SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
February 12, 1999
(Date of Earliest Event Reported)
MORGAN STANLEY AIRCRAFT FINANCE
(Exact Name of Registrant as Specified in Trust Agreement)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
333-56575 13-3375162
(Commission File (IRS Employer
Number) Identification No.)
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, Including Area Code, of
Registrant's Principal Executive Office)
Item 5. Other Events
Attached hereto as Exhibit A is a copy of a Monthly Report to
Noteholders dated February 12, 1999 sent to each holder of Notes due March 15,
2023 of Morgan Stanley Aircraft Finance. Attached hereto as Exhibit B is
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the period March 3, 1998 through November 16, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
MORGAN STANLEY AIRCRAFT FINANCE
Date: February 12, 1999 By: /s/ Alexander Frank
---------------------------
Signatory Trustee
EXHIBIT INDEX
Exhibit A - Report to Noteholders
Exhibit B - Management's Discussion and Analysis of Financial Condition and
Results of Operations for the period March 3, 1998 through
November 16, 1998.
MORGAN STANLEY AIRCRAFT FINANCE
Report to Noteholders
All Amounts in US dollars unless otherwise stated
Payment Date 15th of each month
Convention Modified Following Business Day
Current Payment Date 16-Feb-99
Current Calculation Date 9-Feb-99
Previous Payment Date 15-Jan-99
Previous Calculation Date 11-Jan-99
- ------------------------------------------------------------------------------
1. Account Activity Summary between Calculation Dates
<TABLE>
- --------------------------------------------------------------------------------------------
Prior Deposits Withdrawals Balance on
Balance Calculation Date
11-Jan-99 9-Feb-99
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Expense Account 3,044,200.45 1,766,136.09 (2,234,714.43) 2,575,622.11
Collection Account 9,914,254.89 10,417,007.65 (9,914,254.87) 10,417,007.67
Aircraft Purchase Account - - - -
Liquidity Reserve cash balance 25,000,000.00 - - 25,000,000.00
- --------------------------------------------------------------------------------------------
Total 37,958,455.34 12,183,143.74 (12,148,969.30) 37,992,629.78
- --------------------------------------------------------------------------------------------
</TABLE>
2. Analysis of Expenses Account Activity
<TABLE>
- --------------------------------------------------------------------------------------------
<S> <C>
Opening Balance on Previous Calculation Date 3,044,200.45
Transfer from Collection Account on previous Payment Date 1,352,275.69
Permitted Aircraft Accrual 400,000.00
Interim Transfer from Collection Account -
Interest Income 13,860.40
Balance on current Calculation Date
- Payments on previous payment date (767,392.78)
- Interim payments (1,456,634.66)
- other (10,686.99)
- --------------------------------------------------------------------------------------------
Balance on current Calculation Date 2,575,622.11
- --------------------------------------------------------------------------------------------
</TABLE>
3. Analysis of Collection Account Activity
<TABLE>
- --------------------------------------------------------------------------------------------
<S> <C>
Opening Balance on Previous Calculation Date 9,914,254.89
Collections during period
- lease rentals 8,032,349.00
- maintenance reserves 1,102,495.00
- other leasing income 1,137,522.00
- interest income 133,954.66
- interim transfer from Expense A/C 10,686.99
Transfers from Aircraft Purchase Account -
Drawings under Credit or Liquidity Enhancement Facilities -
Repayment of Drawings under Credit or Liquidity Enhancement Facilities -
Transfer to Expense Account on previous Payment Date
- Required Expense Amount (1,352,275.69)
- Permitted Aircraft Modifications (400,000.00)
Net Swap payments on previous Payment Date (388,551.22)
Aggregate Note Payments on previous Payment Date (7,773,427.96)
Interim Transfer to Expense Account -
- --------------------------------------------------------------------------------------------
Balance on current Calculation Date 10,417,007.67
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Analysis of Liquidity Reserve Amount
<S> <C> <C>
First Collection Account Reserve 15,000,000.00
Second Collection Account Reserve 10,000,000.00
Morgan Stanley Facility 10,000,000.00
ILFC Facility
- Letter of Credit 10,000,000.00
- Cash Security Deposits 20,401,351.00 30,401,351.00
---------------
Liquidity Reserve Amount 65,401,351.00
---------------
Minimum Liquidity Reserve Amount 15,000,000.00
- --------------------------------------------------------------------------------------------
</TABLE>
MORGAN STANLEY AIRCRAFT FINANCE
Report to Noteholders
All Amounts in US dollars unless otherwise stated
Current Payment Date 15-Jan-99
Current Calculation Date 11-Jan-99
Previous Payment Date 15-Dec-98
Previous Calculation Date 9-Dec-98
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Balance in Collection Account 10,417,007.67
Liquidity Reserve Amount 65,401,351.00
==================
Available Collections 75,818,358.67
==================
</TABLE>
3. Analysis of Collection Account Activity (Continued)
- -------------------------------------------------------------------------------
<TABLE>
Analysis of Current Payment Date Distributions
<S> <C> <C> <C>
(I) Required Expense Amount 1,879,025.37
(II) a) Class A Interest but excluding Step-up 3,158,571.01
b) Swap Payments other than subordinated swap payments 786,381.94
(iii) a) Repayment of Primary Eligible Credit Facilities -
b) First Collection Account top-up (Minimum liquidity reserve $15 m) 15,000,000.00
(iv) Class A Minimum principal payment -
(v) Class B Interest 478,324.30
(vi) Class B Minimum principal payment 311,861.74
(vii) Class C Interest 580,555.56
(viii) Class C Minimum principal payment -
(ix) Class D Interest 803,611.11
(x) Class D Minimum principal payment -
(xi) a) Secondary Eligible Credit Facilities (ILFC and Morgan Stanley Facilities) -
b) Second collection account top-up 50,401,351.00
(xii) Class A Scheduled principal -
(xiii) Class B Scheduled principal -
(xiv) Class C Scheduled principal -
(xv) Class D Scheduled principal -
(xvi) Permitted accruals for Modifications 400,000.00
(xvii) Step-up interest -
(xviii) Beneficial interest -
(xix) Class A Supplemental principal 2,018,676.65
(xx) Class B Supplemental principal -
(xxi) Class D Redemption Price -
(xxii) Class C Redemption Price -
(xxiii) Class B Redemption Price -
(xxiv) Class A Redemption Price -
(xxv) Subordinated Swap payments -
(xxvi) all remaining amounts to holders of Beneficial interests
Total Payments with respect to Payment Date 75,818,358.67
less collection Account Top Ups (iii) (b) and (xi) (b) above 65,401,351.00
==================
10,417,007.67
==================
</TABLE>
- --------------------------------------------------------------------------------
MORGAN STANLEY AIRCRAFT FINANCE
Report to Noteholders
All Amounts in US dollars unless otherwise stated
Current Payment Date 16-Feb-99
Current Calculation Date 9-Feb-99
Previous Payment Date 15-Jan-99
Previous Calculation Date 11-Jan-99
- --------------------------------------------------------------------------------
4. Payments on the Notes by Subclass
<TABLE>
- ----------------------------------------------------------------------------------------
Subclass Subclass Subclass
(a) Floating Rate Notes A-1 A-2 B-1
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Applicable LIBOR 5.00000% 5.00000% 5.00000%
Applicable Margin 0.2725% 0.4125% 0.7125%
Applicable Interest Rate** 5.27250% 5.41250% 5.71250%
Day Count Act/360 Act/360 Act/360
Actual Number of Days 32 32 32
Interest Amount Payable 1,874,666.67 1,283,904.34 478,324.30
Step-up Interest Amount Payable - NA NA
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Total Interest Paid 1,874,666.67 1,283,904.34 478,324.30
- ----------------------------------------------------------------------------------------
Expected Final Payment Date 15-Mar-00 15-Sep-05 15-Mar-13
Excess Amortisation Date 15-Mar-00 15-Apr-98 15-Apr-98
- ----------------------------------------------------------------------------------------
Original Balance 400,000,000.00 340,000,000.00 100,000,000.00
Opening Outstanding Principal Balance 400,000,000.00 266,862,334.36 94,199,533.06
- ----------------------------------------------------------------------------------------
Extended Pool Factors 100.00% 92.22% 100.00%
expected Pool Factors 100.00% 87.77% 96.39%
- ----------------------------------------------------------------------------------------
Extension Amount - - -
expected Pool Factor Amount - - -
Surplus Amortisation - 2,018,676.65 311,861.74
- ----------------------------------------------------------------------------------------
Total Principal Distribution Amount - 2,018,676.65 311,861.74
- ----------------------------------------------------------------------------------------
Redemption Amount
- - amount allocable to principal
- - amount allocable to premium
- ----------------------------------------------------------------------------------------
Closing Outstanding Principal Balance 400,000,000.00 264,843,657.71 93,887,671.32
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- ------------------------------------------------------------------------
(b) Fixed Rate Notes C-1 D-1
- ------------------------------------------------------------------------
<S> <C> <C>
Applicable Interest Rate** 6.97% 8.77%
Day count 30 / 360 30 / 360
Number of Days 30 30
Interest Amount Payable 580,555.56 803,611.11
- ------------------------------------------------------------------------
Total Interest Paid 580,555.56 803,611.11
- ------------------------------------------------------------------------
Expected Final Payment Date 15-Mar-13 15-Mar-14
Excess Amortisation Date 15-Mar-13 15-Mar-10
Opening Outstanding Principal Balance 100,000,000.00 110,000,000.00
- ------------------------------------------------------------------------
Extended Pool Factors 100.00% 100.00%
expected Pool Factors 100.00% 100.00%
- ------------------------------------------------------------------------
Extended Amount - -
expected Pool Factor amount - -
- ---------------------------
- ------------------------------------------------------------------------
Total Principal Distribution Amount - -
- ------------------------------------------------------------------------
Redemption Amount - -
- - amount allocable to principal - -
- - amount allocable to premium - -
- ------------------------------------------------------------------------
Closing Outstanding Principal Balance 100,000,000.00 110,000,000.00
- ------------------------------------------------------------------------
</TABLE>
- -----------
** The Exchange Offer was not consummated on or prior to Nov 30,1998.Therefore
pursuant to the Registration Rights Agreement, the interest rate borne by
each subclass of Notes has been increased by 0.50% per annum over the rate
otherwise applicable to such subclass from and after Nov 30,1998 to January
18th,1999 , the date of consummation of the Exchange Offer.
MORGAN STANLEY AIRCRAFT FINANCE
Report to Noteholders
All Amounts in US dollars unless otherwise stated
Current Payment Date 16-Feb-99
Current Calculation Date 9-Feb-99
Previous Payment Date 15-Jan-99
Previous Calculation Date 11-Jan-99
- --------------------------------------------------------------------------------
5. Floating Rate Note information for next Interest Accrual Period
Start of Interest Accrual Period 16-Feb-99
End of Interest Accrual Period 16-Mar-99
Reference Date 12-Feb-99
<TABLE>
- --------------------------------------------------------------------------------------------------
A-1 A-2 B-1
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Applicable LIBOR 4.93563% 4.93563% 4.93563%
Applicable Margin 0.2100% 0.3500% 0.6500%
Applicable Interest Rate 5.14563% 5.2856% 5.5856%
Actual Pool Factor 100.00% 77.90% 93.89%
- --------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Fixed Rate Notes C-1 D-1
- ----------------------------------------------------------------------------------
Actual Pool Factor 100.00% 100.00%
- ----------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6. Payments per $ 100,000 Inital Outstanding Principal Balance of Notes
<TABLE>
- --------------------------------------------------------------------------------------------------
(a) Floating Rate Notes A-1 A-2 B-1
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Opening Outstanding Principal Balance 100,000.00 78,488.92 94,199.53
Total Principal Payments - 593.73 311.86
Closing Outstanding Principal Balance 100,000.00 77,895.19 93,887.67
Total Interest 468.67 377.62 478.32
Total Premium - - -
- --------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
(b) Fixed Rate Notes C-1 D-1
- ----------------------------------------------------------------------------------
Opening Outstanding Principal Balance 100,000.00 100,000.00
Total Principal Payments - -
Closing Outstanding Principal Balance 100,000.00 100,000.00
Total Interest 580.56 730.56
Total Premium - -
- ----------------------------------------------------------------------------------
</TABLE>
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 November 16, 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 $1,058.1 million at November 16, 1998. The value of
the portfolio according to the most recent appraisal at September 30, 1998
was $1,029.4 million. See "Aircraft Values" below. As of February 1,
1999, 31 aircraft plus the engine were subject to leases with 28 lessees in
18 countries as shown in Schedule A attached and one aircraft was available
for lease.
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 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 report presents information for the period from and including
March 3, 1998 to and including the Note Payment Date on November 16, 1998.
The financial data includes payments made by MSAF on November 16, 1998 but
only includes receipts up to November 9, 1998 which was the calculation
date for the Note Payment date on November 16, 1998.
Cashflow Performance Relative to the Assumptions
The February 20, 1998 Offering Memorandum (the "Offering
Memorandum") contains assumptions in respect of MSAF's future cashflows and
cash expenses (the "Assumptions"). In the period from March 3, 1998 to
November 16, 1998, MSAF generated approximately $10.9 million in net cash
collections in excess of the Assumptions, principally due to higher than
expected net maintenance revenues.
Cash Collections
"Cash Collections" comprise lease rental payments, maintenance
reserve payments by lessees and cash interest paid on MSAF's cash balances.
The Offering Memorandum assumed Cash Collections for the period from March
3, 1998 to November 16, 1998 of $90.9 million. Total Cash Collections
achieved in this period were $102.4 million, a positive difference of $11.5
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 November 16, 1998 amounted to
$87.5 million or approximately $6.6 million less than the $94.2 million
assumed in the Offering Memorandum. The variance is due to lessee rental
arrears of $3.3 million, and a further $3.3 million primarily related to
outstanding restructured payments, bad debts and lost revenue due to
aircraft on ground. See "Developments - Lessee Difficulties" below.
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 November
16, 1998 amounted to an inflow of $0.6 million, compared to a cost of $4.3
million in assumed stress related costs for this period. The inflow of
$0.6 million reflects the application of security deposits of $1.6 million
partially offset by repossession costs of $1.0 million. The repossession
costs incurred relate to four aircraft which were repossessed since March
3, 1998. As of November 16, 1998, all four aircraft were subject to signed
lease agreements with new lessees. The costs were almost entirely in
respect of maintenance work required to restore the 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 March 3, 1998 to November 16, 1998, assumed Net Lease Rentals
were $89.9 million. Actual Net Lease Rentals for the period were $88.0
million, $1.9 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. It is
likely that net lease rentals will decrease significantly in Financial Year
("FY") 1999 due to potential lessee defaults and lessee arrears. See
"Developments - Lessee Difficulties" below.
Maintenance receipts. In the period from March 3, 1998 to November
16, 1998, maintenance receipts were $11.4 million, exceeding maintenance
disbursements of $3.1 million by $8.1 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 November 16, 1998 was $2.0 million compared to $1.0
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
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 for the period was approximately 5.41%.
Other cash received. Other cash received for the period from March
3, 1998 to November 16, 1998 was approximately $1.0 million or $1.0 million
more than assumed in the Offering Memorandum. Other cash received consists
primarily of a fee paid to MSAF in respect of the early termination of a
lease and default interest and late charges.
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 $3.3
million for the period from March 3, 1998 to November 16, 1998. Total cash
expenses paid in this period were approximately $5.5 million, a negative
variance of $2.2 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 November 16, 1998 were approximately $3.1 million and were exceeded
by maintenance receipts of $11.4 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. It is likely that maintenance disbursements will
increase due to anticipated engine overhauls and re-leasing expenses which
we originally expected to incur in FY 1998 but which we now expect to incur
in FY 1999. There is approximately $1.4 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 $1.2 million from March 3, 1998 to
November 16, 1998, which was $2.1 million less than the assumed costs of
$3.3 million for the period.
Increase in Accrued Expenses. $1.2 million of accrued expenses was
transferred to the expense account and are expected to be payable in FY
1999. This $1.2 million represents an increase in accrued expenses from
$1.2 million at March 3, 1998 to $2.4 million. Approximately $1.4 million
of the $2.4 million relates to accrued maintenance expenses while the
remaining $1.0 million relates to accrued insurance, re-leasing and other
costs. The Offering Memorandum assumes there are no accrued expenses.
Selling, General and Administrative
Servicer fees. Fees paid to ILFC, as Servicer, during the period
from March 3, 1998 to November 16, 1998 amounted to $2.6 million, which is
$0.6 million lower than the assumed cost of $3.2 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.
Other service provider fees and overhead. Other service provider
fees and overhead amounted to $1.4 million for the period from March 3,
1998 to November 16, 1998, $0.9 million below the assumed amount of $2.3
million for the period principally due to a lower than assumed
Administrative Agent's fee because of lower rental revenue caused by rental
arrears.
Exceptional Item. MSAF received an exceptional cash inflow 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.
Note Payments
Interest payments. Actual interest payments to Noteholders net of
swap effects have been $0.3 million higher compared with assumed interest
payments net of swap effects for the period from March 3, 1998 to November
16, 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 November 16, 1998 period were partially offset by
increased swap payments.
Principal payments. Total principal distributions in the period
from March 3, 1998 to November 16, 1998 were $71.1 million, an excess of
$10.6 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 November 16, 1998 was $27.4 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 $2.4 million represents
accrued expenses and is held in the Expense Account. The $2.4 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 November 16, 1998,
the Liquidity Reserve Amount also contained $41.2 million of undrawn credit
and liquidity facilities from Morgan Stanley Dean Witter & Co. and ILFC.
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. 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 $1,058.3 million at November 16, 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, 1998
and the next are due to occur no later than October 31, 1999. A copy of
the most recent Appraisals is attached in Schedule A. The appraised value
of the fleet as at September 30, 1998 was $1,029.4 million versus an
assumed value of $ 1,058,3 million as at November 16, 1998, a negative
variance of 2.8%. As the variance of 2.8% was within the permitted 5%
band, there was no requirement to redirect excess cash flow to the Class A
Notes.
A-D Note Balance
As of November 16, 1998, the aggregate amount of Class A-D Notes
outstanding was $978.9 million, approximately $10.6 million lower than
assumed due to higher than assumed principal repayments with respect to the
Class A-2 Notes.
Developments
Lessee Difficulties
As of February 1, 1999, two lessees were in arrears. The aircraft
on lease to the two lessees in arrears represent approximately 7.2% of the
appraised value of the portfolio at September 30, 1998. The amounts
outstanding and overdue for the two lessees 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 $3.4 million. The weighted average
number of days past due of such arrears was 70.0 days.
Since August 31, 1998, two lessees have been terminated early. The
two early lease terminations were uncontested by the lessees. One of the
two aircraft has been re-leased to a new lessee. The second aircraft is
undergoing maintenance work prior to remarketing.
During the period from March 3, 1998 to November 16, 1998 there
have been difficulties with respect to two Lessees, one in the
Europe/Middle East region and one in Latin America representing
approximately 7.2% of the adjusted appraised value of the portfolio as of
November 16, 1998. The lease rentals of one of the lessees (representing
2.9%of Asset Value) were recently restructured in December 1998 and the
lessee is currently in arrears with respect to the restructured payment
amounts as well as subsequent lease payments.
Europe / Middle East
In light of the severe economic and financial difficulties being
experienced in Russia, the Servicer agreed to terminate the Transaero lease
early and repossess the aircraft. The aircraft represents 3.4% of the
appraised value of the portfolio at September 30, 1998. Arrears owed by
Transaero were restructured as part of the early termination agreement and
are scheduled for repayment in full by April 1999. As of February 1, 1999,
Transaero was in arrears on the restructured arrears payments. The
aircraft has been re-leased to Flying Colours, a UK based charter airline.
MSAF will incur maintenance and modification costs estimated at
approximately $2.1 million as part of the restoration and delivery of this
aircraft to the new lessee.
One lessee in the Europe / Middle East region (representing 4.3% of
the appraised value of the portfolio at September 30, 1998) has
consistently been in arrears. The lease rentals and maintenance reserves
were restructured in March 1998 and the restructured amounts have now been
repaid in full, however, the lessee continues to be in arrears with
subsequent lease payments.
Asia
During the period from March 3, 1998 to November 16, 1998, the
economies of Asia were severely affected by economic and financial
difficulties. Currently, MSAF leases 13.0% of its fleet in the Asia
Pacific Region (5.5% in South Korea, 4.9% in Taiwan and 2.6% in China) and
6.7% in Pacific and Other regions (6.7% in Fiji ) by appraised value of the
portfolio at September 30, 1998. As of November 16, 1998 none of these
lessees were in arrears although severe financial difficulties have been
reported for certain other air carriers in the region. One of the lessees
restructured its lease payments which will result in a lower rental payment
over the remaining lease term.
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 American countries. As of February 1, 1999, MSAF leases 17.5% of
its fleet in Latin America (6.4% in Mexico and 11.1% in Brazil) by
appraised value of the portfolio at September 30, 1998.
In January 1999, Brazil decided to float its currency on the
international currency market which resulted in a devaluation of its
exchange rate and increased exchange rate volatility. One of MSAF's
Brazilian lessees, which accounts for 6.25% of the appraised value of the
portfolio at September 30, 1998, has requested a short-term stay in lease
payments during the current period of exchange rate volatility. The
rentals arrears of a second Brazilian lessee, which accounts for 2.93% of
the appraised value of the portfolio at September 30, 1998, were recently
restructured in December 1998, and the lessee is in arrears with respect to
the restructured payments amounts as well as subsequent lease payments.
In January 1999, the Servicer agreed with Guyana Airways to
terminate the lease early and repossess the aircraft. As part of the
agreement, Guyana has agreed to repay all arrears and costs of redelivery.
The Guyana aircraft is a B757-200 and accounts for 3.3% of the appraised
value of the portfolio at September 30, 1998.
Exchange Offer
MSAF 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 which was
declared effective on Janaury 12, 1999. The Exchange Offer was consummated
on January 18, 1999. MSAF paid an additional coupon of 50 basis points on
each of the subclasses of debt during the period from November 30, 1998 to
January 18, 1999, as required under the terms of the Notes.
Comparison of Expected Year to Date Cashflows versus Prospectus
Figures Reflect Actual Cashflows to November 16th, 1998
<TABLE>
--------------------------------------------------------------------------
Year to Date
% of Prospectus Gross Lease Revenues
- -------------------------------------------------------------------------- ------------------------------------
Period ending 16-Nov-98 Actual Prospectus * Variance Actual Prospectus * Variance
To Date To Date
- -------------------------------------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash Collections
Gross Lease Rentals 87,472,422 94,119,394 (6,646,972) 92.9% 100.0% -7.1%
Repossession and other
Stress Related Costs 554,517 (4,235,373) 4,789,890 0.6% -4.5% 5.1%
----------- ------------------------ ------------------------------------
Net Lease Rentals 88,026,939 89,884,021 (1,857,082) 93.5% 95.5% -2.0%
Maintenance Receipts 11,365,830 11,365,830 12.1% 0.0% 12.1%
Interest Received 2,000,944 980,819 1,020,126 2.1% 1.0% 1.1%
Other Cash Received 958,980 958,980 1.0% 0.0% 1.0%
----------- ------------------------ ------------------------------------
Total Cash Received 102,352,693 90,864,840 11,487,853 108.7% 96.5% 12.2%
Cash Expenses
Cash Operating Expenses
- Maintenance (3,089,846) (3,089,846) -3.3% 0.0% -3.3%
- Insurance, re-leasing and
other costs (1,203,577) (3,294,179) 2,090,602 -1.3% -3.5% 2.2%
-( increase) / decrease in
Accrued Expenses (1,167,635) (1,167,635) -1.2% 0.0% -1.2%
-------------------------------------- ------------------------------------
subtotal (5,461,058) (3,294,179) (2,166,880) -5.8% -3.5% -2.3%
SG&A
- Servicer Fees (2,619,251) (3,246,685) 627,433 -2.8% -3.4% 0.7%
- Other Servicer provider fees
and Overhead (1,353,285) (2,301,940) 948,655 -1.4% -2.4% 1.0%
-------------------------------------- ------------------------------------
subtotal (3,972,536) (5,548,625) 1,576,089 -4.2% -5.9% 1.7%
-------------------------------------- ------------------------------------
Total Cash Expenses (9,433,594) (8,842,804) (590,791) -10.0% -9.4% -0.6%
- -------------------------------------------------------------------------- ------------------------------------
NET CASH COLLECTIONS 92,919,099 82,022,037 10,897,062 98.7% 87.1% 11.6%
- -------------------------------------------------------------------------- ------------------------------------
Exceptional Items
- THY Note Distribution 27,143,085 27,143,085 0 28.8% 28.8% 0.0%
- -------------------------------------------------------------------------- ------------------------------------
TOTAL NET CASH COLLECTIONS 120,062,184 109,165,122 10,897,062 127.6% 116.0% 11.6%
- -------------------------------------------------------------------------- ------------------------------------
Interest Payments (Net of
Swap effects) 48,943,477 48,684,214 259,262 52.0% 51.7% 0.3%
Principal Payments
A-1 0 0 0 0.0% 0.0% 0.0%
A-2 65,938,115 55,300,316 10,637,799 70.1% 58.8% 11.3%
B-1 5,180,591 5,180,591 (0) 5.5% 5.5% 0.0%
C-1 0 0 0 0.0% 0.0% 0.0%
D-1 0 0 0 0.0% 0.0% 0.0%
----------- ------------------------ ------------------------------------
subtotal 71,118,706 60,480,907 10,637,799 75.6% 64.3% 11.3%
- -------------------------------------------------------------------------- ------------------------------------
Total Payments to Noteholders 120,062,183 109,165,122 10,897,061 127.6% 116.0% 11.6%
- -------------------------------------------------------------------------- ------------------------------------
Benefical Interest Distributions (0) (0) (0) 0.0% 0.0% 0.0%
- --------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Coverage Ratios
Closing Prospectus* Actual
- ----------------------------------------------------------------------------------------------------
a Net Cash Collections 109,165,122 120,462,183
b Swaps 2,456,861 3,224,932
c Class A Interest 30,280,177 29,816,388
d Class A Minimum 22,188,410 15,221,945
e Class B Interest 4,418,176 4,373,156
f Class B Minimum 5,180,591 5,180,591
g Class C Interest 4,830,000 4,830,000
h Class C Minimum - -
I Class D Interest 6,699,000 6,699,000
j Class D Minimum - -
k Class A Scheduled - -
l Class B Scheduled - -
m Class C Scheduled - -
n Class D Scheduled - -
o Permited Aircraft Modifications - 400,000
p Class A Supplemental 33,111,906 50,716,171
-------------- -----------
Total 109,165,122 120,462,183
-------------- -----------
Interest Coverage Ratio
Class A 3.61 4.04 = a / (b+c)
Class B 1.92 2.44 = a / (b+c+d+e)
Class C 1.63 2.03 = a / (b+c+d+e+f+g)
Class D 1.48 1.82 = a / (b+c+d+e+f+g+h+i)
Debt Coverage Ratio
Class A 1.48 1.82 = a / (b+c+d+e+f+g+h+i+ j+k)
Class B 1.48 1.82 = a / (b+c+d+e+f+g+h+i+j+k+l)
Class C 1.48 1.82 = a / (b+c+d+e+f+g+h+i+j+k+l+m)
Class D 1.48 1.82 = a / (b+c+d+e+f+g+h+i+j+k+l+m+n)
Loan-to-Value Ratios
Assumed Portfolio Value 1,115,510,000 1,058,252,331
Adjusted Portfolio Value 1,024,330,507
Liquidity Reserve Amount
Of which - Cash 25,000,000 25,000,000 27,400,000
- Letters of
Credit Held 40,000,000 41,226,351 41,226,351
-------------- -------------- -------------
Subtotal 65,000,000 66,226,351 68,626,351
Less Lessee Security
Deposits (20,000,000) (21,226,351) (21,226,351)
Less Accrued Expenses (2,400,000)
-------------- -------------- --------------
Subtotal 45,000,000 45,000,000 45,000,000
Total Asset Value 1,160,510,000 1,103,252,331 1,069,330,507
Note Balanc16-Nov-98
Class A 740,000,000 63.8% 684,699,684 62.1% 674,061,885 63.0%
Class B 100,000,000 72.4% 94,819,409 70.7% 94,819,409 71.9%
Class C 100,000,000 81.0% 100,000,000 79.7% 100,000,000 81.3%
Class D 110,000,000 90.5% 110,000,000 89.7% 110,000,000 91.5%
-------------- -------------- --------------
Total 1,050,000,000 989,519,093 978,881,294
-------------- -------------- --------------
Assumed Portfolio Value as a Percent of Adjusted Porfolio Value 103.3%
Schedule A
All amounts in thousands of US dollar unless otherwise stated
Figures as of February 1,1999
</TABLE>
<TABLE>
<CAPTION> 30-Sep-98
Country of Adjusted
of Lessee Engine Serial Date of Base % of % per
Region (1) Current Current Lessee Type Configuration Number Manufacture Value (2) Total Region
---------- ----------- -------------- ---------- -------------- ------- ----------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Europe France Air Liberte MD-83 JT8D-219 49822 Dec-88 19,433 1.9%
2 (Developed) France Aeropostale B737-3S3QC CFM 56-3C1 23788 May-87 21,420 2.1%
3 Greece OlympicAirways B737-4Q8 CFM 56-3C1 25371 Jan-92 27,137 2.6%
4 Netherlands KLM engine CF6-80C2B6F 704279 Jun-95 5,593 0.5%
5 Netherlands Transavia B737-3K2 CFM 56-3C1 27635 May-95 29,863 2.9%
6 Ireland TransAer A320-200 V2500-A1 414 May-93 31,503 3.1%
7 Portugal TAP B737-382 CFM 56-3B2 25161 Feb-92 25,020 2.4%
8 Sweden Transwede SAFE B737-548 CFM 56-3B1 25165 Apr-93 20,860 2.0%
9 Switzerland Flightlease (3) A310-300 JT9D-7R4E1 409 Nov-85 25,210 2.4%
10 Switzerland Flightlease (3) A310-300 JT9D-7R4E1 410 Nov-85 25,377 2.5%
11 UK Britannia /Ansett B767-204ER CF6-80A 23807 Aug-87 36,390 3.5%
12 UK Caledonian A320-200 V2500-A1 393 Feb-93 31,310 3.0%
13 UK Monarch A320-200 V2500-A1 279 Feb-92 30,467 3.0%
14 UK Unijet B767-39HER CF6-80C2B6F 26256 Apr-93 67,767 6.6%
15 UK Flying Colours 2 B757-28A RB211-535-E4-37 24367 Feb-89 34,870 3.4%
42.0%
16 North America USA Alaska B737-4Q8 CFM 56-3C1 25104 May-93 28,210 2.7%
17 (Developed) USA TWA MD-83 JT8D-219 49824 Mar-89 20,423 2.0%
18 USA TWA MD-82 JT8D-217C 49825 Mar-89 18,270 1.8%
6.5%
19 Europe Hungary Malev F-70 TAY MK620-15 11564 Dec-95 15,627 1.5%
20 and Middle East Hungary Malev F-70 TAY MK620-15 11565 Feb-96 16,353 1.6%
21 (Emerging) Hungary Malev F-70 TAY MK620-15 11569 Mar-96 16,460 1.6%
22 Turkey Onur Air A321-100 V2530-A5 597 May-96 44,623 4.3%
9.0%
23 Asia Korea Asiana B767-300 CF6-80C2B6F 24798 Oct-90 56,127 5.5%
24 (Emerging) Taiwan China Airlines A300-600R A300-600R 555 Mar-90 50,720 4.9%
25 China China Hainan B737-3Q8 CFM 56-3C1 26295 Dec-93 26,783 2.6%
13.0%
26 Latin America Brazil Passeredo A310-300 JT9D-7R4E1 437 Nov-86 30,183 2.9%
27 (Emerging) Brazil Varig B747-341B CF6-80C2 24106 Apr-88 62,673 6.1%
28 Brazil VASP B737-3Q8 CFM-3B2 24299 Nov-88 21,407 2.1%
29 Mexico Aero Mexico B757-2Q8 PW 2037 26272 Mar-94 42,727 4.2%
30 Mexico TAESA B737-4Q8 CFM 56-3B2 24234 Oct-88 22,340 2.2%
17.4%
31 Other Fiji Air Pacific B767-3X2ER CF6-80C2B4 26260 Sep-94 68,913 6.7%
32 Iceland IcelandAir B737-3S3F CFM 56-3B2 23811 Oct-87 21,423 2.1%
8.8%
33 Off lease Off lease Off lease B757-28A RB211-535-E4 24260 Dec-88 33,953 3.3% 3.3%
==========================
Total 1,029,437 100% 100%
==========================
--------------------
(1) Regions are defined according to MSCI designations.
(2) Adjusted Base Value is the Base Value of each aircraft as per the September 30, 1998 Appraisal.
</TABLE>
