
October 1998......... 110,000,000 110,000,000
November 1998........ 110,000,000 110,000,000
December 1998........ 110,000,000 110,000,000
January 1999......... 110,000,000 110,000,000
February 1999........ 110,000,000 110,000,000
March 1999........... 110,000,000 110,000,000
April 1999........... 110,000,000 110,000,000
May 1999............. 110,000,000 110,000,000
June 1999............ 110,000,000 110,000,000
July 1999............ 110,000,000 110,000,000
August 1999.......... 110,000,000 110,000,000
September 1999....... 110,000,000 110,000,000
October 1999......... 110,000,000 110,000,000
November 1999........ 110,000,000 110,000,000
December 1999........ 110,000,000 110,000,000
January 2000......... 110,000,000 110,000,000
February 2000........ 110,000,000 110,000,000
March 2000........... 110,000,000 110,000,000
April 2000........... 110,000,000 110,000,000
May 2000............. 110,000,000 110,000,000
June 2000............ 110,000,000 110,000,000
July 2000............ 110,000,000 110,000,000
August 2000.......... 110,000,000 110,000,000
September 2000....... 110,000,000 110,000,000
October 2000......... 110,000,000 109,999,467
November 2000........ 110,000,000 109,997,175
December 2000........ 110,000,000 109,992,508
January 2001......... 110,000,000 109,985,035
February 2001........ 110,000,000 109,974,404
March 2001........... 110,000,000 109,960,316
April 2001........... 110,000,000 109,942,503
May 2001............. 110,000,000 109,920,727
June 2001............ 110,000,000 109,894,765
July 2001............ 110,000,000 109,864,413
August 2001.......... 110,000,000 109,829,479
September 2001....... 110,000,000 109,789,782
October 2001......... 110,000,000 109,745,152
November 2001........ 110,000,000 109,695,426
December 2001........ 110,000,000 109,640,449
January 2002......... 110,000,000 109,580,070
February 2002........ 110,000,000 109,514,148
March 2002........... 110,000,000 109,442,544
April 2002........... 109,999,964 109,365,125
May 2002............. 109,999,750 109,281,762
June 2002............ 109,999,231 109,192,330
July 2002............ 109,998,291 109,096,708
August 2002.......... 109,996,824 108,994,779
</TABLE>
<TABLE>
<CAPTION>
($) ($)
CLASS D CLASS D
MINIMUM SCHEDULED
PAYMENT DATE TARGET PRINCIPAL TARGET PRINCIPAL
OCCURRING IN BALANCE BALANCE
- ------------ ---------------- ----------------
<S> <C> <C>
September 2002....... 109,994,732 108,886,428
October 2002......... 109,991,919 108,771,542
November 2002........ 109,988,294 108,650,013
December 2002........ 109,983,767 108,521,734
January 2003......... 109,978,253 108,386,602
February 2003........ 109,971,667 108,244,514
March 2003........... 109,963,927 108,095,372
April 2003........... 109,954,953 107,939,076
May 2003............. 109,944,664 107,775,533
June 2003............ 109,932,985 107,604,647
July 2003............ 109,919,838 107,426,326
August 2003.......... 109,905,147 107,240,481
September 2003....... 109,888,839 107,047,023
October 2003......... 109,870,840 106,845,863
November 2003........ 109,851,078 106,636,915
December 2003........ 109,829,481 106,420,097
January 2004......... 109,805,978 106,195,323
February 2004........ 109,780,499 105,962,511
March 2004........... 109,752,976 105,721,582
April 2004........... 109,723,339 105,472,455
May 2004............. 109,691,520 105,215,053
June 2004............ 109,657,452 104,949,296
July 2004............ 109,621,068 104,675,109
August 2004.......... 109,582,302 104,392,417
September 2004....... 109,541,088 104,101,145
October 2004......... 109,497,362 103,801,220
November 2004........ 109,451,057 103,492,568
December 2004........ 109,402,110 103,175,118
January 2005......... 109,350,458 102,848,800
February 2005........ 109,296,036 102,513,543
March 2005........... 109,238,782 102,169,278
April 2005........... 109,178,633 101,815,937
May 2005............. 109,115,527 101,453,451
June 2005............ 109,049,402 101,081,754
July 2005............ 108,980,197 100,700,779
August 2005.......... 108,907,850 100,310,462
September 2005....... 108,832,301 99,910,736
October 2005......... 108,753,490 99,501,537
November 2005........ 108,671,357 99,082,802
December 2005........ 108,585,840 98,654,468
January 2006......... 108,496,882 98,216,473
February 2006........ 108,404,423 97,768,754
March 2006........... 108,308,404 97,311,250
April 2006........... 108,208,766 96,843,901
May 2006............. 108,105,452 96,366,646
June 2006............ 107,998,402 95,879,426
July 2006............ 107,887,560 95,382,181
August 2006.......... 107,772,867 94,874,854
September 2006....... 107,654,266 94,357,385
October 2006......... 107,531,701 93,829,717
November 2006........ 107,405,114 93,291,793
December 2006........ 107,274,449 92,743,556
January 2007......... 107,139,650 92,184,951
February 2007........ 107,000,660 91,615,920
</TABLE>
A-17
<PAGE> 179
CLASS D TARGET PRINCIPAL BALANCES (CONTINUED)
<TABLE>
<CAPTION>
CLASS D CLASS D
MINIMUM SCHEDULED
PAYMENT DATE TARGET PRINCIPAL TARGET PRINCIPAL
OCCURRING IN BALANCE BALANCE
- ------------ ---------------- ----------------
($) ($)
<S> <C> <C>
March 2007........... 106,857,423 91,036,410
April 2007........... 106,709,884 90,446,364
May 2007............. 106,557,987 89,845,729
June 2007............ 106,401,676 89,234,450
July 2007............ 106,240,898 88,612,474
August 2007.......... 106,075,596 87,979,746
September 2007....... 105,905,716 87,336,215
October 2007......... 105,731,204 86,681,828
November 2007........ 105,552,004 86,016,532
December 2007........ 105,368,064 85,340,276
January 2008......... 105,179,329 84,653,009
February 2008........ 104,985,745 83,954,678
March 2008........... 104,787,259 83,245,234
April 2008........... 104,583,816 82,524,625
May 2008............. 104,375,365 81,792,802
June 2008............ 104,161,850 81,049,716
July 2008............ 103,943,221 80,295,316
August 2008.......... 103,719,423 79,529,553
September 2008....... 103,490,405 78,752,379
October 2008......... 103,256,113 77,963,745
November 2008........ 103,016,495 77,163,603
December 2008........ 102,771,500 76,351,905
January 2009......... 102,521,074 75,528,603
February 2009........ 102,265,166 74,693,649
March 2009........... 102,003,725 73,846,998
April 2009........... 101,736,698 72,988,602
May 2009............. 101,464,034 72,118,414
June 2009............ 101,185,682 71,236,389
July 2009............ 100,901,591 70,342,480
August 2009.......... 100,611,709 69,436,641
September 2009....... 100,315,985 68,518,827
October 2009......... 100,014,369 67,588,993
November 2009........ 99,706,810 66,647,094
December 2009........ 99,393,256 65,693,085
January 2010......... 99,073,659 64,726,922
February 2010........ 98,747,967 63,748,560
March 2010........... 98,416,130 62,757,955
April 2010........... 98,078,099 61,755,064
May 2010............. 97,733,822 60,739,843
June 2010............ 97,383,250 59,712,248
July 2010............ 97,026,334 58,672,237
August 2010.......... 96,663,024 57,619,767
September 2010....... 96,293,270 56,554,794
October 2010......... 95,917,023 55,477,277
November 2010........ 95,534,233 54,387,174
December 2010........ 95,144,852 53,284,441
January 2011......... 94,748,829 52,169,038
February 2011........ 94,346,117 51,040,922
March 2011........... 93,936,666 49,900,053
April 2011........... 93,520,427 48,746,388
May 2011............. 93,097,353 47,579,888
June 2011............ 92,667,393 46,400,510
July 2011............ 92,230,500 45,208,215
August 2011.......... 91,786,625 44,002,962
September 2011....... 91,335,720 42,784,710
October 2011......... 90,877,737 41,553,420
</TABLE>
<TABLE>
<CAPTION>
($) ($)
CLASS D CLASS D
MINIMUM SCHEDULED
PAYMENT DATE TARGET PRINCIPAL TARGET PRINCIPAL
OCCURRING IN BALANCE BALANCE
- ------------ ---------------- ----------------
<S> <C> <C>
November 2011........ 90,412,628 40,309,052
December 2011........ 89,940,344 39,051,565
January 2012......... 89,460,838 37,780,920
February 2012........ 88,974,061 36,497,078
March 2012........... 88,479,967 35,200,000
April 2012........... 87,978,507 33,889,646
May 2012............. 87,469,634 32,565,978
June 2012............ 86,953,300 31,228,957
July 2012............ 86,429,459 29,878,543
August 2012.......... 85,898,062 28,514,700
September 2012....... 85,359,062 27,137,389
October 2012......... 84,812,413 25,746,570
November 2012........ 84,258,067 24,342,208
December 2012........ 83,695,978 22,924,263
January 2013......... 83,126,098 21,492,699
February 2013........ 82,548,380 20,047,477
March 2013........... 81,962,779 18,588,561
April 2013........... 81,369,247 17,115,913
May 2013............. 80,767,737 15,629,496
June 2013............ 80,158,204 14,129,273
July 2013............ 79,540,600 12,615,208
August 2013.......... 78,914,880 11,087,264
September 2013....... 78,280,998 9,545,405
October 2013......... 77,638,906 7,989,594
November 2013........ 76,988,559 6,419,794
December 2013........ 76,329,911 4,835,971
January 2014......... 75,662,916 3,238,088
February 2014........ 74,987,529 1,626,110
March 2014........... 74,303,702 0
April 2014........... 73,611,391 0
May 2014............. 72,910,550 0
June 2014............ 72,201,134 0
July 2014............ 71,483,096 0
August 2014.......... 70,756,391 0
September 2014....... 70,020,974 0
October 2014......... 69,276,800 0
November 2014........ 68,523,823 0
December 2014........ 67,761,998 0
January 2015......... 66,991,281 0
February 2015........ 66,211,625 0
March 2015........... 65,422,986 0
April 2015........... 64,625,320 0
May 2015............. 63,818,580 0
June 2015............ 63,002,723 0
July 2015............ 62,177,704 0
August 2015.......... 61,343,478 0
September 2015....... 60,500,000 0
October 2015......... 59,647,226 0
November 2015........ 58,785,112 0
December 2015........ 57,913,612 0
January 2016......... 57,032,683 0
February 2016........ 56,142,281 0
March 2016........... 55,242,360 0
April 2016........... 54,332,878 0
May 2016............. 53,413,789 0
June 2016............ 52,485,050 0
</TABLE>
A-18
<PAGE> 180
CLASS D TARGET PRINCIPAL BALANCES (CONTINUED)
<TABLE>
<CAPTION>
CLASS D CLASS D
MINIMUM SCHEDULED
PAYMENT DATE TARGET PRINCIPAL TARGET PRINCIPAL
OCCURRING IN BALANCE BALANCE
- ------------ ---------------- ----------------
($) ($)
<S> <C> <C>
July 2016............ 51,546,617 0
August 2016.......... 50,598,446 0
September 2016....... 49,640,492 0
October 2016......... 48,672,713 0
November 2016........ 47,695,064 0
December 2016........ 46,707,501 0
January 2017......... 45,709,982 0
February 2017........ 44,702,462 0
March 2017........... 43,684,897 0
April 2017........... 42,657,245 0
May 2017............. 41,619,462 0
June 2017............ 40,571,504 0
July 2017............ 39,513,328 0
August 2017.......... 38,444,891 0
September 2017....... 37,366,149 0
October 2017......... 36,277,060 0
November 2017........ 35,177,581 0
December 2017........ 34,067,667 0
January 2018......... 32,947,277 0
February 2018........ 31,816,367 0
March 2018........... 30,674,894 0
April 2018........... 29,522,816 0
May 2018............. 28,360,089 0
</TABLE>
<TABLE>
<CAPTION>
($) ($)
CLASS D CLASS D
MINIMUM SCHEDULED
PAYMENT DATE TARGET PRINCIPAL TARGET PRINCIPAL
OCCURRING IN BALANCE BALANCE
- ------------ ---------------- ----------------
<S> <C> <C>
June 2018............ 27,186,671 0
July 2018............ 26,002,519 0
August 2018.......... 24,807,591 0
September 2018....... 23,601,843 0
October 2018......... 22,385,234 0
November 2018........ 21,157,720 0
December 2018........ 19,919,260 0
January 2019......... 18,669,810 0
February 2019........ 17,409,329 0
March 2019........... 16,137,774 0
April 2019........... 14,855,103 0
May 2019............. 13,561,273 0
June 2019............ 12,256,242 0
July 2019............ 10,939,969 0
August 2019.......... 9,612,411 0
September 2019....... 8,273,526 0
October 2019......... 6,923,272 0
November 2019........ 5,561,607 0
December 2019........ 4,188,489 0
January 2020......... 2,803,877 0
February 2020........ 1,407,728 0
March 2020........... 0 0
</TABLE>
A-19
<PAGE> 181
APPENDIX 9
POOL FACTORS
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Closing.............. 100.00% 100.00% 100.00% 100.00% 100.00%
April 1998........... 100.00% 97.42% 99.52% 100.00% 100.00%
May 1998............. 100.00% 96.44% 99.21% 100.00% 100.00%
June 1998............ 100.00% 95.22% 98.91% 100.00% 100.00%
July 1998............ 100.00% 94.50% 98.60% 100.00% 100.00%
August 1998.......... 100.00% 93.49% 98.28% 100.00% 100.00%
September 1998....... 100.00% 92.26% 97.97% 100.00% 100.00%
October 1998......... 100.00% 91.52% 97.66% 100.00% 100.00%
November 1998........ 100.00% 90.49% 97.34% 100.00% 100.00%
December 1998........ 100.00% 89.30% 97.03% 100.00% 100.00%
January 1999......... 100.00% 88.60% 96.71% 100.00% 100.00%
February 1999........ 100.00% 87.77% 96.39% 100.00% 100.00%
March 1999........... 100.00% 86.56% 96.07% 100.00% 100.00%
April 1999........... 100.00% 85.67% 95.75% 100.00% 100.00%
May 1999............. 100.00% 84.98% 95.42% 100.00% 100.00%
June 1999............ 100.00% 83.59% 95.10% 100.00% 100.00%
July 1999............ 100.00% 82.68% 94.77% 100.00% 100.00%
August 1999.......... 100.00% 81.96% 94.45% 100.00% 100.00%
September 1999....... 100.00% 80.55% 94.12% 100.00% 100.00%
October 1999......... 100.00% 79.63% 93.79% 100.00% 100.00%
November 1999........ 100.00% 78.90% 93.46% 99.99% 100.00%
December 1999........ 100.00% 77.46% 93.12% 99.97% 100.00%
January 2000......... 100.00% 76.50% 92.79% 99.95% 100.00%
February 2000........ 100.00% 75.74% 92.46% 99.91% 100.00%
March 2000........... 100.00% 74.28% 92.12% 99.88% 100.00%
April 2000........... 100.00% 73.31% 91.78% 99.83% 100.00%
May 2000............. 100.00% 72.52% 91.44% 99.78% 100.00%
June 2000............ 100.00% 71.05% 91.10% 99.72% 100.00%
July 2000............ 100.00% 70.05% 90.76% 99.65% 100.00%
August 2000.......... 100.00% 69.26% 90.42% 99.58% 100.00%
September 2000....... 100.00% 67.77% 90.07% 99.50% 100.00%
October 2000......... 100.00% 66.77% 89.72% 99.41% 100.00%
November 2000........ 100.00% 65.99% 89.28% 99.31% 100.00%
December 2000........ 100.00% 64.82% 88.93% 99.21% 99.99%
January 2001......... 100.00% 63.63% 88.58% 99.10% 99.99%
February 2001........ 100.00% 62.64% 88.23% 98.98% 99.98%
March 2001........... 100.00% 61.39% 87.87% 98.85% 99.96%
April 2001........... 100.00% 60.34% 87.52% 98.72% 99.95%
May 2001............. 100.00% 59.25% 87.16% 98.58% 99.93%
June 2001............ 100.00% 58.00% 86.71% 98.43% 99.90%
July 2001............ 100.00% 56.93% 86.35% 98.27% 99.88%
August 2001.......... 100.00% 55.85% 85.99% 98.11% 99.84%
September 2001....... 100.00% 54.56% 85.63% 97.94% 99.81%
October 2001......... 100.00% 53.50% 85.17% 97.76% 99.77%
November 2001........ 100.00% 52.41% 84.81% 97.57% 99.72%
December 2001........ 100.00% 51.10% 84.45% 97.38% 99.67%
January 2002......... 100.00% 50.05% 83.99% 97.18% 99.62%
February 2002........ 100.00% 48.95% 83.62% 96.97% 99.56%
March 2002........... 100.00% 47.61% 83.25% 96.75% 99.49%
April 2002........... 100.00% 46.54% 82.79% 96.53% 99.42%
May 2002............. 100.00% 45.42% 82.42% 96.30% 99.35%
June 2002............ 100.00% 44.13% 81.95% 96.06% 99.27%
July 2002............ 100.00% 43.02% 81.58% 95.81% 99.18%
August 2002.......... 100.00% 41.93% 81.11% 95.56% 99.09%
September 2002....... 100.00% 40.60% 80.74% 95.30% 98.99%
October 2002......... 100.00% 39.51% 80.27% 95.03% 98.88%
</TABLE>
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
November 2002........ 100.00% 38.40% 79.89% 94.75% 98.77%
December 2002........ 100.00% 37.08% 79.42% 94.47% 98.66%
January 2003......... 100.00% 35.98% 78.95% 94.18% 98.53%
February 2003........ 100.00% 34.85% 78.57% 93.88% 98.40%
March 2003........... 100.00% 33.58% 78.09% 93.57% 98.27%
April 2003........... 100.00% 32.51% 77.62% 93.25% 98.13%
May 2003............. 100.00% 31.34% 77.15% 92.93% 97.98%
June 2003............ 100.00% 30.19% 76.68% 92.60% 97.82%
July 2003............ 100.00% 29.02% 76.20% 92.26% 97.66%
August 2003.......... 100.00% 27.84% 75.81% 91.92% 97.49%
September 2003....... 100.00% 26.68% 75.34% 91.56% 97.32%
October 2003......... 100.00% 25.52% 74.77% 91.20% 97.13%
November 2003........ 100.00% 24.35% 74.30% 90.83% 96.94%
December 2003........ 100.00% 23.16% 73.82% 90.46% 96.75%
January 2004......... 100.00% 21.16% 71.52% 90.07% 96.54%
February 2004........ 100.00% 20.05% 71.06% 89.68% 96.33%
March 2004........... 100.00% 18.90% 70.60% 89.28% 96.11%
April 2004........... 100.00% 17.84% 70.06% 88.87% 95.88%
May 2004............. 100.00% 16.73% 69.59% 88.46% 95.65%
June 2004............ 100.00% 15.66% 69.05% 88.03% 95.41%
July 2004............ 100.00% 14.55% 68.59% 87.60% 95.16%
August 2004.......... 100.00% 13.47% 68.05% 87.17% 94.90%
September 2004....... 100.00% 12.37% 67.59% 86.72% 94.64%
October 2004......... 100.00% 11.29% 67.05% 86.27% 94.36%
November 2004........ 100.00% 10.21% 66.51% 85.80% 94.08%
December 2004........ 100.00% 9.12% 65.97% 85.34% 93.80%
January 2005......... 100.00% 8.02% 65.43% 84.86% 93.50%
February 2005........ 100.00% 6.90% 64.96% 84.37% 93.19%
March 2005........... 100.00% 5.75% 64.35% 83.88% 92.88%
April 2005........... 100.00% 4.65% 63.81% 83.38% 92.56%
May 2005............. 100.00% 3.52% 63.27% 82.87% 92.23%
June 2005............ 100.00% 2.41% 62.73% 82.36% 91.89%
July 2005............ 100.00% 1.28% 62.19% 81.83% 91.55%
August 2005.......... 100.00% 0.18% 61.58% 81.30% 91.19%
September 2005....... 99.21% 0.00% 61.05% 80.76% 90.83%
October 2005......... 98.25% 0.00% 60.44% 80.22% 90.46%
November 2005........ 97.31% 0.00% 59.83% 79.66% 90.08%
December 2005........ 96.35% 0.00% 59.30% 79.10% 89.69%
January 2006......... 95.43% 0.00% 58.69% 78.53% 89.29%
February 2006........ 94.50% 0.00% 58.09% 77.95% 88.88%
March 2006........... 93.52% 0.00% 57.49% 77.36% 88.46%
April 2006........... 92.61% 0.00% 56.89% 76.77% 88.04%
May 2006............. 91.68% 0.00% 56.29% 76.17% 87.61%
June 2006............ 90.79% 0.00% 55.62% 75.56% 87.16%
July 2006............ 89.87% 0.00% 55.02% 74.94% 86.71%
August 2006.......... 88.98% 0.00% 54.36% 74.32% 86.25%
September 2006....... 88.07% 0.00% 53.77% 73.68% 85.78%
October 2006......... 87.15% 0.00% 53.11% 73.04% 85.30%
November 2006........ 86.25% 0.00% 52.46% 72.39% 84.81%
December 2006........ 85.33% 0.00% 51.81% 71.74% 84.31%
January 2007......... 84.43% 0.00% 51.16% 71.07% 83.80%
February 2007........ 83.53% 0.00% 50.51% 70.40% 83.29%
March 2007........... 82.58% 0.00% 49.86% 69.72% 82.76%
April 2007........... 81.69% 0.00% 49.16% 69.03% 82.22%
May 2007............. 80.76% 0.00% 48.52% 68.34% 81.68%
June 2007............ 79.86% 0.00% 47.82% 67.64% 81.12%
</TABLE>
A-20
<PAGE> 182
POOL FACTORS (CONTINUED)
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
July 2007............ 78.94% 0.00% 47.12% 66.92% 80.56%
August 2007.......... 78.03% 0.00% 46.43% 66.20% 79.98%
September 2007....... 77.12% 0.00% 45.74% 65.48% 79.40%
October 2007......... 76.19% 0.00% 45.06% 64.74% 78.80%
November 2007........ 75.27% 0.00% 44.38% 64.00% 78.20%
December 2007........ 74.35% 0.00% 43.64% 63.25% 77.58%
January 2008......... 73.41% 0.00% 42.97% 62.49% 76.96%
February 2008........ 72.48% 0.00% 42.24% 61.72% 76.32%
March 2008........... 71.51% 0.00% 41.52% 60.95% 75.68%
April 2008........... 70.57% 0.00% 40.80% 60.17% 75.02%
May 2008............. 69.70% 0.00% 40.09% 59.38% 74.36%
June 2008............ 68.83% 0.00% 39.38% 58.58% 73.68%
July 2008............ 67.96% 0.00% 38.62% 57.77% 73.00%
August 2008.......... 67.09% 0.00% 37.92% 56.96% 72.30%
September 2008....... 66.23% 0.00% 37.18% 56.14% 71.59%
October 2008......... 65.37% 0.00% 36.44% 55.31% 70.88%
November 2008........ 64.52% 0.00% 35.70% 54.47% 70.15%
December 2008........ 63.68% 0.00% 34.92% 53.63% 69.41%
January 2009......... 62.84% 0.00% 34.20% 52.77% 68.66%
February 2009........ 62.01% 0.00% 33.43% 51.91% 67.90%
March 2009........... 61.12% 0.00% 32.72% 51.04% 67.13%
April 2009........... 60.33% 0.00% 31.97% 50.17% 66.35%
May 2009............. 59.52% 0.00% 31.22% 49.28% 65.56%
June 2009............ 58.72% 0.00% 30.43% 48.39% 64.76%
July 2009............ 57.90% 0.00% 29.70% 47.49% 63.95%
August 2009.......... 57.10% 0.00% 28.93% 46.58% 63.12%
September 2009....... 56.30% 0.00% 28.17% 45.66% 62.29%
October 2009......... 55.49% 0.00% 27.42% 44.74% 61.44%
November 2009........ 54.69% 0.00% 26.67% 43.81% 60.59%
December 2009........ 53.88% 0.00% 25.89% 42.87% 59.72%
January 2010......... 53.06% 0.00% 25.16% 41.92% 58.84%
February 2010........ 52.25% 0.00% 24.40% 40.96% 57.95%
March 2010........... 51.41% 0.00% 23.65% 40.00% 57.05%
April 2010........... 50.60% 0.00% 22.86% 39.03% 56.14%
May 2010............. 49.76% 0.00% 22.13% 38.05% 55.22%
June 2010............ 48.94% 0.00% 21.37% 37.06% 54.28%
July 2010............ 48.11% 0.00% 20.61% 36.06% 53.34%
August 2010.......... 47.27% 0.00% 19.87% 35.06% 52.38%
September 2010....... 46.44% 0.00% 19.14% 34.05% 51.41%
October 2010......... 45.59% 0.00% 18.38% 33.03% 50.43%
November 2010........ 44.75% 0.00% 17.64% 32.00% 49.44%
December 2010........ 43.92% 0.00% 16.92% 30.97% 48.44%
January 2011......... 43.09% 0.00% 16.22% 29.92% 47.43%
February 2011........ 42.29% 0.00% 15.49% 28.87% 46.40%
March 2011........... 41.46% 0.00% 14.81% 27.81% 45.36%
April 2011........... 40.72% 0.00% 14.08% 26.75% 44.31%
</TABLE>
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
May 2011............. 39.99% 0.00% 13.39% 25.67% 43.25%
June 2011............ 39.25% 0.00% 12.71% 24.59% 42.18%
July 2011............ 38.52% 0.00% 12.02% 23.50% 41.10%
August 2011.......... 37.79% 0.00% 11.34% 22.40% 40.00%
September 2011....... 37.06% 0.00% 10.67% 21.29% 38.90%
October 2011......... 36.32% 0.00% 9.99% 20.18% 37.78%
November 2011........ 35.58% 0.00% 9.32% 19.05% 36.64%
December 2011........ 34.83% 0.00% 8.66% 17.92% 35.50%
January 2012......... 34.09% 0.00% 8.03% 16.78% 34.35%
February 2012........ 33.36% 0.00% 7.37% 15.64% 33.18%
March 2012........... 32.62% 0.00% 6.74% 14.48% 32.00%
April 2012........... 31.88% 0.00% 6.12% 13.32% 30.81%
May 2012............. 31.16% 0.00% 5.49% 12.15% 29.61%
June 2012............ 30.41% 0.00% 4.92% 10.97% 28.39%
July 2012............ 29.63% 0.00% 4.33% 9.78% 27.16%
August 2012.......... 28.83% 0.00% 3.73% 8.59% 26.00%
September 2012....... 27.98% 0.00% 3.18% 7.38% 24.91%
October 2012......... 27.15% 0.00% 2.62% 6.17% 23.71%
November 2012........ 26.34% 0.00% 2.06% 4.95% 22.44%
December 2012........ 25.54% 0.00% 1.54% 3.73% 21.07%
January 2013......... 24.74% 0.00% 1.02% 2.49% 19.66%
February 2013........ 23.94% 0.00% 0.51% 1.25% 18.22%
March 2013........... 23.12% 0.00% 0.00% 0.00% 16.90%
April 2013........... 21.92% 0.00% 0.00% 0.00% 15.56%
May 2013............. 20.91% 0.00% 0.00% 0.00% 14.21%
June 2013............ 19.91% 0.00% 0.00% 0.00% 12.84%
July 2013............ 18.91% 0.00% 0.00% 0.00% 11.47%
August 2013.......... 17.91% 0.00% 0.00% 0.00% 10.08%
September 2013....... 16.94% 0.00% 0.00% 0.00% 8.68%
October 2013......... 16.01% 0.00% 0.00% 0.00% 7.26%
November 2013........ 15.07% 0.00% 0.00% 0.00% 5.84%
December 2013........ 14.14% 0.00% 0.00% 0.00% 4.40%
January 2014......... 13.22% 0.00% 0.00% 0.00% 2.94%
February 2014........ 12.31% 0.00% 0.00% 0.00% 1.48%
March 2014........... 11.38% 0.00% 0.00% 0.00% 0.00%
April 2014........... 10.14% 0.00% 0.00% 0.00% 0.00%
May 2014............. 8.89% 0.00% 0.00% 0.00% 0.00%
June 2014............ 7.63% 0.00% 0.00% 0.00% 0.00%
July 2014............ 6.36% 0.00% 0.00% 0.00% 0.00%
August 2014.......... 5.10% 0.00% 0.00% 0.00% 0.00%
September 2014....... 3.82% 0.00% 0.00% 0.00% 0.00%
October 2014......... 2.57% 0.00% 0.00% 0.00% 0.00%
November 2014........ 1.31% 0.00% 0.00% 0.00% 0.00%
December 2014........ 0.04% 0.00% 0.00% 0.00% 0.00%
January 2015......... 0.00% 0.00% 0.00% 0.00% 0.00%
</TABLE>
A-21
<PAGE> 183
APPENDIX 10
EXTENDED POOL FACTORS
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Closing.............. 100.00% 100.00% 100.00% 100.00% 100.00%
April 1998........... 100.00% 99.08% 100.00% 100.00% 100.00%
May 1998............. 100.00% 98.41% 100.00% 100.00% 100.00%
June 1998............ 100.00% 97.73% 100.00% 100.00% 100.00%
July 1998............ 100.00% 97.06% 100.00% 100.00% 100.00%
August 1998.......... 100.00% 96.38% 100.00% 100.00% 100.00%
September 1998....... 100.00% 95.70% 100.00% 100.00% 100.00%
October 1998......... 100.00% 94.98% 100.00% 100.00% 100.00%
November 1998........ 100.00% 94.30% 100.00% 100.00% 100.00%
December 1998........ 100.00% 93.61% 100.00% 100.00% 100.00%
January 1999......... 100.00% 92.92% 100.00% 100.00% 100.00%
February 1999........ 100.00% 92.22% 100.00% 100.00% 100.00%
March 1999........... 100.00% 91.49% 100.00% 100.00% 100.00%
April 1999........... 100.00% 90.79% 99.52% 100.00% 100.00%
May 1999............. 100.00% 90.09% 99.21% 100.00% 100.00%
June 1999............ 100.00% 89.35% 98.91% 100.00% 100.00%
July 1999............ 100.00% 88.64% 98.60% 100.00% 100.00%
August 1999.......... 100.00% 87.90% 98.28% 100.00% 100.00%
September 1999....... 100.00% 87.18% 97.97% 100.00% 100.00%
October 1999......... 100.00% 86.44% 97.66% 100.00% 100.00%
November 1999........ 100.00% 85.72% 97.34% 100.00% 100.00%
December 1999........ 100.00% 84.96% 97.03% 100.00% 100.00%
January 2000......... 100.00% 84.20% 96.71% 100.00% 100.00%
February 2000........ 100.00% 83.45% 96.39% 100.00% 100.00%
March 2000........... 100.00% 82.68% 96.07% 100.00% 100.00%
April 2000........... 100.00% 81.92% 95.75% 100.00% 100.00%
May 2000............. 100.00% 81.15% 95.42% 100.00% 100.00%
June 2000............ 100.00% 80.38% 95.10% 100.00% 100.00%
July 2000............ 100.00% 79.61% 94.77% 100.00% 100.00%
August 2000.......... 100.00% 78.80% 94.45% 100.00% 100.00%
September 2000....... 100.00% 78.02% 94.12% 100.00% 100.00%
October 2000......... 100.00% 77.21% 93.79% 100.00% 100.00%
November 2000........ 100.00% 76.43% 93.46% 100.00% 100.00%
December 2000........ 100.00% 75.61% 93.12% 100.00% 100.00%
January 2001......... 100.00% 74.79% 92.79% 100.00% 100.00%
February 2001........ 100.00% 73.97% 92.46% 100.00% 100.00%
March 2001........... 100.00% 73.15% 92.12% 100.00% 100.00%
April 2001........... 100.00% 72.32% 91.78% 100.00% 100.00%
May 2001............. 100.00% 71.49% 91.44% 100.00% 100.00%
June 2001............ 100.00% 70.66% 91.10% 100.00% 100.00%
July 2001............ 100.00% 69.80% 90.76% 100.00% 100.00%
August 2001.......... 100.00% 68.96% 90.42% 100.00% 100.00%
September 2001....... 100.00% 68.09% 90.07% 100.00% 100.00%
October 2001......... 100.00% 67.22% 89.72% 100.00% 100.00%
November 2001........ 100.00% 66.35% 89.28% 99.99% 100.00%
December 2001........ 100.00% 65.47% 88.93% 99.97% 100.00%
January 2002......... 100.00% 64.60% 88.58% 99.95% 100.00%
February 2002........ 100.00% 63.72% 88.23% 99.91% 100.00%
March 2002........... 100.00% 62.84% 87.87% 99.88% 100.00%
April 2002........... 100.00% 61.92% 87.52% 99.83% 100.00%
May 2002............. 100.00% 61.04% 87.16% 99.78% 100.00%
June 2002............ 100.00% 60.12% 86.71% 99.72% 100.00%
July 2002............ 100.00% 59.20% 86.35% 99.65% 100.00%
August 2002.......... 100.00% 58.28% 85.99% 99.58% 100.00%
September 2002....... 100.00% 57.36% 85.63% 99.50% 100.00%
October 2002......... 100.00% 56.44% 85.17% 99.41% 100.00%
</TABLE>
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
November 2002........ 100.00% 55.48% 84.81% 99.31% 100.00%
December 2002........ 100.00% 54.55% 84.45% 99.21% 99.99%
January 2003......... 100.00% 53.60% 83.99% 99.10% 99.99%
February 2003........ 100.00% 52.64% 83.62% 98.98% 99.98%
March 2003........... 100.00% 51.68% 83.25% 98.85% 99.96%
April 2003........... 100.00% 50.71% 82.79% 98.72% 99.95%
May 2003............. 100.00% 49.75% 82.42% 98.58% 99.93%
June 2003............ 100.00% 48.78% 81.95% 98.43% 99.90%
July 2003............ 100.00% 47.79% 81.58% 98.27% 99.88%
August 2003.......... 100.00% 46.79% 81.11% 98.11% 99.84%
September 2003....... 100.00% 45.79% 80.74% 97.94% 99.81%
October 2003......... 100.00% 44.79% 80.27% 97.76% 99.77%
November 2003........ 100.00% 43.79% 79.89% 97.57% 99.72%
December 2003........ 100.00% 42.79% 79.42% 97.38% 99.67%
January 2004......... 100.00% 37.79% 78.95% 97.18% 99.62%
February 2004........ 100.00% 36.80% 78.57% 96.97% 99.56%
March 2004........... 100.00% 35.83% 78.09% 96.75% 99.49%
April 2004........... 100.00% 34.84% 77.62% 96.53% 99.42%
May 2004............. 100.00% 33.82% 77.15% 96.30% 99.35%
June 2004............ 100.00% 32.83% 76.68% 96.06% 99.27%
July 2004............ 100.00% 31.81% 76.20% 95.81% 99.18%
August 2004.......... 100.00% 30.81% 75.81% 95.56% 99.09%
September 2004....... 100.00% 29.79% 75.34% 95.30% 98.99%
October 2004......... 100.00% 28.74% 74.77% 95.03% 98.88%
November 2004........ 100.00% 27.71% 74.30% 94.75% 98.77%
December 2004........ 100.00% 26.69% 73.82% 94.47% 98.66%
January 2005......... 100.00% 25.64% 71.52% 94.18% 98.53%
February 2005........ 100.00% 24.59% 71.06% 93.88% 98.40%
March 2005........... 100.00% 23.54% 70.60% 93.57% 98.27%
April 2005........... 100.00% 22.49% 70.06% 93.25% 98.13%
May 2005............. 100.00% 21.41% 69.59% 92.93% 97.98%
June 2005............ 100.00% 20.36% 69.05% 92.60% 97.82%
July 2005............ 100.00% 19.28% 68.59% 92.26% 97.66%
August 2005.......... 100.00% 18.21% 68.05% 91.92% 97.49%
September 2005....... 100.00% 17.13% 67.59% 91.56% 97.32%
October 2005......... 100.00% 16.03% 67.05% 91.20% 97.13%
November 2005........ 100.00% 14.93% 66.51% 90.83% 96.94%
December 2005........ 100.00% 13.86% 65.97% 90.46% 96.75%
January 2006......... 100.00% 12.74% 65.43% 90.07% 96.54%
February 2006........ 100.00% 11.64% 64.96% 89.68% 96.33%
March 2006........... 100.00% 10.54% 64.35% 89.28% 96.11%
April 2006........... 100.00% 9.42% 63.81% 88.87% 95.88%
May 2006............. 100.00% 8.30% 63.27% 88.46% 95.65%
June 2006............ 100.00% 7.18% 62.73% 88.03% 95.41%
July 2006............ 100.00% 6.06% 62.19% 87.60% 95.16%
August 2006.......... 100.00% 4.92% 61.58% 87.17% 94.90%
September 2006....... 100.00% 3.78% 61.05% 86.72% 94.64%
October 2006......... 100.00% 2.65% 60.44% 86.27% 94.36%
November 2006........ 100.00% 1.51% 59.83% 85.80% 94.08%
December 2006........ 100.00% 0.35% 59.30% 85.34% 93.80%
January 2007......... 99.33% 0.00% 58.69% 84.86% 93.50%
February 2007........ 98.35% 0.00% 58.09% 84.37% 93.19%
March 2007........... 97.37% 0.00% 57.49% 83.88% 92.88%
April 2007........... 96.37% 0.00% 56.89% 83.38% 92.56%
May 2007............. 95.38% 0.00% 56.29% 82.87% 92.23%
June 2007............ 94.40% 0.00% 55.62% 82.36% 91.89%
</TABLE>
A-22
<PAGE> 184
EXTENDED POOL FACTORS (CONTINUED)
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
July 2007............ 93.39% 0.00% 55.02% 81.83% 91.55%
August 2007.......... 92.40% 0.00% 54.36% 81.30% 91.19%
September 2007....... 91.39% 0.00% 53.77% 80.76% 90.83%
October 2007......... 90.40% 0.00% 53.11% 80.22% 90.46%
November 2007........ 89.40% 0.00% 52.46% 79.66% 90.08%
December 2007........ 88.38% 0.00% 51.81% 79.10% 89.69%
January 2008......... 87.38% 0.00% 51.16% 78.53% 89.29%
February 2008........ 86.37% 0.00% 50.51% 77.95% 88.88%
March 2008........... 85.36% 0.00% 49.86% 77.36% 88.46%
April 2008........... 84.33% 0.00% 49.16% 76.77% 88.04%
May 2008............. 83.32% 0.00% 48.52% 76.17% 87.61%
June 2008............ 82.30% 0.00% 47.82% 75.56% 87.16%
July 2008............ 81.28% 0.00% 47.12% 74.94% 86.71%
August 2008.......... 80.25% 0.00% 46.43% 74.32% 86.25%
September 2008....... 79.23% 0.00% 45.74% 73.68% 85.78%
October 2008......... 78.21% 0.00% 45.06% 73.04% 85.30%
November 2008........ 77.17% 0.00% 44.38% 72.39% 84.81%
December 2008........ 76.15% 0.00% 43.64% 71.74% 84.31%
January 2009......... 75.11% 0.00% 42.97% 71.07% 83.80%
February 2009........ 74.08% 0.00% 42.24% 70.40% 83.29%
March 2009........... 73.06% 0.00% 41.52% 69.72% 82.76%
April 2009........... 72.03% 0.00% 40.80% 69.03% 82.22%
May 2009............. 71.00% 0.00% 40.09% 68.34% 81.68%
June 2009............ 69.96% 0.00% 39.38% 67.64% 81.12%
July 2009............ 68.92% 0.00% 38.62% 66.92% 80.56%
August 2009.......... 67.90% 0.00% 37.92% 66.20% 79.98%
September 2009....... 66.86% 0.00% 37.18% 65.48% 79.40%
October 2009......... 65.82% 0.00% 36.44% 64.74% 78.80%
November 2009........ 64.79% 0.00% 35.70% 64.00% 78.20%
December 2009........ 63.76% 0.00% 34.92% 63.25% 77.58%
January 2010......... 62.72% 0.00% 34.20% 62.49% 76.96%
February 2010........ 61.70% 0.00% 33.43% 61.72% 76.32%
March 2010........... 60.66% 0.00% 32.72% 60.95% 75.68%
April 2010........... 59.63% 0.00% 31.97% 60.17% 75.02%
May 2010............. 58.60% 0.00% 31.22% 59.38% 74.36%
June 2010............ 57.57% 0.00% 30.43% 58.58% 73.68%
July 2010............ 56.55% 0.00% 29.70% 57.77% 73.00%
August 2010.......... 55.51% 0.00% 28.93% 56.96% 72.30%
September 2010....... 54.49% 0.00% 28.17% 56.14% 71.59%
October 2010......... 53.47% 0.00% 27.42% 55.31% 70.88%
November 2010........ 52.44% 0.00% 26.67% 54.47% 70.15%
December 2010........ 51.47% 0.00% 25.89% 53.63% 69.41%
January 2011......... 50.50% 0.00% 25.16% 52.77% 68.66%
February 2011........ 49.54% 0.00% 24.40% 51.91% 67.90%
March 2011........... 48.59% 0.00% 23.65% 51.04% 67.13%
April 2011........... 47.63% 0.00% 22.86% 50.17% 66.35%
May 2011............. 46.67% 0.00% 22.13% 49.28% 65.56%
June 2011............ 45.73% 0.00% 21.37% 48.39% 64.76%
July 2011............ 44.78% 0.00% 20.61% 47.49% 63.95%
August 2011.......... 43.84% 0.00% 19.87% 46.58% 63.12%
September 2011....... 42.89% 0.00% 19.14% 45.66% 62.29%
October 2011......... 41.95% 0.00% 18.38% 44.74% 61.44%
November 2011........ 41.01% 0.00% 17.64% 43.81% 60.59%
December 2011........ 40.08% 0.00% 16.92% 42.87% 59.72%
January 2012......... 39.16% 0.00% 16.22% 41.92% 58.84%
February 2012........ 38.23% 0.00% 15.49% 40.96% 57.95%
March 2012........... 37.31% 0.00% 14.81% 40.00% 57.05%
April 2012........... 36.39% 0.00% 14.08% 39.03% 56.14%
</TABLE>
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
May 2012............. 35.48% 0.00% 13.39% 38.05% 55.22%
June 2012............ 34.58% 0.00% 12.71% 37.06% 54.28%
July 2012............ 33.69% 0.00% 12.02% 36.06% 53.34%
August 2012.......... 32.81% 0.00% 11.34% 35.06% 52.38%
September 2012....... 31.95% 0.00% 10.67% 34.05% 51.41%
October 2012......... 31.13% 0.00% 9.99% 33.03% 50.43%
November 2012........ 30.31% 0.00% 9.32% 32.00% 49.44%
December 2012........ 29.50% 0.00% 8.66% 30.97% 48.44%
January 2013......... 28.70% 0.00% 8.03% 29.92% 47.43%
February 2013........ 27.90% 0.00% 7.37% 28.87% 46.40%
March 2013........... 27.11% 0.00% 6.74% 27.81% 45.36%
April 2013........... 26.31% 0.00% 6.12% 26.75% 44.31%
May 2013............. 25.56% 0.00% 5.49% 25.67% 43.25%
June 2013............ 24.83% 0.00% 4.92% 24.59% 42.18%
July 2013............ 24.11% 0.00% 4.33% 23.50% 41.10%
August 2013.......... 23.40% 0.00% 3.73% 22.40% 40.00%
September 2013....... 22.68% 0.00% 3.18% 21.29% 38.90%
October 2013......... 21.98% 0.00% 2.62% 20.18% 37.78%
November 2013........ 21.31% 0.00% 2.06% 19.05% 36.64%
December 2013........ 20.65% 0.00% 1.54% 17.92% 35.50%
January 2014......... 20.03% 0.00% 1.02% 16.78% 34.35%
February 2014........ 19.43% 0.00% 0.51% 15.64% 33.18%
March 2014........... 18.85% 0.00% 0.00% 14.48% 32.00%
April 2014........... 18.29% 0.00% 0.00% 13.32% 30.81%
May 2014............. 17.75% 0.00% 0.00% 12.15% 29.61%
June 2014............ 17.22% 0.00% 0.00% 10.97% 28.39%
July 2014............ 16.68% 0.00% 0.00% 9.78% 27.16%
August 2014.......... 16.15% 0.00% 0.00% 8.59% 26.00%
September 2014....... 15.63% 0.00% 0.00% 7.38% 24.91%
October 2014......... 15.12% 0.00% 0.00% 6.17% 23.71%
November 2014........ 14.60% 0.00% 0.00% 4.95% 22.44%
December 2014........ 14.10% 0.00% 0.00% 3.73% 21.07%
January 2015......... 13.59% 0.00% 0.00% 2.49% 19.66%
February 2015........ 13.10% 0.00% 0.00% 1.25% 18.22%
March 2015........... 12.61% 0.00% 0.00% 0.00% 16.90%
April 2015........... 12.15% 0.00% 0.00% 0.00% 15.56%
May 2015............. 11.70% 0.00% 0.00% 0.00% 14.21%
June 2015............ 11.26% 0.00% 0.00% 0.00% 12.84%
July 2015............ 10.82% 0.00% 0.00% 0.00% 11.47%
August 2015.......... 10.39% 0.00% 0.00% 0.00% 10.08%
September 2015....... 9.97% 0.00% 0.00% 0.00% 8.68%
October 2015......... 9.56% 0.00% 0.00% 0.00% 7.26%
November 2015........ 9.17% 0.00% 0.00% 0.00% 5.84%
December 2015........ 8.79% 0.00% 0.00% 0.00% 4.40%
January 2016......... 8.42% 0.00% 0.00% 0.00% 2.94%
February 2016........ 8.05% 0.00% 0.00% 0.00% 1.48%
March 2016........... 7.69% 0.00% 0.00% 0.00% 0.00%
April 2016........... 7.34% 0.00% 0.00% 0.00% 0.00%
May 2016............. 6.99% 0.00% 0.00% 0.00% 0.00%
June 2016............ 6.64% 0.00% 0.00% 0.00% 0.00%
July 2016............ 6.31% 0.00% 0.00% 0.00% 0.00%
August 2016.......... 5.98% 0.00% 0.00% 0.00% 0.00%
September 2016....... 5.66% 0.00% 0.00% 0.00% 0.00%
October 2016......... 5.34% 0.00% 0.00% 0.00% 0.00%
November 2016........ 5.03% 0.00% 0.00% 0.00% 0.00%
December 2016........ 4.72% 0.00% 0.00% 0.00% 0.00%
January 2017......... 4.43% 0.00% 0.00% 0.00% 0.00%
February 2017........ 4.15% 0.00% 0.00% 0.00% 0.00%
</TABLE>
A-23
<PAGE> 185
EXTENDED POOL FACTORS (CONTINUED)
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
March 2017........... 3.90% 0.00% 0.00% 0.00% 0.00%
April 2017........... 3.65% 0.00% 0.00% 0.00% 0.00%
May 2017............. 3.42% 0.00% 0.00% 0.00% 0.00%
June 2017............ 3.19% 0.00% 0.00% 0.00% 0.00%
July 2017............ 2.98% 0.00% 0.00% 0.00% 0.00%
August 2017.......... 2.77% 0.00% 0.00% 0.00% 0.00%
September 2017....... 2.56% 0.00% 0.00% 0.00% 0.00%
October 2017......... 2.37% 0.00% 0.00% 0.00% 0.00%
November 2017........ 2.18% 0.00% 0.00% 0.00% 0.00%
December 2017........ 1.99% 0.00% 0.00% 0.00% 0.00%
January 2018......... 1.81% 0.00% 0.00% 0.00% 0.00%
February 2018........ 1.64% 0.00% 0.00% 0.00% 0.00%
March 2018........... 1.48% 0.00% 0.00% 0.00% 0.00%
April 2018........... 1.34% 0.00% 0.00% 0.00% 0.00%
May 2018............. 1.22% 0.00% 0.00% 0.00% 0.00%
June 2018............ 1.11% 0.00% 0.00% 0.00% 0.00%
July 2018............ 1.01% 0.00% 0.00% 0.00% 0.00%
August 2018.......... 0.92% 0.00% 0.00% 0.00% 0.00%
September 2018....... 0.82% 0.00% 0.00% 0.00% 0.00%
</TABLE>
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
October 2018......... 0.74% 0.00% 0.00% 0.00% 0.00%
November 2018........ 0.65% 0.00% 0.00% 0.00% 0.00%
December 2018........ 0.58% 0.00% 0.00% 0.00% 0.00%
January 2019......... 0.51% 0.00% 0.00% 0.00% 0.00%
February 2019........ 0.44% 0.00% 0.00% 0.00% 0.00%
March 2019........... 0.38% 0.00% 0.00% 0.00% 0.00%
April 2019........... 0.33% 0.00% 0.00% 0.00% 0.00%
May 2019............. 0.28% 0.00% 0.00% 0.00% 0.00%
June 2019............ 0.24% 0.00% 0.00% 0.00% 0.00%
July 2019............ 0.20% 0.00% 0.00% 0.00% 0.00%
August 2019.......... 0.16% 0.00% 0.00% 0.00% 0.00%
September 2019....... 0.12% 0.00% 0.00% 0.00% 0.00%
October 2019......... 0.10% 0.00% 0.00% 0.00% 0.00%
November 2019........ 0.07% 0.00% 0.00% 0.00% 0.00%
December 2019........ 0.05% 0.00% 0.00% 0.00% 0.00%
January 2020......... 0.03% 0.00% 0.00% 0.00% 0.00%
February 2020........ 0.01% 0.00% 0.00% 0.00% 0.00%
March 2020........... 0.00% 0.00% 0.00% 0.00% 0.00%
</TABLE>
A-24
<PAGE> 186
MORGAN STANLEY AIRCRAFT FINANCE
c/o Wilmington Trust Company
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890
<TABLE>
<S> <C>
TRUSTEE, SECURITY TRUSTEE, PAYING AGENT
CASH MANAGER AND REFERENCE AGENT AND REGISTRAR
BANKERS TRUST COMPANY BANKERS TRUST COMPANY
Four Albany Street Four Albany Street
Mail Stop 5091 Mail Stop 5091
New York, New York 10006 New York, New York 10006
USA USA
ADMINISTRATIVE AGENT SERVICER
CABOT AIRCRAFT SERVICES LIMITED INTERNATIONAL LEASE FINANCE CORPORATION
Europa House 1999 Avenue of the Stars
Harcourt Street Los Angeles, California 90067
Dublin 2 USA
Ireland
FINANCIAL ADVISOR LUXEMBOURG PAYING AGENT
AND CO-REGISTRAR
MORGAN STANLEY & CO. INCORPORATED
1585 Broadway BANQUE INTERNATIONALE A LUXEMBOURG S.A.
New York, New York 10036 69, route d'Esch
USA L-1470 Luxembourg
</TABLE>
LEGAL ADVISORS
<TABLE>
<S> <C>
To MSAF Group as to To MSAF Group as
United States law special Delaware counsel
DAVIS POLK & WARDWELL RICHARDS, LAYTON & FINGER, P.A.
1 Frederick's Place One Rodney Square
London EC2R 8AB P.O. Box 551
England Wilmington, Delaware 19899
USA
</TABLE>
LISTING AGENT
BANQUE INTERNATIONALE A LUXEMBOURG S.A.
69, route d'Esch
L-1470 Luxembourg
<PAGE> 187
PROSPECTUS ALTERNATE
$1,050,000,000
Morgan Stanley Aircraft Finance
NOTES
Interest on the Notes is payable monthly in arrears on the 15th day of each
month.
The Subclass A-1 Notes bear interest at the London interbank offered rate for
one month U.S. dollar deposits ("LIBOR") + 0.21%, have an expected final payment
date of March 15, 2000 and a final maturity date of March 15, 2023.
The Subclass A-2 Notes bear interest at a rate of LIBOR + 0.35%, have an
expected final payment date of September 15, 2005 and a final maturity date of
March 15, 2023.
The Subclass B-1 Notes bear interest at a rate of LIBOR + 0.65%, have an
expected final payment date of March 15, 2013 and a final maturity date of March
15, 2023.
The Subclass C-1 Notes bear interest at a rate of 6.90%, have an expected
final payment date of March 15, 2013 and a final maturity date of March 15,
2023.
The Subclass D-1 Notes bear interest at a rate of 8.70%, have an expected
final payment date of March 15, 2014 and a final maturity date of March 15,
2023.
The only source of payment for the Notes and other obligations of MSAF Group
will be the payments made by the Lessees under the Leases, proceeds from
dispositions, if any, of the assets of MSAF Group, net payments, if any, under
the Swap Agreements, drawings under available credit or liquidity enhancement
facilities and net cash proceeds received from the sale of Refinancing Notes.
Payments on the Notes will be subordinated to certain other obligations of MSAF
Group as further described herein.
MSAF Group may from time to time directly or indirectly acquire additional
aircraft and related leases, subject to certain conditions. Such acquisitions
will only be funded through external financing, principally Additional Notes,
and not through Available Collections. See "Risk Factors -- Risks Relating to
Additional Aircraft".
------------------------
ALL OF THE BENEFICIAL INTEREST IN MSAF IS INDIRECTLY OWNED BY MORGAN STANLEY
BUT THE NOTES ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, MORGAN STANLEY OR ANY
PERSON OTHER THAN THE MSAF GROUP, THE NOTES ARE NOT OBLIGATIONS OF, OR
GUARANTEED BY, BANKERS TRUST COMPANY, AS TRUSTEE, SECURITY TRUSTEE OR CASH
MANAGER, OR INTERNATIONAL LEASE FINANCE CORPORATION, AS SERVICER OR ANY OF THEIR
AFFILIATES.
See "Risk Factors" beginning on page 20 hereof for a discussion of certain
factors that should be considered by prospective investors.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
This Prospectus is to be used by Morgan Stanley & Co. Incorporated in
connection with offers and sales of the Notes in market-making transactions at
negotiated prices related to prevailing market prices at the time of sale.
Morgan Stanley & Co. Incorporated may act as principal or agent in such
transactions.
, 1998
<PAGE> 188
ALTERNATE
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary......................................... 1
Summary Description of the New Notes............ 10
Risk Factors.................................... 20
Consequences of Failure to Exchange........... 20
Exchange Offer Procedures..................... 21
Risks Relating to MSAF Group and
Certain Third Parties....................... 21
Risks Relating to the Aircraft................ 23
Year 2000 Risk................................ 25
Risks Relating to the Leases.................. 28
Risks Relating to the Lessees................. 29
Lease Termination and Aircraft Repossession... 32
Risks Relating to Payments on the Notes....... 33
Risks Relating to the Capital Markets......... 33
Certain Bankruptcy Considerations............. 34
Risks Relating to Tax......................... 34
The Exchange Offer.............................. 35
Terms of the Exchange Offer; Period for
Tendering Old Notes......................... 35
Procedures for Tendering Old Notes............ 35
Acceptance of Old Notes for Exchange; Delivery
of New Notes................................ 37
Interest on the New Notes..................... 37
Book-Entry Transfer........................... 37
Guaranteed Delivery Procedures................ 37
Withdrawal Rights............................. 38
Certain Conditions to the Exchange Offer...... 38
Exchange Agent................................ 39
Fees and Expenses............................. 39
Transfer Taxes................................ 39
Consequences of Failure to Exchange........... 39
The Parties..................................... 41
MSAF Group.................................... 41
Servicer...................................... 41
Administrative Agent.......................... 43
Cash Manager, Trustee, Security Trustee and
Reference Agent............................. 43
Financial Advisor............................. 43
The Initial Aircraft and Leases................. 44
MSAF's Ownership of the Aircraft.............. 44
Appraisers' Reports........................... 44
Portfolio Information......................... 44
MSAF Group Portfolio Analysis................. 49
Acquisition of Additional Aircraft............ 49
Initial Leases................................ 50
Indemnification and Insurance of the
Aircraft.................................... 52
The Lessees................................... 54
The Commercial Aircraft Industry................ 59
Introduction.................................. 59
Demand for Aircraft........................... 59
The World Fleet of Commercial Jet Aircraft
(Excluding Aircraft Manufactured in the
CIS)........................................ 60
Supply of Aircraft............................ 61
Operating Leasing............................. 62
Management of MSAF Group........................ 63
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Trustees...................................... 63
Beneficial Ownership of MSAF.................. 64
Servicer...................................... 65
Corporate Management.......................... 69
Selected Consolidated Financial Data............ 72
Management's Discussion and Analysis of Results
of Operations and Financial Condition......... 73
Introduction.................................. 73
Recent Developments........................... 73
Results of Operations -- Seven Months Ended
June 30, 1998............................... 74
Financial Resources and Liquidity............. 75
Interest Rate Management...................... 79
Description of the Notes........................ 81
General....................................... 81
Registration Requirements..................... 82
Payments...................................... 83
Assumptions................................... 84
Payment of Principal and Interest............. 94
Priority of Payments.......................... 103
Indenture Covenants........................... 106
Operating Covenants........................... 114
Events of Default and Remedies................ 117
Intercreditor Rights.......................... 119
Modification and Waiver....................... 119
Notices to Noteholders........................ 120
Governing Law and Jurisdiction................ 121
Beneficial Interest........................... 121
Cash Management Agreement..................... 121
Accounts...................................... 121
Reports to Noteholders.......................... 125
Book-Entry Registration, Global Clearance and
Settlement.................................... 127
Book-Entry Registration....................... 127
Definitive Notes.............................. 129
CUSIP, ISIN and Common Code Numbers........... 130
Taxation........................................ 131
U.S. Federal Income Tax Considerations........ 131
Plan of Distribution............................ 133
ERISA Considerations............................ 134
Legal Matters................................... 135
Experts......................................... 135
Index to Financial Statements................... F-1
Appendix 1. Index of Defined Terms.............. A-1
Appendix 2. Aircraft Types Data................. A-4
Appendix 3. Monthly Gross Revenues
Based on the Assumptions...................... A-5
Appendix 4. Assumed Portfolio Values for
the Initial Portfolio......................... A-7
Appendix 5. Class A Class Percentages........... A-9
Appendix 6. Class B Class Percentages........... A-12
Appendix 7. Class C Target Principal Balances... A-14
Appendix 8. Class D Target Principal Balances... A-17
Appendix 9. Pool Factors........................ A-20
Appendix 10. Extended Pool Factors.............. A-22
</TABLE>
i
<PAGE> 189
ALTERNATE
CERTAIN RISK FACTORS
TRADING MARKET FOR THE NOTES
Morgan Stanley & Co. Incorporated ("MS&Co.") currently makes a market in
the Notes. However, it is not obligated to do so, and any such market making may
be discontinued at any time without notice, in its sole discretion. Therefore,
no assurance can be given as to the liquidity of, or the trading market for, the
Notes.
MARKET-MAKING ACTIVITIES OF MS&CO. AND MSI
This Prospectus is to be used by MS&Co. in connection with offers and sales
of the Notes in market-making transactions at negotiated prices related to
prevailing market prices at the time of sale. MS&Co. may act as principal or
agent in such transactions. MS&Co. has no obligation to make a market in the
Notes and may discontinue its market-making activities at any time without
notice, in its sole discretion.
MS&Co. is a wholly owned subsidiary of Morgan Stanley, Dean Witter,
Discover & Co., which indirectly holds 100% of the beneficial interest in MSAF.
The initial Controlling Trustees of MSAF are officers of an affiliate of Morgan
Stanley.
MS&Co. acted as representative of the initial purchasers in connection with
the original offering of the Old Notes. The subscription discounts and
commissions received on each subclass of the Old Notes were as follows:
<TABLE>
<CAPTION>
SUBSCRIPTION
DISCOUNTS AND
SUBCLASS OF NOTES COMMISSIONS
----------------- -------------
<S> <C>
Subclass A-1 Notes.......................................... 0.30%
Subclass A-2 Notes.......................................... 0.60%
Subclass B-1 Notes.......................................... 0.85%
Subclass C-1 Notes.......................................... 1.50%
Subclass D-1 Notes.......................................... 2.50%
</TABLE>
<PAGE> 190
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Third Amended and Restated Trust Agreement (the "Trust Agreement") of
Morgan Stanley Aircraft Finance ("MSAF") dated as of March 3, 1998 provides that
MSAF will indemnify, to the fullest extent permitted by Delaware law, each
trustee (and the officers, directors, employees, heirs, executors or
administrators of such trustee) who was or is a party or is threatened to be
made a party to, or is involved in any threatened, pending or completed action
or suit by or in the right of MSAF to procure a judgment in its favor by reason
of the fact that such person is or was a trustee of MSAF or is or was serving at
the request of MSAF as a trustee, director or officer of another trust,
corporation, partnership, joint venture or other enterprise. MSAF also agreed to
indemnify, to the fullest extent permitted by Delaware law, each trustee of MSAF
from any and all losses, liabilities or expenses that may be imposed on,
incurred by or asserted against any of them arising out of, in connection with
or related to their performance under the Trust Agreement.
ITEM 21. EXHIBITS
(a) Exhibits
The following is a list of exhibits to this Registration Statement:
<TABLE>
<C> <S>
3.1 Certificate of Trust of MSAF*
3.2 Third Amended and Restated Trust Agreement of MSAF dated as
of March 3, 1998*
4.1 Indenture dated as of March 3, 1998 by and among MSAF and
Bankers Trust Company, as Trustee with respect to the Notes*
4.2 Form of Global Note (included in Exhibit 4.1)
4.3 Registration Rights Agreement dated March 3, 1998 by and
between MSAF and Morgan Stanley & Co. International Limited*
5.1 Opinion of Davis Polk & Wardwell as to the legality of the
securities being registered hereby*
8.1 Opinion of Davis Polk & Wardwell as to certain U.S. Federal
income tax matters (included in Exhibit 5.1)
10.1 Administrative Agency Agreement dated as of March 3, 1998
among MSAF, Cabot Aircraft Services Limited, as
Administrative Agent, Bankers Trust Company, as Security
Trustee and each subsidiary of MSAF*
10.2 Cash Management Agreement dated as of March 3, 1998 among
MSAF, Bankers Trust Company, as Security Trustee and as Cash
Manager and each subsidiary of MSAF*
10.3 Financial Advisory Agreement dated as of March 3, 1998
between MSAF and Morgan Stanley & Co. Incorporated, as
Financial Adviser*
10.4 Custody and Loan Agreement dated as of March 3, 1998 among
MSAF, International Lease Finance Corporation and each
subsidiary of MSAF*
10.5 Loan Agreement dated as of March 3, 1998 between MSAF and
Morgan Stanley, Dean Witter, Discover & Co.*
10.6 Security Trust Agreement dated as of March 3, 1998 among
MSAF, Bankers Trust Company, as Security Trustee, as Cash
Manager and as Trustee, Cabot Aircraft Services Limited, as
Administrative Agent and each subsidiary of MSAF*
10.7 Reference Agency Agreement dated as of March 3, 1998 among
MSAF, Bankers Trust Company, as Reference Agent and as
Trustee and Cabot Aircraft Services Limited, as
Administrative Agent*
10.8 Servicing Agreement dated as of November 10, 1997 among
MSAF, International Lease Finance Corporation, Cabot
Aircraft Services Limited, as Administrative Agent and each
subsidiary of MSAF*
</TABLE>
II-1
<PAGE> 191
<TABLE>
<C> <S>
10.9 Asset Purchase Agreement dated as of November 10, 1997
between MSAF and International Lease Finance Corporation**
21.1 Subsidiaries of MSAF*
23.1 Consent of Davis Polk & Wardwell (included in Exhibit 5.1)
23.2 Consent of Aircraft Information Services, Inc.**
23.3 Consent of BK Associates, Inc.**
23.4 Consent of Airclaims Limited**
23.5 Consent of Deloitte & Touche LLP**
24.1 Trustees' Power of Attorney (included in signature pages)
25.1 Statement of Eligibility of Bankers Trust Company, as
Trustee, under the Indenture to be qualified under the Trust
Indenture Act of 1939*
27.1 Financial Data Schedule*
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery*
99.3 Form of Letters to DTC Participants*
99.4 Form of Letter to Clients and Form of Instruction to
Book-Entry Transfer Participant*
99.5 Appraisal of Aircraft Information Services, Inc. relating to
the Aircraft*
99.6 Appraisal of BK Associates, Inc. relating to the Aircraft*
99.7 Appraisal of Airclaims Limited relating to the Aircraft*
</TABLE>
- ------------------
* Previously filed
** Filed herewith
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11 or 13 of Form S-4, within one business day of receipt of such
request, and to send the incorporated documents by first-class mail or equally
prompt means. This includes information contained in documents filed subsequent
to the effective date of the registration statement throughout the date
responding to the request.
(b) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(c) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each of the registrant's
annual reports pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of any employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 20 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
II-2
<PAGE> 192
whether such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to file, during any period
in which offers or sales are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually, or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
II-3
<PAGE> 193
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant, Morgan
Stanley Aircraft Finance, has duly caused this, Amendment No. 2 to Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in New York, New York, on October 30, 1998.
MORGAN STANLEY AIRCRAFT FINANCE
By: /s/ C. SCOTT PETERSON
------------------------------------
Signatory Trustee
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the following
capacities on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Controlling Trustee October 30, 1998
- -----------------------------------------------------
Karl Essig
* Controlling Trustee October 30, 1998
- -----------------------------------------------------
Alexander C. Frank
* Controlling Trustee October 30, 1998
- -----------------------------------------------------
A. Maurice Mason
* Independent Trustee October 30, 1998
- -----------------------------------------------------
Juan C. O'Callahan
* Independent Trustee October 30, 1998
- -----------------------------------------------------
Alexander C. Bancroft
Wilmington Trust Company Delaware Trustee
By:
Title:
</TABLE>
*By: /s/ C. SCOTT PETERSON
C. Scott Peterson
Attorney-In-Fact
II-4
<PAGE> 194
EXHIBIT INDEX
<TABLE>
<C> <S>
3.1 Certificate of Trust of MSAF*
3.2 Third Amended and Restated Trust Agreement of MSAF dated as
of March 3, 1998*
4.1 Indenture dated as of March 3, 1998 by and among MSAF and
Bankers Trust Company, as Trustee with respect to the Notes*
4.2 Form of Global Note (included in Exhibit 4.1)
4.3 Registration Rights Agreement dated March 3, 1998 by and
between MSAF and Morgan Stanley & Co. International Limited*
5.1 Opinion of Davis Polk & Wardwell as to the legality of the
securities being registered hereby*
8.1 Opinion of Davis Polk & Wardwell as to certain U.S. Federal
income tax matters (included in Exhibit 5.1)
10.1 Administrative Agency Agreement dated as of March 3, 1998
among MSAF, Cabot Aircraft Services Limited, as
Administrative Agent, Bankers Trust Company, as Security
Trustee and each subsidiary of MSAF*
10.2 Cash Management Agreement dated as of March 3, 1998 among
MSAF, Bankers Trust Company, as Security Trustee and as Cash
Manager and each subsidiary of MSAF*
10.3 Financial Advisory Agreement dated as of March 3, 1998
between MSAF and Morgan Stanley & Co. Incorporated, as
Financial Adviser*
10.4 Custody and Loan Agreement dated as of March 3, 1998 among
MSAF, International Lease Finance Corporation and each
subsidiary of MSAF*
10.5 Loan Agreement dated as of March 3, 1998 between MSAF and
Morgan Stanley, Dean Witter, Discover & Co.*
10.6 Security Trust Agreement dated as of March 3, 1998 among
MSAF, Bankers Trust Company, as Security Trustee, as Cash
Manager and as Trustee, Cabot Aircraft Services Limited, as
Administrative Agent and each subsidiary of MSAF*
10.7 Reference Agency Agreement dated as of March 3, 1998 among
MSAF, Bankers Trust Company, as Reference Agent and as
Trustee and Cabot Aircraft Services Limited, as
Administrative Agent*
10.8 Servicing Agreement dated as of November 10, 1997 among
MSAF, International Lease Finance Corporation, Cabot
Aircraft Services Limited, as Administrative Agent and each
subsidiary of MSAF*
10.9 Asset Purchase Agreement dated as of November 10, 1997
between MSAF and International Lease Finance Corporation**
21.1 Subsidiaries of MSAF*
23.1 Consent of Davis Polk & Wardwell (included in Exhibit 5.1)
23.2 Consent of Aircraft Information Services, Inc.**
23.3 Consent of BK Associates, Inc.**
23.4 Consent of Airclaims Limited**
23.5 Consent of Deloitte & Touche LLP**
24.1 Trustees' Power of Attorney (included in signature pages)
25.1 Statement of Eligibility of Bankers Trust Company, as
Trustee, under the Indenture to be qualified under the Trust
Indenture Act of 1939*
27.1 Financial Data Schedule*
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery*
99.3 Form of Letters to DTC Participants*
99.4 Form of Letter to Clients and Form of Instruction to
Book-Entry Transfer Participant*
99.5 Appraisal of Aircraft Information Services, Inc. relating to
the Aircraft*
99.6 Appraisal of BK Associates, Inc. relating to the Aircraft*
99.7 Appraisal of Airclaims Limited relating to the Aircraft*
</TABLE>
- ---------------
* Previously filed
** Filed herewith
<PAGE> 195
ANNEX A
MSAF
QUARTERLY REPORT MAY 31, 1998
All amounts are in thousands of US dollars unless otherwise stated
SELECTED FINANCIAL DATA FOR THE PERIOD MARCH 3, 1998 TO MAY 15, 1998 (NOTE 1)
<TABLE>
<CAPTION>
Actual Prospectus Variance
----------- ------------ --------
<S> <C> <C> <C>
CASH COLLECTIONS
Gross Lease rentals 27,936 31,169 (3,233)
Repossession and other Stress Related costs
(Net of Security Deposits applied) 350 (1,403) 1,752
----------- ------------ ------
NET LEASE RENTALS 28,286 29,766 (1,480)
----------- ------------ ------
Maintenance receipts 3,105 - 3,105
Interest received 771 280 491
Other cash received 149 - 149
----------- ------------ ------
TOTAL CASH COLLECTIONS 32,312 30,046 2,265
----------- ------------ ------
CASH EXPENSES
Cash Operating Expenses
- - Maintenance (1,099) - (1,099)
- - Insurance, re-leasing and other costs (725) (1,091) 366
Subtotal (1,824) (1,091) (733)
----------- ------------ ------
SG&A
- - Servicer fees (847) (1,026) 179
- - Other servicer provider fees and overhead (308) (684) 376
Subtotal (1,155) (1,710) 555
----------- ------------ ------
TOTAL CASH EXPENSES (2,979) (2,801) (178)
----------- ------------ ------
NET CASH COLLECTIONS 29,333 27,245 2,088
----------- ------------ ------
NOTE PAYMENTS
Interest Payments (Net of Swap Effects) 14,352 14,341 10
Principal Payments
A-1 - - -
A-2 14,196 12,118 2,077
B-1 786 786 (0)
C-1 - - -
D-1 - - -
Subtotal 14,982 12,904 2,077
----------- ------------ ------
TOTAL PAYMENTS TO NOTEHOLDERS 29,333 27,245 2,088
----------- ------------ ------
BENEFICIAL INTEREST DISTRIBUTIONS 0 0 0
----------- ------------ ------
INTEREST ON NOTES
Class A Interest but excluding Step-up (8,880,974) (8,995,305)
Class B Interest but excluding Step-up (1,279,978) (1,295,225)
Class C Interest but excluding Step-up (1,380,000) (1,380,000)
Class D Interest but excluding Step-up (1,914,000) (1,914,000)
----------- ------------
(13,454,952) (13,584,531)
----------- ------------
PAYMENTS TO NOTEHOLDERS
Class A Minimum principal payment (3,141,562) (3,141,562)
Class B Minimum principal payment (786,016) (786,016)
Class A Supplemental principal (11,053,944) (8,976,594)
----------- ------------
(14,981,522) (12,904,172)
----------- ------------
</TABLE>
<PAGE> 196
MSAF
QUARTERLY REPORT MAY 31, 1998
All amounts are in thousands of US dollars unless otherwise stated
SELECTED FINANCIAL DATA AS AT MAY 15, 1998
<TABLE>
<CAPTION>
ACTUAL
---------
<S> <C>
CASH
Cash held in Liquidity Reserve Amount 25,000
Aircraft Purchase Account (Note 2) $1,500
Expense Account 1,643
---------
TOTAL CASH AVAILABLE 78,143
---------
ASSET VALUE
Assumed Portfolio Value as at May 15, 1998 (Note 2) 1,107,299
Liquidity Reserve Amount
Of which - Cash 25,000
- Letters of Credit held 41,831
Subtotal 66,831
---------
Less Lessee Security Deposits (21,831)
Subtotal 45,000
---------
TOTAL ASSET VALUE (NOTE 3) 1,152,299
---------
Note Balances
A-1 400,000
A-2 325,804
B-1 99,214
C-1 100,000
D-1 110,000
---------
Total 1,035,018
---------
RATIOS
Loan to Total Asset Value (Note 4)
A-1 62.99%
A-2 62.99%
B-1 71.60%
C-1 80.28%
D-1 89.82%
---------
Interest Coverage Ratio (Note 5)
Class A 3.00
Class B 2.07
Class C 1.79
Class D 1.60
---------
Debt Service Coverage Ratio (Note 6)
Class A 1.60
Class B 1.60
Class C 1.60
Class D 1.60
---------
</TABLE>
NOTES
1 The financial data as at May 15, 1998 includes payments made by MSAF on
May 15, 1998 but only includes receipts up to May 11, 1998 (i.e.the
calculation date for the Note Payment Date on May 15,1998)
2 Does not give effect to MSAF's decision not to acquire the aircraft on lease
to THY and the resulting reduction in the size of the aircraft fleet from 33
to 32 aircraft plus a spare engine.
3 Total Asset Value is equal to Total Assumed Portfolio Value plus Liquidity
Reserve Amount minus Lessee Security Deposits.
4 Loan to Total Asset Value Ratio is equal to the aggregate principal amount of
each subclass of Notes, plus the aggregate principal amount of any other
subclass of Notes that ranks equally or senior in priority of payment,
expressed as a percentage of the Total Asset Value
5 Interest Coverage Ratio is equal to the Net Cash Collections expressed
as a ratio of the interest paid on each subclass of Notes plus the interest
and minimum principal payments paid on each subclass of Notes that rank
senior in priority of payment to the relevant subclass of Notes.
6 Debt Service Ratio is equal to Net Cash Collections expressed as a ratio of
the interest and minimum and scheduled principal payments paid on each
subclass of Notes plus the interest and minimum and scheduled principal
payments paid on each subclass of Notes that ranks equally or senior in
priority of payments with the relevant subclass of Notes.
<PAGE> 197
MSAF
QUARTERLY REPORT MAY 31, 1998
All amounts are in thousands of US dollars unless otherwise stated
Figures as of May 15,1998
<TABLE>
<CAPTION>
Country of Engine
Region (1) Current Lessee Current Lessee Type Configuration
---------- -------------- -------------- ---- -------------
<S> <C> <C> <C> <C> <C>
1 Europe France Air Liberte MD-83 JT8D-219
2 (Developed) France Aeropostale B737-3S3QC CFM 56-3C1
3 Greece Olympic Airways B737-4Q8 CFM 56-3C1
4 Holland KLM engine CF6-80C2B6F
5 Holland Transavia B737-3K2 CFM 56-3C1
6 Portugal TAP B737-382 CFM 56-3B2
7 Sweden Transwede SAFE B737-548 CFM 56-3B1
8 Switzerland Flightlease (3) A310-300 JT9D-7R4E1
9 Switzerland Flightlease (3) A310-300 JT9D-7R4E1
10 UK Britannia /Ansett B767-204ER CF6-80A
11 UK Caledonian A320-200 V2500-A1
12 UK Monarch A320-200 V2500-A1
13 UK Unijet B767-39HER CF6-80C2B6F
14 North America USA Alaska B737-4Q8 CFM 56-3C1
15 (Developed) USA TWA MD-83 JT8D-219
16 USA TWA MD-82 JT8D-217C
17 Pacific (Developed) Hong kong Dragonair A320-200 V2500-A1
18 Europe Hungary Malev F-70 TAY MK620-15
19 and Middle East Hungary Malev F-70 TAY MK620-15
20 (Emerging) Hungary Malev F-70 TAY MK620-15
21 Russia Transaero B757-28A RB211-535-E4-37
22 Turkey Onur Air A321-100 V2530-A5
23 Asia Korea Asiana B767-300 CF6-80C2B6F
24 (Emerging) Taiwan China Airlines A300-600R A300-600R
25 Latin America Brasil Passeredo A310-300 JT9D-7R4E1
26 (Emerging) Brasil Varig B747-341B CF6-80C2
27 Brasil VASP B737-3Q8 CFM-3B2
28 Mexico Aero Mexico B757-2Q8 PW 2037
29 Mexico TAESA B737-4Q8 CFM 56-3B2
30 Other Fiji Air Pacific B767-3X2ER CF6-80C2B4
31 Guyana Guyana B757-28A RB211-535-E4
32 Iceland IcelandAir B737-3S3F CFM 56-3B2
Undelivered
Aircraft
33 China China Hainan (4) B737-3Q8 CFM 56-3C1
34 Turkey THY (5) B737-400 CFM 56-3C1
</TABLE>
<TABLE>
<CAPTION>
Serial Date of Adjusted Base % of IAV
Number Manufacture Value (2)
-------- ----------- -------------- --------
<S> <C> <C> <C> <C>
1 49822 Dec-88 20,097 1.8%
2 23788 May-87 21,973 2.0%
3 25371 Jan-92 28,263 2.5%
4 704279 Jun-95 6,037 0.5%
5 27635 May-95 32,053 2.9%
6 25161 Feb-92 26,310 2.4%
7 25165 Apr-93 21,973 2.0%
8 409 Nov-85 26,310 2.4%
9 410 Nov-85 26,273 2.4%
10 23807 Aug-87 39,067 3.5%
11 393 Feb-93 32,310 2.9%
12 279 Feb-92 32,260 2.9%
13 26256 Apr-93 69,780 6.3%
14 25104 May-93 29,713 2.7%
15 49824 Mar-89 21,627 1.9%
16 49825 Mar-89 19,010 1.7%
17 414 May-93 32,520 2.9%
18 11564 Dec-95 17,530 1.6%
19 11565 Feb-96 18,423 1.7%
20 11569 Mar-96 18,533 1.7%
21 24367 Feb-89 37,090 3.3%
22 597 May-96 47,030 4.2%
23 24798 Oct-90 57,627 5.2%
24 555 Mar-90 54,377 4.9%
25 437 Nov-86 32,543 2.9%
26 24106 Apr-88 67,953 6.1%
27 24299 Nov-88 22,973 2.1%
28 26272 Mar-94 44,993 4.0%
29 24234 Oct-88 23,527 2.1%
30 26260 Sep-94 71,727 6.4%
31 24260 Dec-88 36,017 3.2%
32 23811 Oct-87 22,697 2.0%
33 26295 Dec-93 28,073 2.5%
34 25372 May-92 28,820 2.6%
==========
Total 1,115,510 100.0%
==========
</TABLE>
(1) Regions are defined according to MSCI designations.
(2) Most recent Appraised Value is as of September 30, 1997
(3) Flight lease is 100% owned by Swissair
(4) The aircraft on lease to China Hainan was subsequently acquired by MSAF
on May 26, 1998.
(5) The aircraft on lease to THY was not acquired by MSAF and instead MSAF
has decided to distribute that portion of the proceeds from the Offering
relating to the THY aircraft to Noteholders.
<PAGE> 198
MORGAN STANLEY AIRCRAFT FINANCE
MANAGEMENT DISCUSSION & ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BACKGROUND
On March 3, 1998, Morgan Stanley Aircraft Finance ("MSAF"), a Delaware
business trust, issued $1,050 million of Notes in five subclasses- Subclass A-1,
Subclass A-2, Subclass B-1, Subclass C-1 and Subclass D-1 (the "NOTES"). The
Notes were issued in connection with MSAF's agreement to acquire 33 aircraft
plus a spare engine with a total appraised value at September 30, 1997 of
$1,115.51 million from International Lease Finance Corporation ("ILFC").
As of May 15, 1998, all but two of the 33 aircraft had been acquired by
MSAF. The first of the two undelivered aircraft was a B737-400 on lease to the
Turkish national carrier, THY, with an appraised value of $28.82 million.
Pursuant to the indenture relating to the Notes (the "INDENTURE"), MSAF has
decided not to substitute this aircraft but to distribute to Noteholders that
portion of the proceeds from the offering of the Notes relating to this aircraft
on the next payment date, June 15, 1998. On May 26, 1998, the second undelivered
aircraft which is on lease to China Hainan was acquired by MSAF. As a result,
the overall size of the aircraft fleet is now 32 aircraft plus a spare engine
with a revised total appraised value at September 30, 1997 of $1,086.69. As of
May 15, 1998, all 32 aircraft plus the engine were subject to leases with 29
lessees in 20 countries. Schedule A attached shows the updated portfolio as of
May 15, 1998.
The assets of MSAF consist of 100% of the beneficial interest in MSA I
and 100% of the share capital of SPC-5 Inc., Greenfly (Ireland) Limited and
Redfly (UK) Limited. MSA I currently owns 31 aircraft plus the spare engine and
SPC-5 Inc. currently owns one aircraft. The discussion and analysis which
follows is based on the results of MSAF and its subsidiaries as a single entity
(collectively the "MSAF GROUP").
GENERAL
MSAF Group is a special purpose vehicle which owns aircraft subject to
operating leases. MSAF may also make aircraft acquisitions and aircraft sales.
MSAF intends to acquire additional commercial passenger or freight aircraft from
various sellers and will finance the acquisition of such aircraft by issuing
<PAGE> 199
additional notes. Any acquisition of further aircraft will be subject to certain
confirmations with respect to the Notes from the Rating Agencies and compliance
with certain operating covenants of MSAF set out in the Indenture.
MSAF's cash receipts and disbursements are determined, in part, by the
overall economic condition of the operating leasing market. The operating
leasing market, in turn, is affected by various cyclical factors including
interest rates, the availability of credit, fuel costs and general and regional
economic conditions affecting lessee operations and trading; manufacturer
production levels; passenger demand; retirement and obsolescence of aircraft
models; manufacturers exiting or entering the market or ceasing to produce
aircraft types; re-introduction into service of aircraft previously in storage;
governmental regulation; and air traffic control infrastructure constraints.
MSAF's ability to compete against other lessors is determined, in part,
by (i) the composition of its fleet in terms of mix, relative age and popularity
of the aircraft types; (ii) operating restrictions imposed by the Indenture, and
(iii) the ability of other lessors, who may possess substantially greater
financial resources, to offer leases on more favorable terms than MSAF.
This quarterly report for the three months ended May 31, 1998 presents
information for the period from March 3, 1998 to the Note Payment Date on May
15, 1998. Future quarterly reports will discuss Note Payment Periods from but
excluding the May Payment Date to and including the August Payment Date, from
but excluding the November Payment Date to and including the February Payment
Date and from but excluding the February Payment Date to and including the May
Payment Date. In addition, within 90 days of November 30 of each year, MSAF will
prepare and distribute an annual report relating to the twelve Note Payment
Periods ending on each November Payment Date.
CASHFLOW PERFORMANCE RELATIVE TO THE ASSUMPTIONS
The February 20, 1998 Offering Memorandum (the "OFFERING MEMORANDUM")
contained assumptions in respect of MSAF's future cashflows and cash expenses
(the "ASSUMPTIONS"). In the period from March 3, 1998 to May 15, 1998, MSAF
generated approximately $2.1 million in net cash collections in excess of the
Assumptions, principally due to higher net
2
<PAGE> 200
maintenance revenues and a positive variance on repossession costs
after giving effect to the application of lessee security deposits.
CASH COLLECTIONS
"Cash Collections" comprise lease rental payments, maintenance reserve
payments by lessees, cash interest paid on MSAF's cash balances and other cash
received (including principally default interest and late charges with respect
to one lessee). The Offering Memorandum assumed Cash Collections for the period
from March 3, 1998 to May 15, 1998 of $30.0 million. Total Cash Collections
achieved in this period were $32.3 million, a positive difference of $2.3
million. This difference is due to a combination of factors set out below.
Gross lease rentals. Cash Collections relating to gross lease rentals
for the period from March 3, 1998 to May 15, 1998 amounted to $27.9 million or
approximately $3.2 million less than the $31.1 million assumed in the Offering
Memorandum. The variance is due mainly to the non-receipt of lease rentals from
the undelivered aircraft on lease to THY and China Hainan ($1.7 million). Also,
there was a loss in lease rental revenues caused by three aircraft on ground
("AOG") ($1.5 million). These three aircraft had been repossessed from Western
Pacific Airlines and Pan Am Airlines (formerly Carnival) but were all subject to
signed lease agreements as of May 15, 1998. The three aircraft were placed on
lease with Olympic Airways, the Greek national carrier, VASP, and TAESA. Part of
the AOG period was spent performing maintenance work on all three aircraft prior
to re-leasing.
Repossession and other stress related costs (net of security deposits
applied). Repossession and other stress related costs (net of security deposits
applied) for the period from March 3, 1998 to May 15, 1998 amounted to a cash
inflow of $0.4 million, compared with the outflow of $1.4 million in assumed
stress related costs for this period because actual costs associated with
increased repossessions were more than offset by the application of lessee
security deposits. Two of the three aircraft classified as AOG during the March
3 to May 15, 1998 period were repossessed prematurely from a US lessee in April
1998 and were AOG for a period of 36 and 42 days, respectively. A third
aircraft, which was listed as "Available for Lease" in the Offering Memorandum
for the Notes, was re-leased following a period of 59 days on the ground,
measured from the closing date of March 3, 1998. As of May 15, 1998, all three
aircraft were subject to signed lease agreements with new lessees. Additional
maintenance work was
3
<PAGE> 201
performed on the three aircraft which were repossessed. This work included for
certain of the aircraft a "C-check" and the installation of new landing gear.
The time required for the maintenance work also extended the AOG time.
Net lease rentals. The Offering Memorandum assumes a 4.5% reduction in
gross lease rentals due to certain stress related costs (repossession costs, AOG
costs and arrearages) ("NET LEASE RENTALS"). For the period from March 3, 1998
to May 15, 1998, assumed Net Lease Rentals were $29.8 million. Actual Net Lease
Rentals for the period were $28.3 million, $1.5 million less than the
Assumptions principally because of lower than assumed gross lease rentals, which
were partially offset by lower than assumed repossession and other stress
related costs (net of lessee security deposits applied).
Maintenance receipts. In the period from March 3, 1998 to May 15, 1998,
maintenance receipts were $3.1 million, exceeding maintenance disbursements of
$1.1 million by $2.0 million. The Offering Memorandum assumes that maintenance
receipts will equal maintenance disbursements over the term of the Notes, and
therefore, maintenance receipts and maintenance disbursements are both assumed
to be zero in each Note Payment Period. In any particular Note Payment Period,
however, there will be actual maintenance receipts and disbursements and it is
unlikely that maintenance receipts will equal maintenance disbursements in any
such period.
Interest received. Actual interest received for the period from March
3, 1998 to May 15, 1998 was $0.8 million compared to $0.3 million assumed in the
Offering Memorandum for the same period. The difference is due to a combination
of two offsetting factors. First, actual interest received includes interest
received on the Aircraft Purchase Account and Expense Account and interim
balances in the Collection Account which are not included in the Offering
Memorandum assumptions. Second and partially offsetting the impact of these
higher cash balances on which interest has been earned, the Offering Memorandum
assumed a reinvestment rate of 5.75% while the average reinvestment rate to date
has been approximately 5.32%. Actual interest received is expected to decline
going forward as the cash in the Aircraft Purchase Account has now been used as
part consideration for the China Hainan aircraft and the balance has been
refunded to investors in respect of the undelivered THY aircraft.
Other cash received. Other cash received for the period from March 3,
4
<PAGE> 202
1998 to May 15, 1998 was approximately $0.1 million or $0.1 million more than
assumed in the Offering Memorandum. Other cash received consists principally of
default interest and late charges on lease rental arrears with respect to one
lessee.
OPERATING EXPENSES
"Operating Expenses" includes all fees, costs or expenses paid by any
MSAF Group member in the course of the business activities permitted to be
conducted by it under the Indenture. The cash outflows in respect of Operating
Expenses shown in the Offering Memorandum were assumed to be $2.8 million for
the period from March 3, 1998 to May 15, 1998. Actual Operating Expenses paid in
this period were approximately $3.0 million, a negative variance of $0.2
million. This variance is due to a combination of factors set out below.
OPERATING EXPENSES
Maintenance. Maintenance disbursements in the period from March 3, 1998
to May 15, 1998 were approximately $1.1 million and were exceeded by maintenance
receipts of $3.1 million. As discussed above, the Offering Memorandum assumes
that maintenance receipts will equal maintenance disbursements over the term of
the Notes; however, it is unlikely that maintenance receipts will equal
maintenance disbursements in any particular Note Payment Period. In the next six
months it is likely that maintenance disbursements will increase due to
anticipated engine overhauls.
Insurance, re-leasing and other costs. Insurance, re-leasing and other
costs incurred were approximately $0.7 million from March 3, 1998 to May 15,
1998, which was $0.4 million below the assumed costs for the period, principally
due to lower upfront insurance premiums. The $0.7 million costs include $0.3
million which was incurred and paid in the period and $0.4 million which was
transferred to the Expense Account for expenses expected to become payable over
the next quarter. It is expected that re-leasing costs will be approximately
$1.3 million over the next quarter due to certain aircraft modification payments
expected to be reimbursed to lessees and costs relating to reconfiguring
aircraft for new lessees upon redelivery.
5
<PAGE> 203
SELLING, GENERAL AND ADMINISTRATIVE
Servicer fees. Fees paid to ILFC, as Servicer, during the period from
March 3, 1998 to May 15, 1998 amounted to $0.8 million, which is $0.2 million
lower than the assumed cost of $1 million for the period. A significant portion
of the Servicer fees are calculated as a percent of rental revenue actually
received. The slightly lower fees resulted from the lower rental revenue caused
by AOGs and undelivered aircraft.
Other service provider fees and overhead. Other service provider fees
and overhead amounted to $0.3 million for the period from March 3, 1998 to May
15, 1998, $0.4 million below the assumed amount of $0.7 million for the period
principally due to a lower than assumed Administrative Agent's fee because of
lower rental revenue caused by AOGs and undelivered aircraft.
NOTE PAYMENTS
Interest payments. Actual interest payments to Noteholders net of swap
effects have been flat as compared with assumed interest payments net of swap
effects for the period from March 3, 1998 to May 15, 1998. Lower interest
payments caused by lower than assumed interest rates and greater than assumed
principal distributions on the A-2 Notes in the March 3, 1998 to May 15, 1998
period were offset by increased swap payments.
Principal payments. Total principal distributions in the period from
March 3, 1998 to May 15, 1998 were $15.0 million, an excess of $2.1 million over
assumed total debt amortization, reflecting the higher than assumed net cash
collections as discussed above. The principal amortization payments were made
with respect to the A-2 Notes.
OTHER FINANCIAL DATA
CASH
Cash held at May 15, 1998 was $78.1 million. Of this amount, $25
million represents the cash portion of the Liquidity Reserve Amount (which is
used as a source of liquidity for, among other things, maintenance obligations,
security deposit return obligations, cash operating expenses and contingent
liabilities) and
6
<PAGE> 204
$51.5 million represents amounts held in the Aircraft Purchase
Account at May 15, 1998 which, as discussed above, have now been applied or
distributed to Noteholders.
In addition to the $25 million cash portion at May 15, 1998, the
Liquidity Reserve Amount also contained $41.8 million of undrawn credit and
liquidity facilities from Morgan Stanley Dean Witter & Co. and ILFC. As of May
31, 1998, ILFC's short term unsecured debt was rated A-1+ by Standard & Poor's,
and, accordingly, the letter of credit previously issued by the Bank of Montreal
to support ILFC's obligations under the ILFC Facility was canceled.
Finally, the amount of cash held reflects amounts in respect of
expenses and costs that are not regular, monthly recurring expenses, but are
anticipated to become due and payable in the near future. At May 15, 1998, the
balance in the Expense Account was $1.6 million, largely to fund likely
maintenance and re-leasing expenses expected to fall due in the next quarter.
AIRCRAFT VALUES
At September 30, 1997, the total appraised value of the 33 aircraft and
the spare engine that MSAF originally agreed to acquire from ILFC was $1,115.5
million and, applying the declining value assumption set out in the terms of the
Notes, $1,107.3 million at May 15, 1998. Giving effect to the non-delivery of
the THY aircraft and applying the declining value assumption, the total
appraised value of MSAF Group's 32 aircraft and spare engine was $1,078.7
million at May 15, 1998.
Under the terms of the Notes, MSAF is obliged to obtain annual
appraisals of the Base Value of each aircraft from three independent appraisers
by October 31 of each year. Generally, where the appraisals indicate a Base
Value decline significantly in excess of the value decline assumed under the
terms of the Notes, excess cash flow is redirected to the extent required to the
Class A Notes via the Class A Scheduled Principal Payment Amount. The most
recent appraisals occurred in September 30, 1997 and the next are due to occur
no later than October 31, 1998.
A-D NOTE BALANCE
As of May 15, 1998, the aggregate amount of Class A-D Notes outstanding
was $1,035.0 million, approximately $2 million lower than assumed
7
<PAGE> 205
due to higher than assumed principal repayments with respect to the
Class A-2 Notes.
DEVELOPMENTS
LESSEE DIFFICULTIES
During the period from March 3, 1998 to May 15, 1998 there have been
difficulties with respect to one Lessee in the Europe/Middle East region,
representing approximately 4.2% of the adjusted appraised value of the portfolio
as of May 15, 1998. With respect to this lessee, lease rentals were restructured
in March 1998 and the lessee is now in arrears with respect to the restructured
payment amounts. Another lessee has been publicly reported to be having
liquidity difficulties stemming from both withdrawal of state aid and strikes,
although it is not currently in arrears.
B737 INSPECTIONS
On May 14, 1998, the Federal Aviation Administration (FAA) issued a
directive requiring B737s with between 30,000 and 40,000 hours of flying time to
be inspected within 45 days for chafed wiring in conduits that run through the
plane's fuel tank that could cause a fire or explosion. MSAF owns 10
B737-300/400/500s. All these aircraft have below 30,000 flight hours and will
not be inspected under the current directive. MSAF does not believe the cost to
comply with this directive in the future will be significant.
B747 INSPECTIONS
On May 25, 1998, Boeing issued a Service Bulletin recommending
inspection of all B747 center fuel tanks to check wiring and grounding straps,
pumps, fuel lines and fittings and other equipment and installation of a "flame
arrestor" for a scavenge pump. MSAF owns one B747-300 on lease to VARIG and does
not believe the cost to comply with this Service Bulletin will be significant.
ASIA
During the period from March 3, 1998 to May 15, 1998, the economies of
Indonesia, Thailand and South Korea continued to be severely affected by
economic and financial difficulties. Currently, MSAF leases 12.6% of its fleet
in Asia (5.2% in South Korea, 4.9% in Taiwan and 2.5% in China) and 9.3% in
8
<PAGE> 206
Pacific and Other regions (6.4% in Fiji and 2.9% in Hong Kong) by assumed
appraised value as of May 15, 1998. None of these lessees are currently in
arrears although severe financial difficulties have been reported for certain
other air carriers in the region related to the economic instability in certain
countries in the region.
EXCHANGE OFFER
MSAF has recently filed a registration statement with the Securities
and Exchange Commission (the "SEC") with respect to an exchange offer for
exchange notes with terms virtually identical to the Notes.
9
<PAGE> 207
ANNEX B
MSAF
QUARTERLY REPORT AUGUST 31, 1998
All amounts are in thousands of US dollars unless otherwise stated
SELECTED FINANCIAL DATA FOR THE PERIOD
MAY 16, 1998 TO AUGUST 17, 1998 (NOTE 1)
<TABLE>
<CAPTION>
% of Prospectus Gross Revenues
Actual Prospectus Variance Actual Prospectus
------- ---------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
CASH COLLECTIONS
Gross Lease rentals 31,296 32,968 (1,672) 94.9% 100.0%
Repossession and other Stress Related costs
(Net of Security Deposits applied) (635) (1,484) 848 -1.9% -4.5%
------ --------- -------
NET LEASE RENTALS 30,661 31,484 (823) 93.0% 95.5%
- ----------------- ------ --------- ------- --------- ----------
Maintenance receipts (Note 2) 4,520 - 4,520 13.7% 0.0%
Interest received 754 350 404 2.3% 1.1%
Other Cash Received (Note 3) 27,143 - 27,143 82.3% 0.0%
TOTAL CASH COLLECTIONS (NOTE 3) 63,078 31,834 31,243 191.3% 96.6%
- ------------------------------- ------ --------- ------- --------- ----------
CASH EXPENSES
Cash Operating Expenses
- - Maintenance (Note 2) (1,649) - (1,649) -5.0% 0.0%
- - Insurance, re-leasing and other costs (749) (1,154) 405 -2.3% -3.5%
Subtotal (2,398) (1,154) (1,244) -7.3% -3.5%
------ --------- ------- --------- ----------
SG&A
- - Servicer fees (917) (1,159) 242 -2.8% -3.5%
- - Other servicer provider fees and overhead (525) (834) 310 -1.6% -2.5%
Subtotal (1,442) (1,993) 551 -4.4% -6.0%
------ --------- ------- --------- ----------
TOTAL CASH EXPENSES (3,840) (3,147) (693) -11.6% -9.5%
- ------------------- ------ --------- ------- --------- ----------
NET CASH COLLECTIONS (NOTE 3) 59,238 28,687 30,550 179.7% 87.0%
- ----------------------------- ------ --------- ------- --------- ----------
NOTE PAYMENTS
Interest Payments (Net of Swap Effects) 17,787 17,733 53
Principal Payments
A-1 - - -
A-2 38,027 10,024 28,003
B-1 3,424 930 2,494
C-1 - -
D-1 - -
Subtotal 41,451 10,954 30,497
------ --------- -------
TOTAL PAYMENTS TO NOTEHOLDERS 59,238 28,687 30,550
- ----------------------------- ------ --------- -------
BENEFICIAL INTEREST DISTRIBUTIONS 0 0 0
- --------------------------------- ------ --------- -------
</TABLE>
<PAGE> 208
MSAF
QUARTERLY REPORT AUGUST 31, 1998
All amounts are in thousands of US dollars unless otherwise stated
SELECTED FINANCIAL DATA AS AT AUGUST 17, 1998
<TABLE>
<CAPTION> ACTUAL
<S> <C>
---------
CASH
Cash held in Liquidity Reserve Amount 25,000
Expense Account 1,954
TOTAL CASH AVAILABLE 26,954
---------
ASSET VALUE
Assumed Portfolio Value as at August 17, 1998 (Note 4) 1,069,083
Liquidity Reserve Amount
Of which - Cash 25,000
- Letters of Credit held 40,766
Subtotal 65,766
---------
Less Lessee Security Deposits (20,766)
Subtotal 45,000
TOTAL ASSET VALUE (NOTE 5) 1,114,083
---------
Note Balances as at August 17, 1998
A-1 400,000
A-2 287,777
B-1 95,790
C-1 100,000
D-1 110,000
Total 993,567
---------
RATIOS
Loan to Total Asset Value as at August 17, 1998 (Note 6)
A-1 61.73%
A-2 61.73%
B-1 70.33%
C-1 79.31%
D-1 89.18%
---------
Interest Coverage Ratio for the quarter
ended August 17, 1998 (Note 7)
Class A 4.95
Class B 2.31
Class C 1.92
Class D 1.78
---------
Debt Coverage Ratio for the quarter
ended August 17, 1998 (Note 8)
Class A 1.78
Class B 1.78
Class C 1.78
Class D 1.78
---------
</TABLE>
NOTES
1 The financial data as at August 17, 1998 includes payments made by MSAF
on August 17, 1998 but only includes receipts up to August 11, 1998 (i.e.
the calculation date for the Note Payment Date on August 17,1998)
2 The Offering Memorandum assumes that maintenance receipts will equal
maintenance disbursements over the term of the Notes, and therefore
maintenance receipts and maintenance disbursements are both assumed to be
zero in each Payment Period.
3 Reflects MSAF's decision not to acquire the aircraft on lease to THY and
instead to distribute to Noteholders that portion of the proceeds from the
Offering of the Notes relating to this aircraft on June 15, 1998 pursuant to
the priority of payments set forth in the Indenture
4 Reflects MSAF's decision not to acquire the aircraft on lease to THY and the
resulting reduction in the size of the aircraft fleet from 33 to 32 aircraft
plus a spare engine.
5 Total Asset Value is equal to Total Assumed Portfolio Value plus Liquidity
Reserve Amount minus Lessee Security Deposits.
6 Loan to Total Asset Value Ratio is equal to the aggregate principal amount of
each subclass of Notes, plus the aggregate principal amount of any other
subclass of Notes that ranks equally or senior in priority of payment,
expressed as a percentage of Total Asset Value.
7 Interest Coverage Ratio is equal to Net Cash Collections expressed as a ratio
of the interest payable on each subclass of Notes plus the interest and
minimum principal payments payable on each subclass of Notes that rank senior
in priority of payment to the relevant subclass of Notes.
8 Debt Service Ratio is equal to Net Cash Collections expressed as a ratio of
the interest and minimum and scheduled principal payments payable on each
subclass of Notes plus the interest and minimum and scheduled principal
payments payable on each subclass of Notes that ranks equally with or senior
to the relevant subclass of Notes in the priority of payments.
<PAGE> 209
MSAF
QUARTERLY REPORT AUGUST 31, 1998
All amounts are in thousands of US dollars unless otherwise stated
COMPARISON OF ACTUAL CASH COLLECTIONS VERSUS EXPECTED
SELECTED FINANCIAL DATA FOR THE PERIOD MARCH 3, 1998 TO AUGUST 17, 1998
<TABLE>
<CAPTION>
% of Prospectus
Gross Revenues
Actual Prospectus Actual Prospectus
<S> <C> <C> <C> <C>
------- ---------- ------ ----------
CASH COLLECTIONS
Gross Lease rentals 59,232 64,136 92.4% 100.0%
Repossession and other Stress Related costs
(Net of Security Deposits applied) (286) (2,886) -0.4% -4.5%
NET LEASE RENTALS 58,947 61,250 91.9% 95.5%
------- ---------- ------ ---------
Maintenance receipts 7,625 - 11.9% 0. 0%
Interest received 1,525 631 2.4% 1 .0%
Other Cash Received 27,292 - 42.6% 0. 0%
TOTAL CASH COLLECTIONS 95,389 61,881 148.7% 96 .5%
------- ---------- ------ ---------
CASH EXPENSES
Cash Operating Expenses
- - Maintenance (2,748) - -4.3% 0. 0%
- - Insurance, re-leasing and other costs (1,473) (2,245) -2.3% - 3.5%
Subtotal (4,221) (2,245) -6.6% -3 .5%
------- ---------- ------ ----------
SG&A
- - Servicer fees (1,765) (2,185) -2.8% -3.4%
- - Other servicer provider fees and overhead (832) (1,518 -1.3 -2.4%
Subtotal (2,597) (3,703 -4.0% -5.8%
------- ---------- ------ ----------
TOTAL CASH EXPENSES (6,818) (5,948) -10.6% -9.3%
------- ---------- ------ ----------
NET CASH COLLECTIONS 88,571 55,933 138.1% 87.2%
------- ---------- ------ ----------
</TABLE>
<PAGE> 210
SCHEDULE A
MSAF Group Portfolio Analysis
All amounts in thousands of US dollars
unless otherwise stated
FIGURES AS OF AUGUST 17,1998
<TABLE>
<CAPTION>
Country of Engine Serial Date of Adjusted Base
Region (1) Current Lessee Current Lessee Type Configuration Number Manufacture Value (2)
---------- -------------- -------------- ---- ------------------ --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Europe France Air Liberte MD-83 JT8D-219 49822 Dec-88 20,097
2 (Developed) France Aeropostale B737-3S3QC CFM 56-3C1 23788 May-87 21,973
3 Greece OlympicAirways B737-4Q8 CFM 56-3C1 25371 Jan-92 28,263
4 Holland KLM engine CF6-80C2B6F 704279 Jun-95 6,037
5 Holland Transavia B737-3K2 CFM 56-3C1 27635 May-95 32,053
6 Portugal TAP B737-382 CFM 56-3B2 25161 Feb-92 26,310
7 Sweden Transwede SAFE B737-548 CFM 56-3B1 25165 Apr-93 21,973
8 Switzerland Flightlease (3) A310-300 JT9D-7R4E1 409 Nov-85 26,310
9 Switzerland Flightlease (3) A310-300 JT9D-7R4E1 410 Nov-85 26,273
10 UK Britannia /Ansett B767-204ER CF6-80A 23807 Aug-87 39,067
11 UK Caledonian A320-200 V2500-A1 393 Feb-93 32,310
12 UK Monarch A320-200 V2500-A1 279 Feb-92 32,260
13 UK Unijet B767-39HER CF6-80C2B6F 26256 Apr-93 69,780
14 Ireland TransAer A320-200 V2500-A1 414 May-93 32,520
15 North America USA Alaska B737-4Q8 CFM 56-3C1 25104 May-93 29,713
16 (Developed) USA TWA MD-83 JT8D-219 49824 Mar-89 21,627
17 USA TWA MD-82 JT8D-217C 49825 Mar-89 19,010
18 Europe Hungary Malev F-70 TAY MK620-15 11564 Dec-95 17,530
19 and Middle East Hungary Malev F-70 TAY MK620-15 11565 Feb-96 18,423
20 (Emerging) Hungary Malev F-70 TAY MK620-15 11569 Mar-96 18,533
21 Russia Transaero B757-28A RB211-535-E4-37 24367 Feb-89 37,090
22 Turkey Onur Air A321-100 V2530-A5 597 May-96 47,030
23 Asia Korea Asiana B767-300 CF6-80C2B6F 24798 Oct-90 57,627
24 (Emerging) Taiwan China Airlines A300-600R A300-600R 555 Mar-90 54,377
25 China China Hainan B737-3Q8 CFM 56-3C1 26295 Dec-93 28,073
26 Latin America Brasil Passeredo A310-300 JT9D-7R4E1 437 Nov-86 32,543
27 (Emerging) Brasil Varig B747-341B CF6-80C2 24106 Apr-88 67,953
28 Brasil VASP B737-3Q8 CFM-3B2 24299 Nov-88 22,973
29 Mexico Aero Mexico B757-2Q8 PW 2037 26272 Mar-94 44,993
30 Mexico TAESA B737-4Q8 CFM 56-3B2 24234 Oct-88 23,527
31 Other Fiji Air Pacific B767-3X2ER CF6-80C2B4 26260 Sep-94 71,727
32 Guyana Guyana B757-28A RB211-535-E4 24260 Dec-88 36,017
33 Iceland IcelandAir B737-3S3F CFM 56-3B2 23811 Oct-87 22,697
----------
Total 1,086,690
==========
</TABLE>
- ----------------
(1) Regions are defined according to MSCI designations.
(2) Most recent Appraised Value is as of September 30, 1997
(3) Flight lease is 100% owned by Swissair
<PAGE> 211
MORGAN STANLEY AIRCRAFT FINANCE
MANAGEMENT DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BACKGROUND
On March 3, 1998, Morgan Stanley Aircraft Finance ("MSAF"), a Delaware
business trust, issued $1,050 million of Notes in five subclasses- Subclass A-1,
Subclass A-2, Subclass B-1, Subclass C-1 and Subclass D-1 (the "Notes"). The
Notes were issued in connection with MSAF's agreement to acquire 33 aircraft
plus a spare engine with a total appraised value at September 30, 1997 of
$1,115.51 million from International Lease Finance Corporation ("ILFC").
As of August 17, 1998, all but one of the 33 aircraft had been acquired
by MSAF. The undelivered aircraft was a B737-400 on lease to the Turkish
national carrier, THY, with an appraised value of $28.82 million. Pursuant to
the indenture relating to the Notes (the "INDENTURE"), MSAF decided not to
substitute this aircraft but to distribute to Noteholders $26.0 million which
represents that portion of the proceeds from the offering of the Notes relating
to this aircraft on June 15, 1998. As a result, the overall size of the aircraft
fleet is now 32 aircraft plus a spare engine with a revised total appraised
value at September 30, 1997 of $1,086.7 million. Applying the declining value
assumption, the total appraised value was $1,069.1 million at August 17, 1998.
All 32 aircraft plus the engine were subject to leases with 29 lessees in 20
countries as of August 17, 1998 as shown in Schedule A attached.
The assets of MSAF consist principally of 100% of the beneficial
interest in MSA I and 100% of the share capital of SPC-5 Inc., Greenfly
(Ireland) Limited and Redfly (UK) Limited. MSA I currently owns 31 aircraft plus
the spare engine and SPC-5 Inc. currently owns one aircraft. The discussion and
analysis which follows is based on the results of MSAF and its subsidiaries as a
single entity (collectively the "MSAF GROUP").
GENERAL
MSAF Group is a special purpose vehicle which owns aircraft subject to
operating leases and, in certain instances, a finance lease. MSAF may also make
aircraft acquisitions and aircraft sales. MSAF intends to acquire additional
commercial passenger or freight aircraft from various sellers and will finance
the
<PAGE> 212
acquisition of such aircraft by issuing additional notes. Any acquisition of
further aircraft will be subject to certain confirmations with respect to the
Notes from the Rating Agencies and compliance with certain operating covenants
of MSAF set out in the Indenture.
MSAF's cash receipts and disbursements are determined, in part, by the
overall economic condition of the operating leasing market. The operating
leasing market, in turn, is affected by various cyclical factors including
interest rates, the availability of credit, fuel costs and general and regional
economic conditions affecting lessee operations and trading; manufacturer
production levels; passenger demand; retirement and obsolescence of aircraft
models; manufacturers exiting or entering the market or ceasing to produce
aircraft types; re-introduction into service of aircraft previously in storage;
governmental regulation; and air traffic control infrastructure constraints such
as limitations on the number of landing slots.
MSAF's ability to compete against other lessors is determined, in part,
by (i) the composition of its fleet in terms of mix, relative age and popularity
of the aircraft types; (ii) operating restrictions imposed by the Indenture, and
(iii) the ability of other lessors, who may possess substantially greater
financial resources, to offer leases on more favorable terms than MSAF.
This quarterly report for the three months ended August 31, 1998
presents information for the period from and including May 16, 1998 to and
including the Note Payment Date on August 17, 1998. The financial data includes
payments made by MSAF on August 17, 1998 but only includes receipts up to August
11, 1998 which was the calculation date for the Note Payment date on August 17,
1998.
CASHFLOW PERFORMANCE RELATIVE TO THE ASSUMPTIONS
The February 20, 1998 Offering Memorandum (the "OFFERING MEMORANDUM")
contained assumptions in respect of MSAF's future cashflows and cash expenses
(the "ASSUMPTIONS"). In the period from May 16, 1998 to August 17, 1998, MSAF
generated approximately $30.6 million in net cash collections in excess of the
Assumptions, principally due to an exceptional item (described in Other cash
received) and higher net maintenance revenues. Without giving effect to the
exceptional item, net cash collections in excess of the
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Assumptions for the period would have been approximately $3.4 million.
CASH COLLECTIONS
"Cash Collections" comprise lease rental payments, maintenance reserve
payments by lessees, cash interest paid on MSAF's cash balances and in the
period ended August 17, 1998 other cash received in respect of the non-delivery
of the THY aircraft (including release of Note proceeds and breakage costs). The
Offering Memorandum assumed Cash Collections for the period from May 16, 1998 to
August 17, 1998 of $31.9 million. Total Cash Collections achieved in this period
were $63.1 million, a positive difference of $31.2 million. This difference is
due to a combination of factors set out below.
Gross lease rentals. Cash Collections relating to gross lease rentals
for the period from May 16, 1998 to August 17, 1998 amounted to $31.3 million or
approximately $1.7 million less than the $33.0 million assumed in the Offering
Memorandum. The variance is due to the non-receipt of lease rentals from the
undelivered aircraft on lease to THY ($1.0 million) and lessee arrears for the
quarter ($0.7 million).
Repossession and other stress related costs (net of security deposits
applied). Repossession and other stress related costs (net of security deposits
applied) for the period from May 16, 1998 to August 17, 1998 amounted to $0.6
million, compared to $1.5 million in assumed stress related costs for this
period. The repossession costs incurred relate to three aircraft which were
repossessed in the previous quarter. As of May 15, 1998, all three aircraft were
subject to signed lease agreements with new lessees. There were no repossessions
in the quarter ended August 31, 1998. The costs were almost entirely in respect
of maintenance work required to restore the three aircraft to condition
acceptable for delivery to new lessees.
Net lease rentals. The Offering Memorandum assumes a 4.5% reduction in
gross lease rentals due to certain stress related costs (repossession costs, AOG
costs and arrearages) ("NET LEASE RENTALS"). For the period from May 16, 1998 to
August 17, 1998, assumed Net Lease Rentals were $31.5 million. Actual Net Lease
Rentals for the period were $30.7 million, $0.8 million less than the
Assumptions principally because of lower than assumed gross lease rentals, which
were partially offset by lower than assumed repossession and other stress
related costs.
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Maintenance receipts. In the period from May 16, 1998 to August 17,
1998, maintenance receipts were $4.5 million, exceeding maintenance
disbursements of $1.6 million by $2.9 million. The Offering Memorandum assumes
that maintenance receipts will equal maintenance disbursements over the term of
the Notes, and therefore, maintenance receipts and maintenance disbursements are
both assumed to be zero in each Note Payment Period. In any particular Note
Payment Period, however, there will be actual maintenance receipts and
disbursements and it is unlikely that maintenance receipts will equal
maintenance disbursements in any such period.
Interest received. Actual interest received for the period from May 16,
1998 to August 17, 1998 was $0.8 million compared to $0.4 million assumed in the
Offering Memorandum for the same period. The difference is due to a combination
of two offsetting factors. First, actual interest received includes interest
received on amounts in the Aircraft Purchase Account up to June 15, 1998 and
Expense Account and interim balances in the Collection Account which are not
included in the Offering Memorandum assumptions. Second and partially offsetting
the impact of these higher cash balances on which interest has been earned, the
Offering Memorandum assumed a reinvestment rate of 5.75% while the average
reinvestment rate to date has been approximately 5.46%. Actual interest received
is expected to decline going forward as the cash in the Aircraft Purchase
Account was used as part consideration for the China Hainan aircraft and the
balance was refunded to investors in respect of the undelivered THY aircraft on
June 15, 1998.
Other cash received. Other cash received for the period from May 16,
1998 to August 17, 1998 was approximately $27.1 million or $27.1 million more
than assumed in the Offering Memorandum. Other cash received consists of an
exceptional item of $27.1 million which includes cash released from the Aircraft
Purchase Account and breakage costs in respect of the non-delivery of the THY
aircraft.
OPERATING EXPENSES
"Operating Expenses" includes all fees, costs or expenses paid by any
MSAF Group member in the course of the business activities permitted to be
conducted by it under the Indenture. The cash outflows in respect of Operating
Expenses shown in the Offering Memorandum were assumed to be $3.1 million
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for the period from May 16, 1998 to August 17, 1998. Total cash expenses paid in
this period were approximately $3.8 million, a negative variance of $0.7
million. This variance is due to a combination of factors set out below.
OPERATING EXPENSES
Maintenance. Maintenance disbursements in the period from May 16, 1998
to August 17, 1998 were approximately $1.6 million and were exceeded by
maintenance receipts of $4.5 million. As discussed above, the Offering
Memorandum assumes that maintenance receipts will equal maintenance
disbursements over the term of the Notes; however, it is unlikely that
maintenance receipts will equal maintenance disbursements in any particular Note
Payment Period. In the next three months it is likely that maintenance
disbursements will increase due to anticipated engine overhauls and re-leasing
expenses. There is approximately $1.0 million currently held in the Expense
Account for projected maintenance expenses over the next three months.
Insurance, re-leasing and other costs. Insurance, re-leasing and other
costs incurred were approximately $0.7 million from May 16, 1998 to August 17,
1998, which was equal to the assumed costs for the period. The $0.7 million
costs include $0.4 million which was incurred and paid in the period and $0.3
million which was transferred to the Expense Account for additional expenses
expected to become payable over the next quarter. This $0.3 million represents
an increase in accrued expenses from $1.6 million in the previous quarter to
$1.9 million.
SELLING, GENERAL AND ADMINISTRATIVE
Servicer fees. Fees paid to ILFC, as Servicer, during the period from
May 16, 1998 to August 17, 1998 amounted to $0.9 million, which is $0.2 million
lower than the assumed cost of $1.1 million for the period. A significant
portion of the Servicer fees are calculated as a percent of rental revenue
actually received. The slightly lower fees resulted from the lower rental
revenue caused by rental arrears, and the undelivered THY aircraft.
Other service provider fees and overhead. Other service provider fees
and overhead amounted to $0.5 million for the period from May 16, 1998 to August
17, 1998, $0.3 million below the assumed amount of $0.8 million for the period
principally due to a lower than assumed Administrative Agent's fee because of
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lower rental revenue caused by rental arrears and the undelivered THY aircraft.
NOTE PAYMENTS
Interest payments. Actual interest payments to Noteholders net of swap
effects have been almost flat as compared with assumed interest payments net of
swap effects for the period from May 16, 1998 to August 17, 1998. Lower interest
payments caused by lower than assumed interest rates and greater than assumed
principal distributions on the A-2 Notes in the May 16, 1998 to August 17, 1998
period were offset by increased swap payments.
Principal payments. Total principal distributions in the period from
May 16, 1998 to August 17, 1998 were $41.5 million, an excess of $30.5 million
over assumed total debt amortization, reflecting the distribution to Noteholders
of the proceeds from the offering of the Notes relating to the THY aircraft on
June 15, 1998 and the higher than assumed net cash collections as discussed
above. The principal amortization payments were made with respect to the A-2
Notes.
OTHER FINANCIAL DATA
CASH
Cash held at August 17, 1998 was $26.9 million. Of this amount, $25
million represents the cash portion of the Liquidity Reserve Amount (which is
used as a source of liquidity for, among other things, maintenance obligations,
security deposit return obligations, cash operating expenses and contingent
liabilities) and $1.9 million represents accrued expenses and is held in the
Expense Account. The $1.9 million of accrued expenses is in respect of likely
maintenance and re-leasing expenses expected to fall due in the next quarter.
In addition to the $25 million cash portion at August 17, 1998, the
Liquidity Reserve Amount also contained $40.8 million of undrawn credit and
liquidity facilities from Morgan Stanley Dean Witter & Co. and ILFC.
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AIRCRAFT VALUES
At September 30, 1997, the total appraised value of the 33 aircraft and
the spare engine that MSAF originally agreed to acquire from ILFC was $1,115.5
million and, applying the declining value assumption set out in the terms of the
Notes, $1,096.9 million at August 17, 1998. Giving effect to the non-delivery of
the THY aircraft the revised appraised value is $1,086.7 million and applying
the declining value assumption, the total appraised value of MSAF Group's 32
aircraft and spare engine was $1,069.1 million at August 17, 1998.
Under the terms of the Notes, MSAF is obliged to obtain annual
appraisals of the Base Value of each aircraft from three independent appraisers
by October 31 of each year. Generally, where the appraisals indicate a Base
Value decline significantly in excess of the value decline assumed under the
terms of the Notes, excess cash flow is redirected to the extent required to the
Class A Notes via the Class A Scheduled Principal Payment Amount. The most
recent appraisals occurred in September 30, 1997 and the next are due to occur
no later than October 31, 1998.
A-D NOTE BALANCE
As of August 17, 1998, the aggregate amount of Class A-D Notes
outstanding was $993.6 million, approximately $32.6 million lower than assumed
due to distribution of the THY aircraft-related Note proceeds and the higher
than assumed principal repayments with respect to the Class A-2 Notes.
DEVELOPMENTS
LESSEE DIFFICULTIES
As of August 17, 1998, two lessees were in arrears. The amounts
outstanding and overdue in respect of Rental Payments, Maintenance Reserves and
other miscellaneous amounts due under the Leases (net of default interest and
certain cash in transit) with respect to these lessees amounted to approximately
$1.0 million. The weighted average number of days past due of such arrears was
32 days.
During the period from May 16, 1998 to August 17, 1998 there have been
difficulties with respect to two Lessees in the Europe/Middle East region
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representing approximately 7.7% of the adjusted appraised value of the portfolio
as of August 17, 1998. The lease rentals and maintenance reserves of one of the
two lessees (representing 4.3% of adjusted appraised value), were restructured
in March 1998 and the lessee was in arrears with respect to the restructured
payment amounts as well as subsequent lease payments.
The second lessee is based in Russia and in light of the severe
economic and financial difficulties being experienced in Russia, the Servicer
has agreed an early termination of the lease. The lessee, Transaero, represents
3.4% of the adjusted appraised value of the portfolio as of August 17, 1998. It
is likely that the aircraft will be non-revenue earning and that additional
maintenance expense will be required prior to delivery to a new lessee. This
will have an adverse impact on MSAF's net cash collection until the aircraft is
re-leased.
ASIA
During the period from May 16, 1998 to August 17, 1998, the economies
of Asia continued to be severely affected by economic and financial
difficulties. Currently, MSAF leases 12.9% of its fleet in the Asia Pacific
Region (5.3% in South Korea, 5.0% in Taiwan and 2.6% in China) and 6.6% in
Pacific and Other regions (6.6% in Fiji ) by assumed appraised value as of
August 17, 1998. As of August 17, 1998 none of these lessees were in arrears
although severe financial difficulties have been reported for certain other air
carriers in the region related to the economic instability in certain countries
in the region.
LATIN AMERICA
The downturn in Asia and Russia has recently begun to undermine
business confidence in Latin America and to adversely affect the economies of
Latin America countries. Brazil has experienced significant downturns in
financial markets, with large decreases in financial asset prices and
considerable pressure for a devaluation of the Brazilian currency. Currently,
MSAF leases 17.7% of its fleet in Latin America (6.3% in Mexico and 11.4% in
Brazil) and 3.3% in Other regions (3.3% in Guyana) by assumed appraised value as
of August 17, 1998. As of August 17, 1998 none of these lessees were in arrears.
B737 INSPECTIONS
On September 28, 1998, the Federal Aviation Administration (FAA) issued
a directive requiring all US registered B737s with between 20,000 and
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30,000 hours of flying time to be inspected within 60 days for damaged
insulation on wires going to the fuel boost pumps through conduits buried in
the wing tanks. MSAF owns 10 B737-300/400/500s of which 4 are above the 20,000
hours, 3 are between 15,000 and 20,000 hours and 3 are between 10,000 and
15,000 hours. MSAF does not believe the cost to comply with this directive will
be significant.
EXCHANGE OFFER
MSAF has recently filed a registration statement with the Securities
and Exchange Commission (the "SEC") with respect to an exchange offer for
exchange notes with terms virtually identical to the Notes.
9
<PAGE> 1
Exhibit 10.9
ASSET PURCHASE AGREEMENT
dated as of
November 10, 1997
between
MORGAN STANLEY
AIRCRAFT FINANCE
("MSAF")
and
INTERNATIONAL LEASE FINANCE CORPORATION
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions.....................................................1
ARTICLE 2
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale...............................................7
SECTION 2.02. Assignment of Contracts and Rights..............................8
SECTION 2.03. Payment of Purchase Price.......................................8
SECTION 2.04. Inspection......................................................8
SECTION 2.05. Delivery........................................................8
SECTION 2.06. Purchase Price Adjustment.......................................9
SECTION 2.07. Payment of Adjustment of Purchase Price........................10
SECTION 2.08. Buyer Deposit..................................................11
SECTION 2.09. Manufacturer's Payments........................................12
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
SECTION 3.01. Corporate Existence and Power..................................12
SECTION 3.02. Corporate Authorization........................................12
SECTION 3.03. Governmental Authorization.....................................12
SECTION 3.04. Noncontravention...............................................13
SECTION 3.05. Required Consents..............................................13
SECTION 3.06. Data...........................................................13
SECTION 3.07. Absence of Certain Changes.....................................13
SECTION 3.08. No Undisclosed Material Liabilities............................13
SECTION 3.09. Contracts......................................................14
SECTION 3.10. Litigation.....................................................14
SECTION 3.11. Compliance with Laws and Court Orders..........................14
SECTION 3.12. SPC-5..........................................................14
SECTION 3.13. Aircraft and Leases............................................15
SECTION 3.14. Insurance Coverage.............................................17
SECTION 3.15. Licenses and Permits...........................................17
SECTION 3.16. Selling Documents..............................................18
SECTION 3.17. Finders'Fees...................................................18
SECTION 3.18. True Sale......................................................18
<PAGE> 3
PAGE
----
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
SECTION 4.01. Existence and Power............................................18
SECTION 4.02. Authorization..................................................18
SECTION 4.03. Governmental Authorization.....................................19
SECTION 4.04. Noncontravention...............................................19
SECTION 4.05. Litigation.....................................................19
SECTION 4.06. Licenses and Permits...........................................19
SECTION 4.07. Finders'Fees...................................................19
SECTION 4.08. True Sale......................................................19
SECTION 4.09. Buyer Designees................................................19
ARTICLE 5
COVENANTS OF SELLER
SECTION 5.01. Conduct of the Business........................................20
SECTION 5.02. Access to Information; Confidentiality.........................20
SECTION 5.03. Notices of Certain Events......................................21
SECTION 5.04. Taxes and Other Costs..........................................22
SECTION 5.05. Maintenance Reserves...........................................22
SECTION 5.06. Certain Additional Aircraft and Rental Agreements..............22
ARTICLE 6
COVENANTS OF BUYER
SECTION 6.01. Confidentiality................................................22
ARTICLE 7
COVENANTS OF BUYER AND SELLER
SECTION 7.01. Best Efforts; Further Assurances...............................23
SECTION 7.02. Certain Filings................................................24
SECTION 7.03. Public Announcements...........................................24
SECTION 7.04. Substitute Aircraft............................................24
SECTION 7.05. Allocation of Purchase Price...................................25
ii
<PAGE> 4
PAGE
----
ARTICLE 8
TAX MATTERS
SECTION 8.01. Tax Definitions................................................25
SECTION 8.02. Tax Representations............................................26
SECTION 8.03. Seller Covenants...............................................27
SECTION 8.04. Tax Sharing....................................................28
SECTION 8.05. Cooperation on Tax Matters.....................................28
SECTION 8.06. Tax Indemnification............................................28
SECTION 8.07. Purchase Price Adjustment and Interest.........................30
ARTICLE 9
CONDITIONS
SECTION 9.01. Conditions to Obligations of Buyer and Seller..................30
SECTION 9.02. Conditions to Obligation of Buyer..............................31
SECTION 9.03. Conditions to Obligation of Seller.............................35
ARTICLE 10
SURVIVAL; INDEMNIFICATION
SECTION 10.01. Survival......................................................37
SECTION 10.02. Indemnification...............................................37
SECTION 10.03. Procedures....................................................38
ARTICLE 11
TERMINATION
SECTION 11.01. Grounds for Termination.......................................38
SECTION 11.02. Effect of Termination.........................................39
SECTION 11.03. Breakage Costs Upon Termination or Failure to Transfer
All Aircraft................................................39
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. Warranties and Disclaimers....................................40
SECTION 12.02. Notices.......................................................41
SECTION 12.03. Amendments and Waivers........................................42
SECTION 12.04. Expenses......................................................43
iii
<PAGE> 5
PAGE
----
SECTION 12.05. Successors and Assigns........................................43
SECTION 12.06. Governing Law.................................................43
SECTION 12.07. Jurisdiction..................................................43
SECTION 12.08. WAIVER OF JURY TRIAL..........................................44
SECTION 12.09. Counterparts; Third Party Beneficiaries.......................44
SECTION 12.10. Entire Agreement..............................................44
SECTION 12.11. Bulk Sales Laws...............................................44
SECTION 12.12. Non Solicitation..............................................44
SECTION 12.13. Captions......................................................44
SCHEDULE 3.01...................................Seller Required Business Permits
SCHEDULE 3.03...............................Seller Required Governmental Actions
SCHEDULE 3.05..................................................Required Consents
SCHEDULE 3.08........................................................Liabilities
SCHEDULE 3.09..................................Purchased Asset Related Contracts
SCHEDULE 3.15....................................Purchased Asset Related Permits
SCHEDULE 4.03................................Buyer Required Governmental Actions
SCHEDULE 4.06.................................Buyer Required Transaction Permits
SCHEDULE 5.06..................Certain Additional Aircraft and Rental Agreements
SCHEDULE 8.02(a).................................................Tax Information
SCHEDULE 8.02(b)...............................................Tax Jurisdictions
EXHIBIT A................................................................... A-1
EXHIBIT A-1............................................................... A-1-1
EXHIBIT B................................................................... B-1
EXHIBIT C................................................................... C-1
EXHIBIT D................................................................... D-1
iv
<PAGE> 6
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT dated as of November 10, 1997 between MORGAN
STANLEY AIRCRAFT FINANCE, a Delaware Business Trust ("Buyer"), and INTERNATIONAL
LEASE FINANCE CORPORATION, a California corporation ("Seller").
W I T N E S S E T H :
WHEREAS, Seller conducts a business which owns and leases commercial
aircraft;
WHEREAS, Buyer desires to purchase certain aircraft and related assets
(including all of the outstanding capital stock of one corporation) from Seller
and Seller desires to sell such assets to Buyer, upon the terms and subject to
the conditions hereinafter set forth;
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions
(a) The following terms, as used herein, have the following meanings:
"AIRCRAFT" means, either collectively or individually, as applicable,
the aircraft listed on Exhibit A-1, each with the manufacturer's serial number
as set forth on Exhibit A-1, including (i) the airframe, (ii) the Engines
(including the CF6-80C2-B6F spare engine MSN 704279 listed on Exhibit A-1) and
(iii) all appliances, parts, accessories, instruments, navigational and
communications equipment, furnishings, modules, components and other items of
equipment installed in or furnished with the Aircraft on the Delivery Date,
except that, with respect to Lessee Furnished Equipment, references herein to an
"Aircraft" shall be deemed to refer only to such interest in Lessee Furnished
Equipment as is held by the owner of the Aircraft therein under the applicable
Lease. References to the "Aircraft" shall, where the context requires, include
the Manuals and Technical Records.
<PAGE> 7
"AFFILIATE" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such other Person.
"ASSIGNMENT OF WARRANTIES" means, with respect to each Aircraft, the
assignment, reasonably satisfactory in form and substance to Buyer and Seller,
by Seller to Buyer or its designee of Seller's right, title and interest in and
to certain Manufacturer's warranties, with respect to such Aircraft, together
with the Manufacturer's consent to such assignment.
"CONTRACT" means any contract, agreement, lease, sublease, license,
commitment, sales or purchase order or other instrument binding upon Seller or
SPC-5.
"DATA" means the information set out in Exhibit A, including, without
limitation, the assumptions set forth therein regarding aircraft condition and
lease terms and the liabilities being transferred, such as unearned revenue,
accrued and unpaid taxes and deferred taxes and all contracts, instruments and
other documentation delivered from Seller to Buyer and returned by Buyer marked
"seen by Buyer".
"DELIVERY DATE" means, with respect to each Aircraft other than the
B767-300 Aircraft MSN 24798, the date on which Buyer obtains title to such
Aircraft and the related Purchased Assets in accordance with this Agreement and,
with respect to the B767-300 Aircraft MSN 24798, means the date upon which all
of the capital stock of SPC-5 (the "SPC-5 SHARES") is transferred to Buyer.
"DEPOSIT REBATE" means, with respect to each Aircraft, the amount
specified opposite such Aircraft on Exhibit A-1 as the "Buyer Deposit" plus
interest accrued from and including the date hereof to but excluding the
Delivery Date of such Aircraft at the rate of One Month LIBOR (compounded
daily).
"ENGINES" means, the spare engine listed on Exhibit A-1, and with
respect to each Aircraft, the engines leased with such Aircraft to the Lessee
under the applicable Lease, together with all equipment and accessories
belonging to, installed in or appurtenant to such engines or, with respect to
all Aircraft, all such engines together with such equipment and accessories.
"FIRST TRANCHE AIRCRAFT" means all Aircraft (and the spare engine) set
out on Exhibit A-1 other than the Second Tranche Aircraft.
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<PAGE> 8
"INDEPENDENT REFEREE" shall be Richard Dunne, or if Richard Dunne is
unavailable or unwilling to act as the Independent Referee hereunder, a person
appointed by Richard Dunne.
"INTERCOMPANY LEASES" means any aircraft or engine lease agreement
entered into either between Seller and one of its affiliates or between
affiliates of Seller.
"LEASE" means, with respect to each Aircraft, (A) the aircraft or
engine lease agreement relating to such Aircraft between Seller or its Affiliate
and the applicable Lessee, identified on Exhibit A, together with all
supplements and amendments thereto, pursuant to which such Aircraft is leased to
such Lessee or (B) the aircraft lease agreement relating to such Aircraft
between Seller and the applicable Lessee entered into subsequent to the date
hereof, together with all supplements and amendments thereto.
"LEASE DOCUMENTS" means, with respect to each Aircraft, the Lease and
all other agreements (including any side letters, assignment of warranties or
option agreements) delivered in connection with, or relating to, the Lease of
such Aircraft other than Intercompany Leases that will be terminated on the
Delivery Date of such Aircraft.
"LEASE NOVATION" means, with respect to each Aircraft, a lease novation
agreement, assignment agreement and lessee acknowledgment, assignment and
amendment agreement, or any other agreement or instrument reasonably
satisfactory in form and substance to Buyer and Seller to be entered into
between Seller (or the applicable lessor), Buyer (or its nominee) and the
applicable Lessee on or prior to the Delivery Date of such Aircraft and to be
effective upon such Delivery Date pursuant to which such Aircraft will be leased
by Buyer (or its nominee) directly or indirectly to the applicable Lessee and
the applicable Lease Documents will be novated with Buyer or its nominee as the
new lessor thereunder, subject to the rights of the Lessee with respect to
Seller (or the applicable lessor) for the period prior to the Delivery Date.
"LESSEE" means, with respect to each Aircraft, the lessee of such
Aircraft as identified on Exhibit A-1.
"LESSEE FURNISHED EQUIPMENT" means, with respect to each Aircraft, any
appliances, parts, accessories, instruments, navigational and communications
equipment, furnishings, modules, components and other items of equipment,
installed in or furnished with such Aircraft on the Delivery Date which in
accordance with the terms of the Lease for such Aircraft can be removed by the
3
<PAGE> 9
Lessee for such Aircraft and not be replaced with the same item of equal or
greater value or utility.
"LIEN" means, with respect to any property or asset, any mortgage, lien,
pledge, charge, security interest, encumbrance or other adverse claim of any
kind in respect of such property or asset. For the purposes of this Agreement, a
Person shall be deemed to own subject to a Lien any property or asset which it
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such property or asset.
"MAINTENANCE RESERVES" means, at the time of calculation, with respect
to each Aircraft, any cash maintenance accruals, maintenance funds or
maintenance reserves or the like or cash amounts defined as "Supplemental Rent"
or "Reserves" held by the lessor under the applicable Lease in relation to
airframes, Engines, auxiliary power units, or landing gear.
"MANUALS AND TECHNICAL RECORDS" means, with respect to each Aircraft,
all records, logs, technical data and manuals relating to the maintenance and
operation of such Aircraft (including all documents defined as "Aircraft
Documentation" under the Lease), which the Lessee with respect to such Aircraft
is required by the terms of the Lease therefor to return to the lessor
thereunder upon the expiration or termination of the term of such Lease.
"MANUFACTURER" means, with respect to each Aircraft, the manufacturer
of such Aircraft as specified in the relevant Lease Documents.
"ONE MONTH LIBOR" means the per annum London interbank offered rate for
one month U.S. dollar deposits as displayed on page "3750" on the Telerate
Monitor (or replacement service) at approximately 11:00 a.m. London time.
"PERSON" means an individual, corporation, partnership, limited
liability company, association, statutory business trust, common law trust or
other entity or organization, including a government or political subdivision or
an agency or instrumentality thereof.
"PORTFOLIO DELIVERY DEADLINE" means January 31, 1998.
"PROPERTY TAX" means, any personal property taxes, excise, use, value
added, recording, documentary, conveyancing and similar levies, charges and
fees, withholdings, imposts, levies, customs or other duties, together with any
4
<PAGE> 10
interest, penalty, addition to tax or additional amount imposed by a Taxing
Authority responsible for the imposition of such tax (domestic or foreign).
"PURCHASE PRICE" means, with respect to each Aircraft, the amount
specified opposite such Aircraft as the "Base Purchase Price" on Exhibit A-1.
LESS:
(i) the Deposit Rebate;
(ii) if such Aircraft is a First Tranche Aircraft, an amount
equal to the value of any amounts (including any rent, additional rent,
insurance premiums or other amounts) received by Seller in respect of
such Aircraft with respect to the period from and including the earlier
of (1) the Delivery Date and (2) December 12, 1997 (or December 19,
1997 if Seller confirms in writing to Buyer that it is prepared to
deliver such Aircraft on or prior to December 12, 1997 but such
Aircraft is located at the time of such confirmation in a jurisdiction
that local counsel has advised in writing possesses a possible Transfer
Tax risk if the Aircraft were to be delivered); and
(iii) if such Aircraft is a Second Tranche Aircraft, an amount
equal to the value of any amounts (including any rent, additional rent,
insurance premiums or other amounts) received by Seller in respect of
such Aircraft with respect to the period from and including the earlier
of (1) the Delivery Date and (2) January 9, 1998 (or January 16, 1998
if Seller confirms in writing to Buyer that it is prepared to deliver
such Aircraft on or prior to January 9, 1998 but such Aircraft is
located at the time of such confirmation in a jurisdiction that local
counsel has advised in writing possesses a possible Transfer Tax risk
if the Aircraft were to be delivered);
PLUS:
an amount equal to interest on the Base Purchase Price for
such Aircraft less the deductions specified in clauses (ii) and (iii)
above from and including December 12, 1997 in the case of First Tranche
Aircraft and January 9, 1998 in the case of Second Tranche Aircraft (in
each case as such dates may be extended pursuant to clauses (ii) or
(iii) above, respectively), to but excluding the Delivery Date at One
Month LIBOR compounded for each day in such period.
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For the avoidance of doubt, any Cash Maintenance Reserves held by Seller with
respect to any Aircraft on the Delivery Date of such Aircraft shall be for
Seller's account.
"SECOND TRANCHE AIRCRAFT" means the A310-300 Aircraft MSN
409(registration HB-IPH); the B737-4Q8 Aircraft MSN 24234 (registration N403KW)
and the B737-3Q8 Aircraft MSN 24299 (registration N956WP) set out in Exhibit
A-1.
"SECURITY DEPOSITS" means, at the time of calculation, with respect to
each Aircraft, all cash amounts, security deposits in the form of prepayments of
rent, letters of credit and guarantees paid by or issued on behalf of the Lessee
for the benefit of the lessor under the relevant Lease as security for
obligations of such Lessee under such Lease and related Lease Documents.
"SERVICING AGREEMENT" means the servicing agreement dated as of the
date hereof between Seller and Buyer.
"TAX" has the meaning set forth in Article 8.
"TRANSFER TAX" means all excise, sales, use, value added, stamp,
recording, documentary, conveyancing, franchise, property, transfer, gains or
similar taxes and fees, withholdings, imposts, levies, customs or other duties,
together with any penalties, fines, interest thereon or addition to tax or
additional amount imposed by a Taxing Authority responsible for the imposition
of such tax (domestic or foreign).
"TRUST AGREEMENT" means the trust agreement dated October 30, 1997
constituting Buyer.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
TERM SECTION
Adjustment Cut-off Date 2.06(a)
Adjustment Report 2.06(a)
Buyer Deposit 2.08
Buyer Permits 4.06
Damage Related Adjustment 2.06(a)
Damages 10.02
Hedging Transaction 11.03
Indemnified Party 10.03
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TERM SECTION
Indemnifying Party 10.03
Minimum Transfer Condition 11.01(b)
Permits 3.15
Permitted Liens 3.13(a)
Purchased Assets 2.01
Required Consents 3.05
SPC-5 2.01
SPC-5 Delivery Date 8.01
SPC-5 Shares Definition of Delivery Date
Taxing Authority Definition of Tax
ARTICLE 2
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale. Upon the terms and subject to the
conditions of this Agreement, Buyer agrees to purchase from Seller and Seller
agrees to sell, convey, transfer, assign and deliver, or cause to be sold,
conveyed, transferred, assigned and delivered, to Buyer or an entity designated
and wholly- owned by Buyer, free and clear of all Liens, other than Permitted
Liens, all of Seller's right, title and interest in, to and under each of the
Aircraft on an "AS IS, WHERE IS" basis, the Lease Documents, the Maintenance
Reserves, all of the capital stock of Aircraft SPC-5, Inc., a California
corporation ("SPC-5") and, subject to Section 5.06 of the Servicing Agreement,
the Security Deposits (together, the "PURCHASED ASSETS"), and including, without
limitation, all right, title and interest of Seller in, to and under:
(a) all of Seller's rights against third parties relating to
the Purchased Assets, including, without limitation, rights under
manufacturers' and vendors' warranties and service life policies;
(b) all transferable licenses, permits or other governmental
authorization affecting, or relating solely to, each Purchased Asset,
including without limitation the items listed on Schedule 3.15; and
(c) all Manuals and Technical Records.
SECTION 2.02. Assignment of Contracts and Rights. Anything in this
Agreement to the contrary notwithstanding, this Agreement shall not constitute
an agreement to assign any Purchased Asset or any claim or right or any benefit
arising thereunder or resulting therefrom if such assignment, without the
consent
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of a third party thereto, would constitute a breach or other contravention of
such Purchased Asset or in any way adversely affect the rights of Buyer or
Seller thereunder. Seller and Buyer agree that they shall enter into a Lease
Novation with respect to each Aircraft (other than the B767-300 Aircraft MSN
24798 and the A310-300 Aircraft MSN 437) with the applicable Lessee.
SECTION 2.03. Payment of Purchase Price. On each Delivery Date with
respect to each Aircraft, the Purchase Price for such Aircraft and any other
sums payable by either party hereunder shall be paid in cash by wire transfer to
such bank account as the party receiving such sum may designate in writing at
least three business days prior to the date of payment without deduction for
withholding or value added taxes. All payments hereunder shall be made in U.S.
dollars by 2:00 p.m. (Eastern Standard Time) and in immediately available funds
so that the recipient receives credit in New York for the full amount of such
payment on the due date. The Purchase Price shall be subject to adjustment as
provided in Section 2.06.
SECTION 2.04. Inspection. Prior to the applicable Delivery Date
therefor, Buyer or its designee shall be given an opportunity to inspect each
Aircraft (including the Manuals and Technical Records therefor), such inspection
to be at Buyer's expense. Seller shall provide all reasonable assistance
necessary to enable Buyer or its designee to complete such inspection promptly.
Buyer acknowledges that such inspection shall take place at a time and location
and in such a manner as shall not disrupt the operation of such Aircraft by the
applicable Lessee.
Buyer shall indemnify and hold harmless Seller from and against any and
all Damages arising by reason of death or injury to any person employed, engaged
by or acting on behalf of Buyer, arising out of inspection of any Aircraft
conducted pursuant to the provisions of this Section except to the extent such
Damages relate to the willful misconduct of Seller.
SECTION 2.05. Delivery. Seller shall deliver (i) its executed bill of
sale to Buyer or its designee with respect to each of the Aircraft (other than
the B767-300 Aircraft MSN 24798) and (ii) all of the SPC-5 Shares and stock
certificates evidencing the SPC-5 Shares duly endorsed in blank, or accompanied
by stock powers duly executed in blank in form satisfactory to Buyer. In
addition, on or prior to the applicable Delivery Date of each Aircraft, Seller
shall execute a Lease Novation with respect to each Aircraft (and, if relevant,
a purchase option novation agreement) (other than the B767-300 Aircraft MSN
24798 and the A310-300 Aircraft MSN 437) and shall transfer and deliver to Buyer
the Lease Documents, the Maintenance Reserves, and, subject to Section 5.06 of
the Servicing Agreement, the Security Deposits related to such Aircraft. At each
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Delivery Date each Aircraft shall be in the possession of the applicable Lessee
pursuant to the relevant Lease Novation or Lease (or shall be in the possession
of a sublessee or located at an aircraft maintenance facility, in each case as
permitted under the Lease, Lease Documents or Lease Novation) and, in any case,
Seller shall have no obligation physically to deliver such Aircraft to Buyer or
its designee.
SECTION 2.06. Purchase Price Adjustment. (a) If any of the Data with
respect to any Aircraft are materially incorrect or incomplete in any respect on
the relevant Delivery Date (except for any normal wear and tear to the Aircraft
from the date hereof to such Delivery Date), Buyer and Seller agree to adjust
the Purchase Price for the relevant Aircraft upwards or downwards, as the case
may be. Buyer's rights to a downward adjustment in the Purchase Price for any
Aircraft shall be without prejudice to its right to reject any Aircraft pursuant
to Section 7.04. As promptly as practicable after each Delivery Date, and in any
case no later than 30 days after the last Delivery Date (the "ADJUSTMENT CUT-OFF
DATE"), Buyer may cause to be prepared and delivered to Seller an adjustment
report substantially in the form attached hereto as Exhibit B (the "ADJUSTMENT
REPORT") setting forth Buyer's calculation of any Purchase Price adjustment for
the relevant Aircraft. If the material inaccuracy or omission in the Data for
any Aircraft relates to any damage, destruction or other casualty of such
Aircraft or part thereof which has been repaired to Buyer's reasonable
satisfaction prior to final determination of the aggregate Purchase Price
adjustment pursuant to Section 2.06(a) or (c), then the portion of the downward
adjustment in the Purchase Price for such Aircraft that is related to such
damage (the "DAMAGE RELATED ADJUSTMENT") shall be reduced by an amount equal to
the amount, if positive, of the Damage Related Adjustment less any expense or
loss incurred by Buyer in connection with such repair or damage.
(b) If Seller disagrees with Buyer's calculation of any Purchase Price
adjustment delivered pursuant to Section 2.06(a), Seller may, within 30 days
after delivery of the relevant Adjustment Report, deliver a notice to Buyer
disagreeing with such calculation and setting forth Seller's calculation of such
amount (including any adjustments in Seller's favor which are not set forth in
Buyer's Adjustment Report). Any such notice of disagreement shall specify those
items or amounts as to which Seller disagrees, and Seller shall be deemed to
have agreed with all other items and amounts contained in the Adjustment Report.
(c) If any notices of disagreement shall be duly delivered pursuant to
Section 2.06(b), Buyer and Seller shall, during the 15 days following the date
of delivery of such notice of disagreement, use their best efforts to reach
agreement on all disputed items or amounts in order to determine a mutually
acceptable adjustment to the Purchase Price. If during such period Buyer and
Seller are
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unable to reach such agreement, they shall promptly thereafter cause the
Independent Referee promptly to review this Agreement, the Data and the disputed
items or amounts for the purpose of calculating the adjustment to the Purchase
Price. The Independent Referee is authorized to engage third party experts as
necessary to aid in such review, the identity and necessity of which shall be
agreed by Seller and Buyer. In making such calculation, the Independent Referee
shall consider only those items or amounts as to which Seller has disagreed or
which Seller has presented as an adjustment in Seller's favor and as to which
Buyer has disagreed. The Independent Referee shall deliver to Buyer and Seller,
as promptly as practicable, a report setting forth its calculation of the
adjustment to the Purchase Price of the relevant Aircraft. Such report shall be
final and binding upon Buyer and Seller. The cost of such review and report (and
any experts) shall be borne equally by Buyer and Seller.
(d) Buyer and Seller agree that they will, and agree to cause their
respective independent accountants and technical staff or consultants to,
cooperate and assist in the preparation of any adjustment to the Purchase Price,
including without limitation, the making available to the extent necessary of
books related to the Purchased Assets, records related to the Purchased Assets,
work papers related to the Purchased Assets and personnel.
SECTION 2.07. Payment of Adjustment of Purchase Price. (a) Seller shall
pay to Buyer or Buyer shall pay to Seller, as an adjustment to the Purchase
Price for all of the Aircraft, in the manner and with interest as provided in
Section 2.07(b), either (i) the aggregate net amount resulting from Buyer's
Adjustment Reports delivered pursuant to Section 2.06(a) if no notices of
disagreement with respect thereto are duly delivered pursuant to Section
2.06(b); or (ii) if any such notices of disagreement are delivered, the
aggregate net amount resulting from non-disputed Adjustment Reports and, with
respect to any disputed Adjustment Reports, (A) the adjustment amounts therefor
ultimately agreed by Buyer and Seller pursuant to Section 2.06(c) or (B) in the
absence of such agreement, the adjustment amounts for such disputed Adjustment
Reports ultimately reported in the Independent Referee's calculation delivered
pursuant to Section 2.06(c); provided no party shall be obligated to pay any
adjustment amount unless (i) the aggregate amount for which such party is liable
exceeds $500,000 (in which case such party shall pay the total aggregate
adjustment amount) or (ii) the aggregate adjustment amount for which such party
is liable is $500,000 or less, but the adjustment amount for any individual
Aircraft exceeds $100,000, (in which case such party shall pay the total
adjustment amount for each such individual Aircraft) and provided further that,
the determination of the aggregate and individual Aircraft adjustment amounts
for which Seller is liable shall be unaffected by any subsequent reimbursement
of a portion of such amounts from Buyer to Seller pursuant to Section 2.07(c)
below. If less than all of the Aircraft are transferred by
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the Portfolio Delivery Deadline but the Minimum Transfer Condition is satisfied
or waived in writing by Buyer, then the $500,000 amounts referred to in the
preceding sentence shall be reduced to an amount equal to the product of
$500,000 and a fraction, the denominator of which is the aggregate Base Price of
all the Aircraft and the numerator of which is the aggregate Base Price of the
Aircraft transferred by the Portfolio Delivery Deadline.
(b) Any payment pursuant to Section 2.07(a) shall be made at a mutually
convenient time and place within 10 days after the aggregate adjusted Purchase
Price has been finally determined by delivery by Buyer or Seller, as the case
may be, of a certified or official bank check payable in immediately available
funds to the other party or by causing such payments to be credited or wire
transferred to such account of such other party as may be designated by such
other party. The amount of any payment to be made pursuant to this Section 2.07
shall bear interest from and including the relevant Delivery Date to but
excluding the date of payment at a rate equal to One Month LIBOR.
(c) If all or any portion of a downward adjustment amount paid pursuant
to Section 2.07(b) relates to any damage, destruction or other casualty of an
Aircraft or part thereof which is repaired or otherwise compensated for to
Buyer's reasonable satisfaction following final determination of the aggregate
adjustment amount pursuant to Section 2.06 but prior to the redelivery of such
Aircraft under the applicable Lease, then Buyer shall reimburse to Seller the
amount, if positive, of the Damage Related Adjustment less any expense or loss
incurred by Buyer in connection with such repair or damage (with interest at a
rate equal to One Month LIBOR from and including the date of payment pursuant to
Section 2.07(b) above to but excluding the date of reimbursement).
SECTION 2.08. Buyer Deposit. Immediately following execution of this
Agreement, Buyer shall deposit with Seller with respect to each Aircraft cash in
an amount equal to the "Buyer Deposit" amount specified opposite each Aircraft
on Exhibit A-1. If any Aircraft shall not be delivered to Buyer by the Portfolio
Delivery Deadline as a direct or indirect result of Buyer's failure to perform
its obligations under this Agreement, Buyer shall forfeit the applicable Buyer
Deposit to Seller. If any Aircraft shall not be delivered to Buyer by the
Portfolio Delivery Deadline for any reason other than as a direct or indirect
result of Buyer's failure to perform its obligations under this Agreement,
Seller shall repay promptly the applicable Buyer Deposit to Buyer plus interest
accrued on such Buyer Deposit (at the rate of One Month LIBOR (compounded daily)
from and including the date hereof to but excluding the date of repayment).
SECTION 2.09. Manufacturer's Payments. Buyer shall be entitled to
receive amounts equal to the Manufacturer Payments set forth opposite certain of
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the Aircraft on Exhibit A-1 on the relevant Delivery Date. Any additional
payments by Manufacturers in respect of any Aircraft in excess of the amount set
forth for such Aircraft on Exhibit A-1 shall be for the benefit of Seller.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as of the date hereof and as of
each Delivery Date (except that the representation and warranties made as of
each Delivery Date with respect to Purchased Assets shall not apply to Purchased
Assets that have previously been delivered to and accepted by Buyer) that:
SECTION 3.01. Corporate Existence and Power. Each of Seller and SPC-5
is a corporation duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation and has all corporate powers and
all governmental licenses, authorizations, permits, consents and approvals
required to carry on its business as now conducted other than (i) such licenses,
authorizations, permits, consents and approvals, the absence of which would not
have a material adverse effect on any Aircraft and (ii) such matters as are set
forth on Schedule 3.01 hereto. Seller has heretofore delivered to Buyer true and
complete copies of the certificate of incorporation and bylaws of Seller and
SPC-5 as currently in effect.
SECTION 3.02. Corporate Authorization. The execution, delivery and
performance by Seller of this Agreement and the consummation of the transactions
contemplated hereby are within Seller's corporate powers and have been duly
authorized by all necessary corporate action on the part of Seller. This
Agreement constitutes a valid and binding agreement of Seller.
SECTION 3.03. Governmental Authorization. The execution, delivery and
performance by Seller of this Agreement and the consummation of the transactions
contemplated hereby require no action by or in respect of, or filing with, any
governmental body, agency or official other than compliance with the matters set
forth on Schedule 3.03 hereto.
SECTION 3.04. Noncontravention. The execution, delivery and performance
by Seller of this Agreement and the consummation of the transactions
contemplated hereby do not and will not (i) violate the certificate of
incorporation or bylaws of Seller or SPC-5, (ii) assuming compliance with the
matters referred to in Section 3.03, violate any applicable law, rule,
regulation,
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judgment, injunction, order or decree, (iii) assuming the obtaining of all
Required Consents, constitute a default under or give rise to any right of
termination, cancellation or acceleration of any right or obligation of Buyer or
to a loss of any benefit relating to the Purchased Assets to which Seller or
SPC-5 is entitled under any provision of any agreement or other instrument
binding upon Seller or SPC-5 or by which any of the Purchased Assets is or may
be bound or (iv) result in the creation or imposition of any Lien on any
Purchased Asset, other than Permitted Liens.
SECTION 3.05. Required Consents. Schedule 3.05 sets forth each Contract
and Permit requiring a consent or other action by any Person as a result of the
execution, delivery and performance of this Agreement (the "REQUIRED CONSENTS").
SECTION 3.06. Data. The Data and related information heretofore
delivered to Buyer is accurate and complete as of the date of this Agreement and
correctly describes the Purchased Assets as of the date of this Agreement.
SECTION 3.07. Absence of Certain Changes. Since the date of this
Agreement, the management of the Purchased Assets has been conducted in the
ordinary course consistent with past practices and there has not been any event,
occurrence, development or state of circumstances or facts which has had or is
reasonably likely to have a material adverse effect on SPC-5, the physical
condition of the Aircraft, the terms of any Lease or other Lease Documents or
the terms of any Non-Cash Security Deposits and there are no developments
affecting SPC-5 or any of the Aircraft or Lessees, individually or taken
together, that are pending or, to the knowledge of Seller threatened, which are
reasonably likely to detract materially from the value of the Aircraft,
interfere materially with any present or intended use of the Aircraft or affect
materially and adversely the prospects or marketability of such Aircraft.
SECTION 3.08. No Undisclosed Material Liabilities. There are no
liabilities related to a Purchased Asset of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, and there
is no existing condition, situation or set of circumstances which could
reasonably be expected to result in such a liability, other than:
(a) the Lease Documents and any liabilities and
obligations arising thereunder with respect to any period following
the Delivery Date;
(b) liabilities disclosed on Schedule 3.08; and
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(c) other undisclosed liabilities which, individually or
in the aggregate, are not material.
SECTION 3.09. Contracts. (a) Except for the Contracts disclosed in
Schedule 3.09, and contracts or agreements relating to the transfer of each
Aircraft on the applicable Delivery Date which have been disclosed to and
approved by Buyer, neither Seller nor SPC-5 is a party to or bound by any oral
or written agreements or waivers relating to the Purchased Assets. Seller has
delivered to Buyer true and complete copies of (i) the portions of the Contracts
disclosed in Schedule 3.09 that relate to the Purchased Assets and (ii) the
Contracts and agreements otherwise disclosed to and approved by Buyer to the
extent they relate to the Purchased Assets.
(b) Each Contract disclosed in any Schedule to this Agreement or
required to be disclosed pursuant to this Section is a valid and binding
agreement of Seller or SPC-5, as applicable (except as disclosed in such
Schedule), and is in full force and effect, and none of Seller, SPC-5 or, to the
knowledge of Seller, any other party thereto is in default or breach in any
material respect under the terms of any such Contract, and, to the knowledge of
Seller, no event or circumstance has occurred that, with notice or lapse of time
or both, would constitute any event of default thereunder.
SECTION 3.10. Litigation. There is no action, suit, investigation or
proceeding pending, or, to the knowledge of Seller, threatened against or
affecting, any Purchased Asset before any court or arbitrator or any
governmental body, agency or official or which in any manner challenges or seeks
to prevent, enjoin, alter or materially delay the transactions contemplated by
this Agreement.
SECTION 3.11. Compliance with Laws and Court Orders. Neither Seller nor
SPC-5 is in violation of, has violated, nor has been given notice of any
violation of, nor to the knowledge of Seller is under investigation with respect
to nor to the knowledge of Seller has been threatened to be charged with any
violation of, any law, rule, regulation, judgment, injunction, order or decree
applicable to the Purchased Assets.
SECTION 3.12. SPC-5. (a) SPC-5 was incorporated on August 8, 1997. As
of the SPC-5 Delivery Date, the only assets of SPC-5 will be (and since its
incorporation the only assets of SPC-5 will have been) the B767-300 Aircraft MSN
24798 and the related Lease. There are no liabilities of whatever kind related
to SPC-5 that will not be fully discharged on the SPC-5 Delivery Date other than
liabilities specified in subsections (a), (b) and (c) of Section 3.08. SPC-5 has
never had any employees. The sale of the SPC-5 Shares pursuant to the terms and
conditions of this Agreement shall constitute a full and final transfer of
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the legal and beneficial ownership of the right, title and interest in the SPC-5
Shares free and clear of all Liens, except for Liens which do not materially
detract from the value of the B767-300 Aircraft MSN 24798, and after the SPC-5
Delivery Date, Seller shall retain no right, title or interest therein.
(b) The authorized capital stock of SPC-5 consists of 1,000 shares of
common stock. As of the date hereof, 100 shares of common stock are issued and
outstanding, all of which are validly issued, fully paid and nonassessable. None
of the issued and outstanding shares of common stock was issued in violation of
any preemptive rights. There are no options, warrants, convertible securities or
other rights, agreements, arrangements or commitments of any character relating
to the capital stock of SPC-5 or obligating Seller or SPC-5 to issue or sell any
shares of capital stock of, or any other interest in, SPC-5. There are no
outstanding contractual obligations of SPC-5 to repurchase, redeem or otherwise
acquire any shares of common stock. The SPC-5 Shares constitute all the issued
and outstanding capital stock of SPC-5 and are owned of record and beneficially
solely by Seller free and clear of all Liens, except for Liens which do not
detract materially from the value of the B767-300 Aircraft MSN 24798. On the
SPC-5 Delivery Date, the SPC-5 Shares will be fully paid, nonassessable and will
be legally and beneficially owned by Buyer free and clear of all Liens other
than Liens which do not materially detract from the value of the B767-300
Aircraft MSN 24798. There are no voting trusts, stockholder agreements, proxies
or other agreements or understandings in effect with respect to the voting or
transfer of any of the SPC-5 Shares.
(c) The stock register of SPC-5 accurately records: (i) the name and
address of each Person owning shares of capital stock of SPC-5 and (ii) the
certificate number of each certificate evidencing shares of capital stock issued
by SPC-5, the number of shares evidenced by each such certificate, the date of
issuance thereof and, in the case of cancellation, the date of cancellation.
SECTION 3.13. Aircraft and Leases. (a)(i) Each of Seller and, with
respect to the B767-300 Aircraft MSN 24798, SPC-5, is the sole legal and
beneficial owner of the applicable Aircraft and (ii) each of Seller and, with
respect to the B767-300 Aircraft MSN 24798, SPC-5, is the sole legal and
beneficial owner of the lessor's interest under the applicable Lease Documents,
which Aircraft and which Lease Documents are free and clear of all Liens other
than (a) the rights conferred by the Lease Documents; (b) any Liens for which
the applicable Lessee is responsible or for which it is to indemnify the lessor
under the terms of the relevant Lease; (c) any Liens which are "permitted liens"
under the applicable Lease other than a Lien created by Seller or SPC-5; or (d)
Liens which do not materially detract from the value of such Aircraft, or
materially interfere with any present or intended use of such Aircraft
(collectively, the
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"PERMITTED LIENS") and upon consummation of the transactions contemplated
hereby, Buyer will have directly or indirectly, as applicable, acquired good and
marketable title in and to each of the Aircraft, free and clear of all Liens,
except for Permitted Liens;
(b) no Event of Default (as defined in the applicable Lease) has
occurred and is continuing under any Lease, provided that with respect to Events
of Default that are violations of "non-discrimination" or similar provisions of
any Lease that affect the average of three independently appraised "base values"
of the Aircraft, this representation shall only be made to the extent of
Seller's knowledge; no payment failure or failure to maintain insurance has
occurred which with the giving of notice or passage of time or both would become
an Event of Default (as so defined) under any Lease; and, to the knowledge of
Seller, no other event which with the giving of notice or passage of time or
both would become an Event of Default (as so defined) under such Lease has
occurred;
(c) there are no outstanding airworthiness directives or similar
demands from any governmental, semi-governmental or public authority or
instrumentality or any other Person having authority in respect of the
applicable Aircraft being delivered on the Delivery Date (not including
manufacturer's service bulletins or similar notices or demands) requiring any
mandatory work or other mandatory action to be taken or the mandatory
expenditure of any money in respect thereof (except those which the Manufacturer
or the Lessee have agreed in writing to perform entirely at such Person's
expense or those with respect to which Seller or Lessee have obtained waivers or
extensions or deferrals of the time by which the work is required to be
performed, the action is required to be taken or the expenditure is required to
be incurred) and that have not been complied with by Seller and, to the best of
Seller's knowledge, by the Lessee, as applicable;
(d) all liabilities for taxes and other governmental,
quasi-governmental and other charges with regard to the Aircraft which are due
for payment (whether or not indemnified by the applicable Lessee) have been paid
or will be paid prior to the applicable Delivery Date;
(e) (i) there are no claims known to Seller which can be asserted by
any Lessee against Seller, SPC-5 or the applicable Aircraft arising out of the
applicable Lease Documents, (ii) the Lease Documents are in full force and
effect in accordance with the terms thereof, (iii) from the date of this
Agreement there have been no waivers of Seller's or SPC-5's rights in effect
under such Lease Documents except as contemplated by the applicable Lease
Novation or otherwise disclosed in writing to and agreed to by Buyer in writing
nor has Seller or SPC-5 increased any of their respective obligations under such
Lease Documents without the written consent of Buyer and (iv) other than as set
forth in such Lease
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Novation, neither Seller nor the applicable lessor (other than SPC-5) has any
continuing obligations to Lessee with respect to such Aircraft and such Lessee
has no continuing obligations to Seller or any Subsidiary thereof (excluding,
for this purpose, SPC-5) or the applicable lessor (excluding, for this purpose,
SPC-5) with respect to such Aircraft;
(f) to Seller's knowledge, no unrepaired damage, destruction or other
casualty loss or, to the best of Seller's knowledge, an event which with the
passage of time would result in unrepaired damage, destruction or casualty loss,
has occurred in respect of any Aircraft; and
(g) there are no options to purchase any Aircraft, or extend or
terminate any Leases, which have been exercised by the relevant Lessee and not
notified in writing to Buyer.
SECTION 3.14. Insurance Coverage. There is no claim by Seller or SPC-5
pending under any of the insurance policies or bonds relating to the Aircraft as
to which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds or in respect of which such underwriters have reserved
their rights. All premiums due and payable under all such policies and bonds
have been paid and each of Seller and SPC-5 has otherwise complied fully with
the terms and conditions of all such policies and bonds. Seller does not know of
any threatened termination of, premium increase with respect to, or material
alteration of coverage under, any of such policies or bonds.
SECTION 3.15. Licenses and Permits. Schedule 3.15 correctly describes
each license and certificate directly related to the ownership of the Purchased
Assets (the "PERMITS") together with the name of the government agency or entity
issuing such Permit. Except as set forth on Schedule 3.15, (i) the Permits are
valid and in full force and effect, (ii) neither Seller nor SPC-5 is in default,
and no condition exists that with notice or lapse of time or both would
constitute a default, under the Permits and (iii) none of the Permits will be
terminated or impaired or become terminable, in whole or in part, as a result of
the transactions contemplated hereby. Upon consummation of such transactions,
Buyer will, assuming the related Required Consents have been obtained prior to
the relevant Delivery Date, have all of Seller's right, title and interest in
all of the Permits held by Seller except to the extent disclosed on Schedule
3.15 hereto, in which case Buyer shall be entitled to the benefit of the Permits
disclosed on Schedule 3.15 hereto through the arrangements established by Buyer
and Seller with respect thereto.
SECTION 3.16. Selling Documents. None of the documents or information
delivered to Buyer in connection with the transactions contemplated by this
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Agreement, including, without limitation, the Data, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained therein not misleading. The maintenance
projections relating to the Aircraft delivered to Buyer and the sales price
projections of $15 million for each of two A310-300 Aircraft (MSN 409 and 410)
are made in good faith and are based upon reasonable assumptions, and Seller is
not aware of any fact or set of circumstances that would lead it to believe that
such projections are incorrect or misleading in any material respect on the date
of this Agreement.
SECTION 3.17. Finders' Fees. There is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of Seller who might be entitled to any fee or commission in connection
with the transactions contemplated by this Agreement.
SECTION 3.18. True Sale. The transfer of the rights, title and interest
in and to the Purchased Assets pursuant to the terms hereof constitutes a
transaction in the ordinary course of business of Seller and Seller intends that
such transfer of such rights, title and interest shall constitute a true sale
thereof.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as of the date hereof and as of
each Delivery Date that:
SECTION 4.01. Existence and Power. Buyer is a statutory trust duly
formed, validly existing and in good standing under the laws of Delaware and has
all necessary powers and all material governmental licenses, authorizations,
permits, consents and approvals required to carry on its activities as now
conducted.
SECTION 4.02. Authorization. The execution, delivery and performance by
Buyer of this Agreement and the consummation of the transactions contemplated
hereby are within the powers of Buyer and have been duly authorized by all
necessary action on the part of Buyer. This Agreement constitutes a valid and
binding agreement of Buyer.
SECTION 4.03. Governmental Authorization. The execution, delivery and
performance by Buyer of this Agreement and the consummation of the transactions
contemplated hereby require no material action by or in respect of, or
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material filing with, any governmental body, agency or official other than
compliance with the matters set forth on Schedule 4.03 hereto.
SECTION 4.04. Noncontravention. The execution, delivery and performance
by Buyer of this Agreement and the consummation of the transactions contemplated
hereby do not and will not (i) violate the Trust Agreement or (ii) assuming
compliance with the matters referred to in Section 4.03, violate any applicable
material law, rule, regulation, judgment, injunction, order or decree.
SECTION 4.05. Litigation. There is no action, suit, investigation or
proceeding pending against, or to the knowledge of Buyer threatened against or
affecting, Buyer before any court or arbitrator or any governmental body, agency
or official which in any manner challenges or seeks to prevent, enjoin, alter or
materially delay the transactions contemplated by this Agreement.
SECTION 4.06. Licenses and Permits. Except as set forth on Schedule
4.06 as of the Delivery Date of the applicable Aircraft, (i) each license or
certificate directly related to the ownership of the Purchased Assets (the
"Buyer Permits") is valid and in full force and effect and (ii) Buyer is not in
default, and no condition exists that with notice or lapse of time or both would
constitute a default, under the Buyer Permits.
SECTION 4.07. Finders' Fees. There is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of Buyer who might be entitled to any fee or commission from Seller or
any of its Affiliates upon consummation of the transactions contemplated by this
Agreement.
SECTION 4.08. True Sale. The transfer of the rights, title and interest
in and to the Purchased Assets pursuant to the terms hereof constitutes a
transaction in the ordinary course of business of Buyer, and Buyer intends that
such transfer of such rights, title and interest shall constitute a true sale
thereof.
SECTION 4.09. Buyer Designees. Any entity that Buyer shall designate to
purchase and take delivery of a Purchased Asset shall, as of the applicable
Delivery Date, be deemed to make representations and warranties to Seller to the
same effect as those made by Buyer pursuant to Sections 4.01-4.08 hereof
relating to those matters applicable to such designated purchaser.
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ARTICLE 5
COVENANTS OF SELLER
Seller agrees that:
SECTION 5.01. Conduct of the Business. From the date hereof until the
respective Delivery Date, Seller shall manage the Purchased Assets in the
ordinary course of its business consistent with past practice. Without limiting
the generality of the foregoing, from the date hereof, Seller will not take or
agree or commit to take any action that would make any representation or
warranty of Seller hereunder inaccurate in any respect at, or as of any time
prior to, each Delivery Date or omit or agree or commit to omit to take any
action necessary to prevent any such representation or warranty from being
inaccurate in any respect at any such time.
SECTION 5.02. Access to Information; Confidentiality. (a) From the date
hereof until the last Delivery Date, Seller will (i) give Buyer, its counsel,
financial advisors, auditors and other authorized representatives full access to
the extent related to the Purchased Assets to the offices, properties, books and
records of Seller relating to the Purchased Assets, (ii) furnish to Buyer, its
counsel, financial advisors, auditors and other authorized representatives such
financial and operating data and other information relating to the Purchased
Assets as such Persons may reasonably request and (iii) instruct the employees,
counsel, accountants and financial advisors of Seller to cooperate with Buyer in
its investigation of the Purchased Assets and its securitization of the
Purchased Assets. Any investigation pursuant to this Section shall be conducted
in such manner as not to interfere with the conduct of the business of Seller.
Notwithstanding the foregoing, Buyer shall not have access to any confidential
portions of any Manufacturer's agreements including, without limitation, the
provisions which do not continue with the Aircraft (including, without
limitation, provisions relating to purchase price or payment terms). No
investigation by Buyer or other information received by Buyer shall operate as a
waiver or otherwise affect any representation, warranty or agreement given or
made by Seller hereunder.
(b) After the respective Delivery Date, Seller and its Affiliates will
hold, and will use their best efforts to cause their respective officers,
directors, employees, accountants, counsel, consultants, advisors and agents to
hold, in confidence, unless compelled to disclose by judicial or administrative
process or by other requirements of law, all confidential documents and
information concerning the Purchased Assets, except to the extent that such
information can be shown to have been (i) previously known on a nonconfidential
basis by Seller,
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(ii) in the public domain through no fault of Seller or its Affiliates or (iii)
later lawfully acquired by Seller from sources other than those related to its
prior ownership of the Purchased Assets provided that Seller may disclose such
information to its officers, directors, employees, accountants, counsel,
consultants, advisors and agents in connection with the transactions
contemplated by this Agreement and to the rating agencies in connection with a
securitization of the Aircraft so long as such Persons are informed by Seller of
the confidential nature of such information and are directed by Seller to treat
such information confidentially. The obligation of Seller and its Affiliates to
hold any such information in confidence shall be satisfied if they exercise the
same care with respect to such information as they would take to preserve the
confidentiality of their own similar information.
SECTION 5.03. Notices of Certain Events. Seller shall promptly notify
Buyer of:
(a) any notice or other communication from any Person
alleging that the consent of such Person is or may be required in
connection with the transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental
or regulatory agency or authority in connection with the transactions
contemplated by this Agreement;
(c) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge threatened against, relating to or
involving or otherwise affecting Seller or the Purchased Assets that,
if pending on the date of this Agreement, would have been required to
have been disclosed pursuant to Section 3.10 or that relate to the
consummation of the transactions contemplated by this Agreement; and
(d) as soon as Seller has knowledge of, the damage,
destruction or other casualty of any Purchased Asset or part thereof or
in the event that any Purchased Asset or part thereof becomes the
subject of any proceeding or, to the knowledge of Seller, threatened
proceeding for the taking thereof or any part thereof or of any right
relating thereto by condemnation, eminent domain or other similar
governmental action.
SECTION 5.04. Taxes and Other Costs. Seller agrees to pay, and
indemnify and hold Buyer and its Affiliates harmless from, (i) any Transfer
Taxes imposed, levied or assessed against or upon Buyer or any of its Affiliates
or any of the Purchased Assets resulting from the execution of this Agreement or
the sale, delivery, assignment, novation, transfer and conveyance of the
Purchased
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Assets to Buyer, (ii) any Tax liability, whether owed or accrued, relating to
the period prior to the applicable Delivery Date the non-payment of which would
give rise to a Lien on any Purchased Asset, would otherwise adversely affect the
Purchased Assets, or would result in Buyer becoming liable therefor and, without
prejudice to Seller's obligations under Section 10.02(a) hereof, for which
Seller is primarily liable, (iii) any and all Property Taxes levied with respect
to the Purchased Assets, whether owed or accrued, relating to the period prior
to the applicable Delivery Date and, without prejudice to Seller's obligations
under Section 10.02(a) hereof, for which Seller is primarily liable and (iv) to
the extent not paid by the Lessees, all Lessee costs incurred in connection with
the consummation of the transactions contemplated hereby including, without
limitation, costs related to Lease Novations.
SECTION 5.05. Maintenance Reserves. Seller agrees to pay any amounts
due to any Person relating to maintenance work performed on any Aircraft, or
obligation to reimburse any amounts of Maintenance Reserves arising with respect
to any Aircraft, on or prior to the Delivery Date of such Aircraft.
SECTION 5.06. Certain Additional Aircraft and Rental Agreements.
Without limitation of any of Seller's representations and warranties or other
agreements hereunder, Seller makes the undertakings specified on Schedule 5.06
hereto.
ARTICLE 6
COVENANTS OF BUYER
Buyer agrees that:
SECTION 6.01. Confidentiality. Buyer and its Affiliates will hold, and
will use their best efforts to cause their respective officers, directors,
employees, accountants, counsel, consultants, advisors and agents to hold, in
confidence, unless compelled to disclose by judicial or administrative process
or by other requirements of law or disclosure requirements applicable to a
securitization of the Aircraft, all confidential documents and information
concerning the Purchased Assets or which Seller has furnished to Buyer or its
Affiliates in connection with the transactions contemplated by this Agreement,
except to the extent that such information can be shown to have been (i)
previously known on a nonconfidential basis by Buyer, (ii) in the public domain
through no fault of Buyer or (iii) later lawfully acquired by Buyer from sources
other than Seller; provided that Buyer may disclose such information to its
officers, directors, employees, accountants,
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counsel, consultants, advisors and agents in connection with the transactions
contemplated by this Agreement and to rating agencies in connection with a
securitization of the Aircraft so long as such Persons are informed by Buyer of
the confidential nature of such information and are directed by Buyer to treat
such information confidentially. The obligation of Buyer and its Affiliates to
hold any such information in confidence shall be satisfied if they exercise the
same care with respect to such information as they would take to preserve the
confidentiality of their own similar information. If this Agreement is
terminated, Buyer and its Affiliates will, and will use their best efforts to
cause their respective officers, directors, employees, accountants, counsel,
consultants, advisors and agents to, destroy or deliver to Seller, upon request,
all documents and other materials, and all copies thereof, obtained by Buyer or
its Affiliates or on their behalf from Seller in connection with this Agreement
that are subject to such confidence and any reports, memoranda, data,
information or other records prepared by Buyer on the basis of such documents
and other materials.
ARTICLE 7
COVENANTS OF BUYER AND SELLER
Buyer and Seller agree that:
SECTION 7.01. Best Efforts; Further Assurances. (a) Subject to the
terms and conditions of this Agreement, Buyer and Seller will use their best
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary or desirable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement. Seller and Buyer
agree to execute and deliver such other documents, certificates, agreements and
other writings and to take such other actions as may be necessary or desirable
in order to consummate or implement expeditiously the transactions contemplated
by this Agreement and to vest in Buyer good and marketable title to the
Purchased Assets.
(b) Seller hereby constitutes and appoints, effective for the
applicable Aircraft as of each Delivery Date, Buyer and its successors and
assigns as the true and lawful attorney of Seller with full power of
substitution in the name of Buyer, or in the name of Seller but for the benefit
of Buyer, to institute and prosecute all proceedings which Buyer may in its sole
discretion deem proper in order to assert or enforce any right, title or
interest in, to or under such Aircraft, and to defend or compromise any and all
actions, suits or proceedings in respect of such Aircraft so long as Buyer
indemnifies and holds harmless Seller for any expenses, costs,
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action or loss brought by any Person as a result of any action taken by Buyer in
Seller's name or as Seller's true and lawful attorney. Buyer shall be entitled
to retain for its own account any amounts collected pursuant to the foregoing
powers, including any amounts payable as interest in respect thereof; provided,
however, that if any amount collected by Buyer relates to amounts owed by such
Person with respect to the Purchased Assets for the period prior to the Delivery
Date, then Buyer will promptly provide such amount (including, without
limitation, any interest on such amount) to Seller.
SECTION 7.02. Certain Filings. Seller and Buyer shall cooperate with
one another (i) in determining whether any action by or in respect of, or
filing with, any governmental body, agency, official or authority is required,
or any actions, consents, approvals or waivers are required to be obtained from
parties to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement and (ii) in taking such actions or
making any such filings, furnishing information required in connection
therewith and seeking timely to obtain any such actions, consents, approvals or
waivers.
SECTION 7.03. Public Announcements. The parties agree to consult with
each other before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby and, except as
may be required by applicable law, any listing agreement with any national
securities exchange or by any disclosure obligation in connection with a
securitization of the Aircraft, will not issue any such press release or make
any such public statement prior to such consultation.
SECTION 7.04. Substitute Aircraft. If before the applicable Delivery
Date any Aircraft suffers a material adverse change in its condition, or a Lease
Novation cannot be agreed with the applicable Lessee to the reasonable
satisfaction of either Seller or Buyer, Buyer may reject such Aircraft, such
Aircraft shall no longer be an "Aircraft" hereunder (except for purposes of
Section 2.08 and Section 11.01(b)) and Seller and Buyer will cooperate in good
faith to (i) select a substitute aircraft and related lease and enter into a
letter agreement in order to subject such aircraft to the terms and conditions
of this Agreement and (ii) make such other adjustments to the documentation and
deposits as agreed by Buyer and Seller, provided, however, that Buyer shall be
under no obligation to agree to any substitute aircraft and Seller shall not be
under any obligation to provide a substitute aircraft.
SECTION 7.05. Allocation of Purchase Price. Seller and Buyer agree
with, and agree to act and Seller agrees to cause AIG to act in accordance
with, the allocation of the aggregate Purchase Price among the Purchased Assets
as set forth on Exhibit A-1 in connection with the filing of all tax returns
and in the
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course of any tax audit, review or litigation relating thereto and to take no
position inconsistent with such allocation for all tax purposes.
ARTICLE 8
TAX MATTERS
SECTION 8.01. Tax Definitions. The following terms, as used herein,
have the following meanings:
"BUYER INDEMNITEE" means Buyer, any of its Affiliates and, effective
upon delivery to Buyer of the SPC-5 Shares, SPC-5.
"POST-CLOSING TAX PERIOD" means any Tax period (or portion thereof)
beginning after the close of business on the Delivery Date for the B767-300
Aircraft MSN 24798 (the "SPC-5 DELIVERY DATE").
"PRE-CLOSING TAX PERIOD" means any Tax period (or portion thereof)
ending on or before the close of business on the SPC-5 Delivery Date.
"SECTION 338(H)(10) ELECTION" is defined in Section 8.03(a).
"TAX" means (i) any net income, alternative or add-on minimum tax,
gross income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, registration, recording, documentary, conveyancing,
gains, withholding on amounts paid to or by Seller or SPC-5, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest, penalty, addition to tax or additional amount imposed by any
governmental authority responsible for the imposition of any such tax (domestic
or foreign) (a "TAXING AUTHORITY"), (ii) any liability of SPC-5 for the payment
of any amounts of the type described in (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group, or being a party to any
agreement or arrangement whereby liability of SPC-5 for payment of such amounts
was determined or taken into account with reference to the liability of any
other person for any period during the Tax Indemnification Period and (iii) any
liability of SPC-5 for the payment of any amounts as a result of being party to
any Tax Sharing Agreement or with respect to the payment of any amounts of the
type described in (i) or (ii) as a result of any express or implied obligation
to indemnify any other Person.
"TAX INDEMNIFICATION PERIOD" means (i) with respect to any Tax
described in clause (i) of the definition of "Tax", any Pre-Closing Tax Period
of
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SPC-5, (ii) with respect to any Tax described in clause (ii) of the definition
of "Tax", any Pre-Closing Tax Period of SPC-5 and the Tax year of any member of
a group described in such clause (ii) which includes (but does not end on) the
SPC-5 Delivery Date, and (iii) with respect to any Tax described in clause (iii)
of the definition of "Tax", the survival period of the obligation under the
applicable contract or arrangement.
"TAX SHARING AGREEMENTS" means the Tax sharing agreements of the
American International Group, Inc. ("AIG") and its subsidiaries for tax year
1990 and thereafter.
SECTION 8.02. Tax Representations. Seller represents and warrants to
Buyer as of the date hereof and as of the SPC-5 Delivery Date that: (a) Except
as set forth on Schedule 8.02(a), (i) all Tax returns, statements, reports and
forms (including estimated tax or information returns and reports) required to
be filed with any Taxing Authority with respect to any Pre-Closing Tax Period by
or on behalf of SPC-5 (collectively, the "RETURNS") have, to the extent required
to be filed on or before the date hereof been or will be filed when due in
accordance with all applicable laws; (ii) as of the time of filing, the Returns
correctly reflected (and, as to any Returns not filed as of the date hereof,
will correctly reflect) the facts regarding the income, business, assets,
operations, activities and status of SPC-5 and any other information required to
be shown therein; (iii) all Taxes shown as due and payable on the Returns that
have been filed have been timely paid, or withheld and remitted to the
appropriate Taxing Authority; (iv) SPC-5 is not delinquent in the payment of any
Tax and has not requested any extension of time within which to file any Return
which has not yet been filed; (v) SPC-5 (or any member of any affiliated,
consolidated, combined or unitary group of which SPC-5 is or has been a member)
has not granted any extension or waiver of the statute of limitations period
applicable to any Return, which period (after giving effect to such extension or
waiver) has not yet expired; (vi) there is no claim, audit, action, suit,
proceeding, or investigation now pending or threatened against or with respect
to SPC-5 in respect of any Tax; (vii) SPC-5 has not been a member of an
affiliated, consolidated, combined or unitary group other than one of which AIG
was the common parent; and (viii) SPC-5 is not currently under any contractual
obligation to pay any amounts of the type described in clause (ii) or (iii) of
the definition of "Tax".
(b) Schedule 8.02(b) contains a list of all jurisdictions (whether
foreign or domestic) to which any Tax is properly payable by SPC-5.
SECTION 8.03. Seller Covenants. (a) Seller agrees to cause AIG to make
a timely, effective and irrevocable election under Section 338(h)(10) of the
Code with respect to SPC-5 (the "Section 338(h)(10) Election"), and to file such
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election in accordance with applicable regulations. The Section 338(h)(10)
Election shall properly reflect the value of the B767-300 Aircraft MSN 24798
determined in accordance with Section 7.05 hereof. Such price allocation shall
be binding on the parties hereto. Seller and Buyer agree to act, and Seller
agrees to cause AIG to act in accordance with such price allocation in the
preparation, filing and audit of any Tax return.
(b) Without the prior written consent of Buyer, none of Seller, SPC-5
or any Affiliate of Seller shall, to the extent it may affect or relate to
SPC-5, make or change any tax election (other than the Section 338(h)(10)
Election), change any annual tax accounting period, adopt or change any method
of tax accounting, file any amended Return, enter into any closing agreement,
settle any Tax claim or assessment, surrender any right to claim a Tax refund,
consent to any extension or waiver of the limitation period applicable to any
Tax claim or assessment or take or omit to take any other action, if any such
action or omission would have the effect of increasing the Tax liability or
decreasing any tax asset of SPC-5, Buyer or any Affiliate of Buyer.
(c) All Returns not required to be filed on or before the date hereof
(i) will be filed when due in accordance with all applicable laws and (ii) as of
the time of filing, will correctly reflect the facts regarding the income,
business, assets, operations, activities and status of SPC-5 and any other
information required to be shown therein.
(d) Seller will and, as appropriate will cause AIG to, at its own
expense, file all necessary Tax returns and other documentation with respect to
all such Taxes and fees, and, if required by applicable law, Buyer will, and
will cause its Affiliates to, join in the execution of any such Tax returns and
other documentation.
(e) As of the SPC-5 Delivery Date, SPC-5 will not have earned any net
income which may be subject to Tax in any jurisdiction.
(f) Seller shall cause AIG to include SPC-5 in AIG's consolidated
Federal Tax Return and in any Combined State Tax Return through the close of
business on the SPC-5 Delivery Date.
SECTION 8.04. Tax Sharing. SPC-5 will no longer be a party to the Tax
Sharing Agreements as of the date hereof. After the date hereof, SPC-5 shall
have no further rights or liabilities thereunder. This Agreement shall be the
sole Tax sharing agreement relating to SPC-5 for all Pre-Closing Tax Periods.
Seller shall compensate Buyer for and hold SPC-5 harmless against any Tax
imposed by a Taxing Authority as a result of such termination and, if any such
termination is
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not binding on any Taxing Authority, any adverse effect which would have been
avoided if such termination had been given effect by such Taxing Authority.
SECTION 8.05. Cooperation on Tax Matters. (a) Buyer and Seller shall,
and Seller shall cause AIG to, cooperate fully, as and to the extent reasonably
requested by the other party, in connection with the preparation and filing of
any Tax return, statement, report or form, any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall include the retention
and (upon the other party's request) the provision of records and information
which are reasonably relevant to any such audit, litigation or other proceeding
and making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder.
(b) Buyer and Seller further agree, and Seller shall cause AIG to,
upon request, to use all reasonable efforts to obtain any certificate or other
document from any governmental authority or any other person as may be necessary
to mitigate, reduce or eliminate any Tax that could be imposed (including, but
not limited to, with respect to the transactions contemplated hereby).
SECTION 8.06. Tax Indemnification. (a) Seller hereby indemnifies each
Buyer Indemnitee against and agrees to hold each Buyer Indemnitee harmless from
any (w) Tax of SPC-5 related to the Tax Indemnification Period, (x) Tax of SPC-5
resulting from a breach of the provisions of Section 8.03(b), (y) Section 338
Tax and (z) liabilities, costs, expenses (including, without limitation,
reasonable expenses of investigation and attorneys' fees and expenses), losses,
damages, assessments, settlements or judgments arising out of or incident to the
imposition, assessment or assertion of any Tax described in (w), (x) or (y),
including those incurred in the contest in good faith in appropriate proceedings
relating to the imposition, assessment or assertion of any Tax, and any
liability as transferee, (the sum of (w), (x), (y) and (z) being referred to
herein as a "LOSS").
(b) For purposes of this Section, in the case of any Tax that is
imposed on a periodic basis and is payable for a Tax period that includes (but
does not end on) the SPC-5 Delivery Date, the portion of such Tax related to the
portion of such Tax period ending on the SPC-5 Delivery Date shall (x) in the
case of any Tax other than a gross receipts, sales or use Tax and a Tax based
upon or related to income, be deemed to be the amount of such Tax for the entire
Tax period multiplied by a fraction the numerator of which is the number of days
in the Tax period ending on the SPC-5 Delivery and the denominator of which is
the number of days in the entire Tax period and (y) in the case of any gross
receipts, sales or use Tax and any Tax based upon or related to income be deemed
equal to the amount which would be payable if the relevant Tax period ended on,
and included, the SPC-5 Delivery Date. Any credits relating to a Taxable period
that
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begins before and ends after the SPC-5 Delivery Date shall be taken into
account as though the relevant Tax period ended on the SPC-5 Delivery Date. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner consistent with prior practice of AIG and its subsidiaries.
(c) Upon payment by any Buyer Indemnitee of any Loss, Seller shall
discharge its obligation to indemnify the Buyer Indemnitee against such Loss by
paying to Buyer an amount equal to the amount of such Loss.
(d) Any payment pursuant to this Section shall be made not later than
30 days after receipt by Seller of written notice from Buyer stating that any
Loss has been paid by a Buyer Indemnitee and the amount thereof and of the
indemnity payment requested.
(e) Buyer agrees to give prompt notice to Seller of the assertion of
any claim, or the commencement of any suit, action or proceeding in respect of
which indemnity may be sought hereunder and of any Loss, which Buyer deems to be
within the ambit of this Section (specifying with reasonable particularity the
basis therefor) and will give Seller such information with respect thereto as
Seller may reasonably request. Seller may, at its own expense, (i) participate
in and (ii) except as provided in Section 8.06(f), upon notice to Buyer, assume
the defense of any such suit, action or proceeding (including any Tax audit);
provided that (i) Seller's counsel is reasonably satisfactory to Buyer (ii)
Seller shall thereafter consult with Buyer upon Buyer's reasonable request from
time to time with respect to such suit, action or proceeding (including any Tax
audit), and (iii) Seller shall not, without Buyer's consent, agree to any
settlement with respect to any Tax if such settlement could adversely affect the
Tax liability of Buyer, any of its Affiliates or, upon delivery of the SPC-5
Shares, SPC-5. If Seller assumes such defense, (i) Buyer shall have the right
(but not the duty) to participate in the defense thereof and to employ counsel,
at its own expense, separate from the counsel employed by Seller and (ii) Seller
shall not assert that the Loss, or any portion thereof, with respect to which
Buyer seeks indemnity is not within the ambit of this Section. If Seller elects
not to assume such defense, Buyer may pay, compromise or contest the Tax at
issue. Seller shall be liable for the fees and expenses of counsel employed by
Buyer for any period during which Seller has not assumed the defense thereof.
Whether or not Seller chooses to defend or prosecute any claim, all of the
parties hereto shall cooperate in the defense or prosecution thereof.
(f) Buyer shall control the defense of any claim that relates to (i)
Taxes described in Section 8.06(b) or (ii) any separate Return filed by SPC-5.
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(g) Seller shall not be liable under this Section with respect to any
Tax resulting from a claim or demand the defense of which Seller was not offered
the opportunity to assume as provided under Section 8.06(e) hereof to the extent
Seller's liability under this Section is materially adversely affected as a
result thereof. No investigation by Buyer or any of its Affiliates at or prior
to the SPC-5 Delivery Date shall relieve Seller of any liability hereunder.
(h) Any claim of any Buyer Indemnitee (other than Buyer) under this
Section may be made and enforced by Buyer on behalf of such Buyer Indemnitee.
SECTION 8.07. Purchase Price Adjustment and Interest. Any amount paid
by Seller under Section 8.04 or 8.06 will be treated as an adjustment to the
Purchase Price unless a final determination causes any such amount not to
constitute an adjustment to the Purchase Price for Federal Tax purposes. In such
event, Seller shall pay an amount that reflects the hypothetical Tax
consequences of the receipt of such payment, using the maximum statutory rate
(or rates, in the case of an item that affects more than one Tax) applicable to
the recipient of such payment for the relevant year, reflecting, for example,
the effect of deductions available for interest paid or accrued and for Taxes
such as state and local income Taxes. Any payment required to be made by Seller
under Section 8.04 or 8.06 that is not made when due shall bear interest at the
rate per annum determined, from time to time, under the provision of Section
6621(a)(2) of the Code for each day until paid.
ARTICLE 9
CONDITIONS
SECTION 9.01. Conditions to Obligations of Buyer and Seller. On each
Delivery Date the obligations of Buyer and Seller to deliver and pay for each
Purchased Asset are subject to the satisfaction of the following conditions:
(a) No provision of any applicable law or regulation and no
judgment, injunction, order or decree shall prohibit the consummation
of the delivery of and payment for such Purchased Asset.
(b) All actions by or in respect of or filings with any
governmental body, agency, official or authority required to permit the
delivery of and payment for such Purchased Asset and specified on
either Schedule 3.03 hereto or Schedule 4.03 hereto as a "Pre-delivery
Requirement" shall have been taken, made or obtained.
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SECTION 9.02. Conditions to Obligation of Buyer. The obligation of
Buyer to pay for each Purchased Asset is subject to the satisfaction of the
following further conditions:
(a) On each Delivery Date (i) Seller shall have performed in
all material respects all of its obligations hereunder required to be
performed by it on or prior to the applicable Delivery Date and (ii)
the representations and warranties of Seller contained in this
Agreement and in any certificate or other writing delivered by Seller
pursuant hereto, shall be true, as if made at and as of such date. On
the first Delivery Date Buyer shall have received a certificate signed
by an executive officer of Seller and dated as of the first Delivery
Date to the foregoing effect. On each subsequent Delivery Date, Seller
shall be deemed to have delivered to Buyer a certificate signed by the
same executive officer of Seller dated as of the subsequent Delivery
Date and to identical effect.
(b) On each Delivery Date there shall not be threatened,
instituted or pending any action or proceeding by any Person before any
court or governmental authority or agency, domestic or foreign, (i)
seeking to restrain, prohibit or otherwise interfere with the ownership
or operation by Buyer or any of its Affiliates (including, for this
purpose, SPC-5) of any Aircraft or to compel Buyer or any of its
Affiliates (including, for this purpose, SPC-5) to dispose of any
Aircraft or (ii) seeking to require divestiture by Buyer or any of its
Affiliates (including, for this purpose, SPC-5) of any Aircraft.
(c) On each Delivery Date there shall not have been any action
taken, or any statute, rule, regulation, injunction, order or decree
proposed, enacted, enforced, promulgated, issued or deemed applicable
to the purchase of the Purchased Assets, by any court, government or
governmental authority or agency, domestic or foreign, that, in the
reasonable judgment of Buyer could, directly or indirectly, result in
any of the consequences referred to in clauses 9.02(b)(i) and
9.02(b)(ii) above.
(d) On the first Delivery Date Buyer shall have received an
opinion of a corporate or the general counsel to Seller, dated the
first Delivery Date, substantially in the form attached hereto as
Exhibit C. On each subsequent Delivery Date, such counsel shall be
deemed to have delivered a bring-down opinion to Buyer dated as of the
subsequent Delivery Date and to identical effect.
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(e) On or before the first Delivery Date, Buyer and Seller
shall have agreed upon the Initial Approved Budgets (as defined in the
Servicing Agreement) to be attached as Schedule 7.05(a) to Schedule
2.02 to the Servicing Agreement.
(f) By the applicable Delivery Date Seller shall have received
all Required Consents and all consents, authorizations or approvals
from the governmental agencies referred to in Section 3.03 or 3.15, in
each case in form and substance reasonably satisfactory to Buyer, and
no such consent, authorization or approval shall have been revoked.
(g) Buyer shall have received on the applicable Delivery Date
a certificate setting forth the determination of an independent
insurance advisor with respect to the applicable Aircraft satisfactory
to Buyer in its sole discretion and to the effect that the insurance
policies or bonds relating to such Aircraft are of the type customarily
carried by owners of similar Aircraft.
(h) On or prior to the applicable Delivery Date, Buyer shall
have received a report on the physical inspection of the relevant
Aircraft in form and substance satisfactory to Buyer.
(i) On each Delivery Date any non-cash Security Deposits shall
have been reissued in the name of Buyer or its designee or, failing
such reissue (i) shall have been otherwise transferred to Buyer or its
designee so as, in Buyer's sole discretion, to enable Buyer or such
designee to realize the benefits conferred thereby or (ii) the amount
of the Credit Enhancement Facility (as defined in and provided for by
Section 5.06 of the Servicing Agreement) shall have been increased by
the amount of such non-cash Security Deposits.
(j) On each Delivery Date a Lease Novation shall have been
entered into with respect to the relevant Aircraft (other than the
B767-300 Aircraft MSN 24798 and the A310-300 Aircraft MSN 437) by Buyer
or its designee, Seller and the applicable Lessee and such agreement
shall be in full force and effect and a fax thereof shall have been
delivered to Buyer along with copies of any other Lease Documents for
the relevant Aircraft.
(k) On each Delivery Date the applicable Aircraft shall have
been registered in the applicable state of registration (except the
A310-300 Aircraft MSN 437) reflecting, to the extent permitted under
the laws of such state of registration, Buyer's or its designee's
ownership thereof or such other action shall have been taken with
respect to such registration
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and ownership as shall be satisfactory to Buyer, provided, that such
registration or other action need not be effected prior to such
Delivery Date if such registration or other action is specified to be
a "Post-Delivery Requirement" on either Schedule 3.03 or Schedule
4.03.
(l) On each Delivery Date there shall be delivered to Buyer,
(1) an opinion from counsel to Buyer in the applicable state of
registration and, if different, from counsel in the jurisdiction whose
law is stated to govern in each of the following documents (which will
be counsel to Seller in the case of California law), to the effect that
the applicable Lease Documents and Lease Novation are legal, valid and
binding under the applicable laws of such state of registration and
jurisdiction; and (2) an opinion from counsel to Buyer in the
applicable state of registration to the effect that (i) Buyer, its
designee or SPC-5, as applicable shall be recognized as the owner of
the applicable Aircraft under the laws of such jurisdiction; (ii) it is
not necessary for Buyer, its designee or SPC-5, as applicable, to
qualify to do business in such jurisdiction as a result of ownership of
such Aircraft to exercise remedies under the applicable Lease or
otherwise; (iii) payments due under the applicable Lease are not
subject to withholding or similar tax or, in the case of Leases where
withholding tax applies in any relevant jurisdiction, the Lessee is
obligated to pay and hold the lessor harmless from such withholding tax
under the Lease Documents; (iv) no filings or registrations other than
those which have already been made or are in the process of being made
and are referenced in such opinion are necessary to record or perfect
Buyer's (or, if applicable, the lessor's) interest in such Aircraft in
such jurisdiction; and (v) upon the expiration or other valid
termination of the Lease, and subject to compliance with the laws of
such jurisdiction, the lessor would be entitled and able under the laws
of such jurisdiction to receive redelivery of such Aircraft, repossess
such Aircraft and export such Aircraft from such jurisdiction. All of
the opinions required by this clause shall be at Buyer's expense.
(m) On each Delivery Date an executed bill of sale from Seller
to Buyer and certified copies of each of the documents relating to
Seller's title to the applicable Aircraft evidencing the chain of title
from the Manufacturer to Seller (and, in the case of the B767-300
Aircraft MSN 24798, SPC-5) shall have been received in a form
reasonably satisfactory to Buyer; provided that with respect to the
B767-300 Aircraft MSN 24798, the A310-300 Aircraft MSN 409, the
A310-300 Aircraft MSN 410 and the A310-300 Aircraft MSN 437, Seller
shall only be required to deliver an affidavit of ownership with
respect to such Aircraft.
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(n) On each Delivery Date Buyer shall have received originals
or copies of certificates evidencing the insurance required to be
maintained pursuant to the applicable Lease Documents and Lease
Novation (which insurance shall name the owner of the Aircraft and each
other Person required to be so named pursuant to the Lease Documents
and Lease Novation as additional insureds and shall name the owner of
the Aircraft as Loss Payee under the relevant policies), together with
a letter of undertaking in terms reasonably acceptable to Buyer issued
by the brokers through whom the insurances of such Aircraft shall have
been placed if such a letter is required to be provided to the lessor
pursuant to the applicable Lease.
(o) On each Delivery Date, Buyer shall have received a copy
certified by Seller of the provisions of the original manufacturer
purchase agreement applicable to the relevant Aircraft and available
for the benefit of Buyer or its designee after delivery of the Aircraft
pursuant to the applicable Assignment of Warranties.
(p) On each Delivery Date the Servicing Agreement shall be or
remain a valid and binding obligation of Seller in full force and
effect.
(q) All representations, warranties, indemnities (except the
indemnity for Transfer Taxes provided in Section 5.04 hereof and the
indemnity with respect to "bulk sales," "bulk transfer" or similar laws
provided in Section 12.11 hereof) and undertakings of Seller hereunder
are capable of being assigned by Buyer to a special purpose
securitization vehicle or vehicles.
(r) On each Delivery Date, Buyer shall have received, if
applicable, the "Manufacturer Payment" for the relevant Aircraft as set
forth opposite such Aircraft on Schedule A-1.
(s) On each Delivery Date Buyer shall have received all
documents it may reasonably request relating to the existence of Seller
and the authority of Seller for this Agreement, all in form and
substance reasonably satisfactory to Buyer.
(t) On the SPC-5 Delivery Date, Buyer shall have received the
resignations, effective as of such Delivery Date, of all the directors
and officers of SPC-5.
(u) On or before the SPC-5 Delivery Date, Buyer shall have
received a copy of the minute books and stock register of SPC-5,
certified
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by the secretary or assistant secretary of SPC-5, as appropriate, as of
the applicable date.
(v) Buyer shall have received a good standing certificate for
SPC-5 from the Secretary of State of California dated as of a date no
more than 15 days before the SPC-5 Delivery Date and accompanied by a
bring-down telegram dated the SPC-5 Delivery Date.
(w) On the SPC-5 Delivery Date, Seller shall deliver to Buyer
an Internal Revenue Service Form 8023-A properly executed by AIG for
filing with the Internal Revenue Service (or shall deliver any
successor form which the Internal Revenue Service may require to be
filed by AIG in order to make an effective Section 338(h)(10) Election)
and Buyer shall send such form to the Internal Revenue Service for
filing.
(x) On each of the first and the last Delivery Dates, Buyer
shall have received an opinion of Seller's New York counsel, O'Melveny
and Myers LLP, dated the applicable Delivery Date, substantially in the
form attached hereto as Exhibit D.
SECTION 9.03. Conditions to Obligation of Seller. On the applicable
Delivery Date, the obligation of Seller to deliver each Purchased Asset is
subject to the satisfaction of the following further conditions:
(a) (i) Buyer shall have performed in all material respects
all of its obligations hereunder required to be performed by it on or
prior to such Delivery Date and (ii) the representations and warranties
of Buyer contained in this Agreement and in any certificate or other
writing delivered by Buyer pursuant hereto shall be true in all
material respects at and as of such Delivery Date, as if made at and as
of such date. On the first Delivery Date, Seller shall have received a
certificate signed by an executive officer of Buyer to the foregoing
effect. On each subsequent Delivery Date, Buyer shall be deemed to have
delivered a certificate signed by the same executive officer of Buyer
dated as of the subsequent Delivery Date and to the identical effect.
(b) Seller shall have received an opinion of Richards, Layton
& Finger, special Delaware counsel to Buyer, dated the first Delivery
Date (and, if Seller requests, dated as of any subsequent Delivery
Date), to the effect specified in Section 4.01 and the first sentence
of Section 4.02. Seller shall also have received an opinion of Davis
Polk & Wardwell, counsel to Buyer, dated the first Delivery Date (and,
if Seller requests, dated as of any subsequent Delivery Date) to the
effect specified in the
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second sentence of Section 4.02, and, with respect to matters of United
States federal and New York law, to the further effect specified in
Section 4.03. In rendering such opinions, such counsel may rely upon
certificates of public officers and, as to matters of fact, upon
certificates of officers of Buyer, copies of which opinions and
certificates shall be contemporaneously delivered to Seller.
(c) Buyer shall have received all consents, authorizations or
approvals from governmental agencies referred to in Section 4.03, in
each case in form and substance reasonably satisfactory to Seller, and
no such consent, authorization or approval shall have been revoked.
(d) Seller shall have received all documents it may reasonably
request relating to the existence of Buyer and the authority of Buyer
for this Agreement, all in form and substance reasonably satisfactory
to Seller.
(e) Any purchasing entity that Buyer designates to take
delivery of any Aircraft shall, on the applicable Delivery Date, be
duly organized and validly existing and in good standing under its
jurisdiction of organization and shall have all necessary power and
authority to carry out Buyer's obligations hereunder with respect to
such Aircraft and to consummate the transactions with respect to such
Aircraft contemplated hereby.
(f) On each Delivery Date, the Servicing Agreement shall be or
remain a valid and binding obligation of Buyer in full force and
effect.
ARTICLE 10
SURVIVAL; INDEMNIFICATION
SECTION 10.01. Survival. The representations and warranties of the
parties hereto contained in this Agreement or in any certificate or other
writing delivered pursuant hereto or in connection herewith shall survive until
the third anniversary of the last Delivery Date; provided that the covenants,
agreements, representations and warranties contained in Article 8 and Section
5.04(ii) and (iii) shall survive until expiration of the statute of limitations
applicable to the matters covered thereby (giving effect to any waiver,
mitigation or extension thereof), if later. Notwithstanding the preceding
sentence, any representation or warranty in respect of which indemnity may be
sought under this Agreement shall survive the time at which it would otherwise
terminate pursuant to the preceding sentence, if
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notice of the inaccuracy thereof giving rise to such right of indemnity shall
have been given to the party against whom such indemnity may be sought prior to
such time.
SECTION 10.02. Indemnification. (a) Seller hereby indemnifies Buyer and
its Affiliates against and agrees to hold each of them harmless from any and all
damage, loss, liability and expense (including, without limitation, reasonable
expenses of investigation and reasonable attorneys' fees and expenses in
connection with any action, suit or proceeding) ("DAMAGES") incurred or suffered
by Buyer or any of its Affiliates arising out of:
(i) any misrepresentation or breach of warranty, covenant or
agreement made or to be performed by Seller pursuant to this Agreement
(except as otherwise indemnified pursuant to Article 8); or
(ii) the ownership, leasing, use or operation of the Aircraft
on or prior to the applicable Delivery Date including, without
limitation, liabilities in respect of maintenance work performed on the
Aircraft on or prior to the applicable Delivery Date;
provided that Seller shall not be liable under Section 10.02(a)(i)
unless the aggregate amount of Damages with respect to all matters referred to
in Section 10.02(a)(i) (determined without regard to any materiality
qualification contained in any representation, warranty or covenant giving rise
to the claim for indemnity hereunder) exceeds $1,000,000.
(b) Buyer hereby indemnifies Seller and its Affiliates against and
agrees to hold each of them harmless from any and all Damages incurred or
suffered by Seller or any of its Affiliates arising out of:
(i) any misrepresentation or breach of warranty, covenant or
agreement made or to be performed by Buyer pursuant to this Agreement
(except as otherwise indemnified pursuant to Article 8); or
(ii) the ownership, leasing, use or operation of the Aircraft
following the applicable Delivery Date unless such Damages are
attributable to an incident which occurred on or prior to such Delivery
Date (including, without limitation, liabilities in respect of
maintenance work performed on the Aircraft after the Delivery Date) or
such Damages arise as a result of the wilful misconduct of Seller in
its capacity as Servicer under the Servicing Agreement or directly
result from a breach by Seller, in its capacity as Servicer, of the
express terms and conditions of the Servicing Agreement;
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provided that (A) Buyer shall not be liable under Section 10.02(b)(i)
unless the aggregate amount of Damages with respect to all matters referred to
in Section 10.02(b)(i) (determined without regard to any materiality
qualification contained in any representation, warranty or covenant giving rise
to the claim for indemnity hereunder) exceeds $1,000,000.
SECTION 10.03. Procedures. The party seeking indemnification under
Section 10.02 (the "INDEMNIFIED PARTY") agrees to give prompt notice to the
party against whom indemnity is sought (the "INDEMNIFYING PARTY") of the
assertion of any claim, or the commencement of any suit, action or proceeding in
respect of which indemnity may be sought under such Section. The Indemnifying
Party may at the request of the Indemnified Party participate in and control the
defense of any such suit, action or proceeding at its own expense. The
Indemnifying Party shall not be liable under Section 10.02 for any settlement
effected without its consent of any claim, litigation or proceeding in respect
of which indemnity may be sought hereunder.
ARTICLE 11
TERMINATION
SECTION 11.01. Grounds for Termination. This Agreement may be
terminated:
(a) at any time prior to the first Delivery Date by mutual written
agreement of Seller and Buyer;
(b) at any time after the Portfolio Delivery Deadline by Buyer if at
least twenty-eight Aircraft (including any substitute aircraft that became
designated as Aircraft pursuant to Section 7.04 hereof) representing 85% of the
aggregate Base Price of the Aircraft shall not have been delivered by the
Portfolio Delivery Deadline or such later date as may be agreed to in writing by
Buyer and Seller (the "MINIMUM TRANSFER CONDITION"), in which case Buyer and
Seller agree to cooperate in good faith to unwind all of the transactions
contemplated by and completed under this Agreement in order to put each party in
the place such party would have been in had the transactions contemplated by
this Agreement never taken place and with as few consequences (financial, tax or
otherwise) to either party as reasonably possible; provided that Buyer and
Seller agree to cooperate in good faith at such time in apportioning liability
for the payment of any Transfer Taxes imposed, levied or assessed against or
upon Seller or any of the Purchased
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Assets resulting from the sale, delivery, assignment, novation, transfer and
conveyance of the Purchased Assets back to Seller; provided further that Seller
shall pay to (or receive from) Buyer the amounts or enter into the arrangements
required under the terms of Section 11.03 hereof and, as required under the
terms of Section 2.08, Buyer shall forfeit or Seller shall repay the applicable
Buyer Deposit or Deposits as set forth in such Section; or
(c) at any time prior to the first Delivery Date by either Seller or
Buyer if consummation of the transactions contemplated hereby would violate any
nonappealable final order, decree or judgment of any court or governmental body
having competent jurisdiction.
The party desiring to terminate this Agreement pursuant to clause
11.01(c) shall give notice of such termination to the other party.
SECTION 11.02. Effect of Termination. If this Agreement is terminated
as permitted by Section 11.01, such termination shall, except for any payments,
forfeitures or arrangements required pursuant to the terms of Section 2.08 or
Section 11.03, be without liability of either party (or any stockholder,
director, officer, employee, agent, consultant or representative of such party)
to the other party to this Agreement; provided that if such termination shall
result from the (i) willful failure of either party to fulfill a condition to
the performance of the obligations of the other party, (ii) failure to perform a
covenant of this Agreement or (iii) breach by either party hereto of any
representation or warranty or agreement contained herein, such party shall be
fully liable for any and all Damages incurred or suffered by the other party as
a result of such failure or breach. The provisions of Sections 2.08, 5.02(b),
5.04, 6.01, 7.03, Article 8, 11.02, 11.03, 12.04, 12.05, 12.06, 12.07 and 12.08
shall survive any termination hereof pursuant to Section 11.01.
SECTION 11.03. Breakage Costs Upon Termination or Failure to Transfer
All Aircraft. If Buyer pays the Buyer Deposit and less than all of the "ircraft
are transferred for any reason by the Portfolio Delivery Deadline, Seller shall
(i) pay to or receive from Buyer an amount (determined by Buyer in good faith)
equal to any loss or cost incurred or gain realized by Buyer or any of Buyer's
Affiliates as a result of its terminating, liquidating, obtaining or
re-establishing any financial transaction or series of financial transactions
entered into by Buyer or any of Buyer's Affiliates to hedge its interest rate
exposure arising in connection with the funding of the aggregate Base Purchase
Price for the Aircraft (a "HEDGING TRANSACTION") or related trading position,
(ii) enter into one or a series of financial transactions with Buyer (or any
Affiliate of Buyer designated by Buyer) on terms identical in all material
respects to the Hedging Transactions sufficient to enable Buyer or any of
Buyer's Affiliates to offset its exposure under such
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Hedging Transactions or (iii) enter into such other arrangement as the parties
may agree. Buyer shall provide Seller with the basis of its calculation of the
amount (determined by Buyer in good faith) of any loss or cost incurred (or gain
realized) by Buyer or any of Buyer's Affiliates as a result of its terminating,
liquidating, obtaining or reestablishing the Hedging Transactions. Seller will
have fifteen (15) days to notify Buyer if Seller determines in good faith that
such amount has been calculated incorrectly. If Seller does contest such amount
and Buyer and Seller are unable to reach agreement within fifteen (15) days
after receipt of Seller's notification, then the Independent Referee shall
determine such amount, using such third party experts as is necessary, the cost
of which determination (and any experts) shall be borne equally by Buyer and
Seller. Interest shall accrue on any amount ultimately paid to or by Buyer
pursuant to this Section at One Month LIBOR from and including the date of
Buyer's initial calculation of the amount payable to but excluding the date of
payment of the amount ultimately agreed by the parties or determined by the
Independent Referee.
To the extent that the Minimum Transfer Condition is satisfied or
waived in writing by Buyer but less than all the Aircraft are transferred,
Seller's obligations under this Section 11.03 shall be with respect to only such
portion of the Hedging Transactions as bears the same relationship to the value
of all Hedging Transactions as the Base Purchase Price for the Aircraft which
failed to transfer bears to the aggregate Base Purchase Price for all Aircraft.
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. Warranties and Disclaimers. THE AIRCRAFT SHALL BE SOLD
IN "AS IS, WHERE IS" CONDITION AT DELIVERY AND, EXCEPT AS PROVIDED IN SECTION
10.01 AND 12.01, SELLER MAKES NO WARRANTIES, GUARANTEES, OR REPRESENTATIONS OF
ANY KIND, EITHER EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, THAT SHALL SURVIVE
DELIVERY BY SELLER TO BUYER HEREUNDER. BUYER WAIVES, RELEASES AND RENOUNCES ALL
GUARANTEES, WARRANTIES, REPRESENTATIONS, OBLIGATIONS, COVENANTS AND LIABILITIES
OF SELLER, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY
NON-CONFORMITY OR DEFECT IN THE AIRCRAFT, INCLUDING WITHOUT LIMITATION, ANY
IMPLIED WARRANTY OF FITNESS FOR USE OR MERCHANTABILITY OR USE FOR A PARTICULAR
PURPOSE, ANY LIABILITY ARISING FROM STRICT LIABILITY IN TORT, PRODUCTS
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LIABILITY, IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF
DEALING OR USAGE OF TRADE, AIRWORTHINESS OR LOSS OF USE, PROFIT OR OTHER
CONSEQUENTIAL DAMAGES OR WITH RESPECT TO ANY LESSEE. Nothing in the foregoing is
intended to limit the specific provisions of this Agreement or the rights and
remedies of Buyer specifically provided for in this Agreement.
Seller shall extend to Buyer the rights and benefits, to the extent
that the same are not extinguished by the sale of the Aircraft, of any
warranties, service life policies and patent indemnities of any Manufacturer and
any maintenance and overhaul agencies of and for each of the Aircraft which
Seller may have. Seller also hereby grants to Buyer rights of subrogation
relating to any claim which Seller may have under such warranties concerning the
Aircraft. Seller shall take such action as Buyer may reasonably request and as
may be reasonably necessary to secure such rights and protection for Buyer.
SECTION 12.02. Notices. Any notice, request or information required or
permissible under this Agreement will be in writing and in English. Notices will
be delivered in person or sent by fax, letter (mailed airmail, certified and
return receipt requested), or by expedited delivery addressed to the parties as
set forth below in this Section. In the case of a fax, notice will be deemed
received upon the date set forth on the confirmation of receipt produced by the
sender's fax machine immediately after the fax is sent. In the case of a mailed
letter, notice will be deemed received on the tenth (10th) day after mailing. In
the case of a notice sent by expedited delivery, notice will be deemed received
on the date of delivery set forth in the records of the person which
accomplished the delivery. If any notice is sent by more than one of the above
listed methods, notice will be deemed received on the earliest possible date in
accordance with the above provisions. Notices will be addressed as follows:
if to Buyer, to:
Morgan Stanley Aircraft Finance
c/o KPMG Corporate Finance
Russell Court
St. Stephen's Green
Dublin 2
Ireland
Attention: Mr. Kieran O'Keefe
Fax: 353-1-708 1555
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with a copy to:
Davis Polk & Wardwell
1 Frederick's Place
London EC2R 8AB
Attention: Mr. Tom Reid
Fax: 44-171-418 1400
and
Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
Attention: Mr. Scott Peterson
Fax: 44-171-425 4328
if to Seller, to:
International Lease Finance Corporation
1999 Avenue of the Stars
39th Floor
Los Angeles, CA 90067
Attention: Legal Department
Fax: 1 310 788 1990
or to such other address as the parties hereto shall from time to time designate
in writing to the other party.
SECTION 12. 3. Amendments and Waivers. (a) Any provision of this
Agreement may be amended or waived if, but only if, such amendment or waiver is
in writing and is signed, in the case of an amendment, by each party to this
Agreement, or in the case of a waiver, by the party against whom the waiver is
to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
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SECTION 12.04. Expenses. Except as otherwise provided herein, all
costs and expenses incurred in connection with this Agreement shall be paid by
the party incurring such cost or expense.
SECTION 12.05. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto, except that (i) Buyer may
transfer or assign, in whole or from time to time in part, to one or more of its
Affiliates, the right to purchase all or a portion of the Purchased Assets, but
no such transfer or assignment will relieve Buyer of its obligations hereunder
and (ii) Buyer may transfer or assign the benefit of Seller's representations,
warranties, covenants and indemnity obligations (except the indemnities for
Transfer Taxes provided in Section 5.04 hereof and for compliance with "bulk
sales," "bulk transfer" or similar laws provided in Section 12.11 hereof) to a
special purpose entity or entities established in connection with a
securitization of the Aircraft.
SECTION 12.06. Governing Law. This agreement shall be governed by and
construed in accordance with the law of the State of New York.
SECTION 12.07. Jurisdiction. Except as otherwise expressly provided in
this Agreement, the parties hereto agree that any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby may be
brought in the United States District Court for the Southern District of New
York or any other New York State court sitting in New York City, and each of the
parties hereby consents to the jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding
and irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit, action or
proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 12.02 shall be deemed
effective service of process on such party.
SECTION 12.08. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
43
<PAGE> 49
SECTION 12.09. Counterparts; Third Party Beneficiaries. This Agreement
may be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received a counterpart hereof signed by the other party hereto. No
provision of this Agreement is intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder.
SECTION 12.10. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement.
SECTION 12.11. Bulk Sales Laws. Buyer and Seller each hereby waive
compliance by Seller with the provisions of the "bulk sales", "bulk transfer" or
similar laws of any state. Seller agrees to indemnify and hold Buyer harmless
against any and all claims, losses, damages, liabilities, costs and expenses
incurred by Buyer or any of its Affiliates as a result of any failure to comply
with any such "bulk sales", "bulk transfer" or similar laws.
SECTION 12.12. Non Solicitation. In consideration of the considerable
expense to be incurred by Buyer in connection with the transactions contemplated
by this Agreement, neither Seller nor any of its officers, directors, agents or
representatives will (i) engage in any negotiation with another person regarding
the sale or transfer of any Purchased Assets or similar transaction; or (ii)
provide any non public information relating to the Purchased Assets to any
person that may be interested in any transaction of the nature contemplated by
this Agreement, in each case prior to the earlier of January 31, 1998 or the
termination of this Agreement pursuant to Section 11.01.
SECTION 12.13. Captions. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.
44
<PAGE> 50
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
MORGAN STANLEY AIRCRAFT
FINANCE
By: /s/ Karl Essig
---------------------------------------------
Name: Karl Essig
Title: Attorney-in-Fact
INTERNATIONAL LEASE
FINANCE CORPORATION
By: /s/ Alan H. Lund
--------------------------------------------
Name: Alan H. Lund
Title: Executive Vice President
45
<PAGE> 51
SCHEDULE 3.01
MISSING OR REQUIRED PERMITS
1. BOEING 737-3S3QC AIRCRAFT BEARING MSN 23788 AND FRENCH REGISTRATION MARK
F-GIXH (THE "AEROPOSTALE AIRCRAFT") WHICH IS CURRENTLY BEING LEASED TO
SOCIETE D'EXPLOITATION AEROPOSTALE S.A. ("AEROPOSTALE").
a. AGENT FOR THE COLLECTION OF VAT IN FRANCE. Seller has been informed by
French counsel in the past that the laws of the Republic of France
require Seller to have an agent for the collection of VAT in France.
Seller has never established an agent in France. Upon the sale of the
Aeropostale Aircraft, Buyer may need to establish its own agent for
the collection of VAT in France and bear all of the costs associated
with having an agent in France for the collection of VAT.
2. AIRBUS A321-100 AIRCRAFT BEARING MSN 597 AND TURKISH REGISTRATION MARK
TC-ONI (THE "ONUR AIRCRAFT") WHICH IS CURRENTLY BEING LEASED TO ONUR AIR
TASIMACILIK AS ("ONUR").
a. EFFECTIVENESS OF LEASE IN TURKEY. For a financial lease to be valid
and effective in Turkey, it must be drawn up (ex officio) in Turkish
by a Turkish notary public and executed by the lessee and the lessor
before a Turkish notary public. A lease, to be recognized as a
financial lease under Turkish law, must be registered with the Under
Secretariat of Treasury of the Prime Ministry of Turkey and the Civil
Aviation Directorate of the Ministry of Transportation of Turkey (the
"CAD"), after which the CAD will issue the certificate of
registration. Seller is not certain whether the English version or the
Turkish translation of its lease with Onur will govern in any dispute
in the Turkish courts.
3. BOEING 737-4Q8 AIRCRAFT BEARING MSN 25372 AND TURKISH REGISTRATION MARK
TC-JDI (THE "THY AIRCRAFT") WHICH IS CURRENTLY BEING LEASED TO TURK HAVA
YOLLARI ("THY").
a. EFFECTIVENESS OF LEASE IN TURKEY. According to the Financial Leasing
Law in order for a financial lease to be valid and effective in
Turkey, it must be drawn up (ex officio) in Turkish by a Turkish
notary public and executed by the lessee and the lessor before a
Turkish notary public. A lease, to be recognized as a financial lease
under Turkish law, must be registered with the Under Secretariat of
Treasury of the Prime Ministry of Turkey and the Civil Aviation
Directorate of the Ministry of Transportation of Turkey (the "CAD"),
after which the CAD will issue the certificate of registration. THY
informed Seller that it is exempt from the
-1-
<PAGE> 52
requirement that the Turkish translation of the lease be executed by
the parties before a notary public. Seller is not certain if THY even
had the lease translated to Turkish and filed with the appropriate
filing office, but THY did receive a certificate of registration.
Also, Seller is not certain if the English version of the lease or the
Turkish translation, if one does in fact exist, will govern in any
dispute in the Turkish courts.
4. BOEING 757-28A AIRCRAFT BEARING MSN 24367 AND IRISH REGISTRATION MARK
EI-CLM (THE "TRANSAERO AIRCRAFT") WHICH IS CURRENTLY BEING LEASED TO
TRANSAERO AIRLINES ("TRANSAERO").
a. IMPORT TAX EXEMPTION. The Russian government has imposed a tax on any
western made aircraft which is leased by a Russian airline for longer
than 1 year. Transaero has received a blanket exemption from the
import tax, but the exemption expires during the lease term. The
blanket exemption for Transaero permits Transaero to not pay a tax for
its lease of the Transaero Aircraft. When the blanket exemption
expires, it is quite possible that the parties will need to make
alternative arrangements. But Transaero is quite confident that the
exemption will be extended or the law will be revised.
-2-
<PAGE> 53
SCHEDULE 3.03
REQUIRED GOVERNMENTAL AUTHORIZATIONS
1. GENERAL
a. UCC-1 Financing Statements. Seller has not filed any UCC-1 financing
statements for any of the Aircraft Lease Agreements entered into
between Seller (or any of its subsidiaries) and any lessee which is
located outside of the United States of America (including, without
limitations, Aerovias de Mexico, S.A. de C.V. ("AeroMexico") which has
registered its aircraft in the United States of America). In addition,
Seller has either only filed a UCC-1 financing statement setting forth
the lease transaction for the aircraft leased to a lessee in the
United States in the jurisdiction where such lessee's chief executive
office is located or Seller has not filed any UCC-1 financing
statements with respect to such lease transaction. Buyer will need to
decide whether it desires to have UCC-1 financing statements prepared,
executed and filed for the leases.
b. Filings. Seller is not sure if there are any requirements under any
other jurisdictions which are similar to the requirements in the
United States for the filing of UCC-1 financing statements. It is
quite possible that similar requirements exist in these other
jurisdictions.
c. Local Agent for Service of Process. The majority of the leases for the
Aircraft do not contain a local agent for service of process. This is
not necessary under California law, but some of the jurisdictions may
have laws that require the appointment of a local agent for service of
process.
2. BOEING 737-3S3OC AIRCRAFT BEARING MSN 23788 AND FRENCH REGISTRATION MARK
F-GIXH (THE "AEROPOSTALE AIRCRAFT") WHICH IS CURRENTLY BEING LEASED TO
SOCIETE D'EXPLOITATION AEROPOSTALE S.A. ("AEROPOSTALE")
a. Agent for the Collection of VAT in France. Seller has been informed by
French counsel in the past that the laws of the Republic of France
require Seller to have an agent for the collection of VAT in France.
Seller has never established an agent in France. Upon the sale of the
Aeropostale Aircraft, Buyer may need to establish its own agent for
the collection of VAT in France and bear all of the costs associated
with having an agent in France for the collection of VAT.
<PAGE> 54
SCHEDULE 3.03
AUSTRALIA
No requirements or otherwise as advised by local counsel.
<PAGE> 55
SCHEDULE 3.03
BRAZIL
A. WITH RESPECT TO THE B747-341 AIRCRAFT MSN 24106,
PRE-DELIVERY:
(1) The Bill of Sale, the Novation Agreement and the Lease must be
registered with the Brazilian Aeronautical Registry ("RAB") in a form
acceptable to the RAB and accompanied by a sworn Portuguese translation and
Power of Attorney.
All documents filed with the RAB must be accompanied by at least one
certified copy of the executed documents.
(2) The Novation Agreement must be signed before two witnesses and
registered with the Registry of Deeds. A sworn Portuguese translation must
accompany any document produced in a foreign language.
(3) The Bill of Sale must be registered with the Registry of Deeds.
POST DELIVERY:
(1) Lessee must obtain the amendment to the Certificate of Registration
and to the Schedule of Payments by the Foreign Trade Secretariat and the
Central Bank of Brazil approving the remittances to the new lessor.
(2) Amendment of the authorization issued by the Commission for
Coordination of Civil Air Transport ("COTAC").
(3) Approval of the Certificate of Registration and Nationality and the
Certificate of Airworthiness issued by RAB.
(4) Notice to the Federal Review Service informing that ownership of the
aircraft has changed.
(5) De-registration power-of-attorney.
(6) Notice of new agent for service of process as well as acceptance
thereof.
<PAGE> 56
SCHEDULE 3.03
(7) Payment of relevant fees.
B. WITH RESPECT TO THE A310-300 AIRCRAFT MSN 437, AS REQUIRED AS ADVISED BY
LOCAL COUNSEL.
<PAGE> 57
SCHEDULE 3.03
CHINA
PRE-DELIVERY:
(1) Lessee of Aircraft must file the following documents with the Civil
Aviation Administration of China (The "CAAC"):
(a) The Bill of Sale
(b) The Novation
(2) Please Note: On October 21, 1997, China's Premier Li Peng
promulgated two new regulations (both effective as of 10/21/97): (a) the
Aircraft Registration Regulation, and (b) the Rights Registration Regulation.
Both of these Regulations impose new aircraft registration fees; the amount of
such fees to be decided by the CAAC.
<PAGE> 58
SCHEDULE 3.03
FRANCE
PRE-DELIVERY:
(1) Special exemption ("arrete") for non-French entity to register
aircraft must be obtained from French Minister of Transport ("MOT") by filing
two original copies of Form CERFA 10094*1 with all required attachments.
(2) After obtaining the arrete, aircraft is registered by filing two
original copies of Form CERFA 10090*01 with the Direction Generale de l'Aviation
Civile ("DGAC") and returning original certificate of registration to the DGAC.
(3) Notice of the Novation Agreement must be served on the Lessee by a
bailiff ("huissier").
(4) Registration of the Novation Agreement using two originals of Form
CERFA 10092*01 must be effected with the following documents attached:
(a) A French summary of the novated lease signed by the new lessor and
the lessee, and
(b) one original of the signed Novation Agreement together with a
signed summary.
<PAGE> 59
SCHEDULE 3.03
FIJI
PRE-DELIVERY:
(1) Record in an "advice" signed by both Buyer and Seller of the Aircraft,
the full particulars of Buyer and Lessee and their respective interests in the
Aircraft.
(2) Submit the signed advice to the Civil Aviation Authority of Fiji (the
"CAAF"), along with any information necessary to update the CAAF register with
respect to the Aircraft's transfer of title.
(3) Submit the advice to the CAAF register as near as possible to the day
on which the Aircraft title is to pass. Alternatively, can file the advice with
the CAAF register in advance of the transfer of title, noting that such advice
is "to be effective only upon further notification."
<PAGE> 60
SCHEDULE 3.03
HONG KONG
POST-DELIVERY:
(1) Buyer must notify the Director of the Hong Kong Civil Aviation
Department (the "CAD") in writing of a change of legal ownership within 28 days
of transfer of title.
(2) If the transfer occasions the termination of the original lease, CAD
director must be notified of this (no time frame specified).
<PAGE> 61
SCHEDULE 3.03
HUNGARY
PRE-DELIVERY:
(1) Apply to the Hungarian Aviation Authority (Legugyi Igazgatosag) for
amendment of registration in the National Aircraft Register.
(2) Customs inspection and customs clearance document if required as
advised by local counsel.
(3) Confirm Aircraft operator in possession of an operating license.
(4) Pay registration and fee.
<PAGE> 62
SCHEDULE 3.03
ICELAND
PRE-DELIVERY:
(1) Buyer must register in the National Register of Aircraft at the
Civil Aviation Administration (CAA). The application of registration must be
accompanied by the Bill of Sales as well as a Power of Attorney giving
authority to register the transfer of title,
(2) De-registration:
(a) A "clean" certificate must be obtained from the Register of
Rights in Aircraft kept by the City Registrar to the effect that the
Aircraft is unencumbered.
(b) A request must be made to the CAA to de-register based on the
"clean" certificate.
(3) The Lessee applies to the Minister of Communications and obtains an
exemption to register a foreign owned aircraft.
<PAGE> 63
SCHEDULE 3.03
IRELAND
PRE-DELIVERY:
Notation on the Aircraft Register of the Buyer's interest and cancellation
of Seller's notation.
<PAGE> 64
SCHEDULE 3.03
KOREA
PRE-DELIVERY:
(1) The Buyer must submit the following documentation to the Ministry of
Construction and Transportation, if required as advised by local counsel:
(a) The application for registration
(b) The Purchase Agreement - to be notarized by the consul of the
Korean Embassy in the United States.
(c) A certificate stating that the new owner has paid all Korean
taxes. This is issued by the Korean tax office.
(d) The certificate of nationality of the new lessor.
(e) Notarized power of attorney of agent to perform registration.
<PAGE> 65
SCHEDULE 3.03
NETHERLANDS
PRE-DELIVERY:
As required as advised by local counsel
POST-DELIVERY:
The owner of an aircraft registered in the Nationality Register must
inform RLD of the transfer of title to its Aircraft within one month after
transfer of title.
<PAGE> 66
SCHEDULE 3.03
PORTUGAL
PRE-DELIVERY:
(1) Registration with the Directorate General of Civil Aviation (the
"DGCA") by filing application including: Power of Attorney from Buyer conferring
power to file application, Novation Agreement, and the Bill of Sale; all
endorsed with the Apostil of the Hague Convention.
(2) Lessee must provide the "documentation of the aircraft" to the DGCA.
(3) Pay registration and radio license fee to DGCA and VAT.
<PAGE> 67
SCHEDULE 3.03
RUSSIA
PRE-DELIVERY
(1) Register aircraft operating in Russia identified by reference to
lessor and the Lease.
(2) Lessee must receive permission from Central Bank for security deposit.
<PAGE> 68
SCHEDULE 3.03
TURKEY
PRE-DELIVERY:
(1) Documents must be submitted to and approved by Undersecretariat of
the Treasury of the Prime Ministry of the Republic of Turkey:
(a) Novation Agreements notarized and apostilled, with notarized
translation into Turkish, or original executed in Turkey in
English and Turkish ("drafted ex officio by a Turkish Notary
Public").
(b) Power of Attorney of person signing the Novation Agreement for
Lessee, new Lessor and existing Lessor (notarized and apostilled
or certified by the Turkish Embassy) and notarized translation
into Turkish.
(c) Bill of Sale stating sales price certified by the local Chamber
of Commerce and notarized and certified by the Turkish Embassy or
Consulate (fee charged) and notarized translation into Turkish.
(d) The constitutive documents of new lessor (confirming new lessor
is authorized to own and lease aircraft) plus separate document
containing such confirmation if not in constitutive documents.
After such approval,
(2) Application to Civil Aviation Directorate ("CAD") of:
(a) Bill of Sale
(b) Novation Agreement
(c) Revised Insurance certificates
(d) Originals of the Aircraft Registration Certificate
<PAGE> 69
SCHEDULE 3.03
(e) Power of Attorney of person signing the Novation Agreement for Lessee,
new lessor and existing lessor (notarized and apostilled or certified
by the Turkish Embassy) and notarized translation into Turkish.
and issuance of new Aircraft Registration Certificates by CAD.
(3) Reissue de-registration powers of attorney.
<PAGE> 70
SCHEDULE 3.03
UNITED KINGDOM
POST DELIVERY:
(1) The Lessee is obliged to notify the Civil Aviation Authority ("CAA")
of any change in the information which was furnished to the CAA in connection
with the Lessee's original registration with the CAA.
(2) Buyer must inform the authority in writing of its ownership within 28
days of transfer of title.
<PAGE> 71
SCHEDULE 3.03
UNITED STATES
PRE-DELIVERY:
(1) Filed with the Federal Aviation Authority ("FAA"):
(a) AC Form 8050-2 Aircraft Bill of Sale
(b) AC Form 8050-1 Aircraft Registration Application
(c) Affidavit of Citizenship of MSAF
(d) Affidavit of Citizenship of beneficiary of Trust
(e) Trust Agreement
(f) Assignment and Assumption Agreement between ILFC and MSAF assigning
all right, title and interest of ILFC in, to and under the existing
lease.
(2) Filed with the Aeronautical Center Counsel ("ACC") for review:
(a) Trust Agreement
then, ACC issues its opinion.
(3) "FLYWIRE" of Aircraft to be flown internationally.
<PAGE> 72
SCHEDULE 3.03
SWITZERLAND
PRE-DELIVERY:
(1) New owner must receive authorization of Swiss Civil Aviation Agency
and be entered on the Aircraft Register (Luftfahrzeugregister) and the Aircraft
Record (Luftfahrzeugbuch) (entry on the latter with submission of a document
evidencing transfer of ownership).
(2) Seller must ensure they are struck off the Aircraft Register.
(3) New owner needs an address for notification in Switzerland; if this is
Lessee, Lessee's consent must be obtained.
<PAGE> 73
SCHEDULE 3.05
REQUIRED CONSENTS
1. GENERAL
a. LEASE NOVATIONS. The leases for the Aircraft have various requirements
in connection with the sale of the Aircraft. Some of the leases have
net worth requirements for the purchaser of the Aircraft, others have
citizenship requirements and still others have requirements that the
purchaser enter into an assignment and assumption or similar agreement
with the lessee. All of these requirements should be satisfied or
waived by Buyer, Seller and the respective lessee entering into the
appropriate Lease Novations.
b. SUBLEASE ASSIGNMENTS. Some of the lessees have subleased the Aircraft
to third parties. In connection with such subleases, Seller and the
lessee have executed an assignment of the sublease, pursuant to which
such lessee assigned such sublease to Seller for security purposes.
Seller and Buyer will need to send a letter to the appropriate
sublessee stating that if the sublessee receives written notice from
Buyer and not Seller that an event of default has occurred under the
lease between Buyer and the respective lessee that such sublessee
should make its payments to Buyer instead of Seller or Buyer and
Seller should make such other arrangements as they deem appropriate.
c. MANUFACTURER'S CONSENT. In order to transfer the warranties, service
life policies and other product support which the airframe
manufacturer, engine manufacturer or vendors will provide for the
Aircraft, Buyer and Seller must obtain the consent of the airframe
manufacturer, engine manufacturer and vendors (if any) to the sale of
the aircraft and the transfer of the warranties, service life policies
and other product support. This restriction is contained in the
various purchase agreements between the manufacturers and Seller and
most probably in the purchase agreements between the manufacturer and
the entity, if not Seller, which originally purchased one of the
Aircraft from the respective manufacturer.
d. INSURANCE CERTIFICATES. In order to complete the sale of any of the
Aircraft, Buyer and Seller will need to have the appropriate lessee's
insurance provider provide hull, hull war risk and liability insurance
to Buyer and liability insurance coverage to Seller. The appropriate
lessee will need to obtain the consent of its insurance provider
under its insurance policy.
<PAGE> 74
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE (1) BOEING 737-548 AIRCRAFT
BEARING SERIAL NUMBER 25165 AND IRISH REGISTRATION EI-CDT (AER LINGUS PLC,
LESSEE)
I. CORRESPONDENCE
A. One copy of Insurance Certificates dated April 3, 1997 and April 7,
1997
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated as of August 30, 1991
between International Lease Finance Corporation ("ILFC") as Lessor,
and Aer Lingus PLC ("Air Lingus"), as Lessee
III. SIDE LETTERS/AMENDMENTS
A. One copy of Side Letter Number 3 to Aircraft Lease Agreement dated
August 8, 1997
B. One copy of Letter (plus copy of facsimile transmission) from Aer
Lingus regarding Second One Year Lease Extension dated October 21,
1996
C. One copy of Letter from Aer Lingus regarding First One Year Lease
Extension dated October 20, 1995
D. One copy of Side Letter Number 2 to Aircraft Lease Agreement dated
April 12, 1994
E. One copy of Letter Agreement No. 1 to Aircraft Lease Agreement dated
August 30, 1991
F. One copy of Aircraft Purchase Agreement between ILFC and Aer
Lingus PLC
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated April 23, 1993
B. One copy of Aircraft Receipt dated April 23, 1993
C. One copy of Boeing Delivery Agenda dated April 23, 1993
V. REGISTRATION & CERTIFICATES
A. One copy of Certificate of Registration from Irish Aviation Authority
dated April 4, 1997
B. One copy of Certificate of Airworthiness from Irish Aviation Authority
dated April 8, 1997
C. One copy of Certificate of Registration from Ministerio Da Aeronautica
Departamento De Aviacao Civil Registro Aeronautico Brasileiro dated
May 12, 1995
<PAGE> 75
D. One copy of Certificate of Airworthiness from Ministerio Da
Aeronautica Departamento De Aviacao Civil Registro Aeronautico
Brasileiro dated May 12, 1995
E. One copy of Cancellation of Irish Registration from Irish Aviation
Authority dated May 12, 1995
F. One copy of Aircraft Station Licence from Department of Tourism,
Transport and Communications of Ireland dated January 28, 1993
G. One copy of Certificate of Registration from Department of Tourism,
Transport and Communications of Ireland dated April 23, 1993
H. One copy of Certificate of Airworthiness from Department of Tourism,
Transport and Communications of Ireland date April 23, 1993
I. One copy of Flight Manual Approval from Department of Tourism and
Transport of Ireland dated April 23, 1993
J. One copy of Noise Certificate from Department of Tourism and Transport
of Ireland dated April 23, 1993
K. One copy of Confirmation of Non-Registration from United States
Federal Aviation Administration dated April 16, 1993
L. One copy of Export Certificate of Airworthiness from United States
Federal Aviation Administration dated April 23, 1993
M. One copy of Headset Request Approval from Department of Tourism and
Transport of Ireland date January 7, 1991
N. One copy of Application for an End Use Import Certificate from
Department of Tourism and Trade of Ireland dated April 15, 1993
O. One copy of Application for Registration of Aircraft from Department
of Transport, Energy & Communications dated March 19, 1993
P. One copy of Air Transport License/Air Operator's Certificate (Air
Services Authorisation Order, 1966)
Q. One copy of Certificate of Sanitary Construction from United States
Department of Health and Human Services dated March 26, 1993
R. One copy of Certificate of Origin from State of Washington dated
April 23, 1993
S. One copy of General Declaration dated April 23, 1993
T. One copy of Passenger Manifest dated April 23, 1993
U. One copy of Cargo Manifest dated April 23, 1993
VI. COMPANY CERTIFICATES
A. One copy of Certificate of No Default dated April 23, 1993
B. One copy of Certificate of Average Flight Ratio dated April 13, 1993
C. One copy of Certificate of Authority to Accept Delivery dated April 7,
1993
D. One copy of Aer Lingus Power of Attorney
E. One copy of ILFC Power of Attorney
F. One copy of Proforma Invoice dated April 23, 1993
G. One copy of Letter with respect to Air Services Authorization Order,
1966 and Exchange Control dated January 12, 1993
<PAGE> 76
SCHEDULE 3.09
H. One copy of Letter with respect to Exchange Control dated October
30, 1991
I. One copy of Extract of Meeting of Board of Director's Meeting held
on July 24, 1991
VII. AGENCY AGREEMENT
A. One copy of Agency Agreement dated December 13, 1991
VIII. OPINION OF COUNSEL
A. One Copy of Opinion of In-House Counsel of Aer Lingus dated April
23, 1993
IX. ASSIGNMENT OF WARRANTIES
A. One copy of Assignment of Rights (Airframe) dated April 23, 1993
B. One copy of Assignment of Warranties (Engines) dated April 23, 1993
C. One copy of letter regarding Consent to Assignment dated April 27,
1993
X. COOPERATION AGREEMENT
NONE
XI. TECHNICAL DATA
A. One copy of Delivery Exceptions Letter dated April 23, 1993
B. One copy of Boeing facsimile dated September 6, 1991
C. One copy of Airframe and Engine placards
XII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 77
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE(1) BOEING 757-2Q8 AIRCRAFT BEARING
SERIAL NUMBER 26272 AND U.S. REGISTRATION N805AM (AEROVIAS DE MEXICO, S.A. DE
C.V., LESSEE)
I. CORRESPONDENCE
A. One copy of Insurance/Reinsurance Certificate dated June 1, 1997
B. One copy of Letter of Undertaking dated June 1, 1997
C. One copy of Filing Confirmation Letter dated November 7, 1994
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated as of February 23, 1994
between International Lease Finance Corporation ("ILFC"), as Lessor,
and Leasing Enterprises, Ltd., as Lessee
III. SIDE LETTERS/AMENDMENTS
A. One copy of Amendment No. 3 to Aircraft Lease Agreement dated as of
August 1, 1995
B. One copy of Amendment No. 2 to Aircraft Lease Agreement dated as of
February 13, 1995
C. One copy of Amendment No. 1 to Aircraft Lease Agreement dated March 1,
1994
D. One copy of Side Letter Agreement dated January 7, 1993
IV. ESTOPPEL AND ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate executed by Leasing
Enterprises, Ltd. dated March 1, 1994
B. One copy of Aircraft Receipt executed by Leasing Enterprises, Ltd. and
Aerovias De Mexico, S.A. De C.V. dated March 1, 1994
V. SUBLEASE AGREEMENT
A. One copy of Aircraft Sublease Agreement dated as of February 23, 1994
between Leasing Enterprises, Ltd., as Lessor, and Aerovias de Mexico,
S.A. de C.V. ("Aeromexico"), as Lessee
VI. SIDE LETTERS/AMENDMENTS
A. One copy of Amendment No. 3 to Aircraft Sublease Agreement dated as of
August 1, 1995
B. One copy of Amendment No. 2 to Aircraft Sublease Agreement dated as of
February 13, 1995
<PAGE> 78
SCHEDULE 3.09
C. One copy of Amendment No. 1 to Aircraft Sublease Agreement dated
March 1, 1994
VII. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate executed by
Aeromexico dated March 1, 1994
B. One copy of Delivery Agenda executed by Aeromexico dated March 1,
1994
C. One copy of Aircraft Receipt executed by Leasing Enterprises, Ltd.
and Aeromexico dated March 1, 1994
VIII. ASSIGNMENT
A. One copy of Assignment of Sublease dated as of February 23, 1994
IX. CONSENT
A. One copy of Consent and Agreement dated February 23, 1994
X. GUARANTY
A. One copy of Unconditional Guaranty dated as of February 23, 1994
XI. REGISTRATION & CERTIFICATES
A. One copy of Certificate of Registration from United States Federal
Aviation Administration dated June 16, 1994
B. One copy of Temporary Certificate of Registration from United States
Federal Aviation Administration dated June 16, 1994
C. One copy of Confirmation of Deregistration from Direccion General de
Aeronautica Civil of Mexico dated June 14, 1994
D. One copy of Application for Aircraft Registration filed with United
States Federal Aviation Administration
E. One copy of Aircraft Bill of Sale filed with United States Federal
Aviation Administration dated March 1, 1994
F. One copy of Affidavit of Continuous Ownership dated April 27, 1994
G. One copy of Temporary Authorization from Direccion General de
Aeronautica Civil of Mexico dated March 1, 1994
H. One copy of Airworthiness Certificate from Direccion General de
Aeronautica Civil of Mexico dated August 31, 1994
I. One copy of Confirmation of De-Registration from United States
Federal Aviation Administration dated December 9, 1993
J. One copy of Export Certificate of Airworthiness from United States
Federal Aviation Administration dated March 1, 1994
K. One copy of Certificate of Origin from State of Washington dated
March 1, 1994
L. One copy of Certificate of Sanitary Construction dated January 25,
1994
M. One copy of Proforma Invoice dated May 19, 1994
<PAGE> 79
SCHEDULE 3.09
N. One copy of Confirmation of Reservation of United States
Registration Numbers from United States Federal Aviation
Administration dated September 10, 1992
XII. COMPANY CERTIFICATES
A. One copy of Board Resolutions of Aeromexico dated February 18, 1994
B. One copy of Incumbency Certificate of Aeromexico dated February 18,
1994
C. One copy of Permit/Approval dated February 21, 1994
D. One copy of Aeromexico Incumbency Certificate dated January 19,
1993
E. One copy of Aeromexico Board Resolutions dated January 19, 1993
F. One copy of Notice to DGAC dated March 1, 1994
G. One copy of ILFC Power of Attorney dated February 28, 1994
H. One copy of list of Airports to which the aircraft will be operated
I. One copy of Factura Pro-Forma dated February 23, 1994
J. One copy of Leasing Enterprises Consent of the Directors pursuant
to Articles of Association dated February 24, 1994
K. One copy of Leasing Enterprises Consent of the Members pursuant to
By-Laws dated January 3, 1994
L. One copy of Leasing Enterprises Incumbency Certificate dated
February 24, 1994
XIII. AGENCY AGREEMENT
NONE
XIV. OPINION OF COUNSEL
A. One copy of Opinion of Conyers, Dill & Pearman, counsel to
Aeromexico dated April 15, 1994
B. One copy of Opinion of In-House Counsel of Aeromexico (regarding
Lease, Sublease, Assignment) dated February 28, 1994
C. One copy of Opinion of In-House counsel of Aeromexico (regarding
Sublease, Guaranty, Consent) dated February 28, 1994
D. One copy of Opinion of Ritch, Heather y Muller, S.C., counsel to
Aeromexico dated March 4, 1994
XV. ASSIGNMENT OF WARRANTIES
A. One copy of Assignment of Rights (Airframe) dated March 1, 1994
B. One copy of Pratt & Whitney Assignment of Warranties dated March 1,
1994
C. One copy of Pratt & Whitney cover letter dated May 2, 1994
XVI. COOPERATION AGREEMENT
NONE
XVII. TECHNICAL DATA
A. One copy of Boeing Delivery Exceptions Letter dated March 1, 1994
B. One copy of Aeromexico's B-757 Maintenance Services
<PAGE> 80
SCHEDULE 3.09
XVIII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 81
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE(1) BOEING 737-3S3QC AIRCRAFT
BEARING SERIAL NUMBER 23788 AND FRENCH REGISTRATION F-GIXH (L'AEROPOSTALE,
LESSEE)
I. CORRESPONDENCE
A. One copy of the Letter of Intent dated July 18, 1994
B. One copy of the Insurance Certificate dated November 26, 1996
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated September 12, 1994
between International Lease Finance Corporation ("ILFC"), as
Lessor, and Societe D'Exploitation Aeropostale S.A.
("L'Aeropostale"), as Lessee
III. SIDE LETTERS/AMENDMENTS
A. One copy of Side Letter Number 1 to Aircraft Lease Agreement
dated September 12, 1994
B. One copy of Amendment No. 1 to Aircraft Lease Agreement dated as
of January 4, 1995
C. One copy of letter from Klein-Goddard Associes dated January 12,
1995 regarding review of Amendment No.1 dated December 30, 1994
regarding pooling arrangements
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated
October 27, 1994
B. One copy of Memo dated October 22, 1994 to Dave Fulford of ILFC
from the Borescope Inspector regarding High Pressure Turbine
Nozzle Guide Vane Distress
V. REGISTRATION & CERTIFICATES
A. One copy of Certificate of Airworthiness issued by Republique
Francaise Direction Generale De L'Aviation Civile dated
November 4, 1994
B. One copy of Certificate of Registration from Republique Francaise
Ministere des Transports dated November 4, 1994
C. One copy of Confirmation of De-Registration from United States
Federal Aviation Authority dated October 26, 1994
D. One copy of Authority to Register Aircraft in ILFC's name from
Republique Francaise Ministere De L'Equipement, Des Transports
et Du Tourisme dated October 12, 1994
E. One copy of Temporary French Certificate of Airworthiness from
Republique Francaise Direction Generale De L'Aviation Civile
dated October 10, 1997
<PAGE> 82
SCHEDULE 3.09
F. One copy of Radio Station License from Republique
Francaise Direction Generale De L'Aviation Civile dated
October 7, 1994
G. One copy of Letter from ILFC dated March 31, 1995 with
attachments of Affidavit of Continuous Ownership dated March 13,
1995 and Certificate of the Senior Vice President of ILFC dated
March 13, 1995 regarding the Deregistration of United States
Civil Aircraft document and the Bill of Sale
VI. COMPANY CERTIFICATES
A. One copy of ILFC Power of Attorney dated October 19, 1994
B. One copy of ILFC Officer's Certificate dated October 19, 1994
C. One copy of L'Aeropostale Power of Attorney in favor of ILFC
dated October 17, 1994
D. One copy of L'Aeropostale Due Authority and Incumbency
Certificate dated as of October 11, 1994
E. One copy of L'Aeropostale Power of Attorney dated October 17,
1994
F. One copy of L'Aeropostale Officer's Certificate pursuant to
Article 7.2(c) of the Aircraft Lease Agreement dated October 27,
1994
G. One copy of Letter from L'Aeropostale to ILFC regarding exchange
of title to engines dated October 27, 1994
VII. AGENCY AGREEMENT
NONE
VIII. OPINION OF COUNSEL
A. One copy of Opinion of Klein-Goddard Associes, counsel to
L'Aeropostale dated October 11, 1994
B. One copy of Opinion of General Counsel of ILFC dated October
[undated], 1994
IX. ASSIGNMENT OF WARRANTIES
A. One copy of Assignment of Rights (Airframe) dated October 27,
1994
B. One copy of facsimile from Jeana Park of ILFC clarifying
warranty provisions dated September 6, 1994
X. COOPERATION AGREEMENT
A. One copy of Letter from L'Aeropostale to ILFC regarding exchange
of title to engines dated October 27, 1994
XI. TECHNICAL DATA
A. One copy of Technical Evaluation Report
B. One copy of Boeing Aircraft Transaction Summary dated
December 19, 1994
XII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 83
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE(1) MCDONNELL DOUGLAS 83 AIRCRAFT
BEARING SERIAL NUMBER 49822 AND FRENCH REGISTRATION F-GHEB (AIR LIBERTE, S.A.,
LESSEE)
I. CORRESPONDENCE
A. One copy of Insurance Certificate dated January 17, 1997
B. One copy of Letter of Intent dated October, 1987
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated October 28, 1997
between International Lease Finance Corporation ("ILFC"), as
Lessor, and Air Liberte S.A. ("Air Liberte"), as Lessee
III. SIDE LETTERS/AMENDMENTS
A. One copy of blacklined draft of Letter Agreement between ILFC and
Air Liberte dated October 13, 1997
B. One copy of Letter Agreement (amendments to Lease) dated
January 29, 1997
C. One copy of Letter of Understanding dated December 16, 1992
D. One copy of Letter of Understanding dated September 24, 1993
E. One copy of Amendment to Aircraft Lease Agreement dated
December 15, 1992
F. One copy of Amendment to Aircraft Lease Agreement dated
October 24, 1991
G. One copy of Letter Agreement dated February 3, 1989
H. One copy of Letter Agreement dated October 5, 1988
I. One copy of Side Letter No. 2 to Aircraft Lease Agreement dated
October 28, 1987
J. One copy of Side Letter No. 3 to Aircraft Lease Agreement dated
October 28, 1987
K. One copy of Amendment to Aircraft Lease Agreement dated
September 24, 1993
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated
December 20, 1988
V. REGISTRATION & CERTIFICATES
A. Once copy of Export License from United States Department of
Commerce dated November 30, 1987 [CANNOT CONFIRM DATE -- DATE IS
NOT ON FORM]
B. One copy of Certificat D'Immatriculation (Certificate of
Registration) from Republique Francaise Ministere des Transports
dated December 12, 1990
C. One copy of Import Certificate from Republique Francaise
Ministere De L'Equipement, Du Logement, Des Transports Et De La
Mer dated December 12, 1990
<PAGE> 84
SCHEDULE 3.09
D. One copy of Authority to Register Aircraft in ILFC's name from
Republique Francaise Ministere De L'Equipement, Du Logement, Des
Transports Et De La Mer dated December 10, 1990
E. One copy of Export Certificate of Airworthiness from United
States Federal Aviation Administration dated December 20, 1988
F. One copy of Certificate de Limitation De Nuisances from
Republique Francaise Direction Generale De L'Aviation Civile
dated December 22, 1988
G. One copy of Certificat de Navigabilite from Republique Francaise
Ministere des Transports dated December 22, 1988
H. One copy of Air Operator's Certificate from Republique Francaise
Ministere De L'Equipement, Du Logement, De L'Amenagement Du
Territoire et Des Transports dated as of March 25, 1988
I. One copy of Demande de Derogation from ILFC dated October 24,
1988
J. One copy of Resume des Stipulations Contractuelles dated
October 24, 1988
VI. COMPANY CERTIFICATES
A. One copy of Delegation Letter in favor of Jean Luc JOLY dated
October 26, 1987
B. One copy of authorization in French dated April 28, 1994
VII. AGENCY AGREEMENT
A. One copy of Agency Agreement dated October 28, 1987
VIII. OPINION OF COUNSEL
A. One copy of Opinion of Marie-Jose Collet, Avocat de Cour, from
Air Liberte (no date)
IX. ASSIGNMENT OF WARRANTIES
A. One copy of Assignment of Rights (Airframe) dated December 16,
1988
B. One copy of Assignment of Warranties (Engines) dated June 15,
1988
X. TECHNICAL DATA
A. One copy of Detail Specification Letter dated June 15, 1988
B. One copy of Shipper's Export Declaration dated December 16, 1988
XI. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 85
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE(1) BOEING 737-3X2ER AIRCRAFT
BEARING SERIAL NUMBER 26260 AND FIJIAN REGISTRATION DQ-FJC (AIR PACIFIC LIMITED,
LESSEE)
I. CORRESPONDENCE
A. One copy of Certificate of Insurance dated November 1, 1996
B. One copy of Brokers Letter of Undertaking dated November 1, 1996
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated October 25, 1989
between International Lease Finance Corporation ("ILFC"), as
Lessor, and Air Pacific Limited ("Air Pacific"), as Lessee
III. SIDE LETTERS/AMENDMENTS
A. One copy of Side Letter Number 4 to Aircraft Lease Agreement
dated May 20, 1993
B. One copy of Letter regarding Cost Responsibility for APC
Requested Changes to ILFC Baseline Specification dated April 23,
1993
C. One copy of Letter regarding Engine Upgrade vs. CR Cost and Spare
Parts dated September 26, 1991
D. One copy of Side Letter Number 3 to Aircraft Lease Agreement
dated October 26, 1989
E. One copy of Side Letter Number 2 to Aircraft Lease Agreement
dated October 26, 1989
F. One copy of Side Letter Number 1 to Aircraft Lease Agreement
dated October 26, 1989
IV. AGENCY AGREEMENT
A. One copy of Agency Agreement dated as of May 13, 1994
V. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated September
16, 1994
B. One copy of Spare Parts Acceptance Certificate dated September
16, 1994
C. One copy of Boeing Delivery Agenda dated September 16, 1994
D. One copy of Aircraft Receipt dated September 16, 1994
VI. OPINION OF COUNSEL
A. One copy of Opinion of Munro, Leys & Co., counsel to Air
Pacific dated September 1, 1994
B. One copy of Munro, Leys & Co., counsel to Air Pacific dated
December 15, 1989
<PAGE> 86
SCHEDULE 3.09
VII. REGISTRATION & CERTIFICATES
A. One copy of Application for Registration of Aircraft from Civil
Aviation Authority of Fiji dated June 6, 1994
B. One copy of Certificate of Airworthiness from Civil Aviation
Authority of Fiji dated September 16, 1994
C. One copy of Certificate of Registration of Aircraft from Civil
Aviation Authority of Fiji dated September 16, 1994
D. One copy of Confirmation of Non-Registration from United States
Federal Aviation Administration dated September 9, 1994
E. One copy of Cover Letter to Civil Aviation Authority of Fiji
regarding Aircraft Registration dated June 14, 1994
F. One copy of Export Certificate of Airworthiness from United
States Federal Aviation Administration dated September 16, 1994
G. One copy of Letter from Civil Aviation Authority of Fiji
regarding FAA Export Certificate of Airworthiness Exception dated
September 16, 1994
H. One copy of Certificate of Sanitary Construction from United
States Department of Health and Human Services dated September 8,
1994
I. One copy of Letter regarding waiver of international import
certificate dated May 23, 1990
J. One copy of Confirmation of Certificate of Registration from
Civil Aviation Authority of Fiji dated September 2, 1994
K. One copy of Letter regarding no other import restrictions dated
August 23, 1994 and response dated August 25, 1994
L. One copy of Letter regarding Monthly Payments dated June 28, 1990
M. One copy of Amendment to Air Pacific Limited AOC from Civil
Aviation Authority of Fiji dated September 9, 1994
N. One copy of Letter regarding transition period from Civil
Aviation Authority of Fiji dated September 9, 1994
O. One copy of International Air Service Licence from Ministry of
Tourism and Civil Aviation of Fiji dated September 6, 1994
P. One copy of Confirmation of Registration Allocation from Civil
Aviation Authority of Fiji dated June 16, 1994
Q. One copy of Certificate of Origin from State of Washington dated
September 16, 1994
R. One copy of General Declaration
S. One copy of Passenger Manifest
T. One copy of Cargo Manifest
VIII. COMPANY CERTIFICATES
A. One copy of Air Pacific's Officer's Certificate dated
September 6, 1994
B. One copy of Power of Attorney from Air Pacific Limited dated
October 25, 1989
C. One copy of Record of the Resolution of the Board dated
October 24, 1989
D. One copy of letter regarding maintenance confirmation dated
August 31, 1994
<PAGE> 87
SCHEDULE 3.09
E. One copy of Proforma Invoice dated August 30, 1994
F. One copy of Power of Attorney dated October 25, 1989
IX. ASSIGNMENT OF WARRANTIES
A. One copy of Assignment of Rights (Airframe) dated September 16,
1994
B. One copy of Assignment of Rights (Engines) dated September 16,
1994
X. TECHNICAL DATA
NONE
XI. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 88
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE(1) MCDONNELL DOUGLAS 82 AIRCRAFT
BEARING SERIAL NUMBER 49825 AND U.S. REGISTRATION N940AS (ALASKA AIRLINES,
LESSEE)
I. CORRESPONDENCE
A. One copy of Insurance Certificate dated April 1, 1997
II. LEASE AGREEMENT
A. One copy of Aircraft Bill of Sale dated March 31, 1989
B. One copy of Aircraft Registration dated March 31, 1989
C. One copy of Aircraft Lease Agreement dated as of June 1, 1988
between International Lease Finance Corporation ("ILFC"), as
Lessor, and Alaska Airlines, Inc. ("Alaska Airlines"), as Lessee
III. SIDE LETTERS/AMENDMENTS
A. One copy of Amendment Number 3 to Aircraft Lease Agreement dated
as of August 31, 1995
B. One copy of Amendment to Amendment No. 1 to Aircraft Lease
Agreement dated as of May 2, 1989 and executed as of December 26,
1989
C. One copy of Document Filing Confirmation dated July 6, 1989
D. One copy of Amendment No. 1 to Aircraft Lease Agreement dated as
of May 2, 1989
E. One copy of Amendment to Aircraft Lease Agreements dated as of
November 3, 1993
F. One copy of Letter regarding consent to installation of leased
equipment on certain aircraft dated September 28, 1993
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated March 31,
1989
B. One copy of Receipt for Aircraft Document Distribution Checklist
C. One copy of Aircraft Acceptance Agreement dated March 31, 1989
D. One copy of Confirmation of BFE dated December 13, 1988
E. One copy of Letter from ILFC regarding seats on Aircraft, certain
avionics equipment and other various matters dated June 1, 1988
V. OPINION OF COUNSEL
A. One copy of Opinion of Assistant General Counsel of Alaska
Airlines dated March 31, 1989
<PAGE> 89
SCHEDULE 3.09
VI. REGISTRATION & CERTIFICATES
A. One copy of Triennial Aircraft Registration Report from United
States Federal Aviation Administration dated November 16, 1994
B. One copy of Air Carrier Operating Certificate from United States
Federal Aviation Administration effective September 23, 1946
[confirm date]
C. One copy of Aircraft Bill of Sale filed with United States
Federal Aviation Administration dated November 7, 1991
D. One copy of Aircraft Registration Application filed with United
States Federal Aviation Administration dated November 7, 1991
E. One copy of Assignment and Assumption of Lease filed with United
States Federal Aviation Administration dated November 7, 1991
F. One copy of Certificate of Aircraft Registration from United
States Federal Aviation Administration dated August 29, 1990
G. One copy of Certificate of Aircraft Registration from United
Stated Federal Aviation Administration dated November 7, 1991
H. One copy of Temporary Certificate of Registration from United
Stated Federal Aviation Administration dated November 7, 1991
I. One copy of Standard Airworthiness Certificate from United States
Federal Aviation Administration dated March 25, 1989
J. One copy of Appointment of Authorized Representative dated as of
March 31, 1989
K. One copy of Letter regarding Request for Assignment of Reserved
Registration Number dated December 14, 1988
L. One copy of Confirmation of Reservation of Registration Numbers
from United States Federal Aviation Administration dated July 5,
1988
M. One copy of Notification of Federal Aviation Administration
Filing and Recording from Insured Aircraft Title Services, Inc.
dated August 16, 1989
VII. ASSIGNMENT OF WARRANTIES
A. One copy of Assignment of Warranties (Engines) dated February 13,
1989
B. One copy of Assignment of Rights (Airframe) dated March 21, 1989
VIII. TECHNICAL DATA
A. One copy of letter from McDonnell Douglas dated March 31, 1989
IX. COOPERATION AGREEMENT
NONE
X. AGENCY AGREEMENT
NONE
XI. COMPANY CERTIFICATES
NONE
<PAGE> 90
SCHEDULE 3.09
XII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 91
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE(1) BOEING 737-4Q8 AIRCRAFT BEARING
SERIAL NUMBER 25104 AND U.S. REGISTRATION N771AS (ALASKA AIRLINES, INC., LESSEE)
I. CORRESPONDENCE
A. One copy of Insurance Certificate dated April 1, 1997
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated January 22, 1990
between Alaska Airlines, Inc. ("Alaska Airlines"), as Lessee, and
International Lease Finance Corporation ("ILFC"), as Lessor
III. SIDE LETTERS/AMENDMENTS
A. One copy of Amendment Number 4 to Aircraft Lease Agreement dated
as of August 31, 1995
B. One copy of Amendment No. 3 to Aircraft Lease Agreement dated as
of October 20, 1994
C. One copy of Amendment Number 1 to Aircraft Lease Agreement dated
May 21, 1993
D. One copy of Amendment to Aircraft Lease Agreements dated as of
November 3, 1993
E. One copy of Letter Agreement No. 2 dated December 12, 1990
F. One copy of Letter regarding consent to installation of leased
equipment on certain aircraft dated September 28, 1993
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated May 21, 1993
V. REGISTRATION & CERTIFICATES
A. One copy of Ship/Aircraft Radio Station License from United
States Federal Communications Commission dated March 22, 1994
B. One copy of Standard Airworthiness Certificate from United States
Federal Aviation Administration dated May 21, 1993
C. One copy of Certificate of Sanitary Construction from United
States Department of Health and Human Services dated April 27,
1993
D. One copy of Fuel Request Authorization executed by Boeing dated
May 21, 1993
E. One copy of Certificate of Aircraft Registration from United
States Federal Aviation Administration dated May 21, 1993
F. One copy of Temporary Certificate of Registration from United
States Federal Aviation Administration dated May 21, 1993
<PAGE> 92
SCHEDULE 3.09
G. One copy of Aircraft Registration Application filed with United
States Federal Aviation Administration dated May 21, 1993
H. One copy of Tax Exemption Certificate dated May 21, 1993
I. One copy of Certificate of Usage of Material Subject to
Washington State Compensating (Use) Tax dated May 21, 1993
J. One copy of Aircraft Receipt dated May 21, 1993
K. One copy of Bill of Sale dated May 21, 1993
L. One copy of Air Carrier Operating Certificate from United States
Federal Aviation Administration effective September 23, 1946
M. One copy of Radio Station License from United States Federal
Communications Commission dated April 17, 1989
VI. COMPANY CERTIFICATES
A. One copy of Delegation of Authority dated May 21, 1993
VII. AGENCY AGREEMENT
A. One copy of Agency Agreement dated May 7, 1990
VIII. OPINION OF COUNSEL
NONE
IX. ASSIGNMENT OF WARRANTIES
A. One copy of Full Assignment of Rights (Airframe) dated
May 21, 1993
B. One copy of Assignment of Warranties (Engines) dated
May 21, 1993
X. TECHNICAL DATA
A. One copy of Boeing Delivery Agenda dated May 21, 1993
B. One copy of letter regarding delivery exceptions, equipment
shortages and aircraft condition items and various other matters
from Boeing dated May 21, 1993
XI. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 93
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE(1) BOEING 767-300 AIRCRAFT
BEARING SERIAL NUMBER 24798 AND KOREAN REGISTRATION HL7264 (ASIANA AIRLINES,
INC., LESSEE)
I. CORRESPONDENCE
A. One copy of Reinsurance Certificate dated September 22, 1997
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated as of July 11, 1997
between International Lease Finance Corporation Ireland Limited
("ILFC"), as Lessor, and Asiana Airlines, Inc. ("Asiana"), as
Lessee
III. HEADLEASE AGREEMENT
A. One copy of Aircraft Headlease Agreement dated as of July 11,
1997 between ILFC, as Lessee, and Aircraft SPC-5, Inc., as Lessor
IV. SIDE LETTERS/AMENDMENTS
A. One copy of Amendment No.1 dated September 8, 1997
V. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated
September 23, 1997
VI. REGISTRATION & CERTIFICATES
A. One copy of Application for Registration of Aircraft filed with
Ministry of Construction and Transportation of Korea dated
September 22, 1997
B. One copy of Export Certificate of Airworthiness from United
States Federal Aviation Administration dated October 4, 1990
VII. COMPANY CERTIFICATES
A. One copy of Quiet Enjoyment Letter from Headlessor dated
September 23, 1997
B. One copy of letter regarding lease rentals dated September 18,
1997
C. One copy of ILFC Power of Attorney dated September 15, 1997
D. One copy of Import Recommendation dated July 21, 1997
E. One copy of Foreign Exchange Approval dated May 24, 1997
F. One copy of Minutes of the Meeting of the Board of Directors
dated September 19, 1997
G. One copy of List and Authorized Signature of Directors dated
September 19, 1997
H. One copy of Power of Attorney dated September 19, 1997
I. One copy of Asiana Officer's Certificate dated September 19, 1997
<PAGE> 94
SCHEDULE 3.09
VIII. AGENCY AGREEMENT
NONE
IX. OPINION OF COUNSEL
A. One copy of Opinion of Hanoi Law Offices, counsel to Asiana dated
September, 1997
X. ASSIGNMENT OF WARRANTIES
NONE
XI. COOPERATION AGREEMENT
NONE
XII. TECHNICAL DATA
NONE
XIII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 95
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE(1) BOEING 767-204 AIRCRAFT BEARING
SERIAL NUMBER 23807 AND AUSTRALIAN REGISTRATION VH-RMO (BRITANNIA AIRWAYS
LIMITED, LESSEE and ANSETT AUSTRALIA LIMITED, SUBLESSEE)
RELATING TO LEASE AGREEMENT
I. CORRESPONDENCE
A. One copy of Insurance Certificates dated July 1, 1997
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated July 15, 1986
between International Lease Finance Corporation ("ILFC'), as
Lessor, and Britannia Airways Limited ("Britannia"), as Lessee
B. One copy of Amended and Restated Aircraft Lease Agreement between
ILFC and Brittania, dated August 30, 1995
C. One copy of Lease Amendment Agreement between ILFC and Brittania
dated March 29, 1996
III. SIDE LETTERS/AMENDMENTS
A. One copy of Aircraft Lease Extension Agreement dated December 11,
1990
B. One copy of Aircraft Lease Extension Agreement dated January 29,
1993
C. One copy of Letter Agreement dated June 28, 1991
D. One copy of Letter Agreement No. 1 dated December 11, 1990
E. One copy of the Subleasing Side Letter dated August 30, 1995
F. One copy of Airworthiness Directive Side Letter dated August 30,
1995
G. One copy of Insurance Side Letter dated August 30, 1995
H. One copy of Global Side Letter to Aircraft Lease Agreement dated
April 30, 1995
I. One copy of Agreement dated March 29, 1996 regarding lease
extension agreement
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated August 25,
1987
B. One copy of Aircraft Receipt dated August 25, 1987
V. REGISTRATION & CERTIFICATES
A. One copy of International Import Certificate from United Kingdom
Department of Trade and Industry May 13, 1987
B. One copy of Certificate of Airworthiness from Civil Aviation
Safety Authority of Australia dated July 24, 1996
<PAGE> 96
SCHEDULE 3.09
C. One copy of Certificate of Airworthiness from United Kingdom
Civil Aviation Authority dated August 28, 1987
D. One copy of Air Operators Certificate from Civil Aviation Safety
Authority of Australia dated July 18, 1997
E. One copy of Certificate of Approval of Aircraft Radio
Installation from United Kingdom Civil Aviation Authority dated
August 28, 1987
F. One copy of Maintenance Schedule Approval from United Kingdom
Civil Aviation Authority Issue 1 and dated February 1984
G. One copy of Export Certificate of Airworthiness from United
States Federal Aviation Administration dated August 25, 1987
H. One copy of Letter from United Kingdom Civil Aviation Authority
regarding FAA Export Certificate of Airworthiness dated
August 25, 1987
I. One copy of Letter from United Kingdom Civil Aviation Authority
regarding registration of Aircraft dated August 7, 1987
J. One copy of Air Transport Licence from United Kingdom Civil
Aviation Authority dated October 6, 1983
K. One copy of Air Operator's Certificate from United Kingdom Civil
Aviation Authority dated February 17, 1984
L. One copy of Air Navigation Order from United Kingdom Civil
Aviation Authority dated August 5, 1987
M. One copy of Certificate of Registration of Aircraft from United
Kingdom Civil Aviation Authority dated August 4, 1987
N. One copy of Noise Certificate from United Kingdom Civil Aviation
Authority dated August 3, 1987
O. One copy of Certificate of Approval of Aircraft Radio
Installation from United Kingdom Civil Aviation Authority dated
August 3, 1987
P. One copy of Application for Registration of Aircraft or Change in
Ownership filed with United Kingdom Civil Aviation Authority
VI. COMPANY CERTIFICATES
A. One copy of Minutes of the Meeting of the Board of Directors
dated December 7, 1990 regarding resolution and power of attorney
B. One copy of Minutes of a Meeting of the Board of Directors dated
July 24, 1986 regarding resolution and power of attorney
C. One copy of Proforma Invoice dated May 14, 1987
VII. AGENCY AGREEMENT
A. One copy of Agency Agreement dated July 15, 1986
VIII. OPINION OF COUNSEL
A. One copy of Opinion of Counsel from Britannia dated
November 24, 1987
B. One copy of Opinion of Counsel dated August 19, 1986
<PAGE> 97
SCHEDULE 3.09
IX. ASSIGNMENT OF WARRANTIES
A. One copy of Assignment of Rights (Airframe) dated August 25, 1987
X. COOPERATION AGREEMENT
NONE
XI. TECHNICAL DATA
NONE
XII. RETURN ACCEPTANCE RECEIPT
NONE
RELATING TO SUBLEASE AGREEMENT
XIII. CORRESPONDENCE
NONE
XIV. ANSETT SUBLEASE
A. One copy of Sublease between Britannia Airways Limited and Ansett
Australia Limited dated March 29, 1996
XV. ASSIGNMENT
A. One copy of Assignment (of Ansett Lease) between Britannia and
ILFC dated March 29, 1996
B. One copy of Letter Agreement to Ansett dated March 29, 1996
regarding consent to sublease
XVI. ESTOPPEL AND ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated May 20,
1996
XVII. REGISTRATION & CERTIFICATES
A. One copy of Certificate of Registration of a Mortgage or Charge
from United Kingdom Registrar of Companies dated April 18, 1996
B. One copy of Ansett Australia's Air Operators Certificate from
Civil Aviation Safety Authority of Australia
C. One copy of Ansett Australia's Certificate of Airworthiness from
Civil Aviation Safety Authority of Australia
XVIII. COMPANY CERTIFICATES
NONE
XIX. AGENCY AGREEMENT
NONE
<PAGE> 98
SCHEDULE 3.09
XX. OPINION OF COUNSEL
NONE
XXI. ASSIGNMENT OF WARRANTIES
NONE
XXII. LETTER OF CREDIT
A. One copy of Letter of Credit issued by Royal Bank of Scotland
(Britannia to ILFC)
XXIII. COOPERATION AGREEMENT
NONE
XXIV. TECHNICAL DATA
A. One copy of Ansett Maintenance Program (with transmittal
letters) dated May 15, 1996
XXV. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 99
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE(1) BOEING 737-4Q8 AIRCRAFT BEARING
SERIAL NUMBER 24234 AND U.S. REGISTRATION N403KW (CARNIVAL AIR LINES, INC.
LESSEE)
I. CORRESPONDENCE
A. One copy of Letter to Carnival dated August 8, 1993 regarding
cover page to Aircraft Lease Agreement
B. One copy of Insurance Certificate dated November 1, 1996
C. One copy of letter dated September 25, 1997 regarding the merger
of Pan Am and Carnival
D. One copy of Letter of Intent dated October 24, 1997
E. One copy of letter from ASG regarding Aircraft inspection of
Carnival Aircraft for Pan Am dated October 27, 1997
F. One copy of letter from Pan Am dated October 14, 1997 together
with attachments of October to December 1997 Monthly Operating
Plan, Calendar Year 1998 Monthly Operating Plan and Plan
Assumptions for the previously mentioned Operating Plans
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated as of March 1, 1993
between International Lease Finance Corporation ("ILFC"), as
Lessor, and Carnival Air Lines, Inc. ("Carnival"), as Lessee
B. Copies of Letters from Insured Aircraft Title Service confirming
filing of Lease with the United States Federal Aviation
Administration with copies of Lease pages date stamped with
recordation information
III. SIDE LETTERS/AMENDMENTS
A. One copy of Amendment Number Two dated as of August 4, 1995
B. One copy of Letter from ILFC dated July 1, 1997 regarding mergers
C. One copy of Amendment Number One dated as of August 3, 1995
D. One copy of Letter from Carnival exercising extension option
dated June 21, 1994
E. One copy of Letter Agreement No. 3 to Aircraft Lease Agreement
dated May 1, 1993
F. One copy of Letter Agreement No. 1 dated March 1, 1993
G. One copy of Letter to Daniel Ratti dated March 9, 1993 regarding
delivery location
H. Copy of Reserve Settlement and Release Agreement dated October 8,
1997 together with Pan Am's Power of Attorney
<PAGE> 100
SCHEDULE 3.09
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated March 12,
1993
B. One copy of Estoppel and Acceptance Certificate
Attachment/Discrepancies at Delivery Before Test Flight dated
March 12, 1993
V. REGISTRATION & CERTIFICATES
A. One copy of Standard Airworthiness Certificate from United States
Federal Aviation Administration dated November 12, 1992
B. One copy of Certificate of Public Convenience and Necessity for
Interstate and Overseas Air Transportation from United States
Department of Transportation dated December 17, 1990
C. One copy of Certificate of Aircraft Registration from United
States Federal Aviation Administration dated November 4, 1992
D. One copy of Authorization to Change Registration Number from the
United States Federal Aviation Administration dated March 19,
1993
VI. COMPANY CERTIFICATES
A. One copy of Letter from Carnival regarding SEC filing dated
March 27, 1996
B. One copy of Carnival's Officer's Certificate dated March 10, 1993
C. One copy of Carnival Power of Attorney dated March 9, 1993
D. One copy of ILFC Power of Attorney dated March 9, 1993
E. One copy of Carnival Secretary's Certificate dated March 12, 1993
F. One copy of Special Corporate Action of Board of Directors of
Carnival Air Lines, Inc. dated March 10, 1993
G. One copy of Power of Attorney for Pan Am dated October 10, 1997
VII. AGENCY AGREEMENT
NONE
VIII. OPINION OF COUNSEL
A. One copy of Opinion of General Counsel from Carnival Air Lines,
Inc., dated March 10, 1993
IX. ASSIGNMENT OF WARRANTIES
A. One copy of Assignment of Rights (Airframe) dated March 12, 1993
B. One copy of Assignment of Warranties (Engines) dated March 12,
1993
X. COOPERATION AGREEMENT
NONE
XI. TECHNICAL DATA
A. One copy of Inspection Intervals dated October 26, 1993
(maintenance program)
<PAGE> 101
SCHEDULE 3.09
XII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 102
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE(1) BOEING 737-4Q8 AIRCRAFT BEARING
SERIAL NUMBER 25371 AND U.S. REGISTRATION N404KW (CARNIVAL AIR LINES, INC.
LESSEE)
I. CORRESPONDENCE
A. One copy of letter to Carnival dated August 20, 1993 regarding
cover page to Aircraft Lease Agreement
B. One copy of Insurance Certificate dated November 1, 1996
C. One copy of letter dated September 25, 1997 regarding merger of
Pan Am and Carnival
D. One copy of letter from ASG regarding Aircraft inspection of
Carnival Aircraft by Pan Am dated October 27, 1997
E. One copy of letter from Pan Am dated October 14, 1997 together
with attachments of October to December 1997 Monthly Operating
Plan, Calendar Year 1998 Monthly Operating Plan and Plan
Assumptions for the previously mentioned Operating Plans
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated as of May 19, 1993
between International Lease Finance Corporation ("ILFC"), as
Lessor, and Carnival Air Lines Inc. ("Carnival"), as Lessee
B. Copies of Letters verifying filing of Lease and Amendments with
the United States Federal Aviation Administration
III. SIDE LETTERS/AMENDMENTS
A. One copy of Amendment Number 3 to Aircraft Lease Agreement dated
as of May 8, 1997
B. One copy of letter from ILFC dated July 1, 1997 regarding mergers
C. One copy of Amendment Number 2 to Aircraft Lease Agreement dated
as of July 13, 1995
D. One copy of Amendment Number 1 to Aircraft Lease Agreement dated
as of July 6, 1995
E. Copy of Reserve Settlement and Release Agreement dated October 8,
1997 together with Pan Am's Power of Attorney
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated July 31,
1993
V. REGISTRATION & CERTIFICATES
<PAGE> 103
SCHEDULE 3.09
A. One copy of Standard Airworthiness Certificate from United States
Federal Aviation Administration dated August 6, 1993
B. One copy of Certificate of Aircraft Registration from United
States Federal Aviation Administration dated August 4, 1993
C. One copy of Temporary Certificate of Aircraft Registration from
United States Federal Aviation Administration dated August 4, 1993
D. One copy of Certificate of Public Convenience and Necessity for
Interstate and Overseas Air Transportation from United States
Department of Transportation dated December 17, 1990
E. One copy of Aircraft Registration Application filed with United
States Federal Aviation Administration dated July, 1993
F. One copy of Deregistration Confirmation from Civil Aviation
Authority of the Cayman Islands dated August 2, 1993
VI. COMPANY CERTIFICATES
A. One copy of letter from Carnival with respect to SEC filing dated
March 27, 1996
B. One copy of Carnival's Officer's Certificate dated
September 16, 1993
C. One copy of the Special Corporate Action of Board of Directors of
Carnival Air Lines, Inc. dated August 1, 1993
D. One copy of Power of Attorney from Carnival dated July 28, 1993
E. One copy of Power of Attorney from Carnival dated July 30, 1993
F. One copy of Power of Attorney from ILFC dated July 30, 1993
G. One copy of Power of Attorney from ILFC dated July 28, 1993
H. One copy of Power of Attorney for Pan Am dated October 10, 1997
VII. AGENCY AGREEMENT
NONE
VIII. OPINION OF COUNSEL
A. One copy of Opinion of General Counsel of Carnival Air Lines
dated August 4, 1993
IX. ASSIGNMENT OF WARRANTIES
A. One copy of Assignment of Rights (Airframe) dated July 31, 1993
B. One copy of Assignment of Warranties (Engine) dated July 31, 1993
X. COOPERATION AGREEMENT
NONE
XI. TECHNICAL DATA
A. One copy of the Inspection Intervals
XII. RETURN ACCEPTANCE RECEIPT
<PAGE> 104
SCHEDULE 3.09
NONE
<PAGE> 105
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE(1) AIRBUS A300-600R AIRCRAFT
BEARING SERIAL NUMBER 555 AND U.S. REGISTRATION N8888P (CHINA AIRLINES, LTD.,
LESSEE)
I. CORRESPONDENCE
A. One copy of fax from ILFC dated October 22, 1997 regarding
subsidy
B. One copy of fax from ILFC regarding C7 check dated October 20,
1997
C. One copy of fax from China Airlines regarding subsidy dated
October 20, 1997
D. One copy of fax from China Airlines regarding trade-in dated
October 15, 1997
E. One copy of fax from China Airlines dated September 18, 1997
regarding lead-time for FAA Maintenance Program Approval
F. One copy of fax from China Airlines regarding documentation dated
September 15, 1997
G. One copy of fax from China Airlines dated August 25, 1997
regarding engine swap
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated October 17, 1997
between ILFC, as Lessor, and China Airlines, Ltd., as Lessee
III. SIDE LETTERS/AMENDMENTS
NONE
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
NONE
V. REGISTRATION & CERTIFICATES
A. One copy of Certificate of Aircraft Registration from United
States Federal Aviation Administration dated August 5, 1997
B. One copy of Temporary Certificate of Aircraft Registration from
United States Federal Aviation Administration dated August 5,
1997
C. One copy of Letter from Daugherty, Fowler & Peregrin regarding
filing confirmation of Affidavit of Continuous Ownership dated
July 31, 1997 and Aircraft Registration Application dated
August 1, 1997
D. One copy of Cancellation of Registration of Aircraft from
Republique Francaise Ministere De L'Equipement, Des Transports
et Du Logement dated August 1, 1997
E. One copy of Aircraft Registration Application filed with United
States Department of Federal Aviation Administration dated
August 1, 1997
<PAGE> 106
SCHEDULE 3.09
VI. COMPANY CERTIFICATES
A. One copy of ILFC Proforma Invoice dated September, 1997
VII. AGENCY AGREEMENT
NONE
VIII. OPINION OF COUNSEL
NONE
IX. ASSIGNMENT OF WARRANTIES
NONE
X. COOPERATION AGREEMENT
NONE
XI. TECHNICAL DATA
NONE
XII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 107
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE(1) BOEING 737-3Q8 AIRCRAFT BEARING
SERIAL NUMBER 26295 AND CHINESE REGISTRATION B-2937 (CHINA HAINAN AIRLINES,
LESSEE)
I. CORRESPONDENCE
A. One copy of Irrevocable Letter of Guarantee dated December 5,
1993
B. One copy of Reinsurance Certificate dated April 1, 1997
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated June 9, 1993 between
ILFC, as Lessor, and China Hainan Airlines ("China Hainan") as
Lessee
III. SIDE LETTERS/AMENDMENTS
A. One copy of Commission Agreement dated March 16, 1993
B. One copy of Side Letter No. 1 to Aircraft Lease Agreement dated
June 9, 1993
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate for Spare Parts
dated December 9, 1993
B. One copy of Estoppel and Acceptance Certificate dated December 9,
1993
V. REGISTRATION & CERTIFICATES
A. One copy of Export Certificate of Airworthiness from United
States Federal Aviation Administration dated December 17, 1993
B. One copy of Application for Export Certificate of Airworthiness
filed with United States Federal Aviation Administration dated
December 17, 1993
C. One copy of Export Certificate Number Assignment Card from United
States Federal Aviation Administration dated December 17, 1993
D. One copy of Confirmation of De-Registration from United States
Federal Aviation Administration dated December 15, 1993
E. One copy of Temporary Certificate of Aircraft Registration from
United States Federal Aviation Administration dated December 9,
1993
F. One copy of Certificate of Aircraft Registration from United
States Federal Aviation Administration dated December 9, 1993
G. One copy of Application for Aircraft Registration filed with
United States Federal Aviation Administration
H. One copy of Certificate of Sanitary Construction from United
States Department of Health and Human Services dated December 10,
1993
<PAGE> 108
SCHEDULE 3.09
I. One copy of Export Certificate of Airworthiness from United
States Federal Aviation Administration dated December 9, 1993
J. One copy of Boeing Aircraft Receipt dated December 9, 1993
K. One copy of Exemption Certificate regarding Federal Retailer's
Excise Tax dated December 9, 1993
L. One copy of Certificate of Usage of Material Subject to
Washington State Compensating (Use) Tax dated December 9, 1993
M. One copy of Aircraft Bill of Sale filed with United States
Federal Aviation Administration dated December 9, 1993
N. One copy of Standard Airworthiness Certificate from United
States Federal Aviation Administration dated December 9, 1993
O. One copy of Nationality Registration Certificate of Civil
Aircraft of People's Republic of China from Civil Aviation
Administration of China
P. One copy of Airworthiness Certificate of Civil Aircraft from
Civil Aviation Administration of China
Q. One copy of Bill of Sale dated December 9, 1993
R. One copy of Certificate from State Administration of Foreign
Exchange Control-Hainan Branch dated October 15, 1993
VI. COMPANY CERTIFICATES
A. One copy of Certificate of Incumbency of Board of Directors of
Hainan Airlines dated November 30, 1993
B. One copy of Power of Attorney in favor of Mr. Lei Hongon dated
December 9, 1993
C. One copy of Power of Attorney in favor of ILFC dated
December 9, 1993
VII. AGENCY AGREEMENT
NONE
VIII. OPINION OF COUNSEL
A. One copy of legal opinion from Hainan, the 2nd Law Office, dated
December 1993
IX. ASSIGNMENT OF WARRANTIES
A. One copy of Assignment of Warranties (Engines) dated as of
December 9, 1993
B. One copy of Full Assignment of Rights (Airframe) dated as of
December 9, 1993
X. COOPERATION AGREEMENT
A. One copy of Cooperation Agreement dated December 9, 1993
XI. TECHNICAL DATA
A. One copy of Delivery Exceptions Letter dated December 9, 1993
B. One copy of Delivery Agenda dated December 9, 1993
<PAGE> 109
SCHEDULE 3.09
C. One copy of Inventory List
D. One copy of Certificate of Origin dated December 9, 1993
E. One copy of Boeing letter regarding Ferry Flight Services dated
as of December 1, 1993
F. One copy of letter to ILFC regarding maintenance program dated
November 29, 1993 with accompanying maintenance schedules issued
June 22, 1993
G. One copy of Letter from ILFC regarding confirmation that the
information submitted regarding the aircraft maintenance program
is acceptable dated November 29, 1993
XII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 110
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE (1) AIRBUS A320-200 AIRCRAFT
BEARING SERIAL NUMBER 414 AND HONG KONG REGISTRATION B-HYR (HONG KONG DRAGON
AIRLINES, LESSEE)
I. CORRESPONDENCE
A. One copy of Letter of Undertaking dated November 1, 1996
B. One copy of Insurance Certificate dated November 1, 1996
C. One copy of Letter of Intent between ILFC and TransAer dated
October 22, 1997
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated December 6, 1991 between
International Lease Finance Corporation ("ILFC"), as Lessor, and Hong
Kong Dragon Airlines Limited ("Dragonair"), as Lessee
B. One copy of the Subordination Agreement between Dragonair and ILFC
dated June 30, 1993
III. SIDE LETTERS/AMENDMENTS
A. One copy of Extension Letter Agreement dated August 14, 1997
B. One copy of Side Letter No. 3 to Aircraft Lease Agreement dated
July 20, 1992
C. One copy of TCAS Letter Agreement dated September 10, 1993
D. One copy of Side Letter No. 2 to Aircraft Lease Agreement dated
December 6, 1991
E. One copy of Side Letter No. 1 to Aircraft Lease Agreement dated
December 6, 1991
F. One copy of Amendment Number 1 to Aircraft Lease Agreement dated
May 18, 1993
G. One copy of Amendment Number 2 to Aircraft Lease Agreement dated
May 18, 1993
H. One copy of Amendment Number 3 to Aircraft Lease Agreement dated
July 17, 1997
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated May 18, 1993
V. REGISTRATION & CERTIFICATES
A. One copy of Certificate of Registration of Aircraft from Hong Kong
Civil Aviation Department dated May 18, 1993
B. One copy of certificat de Navigabilite pour Exportation from
Republique Francaise Ministere des Transports dated May 17, 1993
<PAGE> 111
SCHEDULE 3.09
C. One copy of Certificate de Limitation de Nuisances pour
Exportation from Republique Francaise Direction Generale De
L'Aviation Civile dated May 17, 1993
D. One copy of Letter from Hong Kong Civil Aviation Department to
ILFC dated May 27, 1993
E. One copy of letter from Johnson Stokes & Master to ILFC dated
June 2, 1993
F. One copy of letter from Hong Kong Civil Aviation Department to
Johnson Stokes & Master dated May 27, 1993
G. One copy of letter from ILFC to Johnson Stokes & Master dated May
21, 1993
H. One copy of letter from ILFC to Hong Kong Civil Aviation
Authority dated May 18, 1993
I. One copy of Air Operator's Certificate from Hong Kong Civil
Aviation dated March 10, 1993
J. One copy of Hong Kong Air Transport (Licensing of Air Services)
Regulations dated February 25, 1987
VI. COMPANY CERTIFICATES
A. One copy of ILFC Proforma Invoice dated August 26, 1994
B. One copy of Officer's Certificate of Hong Kong Dragon Airlines
dated May 5, 1993
C. One copy of Notarial Certificate dated February 17, 1993
D. One copy of Certificate of Incumbency and Resolutions dated
December 10, 1991
E. One copy of Dragonair Power of Attorney dated February 17, 1993
F. One copy of Letter from Dragonair to ILFC dated May 5, 1993
regarding board resolution
VII. AGENCY AGREEMENT
A. See Assignment of Warranty and Support Rights listed below
VIII. OPINION OF COUNSEL
A. One copy of Opinion of Johnson Stokes & Master, counsel to
Dragonair dated June 21, 1993
B. One copy of Opinion of Johnson Stokes & Master, counsel to
Dragonair dated June 30, 1993 regarding Hong Kong Tax Structure
IX. ASSIGNMENT OF WARRANTIES
A. One copy of Assignment of Warranty and Support Rights dated as of
February 26, 1993
X. COOPERATION AGREEMENT
NONE
<PAGE> 112
SCHEDULE 3.09
XI. TECHNICAL DATA
NONE
XII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 113
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE (1) AIRBUS A320-200 AIRCRAFT
BEARING SERIAL NUMBER 393 AND HONG KONG REGISTRATION B-HYO (HONG KONG DRAGON
AIRLINES LIMITED, LESSEE)
I. CORRESPONDENCE
A. One copy of Letter of Undertaking dated November 1, 1996
B. One copy of Insurance Certificate dated November 1, 1996
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement between International Lease
Finance Corporation ("ILFC"), as Lessor, and Hong Kong Dragon Airlines
Limited ("Dragonair"), as Lessee dated December 6, 1991
B. One copy of Aircraft Lease Agreement dated November 1997 between ILFC,
as Lessor, and Caledonian Airways Ltd., as Lessee (unsigned)
C. One copy of the Subordination Agreement between Dragonair and ILFC
dated June 30, 1993
III. SIDE LETTERS/AMENDMENTS
A. One copy of Extension Letter Agreement dated August 14, 1997
B. Two copies of Amendment Number Two to Aircraft Lease Agreement dated
as of July 17, 1997
C. One copy of Amendment Number One to Aircraft Lease Agreement dated
February 25, 1993
D. One copy of Side Letter No. Three to Aircraft Lease Agreement dated
December 18, 1992
E. One copy of Letter dated March 17, 1993 in reference to Side Letter
No. 3
F. One copy of Side Letter No. One to Aircraft Lease Agreement dated
December 6, 1991
G. One copy of TCAS Letter Agreement dated September 10, 1993
H. One copy of Side Letter No. 1 to Aircraft Lease Agreement for
Caledonian lease dated November 1997 (unsigned)
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated February 26,
1993
V. REGISTRATION & CERTIFICATES
A. One copy of Certificate of Approval of Aircraft Radio Installation
from Hong Kong Civil Aviation Department dated February 26, 1993
B. One copy of Noise Certificate from Hong Kong Civil Aviation
Department dated February 26, 1993
<PAGE> 114
SCHEDULE 3.09
C. One copy of Letter from Hong Kong Civil Aviation Department dated
March 10, 1993 with respect to aircraft registration.
D. One copy of Certificate of Airworthiness from Hong Kong Civil Aviation
Department dated February 26, 1993
E. One copy of Certificate of Origin from European Community dated
February 22, 1993
F. One copy of Aircraft Station License from Hong Kong Telecommunication
Authority dated February 26, 1993
G. One copy of Certificate of Registration from Hong Kong Civil Aviation
Department dated February 26, 1993
H. One copy of Air Operator's Certificate from Hong Kong Civil Aviation
Department dated January 28, 1992
I. One copy of Air Operator's Certificate from Hong Kong Civil Aviation
Department dated March 10, 1993
J. One copy of Telegram regarding ILFC's lease rights dated February 18,
1993
K. One copy of Letter from ILFC dated February 19, 1993 in response to
February 18, 1993 Telegram
L. One copy of Letter from Hong Kong Civil Aviation Department dated
February 23, 1993
M. One copy of Letter from Johnson Stokes & Master regarding Dragonair
dated December 14, 1992
N. One copy of Letter from Johnson Stokes & Master dated February 25,
1993 with response from ILFC dated February 25, 1993
O. One copy of Letter from Hong Kong Civil Aviation Department regarding
ILFC registration dated January 8, 1993
P. One copy of Letter from Johnson Stokes & Master regarding Dragon Air
Registration dated January 11, 1993
Q. One copy of Letter from Johnson Stokes & Master regarding
Import/Export License dated February 5, 1993
R. One copy of Letter from Johnson Stokes & Master regarding
Import/Export License dated February 9, 1993
S. One copy of Letter from Johnson Stokes & Master dated February 10,
1993 regarding Letter from Hong Kong Department of Trade dated
February 3, 1993
VI. COMPANY CERTIFICATES
A. One copy of Certificate of Incumbency and Resolutions dated December
10, 1991
B. One copy of ILFC Proforma Invoice dated August 26, 1994
C. One copy of Officer's Certificate dated February 19, 1993
VII. AGENCY AGREEMENT
A. See Assignment of Warranty and Support Rights listed below
<PAGE> 115
SCHEDULE 3.09
VIII. OPINION OF COUNSEL
A. One copy of Opinion of Johnson Stokes & Master, counsel to Dragonair
dated March 12, 1993
B. One copy of Opinion of Johnson Stokes & Master, counsel to Dragonair
dated January 6, 1993
C. One copy of Johnson Stokes & Master, counsel to Dragonair dated
January 19, 1993
D. One copy of the f Johnson Stokes & Master, counsel to Dragonair dated
June 30, 1993 regarding Hong Kong Tax Structure
IX. ASSIGNMENT OF WARRANTIES
A. One copy of Assignment of Warranty and Support Rights dated as of
February 26, 1993
X. TECHNICAL DATA
NONE
XI. RETURN RECEIPT ACCEPTANCE
NONE
<PAGE> 116
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE (1) BOEING 757-28A AIRCRAFT BEARING
SERIAL NUMBER 24260 AND U.S. REGISTRATION N757GA (GUYANA AIRWAYS, LESSEE)
I. CORRESPONDENCE
A. One copy of Insurance Certificate/Broker's Letter of Undertaking dated
July 18, 1997
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement between ILFC, as Lessor, and
Guyana Airways Corporation, as Lessee dated September 13, 1993
III. SIDE LETTERS/AMENDMENTS
A. One copy of Amendment No. 1 to Aircraft Lease Agreement dated January
4, 1994
B. One copy of Letter Agreement No. 1 to Aircraft Lease Agreement dated
September 13, 1993
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated December 3, 1993
B. One copy of Air Transat Technical Records checklist
V. REGISTRATION & CERTIFICATES
A. One copy of Notification of Federal Aviation Administration Filing and
Recording from Insured Aircraft Title Services, Inc. dated January 20,
1994
B. One copy of B757 Aircraft Operation Approval from Republic of Guyana
Civil Aviation Department dated November 19, 1993
C. One copy of License to Operate an Air Service from Republic of Guyana
Civil Aviation Department dated November 22, 1993
D. One copy of Certificate of Aircraft Registration from United States
Federal Aviation Administration dated November 19, 1993
E. One copy of Standard Airworthiness Certificate from United States
Federal Aviation Administration dated November 19, 1993
F. One copy of Temporary Certificate of Aircraft Registration from United
States Federal Aviation Administration dated November 19, 1993
VI. COMPANY CERTIFICATES
A. One copy of Power of Attorney dated November 26, 1993
B. One copy of Incumbency Certificate dated November 26, 1993
C. One copy of Board Resolutions dated September 29, 1993 [CONFIRM DATE]
<PAGE> 117
SCHEDULE 3.09
D. One copy of Power of Attorney dated November 11, 1993
E. One copy of Certificate of Sanitary Construction from DHSS dated
November 9, 1993
VII. AGENCY AGREEMENT
NONE
VIII. OPINION OF COUNSEL
A. One copy of Opinion of Counsel from de Caires, Fitzpatrick & Karran
dated September 13, 1993 (confirm date)
IX. ASSIGNMENT OF WARRANTIES
A. One copy of Tripartite Warranty Agreement (Engines) dated December 3,
1993
B. One copy of Assignment of Rights (Airframe) dated December 3, 1993
X. COOPERATION AGREEMENT
NONE
XI. TECHNICAL DATA
A. One copy of ILFC Technical Evaluation Report
XII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 118
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE(1) BOEING 737-3S3 AIRCRAFT
BEARING SERIAL NUMBER 23811 AND ICELAND REGISTRATION TF-FIE (ICELANDAIR, LESSEE)
I. CORRESPONDENCE
A. One copy of Addendum Number One to Certificate of Insurance dated
September 16, 1997
B. One copy of Insurance Certificate dated September 15, 1996 and one
copy of Reinsurance Certificate dated September 23, 1997
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated September 11, 1997 between
ILFC, as Lessor, and Flugleidir h.f. (d/b/a Icelandair), as Lessee
B. One copy of Aircraft Wet Lease dated September 19, 1997
III. SIDE LETTERS/AMENDMENTS
A. One copy of Side Letter No. 1 to Aircraft Lease Agreement dated
September 11, 1997
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated September 18,
1997
B. One copy of Technical Evaluation Report from ILFC
V. REGISTRATION & CERTIFICATES
A. One copy of Authorization for Ferry Flight from Republic of Iceland
Ministry of Communications dated September 17, 1997
B. One copy of Certificate of Registration from Republic of Iceland Civil
Aviation Administration dated September 17, 1997
C. One copy of Flight Operation License from Republic of Iceland Ministry
of Communications dated December 30, 1994
D. One copy of Air Operator's Certificate from Republic of Iceland Civil
Aviation Administration dated December 29, 1994
E. One copy of Confirmation of De-Registration from United States Federal
Aviation Administration dated September 16, 1997
F. One copy of Letter regarding request for immediate deregistration of
aircraft filed with United States Federal Aviation Administration from
ILFC dated September 12, 1997
G. One copy of Filing Confirmation Memo from Daughterty, Fowler &
Peregrin dated September 12, 1997
<PAGE> 119
SCHEDULE 3.09
H. One copy of Standard Airworthiness Certificate from United States
Federal Aviation Administration dated September 4, 1997
I. One copy of Export Certificate of Airworthiness from United States
Federal Aviation Administration dated September 14, 1997
VI. COMPANY CERTIFICATES
A. One copy of Board Resolution dated September 16, 1997
B. One copy of Deregistration Power of Attorney dated September 17, 1997
C. One copy of Power of Attorney (for Mr. Halldorsson) dated September
16, 1997
D. One copy of Power of Attorney (for Mr. Vilhjalmsson) dated September
16, 1997
E. One copy of Registration Power of Attorney dated September 12, 1997
F. One copy of Power of Attorney (for Mr. Fulford) dated September 16,
1997
G. One copy of Power of Attorney (for ILFC)
VII. AGENCY AGREEMENT
NONE
VIII. OPINION OF COUNSEL
A. One copy of Opinion of Counsel from Adalsteinsson & Partners dated
September 17, 1997
IX. ASSIGNMENT OF WARRANTIES
A. One copy of Assignment of Warranties (Engines) dated September 18,
1997
B. One copy of Assignment of Rights (Airframe) dated September 18, 1997
X. COOPERATION AGREEMENT
NONE
XI. TECHNICAL DATA
NONE
XII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 120
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE (1) FOKKER F-70 AIRCRAFT BEARING
SERIAL NUMBER 11569 AND HUNGARIAN REGISTRATION HA-LMC (MALEV HUNGARIAN AIRLINES,
LESSEE)
I. CORRESPONDENCE
A. One copy of Insurance Certificate dated December 1,
1996
B. One copy of letter to Dr. Erzsebet Antal dated March 26, 1996
C. One copy of letter to Debbi Kessler from Kalman Barbay regarding
restructuring
D. One copy of letter from MALEV to Mr. Philip G. Scruggs and Mr. Huibert
van Doorn, regarding Cooperation Agreement regarding Engines dated
September 5, 1997
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated September 21, 1994 between
International Lease Finance Corporation ("ILFC"), as Lessor, and
Malev Hungarian Airlines, PLC ("Hungarian Airlines"), as Lessee
III. SIDE LETTERS/AMENDMENTS
A. One copy of Amendment Number 3 to Aircraft Lease Agreement dated March
8, 1996
B. One copy of Amendment No. 2 to Aircraft Lease Agreement dated March 8,
1996
C. One copy of Amendment Number 1 to Aircraft Lease Agreement dated July
10, 1995
D. One copy of Change Order FA-119-02 dated November 20, 1995
E. One copy of Side Letter No. 1 to three Aircraft Lease Agreements dated
September 21, 1994
F. One copy of Side Letter No. 2 to three Aircraft Lease Agreements dated
September 21, 1994
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Delivery Agenda dated March 8, 1996
B. One copy of Delivery Agenda dated March 8, 1996
C. One copy of Estoppel and Acceptance Certificate dated March 8, 1996
D. One copy of Confirmation Letter from G.H. Kroese to Malev Hungarian
Airlines dated February 21, 1996
E. One copy of Commitment Letter dated March 8, 1996
V. REGISTRATION & CERTIFICATES
A. One copy of Certificate of Technical Acceptance dated March 8, 1996
<PAGE> 121
SCHEDULE 3.09
B. One copy of Certificate of Airworthiness for Export No. E-1448 from The
Kingdom of the Netherlands Ministry of Transport and Public Works dated
March 7, 1996
C. One copy of Statement of Non-Registration from The Kingdom of the
Netherlands Ministry of Transport, Public Works and Water Management
dated March 7, 1996
D. One copy of Noise Certificate from Republic of Hungary Ministry of
Transport, Communication and Water Management dated March 8, 1996
E. One copy of Certificate of Aircraft Registration from Republic of
Hungary Ministry of Transport, Communication and Water Management
dated March 8, 1996
F. One copy of Certificate of Airworthiness from Republic of Hungary
Ministry of Transport, Communication and Water Management dated March
8, 1996
G. One copy of Aircraft Station License from Republic of Hungary General
Inspectorate of Communications dated July 12, 1995
H. One copy of Air Operator's Certificate from Republic of Hungary
Ministry of Transport, Communication and Water Management dated
October 31, 1995
I. One copy of Modification Difference List from Fokker Aircraft B.V.
dated April 24, 1995
J. One copy of Statement of Compliance from Fokker Aircraft B.V. dated
February 13, 1996
K. One copy of RLD-Statement from The Kingdom of the Netherlands Ministry
of Transport and Public Works dated February 13, 1996
L. One copy of RLD Export "Certifying Statement" for U.S. to A20EU from
Federal Aviation Administration in Brussels, Belgium dated February
14, 1996
VI. COMPANY CERTIFICATES
A. One copy of Proforma Invoice dated March 7, 1997
B. One copy of Power of Attorney dated March 5, 1996
C. One copy Officer's Certificate dated March 7, 1996
D. One copy of Delegation of Authority-77-A dated March 6, 1996
E. One copy of Aviation Authority Undertaking Letter dated March 3, 1996
F. One copy of Certificate of All Necessary Licences for Importation and
Ferrying dated March 7, 1996
G. One copy of Extract from the Board of Directors session held December
19, 1995
H. One copy of Extract from the Board of Directors session held June 24,
1994
I. One copy of Incumbency Certificate dated December 15, 1995
J. One copy of Officer's Certificate dated February 7, 1996
K. One copy of Power of Attorney dated March 7, 1996
VII. AGENCY AGREEMENT
NONE
<PAGE> 122
SCHEDULE 3.09
VIII. OPINION OF COUNSEL
A. One copy of Opinion of Dr. Dulin Zsolt, counsel to Hungarian Airlines
dated March 5, 1996
IX. ASSIGNMENT OF WARRANTIES
A. One copy of ILFC letter to Rolls Royce regarding assignment of
warranties dated March 8, 1996
X. COOPERATION AGREEMENT
A. One copy of Cooperation Agreement Regarding Engines dated September
5, 1997
XI. TECHNICAL DATA
A. One copy of Name Plates
XII. COMPANY CERTIFICATES
NONE
<PAGE> 123
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE (1) FOKKER F-70 AIRCRAFT BEARING
SERIAL NUMBER 11565 AND HUNGARIAN REGISTRATION HA-LMB (MALEV HUNGARIAN AIRLINES,
LESSEE)
I. CORRESPONDENCE
A. One copy of Insurance Certificate dated December 1, 1996
B. One copy of letter to Dr. Erzsebet Antal dated March 26, 1996
C. One copy of letter to Debbi Kessler from Kalman Barbay regarding
restructuring
D. One copy of letter from MALEV to Mr. Philip Scruggs and Mr. Huibert
van Doom regarding the Cooperation Agreement regarding engines dated
September 5, 1997
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated September 21, 1994 between
ILFC, as Lessor, and Malev Hungarian Airlines, PLC, as Lessee
III. SIDE LETTERS/AMENDMENTS
A. One copy of Change Order FA-119-02 dated November 20, 1995
B. One copy of Amendment Number 3 to Aircraft Lease Agreement dated
February 14, 1996
C. One copy of Amendment No. 2 to Aircraft Lease Agreement dated
February 14, 1996
D. One copy of Amendment Number 1 to Aircraft Lease Agreement dated
July 10, 1995
E. One copy of Side Letter No. 1 to three Aircraft Lease Agreements dated
September 21, 1994
F. One copy of Side Letter No. 2 to three Aircraft Lease Agreements dated
September 21, 1994
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated February 14,
1996
B. One copy of Delivery Agenda dated February 14, 1996
C. One copy of Commitment Letter dated February 14, 1996
D. One copy of Customer Snaglist dated January 31, 1996
E. One copy of Customer Rectification Request dated December 15, 1995
F. One copy of Aircraft Technical Log dated February 12, 1996
G. One copy of Aircraft Technical Log dated February 6, 1996
<PAGE> 124
SCHEDULE 3.09
V. REGISTRATION & CERTIFICATES
A. One copy of Air Agency Certificate from United States Federal Aviation
Administration dated October 23, 1962
B. One copy of RLD Export "Certifying Statement" for U.S. to A20EU from
Federal Aviation Administration in Brussels, Belgium dated February
14, 1996
C. One copy of Certificate of Compliance from Fokker Aircraft B.V. dated
February 5, 1996
D. One copy of Noise Certificate from Republic of Hungary Ministry of
Transport, Communication and Water Management dated February 14, 1996
E. One copy of Certificate of Aircraft Registration from Republic of
Hungary Ministry of Transport, Communication and Water Management
dated February 14, 1996
F. One copy of Aircraft Station Licence from Republic of Hungary General
Inspectorate of Communications dated July 12, 1995
G. One copy of Certificate of Airworthiness from Republic of Hungary
Ministry of Transport, Communications and Water Management dated
February 14, 1996
H. One copy of Certificate of Airworthiness for Export No. E-1436 from
The Kingdom of the Netherlands Ministry of Transport and Public Works
dated February 6, 1996
I. One copy of Statement of Non-Registration from The Kingdom of the
Netherlands Ministry of Transport, Public Works and Water Management
dated February 6, 1996
J. One copy of RLD-Statement from The Kingdom of the Netherlands Ministry
of Transport and Public Works dated February 13, 1996
K. One copy of Modification Difference List from Fokker Aircraft B.V.
dated February 12, 1996
VI. COMPANY CERTIFICATES
A. One copy of Aviation Authority Undertaking Letter from Hungarian
Ministry of Transport dated January 15, 1996
B. One copy of Certificate of All Necessary Licences for Importation and
Ferrying dated February 7, 1996
C. One copy of Officer's Certificate dated February 7, 1996
D. One copy of Power of Attorney dated February 7, 1996
E. One copy of Air Inspectorate Resolution dated January 25, 1996
F. One copy of Incumbency Certificate dated December 15, 1995
G. One copy of Authorization for Import from Transport Chief Supervision
Authority dated October 31, 1995
H. One copy of Extract from the Board of Directors session held December
19, 1995
I. One copy of Air Operator's Certificate from Hungarian Ministry of
Transport dated October 31, 1995
J. One copy of Extract from the Board of Directors session held June 24,
1994
<PAGE> 125
SCHEDULE 3.09
K. One copy of Air Waybill 000-12342676 dated February 5, 1996
L. One copy of Advice Note from Fokker Aircraft B.U. Schiphol to MALEV
dated February 5, 1997
M. One copy of ILFC Proforma Invoice 96070019 dated February 8, 1996
N. One copy of Fokker Proforma Invoice dated January 26, 1996
O. One copy of ILFC Proforma Invoice dated February 8, 1996
P. One copy of Name Plates
Q. One copy of Delegation of Authority-77 dated December 15, 1995
R. One copy of Power of Attorney dated January 31, 1996
S. Two copies of Certificate of Technical Acceptance dated February 14,
1996
T. One copy of Maintenance Schedule dated November 1, 1995
U. Multiple copies of Malev Airbill dated February 7, 1997 to ILFC
V. One copy of RLD-Statement dated February 13, 1996
W. One copy of Hungarian Registration Request dated February 12, 1996
X. One copy of Modification Summary Report dated February 12, 1995
VII. AGENCY AGREEMENT
NONE
VIII. OPINION OF COUNSEL
A. One copy of Opinion of Dr. Dulin Zsolt, counsel of Hungarian Airlines
dated February 1, 1996
IX. ASSIGNMENT OF WARRANTIES
A. One copy of Assignment of Warranties (Engines) dated February 29,
1996
B. One copy of Partial Assignment of Purchase Agreement (Aircraft)
dated November 15, 1995
X. COOPERATION AGREEMENT
A. One copy of Cooperation Agreement regarding Engines dated September
5, 1997
XI. TECHNICAL DATA
NONE
XII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 126
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE (1) FOKKER F-70 AIRCRAFT BEARING
SERIAL NUMBER 11564 AND HUNGARIAN REGISTRATION HA-LMA (MALEV HUNGARIAN
AIRLINES, LESSEE)
I. CORRESPONDENCE
A. One copy of Insurance Certificate dated December 1,
1996
B. One copy of letter to Dr. Erzsebet Antal dated March 26,
1996
C. One copy of letter regarding new organizational structure
from Kalman Barbay to Debbi Kessler
D. One copy of letter to Mr. Philip G. Scruggs and Huibert van Doom
regarding Cooperation Agreement regarding engines dated
September 5, 1997
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated September 21, 1994 between
ILFC, as Lessor, and Malev Hungarian Airlines, PLC, as Lessee
III. SIDE LETTERS/AMENDMENTS
A. One copy of Change Order FA-119-02 dated
November 20, 1995
B. One copy of Change Order FA-119-01 dated as of
November 15, 1995
C. One copy of Amendment Number 1 to Aircraft Lease
Agreement dated July 10, 1995
D. One copy of Amendment No. 2 to
Aircraft Lease Agreement dated December 20, 1995
E. One copy of Amendment Number 3 to Aircraft Lease Agreement dated
December 20, 1995
F. One copy of Side Letter No. 1 to three Aircraft
Lease Agreements dated September 21, 1994
G. One copy of Side Letter No. 2 to three Aircraft Lease Agreements
dated September 21, 1994
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Commitment Letter Dated December 20, 1995
B. One copy of Customer Snaglists dated November 28, 1995 and
December 18, 1995
C. One copy of four customer rectification requests dated
December 15/18, 1995
D. One copy of Delivery Agenda dated December 20, 1995
E. One copy of Estoppel and Acceptance Certificate dated December 20, 1995
<PAGE> 127
SCHEDULE 3.09
V. REGISTRATION & CERTIFICATES
A. One copy of Certificate of Airworthiness from Republic of Hungary
Ministry of Transport, Communication and Water Management dated
December 20, 1995
B. One copy of Certificate of Airworthiness from The Kingdom of the
Netherlands Ministry of Transport and Public Works for Export No.
E-1435 dated December 20, 1995
C. One copy of Statement of Non-Registration from The Kingdom of the
Netherlands Ministry of Transport dated December 20, 1995
D. One copy of Certificate of Aircraft Registration from Republic of
Hungary Ministry of Transport, Communication and Water Management
dated December 20, 1995
E. One copy of Noise Certificate from Republic of Hungary Ministry of
Transport, Communication and Water Management dated December 20, 1995
F. One copy of Air Agency Certificate from United States Federal Aviation
Administration dated October 23, 1962
VI. COMPANY CERTIFICATES
A. One copy of Extract from the Malev Board of Directors session held
December 19, 1995
B. One copy of Certificate of Technical Acceptance executed by ILFC dated
December 20, 1995
C. One copy of Certificate of Configuration Compliance from Fokker dated
December 20, 1995
D. One copy of Payment of Total Loss Agreement dated December 19, 1995
E. One copy of Certificate of All Necessary Licences for Importation and
Ferrying from Malev dated December 20, 1995
F. One copy of Aviation Authority Undertaking Letter from Hungarian Civil
Aviation Directorate dated November 3, 1995
G. One copy of Delegation of Authority-77 dated December 15, 1995
H. One copy of Name Plates
I. One copy of Certificate of Establishment from Hungarian Civil Aviation
Directorate dated December 15, 1995
J. One copy of translation from Hungarian 975.639/1990 Decision of
Incorporation dated February 14, 1990
K. One copy of translation from Hungarian 655.630/1986 Decision of
Incorporation dated December 8, 1986
L. One copy of translation of Approval of Imported Aircraft Lease by
Hungarian National Bank dated December 12, 1995
M. One copy of Officer's Certificate dated December 20, 1995
N. One copy of Power of Attorney dated December 20, 1995
O. One copy of translation of Aircraft Operation Permit from Hungarian
Civil Aviation Directorate dated December 5, 1995
<PAGE> 128
SCHEDULE 3.09
P. One copy of Decision of Authorization for Import from Transport
Chief Supervision Authority dated October 31, 1995
Q. One copy of Extract from Malev Board of Directors Session dated
December 19, 1995
R. One copy of Extract of Incumbency Certificate dated December 15, 1995
S. One copy of Air Operator's Certificate from Hungarian Civil Aviation
Directorate dated October 31, 1995
T. One copy of Extract from the Malev Board of Directors Session held
June 24, 1994
U. One copy of Power of Attorney dated December 15, 1995
V. One copy of ILFC Proforma Invoice S1350012 dated December 20, 1995
W. One copy of Fokker Air Waybill 000-12342444 dated December 20, 1995
X. One copy of Fokker Advice Note dated December 20, 1995
Y. One copy of Invoice 95/5764A dated December 13, 1995
Z. One copy of ILFC Proforma Invoice dated December 20, 1995
AA. One copy of Extract from the seventh Malev Board of Director Session
dated June 24, 1994
BB. One copy of translation of Exchange Control Approval dated December
12, 1995
CC. One copy of translation of Aircraft Operation Permit dated December
5, 1995
VII. AGENCY AGREEMENT
A. One copy of ILFC Inspection Authorization Letter dated September 26,
1995
VIII. OPINION OF COUNSEL
A. One copy of Opinion of Dr. Dulin Zsolt, counsel to Hungarian Airlines
dated December 11, 1995
IX. ASSIGNMENT OF WARRANTIES
A. One copy of Partial Assignment of Purchase Agreement among ILFC
("Assignor"), Malev ("Assignee") and Fokker ("Seller") dated November
15, 1995
B. One copy of TAY 620 Warranty Agreement between Rolls-Royce Commercial
Aero Engines Limited, ILFC and MALEV Hungarian Airlines, PLC dated
December 20, 1995
X. COOPERATION AGREEMENT
A. One copy of Cooperation Agreement regarding Engines dated September
5, 1997
XI. TECHNICAL DATA
NONE
<PAGE> 129
SCHEDULE 3.09
XII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 130
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE (1) AIRBUS A320-200 AIRCRAFT
BEARING SERIAL NUMBER 279 AND BRITISH REGISTRATION G-MONY (MONARCH AIRLINES
LTD., LESSEE)
I. CORRESPONDENCE
A. One copy of Insurance Certificate dated May 8, 1997
B. One copy of Letter of Undertaking dated May 8, 1997
C. One copy of Insurance Certificate dated April 17, 1997
D. One copy of Letter of Undertaking dated April 17, 1997
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated as of January 7, 1993
between International Lease Finance Corporation, as Lessor, and
Monarch Airlines Ltd., as Lessee
III. SIDE LETTERS/AMENDMENTS
A. Two copies of Amendment Number 1 to Aircraft Lease Agreement dated
June 5, 1995
B. One copy of Amendment Number 2 to Aircraft Lease Agreement dated
June 25, 1997
C. One copy of Assignment and Transfer of Rights dated January 7, 1993
D. One copy of letter from ILFC regarding Insurance dated January 7, 1993
E. One copy of letter from ILFC regarding various delivery items dated
January 7, 1993
F. One copy of letter from ILFC regarding Indemnification dated
January 7, 1993
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated January 11, 1993
B. One copy of List of Manuals Information
V. REGISTRATION & CERTIFICATES
A. One copy of Confirmation of Registration from United Kingdom Civil
Aviation Authority dated April 2, 1996
B. One copy of Certificate of Registration from United Kingdom Civil
Aviation Authority dated January 11, 1993
C. One copy of Certificate of Airworthiness from United Kingdom Civil
Aviation Authority dated April 29, 1994
D. One copy of Letter from United Kingdom Civil Aviation Authority
regarding U.K. Registry Removal dated May 1, 1995
<PAGE> 131
SCHEDULE 3.09
E. One copy of Confirmation of Registration from United Kingdom Civil
Aviation Authority dated April 28, 1995
F. One copy of Certificate of Airworthiness from United Kingdom Civil
Aviation Authority dated March 15, 1993
G. One copy of Confirmation of Registration from United Kingdom Civil
Aviation Authority dated January 12, 1993
H. One copy of Application for Registration of Aircraft or Change of
Ownership filed with United Kingdom Civil Aviation Authority dated
December 3, 1992
I. One copy of Air Transport Licence from United Kingdom Civil Aviation
Authority dated August 13, 1990
J. One copy of Air Operator's Certificate from United Kingdom Civil
Aviation Authority dated March 9, 1993
K. One copy of Import Entry dated January 11, 1993
L. One copy of Certificate of Registration of Aircraft from United
Kingdom Civil Aviation Authority dated April 28, 1995
M. One copy of Confirmation of Deregistration from Canadian Civil
Aircraft Register dated January 11, 1993
VI. COMPANY CERTIFICATES
A. One copy of Power of Attorney from Monarch dated January 11, 1993
B. One copy of Power of Attorney from Monarch dated January 8, 1993
C. One copy of Monarch Officer's Certificate dated January 11, 1993
D. One copy of Minutes from Monarch Board of Directors Meeting held
January 7, 1993
E. One copy of Incumbency Certificate dated January 7, 1993
F. One copy of ILFC Proforma Invoice dated January, 1993
G. One copy of Power of Attorney from International Lease Finance
Corporation dated January 5, 1993 H. One copy of ILFC Proforma
Invoice dated January 7, 1993
VII. AGENCY AGREEMENT
NONE
VIII. OPINION OF COUNSEL
A. One copy of Machins Opinion of Counsel dated January 11, 1993
IX. ASSIGNMENT OF WARRANTIES
A. One copy of Assignment of Warranty Agreement (Airframe) dated
November 18, 1993
B. One copy of Assignment of Warranties (Engines) dated January 11, 1993
<PAGE> 132
SCHEDULE 3.09
X. COOPERATION AGREEMENT
NONE
XI. TECHNICAL DATA
A. One copy of Letter regarding Number of Components dated March 23, 1993
B. One copy of Clarification Letter dated March 29, 1993
C. One copy of letter of Crew Training Allowances dated July 27, 1993
D. One copy of Invoice 30880 dated July 28, 1993
E. One copy of Confirmation of Delivery dated March 3, 1993
F. One copy of Contract Component Discrepancy List
G. One copy of fax from ILFC to Hiram Hardy dated March 25, 1997
regarding the list of components
XII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 133
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE (1) AIRBUS A321-100 AIRCRAFT
BEARING SERIAL NUMBER 597 AND TURKISH REGISTRATION TC-ONI (ONUR AIR TASIMACILIK,
A.S., LESSEE)
I. CORRESPONDENCE
A. One copy of Insurance Certificates dated May 7, 1997 and June 4, 1997
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated as of April 13, 1995
between ILFC, as Lessor, and Onur Air Tasimacilik, A.S. ("Onur Air"),
as Lessee
III. SIDE LETTERS/AMENDMENTS
A. One copy of Amendment Number One to Aircraft Lease Agreement dated as
of May 21, 1996
B. One copy of Letter regarding A321-100 Lease Amendments dated June 30,
1996
C. One copy of Amendment No. 1 to Aircraft Lease Agreement dated as of
December 13, 1995
D. One copy of Side Letter Number One dated April 13, 1995
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel & Acceptance Certificate dated May 21, 1996
B. One copy of Delivery Agenda dated May 21, 1996
C. One copy of List of Documents dated May 21, 1996
V. REGISTRATION & CERTIFICATES
A. One copy of Certificate of Registration from Republic of Turkey
Ministry of Transport and Communications dated May 23, 1996
B. One copy of Certificate of Airworthiness from Republic of Turkey
Ministry of Communication and Transportation dated May 23, 1996
C. One copy of Certificate of Non-Registration from Federal Republic of
Germany Federal Civil Aviation Administration dated May 13, 1996
D. One copy of Export Certificate of Airworthiness from United States
Federal Aviation Administration dated March 5, 1996 regarding engine
msn V-10168
E. One copy of Log of Engine Test dated March 3, 1996 regarding engine
msn V-10168
F. One copy of Log of Engine Test dated February 22, 1996 regarding
engine msn V-10169
G. One copy of Export Certificate of Airworthiness from United States
Federal Aviation Administration dated February 27, 1996 regarding
engine msn V-10169
<PAGE> 134
SCHEDULE 3.09
H. One copy of Temporary Certificate of Registration from Republic of
Turkey Ministry of Communications dated May 17, 1996
I. One copy of Temporary Certificate of Airworthiness from Republic of
Turkey Ministry of Communication and Transportation dated May 17, 1996
J. One copy of Export Certificate of Airworthiness from Federal Republic
of Germany Federal Airworthiness Authority dated May 21, 1996
K. One copy of Certificate of Non-Registration from Federal Republic of
Germany Federal Civil Aviation Administrator dated May 13, 1996
VI. COMPANY CERTIFICATES
A. One copy of Power of Attorney in favor of ILFC
B. One copy of Officer's Certificate dated May 20, 1996
C. One copy of Delivery Power of Attorney dated April 16, 1996
D. One copy of ILFC Delivery Power of Attorney dated May 16, 1996
E. One copy of ILFC Invoice dated June 21, 1996
F. One copy of notarized Certificate of the Vice President and Treasurer
dated April 10, 1996
G. One copy of Market Value Statement dated April 10, 1996
H. One copy of notarized Certificate of Secretary dated March 29, 1996
I. One copy of notarized Certificate of the Vice President and Treasurer
dated March 29, 1996
J. One copy of Market Value Statement (estimated) dated March 29, 1996
K. One copy of notarized Certificate of the Secretary dated March 29,
1996
L. One copy of cover of ILFC 10-K report
M. One copy of notarized Articles of Incorporation of KH Acquisition
Corporation
N. One copy of Certificate of Corporate Status dated April 5, 1993
O. One copy of Turkish Treasury Approval
VII. AGENCY AGREEMENT
A. One copy of Participation Agreement between ILFC, Onur Air and AVSA
dated May 21, 1996
B. One copy of AVSA Credit Note dated May 21, 1996
VIII. OPINION OF COUNSEL
A. One copy of Karako Opinion of Counsel dated April 22, 1996
IX. ASSIGNMENT OF WARRANTIES
A. One copy of Assignment of Rights (Airframe) dated May 21, 1996
B. One copy of Amendment No. 1 to Assignment Agreement dated May 21, 1996
X. COOPERATION AGREEMENT
NONE
<PAGE> 135
SCHEDULE 3.09
XI. TECHNICAL DATA
A. One copy of ILFC Ownership and Lease Placards Checklist dated May 21,
1966
B. One copy of AVSA Commitment Letter dated May 21, 1996
XII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 136
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE (1) AIRBUS A310-300 AIRCRAFT
BEARING SERIAL NUMBER 409 AND SWISS REGISTRATION HB-IPH (SWISSAIR, LESSEE)
I. CORRESPONDENCE
A. One copy of Insurance Certificate dated January 16, 1997
B. One copy of Letter of Undertaking dated January 16, 1997
C. One copy of letter regarding return of Aircraft dated September 4, 1997
D. One copy of the Message to Shareholders of the SwissAir Group
E. One copy of Letter of Intent between ILFC and Passaredo Transportes
Aereos dated September 26, 1997
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated December 20, 1996 between
ILFC, as Lessor, and Swissair, Swiss Air Transport Company Ltd., as
Lessee
III. SIDE LETTERS/AMENDMENTS
A. One copy of Global Side Letter No. 1 to A310-300 Aircraft Lease
Agreements dated December 20, 1996
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Lessee Acceptance Certificate dated January 16, 1997
V. REGISTRATION & CERTIFICATES
A. One copy of Certificate of Registration from Swiss Confederation
Federal Office for Civil Aviation dated January 16, 1997
B. One copy of Certificate of Registration from Swiss Confederation
Federal Office for Civil Aviation dated May 30, 1995
C. One copy of Certificate of Airworthiness from Swiss Confederation
Federal Office for Civil Aviation dated May 30, 1996
VI. COMPANY CERTIFICATES
NONE
VII. AGENCY AGREEMENT
NONE
VIII. OPINION OF COUNSEL
NONE
<PAGE> 137
SCHEDULE 3.09
IX. ASSIGNMENT OF WARRANTIES
NONE
X. COOPERATION AGREEMENT
NONE
XI. TECHNICAL DATA
NONE
XII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 138
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE (1) AIRBUS A310-300 AIRCRAFT
BEARING SERIAL NUMBER 410 AND SWISS REGISTRATION HB-IPI (SWISSAIR, LESSEE)
I. CORRESPONDENCE
A. One copy of Insurance Certificates dated January 16, 1997
B. One copy of Letter of Undertaking dated January 16, 1997
C. One copy of letter regarding return of Aircraft dated September 4, 1997
D. One copy of the Message to Shareholders of the SwissAir Group
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated December 20, 1996 between
ILFC, as Lessor, and SwissAir, Swiss Air Transport Company Ltd.,
as Lessee
III. SIDE LETTERS/AMENDMENTS
A. One copy of Global Side Letter No. 1 to A310-300 Aircraft Lease
Agreements dated December 20, 1996
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Lessee Acceptance Certificate dated January 16, 1997
V. REGISTRATION & CERTIFICATES
A. One copy of Certificate of Airworthiness from Swiss Confederation
Federal Office for Civil Aviation dated May 30, 1996
B. One copy of Certificate of Registration from Swiss Confederation
Federal Office for Civil Aviation dated January 16, 1997
VI. COMPANY CERTIFICATES
NONE
VII. AGENCY AGREEMENT
NONE
VIII. OPINION OF COUNSEL
NONE
IX. ASSIGNMENT OF WARRANTIES
NONE
<PAGE> 139
SCHEDULE 3.09
X. COOPERATION AGREEMENT
NONE
XI. TECHNICAL DATA
NONE
XII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 140
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE (1) BOEING 737-382 AIRCRAFT BEARING
SERIAL NUMBER 25161 AND PORTUGUESE REGISTRATION CS-TIK (TAP AIR PORTUGAL,
LESSEE)
I. CORRESPONDENCE
A. One copy of Insurance Certificate dated June 30, 1997
B. One copy of Letter of Undertaking dated July 1, 1997
C. One copy of Certificate of Reinsurance dated July 1, 1997
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated as of February 15, 1990
between ILFC, as Lessor, and Transportes Aereos Portugueses, E.P.
("TAP Air Portugal"), as Lessee
III. SIDE LETTERS/AMENDMENTS
A. One copy of Amendment Number Six to Aircraft Lease Agreement dated
February 3, 1997
B. One copy of Amendment Number Five to Aircraft Lease Agreement dated
June 30, 1995
C. One copy of Amendment Number Four to Aircraft Lease Agreement dated
January 1, 1995
D. One copy of Amendment Number Three to Aircraft Lease Agreement dated
January 1, 1995
E. One copy of Amendment Number Two to Aircraft Lease Agreement dated
February 12, 1993
F. One copy of Amendment Number One to Aircraft Lease Agreement dated
December 1, 1992
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated February 25,
1992
B. One copy of Delivery Agenda dated February 25, 1992
V. REGISTRATION & CERTIFICATES
A. One copy of Letter regarding Certificate of Registration No. 3/92 from
Ministerio Das Obras Publicas, Transportes E Comunicacoes of Portugal
dated March 2, 1992
B. One copy of Certificate of Registration from Direccao-Geral Da AviaCao
Civil of Portugal dated March 2, 1992
<PAGE> 141
SCHEDULE 3.09
C. One copy of Certificate of Airworthiness from Direccao-Geral Da
AviaCao Civil of Portugal dated March 2, 1992
D. One copy of Noise Certificate from Direccao-Geral Da AviaCao Civil of
Portugal dated March 2, 1992
E. One copy of Aircraft Station Licence from Direccao-Geral Da AviaCao
Civil of Portugal dated February 14, 1992
F. One copy of International Import Certificate from Direccao-Geral
Da Comerco Externo dated February 7, 1992
G. One copy of Export Certificate of Airworthiness from United States
Federal Aviation Administration dated February 25, 1992
H. One copy of a Letter from Direccao-Geral Da AviaCao Civil of Portugal
dated January 10, 1989
I. One copy of Application for Aircraft Registration filed with Portuguese
Civil Aviation Authority dated February 7, 1992
J. One copy of Certificate of Origin from State of Washington dated
February 25, 1992
K. One copy of Confirmation of Non-Registration from United States
Federal Aviation Administration dated February 12, 1992
L. One copy of Special Flight Permit from Direccao-Geral Da AviaCao Civil
of Portugal dated February 14, 1992
M. One copy of Certificate of Sanitary Construction from United States
Department of Health and Human Services dated February 4, 1992
N. One copy of Application for Provisional Airworthiness Certificate
for Ferry Flight dated February 7, 1992
O. One copy of the Application for Provisional Registration dated
February 7, 1992
P. One copy of the Application for Noise Certificate dated February 7,
1997
Q. One copy of the Application for Airworthiness Certificate from
Portuguese Directorate of Civil Aviation dated February 7, 1992
R. One copy of the Application for Final Registration dated February 7,
1992
S. One copy of Application for Radio Station License dated February 7,
1992
T. One copy of ILFC Proforma Invoice dated February 5, 1992
U. One copy of ILFC Proforma Invoice dated February 19, 1992
V. One copy of notarized Registration Power of Attorney in favor of TAP
Air Portugal dated February 13, 1992
W. One copy of letter regarding Air Operator's Certificate/Air Transport
License dated April 14, 1989
X. One copy of Decree-Laws 471-A/76, 414-A/77 and 460-A/79 with
translation
VI. COMPANY CERTIFICATES
A. One copy of translation of Decree-Law 312/91
B. One copy of letter regarding Decree-Law 312/91 dated August 21, 1991
<PAGE> 142
SCHEDULE 3.09
VII. AGENCY AGREEMENT
A. One copy of Agency Agreement between ILFC and TAP Air Portugal
dated July 18, 1990
VIII. OPINION OF COUNSEL
A. One copy of TAP Air Portugal Opinion of Counsel dated February 25,
1992
B. One copy of letter regarding Opinion of Counsel dated March 16, 1992
C. One copy of Statement dated February 25, 1992 regarding Aircraft
Lease Agreement
IX. ASSIGNMENT OF WARRANTIES
A. One copy of Full Assignment of Rights (Airframe) dated February 25,
1992
B. One copy of Assignment of Warranties (Engines) dated February 25,
1992
C. One copy of Letter to CFMI dated February 25, 1992
X. COOPERATION AGREEMENT
A. One copy of Second Amended and Restated Engines Agreement dated July
26, 1994
B. One copy of Amended and Restated Engines Agreement dated August 28,
1992
C. One copy of Supplement to Second Amended and Restated Engines
Agreement dated as of February 19, 1997
D. One copy of Supplement to Second Amended and Restated Engines
Agreement dated June 28, 1996
XI. TECHNICAL DATA
NONE
XII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 143
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE (1) BOEING 737-4Q8 AIRCRAFT
BEARING SERIAL NUMBER 25372 AND TURKISH REGISTRATION TC-JDI (TURK HAVA YOLLARI,
LESSEE)
I. CORRESPONDENCE
A. One copy of Insurance Certificates dated December 27, 1996 and June
30, 1997
B. One copy of Broker's Letter of Undertaking dated February 4, 1997 and
Letter of Undertaking dated December 27, 1996
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated as of September 11, 1990
between ILFC, as Lessor, and Turk Hava Yollari, as Lessee
III. SIDE LETTERS/AMENDMENTS
A. One copy of Letter regarding Rental Rebate dated April 13, 1993
B. One copy of Amendment Number 1 to Aircraft Lease Agreement dated April
13, 1993
C. One copy of Letter Agreement No. 7 to Aircraft Lease Agreement dated
September 11, 1990
D. One copy of Letter Agreement No. 6 to Aircraft Lease Agreement dated
September 11, 1990
E. One copy of Letter Agreement No. 5 to Aircraft Lease Agreement dated
September 11, 1990
F. One copy of Letter Agreement No. 4 to Aircraft Lease Agreement dated
September 11, 1990
G. One copy of Letter Agreement No. 3 to Aircraft Lease Agreement dated
September 11, 1990
H. One copy of Letter Agreement No. 2 to Aircraft Lease Agreement dated
September 11, 1990
I. One copy of Letter Agreement No. 1 to Aircraft Lease Agreement dated
September 11, 1990
IV. REGISTRATION & CERTIFICATES
A. One copy of Air Operator's Certificate from Turkiye Cumhuriyeti
Ulastirma Bakanligi dated October 25, 1984
B. One copy of Vendor List
C. One copy of Temporary Certificate of Registration from Republic of
Turkey Ministry of Transport and Communications dated April 14, 1992
<PAGE> 144
SCHEDULE 3.09
D. One copy of Temporary Certificate of Worthiness from Republic of
Turkey Ministry of Communications dated April 14, 1992
E. One copy of Export Certificate of Airworthiness from United States
Federal Aviation Administration dated May 8, 1992
F. One copy of Certificate of Registration from Republic of Turkey
Ministry of Transport and Communications dated May 11, 1992
G. One copy of Certificate of Worthiness from Republic of Turkey Ministry
of Transport and Communications dated May 11, 1992
H. One copy of Confirmation of Registration (Turkish) dated May 4, 1992
V. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated May 8, 1992
B. One copy of Delivery Agenda dated May 8, 1992
VI. COMPANY CERTIFICATES
A. One copy of Officer's Certificate dated January 23, 1996
B. One copy of Declaration of Representation and Warranties of Article 20
dated April 27, 1992
C. One copy of letter of No Documentation dated April 27, 1992
D. One copy of letter of No Requirement dated April 27, 1992
E. One copy of Certificate dated April 2, 1992
F. One copy of Resolution No. 56 dated April 2, 1992
G. One copy of Resolution No. 111 dated June 14, 1990
H. One copy of Circular Note dated April 2, 1992
I. One copy of Certificate dated September 4, 1990
J. Power of Attorney dated April 29, 1992
VII. AGENCY AGREEMENT
A. One copy of Agency Agreement dated January 10, 1992
VIII.OPINION OF COUNSEL
A. One copy of Opinion of In-House Counsel of Turk Hava dated April 27,
1992
B. One copy of Opinion of In-House Counsel of ILFC dated May 8, 1992
C. One copy of Amended Legal Opinion from Turk Hava Yollari dated
November 2, 1990
IX. COOPERATION AGREEMENT
A. One copy of Cooperation Agreement Regarding Engines dated April 27,
1992
X. ASSIGNMENT OF WARRANTIES
A. One copy of Full Assignment of Rights (Airframe) dated May 8, 1992
B. One copy of CFM Assignment of Warranties dated May 9, 1992
<PAGE> 145
SCHEDULE 3.09
C. One copy of Confirmation Letter to CFM dated May 3, 1992
XI. TECHNICAL DATA
A. One copy of Maintenance Check Intervals dated November 23, 1992
B. One copy of Maintenance Program Revision 5 dated December, 1989
C. One copy of Boeing Delivery Exceptions Letter dated May 8, 1992
D. One copy of Galley Substantiation dated April 9, 1992
E. One copy of fax from Turk Hava Yollari regarding Maintenance Program
dated March 23, 1992
F. One copy of letter from Turkish Directorate General of Civil Aviation
dated August 19, 1991
XII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 146
SCHEDULE 3.09
INDEX TO DOCUMENTS
LEASE #1
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE(1) BOEING 757-28A AIRCRAFT BEARING
SERIAL NUMBER 24367 AND IRISH REGISTRATION EI-CLM (TRANSAERO AIRLINES, LESSEE)
I. CORRESPONDENCE
A. One copy of Insurance Certificate dated June 5, 1997
B. One copy of Certificate of Reinsurance dated April 8, 1997
C. One copy of letter to Mr. Lepikhov with Forms 6166 attached dated
March 18, 1996
D. One copy of notarized Power of Attorney for ILFC Aircraft Holdings,
Inc. dated June 30, 1995
E. One copy of letter from Transaero dated August 25, 1995 regarding
Russian Taxation Formalities
F. One copy of letter from IRS dated July 31, 1995
G. One copy of letter from Joseph H. Cloonan, IRS Certification of Filing
a Tax Refund
H. One copy of letter to Grant Levy from Y. Belykh regarding Maintenance
Activities dated August 9, 1996
I. One copy of letter from Grant Levy to Gregory Gurtovoy regarding an
Occurrence of a Default as a result of Problems with the Maintenance
Program dated August 6, 1996
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Novation Agreement dated February 28, 1995
among Transaero Airlines, ILFC Aircraft Holding Corporation, ILFC
Ireland Limited, and ILFC
B. One copy of Aircraft Intermediate Head Lease Agreement dated February
28, 1995 between ILFC Aircraft Holding Corporation, as Lessee and ILFC
Ireland Limited, as Lessor
C. One copy of Aircraft Lease Agreement dated February 22, 1995 between
Transaero Airlines as Lessee and ILFC as Lessor
D. Aircraft Head Lease Agreement dated as of February 28, 1995 between
ILFC Ireland Limited and International Lease Finance Corporation
III. SIDE LETTERS/AMENDMENTS
A. One copy of Amendment Number Three to Aircraft Lease Agreement dated
February 28, 1997
<PAGE> 147
SCHEDULE 3.09
B. One copy of Amendment Number Two to Aircraft Lease Agreement dated
February 21, 1997
C. One copy of Double Taxation application dated July 12, 1996
D. One copy of Side Letter Number Three to Aircraft Lease Agreement
dated February 25, 1995
E. One copy of Side Letter Number Four to Aircraft Lease Agreement
dated February 29, 1996
F. One copy of Side Letter Number Two to Aircraft Lease Agreement dated
February 22, 1995
G. One copy of Side Letter Number One to Aircraft Lease Agreement dated
February 22, 1995
H. One copy of Amendment Number One to Aircraft Lease Agreement dated
November 24, 1995
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated March 24, 1995
V. REGISTRATION & CERTIFICATES
A. One copy of Letter from Shannon Aerospace (with various application
forms attached) dated March 13, 1995
B. One copy of Certificate of Airworthiness from Irish Aviation
Authority dated March 24, 1995
C. One copy of Certificate of Registration from Irish Aviation
Authority dated March 24, 1995
D. One copy of Confirmation of De-Registration from United States
Federal Aviation Administration dated March 23, 1995
E. One copy of Certificate of Aircraft Registration from United States
Federal Aviation Administration dated November 19, 1993
F. One copy of Confirmation of Authorization of Change of Registration
Number to N38ILF from United States Federal Aviation Administration
dated January 25, 1995
VI. COMPANY CERTIFICATES
A. One copy of Transaero Officer's Certificate dated March 24, 1995
B. One copy of Maintenance Program
C. One copy of ILFC Holding Company Proforma Invoice dated March 14,
1995
D. One copy of Transaero Incumbency Certificate dated March 23, 1995
E. One copy of Certificate of Insurance dated March 23, 1995
F. One copy of Deregistration Power of Attorney dated March 24, 1995
G. One copy of Power of Attorney for Dave Fulford dated March 3, 1995
H. One copy of Extract from Minutes of the Transaero Board of Directors
dated March 2, 1995
<PAGE> 148
SCHEDULE 3.09
I. One copy of Transaero Incumbency Certificate dated March 2, 1995
VII. AGENCY AGREEMENT
NONE
VIII. OPINION OF COUNSEL
A. One copy of Sokolov, Maslov & Partners A.O. Opinion of Counsel dated
February 21, 1995
IX. ASSIGNMENT OF WARRANTIES
A. One copy of Assignment of Rights (Airframe) dated February 22, 1995
B. One copy of Tripartite Warranty Agreement dated March 24, 1995
X. COOPERATION AGREEMENT
NONE
XI. TECHNICAL DATA
A. List of Manuals received with aircraft and log books
B. Technical Evaluation Report
<PAGE> 149
SCHEDULE 3.09
INDEX TO DOCUMENTS
LEASE #2
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE (1) BOEING 757-28A AIRCRAFT
BEARING SERIAL NUMBER 24367 AND IRISH REGISTRATION EI-CLM (TRANSAERO AIRLINES,
LESSEE)
I. CORRESPONDENCE
A. See Lease Binder #1 for Insurance Certificate(s)
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated March 7, 1997 between
Transaero Airlines and ILFC Aircraft Holding Corporation
III. SIDE LETTERS/AMENDMENTS
NONE
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated March 10, 1997
V. REGISTRATION & CERTIFICATES
A. One copy of Certificate of Airworthiness from Irish Aviation Authority
dated March 24, 1995
B. One copy of Certificate of Registration from Irish Aviation Authority
dated March 24, 1995
C. One copy of Letter from Federal Aeronautical Authorities of Russia
dated June 26, 1996
D. One copy of Operator's Certificate (Russian Version) from Federal
Aviation Authority of Russia dated July 25, 1997
E. One copy of Operator's Certificate (English Version) from Federal
Aviation Authority of Russia dated July 25, 1997
VI. COMPANY CERTIFICATES
A. One copy of Officer's Certificate dated March 10, 1997
B. One copy of Form of Power of Attorney dated March 10, 1997
VII. AGENCY AGREEMENT
NONE
<PAGE> 150
SCHEDULE 3.09
VIII.OPINION OF COUNSEL
A. Opinion of Counsel dated April 17, 1997
IX. ASSIGNMENT OF WARRANTIES
NONE
X. TECHNICAL DATA
A. One copy of Transaero Boeing 757 Period Check AMS Amendment dated
December 12, 1996
B. One copy of British Airways Maintenance Schedule for B757's dated
December 20, 1996
C. One copy of letter from British CAA regarding maintenance schedule
approval dated December 14, 1995
D. One copy of Acceptance of Maintenance Support from British CAA dated
March 19, 1993
E. One copy of Maintenance Schedule Approval from Irish Aviation
Authority dated October 1, 1996
F. One copy of British Airways Maintenance Schedule for Boeing 757's
dated December 20, 1996
XI. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 151
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE (1) BOEING 737-3K2 AIRCRAFT
BEARING SERIAL NUMBER 27635 AND NETHERLANDS REGISTRATION PH-TSZ (TRANSAVIA,
LESSEE)
I. CORRESPONDENCE
A. One copy of Addendum No. 1 to Insurance Certificate dated October 31,
1996
B. One copy of Insurance Certificate and Letter of Undertaking dated
October 31, 1996
C. One copy of letter from ILFC regarding reduction in agreed value dated
October 9, 1997
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated December 23, 1994 between
ILFC, as Lessor, and Transavia, as Lessee
III. SIDE LETTERS/AMENDMENTS
A. One copy of Side Letter No. 2 to Aircraft Lease Agreement dated
September 6, 1995
B. One copy of Side Letter No. 1 to Aircraft Lease Agreement dated
December 23, 1994
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated January 8, 1996
B. One copy of Delivery Agenda dated May 17, 1995
C. One copy of Aircraft Receipt dated May 17, 1995
V. REGISTRATION & CERTIFICATES
A. One copy of Notarial Deeds registered in the Aircraft Register in
Rotterdam, Netherlands dated January 10, 1996
B. One copy of Statement Concerning Holdership dated December 1995
(illegible)
C. One copy of Certificate of Airworthiness from The Kingdom of the
Netherlands Ministry of Transport, Public Works and Water Management
dated August 3, 1995
D. One copy of Certificate of Registration from The Kingdom of the
Netherlands Ministry of Transport, Public Works and Water Management
dated May 17, 1995
E. One copy of Certificate of Validation No.: G-5021 from The Kingdom of
the Netherlands Ministry of Transport, Public Works and Water
Management dated May 17, 1995
<PAGE> 152
SCHEDULE 3.09
F. One copy of Radio Station Licence from The Kingdom of the
Netherlands Ministry of Transport, Public Works and Water Management
dated May 17, 1995
G. One copy of Export Certificate of Airworthiness from United States
Federal Aviation Administration dated May 17, 1995
H. One copy of General Declaration dated May 17, 1995
I. One copy of Confirmation of Non-Registration from United States
Federal Aviation Administration dated May 11, 1995
J. One copy of Certificate of Sanitary Construction from United States
Department of Health and Human Services dated May 5, 1995
K. One copy of Certificate of Origin from State of Washington dated
May 17, 1995
L. One copy of Northwest Medical Teams invoice
M. One copy of Boeing Shipping Authorization dated April 28, 1995
N. One copy of Cargo Manifest dated May 17, 1995
O. One copy of Boeing Customs Invoice dated May 17, 1995
P. One copy of Boeing Kit Component listings dated May 9, 1995
VI. COMPANY CERTIFICATES
A. One copy of Transavia Power of Attorney dated December 16, 1994
B. One copy of Transavia Power of Attorney dated May 10, 1995
C. One copy of ILFC Power of Attorney dated May 15, 1995
VII. AGENCY AGREEMENT
A. One copy of Agency Agreement dated December 23, 1994
VIII. OPINION OF COUNSEL
A. One copy of Opinion of General Counsel of Transavia dated January 9,
1996
B. One copy of ILFC Opinion of Counsel dated January 8, 1996
IX. ASSIGNMENT OF WARRANTIES
A. One copy of Letter from Boeing Commercial Airplane Group dated
January 8, 1996
B. One copy of Letter Agreement dated May 30, 1995
C. One copy of a letter to Boeing Commercial Airplane Group regarding
the transfer of rights dated May 17, 1995
X. COOPERATION AGREEMENT
NONE
XI. TECHNICAL DATA
A. One copy of Boeing Delivery Conditions and Commitments Letter dated
May 17, 1995
B. One copy of Boeing Airworthiness Directive Status Letter dated
May 12, 1995
<PAGE> 153
SCHEDULE 3.09
XII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 154
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE (1) MCDONNELL DOUGLAS 83 AIRCRAFT
BEARING SERIAL NUMBER 49824 AND U.S. REGISTRATION N9420D (TRANS WORLD AIRLINES,
LESSEE)
I. CORRESPONDENCE
A. One copy of TWA's proposed Letter of Intent dated June 28, 1996 and
one copy of ILFC's Proposed Letter of Intent dated June 21, 1996
B. One copy of Insurance Certificates dated November 24, 1996 and
October 1, 1996
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated as of
August 9, 1996 between ILFC, as Lessor, and Trans World Airlines, Inc.
("TWA"), as Lessee
III. SIDE LETTERS/AMENDMENTS
A. One copy of Letter of Agreement Number Three dated December 19, 1996
B. One copy of Letter of Agreement Number Two dated October 9, 1996
C. One copy of Letter of Agreement Number One dated August 9, 1996
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Letter of Confirmation dated January 7, 1997
B. One copy of Estoppel and Acceptance Certificate dated December 23,
1996 (with attachments)
C. One copy of Acknowledgment of Technical Acceptance dated October 9,
1996 (with attachments)
V. REGISTRATION & CERTIFICATES
A. One copy of Certificate of Aircraft Registration from United States
Federal Aviation Administration dated October 21, 1996
B. One copy of Temporary Certificate of Registration dated October 21,
1996
C. One copy of Affidavit of Continuous Ownership dated October 7, 1996
D. One copy of McDonnell Douglas Corporation Bill of Sale dated December
23, 1988
E. One copy of Aircraft Registration Application dated October 21, 1996
F. One copy of Confirmation of De-Registration from Direction of Civil
Aviation, Trinidad and Tobago dated October 14, 1996
G. One copy of Request for Assignment of Reserved Registration Number
dated October 3, 1996
H. One copy of Certificate of Airworthiness dated December 26, 1996
<PAGE> 155
SCHEDULE 3.09
VI. COMPANY CERTIFICATES
A. One copy of Officer's Certificate dated December 23, 1996
B. One copy of Delegation of Authority dated December 13, 1996
C. One copy of Delegation of Authority dated December 23, 1996
D. One copy of Delegation of Authority dated October 2, 1996
E. One copy of Certificate of Assistant Secretary dated October 2, 1996
F. One copy of Incumbency Certificate dated October 9, 1996
G. One copy of ILFC Power of Attorney dated September 27, 1996
H. One copy of ILFC Power of Attorney dated December 13, 1996
VII. AGENCY AGREEMENT
NONE
VIII. OPINION OF COUNSEL
A. One copy of Opinion of Counsel from Neale, Newman, Bradshaw and
Freeman dated August 9, 1996
B. One copy of Opinion of Counsel from Neale, Newman, Bradshaw and
Freeman dated December 23, 1996
IX. ASSIGNMENT OF WARRANTIES
NONE
X. COOPERATION AGREEMENT
NONE
XI. TECHNICAL DATA
NONE
XII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 156
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE (1) BOEING 767-39HER AIRCRAFT
BEARING SERIAL NUMBER 26256 AND BRITISH REGISTRATION G-UKLH (UNIJET LEISURE
LIMITED, LESSEE)
I. CORRESPONDENCE
A. One copy of Letter of Undertaking dated October 31, 1996
B. One copy of Insurance Certificate dated October 31, 1996
C. One copy of Letter of Credit issued by Barclay Bank PLC, International
Services Branch dated March 29, 1993
D. One copy of letter from J.P. Morgan Standby/Guarantee Unit regarding
establishment of the Letter of Credit dated March 31, 1993
E. One copy of letter from ILFC regarding early termination fee waiver
dated October 14, 1997
F. One copy of letter from ILFC regarding Airbus A330-200 positions dated
October 7, 1997
G. One copy of letter from ILFC regarding Airbus A330-200 offer dated
October 3, 1997
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated March 4, 1992 between ILFC,
as Lessor, and Unijet Leisure Limited ("Unijet"), as Lessee
III. SIDE LETTERS/AMENDMENTS
A. One copy of Guarantee given by Air UK (Leisure) in favor of ILFC dated
March 4, 1992
B. One copy of Amendment No. 1 to Aircraft Lease Agreement dated April 1,
1993
C. One copy of Engine Services Agreement between ILFC and Unijet Leisure
Ltd. dated March 22, 1994
D. One copy of Side Letter No. 1 to Aircraft Lease Agreement dated
March 4, 1992
E. One copy of Side Letter No. 2 to Aircraft Lease Agreement dated
March 4, 1992
F. One copy of Side Letter No. 3 to Aircraft Lease Agreement dated
March 4, 1992
G. One copy of Side Letter No. 4 to Aircraft Lease Agreement dated
March 4, 1992
H. One copy of Guarantee given by Unijet Group plc in favor of ILFC dated
March 4, 1992
I. One copy of Management Agreement between Unijet Leisure Limited and
Leisure Airline Management Limited dated March 4, 1992
J. One copy of Letter of Undertaking dated March 4, 1992
<PAGE> 157
SCHEDULE 3.09
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated April 1, 1993
V. REGISTRATION & CERTIFICATES
A. One copy of Certificate of Registration from United Kingdom Civil
Aviation Authority dated April 1, 1993
B. One copy of Application for Registration of Aircraft or Change of
Ownership filed with United Kingdom Civil Aviation Authority dated
February 2, 1993
C. One copy of Certificate of Airworthiness (transport category) from
United Kingdom Civil Aviation Authority dated April 5, 1993
D. One copy of Certificate of Maintenance Review from British Airways
dated April 5, 1993
E. One copy of Certificate of Airworthiness (private category) from
United Kingdom Civil Aviation Authority dated April 1, 1993
F. One copy of Air Operator's Certificate from United Kingdom Civil
Aviation Authority dated April 7, 1993
G. One copy of Operating Licence (Type A) from CAA dated April 7, 1993
H. One copy of Letter from United Kingdom Civil Aviation Authority
regarding confirmation of registration dated April 2, 1993
I. One copy of Route License from United Kingdom Civil Aviation Authority
dated April 8, 1993
J. One copy of Aircraft Radio Licence from United Kingdom Department of
Trade and Industry Radiocommunications Agency dated April 30, 1994
K. One copy of Letter from Freshfields regarding tax issues dated March
31, 1993
L. One copy of statement of Peter Richard Brown, a Director of Unijet,
regarding customs and licensing and various other matters dated March
31, 1993
M. One copy of fax from Unijet Group PLC regarding delivery of aircraft
dated March 31, 1993
N. One copy of fax from Freshfields regarding conditions precedent for
delivery of aircraft dated March 31, 1993
O. One copy of Tax Exemption Certificate dated April 1, 1993
P. One copy of Resale Exemption Certificate dated April 1, 1993
Q. One copy of Letter from British Airways regarding maintenance dated
March 26, 1993
R. One copy of Letter from Leisure International Airway Ltd. regarding
maintenance dated March 26, 1993
S. One copy of Export Certificate of Airworthiness from United States
Federal Aviation Administration dated April 1, 1993
T. One copy of Confirmation of Non-Registration from United States
Federal Aviation Administration dated March 18, 1993
U. One copy of Certificate of Sanitary Construction from United States
Department of Health and Human Services dated March 31, 1993
<PAGE> 158
SCHEDULE 3.09
V. One copy of Certificate of Usage of Material Subject to Washington
State Compensating (Use) Tax dated April 1, 1993
W. One copy of Federal Retailer's Excise Tax Exemption Certificate dated
April 1, 1993
VI. COMPANY CERTIFICATES
A. One copy of Certificate from Peter Brown dated April 29, 1993
B. One copy of Corporate Certificate (Post Delivery) from Peter Brown
dated April 8, 1993
C. One copy of Corporate Certificate (On Delivery) from Peter Brown
D. One copy of Certificate of Incorporation of a Private Limited Company
dated September 20, 1982
E. One copy of Certificate of Incorporation on Change of Name dated
December 8, 1982
F. One copy of Special Resolutions of Viking International Limited passed
on May 29, 1984
G. One copy of Special Resolutions of Viking International Limited passed
on July 23, 1984
H. One copy of Special Resolutions of Viking International Limited passed
on July 29, 1984
I. One copy of Special Resolutions of Viking International Limited passed
on August 18, 1987
J. One copy of Special Resolutions of Viking International Limited passed
on October 18, 1988
K. One copy of Special Resolutions of Viking International Limited passed
on February 21, 1989
L. One copy of Certificate of Incorporation of Viking International PLC
dated March 20, 1989
M. One copy of Special Resolutions of Viking International Limited passed
on February 12, 1992
N. One copy of Certificate of Incorporation of Unijet Group PLC dated
February 24, 1992
O. One copy of Special Resolutions of Viking International Limited passed
on March 9, 1992
P. One copy of Special Resolutions of Viking International Limited passed
on March 13, 1992
Q. One copy of Memorandum of Association of Viking International PLC as
amended
R. One copy of Power of Attorney dated March 24, 1993
S. One copy of Power of Attorney dated March 23, 1993
T. One copy of Corporate Certificate from Peter Brown (On Delivery)
U. One copy of Corporate Certificate from Peter Brown (On Delivery)
<PAGE> 159
SCHEDULE 3.09
V. One copy of Corporate Certificate (On Delivery) from Peter Brown
W. One copy of Certificate of Incorporation on Change of Name to Leisure
International Airways Limited dated December 16, 1992
X. One copy of Certificate of Incorporation on Change of Name to Leisure
International Airways Limited dated December 4, 1992
Y. One copy of Certificate of Incorporation on Change of Name to Leisure
Airline Management Limited dated February 18, 1992
Z. One copy of Certificate of Incorporation of a Private Limited Company
dated December 9, 1991
AA. One copy of Corporate Certificate from Christopher John Parker
BB. One copy of Certificate of Incorporation of a Private Limited Company
dated December 9, 1991
CC. One copy of Certificate of Incorporation of a Private Limited Company
dated February 18, 1992
DD. One copy of Memorandum of Association (As Amended)
EE. One copy of Articles of Association of Unijet Leisure Limited dated
November 29, 1991
FF. One copy of Corporate Certificate of Christopher Parker
GG. One copy of Minutes of Meeting of the Board of Directors held March 3,
1992 at 4:00 p.m.
HH. One copy of Certificate of Incorporation of a Private Limited Company
II. One copy of Memorandum and Articles of Association of Viking
International PLC
JJ. One copy of Minutes of Meeting of the Board of Unijet Group PLC dated
March 3, 1992 at 3:45 p.m.
KK. One copy of Corporate Certificate of Leisure Airline Management
Limited
LL. One copy of Minutes of Meeting of the Leisure Airline Management
Limited Board of Directors dated March 4, 1992 at 12:00
MM. Two copies of Certificate of Incorporation of Change of Name No.
2669322 dated February 18, 1992 and December 9, 1991
NN. One copy of Resolutions of Trushelfco Limited (No. 1760) dated
February 7, 1992
OO. One copy of Memorandum of Association of Leisure Airline Management
Limited
PP. One copy of Articles of Association of Trushelfco Limited (No. 1760)
Limited
QQ. One copy of Corporate Certificate of Air UK (Leisure) Limited
RR. One copy of Certificate of Incorporation of Change of Name No. 2119260
dated July 7, 1987
SS. One copy of Certificate of Incorporation of Change of Name No. 211960
dated April 13, 1987
TT. One copy of Special Resolution of Precis (591) Limited dated June 1,
1987
UU. One copy of Memorandum of Articles of Association of Precis (591)
Limited
<PAGE> 160
SCHEDULE 3.09
VV. One copy of Table A Regulations for Management
WW. One copy of Minutes of Meeting of the Board of Directors of Air UK
(Leisure) Limited held on March 4, 1992
VII. AGENCY AGREEMENT
A. One copy of Agency Agreement between Leisure Airline Management
Limited and ILFC dated April 28, 1992
VIII. OPINION OF COUNSEL
A. One copy of letter from Bogle & Gates regarding Washington
sales/excise taxes dated March 30, 1993
IX. ASSIGNMENT OF WARRANTIES
A. One copy of Assignment of Warranties (Engines) dated April 1, 1993
B. One copy of Boeing Full Assignment of Rights dated April 1, 1993
X. COOPERATION AGREEMENT
NONE
XI. TECHNICAL DATA
NONE
XII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 161
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE (1) BOEING 747-341B AIRCRAFT
BEARING SERIAL NUMBER 24106 AND BRAZILIAN REGISTRATION PP-VOA (VARIG S.A.,
LESSEE)
I. CORRESPONDENCE
A. One copy of letter from Aon Risk Services regarding 50/50 settlement
provisions dated November 1, 1996
B. One copy of Insurance Certificates dated November 1, 1996
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated July 9, 1987 between ILFC,
as Lessor, and Varig, S.A. (Viacao Aerea Rio-Grandense) ("Varig"), as
Lessee
III. SIDE LETTERS/AMENDMENTS
A. One copy of Letter from ILFC regarding extension of lease term dated
July 9, 1987
B. One copy of Letter from ILFC regarding flight hours dated July 9, 1987
C. One copy of Letter from Varig regarding extension of lease term dated
July 30, 1990
D. One copy of Amendment to Aircraft Lease Agreement dated as of May 16,
1994
E. One copy of Side Letter Number One dated as of May 16, 1994
F. One copy of Letter from Varig regarding lease extension dated July 30,
1990
G. One copy of translation of July 30, 1990 letter dated November 26,
1990
H. One copy of letter from Varig regarding registration dated November 1,
1990
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Delivery Agenda
B. One copy of Estoppel and Acceptance Certificate dated April 30, 1988
V. REGISTRATION & CERTIFICATES
A. One copy of Certificate of Registration from Ministerio Da Aeronautica
Departamento De Aviacao Civil of the Republica Federativa Do Brasil
dated November 26, 1990
B. One copy of Certificate of Airworthiness from Ministerio Da
Aeronautica Departmento De Aviacao Civil of the Republica Federativa
Do Brasil dated February 4, 1996
C. One copy of Certificate of Registration Number 12878 from Ministerio
Da Aeronautica Departamento De Aviacao Civil of the Republica
Federativa Do Brasil dated April 2, 1996
<PAGE> 162
SCHEDULE 3.09
D. One copy of Translation/Certificate Number 12878
E. One copy of Deregistration Power of Attorney dated September 16, 1991
F. One copy of Certificate of Registration Number 126 from Ministerio Da
Aeronautica Departamento De Aviacao of the Civil Republica Federativa
Do Brasil dated June 14, 1988
G. Six Certificates regarding various matters dated April 30, 1988
H. One copy of Export License Number B282706 from United States
Department of Commerce dated December 31, 1989
I. One copy of Export Certificate of Airworthiness from United States
Federal Aviation Administration dated April 30, 1988
VI. COMPANY CERTIFICATES
A. One copy of Translation with respect to verification of registration
dated January 30, 1991
B. One copy of Certificate from Brazilian Ministry of Aviation dated
December 19, 1990
C. One copy of Banco Central do Brasil/Certificado No. 198/037
D. One copy of Translation dated November 6, 1987
E. One copy of Translation dated July 20, 1987
F. One copy of letter to Brazilian Minister of Aviation dated May 7, 1987
G. One copy of Incumbency Certificate dated July 17, 1987
H. One copy of Translation dated March 3, 1988
I. One copy of Certificado No. 198/037 from Banco Central de Brasil
J. One copy of Power of Attorney dated August 30, 1990
K. One copy of Incumbency Certificate dated April 30, 1988
L. One copy of Certificate of no-default dated April 30, 1988
M. One copy of Certificate regarding composition of the Board of
Directors dated April 30, 1988
N. One copy of Certificate regarding composition of the Administrative
Council dated April 30, 1988
O. One copy of Certificate regarding Brazilian licenses and approvals
dated April 30, 1988
P. One copy of Incumbency certificate dated April 30, 1988
Q. One copy of Certificate regarding Varig's By-laws dated April 30, 1988
R. One copy of letter appointing agent for service of process of Varig
dated April 19, 1988
S. One copy of Power of Attorney dated April 19, 1987
T. One copy of Power of Attorney dated January 10, 1995
U. One copy of Translation/Certificate No. 107/00237
V. One copy of Banco Central de Brasil/Certificado No. 107/00237
W. One copy of Banco de Brasil S.A./Carteira de Comercio Exterior
X. One copy of letter regarding Varig's license to operate dated
April 27, 1988
<PAGE> 163
SCHEDULE 3.09
Y. One copy of Translation/Import License dated April 12, 1988
Z. One copy of Translation/Export License dated April 12, 1988
AA. One copy of Translation/Foreign Capitals Inspection and Registration
Department/Certificate No. 198/037 dated February 9, 1998
BB. One copy of Banco Central do Brasil/Aditivo do Certificado de Registro
CC. One copy of Translation dated February 9, 1988
DD. One copy of letter from Varig regarding registration dated February
24, 1988
EE. One copy of translation of Central Bank Resolution No. 1.263 dated
February 20, 1987
FF. One copy of Varig Estatuto Social dated January 17, 1978
GG. One copy of Junta Commercial do Rio Grande de Sol dated June 27, 1983
HH. One copy of Translation No. 11.383/VI/1988 dated June 1, 1988
II. One copy of ILFC invoice dated July 9, 1987
VII. AGENCY AGREEMENT
NONE
VIII. OPINION OF COUNSEL
A. One copy of Opinion of Counsel for Varig dated April 30, 1988
(2 letters)
B. One copy of Opinion of Counsel for ILFC dated July 23, 1987
IX. ASSIGNMENT OF WARRANTIES
A. One copy of Assignment of Rights (Airframe) dated March 31, 1988
B. One copy of Assignment of Warranties (Engines) dated April 25, 1988
X. COOPERATION AGREEMENT
NONE
XI. TECHNICAL DATA
NONE
XII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 164
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE (1) BOEING 737-3Q8 AIRCRAFT BEARING
SERIAL NUMBER 24299 AND U.S. REGISTRATION N956WP (WESTERN PACIFIC AIRLINES,
INC., LESSEE)
I. CORRESPONDENCE
A. One copy of Insurance Certificates dated March 22, 1997
B. One copy of Letter of Undertaking dated October 26, 1996
II. LEASE AGREEMENT
A. One copy of Aircraft Lease Agreement dated May 31, 1996 between
International Lease Finance Corporation, as Lessor, and Western
Pacific Airlines, Inc. ("Western Pacific"), as Lessee
III. SIDE LETTERS/AMENDMENTS
A. One copy of Side Letter No. 1 to Aircraft Lease Agreement dated May
31, 1996
B. One copy of Letter from Daugherty, Fowler & Peregrin regarding various
matters dated October 4, 1996 with Aircraft Lease Agreement attached
thereto
C. One copy of Side Letter No. 2 to Aircraft Lease Agreement dated May
31, 1996
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated June 22, 1996
V. REGISTRATION & CERTIFICATES
A. One copy of United States Federal Aviation Administration Aircraft
Registration Application dated June 13, 1996
B. One copy of United States Federal Aviation Administration Temporary
Certificate of Registration dated June 17, 1996
C. One copy of United States Federal Aviation Administration Certificate
of Aircraft Registration dated June 17, 1996
D. One copy of United States Federal Aviation Administration Certificate
of Airworthiness dated June 20, 1996
E. One copy of Deregistration Confirmation from Spanish Civil Aircraft
Register dated June 13, 1996
F. One copy of Certificate of Sanitary Construction from DHSS dated June
7, 1996
G. One copy of Department of Transportation Order issuing Effective
Certificate and confirming Oral Actions dated May 18, 1995
H. One copy of Certificate of Public Convenience and Necessity for
Interstate Air Transportation from United States Federal Aviation
Administration dated May 18, 1995
<PAGE> 165
SCHEDULE 3.09
I. One copy of Air Carrier Certificate from Department of
Transportation dated April 28, 1995
VI. COMPANY CERTIFICATES
A. One copy of UCC-1 Financing Statement dated July 22, 1996
B. One copy of Officer's Certificate dated June 22, 1996
C. One copy of the Certificate as to Corporate Resolutions dated May
28, 1996
D. One copy of Unanimous Written Consent of Board of Directors dated
May 28, 1996
E. One copy of Certificate of Incumbency
F. One copy of Delegation of Authority dated June 12, 1996
G. One copy of ILFC Power of Attorney dated June 13, 1996
VII. AGENCY AGREEMENT
NONE
VIII. OPINION OF COUNSEL
A. One copy of Opinion of Counsel from Winthrop, Stimson, Putnam &
Roberts dated June 22, 1996
B. One copy of Opinion of Counsel from ILFC dated June 20, 1996
IX. ASSIGNMENT OF WARRANTIES
A. One copy of Assignment of Rights (Airframe) dated August 28, 1996
B. One copy of Assignment of Warranties (Engine) dated June 22, 1996
X. COOPERATION AGREEMENT
NONE
XI. TECHNICAL DATA
A. One copy of ILFC Technical Evaluation Report
XII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 166
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE SPARE ENGINE SALE OF ONE (1) CF6-80C2-B6F SPARE ENGINE
WITH QEC BEARING SERIAL NUMBER 704279 (KLM ROYAL DUTCH AIRLINES, LESSEE)
I. CORRESPONDENCE
A. One copy of Insurance Certificates dated October 31, 1996
B. One copy of letter from ILFC regarding engine upgrade dated December
18, 1996
C. One copy of letter from ILFC regarding engine upgrade dated February
5, 1997
II. LEASE AGREEMENT
A. One copy of Spare Engine Lease Agreement dated July 24, 1995 between
ILFC, as Lessor, and KLM-Royal Dutch Airlines, as Lessee
III. SIDE LETTERS/AMENDMENTS
A. One copy of Amendment Number One to Spare Engine Lease Agreement dated
as of May 28, 1997
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
A. One copy of Estoppel and Acceptance Certificate dated July 31, 1995
B. One copy of ILFC Purchase Order, Boeing Facsimile and Boeing Invoice
dated August 15, 1995, March 2, 1995 and June 16, 1995, respectively
V. REGISTRATION & CERTIFICATES
NONE
VI. COMPANY CERTIFICATES
NONE
VII. AGENCY AGREEMENT
NONE
VIII. OPINION OF COUNSEL
NONE
IX. ASSIGNMENT OF WARRANTIES
A. One copy of letter regarding no need for assignment of Engine
warranties dated November 11, 1996
<PAGE> 167
SCHEDULE 3.09
X. COOPERATION AGREEMENT
NONE
XI. TECHNICAL DATA
NONE
XII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 168
SCHEDULE 3.09
INDEX TO DOCUMENTS
THIS BINDER CONTAINS THE FOLLOWING LEASE-RELATED DOCUMENTS PROVIDED TO MORGAN
STANLEY PURSUANT TO THE AIRCRAFT SALE OF ONE (1) AIRBUS 310-300 AIRCRAFT
BEARING SERIAL NUMBER 437 AND BRAZILIAN REGISTRATION [______] (PASSAREDO
TRANSPORTES AEROS, LESSEE)
I. CORRESPONDENCE
A. One copy of Letter of Intent dated September 25, 1997
II. LEASE AGREEMENT
A. One copy of draft Aircraft Conditional Sale Agreement between
Navasota Holdings Inc., as Buyer, and Morgan Stanley Aircraft
Finance, as Seller (not dated and not signed)
B. One copy of draft Unconditional Guaranty (not dated and not signed)
III. SIDE LETTERS/AMENDMENTS
NONE
IV. ESTOPPEL & ACCEPTANCE CERTIFICATE
NONE
V. REGISTRATION & CERTIFICATES
NONE
VI. COMPANY CERTIFICATES
A. One extract copy of 21 Tabelionato de Notas from Republica Federativa
Do Brasil (Power of Attorney) (Spanish version only)
VII. AGENCY AGREEMENT
NONE
VIII. OPINION OF COUNSEL
NONE
IX. ASSIGNMENT OF WARRANTIES
NONE
X. COOPERATION AGREEMENT
NONE
<PAGE> 169
SCHEDULE 3.09
XI. TECHNICAL DATA
NONE
XII. RETURN ACCEPTANCE RECEIPT
NONE
<PAGE> 170
SCHEDULE 4.03
See Schedule 3.03.
<PAGE> 171
SCHEDULE 4.06
See Schedule 4.03
<PAGE> 172
SCHEDULE 8.02(a)
TAX INFORMATION
No disclosures
<PAGE> 173
SCHEDULE 8.02(b)
TAX JURISDICTIONS
Alaska
Arizona
California
Illinois
Nebraska
New Hampshire
Oregon
Utah
United States of America (Federal)
<PAGE> 174
EXHIBIT A
DATA INDEX
1. Technical Sheets
2. "Buyer Seen" Documents
A-1
<PAGE> 175
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C> <C>
Aircraft Type: A300-600 Time as of: APRIL 30, 1997 Date Manufactured: MARCH 1990
Serial Number: 555 Total Time (Hours): 18243 Availability
Registration Number: N8688P Total Cycles: 5568 EFIS: METRIC
</TABLE>
<TABLE>
<CAPTION>
WEIGHTS
<S> <C>
Maximum Take Off Gross Weight: 171,700 KG Manufacturers Empty Weight: 79,318 KG
Maximum Landing Weight: 140,000 KG Maximum Taxi: 172,600 KG
Maximum Zero Fuel Weight: 130,000 KG Fuel Capacity (U.S. Gal.): 18,005
</TABLE>
<TABLE>
<CAPTION>
AIRFRAME STATUS
<S> <C>
Last "C" Check: Completed November 1996 **Last "1/2 D" Check: Accomplished December 1993
Time Since Last "C" Check: 9 HRS / 2 CYC Time Since Last "1/2 D" Check: 7541 HRS / 2721 CYC
</TABLE>
** NOTE: Current program 6 year structural cards due in late 1997; however,
expect Airbus to escalate the 6 year structural requirements to 10 years.
<TABLE>
<CAPTION>
ENGINES
<S> <C> <C>
Manufacturer: PRATT & WHITNEY Model: PW4158 Thrust Rating 58,000 LBS
Position: NUMBER 1 724028 NUMBER 717766
Total Hours: 15970 17464
Total Cycles: 4957 4135
Cycles to 1st Limit: 10045 10865
Last Shop Visit: DEC 10, 1996; 15960 HRS / 4955 CYC DEC 2, 1996: 17454 HRS / 4133 CYC
Workscope of Last Shop Visit: 2ND STAGE HPT REWORK HPT SEAL CHANGE
</TABLE>
<TABLE>
<CAPTION>
AVIONICS/COMMUNICATIONS EQUIPMENT
<S> <C>
(2) FCC: P/N B470AAM2 (1) Weather Radar: COLLINS 622-5446-02
(2) VOR/Marker Beacon: COLLINS 622 5220 020 (2) ATC Transponder: 622-7878-020
(2) ADF Receiver: COLLINS 622-5222-020 (2) DME Interrogator: COLLINS 622-4540-020
(2) ILS Receiver: COLLINS 622-5222-020 (2) Radio Altimeter: T.R.T. 959-960-714901
(3) VHF Transceiver: COLLINS 622 5219 020 (1) Ground Prox, Warning: SUNSTRAND 958-0576-002
(2) HF Transceiver: COLLINS 522-5272-020 (1) Voice Recorder: FAIRCHILD A100
(3) IRU: LITTON 461800-0300-2201 (1) Flight Data Recorder: SUNSTRAND 980-4100-DXUN
(1) TAPE REPRODUCER: SONY TRANSCON (1) Select Decoder: TEAM SC2253A
</TABLE>
<TABLE>
<CAPTION>
INTERIOR
<S> <C> <C>
First Class: 18 WEBER Business Class: 46 WEBER Tourist: 167 SICMA
Galleys: Number G10/G1A/G5/G4 Make: SELL Lavatories: Fwd. 1 VAC Center 1 VAC Aft. 4 VAC
</TABLE>
<PAGE> 176
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
GENERAL INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
Aircraft Type: A310-300 Time as of JULY 31, 1997 Date Manufactured NOV. 1985
Serial No: 409 Total Time (Hours) 35463 Availability
Registration No: HB-IPH Total Cycles 13271
</TABLE>
WEIGHTS
<TABLE>
<CAPTION>
<S> <C>
Maximum Take Off Gross Weight 150,000 KGS Basic Weight 79,340 KGS
Maximum Landing Weight 123,000 KGS Maximum Taxi Weight 150,900 KGS
Maximum Zero Fuel Weight 113,000 KGS Fuel Capacity (U.S. Gal.) 16,134 GALLONS
</TABLE>
AIRFRAME STATUS
<TABLE>
<CAPTION>
<S> <C>
Last "C" Check PERFORMED ON JULY 17, 1997 Last "D" Check "8C" PERFORMED MARCH 1995
"C" Check Interval "1C" - 18 MOS/"2C" - 36 MOS. Next Anticipated "D" Check DECEMBER 1999
</TABLE>
ENGINES
<TABLE>
<CAPTION>
<S> <C> <C>
Manufacturer PRATT & WHITNEY Model JT9D-7RE41 Current Thrust Rating 50,000 LBS
Position No. 1 S/N 707707 No. 2 S/N 715428
Total Hours 19876 29016
Total Cycles 10763 11458
Cycles Remaining to 1st LLP
</TABLE>
AVIONICS/COMMUNICATIONS EQUIPMENT
<TABLE>
<CAPTION>
<S> <C>
(1) Flight Control Unit SFENA K157ABM5 (1) Weather Radar BENDIX 204-1217-0401
(2) Flight Control Computer SFENA b470abm2 (2) ATC Transponder COLLINS 622-7878-201
(2) Flight Augmentation Comp. SFENA B352AAM1 (2) DME Interrogator COLLINS 622-4540-023
(2) VOR Rec. BENDIX 204-1231-3604 (2) Radio Altimeter JAEGER
(2) ADF Rec. COLLINS 622-6222-002 (1) Ground Prox. Warning SUNSTRAND 965-0576-002
(3) VHF Transceiver COLLINS 622-5219-003 (1) Voice Recorder FAIRCHILD 93-A100-81
(1) HF Transceiver COLLINS HFS-700 (1) Flight Data Recorder SUNSTRAND 980-4100-DXUN
(3) Long Range Navigation LITTON (1) Selcal Decoder TEAM SC 2253 A
</TABLE>
Aircraft is (check one): Full EFIS (X) Partial EFIS ( ) Non-EFIS ( )
INTERIOR
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Seat Manufacturer Model(s)
First Class 18 Business Class 54 Tourist 105
Galleys: Number Make Lavatories: Fwd. Aft
</TABLE>
<PAGE> 177
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
GENERAL INFORMATION
<TABLE>
<S> <C> <C>
Aircraft Type: A310-300 Time as of SEPT. 30, 1997 Date Manufactured NOV. 1985
Serial No: 410 Total Time (Hours) 36950 Availability
Registration No: HB-IPI Total Cycles 113522
</TABLE>
WEIGHTS
<TABLE>
<S> <C>
Maximum Take Off Gross Weight 150,000 KGS Basic Weight 78,340 KGS
Maximum Landing Weight 123,000 KGS Maximum Taxi Weight 150,900 KGS
Maximum Zero Fuel Weight 113,000 KGS Fuel Capacity (U.S. Gal.) 16,134 GALLONS
</TABLE>
AIRFRAME STATUS
<TABLE>
<S> <C>
Last "C" Check PERFORMED ON NOV. 14, 1996 Last "D" Check "BC" PERFORMED JUNE 1995
"C" Check Interval "1C" - 18 MOS/"2C" - 36 MOS Next Anticipated "D" Check JUNE 2000
</TABLE>
ENGINES
<TABLE>
<S> <C> <C>
Manufacturer PRATT & WHITNEY Model JT90-7RE41 Current Thrust Rating 50,000 LBS
Position No. 1 S/N 707717 No. 2 S/N 707730
Total Hours 27331 30827
Total Cycles 16334 15787
Cycles Remaining to 1st LLP
</TABLE>
AVIONICS/COMMUNICATIONS EQUIPMENT
<TABLE>
<S> <C>
(1) Flight Control Unit SFENA K157ABMS (1) Weather Radar BENDIX 204-1217-0401
(2) Flight Control Computer SFENA b470abm2 (2) ATC Transponder COLLINS 622-7878-201
(2) Flight Augmentation Comp. SFENA 8352AAMt (2) DME Interrogator COLLINS 622-4540-023
(2) VOR Rec. BENDIX 204-1231-3804 (2) Radio Altimeter JAEGER
(2) ADF Rec. COLLINS 622-5222-002 (1) Ground Prox. Warning SUNSTRAND 885-0576-002
(3) VHF Transceiver COLLINS 622-5219-003 (1) Voice Recorder FAIRCHILD 93-A100-81
(3) HF Transceiver COLLINS HF5-700 (1) Flight Data Recorder SUNSTRAND 98D-4100-DXUN
(3) Long Range Navigation LITTON (1) Selcal Decoder TEAM SC 2253 Ac
Aircraft is (check one: Full EFIS (X) Partial EFIS ( ) Non-EFIS ( )
</TABLE>
INTERIOR
<TABLE>
<S> <C> <C>
Seat Manufacturer Model(s)
First Class 16 Business Class 54 Tourist 105
Galleys: Number Make Lavatories: Fwd. Aft
</TABLE>
<PAGE> 178
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
GENERAL INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
Aircraft Type! A310-333 Time as of: December 10, 1996 Date Manufactured: FEBRUARY 1987
Serial Number: 437 Total Time [Hours]: 42,591 Availability
Registration Number: OO-SCC Total Cycle: 8.590
</TABLE>
WEIGHTS
<TABLE>
<CAPTION>
<S> <C>
Maximum Take Off Gross Weight: 153,000 KG Manufacturers Empty weight: 80,000 KG
Maximum Landing Weight: 123,000 KG Maximum Taxi Weight: 153,900 KG
Maximum Zero Fuel Weight: 113,000 KG Fuel Capacity (Liters): 61,090
AIRFRAME STATUS
Time Since Last "C" Check: 2645 HRS "C, 3C" Intervals: 18 MONTHS
"D" Check Interval: 120 MONTHS "I.L." Intervals: 72 MONTHS
ENGINES
Manufacturer: PRATT & WHITNEY Type: JT9D-7R4E1
Position No. 1 715405 No. 2 715447
Total Hours: 35216 24284
Total Cycle: 9475 8141
Cycles to 1st LLP: 3788 11353
AVIONICS/COMMUNICATIONS EQUIPMENT
(2) Fit. Control Computer: SEXTANT 8350AAM4 (2) Weather Radar: ALLIED BENDIX 2041217-0416
(1) Flight Directors: SEXTANT 8217ADM5 (2) ATC Transponder: COLLINS 622-5445-001
(2) HF Transceiver: COLLINS 622-5272-001 (3) IRU: LITTON/AERO PRODUCTS LTN 90-100
(2) VHF Transceiver: COLLINS 622-5219-003 (2) ADF Receiver: COLLINS 622-5222-002
(1) Voice Recorder: LORAL 93A100-30 (1) Ground Prox. Warning: ALLIED SIGNAL 965-0576-002
(1) Selcal Decoder: TEAM SC2253A (2) DME Interrogator: COLLINS 522-4540-001
(1) Flt Data Recorder: ALLIED SIGNAL 980-4100DXUN (2) VHF VCR/MKR Receiver: COLLINS 622-5220-002
(2) Radio Altimeter: THOMSON-CSF 9599-607-14901 (2) VHF ILS/only Receiver: COLLINS 622-5221-002
(2) RODMI: COLLINS 622-5818-001 (2) Marker Beacon: COLLINS 622-5220-002
INTERIOR
First Class: 18 Business Class: 0 Tourist: 223
Galleys: G1/G2/G4/G5/G6/G7 Lavatories: Fwd. 1 Aft. 4
</TABLE>
<PAGE> 179
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1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
<TABLE>
<S> <C> <C>
GENERAL INFORMATION
Aircraft Type: A320-200 Time as of SEPT. 2, 1997 Date Manufactured FEB. 1992
Serial No.: 279 Total Time (Hours) 21901 Availability
Registration No: G-MONY Total Cycles 8237
WEIGHTS
Maximum Take Off Gross Wt. 169,756 LBS Operating Empty Wt.
Maximum Landing Wt. 142,198 LBS Maximum Taxi Wt. 170,638 LBS
Maximum Zero Fuel Wt. 133,380 LBS Fuel Capacity (U.S. Gal.)
AIRFRAME STATUS
Next Anticipated "C" Check MARCH 21, 1998 Next Scheduled "D" Check "8C" DEC. 2001
"C" Check Interval 15 MONTHS "O" Check (or equivalent) Interval 60 MONTHS
ENGINES
Manufacturer CFMI Model CFM58-5-A3
Position No. 1 S/N 731578 No. 2 S/N 731579
Total Hours 18057 16662
Total Cycles 6802 6292
Time Since Last Shop Visit 18057 16662
Cycles Remaining to 1st LLP 3528 4101
AVIONICS/COMMUNICATIONS EQUIPMENT
(2) Flight Control Computer SFENA 83988AM0204 (1) Weather Radar COLLINS 622-5132-120
(2) Flight Augmentation Computer SEXTANT (2) ATC Transponder COLLINS 622-7878-301
(2) VHF VOR Rec. COLLINS 622-5220-020 (2) DME Interrogator COLLINS 622-4540-020
(2) ADF Rec. COLLINS 622-5222-020 (2) Radio Altimeter TRT 9599-607-14949
(2) Flight Management and Guidance Computer (1) Ground Prox. Warning SUNSTRAND 965-0576-002
SEXTANT 83988AM0205 (1) Voice Recorder FAIRCHILD 93-A100-80
(3) VHF Transceiver COLLINS 622-5218-020 (1) Flight Data Recorder SUNSTRAND 980-4100-AXUN
(1) HF Transceiver COLLINS 622-5272-020 (1) Selcal Decoder TEAM 8C2065C
(3) ADIRU HONEYWELL HG1150AC05
INTERIOR
Seat Manufacturer RECARO Model(s) 588-31- AND 586-32-
First Class O Business Class 0 Tourist 174
Galleys: Number G1, G5 Make AFC Lavatories: Fwd. 1 (VACUUM) Aft 2 (VACUUM)
</TABLE>
<PAGE> 180
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
GENERAL INFORMATION
<TABLE>
<S> <C> <C>
Aircraft Type A320-200 Time as of MAY 28, 1997 Date Manufactured Feb. 1993
Serial No. 393 Total Time (Hours) 9703 Availability
Registration No. 8-HYO Total Cyles 4124
</TABLE>
WEIGHTS
<TABLE>
<S> <C>
Maximum Take Off Gross Wt. 166,447 LBS Manufacturers Empty Wt. 82,078 LBS
Maximum Taxi Wt. 167,330 LBS Maximum Zero Fuel Wt. 133,380 LBS
Maximum Landing Wt. 142,198 LBS Fuel Capacity 23,859 KG
</TABLE>
AIRFRAME STATUS
<TABLE>
<S> <C>
Date of Next Anticipated "2C" Check: FEB. 21, 1998 Anticipated Date of next "4C" Check: FEB. 8, 1998
"C" Check Interval: 912 DAYS / "2C" CHECK "D" Check (Or Equiv.) Interval; 5 YEAR / "4C" CHECK
</TABLE>
ENGINES
<TABLE>
<S> <C> <C>
Manufacturer IAE Model V2500-A1 Current Thrust Rating 25,000 LBS
Position No. 1 S/N V0274 No. 2 S/N V0275
Total Hours 8066 6457
Total Cycles 4448 3659
Time Since Last Shop Visit 1343 867
Cycles Remaining to 1st LLP 10552 11341
</TABLE>
AVIONICS/COMMUNICATIONS EQUIPMENT
<TABLE>
<S> <C>
(2) FMGC SFENA B3985CM0103/C (1) Weather Radar BENDIX 2041217-0418
(2) MCDU SFENA K226A8M3A/D (1) ATC Transponder BENDIX 066-01127-1101
(1) FCU SFENA K217AAM7/E
(2) ILS Receiver BENDIX 2041230-3518 (2) DME Interrogator TRT 9599-614-03105
(2) ADF Receiver BENDIX 2041168-7513 (2) Radio Altimeter TRT 9599-507-14932
(2) VOR/Marker Receiver BENDIX 2041231-3610 (1) Ground Prox. Warning SUNSTRAND 965-0676-020
(3) VHF Transceiver COLLINS 622-6319-020 (1) Voice Recorder SUNSTRAND 980-6005-076
(2) HF Transceiver COLLINS 622-5272-020 (1) Flight Data Recorder SUNSTRAND 980-4100-AXUS
(3) AOIRU HONEYWELL PG1152ACO3 (1) Accelerometer SUNSTRAND 971-4193-001
TCAS: S.B. KITS FOR TCAS PROVISIONS have been provided to Operator from Airbus and paid for by ILFC.
Aircraft is: (Check one) [X] Full EFIS [ ] Partial EFIS [ ] Non-EFIS
</TABLE>
INTERIOR
<TABLE>
<S> <C> <C>
Seat Manufacturer BE AEROSPACE First Class 12 Business Class: N/A Tourist 144
Galleys: Number G1, GS 1FWD & AFT SERVICE CENTER Make C.F. TAYLOR
Lavatories: Fwd. 1 VACUUM Aft. 2 VACUUM
</TABLE>
<PAGE> 181
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
<TABLE>
<S> <C> <C>
GENERAL INFORMATION
Aircraft Type A320-200 Time as of JUNE 6, 1997 Date Manufactured MARCH 1993
Serial No. 414 Total Time (Hours) 9141 Availability
Registration No. B-HYR Total Cycles 5190
WEIGHTS
Maximum Take Off Gross Wt. 166,447 LBS Manufacturers Empty Wt. 82,078 LBS
Maximum Taxi Wt. 167,330 LBS Maximum Zero Fuel Wt. 133,380 LBS
Maximum Landing Wt. 142,198 LBS Fuel Capacity 23,859 KG
AIRFRAME STATUS
Date of Next Anticipated "2C" Check: APRIL 23, 1998 Date of Next Anticipated "4C" Check: MAY 8, 1998
"C" Check Interval (912 DAYS) "2C" CHECK "D" Check (Or Equiv.) Interval: 5 YEAR/"4C" CHECK
ENGINES
Manufacturer IAE Model V2500-A1 Current Thrust Rating 25,000 LBS
Position No. 1 S/N V0287 NO. 2 S/N V0288
Total Hours 7717 8131
Total Cycles 3813 4499
Time Since Last Shop Visit 3063 0
Cycles Remaining to 1st LLP 11187 10501
AVIONICS/COMMUNICATIONS EQUIPMENT
(2) FMGC SEXTANT 83988CM0104 (1) Weather Radar BENDIX 2041217-0418
(2) MCDU SFENA K226ABM3A/D (1) ATC Transponder BENDIX 066-01127-1101
(1) FCU SEXTANT K217AAM9
(2) ILS Receiver BENDIX 2041230-3518 (2) DME Interrogater TRT 9599-614-03105
(2) ADF Receiver BENDIX 2041168-7513 (2) Radio Altimeter TRT 9599-807-14932
(2) VOR/Market Receiver BENDIX 2041231-3610 (1) Ground Prox. Warning SUNSTRAND 965-0676-020
(3) VHF Transceiver COLLINS 622-5219-020 (1) Voice Recorder SUNSTRAND 980-6005-076
(2) HF Transceiver COLLINS 622-5272-020 (1) Flight Data Recorder SUNSTRAND 980-4100-AXUS
(3) ADIRU HONEYWELL HG1152AC05/1 (1) Accelerometer SUNSTRAND 971-4193-001
TCAS: S.B. Kits for TCAS PROVISIONS have been provided to Operator from Airbus and paid for by ILFC.
Aircraft is: (Check one) [X] Full EFIS [ ] Partial EFIS [ ] Non-EFIS
INTERIOR
Seat Manufacturer BE AEROSPACE First Class N/A Business Class N/A Tourist 168
Galleys: Number G1, G5 (FWD & AFT SERVICE CENTERS) Make C.F. TAYLOR
Lavatories: Fwd. 1 VACUUM Aft. 2 VACUUM
</TABLE>
<PAGE> 182
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
<TABLE>
<S> <C> <C>
GENERAL INFORMATION
Aircraft Type: A321-100 Time as of OCT. 20, 1997 Date Manufactured MAY 1996
Serial No: 597 Total Time (Hours) 4822 Availability
Registration No. TC-ONI Total Cycles 1866
WEIGHTS
Maximum Take Off Gross Wt. 83,000 KGS Operating Empty Wt.
Maximum Landing Wt. 47,500 KGS Maximum Taxi Wt. 83,400 KGS
Maximum Zero Fuel Wt. 59,500 KGS Fuel Capacity (U.S. Gal.) 6,280 GALLONS
AIRFRAME STATUS
Next Anticipated "C" Check "C2" JAN. 1999 Next Scheduled "D" Check MAY 20, 2001
Last "C" Check "C1" OCT. 5, 1997 "D" Check Interval 5 YEAR/9 YEAR
ENGINES
Manufacturer IAE Model V2530-A5
Position No. 1 S/N V10168 No. 2 S/N V10169
Total Hours 4834 4834
Total Cycles 1882 1882
Time Since Last Shop Visit 4834 4834
Cycles Remaining to 1st LLP 13026 13026
AVIONICS/COMMUNICATIONS EQUIPMENT
(2) FMGEC SEXTANT (1) Weather Radar COLLINS 622-5132-120
(3) MCDU SEXTANT (2) ATC Transponder COLLINS 622-7878-301
(2) VHF VOR Rec. COLLINS 622-0726-020 (2) DME Interrogator COLLINS 622-4540-023
(1) ADF Rec. COLLINS 622-5222-020 (2) Radio Alt. TELECOMMUNICATIONS 959960714942
(2) VHF ILS/only Rec. COLLINS 622-9738-041 (1) Ground Prox. Warning SUNSTRAND 965-0676-020
(3) VHF Transceiver COLLINS 622-0693-020 (1) Voice Recorder LORAL S200-0012-00
(1) HF Transceiver COLLINS 622-5272-020 (1) Flight Data Recorder SUNSTRAND
(3) IRU LITTON 465020-0303-0307 (1) Selcal Decoder TEAM BC2065C
INTERIOR
Seat Manufacturer Model(s)
First Class 0 Business Class 0 Tourist 220
Galleys: Number G1, G5 Make Lavatories: Fwd. 1 Aft. 3
</TABLE>
<PAGE> 183
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
<TABLE>
<S> <C> <C>
GENERAL INFORMATION
Aircraft Type: B737-300 Time as of JUNE 30, 1997 Date Manufactured FEBRUARY 1992
Serial No.: 25161 Total Time (Hours) 15430 Availability
Registration No. CS-TIK Total Cycles 8667
WEIGHTS
Maximum Take Off Gross Wt. 138,500 LBS Operational Basic Wt. 69,567 LBS
Maximum Taxi Wt. 139,000 LBS Maximum Zero Fuel Wt. 106,500 LBS
Maximum Landing Wt. 114,000 Fuel Capacity (U.S. Gallons) 3,812
AIRFRAME STATUS
Remaining to "C" Check 1089 HOURS Time Remaining to Next "D" Check 4570 HOURS
"C" Check Interval 3300 HOURS OR 15 MONTHS "D" (Structural) Check Interval 20000 HOURS
ENGINES
Manufacturer CFMI Model CFM56-3-B2 Current Thrust Rating 22,000 LBS
Position No. 1 S/N 857102 No. 2 S/N 727376
Total Hours 14182 15713
Total Cycles 8045 8970
Time Since Last Shop Visit 5241
Cycles Remaining to 1st LLP 7768 6830
AVIONICS/COMMUNICATIONS EQUIPMENT
(2) Flight Control Comp. HONEYWELL 405 1600-913 (1) Weather Radar COLLINS 622-5132-105
(1) Autothrottle Computer SMITHS 7355UE6-10 (2) ATC Transponder COLLINS 622-7878-201
(2) VOR/ILS Receiver COLLINS 51RV-48 (2) DME Interrogator COLLINS 622-2921-006
(2) ADF Receiver COLLINS 51Y7 (2) Radio Altimeter COLLINS 86OF-4
(1) Marker Beacon COLLINS 51Z4 (1) Ground Prox. Warning SUNSTRAND 965-0648-002
(2) VHF Transceiver COLLINS 622-5219-001 (1) Voice Recorder FAIRCHILD 93A100-30
(1) HF Transceiver COLLINS 622-3371-001 (1) Flight Data Recorder ALLIED SIGNAL 890-4100DXUN
(3) Inertial Ref. Unit HONEYWELL HG1050AD04 (1) Selcal Decoder MOTOROLA N14018
Aircraft is: (Check one) (X) Full EFIS ( ) Partial EFIS ( ) Non-EFIS
INTERIOR
Seat Manufacturer WEBER Model(s) 841195-4XX
First Class 0 Business Class 60 Tourist 72
Galleys: Number G1, G2, G7, G48 Make A/M Lavatories: Fwd. 1 (FLUSH) Aft 2. FLUSH
</TABLE>
<PAGE> 184
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1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
<TABLE>
<S> <C> <C>
GENERAL INFORMATION
Aircraft Type: 737-3K2 Time as of: JUNE 30, 1997 Date Manufactured: MAY 1995
Serial Number: 27635 Total Time (Hours): 8167 Availability
Registration Number: PH-T52 Total Cycles: 2989
WEIGHTS
Maximum Take Off Gross Weight: 139,000 LBS Operating Empty Weight:
Maximum Landing Weight: 116,600 LBS Maximum Taxi Weight: 139,500 LBS
Maximum Zero Fuel Weight: 106,500 LBS Fuel Capacity (U.S. Gal.): 5,311
AIRFRAME STATUS
Remaining to "C" Check 11 HOURS (AT 3,000 FH) Remaining to "O" Check 19411 HOURS (AT 22400 FH)
ENGINES
Manufacturer: CFM Types: CFM 56-3C-1 Thrust: 22,000 LBS
Position No. 1 858199 No. 2 858200
Total Hours: 8167 8167
Total Cycles: 2989 2889
Cycles Remaining to 1st LLP 12811 12811
AVIONICS/COMMUNICATIONS EQUIPMENT
(2) Flight Cont. Comp: SPERRY 1062038-4 (1) Weather Radar: COLLINS 622-5132-l09
(1) Autothrottle Computer: SMITHS 10-82017-25 (2) ATC Transponder: COLLINS 822-787-201
(2) HF Transceiver: COLLINS 622-5377-001 (2) IRU: HONEYWELL HG1050AE09
(2) VHF Transceiver: COLLINS 822-0693-004 (2) AOF Receiver: COLLINS 777-1492-005
(1) Voice Recorder: FAIRCHILD 93A100-80 (1) Ground Prox. Warning: ALLIED SIGNAL 965-0648-008
(1) Selcal Decoder: MOTOROLA N1401C (2) DME Interrogator: COLLINS 622-2921-006
(1) Flight Data Recorder: SFIM INC. AP411161-01 (2) VHF Nav. Receiver: COLLINS 822-0761-001
(2) Radio Altimeter: COLLINS 622-3890-021 (1) Market Beacon: COLLINS 522-2996-011
INTERIOR
Seat Manufacturer: FLIGHT EQUIPMENT Model (s)
First Class: N/A Business Class: N/A Tourist: 149
Galleys: G1/G2/G48/G7 MAKE: DRIESSEN Lavatories: Fwd. 1 FLUSH Aft. 1 FLUSH
--------- --------------
</TABLE>
<PAGE> 185
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
<TABLE>
<S> <C> <C>
GENERAL INFORMATION
Aircraft Type: B737-308 Time as of: OCTOBER 16, 1997 Date Manufactured: NOVEMBER 1988
Serial Number: 24299 Total Time (Hours): 25391 Availability
Registration Number: N956WP Total Cycles: 13614 EFTS: PARTIAL EFIS
WEIGHTS
Maximum Take Off Gross Weight: 137,000 LBS Operating Empty Weight: 72,375 LBS
Maximum Landing Weight: 114,000 LBS Maximum Taxi Weight: 127,500 LBS
Maximum Zero Fuel Weight: 108,500 LBS Fuel Capacity (U.S. Gal.): 5,311
AIRFRAME STATUS
Last 7 "C" Check JUNE 1996 Time remaining to "D" Check: 21,061 HRS
ENGINES
Manufacturer: CFM Types: CFM 56-38-2 Thrust: 22,100 LBS
Position No. 1 722248 No. 2 722249
Total Hours: 22588 24036
Total Cycles: 12093 12875
Time to Cycle Limiter: 1298 1225
Last shop visit: CURRENTLY IN SHOP CURRENTLY IN SHOP
AVIONICS/COMMUNICATIONS EQUIPMENT
(2) Flt. Cntrl Computer: HONEYWELL 4051600-913 (1) Weather Radar: COLLINS 622-5132-630
(2) VOR/ILS Receiver: COLLINS 622-3257-001 (2) ATC Transponder: COLLINS 622-2224-001
(2) ADF Receiver: COLLINS 622-3257-001 (2) DME Interrogator: COLLINS 622-2921-006
(1) Marker Beacon: COLLINS 522-2996-011 (2) Radio Altimeter: COLLINS 622-3890-020
(2) VHF Transceiver: COLLINS 622-1161-101 (1) Ground Prox. Warning: SUNDSTRAND 965-0648-004
(1) HF Transceiver: COLLINS 622-5377-001 (1) Voice Recorder: FAIRCHILD A100
(2) IRU: HONEYWELL HG1050ADO4 (1) Flight Data Recorder: SUNDSTRAND 580-4100-DXUN
(1) TCAS: COLLINS 622-8971-020 (1) Selcal Decoder: MOTOROLA N14016
Windshear System: COLLINS PREDICTIVE WINDSHEAR; SUNDSTRAND MARK VII REACTIVE WINDSHEAR
INTERIOR
Seat Manufacturer: JEPSON BURNS Model(s): JB6,0-3-59
First Class: N/A Business Class: N/A Tourist: 138
Galleys: G1, G3, G6 MAKE: DRIESSEN Lavatories: Fwd. 1 FLUSH Aft. 2 FLUSH
--------- --------------
</TABLE>
<PAGE> 186
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
<TABLE>
<S> <C> <C>
GENERAL INFORMATION
Aircraft Type: B737-300 Time as of OCT. 5, 1997 Date Manufactured DEC. 1993
Serial No: 26296 Total Time (Hours) 9795 Availability
Registration No: B-2937 Total Cycles 6685
WEIGHTS
Maximum Take Off Gross Wt. 135,000 LBS Operating Empty Wt. 73,914 LBS
Maximum Landing Wt. 114,000 LBS Maximum Taxi Wt. 135,500 LBS
Maximum Zero Fuel Wt. 106,500 LBS Fuel Capacity (U.S. Gal.) 5,311 GALLONS
AIRFRAME STATUS
Next "4C" Check AT 12,593 FH Time Remaining to Next "D" Check 12705 FH.
"C" Check Interval 3200 FH "D" Check (or equivalent) Interval 22,400 FH
ENGINES
Manufacturer GE Model CFM56-3-C1 Current Thrust Rating 20,000 LBS
Position No. 1 856768 No. 2 857753
Total Hours 7369 9701
Total Cycles 5159 6726
Time Since Last Shop Visit 7369 9701
Cycles Remaining to 1st LLP 14841 13274
AVIONICS/COMMUNICATIONS EQUIPMENT
(2) Right Control Computer 10-62038-4 (1) Weather Radar COLLINS
( ) Flight Directors (2) ATC Transponder COLLINS
(2) VOR/ILS Rec. COLLINS (2) DME Interrogator COLLINS
(2) ADF Rec. COLLINS (2) Radio Altimeter COLLINS
(1) HF Transceiver COLLINS ( ) Ground Prox. Warning
(2) VHF Transceiver COLLINS (1) Voice Recorder FAIRCHILD
(1) TCAS Computer ALLIED SIGNAL (1) Flight Data Recorder FAIRCHILD
INTERIOR
Seat Manufacturer WEBER Model(s)4004-3
First Class O Business Class O Tourist 148
Galleys: Number G1, G2, G48 Make DRIESSEN Lavatories: 3 (FLUSH) Locations LA, LD, LE
</TABLE>
<PAGE> 187
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
GENERAL INFORMATION
Aircraft Type: B737-383F Time as of: AUGUST 28, 1997 Date Manufactured: SEPTEMBER 1987
Serial Number: 23811 Total Time (Hours): 25790 Availability
Registration Number: TF-FIE Total Cycles: 13705 EFIS: PARTIAL
WEIGHTS
Maximum Take Off Gross Weight: 138,500 LBS Operating Empty Weight: 66,012 LBS
Maximum Landing Weight: 116,600 LBS Maximum Taxi Weight: 139,000 LBS
Maximum Zero Fuel Weight: 109,600 LBS Fuel Capacity: 18,200 KG
AIRFRAME STATUS
Next "C" Check; FRESH OUT OF "C" CHECK Next Scheduled "D" Check: JUL 2003
Last "C" Check: JAN 1997 Last "D" 'Check: JUL 1994
ENGINES
Manufacturer: CFMI Model: CFM5,6-3-82 Thrust Rating: 22,000 LBS
Position No. 1 721303 No. 2 720782
Total Hours 27210 27091
Total Cycles 21220 14697
Time Since Last Shop Visit 0 (shop visit Aug. 20, '97) 0 (shop visit Aug. 21 '97)
Cycles Remaining to 1st LLP 4169 CYCLES 2567 CYCLES
AVIONICS/COMMUNICATIONS EQUIPMENT
(2) Right Control Comp. HONEYWELL 405150912 (1) Weather Radar: COLLINS 622-5132-106
(1) Cockpit Voice Recorder: FAIRCHILD A100 (2) ATC Transponder: COLLINS 6222-2224-001
(2) VORALS Receiver: COLLINS 622-3257-001 (2) OME Interrogator: COLLINS 622-2921-006
(2) ADF Receiver: COLLINS 777-1492-005 (2) Radio Altimeter: COLLINS 622-3890-020
(1) Marker Beacon: COLLINS 622-2996-011 (1) Ground Prox. Warning: SUNSTRAND 965-0648-004
(2) VHF Transceiver: COLLINS 622-1396-101 (2) Flight Data Recorder: SUNSTRAND 980-4100-HMUN
(1) HF Transceiver: COLLINS 622-3371-001 (1) Selcal Decoder: MOTOROLA N1401A
(2) IMU: HONEYWELL HC1050AD04 ( ) Auto Pilot System: SPERRY 4061601-935
INTERIOR
Seat Manufacturer: N/A (CARGO AIRCRAFT) Model (s)
Pallets: 8 PALLET POSITIONS
Galleys: Number 1 (HOT/COLD/WET) Make SELL Lavatories: Fwd. 1 FLUSH Aft. N/A
</TABLE>
<PAGE> 188
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
<TABLE>
<S> <C> <C>
GENERAL INFORMATION
Aircraft Type: B737-300 Time as of SEPT. 30, 1997 Date Manufactured MAY 1997
Serial No: 23788 Total Time (Hours) 24972 Availability
Registration No: F-GIXH Total Cycles 14340
WEIGHTS
Maximum Take Off Gross Wt. 139,500 LBS Operating Empty Wt.
Maximum Landing Wt. 116,600 LBS Maximum Taxi Wt. 140,000 LBS
Maximum Zero Fuel Wt. 109,600 LBS Fuel Capacity (U.S. Gal.) 5,311 GALLONS
AIRFRAME STATUS
Last "C" Check APRIL 1996 Next "D" Check JULY 2003 "D2"
"C" Check Interval 18 MONTHS Last "D" Check JAN. 1993 "D1"
ENGINES
Manufacturer CFMI Model CFM56-3-C1 Current Thrust Rating 22,000 LBS
Position No. 1 S/N 720750 No. 2 S/N 720889
Total Hours 20681 20696
Total Cycles 12542 11977
Date of Last Shop Visit DEC. 1996 N/A
AVIONICS/COMMUNICATIONS EQUIPMENT
( ) Flight Control Computer HONEYWELL (1) Weather Radar COLLINS
( ) Air Data Computer HONEYWELL (2) ATC Transponder COLLINS
(2) VOR/ILS Rec. COLLINS (2) DME Interrogator COLLINS
(2) ADF Rec. HONEYWELL (2) Radio Altimeter COLLINS
(1) Marker Beacon COLLINS (1) Ground Prox. Warning SUNSTRAND
(2) VHF Transceiver COLLINS (1) Voice Recorder FAIRCHILD
(2) HF Transceiver COLLINS (1) Flight Data Recorder SUNSTRAND
( ) Auto Pilot System SPERRY (1) Selcal Decoder MOTOROLA
INTERIOR
Seat Manufacturer PTC (FC), BURNS (YC) Model(s)
First Class 12 Business Class O Tourist 114
Galleys: Number G1, G2, G4B Make HENSHALLS Lavatories: Fwd. 1 (FLUSH) Aft 2 (FLUSH)
</TABLE>
<PAGE> 189
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
<TABLE>
<S> <C> <C>
GENERAL INFORMATION
Aircraft Type B737-408 Time as of MAY 31, 1997 Date Manufactured OCTOBER 1988
Serial No. 24234 Total Time (Hours) 23,359 Availability
Registration No. N403KW Total Cycles 9,829
WEIGHTS
Maximum Take Off Gross Wt. 143,500 LBS Operating Empty Wt. 75,609 LBS
Maximum Taxi Wt. 144,000 LBS Maximum Zero Fuel Wt. 113,000 LBS
Maximum Landing Wt. 121,000 LBS Fuel Capacity (U.S. Gallons) 5,311
AIRFRAME STATUS
Time Remaining to Next "C" Check 2622 HRS Time Remaining to "D" Check 2622 HRS
"C" Check Interval Frequency 3200 HRS "D" Check Interval Frequency 1/6 "D"
ACCOMPLISHED EACH "C" Check
ENGINES
Manufacturer CFMI Model CFM56-3B-2 Current Thrust Rating 22,000 LBS
Position No. 1 S/N 722324 No. 2 S/N 725123
Total Hours 21155 21922
Total Cycles 8874 9172
Time Since Last Shop Visit 5182 HOURS 5720 HOURS
Cycles Remaining to 1st LLP 5226 4926
AVIONICS/COMMUNICATIONS EQUIPMENT
(2) Flight Control Computer SPERRY SP-300 (1) Weather Radar BENDIX 2041217-0416
(1) Autothrottle Computer SMITHS 735SUE6-9 (1) ATC Transponder BENDIX 056-01127-1301
(2) VOR/ILS Receiver COLLINS 51RV-48 (1) DME Interrogator BENDIX 056-1093-30
(1) VOR MKR Receiver COLLINS 51Z-4 (2) Radio Altimeter COLLINS 622-3890-020
(2) ADF Receiver COLLINS 777-1492-005 (1) Ground Prox. Warning SUNSTRAND 965-0648-008
(2) VHF Transceiver BENDIX 2041237-4411 (1) Voice Recorder SUNSTRAND 980-6109-017
(1) HF Transceiver COLLINS 628T-2A (1) Flight Data Recorder SUNSTRAND 980-4100-DXUN
(2) Inertial Ref. Unit HONEYWELL HG1050AD05 (1) Selcal Decoder MOTOROLA N1401C
Aircraft is: (Check one) (X) Full EFIS ( ) Partial EFIS ( ) Non-EFIS
INTERIOR
Seat Manufacturer SICMA Model(s) MODEL 77 PIN 770131-110-0000
First Class 0 Business Class 0 Tourist 170
Galleys: Number G1 & G2 (DRIESSEN), G4B (HENSHALLS) Lavatories: Fwd. 1 (FLUSH) Aft. 2 (FLUSH)
</TABLE>
<PAGE> 190
ASG International [LOGO] REPORT NUMBER 97003-ILF
Aircraft Inspection and Operator Evaluation Report REPORT DATE 10/28/97
5. AIRCRAFT INSPECTION SUMMARY
The summary aircraft condition survey accomplished by ASG International on
October 13, 1997 determined that the aircraft was in good physical
condition for an aircraft of its age, type and service. The aircraft's
overall condition was considered good and appears to have been
well-maintained during its operational life.
The physical inspection was accomplished during routine layover servicing
of the aircraft at Carnival's Ft. Lauderdale, Florida maintenance facility.
Carnival's routine service did not include the opening of aircraft access
panels (including engine cowlings), fairings, or panels, nor did it include
testing or detailed inspection of aircraft systems.
The aircraft is painted in Carnival's livery. Condition of the exterior
paint is fair, with chipping and peeling present; however, this condition
is not considered excessive. The deterioration present is cosmetically
unappealing, but no unprotected exposure of the fuselage or ancillary
exterior equipment was observed. The aircraft's exterior, wheel wells', and
landing gear were extremely dirty. A thorough washing of the entire
aircraft is required.
Inspection of the visible portions of the fuselage revealed it to be in
good overall condition for an aircraft of its age. No corrosion was evident
in the lap joint, belly skin, passenger and galley service door, and
lavatory service areas. No unrepaired damage was present that exceeded the
serviceability limitations allowed in the manufacturers structural repair
manual. Numerous fuselage skin patches have been installed on the aircraft
and details of those repairs considered significant by ASG International
have been included in Appendix IIIV attached hereto. A photo of each repair
has been included in the Photographic Survey section of this report.
The lower forward and aft cargo compartment floor panels, sidewall and
overhead liners, and bulkhead and access panel liners were not removed to
expose internal structure. The interior and visible structure of both
compartments was inspected. The forward compartment was found to be in
generally good condition and obviously exposed to limited use. The aft
compartment was found to be in fair condition and, like the forward
compartment, no unrepaired damage was observed. However, cleaning and
touch-up repainting is necessary in both compartments. The forward and aft
lower cargo compartments meet FAA Class "D" fire containment requirements.
10
<PAGE> 191
ASG International [LOGO] REPORT NUMBER 97003-ILF
Aircraft Inspection and Operator Evaluation Report REPORT DATE 10/28/97
5. AIRCRAFT INSPECTION SUMMARY (CONTINUED)
For the purpose of this inspection and evaluation, the engine data provided
in subsequent sections of this report and appendixes attached hereto relate
to the collateral engines identified by the Engine Serial Number ("ESN")
originally delivered to Carnival installed on aircraft MSN 23234 and
identified in the Aircraft Lease Agreement. A matrix of the engines
delivered with the aircraft and those currently installed is provided
below:
<TABLE>
<CAPTION>
Position Collateral Engines Installed Engines
-------- ------------------ -----------------
<S> <C> <C>
#1 CFM56-3B-2, ESN 722324 CFM56-3C-1, ESN 727108
Installed in #2 position Removed from #2 position of
of N403KW N403KW
#2 CFM56-3B-2, ESN 725123 CFM56-3B-2, ESN 722324
In-shop undergoing repair Removed from #1 position of
and refurbishment N403KW
</TABLE>
The detachable engine components and parts (i.e., inlet and engine cowling,
etc.) and non-detachable engine related airframe components and parts
(i.e., pylon and thrust reversers, etc.) were inspected along with an
in-situ inspection of the installed engines. No evidence of repair or
damage was evident to the inlet, engine cowling, external pylon structure,
or fan thrust reversers, except one exterior filler repair (approximately
10" diameter) installed on the #2 engine inboard thrust reverser sleeve.
Subsequent research of the aircraft maintenance and technical operations
records did not disclose the source of the damage or subsequent repair
method, however, the properties and repair techniques appear to be similar
and consistent with the properties and techniques utilized for thrust
reverser sleeve repairs previously observed on other thrust reverser
sleeves and confirmed to be in accordance with the manufacturers
recommendations.
Inspection of the wings, flaps and ailerons, as evident from the ground,
revealed no structural irregularities or evidence of corrosion. Neither
wing, or associated fuel or flight control system, exhibited evidence of
fuel or hydraulic leakage. Paint on the undersurface of the wings and
flight control surfaces was in fair condition. The outboard surface of the
inboard foreflap is abrading the inboard #2 engine pylon fairing during
extension and retraction. Adjustment of the flap and blending rework of the
affected fairing panel is necessary. There was no
11
<PAGE> 192
ASG International [LOGO] REPORT NUMBER 97003-ILF
Aircraft Inspection and Operator Evaluation Report REPORT DATE 10/28/97
5. AIRCRAFT INSPECTION SUMMARY (CONTINUED)
damage to the foreflap outboard surface evident. Also, no unrepaired
damage, corrosion, or hydraulic leaks were observed on the visible surfaces
of the horizontal and vertical stabilizers, rudder, elevators, or
empennage.
The original Auxiliary Power Unit ("APU"), MSN P-100009, has been removed
from the aircraft for routine repair and refurbishment since delivery. The
details provided herein, and in subsequent sections of this report and
appendixes attached hereto relate to the currently installed APU. An
operational check of the APU was accomplished and was found to be operating
within Carnival's "On-condition" APU maintenance program parameters.
The flight compartment, passenger and service entryways, galleys, and main
passenger cabin were inspected. In addition, the presence of and data
provided on, the aircraft data plate was verified and found to be
satisfactory. Ownership data plates were installed in the L1 door jamb
frame and cockpit, however, the data presented thereon was inaccurate. Both
placards state that the owner's address (ILFC) is 8484, Wilshire Boulevard,
Beverly Hills, California, and that the aircraft registry is OO-ILH (Air
Belgium).
General condition of the flight deck was found to be fair and requiring an
overall paint touch-up and cleaning. Cockpit equipment and instrumentation
appeared to be operative with all markings and placards in-place and
legible. Instrument, side, and overhead panels were found to be in good
condition and free of cracks and repairs. The captain's and first officer's
seats, covers, cushions, and seatbelts were in good condition, however, the
captain's seat back cushion cover does not fit properly and the second
observers seat bottom and back cushion covers are worn excessively and
require replacement. All cockpit windows were inspected and the captain's
forward and aft, and first officer's aft, eyebrow windows were found to
have minor delamination that is not obscuring vision and are within the
continued serviceability limits set forth in the manufacturers maintenance
manual.
The passenger cabin was clean with sidewall and overhead liners, and
overhead bins that are in good condition and substantially free of repair,
delamination, or damage. One Hundred Fifty Nine (159) passenger seats are
installed in a one-class economy configuration. Seat covers were standard
Carnival colors and seats, covers and cushions were found to be in fair
condition. A spot-check of seat cushion/cover assembly for compliance with
FAA fire-block and smoke
12
<PAGE> 193
ASG International [LOGO] REPORT NUMBER 97003-ILF
Aircraft Inspection and Operator Evaluation Report REPORT DATE 10/28/97
5. AIRCRAFT INSPECTION SUMMARY (CONTINUED)
release requirements disclosed certification substantiation was evident
on some assemblies, however, not on others. A subsequent check of the
aircraft technical and maintenance records determined that the "original
seat, cushion, and cover textile manufacturers' fire-block and smoke
release FAA certification was available, but, substantiation of assemblies
or individual covers and cushions installed subsequent to aircraft
delivery was not available. It appears that Carnival has no system for
controlling or tracking interior fire-block compliance, which, considering
the frequency of passenger and flight attendant seat cover and cushion
changes necessary in normal operation, is an ongoing requirement. Some
passenger seatbelts installed were manufactured by American Safety, while
some were manufactured by Davis Products. All had the appropriate TSO-C22f
tag affixed.
Three galleys are installed in the aircraft, two adjacent the forward
galley service entrance, and one transverse galley aft of the left aft
passenger and right aft galley service doors. All equipment (except the
meal trolleys and standard containers) was installed and appeared to
function properly. The forward and aft galley service areas, including
floor mats, sidewall and overhead liners were in good condition, however,
a general cleaning was needed. Standing water was found in the aft galley
service area. A detailed inspection of this area disclosed the floor mat
to be sealed and no under-mat water migration or evidence of floorboard
corrosion was observed. All three galley units were in generally good
condition and free of unrepaired damage or corrosion.
The aircraft has six flight attendant positions; two located adjacent the
forward left main passenger door and four located in the aft galley
service area. The right aft flight attendant seat assembly has blue seat
back and headrest covers installed with a red seat bottom cover. All seat
cover bottoms are worn excessively and requires replacement. The aft
double flight attendant seat positions have a mixture of blue and brown
seatbelt and shoulder harness assemblies installed. All seat positions are
structurally sound and their retract mechanisms operated properly.
The one forward and two aft lavatories were found to be clean and in good
condition, except as noted. The floor mat/toilet shroud sealant joints
were intact and in good condition in the forward lavatory, however, the
floor mat/toilet shroud sealant joints in the two aft lavatories were
found peeling. No corrosion was evident in any lavatory. All waste
containers were fire-sealed and detection
13
<PAGE> 194
ASG International [LOGO] REPORT NUMBER 97003-ILF
Aircraft Inspection and Operator Evaluation Report REPORT DATE 10/28/97
5. AIRCRAFT INSPECTION SUMMARY (CONTINUED)
and suppression equipment was properly installed. The No-Smoking placards
installed in the forward and left aft lavatories are peeling but legible.
All other required placards and labels are properly installed and legible.
Carnival has modified the aircraft to include Sony Trans Com video and B/E
Aerospace audio entertainment systems. The installation and certification
documentation was found to be satisfactory, except as otherwise noted in
section 6.4. of this report.
Overall, the aircraft has been generally well-maintained and ASG
International's inspection did not reveal any significant structural,
systems, or aesthetic deficiencies.
14
<PAGE> 195
ASG International [LOGO] REPORT NUMBER 97003-ILF
Aircraft Inspection and Operator Evaluation Report REPORT DATE 10/28/97
6. MAINTENANCE AND INSPECTION PROGRAM
6.1 Airframe Program
Carnival has developed its own B737-400 Maintenance and Inspection Program
("Maintenance Program") which is approved by the U.S. Federal Aviation
Administration ("FAA"). The aircraft systems maintenance and inspection tasks,
as well as the structural sampling inspection and corrosion control tasks
recommended by the Boeing Maintenance Planning Document ("MPD") have been
incorporated into the Maintenance Program. Carnival has also developed,
implemented, and maintains an aircraft Continuing Analysis and Surveillance
("CAS") program to satisfy the requirements of U.S. Federal Aviation Regulation
("FAR") 121.373. The CAS program is utilized to determine the performance and
effectiveness of the Maintenance Program and allows for deviation, based upon
CAS program evaluation results, from the "Hard-time" and "On-condition"
airframe, engine, and airframe and engine systems maintenance and inspection
limitations set forth in the MPD.
The routine aircraft systems and structural maintenance and inspection
intervals approved by the Maintenance Program are described below.
Supplementary structural and individual component time or life expiry
limitations are set forth in the Carnival Air Lines "B737 Time Limit Control
Manual":
"Daily" Check Accomplished daily at each route terminus station
"A" Check One of six phases must be completed within 200 aircraft
flight hours, or two months (whichever occurs first) since
accomplishment of the last completed "A" check inspection,
with a 10% (20 hour) extension allowance provided by the
Maintenance Program
"C" Check One of six phases must be completed within 3,200 aircraft
flight hours, or twenty-four months (whichever occurs first)
since accomplishment of the last completed "C" check
inspection, with a 10% (320 hour) extension allowance
provided by the Maintenance Program
15
<PAGE> 196
ASG International [LOGO] REPORT NUMBER 97003-ILF
Aircraft Inspection and Operator Evaluation Report REPORT DATE 10/28/97
6. MAINTENANCE AND INSPECTION PROGRAM (CONTINUED)
6.1 Airframe Program (continued)
"D" Check One of six "D" check phases must be completed with the
accomplishment of each corresponding "C" check (eg., "D1" check
is accomplished at each "C1" check, etc.) within 3,200 aircraft
flight hours, or twenty-four months (whichever occurs first)
since accomplishment of the last completed "D" check inspection,
with a 10% (320 hour) extension allowed by the Maintenance
Program; provided however, each "D" check cycle (D1 through D6)
must be completed prior to the accumulation of 18,000 aircraft
hours, or twelve-years (whichever occurs first), since completion
of the last full "D" check cycle.
16
<PAGE> 197
ASG International [LOGO] REPORT NUMBER 97003-ILF
Aircraft Inspection and Operator Evaluation Report REPORT DATE 10/28/97
6. MAINTENANCE AND INSPECTION PROGRAM (CONTINUED)
6.2 Engine Program
The CFM56-3 series engines operated by Carnival are repaired and
refurbished by FAA certificated repair stations. Maintenance Program
"On-condition" engine serviceability and performance are continually
monitored and evaluated by in-flight Engine Condition Monitoring ("ECM")
and periodic on-wing tests, inspections and checks. Engines remain
installed until the earlier of the indication of on-wing ECM performance
limiting deterioration or the time/cycle expiration of an internal
Life-limited component or part.
The collateral engine bearing ESN 725123 is presently at Greenwich Air
Service (Dallas) undergoing shop-visit repair and refurbishment. The engine
was removed from the aircraft on 8/11/97 because of accessory gearbox
failure. The engine repair workscope provided by Carnival to Greenwich Air
Service includes "Cold" and "Hot" section inspections with repair of
observed discrepancies authorize as needed to restore engine performance.
It is worthy to note that no life-limited parts ("LLP") are scheduled for
retirement or replacement during this shop-visit. Considering the
anticipated April 1998 lease expiry return of this engine to ILFC, it is
likely that no additional engine shop-visit is anticipated or scheduled
prior return of the engine to ILFC. The life-limiting LLP at the time of
ASG international's inspection was 4,663 cycles (High Pressure Turbine
Rotor).
Also, while reviewing the engine's records a 6,289 hour and 2,722 cycle
accrual discrepancy between the hours/cycles recorded on Carnival's
"Aircraft Hour & Cycle Log, Form M-2 and Engine Life Parts Status, Form
M-45" and the total engine hours and cycles provided to Greenwich Air
Service with the engine workscope. To date this hour/cycle discrepancy has
not been reconciled.
17
<PAGE> 198
ASG International [LOGO] REPORT NUMBER 97003-ILF
Aircraft Inspection and Operator Evaluation Report REPORT DATE 10/28/97
6. MAINTENANCE AND INSPECTION PROGRAM (CONTINUED)
6.3 Auxiliary Power Unit Program
The APU is maintained during airframe maintenance checks. Continual
"On-condition" performance and periodic in-situ tests, inspections and
checks determine the need for off-aircraft shop-visit repairs or
refurbishment. No mandated APU hot section inspection or overhaul periods
are defined in the Maintenance Program. Further, Carnival does not track or
otherwise record the APU time/cycles accumulated during normal operation.
APU time/cycle recording is not required by the Maintenance Program.
Carnival's primary method of APU "On-condition" monitoring is through the
use of Carnival Air Lines developed Flight Log Monitoring ("FLM") program.
The FLM program utilizes flight log recorded APU operational data to
evaluate and graphically plot the APU's performance. Ambient air
temperature and, loaded and unloaded, APU exhaust gas temperature ("EGT")
is the primary recorded data used for FLM analysis. Carnival's stated,
though unwritten, policy is to remove the APU from service for
refurbishment when the "unloaded" corrected APU EGT, with aircraft ducts
pressurized, exceeds 400 degrees C.
18
<PAGE> 199
ASG International [LOGO] REPORT NUMBER 97003-ILF
Aircraft Inspection and Operator Evaluation Report REPORT DATE 10/28/97
6. MAINTENANCE AND INSPECTION PROGRAM (CONTINUED)
6.4 Records and Documentation
Carnival's record-keeping procedures and forms are defined within the
Carnival Air Lines "General Maintenance Manual, Volume I-VI". All
maintenance and technical operations records and documents are
maintained in English.
Routine aircraft maintenance and inspection task cards, flights logs,
Airworthiness Directive ("AD"), Service Bulletin, and modification
compliance documents are maintained in hard-copy format. Aircraft, engine
and related aircraft and engine system time/cycle accumulation, engine disk
sheets, and AD summary reports are maintained by computer networking of
individual record databases. A spot-check review of the computerized and
hard-copy aircraft records revealed that, for the most part, the records
required by U.S. Federal Aviation Regulation 121.380 are available.
Numerous minor recording errors and several discrepancies considered to be
significant were found during ASG International's spot-check review of the
aircraft records. Minor errors included obvious transcription errors such
as; part number/serial number transpositions; inspection and modification
compliance date and/or aircraft time/cycle notations on computerized
summaries that do not agree with the notations included on hard-copy
compliance records; and incomplete references related to AD compliance
summary and aircraft modification records (eg., the FAA Form 337 filed by
Carnival on 12/13/93 to record the "Video System Installation" does not
reference STC SA5135NM, and no FAA Form 8110-3 engineering approval was
available). While most of the record errors found can be considered minor
in nature and correctable, it should be noted that when the aircraft is
returned at lease expiration, the research necessary to correct
documentation errors may prove time consuming.
Errors of a more significant nature include the lack of available
shop-visit records for APU MSN P-100380 and current interior soft-goods FAR
25.853 fire-block and smoke release compliance certification. Also, origin
of the "Video System Installation" instruction documentation used to
install the system is unknown.
19
<PAGE> 200
ASG International [LOGO] REPORT NUMBER 97003-ILF
Aircraft Inspection and Operator Evaluation Report REPORT DATE 10/28/97
6. MAINTENANCE AND INSPECTION PROGRAM (CONTINUED)
6.4 Records and Documentation (continued)
Correction of the discrepancies brought to the attention of Carnival Air
Lines personnel was actioned, however, definitive correction of each could
not be verified during ASG International's inspection visit.
Overall, the aircraft maintenance and technical operation records appear to
be generated and maintained according to FAR 121.380 requirements,
although, Carnival has no apparent functional system in place for verifying
the accuracy of the aircraft records. ILFC should allocate sufficient time
prior to Carnival's lease expiration return of the aircraft for completion
of a detailed records inspection and action correction of discrepancies
found.
20
<PAGE> 201
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
GENERAL INFORMATION
Aircraft Type: 737-40A Time as of: OCT. 21, 1997 Date Manufactured: MAY 1993
Serial Number: 25104 Total Time (Hours): 15520 Availability
Registration Number: N771AS Total Cycles: 9370
WEIGHTS
Maximum Take Off Gross Weight: 143,500 LBS Operating Empty Weight:
Maximum Landing Weight: 121,000 LBS Maximum Taxi Wt. 144,000 LBS
Maximum Zero Fuel Weight: 113,000 LBS Fuel Capacity: (U.S. Gal.): 5,311 GALLONS
AIRFRAME STATUS
Last "C" Check OCT. 7, 1996 AT 11595H/7111C "D" Check Next Due MAY 2000
Next "C" Check JAN 1998 (15 MONTH INTERVAL) "D" Check Interval 7 YRS/5 YRS
ENGINES
Manufacturer: CFM Type: CFM5-63C-1
Position: No. 1 857582 No. 2 857583
Total Hours 15520 13396
Total Cycles 9370 8117
Cycles Remaining to 1st LLP 6430 7683
AVIONICS/COMMUNICATIONS EQUIPMENT
(2) Auto-Pilot DFC3 HONEYWELL (1) Weather Radar COLLINS
(1) Autothrottle SMITHS (2) ATC Transponder HONEYWELL
(2) VOR/ILS Rec. COLLINS (2) DME Interrogator COLLINS
(2) ADF Rec. COLLINS (2) Radio Altimeter COLLINS
(1) Marker Beacon COLLINS (1) Ground Prox. Warning SUNSTRAND
(2) VHF Transceiver COLLINS (1) Voice Recorder FAIRCHILD
(1) Selcal Decoder MOTOROLA (1) Flight Data Recorder FAIRCHILD
INTERIOR
Seat Manufacturer: AIREST Model (a)
First Class 8 Business Class 0 Tourist 132
Galleys: Number 2 FWD, 1 AFT Make DRIESSEN Lavatories: Fwd. 1 Aft. 2
</TABLE>
<PAGE> 202
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
<TABLE>
<S> <C> <C>
GENERAL INFORMATION
Aircraft Type: B737-408 Time as of: JULY 1997 Date Manufactured: JANUARY 1992
Serial No: 25371 Total Time (Hours): 14,736 Availability
Registration No: N404KW Total Cycles 6,889
WEIGHTS
Maximum Take Off Gross Weight: 150,000 LBS Operating Empty Weight: 75,568 LBS
Maximum Landing Weight: 124,000 LBS Maximum Taxi Weight: 150,500 LBS
Maximum Zero Fuel Weight: 117,000 LBS Fuel Capacity (U.S. Gal.): 5,311
AIRFRAME STATUS
Number of Phases for "C" Check: 6 Phases Number of Phases for "D" Check 8 Phases
"C" Check Intervals: 24 Months or 3200 Hours "D" Check Intervals: 12 Years or 18,000 Hours
Last "C" Check: C4 on 08/10/96 Last "D" Check: D4 on 05/10/98
Next "C" Check: C5 on 05/31/98 Next "D" Check: D5 on 05/31/98
ENGINES
Manufacturer: CFMI Model: CFM56-3-C1 Thrust Rating: 23,500 LBS
Position: No. 1: ESN 726393 No. 2: ESN 726397
Total Hours: 14009 14242
Total Cycles: 6612 6664
Last HSI: 11/13/96 12123 FH 07/05/96 11351 FH
Last Shop Visit: 11/13/96 12123 FH 07/05/96 11351 FH
AVIONICS/COMMUNICATIONS EQUIPMENT
(2) Flt. Cont. Computer: Honeywell 10-62038-3 (3) Weather Radar: Collins WRT-701X
(1) Autothrottle Computer: Smiths 10-62017-21 (1) ATC Transponder: Collins 622-7878-120
(1) HF Transceiver: Collins 822-5377-001 (2) IRU: Honeywell S242T101-107
(2) VHF Transceiver: Collins 622-5219-004 (1) ADF Receiver: Collins 792-6275-005
(1) Voice Recorder: Sundstrand 980-6005-075 (1) Ground Prox. Warning: Sundstrand 522-OT102-206
(1) Selcal Decoder: Motorola N1401C (2) DME Interrogator: Collins 622-2921-006
(1) Flight Data Recorder: Sundstrand 980-4100DXUN (2) VOR/ILS Receiver: Collins 622-3257-001
(1) TCAS Computer: Bendix CAS-81
INTERIOR
First Class: N/A Business Class: N/A Tourist: 159
Galleys: G1/G2/G48 Lavatories: Fwd. 1 FLUSH Aft. 2 FLUSH
</TABLE>
<PAGE> 203
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
GENERAL INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
Aircraft Type: B737-400 Time as of APRIL 1997 Date Manufactured MAY 1992
Serial No: 25372 Total Time (Hours) 14074 Availability
Registration No: TC-J01 Total Cycles 7370
WEIGHTS
Maximum Take Off Gross Wt. 150,000 LBS Operating Empty Wt.
Maximum Landing Wt. 124,000 LBS Maximum Taxi Wt. 150,500 LBS
Maximum Zero Fuel Wt. 117,000 LBS Fuel Capacity (U.S. Gal.) 5,311 GALLONS
AIRFRAME STATUS
Next "C" Check FEB. 1998 "C5" Next "Q" Check SEPT. 1999
"C" Check Interval 3750 FM "D" Check (or equivalent) Interval 23,500 FK
ENGINES
Manufacturer CFMI Type CFM56-3-C1
Position No. 1 856172 No. 2 856174
Total Hours 11279 14033
Total Cycles 5869 7341
Cycles Remaining to 1st LLP 9131 7659
AVIONICS/COMMUNICATIONS EQUIPMENT
(2) Flight Control Computer HONEYWELL (1) Weather Radar BENDIX
(1) Autothrottle Computer SMITHS (2) ATC Transponder COLLINS
(2) VOR/ILS Rec. COLLINS (2) DME Interrogator COLLINS
(2) ADF Rec. COLLINS (2) Radio Altimeter TRT
(1) Marker Beacon BENDIX (1) Ground Prox. Warning ALLIED SIGNAL
(3) VHF Transceiver ALLIED SIGNAL (1) Voice Recorder FAIRCHILD
(1) HF Transceiver COLLINS (1) Flight Data Recorder ALLIED SIGNAL
(2) Long Range Navigation HONEYWELL (1) Selcal Decoder MOTOROLA
INTERIOR
Seat Manufacturer BURNS Model(s)
First Class 0 Business Class 18 Tourist 132
Galleys: Number 4 Make DRIESSEN Lavatories: Fwd. 1 (FLUSH) Aft. 2 (FLUSH)
</TABLE>
<PAGE> 204
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
GENERAL INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
Aircraft Type: B737-500 Time as of OCT. 15, 1997 Date Manufactured April 1993
Serial No.: 25165 Total Time (Hours) 11112 Availability
Registration No.: E1-COT Total Cycles 10307
WEIGHTS
Maximum Take Off Gross Wt. 121,254 LBS Operating Empty Wt.
Maximum Landing Wt. 110,000 LBS Maximum Taxi Wt. 121,254 LBS
Maximum Zero Fuel Wt. 102,500 LBS Fuel Capacity (U.S. Gal.) 5,311 GALLONS
AIRFRAME STATUS
Next "C" Check SEPT. 1998 "4C" Next "D" Check APRIL 2001
"C" Check Interval 18 MONTHS "D" Check (or equivalent) interval 8 YEARS
ENGINES
Manufacturer CFMI Type CFM50-3-81
Position No. 1 856428 No. 2 857574
Total Hours 11120 11109
Total Cycles 10314 10303
Time Since Last Shop Visit 11120 11109
Cycles Remaining to 1st LLP 9686 9697
AVIONICS/COMMUNICATIONS EQUIPMENT
(2) Flight Control Computer HONEYWELL (1) Weather Radar COLLINS
(1) Flight Management Computer SMITHS (2) ATC Transponder COLLINS
(3) VOR/ILS Rec. COLLINS (2) DME Interrogator BENDIX
(2) ADF Rec. COLLINS (2) Radio Altimeter COLLINS
(1) Marker Beacon COLLINS (1) Ground Prox. Warning SUNSTRAND
(3) VHF Transceiver COLLINS (1) Voice Recorder FAIRCHILD
(1) HF Transceiver COLLINS (1) Flight Data Recorder SUNSTRAND
(2) Long Range Navigation HONEYWELL (1) Selcal Decoder MOTOROLA
INTERIOR
Seat Manufacturer BE AEROSPACE Model(s)
First Class 0 Business Class 0 Tourist 117
</TABLE>
Galleys: Number G1, G2, G3A, G4B, G6A, SG7 Make: SELL
Lavatories: Fwd. 1 (FLUSH) Aft 1 (FLUSH)
<PAGE> 205
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
GENERAL INFORMATION
Aircraft Type: B747-300 Time as of OCT. 15, 1997 Date Manufactured APRIL 1988
Serial No: 24108 Total Time (Hours) 42306 Availability
Registration No: PP-VOA Total Cycles 6250
WEIGHTS
Maximum Take Off Gross Wt. 833,000 LBS Operating Empty Wt. 390,000 LBS
Maximum Landing Wt. 830,000 LBS Maximum Taxi 836,000 LBS
Maximum Zero Fuel Wt. 535,000 LBS Fuel Capacity (U.S. Gal.) 53,611 GALLONS
AIRFRAME STATUS
Next "C" Check NOVEMBER 8, 1997 "C4" Next "D" Check JUNE 2001 "4C" Hrs./Cycle
"C" Check Interval 15 MONTHS "D" Check for equivalent Interval 60 MONTHS
ENGINES
Manufacturer GE Model CF6-80C2 Current Thrust Rating 55,980 LBS
Position No. 1 690202 No. 2 690203 No. 3 690204 No. 4 690205
Total Hours 30938 32883 31003 33751
Total Cycles 8495 8187 8744 8701
Cycles Remaining to 1st LLP 5619 3504 5223 4046
AVIONICS/COMMUNICATIONS EQUIPMENT
(3) Auto-Pilot HONEYWELL (2) Weather Radar BENDIX
(3) Flight Directors HONEYWELL (2) ATC Transponder HONEYWELL
(3) VOR/ILS Rec. COLLINS (2) DME Interrogator BENDIX
(2) ADF REC. COLLINS (3) Radio Altimeter TRT
(1) Marker Beacon COLLINS (1) Ground Prox. Warning ALLIED SIGNAL
(3) VHF Transceiver COLLINS (1) Voice Recorder FAIRCHILD
(2) HF Transceiver COLLINS (1) Flight Data Recorder ALLIED SIGNAL
(3) Long Range Navigation LITTON (1) Selcal Decoder MOTOROLA
INTERIOR
Seat Manufacturer BRICE (C & SC), SICMA (YCI) Model(s)
First Class 12 Business Class 61 Tourist 322
Galleys: Number 9 Make SELL Lavatories 16 [FLUSH]
</TABLE>
<PAGE> 206
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1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
<TABLE>
<S> <C> <C>
GENERAL INFORMATION
Aircraft Type: B757-200ER Time as of MAY 31, 1997 Date Manufactured FEB 1989
Serial No: 24367 Total Time (Hours) 29780 HOURS Availability
Registration No: EI-CLM Total Cycles 7888 CYCLES
WEIGHTS
Maximum Take Off Gross Weight 250,000 LBS Operating Empty Weight
Maximum Landing Weight 198,416 LBS Maximum Taxi Weight 251,000 LBS
Maximum Zero Fuel Weight 184,085 LBS Fuel Capacity (U.S. Gal.) 11,276 GALLONS
AIRFRAME STATUS
Last "4C" and "S4C" Check MARCH 1995 Next Anticipated "D" Check AT 43067 FH
"C" Check Interval 15 MONTHS OR 3000 FH "D" Check (or equivalent) Interval "C4" 22,400 FH
ENGINES
Manufacturer ROLLS ROYCE Model RR211-535E4-37 Current Thrust Rating 37,000 LBS
Position No. 1 S/N 30661 No. 2 S/N 30678
Total Hours 22793 19768
Total Cycles 6262 5396
Time Since Last Shop Visit 5863 FH (JAN. 1995) 8413 FH (APR. 1994)
Cycles Remaining to 1st LLP 8718 9604
AVIONICS/COMMUNICATIONS EQUIPMENT
(3) OFCS Auto-Pilot COLLINS 622-4591-512 (1) Weather Radar COLLINS 622-5133-005
(3) Flight Control Comp. COLLINS 622-4591-511 (2) ATC Transponder COLLINS 622-7678-201
(3) VOR/ILS Rec. COLLINS 622-5021-102 (2) DME Interrogator COLLINS 622-4540-001
(2) ADF Rec. COLLINS 622-5222-102 (3) Radio Altimeter COLLINS 622-4542-103
(2) VHF VOR/Marker COLLINS 622-5220-103 (1) Ground Prox. Warning SUNSTRAND 965-0546-002
(2) VHF Transceiver COLLINS 622-5219-004 (1) Voice Recorder FAIRCHILD A100-30
(2) HF Transceiver COLLINS 622-5272-001 (1) Flight Data Recorder CHECKSROKE 960-4100-DXUN
(3) Long Range Navigation (1) Selcal Decoder MOTOROLA N1298A
HONEYWELL HG1050A004
Aircraft is: (Check one) [X] Full EFIS [ ] PARTIAL EFIS [ ] Non-EFIS
INTERIOR
Seat Manufacturer AIRCRAFT FURNISHINGS, BURNS Model(s) 8D-100062/63 (FC), 86872000/3000 (YC)
First Class 26 Business Class 0 Tourist 153
Galleys: Number G1, G3R, G3R, G4 Make HENSHALLS Lavatories: 4 (FLUSH) Locations A, B, C, D
</TABLE>
<PAGE> 207
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1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
<TABLE>
<S> <C> <C>
GENERAL INFORMATION
Aircraft Type: B757-200ER Time as of SEPT. 7, 1997 Date Manufactured DEC. 1988
Serial No.: 24280 Total Time (Hours) 31976 Availability
Registration No.: N767GA Total Cycles 7842
WEIGHTS
Maximum Take Off Gross Wt. 250,000 LBS Operating Empty Weight
Maximum Landing Wt. 198,416 LBS Maximum Taxi Weight 251,000 LBS
Maximum Zero Fuel Weight 184,065 LBS Fuel Capacity (U.S. Gal.) 11,276 GALLONS
AIRFRAME STATUS
Remaining to "C" Check Hrs./Cycls. Remaining to "D" Check Hrs./Cycls.
"C" Check Interval "D" Check Interval (or equivalent) Interval
ENGINES
Manufacturer ROLLS ROYCE Model R8211-535-64 Thrust Rating 40,000 LBS
Position No. 1 S/N 30874 No. 2 S/N 30677
Total Hours 28769 29618
Total Cycles 7392 7283
Last Shop Visit AUG 1996 MARCH 1997
Cycles Remaining to 1st LLP
AVIONICS/COMMUNICATIONS EQUIPMENT
(3) Flight Control Comp. COLLINS 622-4591-511 (1) Weather Radar COLLINS 622-5132-106
(2) Flight Management Comp. (1) TCAS Transponder COLLINS 622-8971-020
COLLINS 408-2500-970
(1) VOP/Marker Beacon COLLINS (2) DME Interrogator COLLINS 622-4540-001
(2) ADF Rec. COLLINS 622-5222-102 (3) Radio Altimeter COLLINS 622-4542-103
(1) VHF ILS/only Rec. COLLINS 622-5220-103 (1) Ground Prox. Warning SUNSTRAND 965-0643-002
(2) VHF Transceiver COLLINS 622-5219-004 (1) Voice Recorder FAIRCHILD 93-A100-80
(2) HF Transceiver COLLINS HFS700 (1) Flight Data Recorder SUNSTRAND 980-4100-DXUN
(3) Long Range Nav. HONEYWELL HG1050AD05 (1) Selcal Decoder MOTOROLA N1298A
INTERIOR
Seat Manufacturer PTC (BC), BURNS (VC) Model(s) 950-25K-2B (BC), JB5-03-39 (YC)
First Class 0 Business Class 10 Tourist 192
Galleys: Number G4B, G1A Make DRIESSEN Lavatories: Fwd. 2 (FLUSH) Mid. 2 (FLUSH)
</TABLE>
<PAGE> 208
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
GENERAL INFORMATION
<TABLE>
<S> <C> <C>
Aircraft Type: B757-200ER Time as of OCTOBER 14, 1997 Date Manufactured MARCH 1994
Serial No: 26272 Total Time (Hours) 12041 Availability
Registration No: N805AM Total Cycles 5366
WEIGHTS
Maximum Take Off Gross Weight 230,000 LBS Maximum Taxi Weight 231,000 LBS
Maximum Landing Weight 198,000 LBS Operational Empty Weight 130,308 LBS
Maximum Zero Fuel Weight 184,000 LBS Fuel Capacity (U.S. Gal.) 11,276 GALLONS
AIRFRAME STATUS
Date of Next Anticipated "C" Check MAY 1998 Cycles Remaining to "D" Check 6634 CYCLES
Date of Last Anticipated "C" Check NOV. 1996 "D" Check (or equivalent) Interval "E5" EVERY 72
MONTHS OR 12,000 CYCLES
ENGINES
Manufacturer PRATT & WHITNEY Model PW2037 Thrust Rating 37,000 LBS
Position No. 1 S/N 726733 No. 2 S/N 726734
Total Hours 8913 9963
Total Cycles 3039 4521
Time Since Last Shop Visit 7950 HRS (SEPT. 1994) 1642 HRS (APR. 1997)
Cycles Remaining to 1st LLP 11961 10479
AVIONICS/COMMUNICATIONS EQUIPMENT
(3) Flight Control Comp. COLLINS 622-4591-512 (1) Weather Radar COLLINS 622-4542-103
(2ea) Flight Management Comp. & CDU HONEYWELL (2) ATC Transponder COLLINS 622-7878-201
(2) VOR/Marker Beacon COLLINS 622-5220-103 (2) DME Interrogator COLLINS 622-4540-001
(2) ADF Rec. COLLINS 622-5222-102 (3) Radio Altimeter COLLINS 622-4542-103
(3) VHF ILS/only Rec. COLLINS 622-5221-102 (1) Ground Prox. Warning SUNSTRAND 965-0645-006
(2) VHF Transceiver COLLINS 622-5219-004 (1) Voice Recorder SUNSTRAND 980-8005-078
(2) HF Transceiver COLLINS 622-5272-001 (1) Flight Data Recorder SUNSTRAND 880-4100-DXUN
(3) Long Range Nav. HONEYWELL HG1050A609 (1) Selcal Decoder MOTOROLA NA138-714B
INTERIOR
Seat Manufacturer BURNS Model(s) JBC2020A (BC). JB5 (YC)
First Class 0 Business Class 24 Tourist 150
Galleys: Number G1A, G18, G48 Make DRIESSEN Lavatories: (FLUSH) 4, LA, LS, LC, & LD
</TABLE>
<PAGE> 209
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
GENERAL INFORMATION
Aircraft Type: B767-200 Time as of JULY 1997 Date Manufactured: AUG. 1987
Serial Number: 23807 Total Time (Hours): 25253 Availability
Registration Number: VH-RMO Total Cycles: 14304
WEIGHTS
Maximum Take Off Gross Wt. 345,000 LBS Operating Empty Wt.: 178,854 LBS
Maximum Landing Wt. 278,000 LBS Maximum Taxi Wt. 347,000 LBS
Maximum Zero Fuel Wt. 253,000 LBS Fuel Capacity (U.S. GAL.) 16,700 GALLONS
AIRFRAME STATUS
Next "C" Check JUNE 1997 Last "D" Check NOV. 1991
"C" Check Interval 18 MONTHS Next "4C" Check (or equivalent) NOV. 8, 1997
ENGINES
Manufacturer: GE Model: CF680A
Position No. 1 560347 No. 2 580342
Total Hours 31007 29777
Total Cycles 12284 11853
AVIONICS/COMMUNICATIONS EQUIPMENT
(3) Flight Control Computer COLLINS (1) Weather Radar ALLIED SIGNAL
(1) Autothrottle Computer GENERAL ELECTRIC (2) ATC Transponder HONEYWELL
(2) VOR/Marker ALLIED SIGNAL (2) DME Interrogator ALLIED SIGNAL
(2) ADF Rec. ALLIED SIGNAL (3) Radio Altimeter ALLIED SIGNAL
(1) VOR/LS only Rec. ALLIED SIGNAL (1) Ground Prox. Warning ALLIED SIGNAL
(2) VHF Transceiver COLLINS (1) Voice Recorder ALLIED SIGNAL
(2) HF Transceiver COLLINS (1) Flight Data Recorder ALLIED SIGNAL
(3) Long Range Navigation HONEYWELL (1) Selcal Decoder MOTOROLA
INTERIOR
Seat Manufacturer FEEL Model(s)
First Class 0 Business Class 0 Tourist 230
Galleys: Number 6 Make SELL Lavatories: 5 (VACUUM)
</TABLE>
<PAGE> 210
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
<TABLE>
<S> <C> <C>
GENERAL INFORMATION
Aircraft Type: B767-300 Time as of OCT. 11, 1997 Date Manufactured OCT. 1990
Serial No: 24798 Total Time (Hours) 20140 Availability
Registration No. HL-7264 Total Cycles 12206
WEIGHTS
Maximum Take Off Gross Wt. 345,000 LBS Operating Empty Wt. 193,581 LBS
Maximum Landing Wt. 300,000 LBS Maximum Taxi Wt. 347,000 LBS
Maximum Zero Fuel Wt. 278,000 LBS Fuel Capacity (U.S. Gal.)
AIRFRAME STATUS
Last "C" Check AT 16316 FH "SC" Next "SC" Check MAY 1998 Hrs./Cycles.
"C" Check Interval 18 MONTHS
ENGINES
Manufacturer GE Type CF880C288F
Position No. 1 702388 NO. 2 702389
Total Hours 20361 22569
Total Cycles 8993 6552
Time Since Last Shop Visit 369 (JUL. 97) 7351 (JAN. 96)
Cycles Remaining to 1st LLP
AVIONICS/COMMUNICATIONS EQUIPMENT
(3) Flight Control Computer COLLINS (2) Weather Radar BENDIX
(1) Autothrottle Computer GENERAL ELECTRIC (2) ATC Transponder COLLINS
(3) ILS Rec. COLLINS (2) DME Interrogator COLLINS
(1) ADF Rec. COLLINS (3) Radio Altimeter TRT
(3) VHF/VOR Rec. COLLINS (1) Ground Prox. Warning ALLIED
(2) VHF Transceiver COLLINS (1) Voice Recorder FAIRCHILD
(2) HF Transceiver COLLINS (1) Flight Data Recorder SUNSTRAND
(3) Long Range Navigation HONEYWELL (1) Selcal Decoder MOTOROLA
INTERIOR
Seat Manufacturer WEBER Model(s)
First Class 14 Business Class 0 Tourist 236
Galleys: Number F1, F2, M1, A1, A2, A3 Make NORDSKOG Lavatories: 6 (ONE WITH HANDICAP PROVISIONS)
</TABLE>
<PAGE> 211
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
<TABLE>
<S> <C> <C>
GENERAL INFORMATION
Aircraft Type: B767-300ER Time as of OCT. 16, 1997 Date Manufactured APRIL 1993
Serial No: 26256 Total Time (Hours) 24588 Availability
Registration No. G-UKLH Total Cycles 3569
WEIGHTS
Maximum Take Off Gross Wt. 407,000 LBS Operating Empty Wt. 204,028 LBS
Maximum Landing Wt. 320,000 LBS Maximum Taxi Wt. 409,000 LBS
Maximum Zero Fuel Wt. 288,000 LBS Fuel Capacity (U.S. Gal.) 24,140 GALLONS
AIRFRAME STATUS
Last "C" Check PERFORMED JAN. 1997 Next "D" Check SCHEDULED JAN. 2003
"C" Check Interval 24 MONTHS "D" Check for equivalent Interval 72 MONTHS
ENGINES
Manufacturer GE Model CF6-BOC2B6F Current Thrust Rating 61,000 LBS
Position No. 1 S/N703145 NO. 2 S/N 703148
Total Hours 22755 21783
Total Cycles 3307 3155
Time Since Last Shop Visit 4650 HRS (NOV. 1996) 3678 HRS (JAN. 1997)
Cycles Remaining to 1st LLP 11376 11226
AVIONICS/COMMUNICATIONS EQUIPMENT
(3) Flight Control Computer COLLINS 622-8767-103 (1) Weather Radar COLLINS 622-5132-109
(2) Flight Directors COLLINS (2) ATC Transponder COLLINS 622-7878-201
(2) VOR/ILS Rec. COLLINS 622-5220-103 (2) DME Interrogator COLLINS 622-4540-301
(2) ADF Rec. COLLINS 622-5222-102 (3) Radio Altimeter COLLINS 622-5001-109
(2) Marker Beacon COLLINS 622-6220-103 (1) Ground Prox. Warning SUNSTRAND 905-0648-0
(3) VHF Transceiver COLLINS 622-5219-004 (1) Voice Recorder FAIRCHILD 93-A100-80
(2) HF Transceiver COLLINS 622-5272-001 (1) Flight Data Recorder SUNSTRAND 981-4100BXL
(3) Long Range Nav. HONEYWELL HG105A008 (1) Selcal Decoder MOTOROLA NA138-7148
Aircraft is: (Check one) [X] Full EFIS [ ] Partial EFIS [ ] Non-EFIS
INTERIOR
Seat Manufacturer FEEL Model(s)
First Class 0 Business Class 0 Tourist 327
Galleys: Number F6, A4, A1, A2, A3 Make HENSHALLS Lavatories: Fwd. Aft.
</TABLE>
<PAGE> 212
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
GENERAL INFORMATION
<TABLE>
<S> <C> <C>
Aircraft Type: 8767-300ER Time as of OCT. 8, 1997 Date Manufactured SEPT 1994
Serial No: 26260 Total Time (Hours) 13225 Availability
Registration No: DQ-FJC Total Cycles 2683
WEIGHTS
Maximum Take Off Gross Wt. 380,000 LBS Operating Empty Wt.
Maximum Landing Wt. 320,000 LBS Maximum Taxi Wt. 381,000 LBS
Maximum Zero Fuel Wt. 288,000 LBS Fuel Capacity (U.S. Gal.) 24,140 GALLONS
AIRFRAME STATUS
Remaining to "C" Check 3845 FH Remaining to "D" Check 3 YEARS
"C" Check Interval 6,000 FH/3000 FC "D" Check for equivalent Interval 77 MONTHS
ENGINES
Manufacturer GE Type CF68DC2-84
Position No. 1 695634 No. 2 695835
Total Hours 13148 13097
Total Cycles 2491 2687
Date of Last Shop Visit FEB. 1987 DEC 1996
AVIONICS/COMMUNICATIONS EQUIPMENT
(2) Flight Control Computer HONEYWELL (2) Weather Radar COLLINS
(2) Flight Management Computer HONEYWELL (2) ATC Transponder HONEYWELL
(1) DFOAU TELEDYNE (2) DME Interrogstar COLLINS
(3) VOR/ILS only Rec. COLLINS (1) TCAS Computer HONEYWELL
(2) VOR/ILS Rec. COLLINS ( ) Ground Prox. Warning
(3) VHF Transceiver COLLINS (1) Voice Recorder FAIRCHILD
(2) HF Transceiver COLLINS (1) Flight Data Recorder ALLIED SIGNAL
(3) Long Range Navigation HONEYWELL (1) Selcal Decoder MOTOROLA
INTERIOR
Seat Manufacturer CONTOUR (BC), SICMA (YC) Model(s)
First Class O Business Class 18 Tourist 245
Galleys: Number F1, A1, A2, A3, A4, M1, M2 Make SELL Lavatories: 7 (VACUUM)
</TABLE>
<PAGE> 213
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
<TABLE>
<S> <C> <C>
GENERAL INFORMATION
Aircraft Type: F-70 Time as of SEPT 7, 1997 Date Manufactured DEC. 20, 95
Serial No: 11564 Total Time (Hours) 3068 Availability
Registration No: HA-LMA Total Cycles 2211
WEIGHTS
Maximum Take Off Gross Weight 36,740 KGS Maximum Taxi Weight 36,965 KGS
Maximum Landing Weight 34,020 KGS Maximum Payload
Maximum Zero Fuel Weight 31,975 KGS Fuel Capacity (U.S. Gal.) 2531 GALLONS
AIRFRAME STATUS
Remaining to "C" Check 3,452 HRS "D" Check is not determined yet for Malav's fleet
Last "C" Check Completed at 2540 HRS (MARCH '97) "C" Check Interval 4,000 HRS ("C1", "C2")
ENGINES
Manufacturer ROLLS ROYCE Model TAY MK620-15 Thrust Rating 13,850 LBS
Position No. 1 S/N 17137 No. 2 S/N 17136
Total Hours 3142 3142
Total Cycles 2243 2243
Time Since Last Shop Visit 3142 3142
Cycles Remaining to 1st LLP 17757 17757
AVIONICS/COMMUNICATIONS EQUIPMENT
(2) Flight Control Computer COLLINS 622-7476-502 (1) Weather Radar ALLIED SIGNAL 204-1217-0416
(1) Flight AUG Computer COLLINS 622-7478-501 (2) ATC Transponder ALLIED SIGNAL 066-01127-1101
(2) VOR/Marker Beacon Receiver (2) DME Interrogator ALLIED SIGNAL 204-1167-3707
ALLIED SIGNAL 204-1231-3614
(1) ADF Receiver ALLIED SIGNAL 204-1168-7513 (2) Radio Altimeter THOMSON-CSF 9599-604-14941
(2) VHF Trans. ALLIED SIGNAL 204-1237-4429 (1) Ground Prox. Warning HONEYWELL 965-0676-020
(2) VHF/ILS only Receiver (1) Voice Recorder SUNSTRAND 980-6022-001
ALLIED SIGNAL 204-1230-3527
(1) HF Transceiver COLLINS 622-5272-001 (1) Flight Data Recorder ALLIED SIGNAL 980-4700-003
(2) Inertial Ref. Unit HONEYWELL HG2001BC02 (2) Flight management Computer HONEYWELL
PROVISIONS FOR TCAS
INTERIOR
Seat Manufacturer FEEL Model(s) 990-MA111
First Class 0 Business Class 0 Tourist 75
Galleys: Number G1, G2 Make DRIESSEN Lavatories: Fwd. 0 Aft. 1 LH, 1 RH (FLUSH)
</TABLE>
<PAGE> 214
International Lease Financial Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90087
AIRCRAFT SPECIFICATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
GENERAL INFORMATION
Aircraft Type: F-70 Time as of SEPT. 7, 1997 Date Manufactured Feb. 14, 1996
Serial No.: 11565 Total Time (Hours) 3044 Availability
Registration No: HA-LMB Total Cycles 2135
WEIGHTS
Maximum Take Off Gross Weight 36,740 KGS Maximum Taxi Weight 36,965 KGS
Maximum Landing Weight 34,020 KGS Maximum Payload
Maximum Zero Fuel Weight 31,976 KGS Fuel Capacity (U.S. Gal.) 2531 GALLONS
AIRFRAME STATUS
Remaining to "C" Check 3,402 HRS "D" Check is not determined yet for Maley's Fleet
Last "C" Check Completed at 2446 HRS (APR '97) "C" Check Interval 4,000 HRS ("C1", "C2")
ENGINES
Manufacturer ROLLS ROYCE Model TAY MK620-15 Thrust Rating 13,850 LBS
Position No. 1 S/N 17143 No. 2 S/N 17144
Total Hours 3058 3058
Total Cycles 2139 2139
Time Since Last Shop Visit 3058 3058
Cycles Remaining to 1st LLP 17861 17861
AVIONICS/COMMUNICATIONS EQUIPMENT
(2) Flight Control Computer COLLINS 622-7476-502 (1) Weather Radar ALLIED SIGNAL 204-1217-0416
(1) Flight AUG Computer COLLINS 622-7478-501 (2) ATC Transporter ALLIED SIGNAL 066-01127-1101
(2) VOR/Marker Beacon Receiver (2) DME Interrogator ALLIED SIGNAL 204-1167-3707
ALLIED SIGNAL 204-1231-3614
(1) ADF Receiver ALLIED SIGNAL 204-1168-7513 (2) Radio Altimeter THOMSON-CSF 9599-604-14941
(2) VHF Trans. ALLIED SIGNAL 204-1237-4429 (1) Ground Prox. Warning HONEYWELL 965-0676-020
(2) VHF/ILS only Receiver (1) Voice Recorder SUNSTRAND 980-8022-001
ALLIED SIGNAL 204-1230-3527
(1) HF Transceiver COLLINS 622-5272-001 (1) Flight Data Recorder ALLIED SIGNAL 980-4700-003
(2) Inertial Ref. Unit HONEYWELL HG2001BC02 (2) Flight management Computer HONEYWELL
PROVISIONS FOR TCAS
INTERIOR
Seat Manufacturer: FEEL Model(s) 990-MA111
First Class 0 Business Class 0 Tourist 75
Galleys: Number G1.G2 Make DRIESSEN Lavatories: Fwd. 0 Aft. 1LH, 1RH (FLUSH)
</TABLE>
<PAGE> 215
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
GENERAL INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
Aircraft Type: F-70 Time as of SEPT 7, 1997 Date Manufactured MAR. 8, '96
Serial No. 11569 Total Time (Hours) 2968 Availability
Registration No.: HA-LMC Total Cycles 2070
</TABLE>
WEIGHTS
<TABLE>
<CAPTION>
<S> <C>
Maximum Take Off Gross Weight 36,740 KGS Maximum Taxi Weight 36,965 KGS
Maximum Landing Weight 34,020 KGS Maximum Payload
Maximum Zero Fuel Weight 31,975 KGS Fuel Capacity (U.S. Gal.) 2531 GALLONS
</TABLE>
AIRFRAME STATUS
<TABLE>
<CAPTION>
<S> <C>
Remaining to "C" Check 3,451 HRS "D" Check is not determine yet for Malev's fleet
Last "C" Check Completed at 2419 HRS (APRIL '97) "C" Check Interval 4,000 HRS ("C1", "C2")
</TABLE>
ENGINES
<TABLE>
<CAPTION>
<S> <C> <C>
Manufacturer ROLLS ROYCE Model TAY MK620-16 Thrust Rating 13,850 LBS
Position No. 1 S/N 17153 No. 2 S/N 17152
Total Hours 2979 2979
Total Cycles 2074 2074
Time Since Last Shop Visit 2979 2979
Cycles Remaining to 1st LLP 17926 17926
</TABLE>
AVIONICS/COMMUNICATIONS EQUIPMENT
<TABLE>
<CAPTION>
<S> <C>
(2) Flight Control Computer COLLINS 622-7476-502 (1) Weather Radar ALLIED SIGNAL 204-1217-0418
(1) Flight AUG Computer COLLINS 622-7478-501 (2) ATC Transponder ALLIED SIGNAL 068-01127-1101
(2) VOR/Marker Beacon Receiver (2) DME Interrogator ALLIED SIGNAL 204-1167-3707
ALLIED SIGNAL 204-1231-3614 (2) Radio Altimeter THOMSON-CSF 9599-604-14941
(1) ADF Receiver ALLIED SIGNAL 204-1168-7513 (1) Ground Prox. Warning HONEYWELL 966-0676-020
(2) VHF Trans. ALLIED SIGNAL 204-1237-4429 (1) Voice Recorder SUNSTRAND 980-6022-001
(2) VHF/ILS only Receiver (1) Flight Data Recorder ALLIED SIGNAL 960-4700-003
ALLIED SIGNAL 204-1230-3527 (2) Flight management Computer HONEYWELL
(1) HF Transceiver COLLINS 622-5272-001
(2) Inertial Ref. Unit HONEYWELL HG20018C02
PROVISIONS FOR TCAS
</TABLE>
INTERIOR
<TABLE>
<CAPTION>
<S> <C> <C>
Seat Manufacturer FEEL Model(s) 990-MA111
First Class 0 Business Class 0 Tourist 75
Galleys: Number G1, G2 Make DRIESSEN Lavatories: Fwd. 0 Aft. 1 LH, 1 RH (FLUSH)
</TABLE>
<PAGE> 216
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
<TABLE>
<S> <C> <C>
GENERAL INFORMATION
Aircraft Type: MD-82 Time as of: MAY 31, 1997 Date Manufactured: MARCH 1989
Serial No.: 49825 Total Time (Hours): 25103 Availability
Registration N94OAS Total Cycles: 15963
WEIGHTS
Maximum Take Off Gross Weight: 149,500 LBS Manufacturers Empty Weight: 77,526 LBS
Maximum Landing Weight: 130,000 LBS Maximum Taxi Weight: 155,000 LBS
Maximum Zero Fuel Weight: 120,000 LBS Fuel Capacity (U.S. Gal.): 5,800
AIRFRAME STATUS
Time Remaining to "X" Check (15,000 Hrs) 4480 HRS Time Remaining to "C" Check 273 DAYS
Time Remaining to "K" Check (30,000 Hrs) 4896 HRS
ENGINES
Manufacturer: PRATT & WHITNEY Model: JT8D-217C Thrust Rating: 20,000 LBS
Position No. 1 S/N 718219 No. 2 S/N 718227
Total Hours 20569 22304
Total Cycles 12692 14128
Cycles remaining to 1st LLP 5370 4250
AVIONICS/COMMUNICATIONS EQUIPMENT
(2) Autopilot: HONEYWELL 4D34241-971 (1) Flight Data Recorder: SUNDSTRAND 980-4100-DXUS
(2) Weather Radar: HONEYWELL MI585305-D84 (1) ATC Transponder: COLLINS 622-22274-001
(2) VOR/ILS Receiver COLLINS 622-3255-001 (2) DME Interrogator: BENDIX 058-1093-00
(2) ADF Receiver: COLLINS 622-5222-001 (2) Radio Altimeter: COLLINS 622-3890-014
(1) Marker Beacon: COLLINS 522-2996-011 (1) Ground Prox. Warning: SUNDSTRAND 980-6005-076
(2) VHF Transceiver: COLLINS 622-1396-101 (1) Voice Recorder: LORAL 93A100-82
(1) Selcal Decoder: MOTOROLA NA13358
INTERIOR
Seat Manufacturer: JEPSON BURNS Model(s)
First Class: 10 Business Class: N/A Tourist: 125
Galleys: G1/G2/G3/G3A/G4 Make: Driessen Lavatories: Fwd. 1 FLUSH Aft. 2 FLUSH
</TABLE>
<PAGE> 217
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
<TABLE>
<S> <C> <C>
GENERAL INFORMATION
Aircraft Type: MD-83 Time as of: JULY 31, 1997 Date Manufactured: DECEMBER 1986
Serial Number: 49622 Total Time (Hours): 18,631 Availability
Registration Number: F-GMEB Total Cycles: 10,585
WEIGHTS
Maximum Take Off Gross Weight: 160,000 LBS Operating Empty Weight: 85,637 LBS
Maximum Landing Weight: 158,000 LBS Maximum Taxi Weight: 161,000 LBS
Maximum Zero Fuel Weight: 122,000 LBS Fuel Capacity (U.S. Gal.): 5,809
AIRFRAME STATUS
Date of Last "C" Check DECEMBER 1996 Anticipated Date of Next "D" Check DECEMBER 1998
ENGINES
Manufacturer: PRATT & WHITNEY Type: JT80-219
Position No. 1 S/N 718184 No. 2 S/N 718185
Total Hours: 18029 17266
Total Cycles: 9657 9868
Cycles Remaining to 1st LLP 2343 1435
AVIONICS/COMMUNICATIONS EQUIPMENT
(2) Flt Guidance Comp: SPERRY 4034241-930 (1) Weather Radar: COLLINS 622-5132-101
(2) HF Transceiver: COLLINS 622-3371-001 (2) ATC Transponder: COLLINS 622-2224-001
(2) VHF Transceiver: COLLINS 622-1181-006 (2) ADF Receiver: COLLINS 622-5222-001
(1) Voice Recorder: SUNDSTRAND 980-8005-076 (1) Ground Prox. Warning: SUNDSTRAND 985-0476-086
(1) Selcal Decoder: MOTOROLA N13358 (2) DME Interrogator: COLLINS 622-2921-001
(1) Flight Data Recorder: SUNDSTRAND 980-4100-DXUS (2) VOR/ILS Receiver: COLLINS 622-3255-001
(2) Radio Altimeter: COLLINS 622-3890-014 (1) Marker Beacon: COLLINS 522-2896-011
INTERIOR
Seat Manufacturer: JEPSON BURNS Model (s)
First Class: N/A Business Class: N/A Tourist: 159
Galleys: G1/G2/G3A/G4 MAKE: NORDSKOG Lavatories: Fwd. 1 FLUSH Aft. 2 FLUSH
</TABLE>
<PAGE> 218
International Lease Finance Corporation
1999 Avenue of the Stars, 39th Floor
Los Angeles, CA 90067
AIRCRAFT SPECIFICATIONS
GENERAL INFORMATION
<TABLE>
<S> <C> <C>
Aircraft Type: MD-83 Time as of: OCTOBER 17, 1997 Date Manufactured: MARCH 1989
Serial Number: 49824 Total Time (Hours): 22073 Availability
Registration Number: N94200 Total Cycles: 16941
</TABLE>
WEIGHTS
<TABLE>
<S> <C>
Maximum Take Off Gross Weight: 160,000 LBS Operating Empty Weight: 86,659 LBS
Maximum Landing Weight: 150,000 LBS Maximum Taxi Weight: 161,000 LBS
Maximum Zero Fuel Weight: 122,000 LBS Fuel Capacity (U.S. Gal.): 5,846
AIRFRAME STATUS
Last "C" Check: DECEMBER 1996 AT 19271 HRS Last "D" Check: DECEMBER 1996
Next "C" Check: DECEMBER 1997 AT 22771 HRS Next "D" Check: DECEMBER 2002
ENGINES
Manufacturer PRATT & WHITNEY Model JTBO-218
Thrust Rating: 21,800 LBS
Position Number 1: 718204 Position Number 2: 718208
Total Hours: 16174 Total Hours: 14569
Total Cycles: 10956 Total Cycles: 11381
Time Since Last Shop Visit: 2837 HOURS (AUG '96) Time Since Last Shop Visit: 2011 HOURS
Time remaining to 1st LLP: 8244 CYCLES Time remaining to 1st LLP: 4385 CYCLES
</TABLE>
AVIONICS/COMMUNICATIONS EQUIPMENT
<TABLE>
<S> <C>
(2) Auto-Pilot/Flt. Director: SPERRY 4034241-970 (2) Weather Radar: BENDIX 2041217-0414
(1) TCAS: HONEYWELL 406-6010-901/902 (2) ATC Transponder: HONEYWELL 407-1416-809
(2) VOR/ILS Receiver: BENDIX 2041234-3401 (2) DME Interrogator: COLLINS 622-2921-001
(2) ADF Receiver: COLLINS 2041168-7501 (2) Radio Altimeter: COLLINS 622-3890-014
(2) Marker Beacon: COLLINS 2067621-2811 (1) Ground Prox. Warning: SUNSTRAND 985-0476-088
(2) VHF Transceiver: COLLINS 622-1181-006 (1) Voice Recorder: SUNSTRAND 980-6005-076
(2) HF Transceiver: COLLINS 622-3371-001 (1) Flight Data Recorder: SUNSTRAND 980-4100-DXUS
(2) Air Data Comp.: HONEYWELL HG280D80 (1) Selcal Decoder: MOTOROLA N1335A
</TABLE>
INTERIOR
<TABLE>
<S> <C>
Seat Manufacturer: BURNS Model(s)
First Class: 12 Business Class: N/A Tourist: 118
Galleys: G1, G2, G3, G4, G48, G5 Lavatories: 3 TOTAL (1) Fwd. (2) Aft.
</TABLE>
<PAGE> 219
EXHIBIT B
ADJUSTMENT REPORT
1. AIRCRAFT CONDITION
DESCRIPTION OF AIRCRAFT/ENGINES
CONDITION OF AIRCRAFT
Airframe total hours
Airframe total landings
hours/cycles since last "C" check
hours/cycles since last "structural" check
CONDITION OF ENGINES
total hrs/cycles
cycles since last shop visit
time remaining to next life limiting part removal
CONDITION OF APU
CONDITION OF LANDING GEAR
2. LEASE TERMS
Lessee..................................................................
Lease term..............................................................
Security Deposit........................................................
Rent....................................................................
Reserves................................................................
Airframe...........................................................
Engines............................................................
Additional Rent.........................................................
Letter of Credit/Guarantee..............................................
Country of Registration.................................................
Maintenance program.....................................................
Maintenance Performer...................................................
Insurance...............................................................
Purchase Option.........................................................
Termination Option......................................................
Extension Option........................................................
3. OTHER ADJUSTMENT ITEMS..................................................
4. PURCHASE PRICE ADJUSTMENT...............................................
B-1
<PAGE> 220
EXHIBIT C
FORM OF LEGAL OPINION TO BE DELIVERED BY CORPORATE COUNSEL OF SELLER PURSUANT
TO SECTION 9.02(d)
Morgan Stanley Aircraft Finance
c/o KPMG Corporate Finance
Russell Court
St. Stephen's Green
Dublin 2
Ireland
Gentlemen:
This opinion is furnished to you pursuant to Section 9.02(d) of that
certain Asset Purchase Agreement, dated as of November 10, 1997 (the "ASSET
PURCHASE AGREEMENT"), entered into between International Lease Finance
Corporation ("SELLER" or "ILFC") and Morgan Stanley Aircraft Finance, a
statutory trust established under the laws of the State of Delaware ("BUYER").
Any and all initially capitalized terms used herein shall have the meanings
ascribed thereto in the Asset Purchase Agreement, unless otherwise specifically
defined herein.
In rendering this opinion, I have examined each of the following documents:
(A) a __________ of the Asset Purchase Agreement;
(B) the Restated Articles of Incorporation and the By-laws of Seller and
Aircraft SPC-5, Inc. ("SPC-5"), each as in effect on the date hereof;
(C) such other documents as I have deemed necessary or appropriate as a
basis for the opinions hereafter expressed.
I have examined such questions of law as I have considered necessary or
appropriate for the purposes of this opinion. This Opinion Letter is governed by
and will be interpreted in accordance with the Legal Opinion Accord ("ACCORD")
of the American Bar Association Section of Business Law (1991). As a
consequence, it is subject to a number of qualifications, exceptions,
definitions, limitations on coverage and other limitations, all as more
particularly described in the Accord, and this Opinion Letter should be read in
conjunction therewith. This Opinion Letter is also governed by and will be
interpreted in accordance with the
C-1
<PAGE> 221
"California Provisions" and the "California Generic Exception" as defined in the
California Business Law Section Supplement to the Accord, and this Opinion
letter should be read in conjunction therewith.
Based upon and subject to the foregoing, I am of the opinion that:
1. Each of ILFC and SPC-5 is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and each
has all corporate powers and all governmental licenses, authorizations, permits,
consents and approvals required to carry on its business as now conducted other
than (a) such licenses, authorizations, permits consents and approvals, the
absence of which would not have a material adverse effect on any Aircraft and
(b) such matters as are set forth in Schedule 3.01 of the Asset Purchase
Agreement.
2. The execution and delivery by Seller of the Asset Purchase Agreement,
and the performance by Seller of its obligations under the Asset Purchase
Agreement, (a) are within the corporate powers of ILFC, (b) have been duly
authorized by all necessary corporate action on the part of ILFC, (c) do not and
will not contravene or conflict with any provision of (i) law, rule or
regulation, (ii) any judgment, injunction, decree or order to which ILFC or
SPC-5 is a party or by which ILFC or SPC-5 is bound, (iii) the articles of
incorporation or by-laws of ILFC or SPC-5, or contravene or result in any breach
of, constitute a default under, give rise to any right of termination,
cancellation or acceleration of any right or obligation or to the loss of any
benefit relating to the Purchased Assets to which ILFC or SPC-5 is entitled, or
result in the creation of any lien upon the property of ILFC or SPC-5 (including
any Purchased Assets) under any indenture, mortgage, chattel mortgage, deed of
trust, conditional sales contract, lease or other agreement or instrument to
which ILFC or SPC-5 is a party or by which IFLC or SPC-5 is bound.
3. There are no proceedings pending or, to the best of my knowledge after
due inquiry, threatened against ILFC or affecting any Purchased Asset before any
court, governmental agency or arbitrator or which purport to affect the
legality, validity, binding effect or enforceability of the Asset Purchase
Agreement.
4. ILFC is not in violation of, has not violated, has not given notice of
any violation of, and, to the best of my knowledge after due inquiry, has not
been threatened to be charged with any violation of, any California or United
States Federal law, rule, regulation, judgment, injunction, order or decree
applicable to the Purchased Assets.
C-2
<PAGE> 222
<PAGE> 223
5. The execution, delivery and performance by Seller of the Asset Purchase
Agreement and the consummation of the transactions contemplated thereby require
no action by or in respect of or filing with, any governmental body, agency, or
official other than compliance with the matters set forth in Schedule 3.03 of
the Asset Purchase Agreement.
6. The authorized capital stock of SPC-5 consists of 1,000 shares of
common stock, of which 100 shares are outstanding. Such outstanding shares have
been duly authorized and validly issued and are fully paid and non-assessable
and Seller has valid title thereto. Seller has good and marketable title to the
Aircraft, other than the Boeing 767-300 Aircraft MSN 24798 to which SPC-5 has
good and marketable title, in each case free and clear of all Liens created by
Seller or SPC-5, as applicable. Seller is the sole legal and beneficial owner of
the lessor's interest under the Lease Documents related to the Aircraft being
delivered.
No opinion is expressed herein as to the legality, validity or binding
nature (whether in accordance with its terms or otherwise) of the following
provisions: (i) that rights or remedies are not exclusive, (ii) that every right
or remedy is cumulative and may be exercised in addition to any other right or
remedy, (iii) that the election of a particular remedy does not preclude
recourse to one or more other remedies, or (iv) that failure to exercise or
delay in exercising rights or remedies will not operate as a waiver of any such
right or remedy.
I am a member of the bar of the State of California, and the foregoing
opinion is limited to the law of the State of California and the federal law of
the United States of America (but not tax or securities law).
The opinions expressed herein are solely for the benefit of Buyer in
connection with the transactions contemplated by the Asset Purchase Agreement.
This Opinion Letter may not be relied upon in any manner or for any purpose by
any other person or entity. ILFC does not assume any obligation to provide you
with additional information that may come to its attention after the date
hereof. Your recourse, if any, on account of any opinion herein proving
inaccurate, shall be against ILFC. I am rendering this opinion in my capacity as
Corporate Counsel and not individually.
Very truly yours,
C-3
<PAGE> 224
EXHIBIT D
Morgan Stanley Aircraft Finance
c/o KPMG Corporate Finance
Russell Court
St. Stephen's Green
Dublin 2
Ireland
Re: ASSET PURCHASE AGREEMENT DATED AS OF NOVEMBER 10, 1997
Ladies and Gentlemen:
We have acted as special New York counsel to International Lease Finance
Corporation, a California corporation (the "COMPANY"), in connection with the
transfer of certain aircraft and related assets from the Company to Morgan
Stanley Aircraft Finance, a Delaware business trust (the "BUYER"), pursuant to
that certain Asset Purchase Agreement dated as of November 10, 1997 (the
"PURCHASE AGREEMENT"), between the Company and the Buyer. We are providing this
opinion to you at the request of the Company pursuant to Section 9.02(x) of the
Purchase Agreement. Except as otherwise indicated, capitalized terms used in
this opinion and defined in the Purchase Agreement will have the meanings given
such terms in the Purchase Agreement.
For the purposes of this opinion, we have reviewed only the following
documents (collectively, the "DOCUMENTS") and made no other investigation or
inquiry:
(1) the Purchase Agreement; and
(2) that certain Servicing Agreement dated as of November 10, 1997 (the
"SERVICING AGREEMENT"), between the Company and Buyer.
As to relevant factual matters, we have relied upon the representations
made in the Documents. We have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
with originals of all documents submitted to us as copies. We have, with your
consent, also assumed the following:
D-1
<PAGE> 225
a. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of California. The
Company has the corporate power and authority to own its properties
and conduct its business as now being and heretofore conducted. The
Company has the corporate power and authority to enter into and carry
out the provisions of the Purchase Agreement and the Servicing
Agreement.
b. Each party to each of the Documents has duly authorized, executed and
delivered such Document, in its own respective capacity.
c. Each of the Purchase Agreement and the Servicing Agreement constitutes
the legally valid and binding obligation of each party thereto other
than the Company, enforceable against such parties in accordance with
its terms.
d. The parties to each of the Documents have taken all action they are
required to take under the Documents.
e. None of the execution, delivery or performance by the Company of its
obligations under the Purchase Agreement or the Servicing Agreement,
will conflict with or result in a violation of the Company's Articles
of Incorporation or By-Laws.
On the basis of such examination, our reliance upon the assumptions in this
opinion and our considerations of those questions of law we considered relevant,
and subject to the limitations and qualifications of this opinion, we are of the
opinion that: each of the Purchase Agreement and the Servicing Agreement
constitutes the legally valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or affecting creditors' rights generally (including, without limitation,
fraudulent conveyance laws) and by general principles of equity, regardless of
whether considered in a proceeding in equity or at law.
Our opinions herein are subject to:
(i) public policy considerations, statutes or court decisions that
may limit the rights or a party to obtain indemnification against its own
gross negligence, willful misconduct or unlawful conduct; and
D-2
<PAGE> 226
(ii) the unenforceability under certain circumstances of broadly or
vaguely stated waivers or waivers of rights granted by law where the
waivers are against public policy or prohibited by law.
The law covered by this opinion is limited to the present law of the State
of New York. We express no opinion as to the laws of any other jurisdiction and
no opinion regarding the statutes, administrative decisions, rules, regulations
or requirements of any county, municipality, subdivision or local authority of
any jurisdiction.
We advise you that the provisions of the Documents which provide for
non-exclusive jurisdiction of the courts of the State of New York and federal
courts sitting in such state, may not be binding on the courts in the forum(s)
selected or excluded.
This opinion is furnished by us as special New York counsel to the Company
and may be relied upon by you only in connection with the transactions
contemplated by the Purchase Agreement and the Servicing Agreement. It may not
be used or relied upon by you for any other purpose or by any other person, nor
may copies be delivered to any other person, without in each instance our prior
written consent.
Respectfully submitted,
D-3
<PAGE> 1
EXHIBIT 23.2
AIRCRAFT INFORMATION SERVICES, INC.
CONSENT OF APPRAISER
We consent to the use of our reports included herein and the references to our
firm in the Morgan Stanley Aircraft Finance Amendment No. 2 to Registration
Statement on Form S-4 (file no. 333-56575) to be filed with the Securities and
Exchange Commission.
Dated: October 30, 1998
AIRCRAFT INFORMATION SERVICES, INC.
BY: /s/ Fred Bearden
-----------------------------------
Name: Fred Bearden
Title: President
<PAGE> 1
EXHIBIT 23.3
BK ASSOCIATES, INC.
CONSENT OF APPRAISER
We consent to the use of our reports dated December 1997 and addressed to
Morgan Stanley Aircraft Finance included herein and to the references to our
firm in the Morgan Stanley Aircraft Finance Amendment No 2 to Registration
Statement on Form S-4 (file no. 333-56575) to be filed with the Securities and
Exchange Commission.
Dated: October 30, 1998
BK ASSOCIATES, INC.
BY: /s/ R.L. Britton
------------------------------
Name: R.L. Britton
Title: Vice President
<PAGE> 1
EXHIBIT 23.4
AIRCLAIMS LIMITED
CONSENT OF APPRAISER
We consent to the use of our reports included herein and to the references to
our firm in the Morgan Stanley Aircraft Finance Amendment No. 2 to Registration
Statement on Form S-4 (file no. 333-56575) to be filed with the Securities and
Exchange Commission.
Dated October 30, 1998
AIRCLAIMS LIMITED
BY: /s/ L.D. Weal
---------------------------
Name: L.D. Weal
Title: Chief Analyst
<PAGE> 1
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement
No. 333-56575 of Morgan Stanley Aircraft Finance and Subsidiaries of our report
dated September 25, 1998 appearing in the Prospectus, which is a part of such
Registration Statement, and to the reference to us under the headings "Selected
Consolidated Financial Data" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
New York, New York
October 30, 1998