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
July 14, 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)
<PAGE>
Item 5. Other Events
Attached hereto as Exhibit A is a copy of a Monthly Report to
Noteholders dated July 14, 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 Second Quarter 1999.
2
<PAGE>
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: July 14, 1999 By: /s/ Alexander Frank
--------------------------------
Signatory Trustee
3
<PAGE>
EXHIBIT INDEX
Exhibit A - Report to Noteholders
Exhibit B - Management's Discussion and Analysis for the Second Quarter
1999
4
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 15-Jul-99
Current Calculation Date 9-Jul-99
Previous Payment Date 15-Jun-99
Previous Calculation Date 9-Jun-99
- --------------------------------------------------------------------------------
<TABLE>
1. Account Activity Summary between Calculation Dates
- ------------------------------------------------------------------------------------------------------------
Prior Deposits Withdrawals Balance on
Balance Calculation Date
9-Jun-99 9-Jul-99
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Expense Account 4,481,455.29 2,650,647.36 (2,631,000.32) 4,501,102.33
Collection Account 12,630,432.17 11,845,796.29 (12,630,432.17) 11,845,796.29
Aircraft Purchase Account - - - -
Liquidity Reserve cash balance 25,000,000.00 - - 25,000,000.00
- ------------------------------------------------------------------------------------------------------------
Total 42,111,887.45 14,496,443.65 (15,261,432.49) 41,346,898.61
- ------------------------------------------------------------------------------------------------------------
2. Analysis of Expenses Account Activity
- -----------------------------------------------------------------------------------------------------------
Opening Balance on Previous Calculation Date 4,481,455.29
Transfer from Collection Account on previous Payment Date 2,656,045.08
Permitted Aircraft Accrual
Interim Transfer from Collection Account 13,703.14
Interest Income 21,296.86
Balance on current Calculation Date
- Payments on previous payment date (570,686.73)
- Interim payments (2,041,212.73)
- other (19,100.86)
- -----------------------------------------------------------------------------------------------------------
Balance on current Calculation Date 4,541,500.05
- -----------------------------------------------------------------------------------------------------------
3. Analysis of Collection Account Activity
- -----------------------------------------------------------------------------------------------------------
Opening Balance on Previous Calculation Date 12,630,432.17
Collections during period
- lease rentals 9,815,814.00
- maintenance reserves 1,892,963.00
- other leasing income 535.00
- interest income 131,086.57
- interim transfer from Expense A/C 19,100.86
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 (2,656,045.08)
- Permitted Aircraft Modifications
Net Swap payments on previous Payment Date (762,361.11)
Aggregate Note Payments on previous Payment Date (9,212,025.98)
Interim Transfer to Expense Account (13,703.14)
- -----------------------------------------------------------------------------------------------------------
Balance on current Calculation Date 11,845,796.29
- -----------------------------------------------------------------------------------------------------------
Analysis of Liquidity Reserve Amount
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 20,267,351.00 30,267,351.00
--------------
Liquidity Reserve Amount 65,267,351.00
--------------
Minimum Liquidity Reserve Amount 15,000,000.00
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
MORGAN STANLEY AIRCRAFT FINANCE
Report to Noteholders
All amounts in US dollars unless otherwise stated
Current Payment Date 15-Jul-99
Current Calculation Date 9-Jul-99
Previous Payment Date 15-Jun-99
Previous Calculation Date 9-Jun-99
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Balance in Collection Account 11,845,796.29
Liquidity Reserve Amount 65,267,351.00
------------------
Available Collections 77,113,147.29
==================
3. Analysis of Collection Account Activity (Continued)
- -----------------------------------------------------------------------------------------------------------
Analysis of Current Payment Date Distributions
(i) Required Expense Amount 747,116.74
(ii) a) Class A Interest but excluding Step-up 2,851,941.98
b) Swap Payments other than subordinated swap payments 876,875.00
(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 435,155.43
(vi) Class B Minimum principal payment 318,331.22
(vii) Class C Interest 575,000.00
(viii) Class C Minimum principal payment -
(ix) Class D Interest 797,500.00
(x) Class D Minimum principal payment -
(xi) a) Secondary Eligible Credit Facilities (ILFC and Morgan Stanley Facilities) -
b) Second collection account top-up 50,267,351.00
(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
(xvii) Step-up interest -
(xviii) Beneficial interest -
(xix) Class A Supplemental principal 5,243,875.92
(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 77,113,147.29
less collection Account Top Ups (iii) (b) and (xi) (b) above 65,267,351.00
------------------
11,845,796.29
==================
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
MORGAN STANLEY AIRCRAFT FINANCE
Report to Noteholders
All amounts in US dollars unless otherwise stated
Current Payment Date 15-Jul-99
Current Calculation Date 9-Jul-99
Previous Payment Date 15-Jun-99
Previous Calculation Date 9-Jun-99
- --------------------------------------------------------------------------------
<TABLE>
4. Payments on the Notes by Subclass
- -----------------------------------------------------------------------------------------------------
Subclass Subclass Subclass
(a) Floating Rate Notes A-1 A-2 B-1
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Applicable LIBOR 4.98750% 4.98750% 4.98750%
Applicable Margin 0.2100% 0.3500% 0.6500%
Applicable Interest Rate 5.19750% 5.33750% 5.63750%
Day Count Act/360 Act/360 Act/360
Actual Number of Days 30 30 30
Interest Amount Payable 1,732,500.00 1,119,441.98 435,155.43
Step-up Interest Amount Payable - NA NA
- -----------------------------------------------------------------------------------------------------
Total Interest Paid 1,732,500.00 1,119,441.98 435,155.43
- -----------------------------------------------------------------------------------------------------
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 400,000,000.00 251,677,822.85 92,627,319.51
- -----------------------------------------------------------------------------------------------------
Extended Pool Factors 100.00% 88.64% 98.60%
expected Pool Factors 100.00% 82.68% 94.77%
- -----------------------------------------------------------------------------------------------------
Extension Amount - - -
expected Pool Factor Amount - - -
Surplus Amortisation - 5,243,875.92 318,331.22
- -----------------------------------------------------------------------------------------------------
Total Principal Distribution Amount - 5,243,875.92 318,331.22
- -----------------------------------------------------------------------------------------------------
Redemption Amount
- - amount allocable to principal
- - amount allocable to premium
- -----------------------------------------------------------------------------------------------------
Closing Outstanding Principal Balance 400,000,000.00 246,433,946.93 92,308,988.29
- -----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
(b) Fixed Rate Notes C-1 D-1
- ----------------------------------------------------------------------------------
Applicable Interest Rate 6.90000% 8.70000%
Day count 30 / 360 30 / 360
Number of Days 30 30
Interest Amount Payable 575,000.00 797,500.00
- ----------------------------------------------------------------------------------
Total Interest Paid 575,000.00 797,500.00
- ----------------------------------------------------------------------------------
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>
<PAGE>
MORGAN STANLEY AIRCRAFT FINANCE
Report to Noteholders
All amounts in US dollars unless otherwise stated
Current Payment Date 15-Jul-99
Current Calculation Date 9-Jul-99
Previous Payment Date 15-Jun-99
Previous Calculation Date 9-Jun-99
- --------------------------------------------------------------------------------
5. Floating Rate Note information for next Interest Accrual Period
Start of Interest Accrual Period 15-Jul-99
End of Interest Accrual Period 15-Jun-99
Reference Date 11-Jul-99
- --------------------------------------------------------------------------------
A-1 A-2 B-1
- --------------------------------------------------------------------------------
Applicable LIBOR 5.18000% 5.18000% 5.18000%
Applicable Margin 0.2100% 0.3500% 0.6500%
Applicable Interest Rate 5.39000% 5.5300% 5.8300%
Actual Pool Factor 100.00% 72.48% 92.31%
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------------
Fixed Rate Notes C-1 D-1
- ---------------------------------------------------------------------
Actual Pool Factor 100.00% 100.00%
- ---------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. Payments per $ 100,000 Initial Outstanding Principal Balance of Notes
- --------------------------------------------------------------------------------
(a) Floating Rate Notes A-1 A-2 B-1
- --------------------------------------------------------------------------------
Opening Outstanding Principal Balance 100,000.00 74,022.89 92,627.32
Total Principal Payments - 1,542.32 318.33
Closing Outstanding Principal Balance 100,000.00 72,480.57 92,308.99
Total Interest 433.13 329.25 435.16
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 575.00 725.00
Total Premium - -
- -------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
Comparison of Actual to Date Cashflows versus Prospectus
---------------------------------------------------------------------------
% of Prospectus Gross Lease Revenues
- --------------------------------------------------------------------------------------------------------------------------------
Period ending 15-Jul-99 Actual Prospectus * Variance Actual Prospectus * Variance
To Date To Date
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash Collections
Gross Lease Rentals 163,952,642 179,299,938 (15,347,297) 91.4% 100.0% -8.6%
Other leasing income 2,348,113 2,348,113 1.3% 0.0% 1.3%
Repossession and other Stress Related Costs 2,430,480 (8,068,497) 10,498,977 1.4% -4.5% 5.9%
------------------------------------- ------------------------------------
Net Lease Rentals 168,731,235 171,231,441 (2,500,206) 94.1% 95.5% -1.4%
Maintenance Receipts 23,372,853 0 23,372,853 13.0% 0.0% 13.0%
Maintenance Expenses (10,090,585) 0 (10,090,585) -5.6% 0.0% -5.6%
------------------------------------- ------------------------------------
Net Maintenance 13,282,268 0 13,282,268 7.4% 0.0% 7.4%
Interest Received 3,194,052 1,914,787 1,279,265 1.8% 1.1% 0.7%
------------------------------------- ------------------------------------
Total Cash Collections 185,207,555 173,146,228 12,061,328 103.3% 96.6% 6.7%
Cash Expenses
Cash Operating Expenses
- Insurance, re-leasing and other costs (2,084,805) (6,275,498) 4,190,693 -1.2% -3.5% 2.3%
-(increase) / decrease in Accrued Expenses (4,749,931) (4,749,931) -2.6% 0.0% -2.6%
------------------------------------- ------------------------------------
subtotal (6,834,736) (6,275,498) (559,239) -3.8% -3.5% -0.3%
SG&A
- Servicer Fees (6,545,944) (7,550,285) 1,004,341 -3.7% -4.2% 0.6%
- Other Servicer provider fees and Overhead (3,519,875) (4,469,926) 950,051 -2.0% -2.5% 0.5%
------------------------------------- ------------------------------------
subtotal (10,065,819) (12,020,211) 1,954,392 -5.6% -6.7% 1.1%
------------------------------------- ------------------------------------
Total Cash Expenses (16,900,555) (18,295,708) 1,395,154 -9.4% -10.2% 0.8%
- ------------------------------------------------------------------------------------------ ------------------------------------
NET CASH COLLECTIONS 168,307,000 154,850,519 13,456,481 93.9% 86.4% 7.5%
- ------------------------------------------------------------------------------------------ ------------------------------------
Exceptional Items
- THY Note Distribution 27,143,085 27,143,085 0 15.1% 15.1% 0.0%
- ------------------------------------------------------------------------------------------ ------------------------------------
TOTAL NET CASH COLLECTIONS 195,450,085 181,993,604 13,456,481 109.0% 101.5% 7.5%
- ------------------------------------------------------------------------------------------ ------------------------------------
Interest Payments (Net of Swap effects) 94,193,020 96,116,195 (1,923,175) 52.5% 53.6% -1.1%
Principal Payments
A-1 0 0 0 0.0% 0.0% 0.0%
A-2 93,566,053 78,186,397 15,379,656 52.2% 43.6% 8.6%
B-1 7,691,012 7,691,012 (0) 4.3% 4.3% 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 101,257,065 85,877,409 15,379,656 56.5% 47.9% 8.6%
- ------------------------------------------------------------------------------------------ ------------------------------------
Total Payments to Noteholders 195,450,085 181,993,604 13,456,480 109.0% 101.5% 7.5%
- ------------------------------------------------------------------------------------------ ------------------------------------
Benefical Interest Distributions (0) 0 (0) 0.0% 0.0% 0.0%
- ------------------------------------------------------------------------------------------ ------------------------------------
* Prospectus Cash Collections and Cash Expenses have been adjusted for
non-delivery of THY Aircraft, msn 25272.
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------------------
Coverage Ratios
Closing Prospectus* Actual
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
a Net Cash Collections 181,993,604 197,050,085
b Swaps 7,528,538 9,578,607
c Class A Scheduled -
d Class A Interest 57,628,100 53,941,840
e Class A Minimum 22,188,410 15,221,945
f Class B Interest 8,450,557 8,023,573
g Class B Minimum 7,691,012 7,691,012
h Class C Interest 9,430,000 9,496,667
I Class C Minimum - -
j Class D Interest 13,079,000 13,152,333
k Class D Minimum - -
l Class A Scheduled - -
m Class B Scheduled - -
n Class C Scheduled - -
o Class D Scheduled - -
p Permitted Aircraft Modifications - 1,600,000
q Class A Supplemental 55,997,987 78,344,108
-------------- -------------
Total 181,993,604 197,050,085
-------------- -------------
Interest Coverage Ratio
Class A 3.16 3.65
Class B 2.06 2.55
Class C 1.73 2.09
Class D 1.54 1.83
Debt Coverage Ratio
Class A 1.54 1.83
Class B 1.54 1.83
Class C 1.54 1.83
Class D 1.54 1.83
Loan-to-Value Ratios
Assumed Portfolio Value 1,115,510,000 1,030,234,244
Adjusted Portfolio Value 997,274,912
Liquidity Reserve Amount
Of which - Cash 25,000,000 25,000,000 29,749,931
- Letters of Credit held 40,000,000 40,267,351 40,267,351
-------------- -------------- --------------
Subtotal 65,000,000 65,267,351 70,017,282
Less Lessee Security Deposits (20,000,000) (20,267,351) (20,267,351)
Less Accrued Expenses (4,749,931)
-------------- -------------- --------------
Subtotal 45,000,000 45,000,000 45,000,000
Total Asset Value 1,160,510,000 1,075,234,244 1,042,274,912
Note Balance as at 15-Jul-99
Class A 740,000,000 63.8% 661,813,603 61.6% 646,433,947 62.0%
Class B 100,000,000 72.4% 92,308,988 70.1% 92,308,988 70.9%
Class C 100,000,000 81.0% 100,000,000 79.4% 100,000,000 80.5%
Class D 110,000,000 90.5% 110,000,000 89.7% 110,000,000 91.0%
-------------- -------------- --------------
Total 1,050,000,000 964,122,591 948,742,935
-------------- -------------- --------------
103.3%
*Prospectus Cash Collections and Cash Expenses have been adjusted for
non-delivery of THY Aircraft, msn 25272.
1. 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.
2. 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.
3. Total Asset Value is equal to Total Assumed Portfolio Value plus Liquidity
Reserve Amount minus Lessee Security Deposits.
4. Assumed Portfolio Value represents the Initial Appraised Value of each
aircraft in the Portfolio multiplied by the Depreciation Factor at Calculation
date divided by the Depreciation Factor at Closing date.
5. Adjusted Portfolio Value represents the Base Value of each aircraft in the
Portfolio as determined by the most recent Appraisal multiplied by the
Depreciation Factor at Calculation date divided by the Depreciation Factor at
Closing date.
6. The lower of the Assumed Portfolio Value or 105% of the Adjusted Portfolio
Value is used to calculate the principal repayment amounts to Noteholders
</TABLE>
MORGAN STANLEY AIRCRAFT FINANCE
QUARTERLY ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SECOND QUARTER 1999, FEBRUARY 28, 1999 TO MAY 31, 1999
<PAGE>
CONTENTS
--------
I Background and General Information
II Comparison of Actual Cashflows versus Prospectus for Second
Quarter 1999
III Comparison of Quarterly Actual Cashflows versus Prior Year
IV Other Financial Data
V Lessee Developments
VI Appendices
<PAGE>
I BACKGROUND AND GENERAL INFORMATION
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").
All but one of the 33 aircraft were acquired by MSAF. The undelivered aircraft
was a B737 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 and the appraised value of the fleet reduced from
$1,115.51 million to $1,086.69 million at September 30, 1997.
The fleet is appraised annually and the appraised value of the revised fleet at
September 30, 1998 was $1,029.4 million. Applying the declining value assumption
to the original September 30, 1997 fleet appraisal, the total appraised value
was assumed to be $1,047.9 million at May 17, 1999. See "Aircraft Values" below.
As of July 1, 1999, all 32 aircraft plus the engine were subject to leases with
29 lessees in 19 countries as shown in Appendix A attached.
The discussion and analysis, which follows, is based on the results of MSAF and
its subsidiaries as a single entity (collectively the "MSAF Group").
MSAF Group is a special purpose vehicle which owns aircraft subject to operating
leases and, in one certain instance, 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 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
Page 1 of 13
<PAGE>
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.
For the purposes of this report, the "Second Quarter 1999" shall comprise
information from the three monthly cash reports dated March 15, 1999, April 15,
1999 and May 17, 1999. The financial data in these reports includes cash
receipts from February 10, 1999 (beginning of the Collection Period for the
March Report) up to May 11, 1999 (end of the Collection Period for the May
Report) and payments made by MSAF between February 10, 1999 and up to May 17,
1999 (the Note Payment Date for the May Report).
Similarly, for the purposes of this report, the "Prior Year" period shall
comprise information from the monthly cash reported dated April 15, 1998 and May
15, 1998. The financial data in these reports includes cash receipts from March
3, 1998 (date of securitisation) up to May 11, 1998 (end of the Collection
Period for the May 1998 Report) and payments made by MSAF between March 3, 1998
and up to May 15, 1998 (the Note Payment Date for the May 1998 Report).
Page 2 of 13
<PAGE>
II COMPARISON OF ACTUAL CASHFLOWS VERSUS
PROSPECTUS FOR SECOND QUARTER 1999
The February 20, 1998 Offering Memorandum (the "Offering Memorandum") and the
November 4, 1998 Prospectus (the "Prospectus") for the Notes contain assumptions
in respect of MSAF's future cashflows and cash expenses (the "Assumptions"). In
the Second Quarter 1999, MSAF generated approximately $26.6 million in Net Cash
Collections, lower than assumed in the Prospectus by $0.2 million. An analysis
of the quarterly Cash Collections, Cash Expenses and Note Payments is given in
Sections A, B and C below and should be read in conjunction with Appendix B.
Section A - Cash Collections
"Cash Collections" comprise lease rental payments, maintenance reserve payments
by lessees and cash interest paid on MSAF's cash balances. The Prospectus
assumed Cash Collections for the Second Quarter 1999 of $30.3 million. Total
Cash Collections achieved in this period were $31.2 million, a positive
difference of $0.9 million. This difference is due to a combination of the
factors set out below.
1) Gross lease rentals. Cash Collections relating to gross lease rentals for
the Second Quarter 1999 amounted to $28.0 million or approximately $3.3
million less than the $31.3 million assumed in the period. This negative
variance is due to arrears ($1.8 million), lower than assumed rentals
following certain re-leasing events ($1.0 million) and rentals lost due to
non-revenue earning aircraft ($0.5 million). Non-revenue earning aircraft
are termed "Aircraft on Ground" or "AOG"s. For further detail see
"Developments - Lessee Difficulties" below.
2) Other Cash Received. Other Cash received for the Second Quarter 1999 was
approximately $0.04 million (late payment charges paid by lessees), a
positive variance of $0.04 million. The Prospectus makes no assumption as
to Other Cash Received.
3) Repossession and other stress related costs (net of security deposits
applied). Repossession and other stress related costs (net of security
deposits applied) for the Second Quarter 1999 amounted to an inflow of $0.4
million, compared to a cost of $1.4 million in assumed stress related costs
for this period. The inflow of $0.4 million relates to the return of
security deposits from two lessees, Onur Air and Guyana Airways, net of
repossession and redelivery costs incurred to date.
Page 3 of 13
<PAGE>
4) Net Lease rentals. The Prospectus assumes a 4.5% reduction in gross lease
rentals due to certain stress related costs (repossession costs, AOG
expenses and Bad Debts) ("Net Lease Rentals"). For the Second Quarter 1999,
assumed Net Lease Rentals were $30.0 million. Actual Net Lease Rentals for
the period were $28.5 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. In the current leasing market, it is possible that net lease
rentals will continue to fall short of the Assumptions in the current
financial year for reasons MSAF has experienced already; lessee defaults,
rentals not received due to Aircraft On Ground, repossession costs and
lease rental reductions. For further details, see "Developments - Lessee
Difficulties" below.
5) Net Maintenance. In the Second Quarter 1999, maintenance receipts were $4.6
million, exceeding maintenance disbursements of $2.3 million by $2.3
million. The Prospectus 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. It is likely that maintenance disbursements will
increase due to anticipated engine overhauls and re-leasing expenses which
we originally expected to incur in 1998 but which MSAF now expects to incur
in the current year. As of May 17, 1999, there was approximately $5.4
million held in the Expense Account for projected maintenance and
modification expenses over the following three months.
6) Interest received. Actual interest received for the Second Quarter 1999 was
$0.4 million compared to $0.3 million in the Prospectus. 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
Prospectus assumptions. Second and partially offsetting the impact of these
cash balances on which interest has been earned, the Prospectus assumed a
reinvestment rate of 5.75% while the average reinvestment rate for the
period was approximately 5.17%.
Page 4 of 13
<PAGE>
Section B - Cash Expenses
Cash Expenses consists of Cash Operating Expenses and Selling, General and
Administrative Expenses.
Cash Operating Expenses includes all fees, costs or expenses paid by the MSAF
Group 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 Prospectus were assumed to be $1.1 million for the Second Quarter 1999.
Total cash expenses paid in this period were approximately $2.1 million, a
negative variance of $1.0 million. This variance is due to a combination of the
factors set out below.
1) Insurance, re-leasing and other costs. Insurance, re-leasing and other
costs incurred were approximately $0.3 for the Second Quarter 1999 which
was $0.8 million less than the assumed costs of $1.1 million for the
period. Actual costs were in respect of Directors and Officers annual
insurance premium and the quarterly premium for contingent insurance
coverage for the portfolio. The Prospectus assumes these costs are 3% of
gross lease revenues.
2) Increase in Accrued Expenses. $1.8 million of accrued expenses was
transferred to the expense account in the Second Quarter 1999 and is
expected to be payable in the current year. The balance in the Expense
Account on May 17, 1999 was $6.1 million. Approximately $5.4 million
relates to accrued maintenance expenses while the remaining $0.7 million
relates to accrued insurance, re-leasing and other costs. The Prospectus
assumes there are no accrued expenses.
Selling, General and Administrative Expenses ("SG&A") include all fees paid to
the Aircraft Manager, Administration Agent, Independent Trustees and other
miscellaneous service providers. Total SG&A costs for the Second Quarter 1999
were approximately $2.5 million compared to $2.4 million assumed in the
Prospectus. This variance is due to a combination of the factors set out below.
1) Servicer fees. Fees paid to ILFC, as Servicer, during the Second Quarter
1999 amounted to $1.3 million, which is $0.3 million lower than the assumed
cost of $1.6 million for the period. As a significant portion of the
Servicer fees are calculated as a percent of rental revenue actually
received and the gross rental revenue line is lower than expected, the fee
paid to ILFC is also lower.
Page 5 of 13
<PAGE>
2) Other service provider fees and overhead. Other service provider fees and
overhead amounted to $1.2 million for the period from February 17, 1999 to
May 17th, 1999. This is $0.4 million more than the assumed amount of $0.8
million for the period, mainly due to higher than assumed overhead costs
paid in the period (associated with registering the Notes with the SEC)
which were partially offset by lower than assumed Administrative Agent's
fee because of actual lower rental revenues.
Section C - Note Payments
Note payments consist of interest payments ( net of swap effects), and principal
payments to Noteholders.
Interest payments. Actual interest payments to Noteholders net of swap effects
were $16.9 million, slightly lower than assumed net payments of $17.3 million
for the Second Quarter 1999, reflecting faster than expected amortization of the
A-2 Notes.
Principal payments. Total principal distributions in the period from February
17, 1999, to May 17, 1999 were $9.7 million, an excess of $0.2 million over
assumed total debt amortization for this period. The principal amortization
payments were made with respect to the A-2 and B-1 Notes.
Page 6 of 13
<PAGE>
III COMPARISON OF SECOND QUARTER 1999 ACTUAL
CASHFLOWS VERSUS PRIOR YEAR PERIOD
In the Second Quarter 1999, MSAF generated approximately $26.6 million in Net
Cash Collections, $2.7 million lower than assumed in the Prospectus. An analysis
of the quarterly Cash Collections, Cash Expenses and Note Payments is given in
Sections A, B and C below and should be read in conjunction with Appendix C.
Section A - Cash Collections
1) Gross lease rentals. Cash Collections relating to gross lease rentals for
the Second Quarter 1999 amounted to $28.0 million or approximately $0.1
million less than in the Prior Year period. Gross lease rentals were
essentially unchanged in comparison to the Prior Year period.
2) Other Cash Received. Other cash received in the Second Quarter 1999 was
approximately $0.04 million, compared to $0.2 million received in the Prior
Year period. Other Cash Received was essentially unchanged in comparison to
the Prior Year period.
3) Repossession and other stress related costs (net of security deposits
applied). Repossession and other stress related costs (net of security
deposits applied) for the Second Quarter 1999 amounted to an inflow of $0.4
million compared to an inflow of $0.3 million in the Prior Year period.
Repossession and other stress related costs were essentially unchanged in
comparison to the Prior Year period.
4) Net lease rentals. Actual Net Lease Rentals the Second Quarter 1999 were
$28.5 million, approximately the same as in the Prior Year period.
5) Net Maintenance. In the Second Quarter 1999, maintenance receipts were $4.6
million, exceeding maintenance disbursements of $2.3 million by $2.3
million. This compares to maintenance received of $3.1 million in the
against maintenance expenses paid of $1.1 million in the Prior Year period.
While net maintenance was higher in the Second Quarter 1999, significant
maintenance events are anticipated for the remainder of this financial
year.
6) Interest received. Actual interest received for the Second Quarter 1999 was
$0.4 million, compared to $0.7 million received in the Prior Year
Page 7 of 13
<PAGE>
period. The higher interest earned in the 1998 period was due to cash held
on deposit in the Aircraft Purchase Account to fund the acquisition of two
aircraft that had not yet been delivered.
Section B - Cash Expenses
Cash Expenses consists of Cash Operating Expenses and Selling, General and
Administrative Expenses.
Cash Operating Expenses includes all fees, costs or expenses paid by the MSAF
Group in the course of the business activities permitted to be conducted by it
under the Indenture. Cash Operating Expenses paid in the Second Quarter 1999
were approximately $2.1 million, compared to $0.8 million in the same period in
1998. This variance is due to a combination of the factors set out below.
1) Insurance, re-leasing and other costs Insurance, re-leasing and other costs
incurred were approximately $0.3 million for the Second Quarter 1999, which
was $0.1million lower than in the same period in 1998. This was mainly due
to the timing of payment of insurance premiums.
2) Increase in Accrued Expenses $1.9 million of accrued expenses were
transferred to the expense account in the current period. This compares to
a transfer of $0.4 million in the same period in 1998. The increase in
Accrued Expenses relates primarily to an increase in projected maintenance
costs.
Selling, General and Administrative Expenses (SG&A) include all fees paid to the
Aircraft Manager, Administration Agent, Independent Trustees and other
miscellaneous service providers. Total SG&A costs for the Second Quarter 1999
were approximately $2.5 million compared to $1.1 million in the Prior Year
period. This difference is due to a combination of the factors set out below.
1) Servicer fees. Fees paid to ILFC, as Servicer, during the Second Quarter
1999 were $1.3 million, an increase of $0.5 million over the Prior Year
period. In 1998, the $3.0 million fixed fee was paid to ILFC as an up front
fee of $2.0 million in December 1997 and a further $1.0 million was paid in
even installments every month. In 1999, the entire base fee of $3.0m is
being paid in installments, hence the higher monthly charge in the current
year.
Page 8 of 13
<PAGE>
2) Other Service Providers and Overhead. The total expenses for Other Service
Providers and Overhead was $1.2 million for the Second Quarter 1999, versus
$0.3 million for the Prior Year period, a variance of $0.9 million. $[0.6]
million of this difference can be attributed to an increase in Overhead
costs, which increased from less than $[0.1] million in Prior Year period
to $0.7 million in the Second Quarter 1999. The increase in Overhead costs
was primarily related to costs associated with the registration of the
Notes with the SEC. The remaining $0.3 million variance relates to an
increase in the fee paid to the Administrative Agent. The fee calculation
for the Administrative Agent in the Prior Year period did not include
accrued rentals and was therefore lower.
Section C - Note Payments
Note payments consist of interest payments (net of swap effects), and principal
payments to Noteholders.
Interest payments. Actual interest payments to Noteholders, net of swap effects,
were $16.9 million in the Second Quarter 1999, compared to $14.4 million in the
Prior Year period.
Principal Payments. Total Principal distributions were $9.7 million in the
Second Quarter 1999, compared to $14.9 million in the Prior Year period. The
higher distribution in the Prior Year period was as a result of $2.7 million in
higher Net Cash Collections and the $2.5 million lower interest costs.
Page 9 of 13
<PAGE>
IV OTHER FINANCIAL DATA
A numerical analysis to accompany this discussion is shown in Appendix D
Cash
Cash held at May 17, 1999 was $31.1 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 $6.1 million represents accrued expenses and is held in the Expense Account
to cover maintenance and re-leasing expenses expected to fall due in the next
quarter.
In addition to the $31.1 million cash portion at May 17, 1999, the Liquidity
Reserve Amount also contained $41.1 million of undrawn credit and liquidity
facilities from Morgan Stanley Dean Witter & Co and ILFC.
Aircraft Values
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
Appendix A. The actual 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 17,
1998. As the decline in value was within the limits permitted by the Indenture,
there was no requirement to redirect cash flow to the Class A Notes.
A-D Note Balance
As of May 17, 1999, the aggregate amount of Class A-D Notes outstanding was
$958.9 million, approximately $12.9 million lower than assumed due to higher
than assumed principal repayments with respect to the Class A-2 Notes.
Page 10 of 13
<PAGE>
V LESSEE DEVELOPMENTS
As of July 1, 1999, three current lessees were in arrears. The aircraft on lease
to the three lessees in arrears represent approximately 11.1% of the appraised
value of the portfolio at September 30,1998 and all three lessees are based in
Brazil. The amounts outstanding and overdue for the three 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) amounted to
approximately $8.6 million. The weighted average number of days past due of such
arrears was 105 days. For further details, see "Latin America" below.
In addition, as of July 1, 1999 an aggregate of $2.2 million was owed to MSAF
Group from two of its former lessees. In both cases, MSAF Group has leased the
aircraft to other carriers.
Europe & Middle East Emerging
Following the termination of a lease with Onur Air, the related aircraft (an
A321-100) was placed with another Turkish charter airline, Air Alfa. Rental
payments and maintenance reserves outstanding under the old lease amounted to
approximately $2.0 million. The aircraft was non-revenue earning for a period
and the cost of downtime between leases was $0.2 million. However, Onur Air has
commenced payment of restructured amounts in accordance with a termination
agreement. Amounts in arrears are scheduled for repayment by October 1999. The
aircraft represents 4.3% of the appraised value of the portfolio at September
30, 1998.
Asia
Asia has been severely affected by economic and financial difficulties, although
limited signs of recovery were exhibited during the quarter. Currently, MSAF
Group leases 13.0% of its fleet in the Asia 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 July 1, 1999
none of these lessees were in arrears although severe financial difficulties
have been reported for certain other air carriers in the region. One lessee
restructured its lease such that rental payments will be lower over an extended
lease term.
Latin America
Considerable economic uncertainty continues to affect the major economies in
Latin America. The devaluation of the Brazilian currency in January 1999
continued to adversely impact the major carriers whose lease obligations were
predominantly in U.S. dollars.
Page 11 of 13
<PAGE>
As of July 1, 1999, VARIG had decided to terminate the lease of a B747-300
aircraft and is currently negotiating a termination agreement with ILFC. The
termination agreement will cover repayment of rental and maintenance arrears
owed to date, and certain repossession and redelivery expenses. In the interim,
VARIG have agreed to park and insure the aircraft, at their cost. This lease had
a security deposit of $1.0 million, which has been drawn down by MSAF.
As a large widebody geared to the Asian market, the B747-300 aircraft is one of
the aircraft types that is least popular at present with 11 available for lease
and 8 currently in storage, according to Airclaims. There can be no assurance
that ILFC will procure a new lease with terms similar to those of the terminated
lease with VARIG. As of July 1, 1999, the total amount outstanding for this
lessee in respect of rental payments and maintenance reserves under this lease
amounted to approximately $4.8 million. The aircraft represents 6.1% of the
appraised value of the portfolio at September 30, 1998.
Another Brazilian lessee, Passaredo, representing 2.1 % of the appraised value
of the portfolio at September 30, 1998 , has been operating one A310-300 subject
to a finance lease and has not made lease payments since September 1998. After
protracted negotiations with ILFC, the lessee has agreed to a repayment
schedule, which provides for payment of part of the arrears. As of July 1, 1999,
the total amount outstanding for this lessee in respect of rental payments
amounted to approximately $3.3 million.
The rental arrears of the third Brazilian lessee, which accounts for 2.9% of the
appraised value of the portfolio at September 30, 1998, have been restructured
and the lessee is in arrears with respect to the restructured amounts. As of
July 1, 1999, total amount outstanding for this lessee in respect of rental
payments amounted to $0.5 million.
MSAF currently leases 17.4% of its fleet in Latin America (6.3% in Mexico and
11.1% in Brazil) by appraised value of the portfolio at September 30, 1998.
Other
The lease with Guyana Airways was terminated by agreement on April 2, 1999 with
rental arrears due of $1.3 million. MSAF is likely to incur costs of
approximately $2.9 million in the redelivery of this aircraft. This cost is
takes into account a $3.0 million lump sum termination payment paid by Guyana
and the drawdown of the security deposit of $0.7
Page 12 of 13
<PAGE>
million but excludes $0.7 million of maintenance reserves received by MSAF from
Guyana over the lease term. MSAF has lodged an insurance claim in respect of
certain maintenance costs it has incurred to date. The Guyana aircraft is a
B757-200ER and accounts for 3.3% of the appraised value of the portfolio at
September 30, 1998. The aircraft was re-leased to National Airlines, a U.S.
carrier in June 1999.
Page 13 of 13
<PAGE>
Morgan Stanley Aircraft Finance APPENDIX A
Portfolio Details
-----------------
All amounts in thousands of US dollars unless otherwise stated
--------------------------------------------------------------
Figures as of July 1, 1999
--------------------------
<TABLE>
Country of Aircraft 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 l'Aeropostale B737-3S3QC CFM 56-3C1
3 Greece Olympic Airways B737-4Q8 CFM 56-3C1
4 Netherlands KLM engine CF6-80C2B6F
5 Netherlands Transavia B737-3K2 CFM 56-3C1
6 Ireland TransAer A320-200 V2500-A1
7 Sweden Transwede SAFE B737-548 CFM 56-3B1
8 UK Britannia B767-204ER CF6-80A
9 UK Caledonian A320-200 V2500-A1
10 UK Unijet B767-39HER CF6-80C2B6F
11 UK Flying Colours B757-28A RB211-535-E4-37
Sub-total
12 North America USA Alaska B737-4Q8 CFM 56-3C1
13 (Developed) USA TWA MD-83 JT8D-219
14 USA TWA MD-82 JT8D-217C
15 USA National Airlines B757-28A RB211-535-E4
16 Canada Canadian Airlines A320-200 V2500-A1
Sub-total
17 Europe Hungary Malev F-70 TAY MK620-15
18 and Middle East Hungary Malev F-70 TAY MK620-15
19 (Emerging) Hungary Malev F-70 TAY MK620-15
20 Turkey Air Alfa A321-100 V2530-A5
Sub-total
21 Asia Korea Asiana B767-300 CF6-80C2B6F
22 (Emerging) Taiwan China Airlines A300-600R PW 4158
23 China China Hainan B737-3Q8 CFM 56-3C1
Sub-total
24 (Emerging) Brazil VARIG B747-341B CF6-80C2
25 Brazil Passeredo A310-300 JT9D-7R4E1
26 Brazil VASP B737-3Q8 CFM-3B2
27 Mexico Aero Mexico B757-2Q8 PW 2037
28 Mexico TAESA B737-4Q8 CFM 56-3B2
Sub-total
29 Other Fiji Air Pacific B767-3X2ER CF6-80C2B4
30 Iceland IcelandAir B737-3S3F CFM 56-3B2
31 Oman Oman Air A310-300 JT9D-7R4E1
32 Oman Oman Air A310-300 JT9D-7R4E1
33 Malta Air Malta B737-382 CFM 56-3B2
Sub-total
Total
30-Sep-98
Serial Date of Adjusted Base % of % of
Region (1) Number Manufacture Value (2) Total Region
---------- ------ ----------- --------- ----- ------
1 Europe 49822 Dec-88 19,433 1.9%
2 (Developed) 23788 May-87 21,420 2.1%
3 25371 Jan-92 27,137 2.6%
4 704279 Jun-95 5,593 0.5%
5 27635 May-95 29,863 2.9%
6 414 May-93 31,503 3.1%
7 25165 Apr-93 20,860 2.0%
8 23807 Aug-87 36,390 3.5%
9 393 Feb-93 31,310 3.0%
10 26256 Apr-93 67,767 6.6%
11 24367 Feb-89 34,870 3.4%
Sub-total 31.7%
12 North America 25104 May-93 28,210 2.7%
13 (Developed) 49824 Mar-89 20,423 2.0%
14 49825 Mar-89 18,270 1.8%
15 24260 Dec-88 33,953 3.3%
16 279 Feb-92 30,467 3.0%
Sub-total 12.8%
17 Europe 11564 Dec-95 15,627 1.5%
18 and Middle East 11565 Feb-96 16,353 1.6%
19 (Emerging) 11569 Mar-96 16,460 1.6%
20 597 May-96 44,623 4.3%
Sub-total 9.0%
21 Asia 24798 Oct-90 56,127 5.5%
22 (Emerging) 555 Mar-90 50,720 4.9%
23 26295 Dec-93 26,783 2.6%
Sub-total 13.0%
24 (Emerging) 24106 Apr-88 62,673 6.1%
25 437 Nov-86 30,183 2.9%
26 24299 Nov-88 21,407 2.1%
27 26272 Mar-94 42,727 4.2%
28 24234 Oct-88 22,340 2.2%
Sub-total 17.4%
29 Other 26260 Sep-94 68,913 6.7%
30 23811 Oct-87 21,423 2.1%
31 409 Nov-85 25,210 2.4%
32 410 Nov-85 25,377 2.5%
33 25161 Feb-92 25,020 2.4%
Sub-total 16.1%
---------------------------------------
Total 1,029,436 100% 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.
(3) Total Number of Lessees =29
(4) Total Number of Countries = 19
</TABLE>
<PAGE>
Morgan Stanley Aircraft Finance APPENDIX B
Comparison of Actual Cashflows Versus Prospectus for the Second Quarter 1999
----------------------------------------------------------------------------
All amounts in US Dollars unless otherwise states
-------------------------------------------------
<TABLE>
-------------------------------------------------------------------------------------------------------------------------
MD&A Quarterly Data
Ref % of Prospectus Gross Lease Revenues
------------------------------------------------------------------------------------ ------------------------------------
Actual Prospectus* Variance Actual Prospectus* Variance
To Date To Date
------------------------------------------------------------------------------------ ------------------------------------
Section A Cash Collections
<S> <C> <C> <C> <C> <C> <C> <C>
1 Gross Lease Rentals 28,048,502 31,364,103 (3,315,602) 89.4% 100.0% -10.6%
2 Other Cash Received 4,109 4,109 0.0% 0.0% 0.0%
3 Repossession and other Stress Related Costs 407,190 (1,411,385) 1,818,575 1.3% -4.5% 5.8%
-------------------------------------- ---------------------------------
4 Net Lease Rentals 28,459,801 29,952,719 (1,492,918) 90.7% 95.5% -4.8%
Maintenance Receipts 4,611,298 4,611,298 14.7% 0.0% 14.7%
Maintenance Expenses (2,259,909) (2,259,909) -7.2% 0.0% -7.2%
-------------------------------------- ---------------------------------
5 Net Maintenance 2,351,388 0 2,351,388 7.5% 0.0% 7.5%
6 Interest Received 426,729 350,238 76,491 1.4% 1.1% 0.2%
-------------------------------------- ---------------------------------
Total Cash Collections 31,237,918 30,302,957 934,961 99.6% 96.6% 3.0%
Section B Cash Expenses
Cash Operating Expenses
1 - Insurance, re-leasing and other costs (292,432) (1,097,744) 805,312 -0.9% -3.5% 2.6%
2 - (increase) / decrease in Accrued Expenses (1,845,678) (1,845,678) -5.9% 0.0% -5.9%
-------------------------------------- ---------------------------------
subtotal (2,138,110) (1,097,744) (1,040,366) -6.8% -3.5% -3.3%
SG&A
1 - Servicer Fees (1,299,626) (1,596,272) 296,646 -4.1% -5.1% 0.9%
2 - Other Servicer provider fees
and Overhead (1,150,975) (804,807) (346,167) -3.7% -2.6% -1.1%
-------------------------------------- ---------------------------------
subtotal (2,450,601) (2,401,080) (49,521) -7.8% -7.7% -0.2%
-------------------------------------- ---------------------------------
Total Cash Expenses (4,588,711) (3,498,823) (1,089,887) -14.6% -11.2% -3.5%
------------------------------------------------------------------------------------ ---------------------------------
NET CASH COLLECTIONS 26,649,207 26,804,133 (154,926) 85.0% 85.5% -0.5%
------------------------------------------------------------------------------------ ---------------------------------
Section C Note Payments
Interest Payments (Net of Swap effects) 16,916,047 17,282,420 (366,373) 53.9% 55.1% -1.2%
Principal Payments
A-1 0 0 0 0.0% 0.0% 0.0%
A-2 8,789,838 8,578,392 211,447 28.0% 27.4% 0.7%
B-1 943,321 943,321 (0) 3.0% 3.0% 0.0%
C-1 0 0 0.0% 0.0% 0.0%
D-1 0 0 0 0.0% 0.0% 0.0%
-------------------------------------- ---------------------------------
subtotal 9,733,160 9,521,713 211,447 31.0% 30.4% 0.7%
------------------------------------------------------------------------------------ ---------------------------------
Total Payments to Noteholders 26,649,207 26,804,133 154,926 85.0% 85.5% -0.5%
------------------------------------------------------------------------------------ ---------------------------------
Benefical Interest Distributions 0 0 0 0.0% 0.0% 0.0%
------------------------------------------------------------------------------------ ---------------------------------
*Prospectus Cash Collections and Cash Expenses have been adjusted for
non-delivery of THY Aircraft, msn 25272.
</TABLE>
<PAGE>
Morgan Stanley Aircraft Finance APPENDIX C
Comparison of Quarterly Actual Cashflows versus Prior Year
----------------------------------------------------------
<TABLE>
MD&A Second Quarter 1999 Prior Year
Ref ------------------- ----------
---------------------------------------------------------------- -------------- ------------- ------------
Period ending 15-May-99 Actual Actual Variance Variance
To May 15 1999 To May 15 1998 $ %
---------------------------------------------------------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Section A Cash Collections
1 Gross Lease Rentals 28,048,502 28,126,068 (77,566) -0.3%
2 Other Cash Received 4,109 20,174 (16,065) -79.6%
3 Repossession and other Stress Related Costs 407,190 349,599 57,592 16.5%
---------------- -------------- ------------- ------------
4 Net Lease Rentals 28,459,801 28,495,840 (36,039) -0.13%
Maintenance Receipts 4,611,298 3,105,268 1,506,030 48.5%
Maintenance Expenses (2,259,909) (1,099,056) (1,160,853) 105.6%
---------------- -------------- ------------- ------------
5 Net Maintenance 2,351,388 2,006,212 345,176 17.21%
6 Interest Received 426,729 771,434 (344,705) -44.7%
---------------- -------------- ------------- ------------
Total Cash Collections 31,237,918 31,273,486 (35,568) -0.11%
Section B Cash Expenses
Cash Operating Expenses
1 - Insurance, re-leasing and other costs (292,432) (391,533) 99,101 -25.3%
2 -( increase) / decrease in Accrued Expenses (1,845,678) (393,912) (1,451,766) 368.6%
---------------- -------------- ------------- ------------
subtotal (2,138,110) (785,445) (1,352,665) 172.22%
SG&A Expenses
1 - Servicer Fees (1,299,626) (847,172) (452,455) 53.4%
2 - Other Servicer provider fees and Overhead (1,150,975) (307,757) (843,217) 274.0%
---------------- -------------- ------------- ------------
subtotal (2,450,601) (1,154,929) (1,295,672) 112.19%
---------------- -------------- ------------- ------------
Total Cash Expenses (4,588,711) (1,940,374) (2,648,337) 136.5%
---------------------------------------------------------------- -------------- ------------- ------------
NET CASH COLLECTIONS 26,649,207 29,333,112 (2,683,905) -9.1%
---------------------------------------------------------------- -------------- ------------- ------------
Section C Note Payments
Interest Payments (Net of Swap effects) 16,916,047 14,351,591 2,564,457 17.9%
Principal Payments
A-1 0 0
A-2 8,789,838 14,195,506 (5,405,668) -38.1%
B-1 943,321 786,016 157,306 20.0%
C-1 0
D-1 0 0
---------------- -------------- ------------- ------------
subtotal 9,733,160 14,981,522 (5,248,362) -35.0%
---------------------------------------------------------------- -------------- ------------- ------------
Total Payments to Noteholders 26,649,207 29,333,112 2,683,905 -9.1%
---------------------------------------------------------------- -------------- ------------- ------------
Benefical Interest Distributions
---------------------------------------------------------------- -------------- ------------- ------------
</TABLE>
<PAGE>
Morgan Stanley Aircraft Finance APPENDIX D
Comparison of Actual Date Cashflows versus Prospectus
<TABLE>
------------------------------------------------------------------------------------
% of Prospectus Gross Lease Revenues
- -------------------------------------------------------------------------------------- ---------------------------------------
Period ending 15-May-99 Actual Prospectus * Variance Actual Prospectus* Variance
To Date To Date
- -------------------------------------------------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash Collections
Gross Lease Rentals 143,872,604 156,776,391 (12,903,787) 91.8% 100.0% -8.2%
Other Cash Received 2,227,760 2,227,760 1.4% 0.0% 1.4%
Repossession and other Stress Related Costs 1,658,728 (7,054,938) 8,713,665 1.1% -4.5% 5.6%
------------------------------------------ ---------------------------------------
Net Lease Rentals 147,759,092 149,721,454 (1,962,362) 94.2% 95.5% -1.3%
Maintenance Receipts 20,341,445 0 20,341,445 13.0% 0.0% 13.0%
Maintenance Expenses (7,161,051) 0 (7,161,051) -4.6% 0.0% -4.6%
------------------------------------------ ---------------------------------------
Net Maintenance 13,180,394 0 13,180,394 8.4% 0.0% 8.4%
Interest Received 2,882,470 1,681,295 1,201,176 1.8% 1.1% 0.8%
------------------------------------------ ---------------------------------------
Total Cash Collections 163,821,956 151,402,748 12,419,208 104.5% 96.6% 7.9%
Cash Expenses
Cash Operating Expenses
- Insurance, re-leasing and other costs (1,857,342) (5,487,174) 3,629,832 -1.2% -3.5% 2.3%
- (increase) / decrease in Accrued Expenses (6,095,376) (6,095,376) -3.9% 0.0% -3.9%
------------------------------------------ ---------------------------------------
subtotal (7,952,718) (5,487,174) (2,465,544) -5.1% -3.5% -1.6%
SG&A
- Servicer Fees (5,693,805) (6,437,264) 743,459 -3.6% -4.1% 0.5%
- Other Servicer provider fees and Overhead (2,941,497) (3,911,822) 970,324 -1.9% -2.5% 0.6%
------------------------------------------ ---------------------------------------
subtotal (8,635,302) (10,349,086) 1,713,784 -5.5% -6.6% 1.1%
------------------------------------------ ---------------------------------------
Total Cash Expenses (16,588,020) (15,836,260) (751,760) -10.6% -10.1% -0.5%
- -------------------------------------------------------------------------------------- ---------------------------------------
NET CASH COLLECTIONS 147,233,936 135,566,489 11,667,447 93.9% 86.5% 7.4%
- -------------------------------------------------------------------------------------- ---------------------------------------
Exceptional Items
- THY Note Distribution 27,143,085 27,143,085 0 17.3% 17.3% 0.0%
- -------------------------------------------------------------------------------------- ---------------------------------------
TOTAL NET CASH COLLECTIONS 174,377,021 162,709,574 11,667,447 111.2% 103.8% 7.4%
- -------------------------------------------------------------------------------------- ---------------------------------------
Interest Payments (Net of Swap effects) 83,375,189 84,666,913 (1,291,723) 53.2% 54.0% -0.8%
Principal Payments
A-1 0 0 0 0.0% 0.0% 0.0%
A-2 83,946,181 70,987,011 12,959,169 53.5% 45.3% 8.3%
B-1 7,055,650 7,055,650 (0) 4.5% 4.5% 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 91,001,831 78,042,661 12,959,169 58.0% 49.8% 8.3%
- -------------------------------------------------------------------------------------- ---------------------------------------
Total Payments to Noteholders 174,377,020 162,709,574 11,667,446 111.2% 103.8% 7.4%
- -------------------------------------------------------------------------------------- ---------------------------------------
Benefical Interest Distributions (0) 0 (0) 0.0% 0.0% 0.0%
- -------------------------------------------------------------------------------------- ---------------------------------------
*Prospectus Cash Collections and Cash Expenses have been adjusted for
non-delivery of THY Aircraft, msn 25272.
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------
Coverage Ratios
Closing Prospectus* Actual
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
a Net Cash Collections 162,709,574 175,977,020
b Swaps 6,628,425 7,939,371
c Class A Scheduled -
d Class A Interest 50,830,169 48,359,127
e Class A Minimum 22,188,410 15,221,945
f Class B Interest 7,444,318 7,172,691
g Class B Minimum 7,055,650 7,055,650
h Class C Interest 8,280,000 8,346,667
I Class C Minimum - -
j Class D Interest 11,484,000 11,557,333
k Class D Minimum - -
l Class A Scheduled - -
m Class B Scheduled - -
n Class C Scheduled - -
o Class D Scheduled - -
p Permited Aircraft Modifications - 1,600,000
q Class A Supplemental 48,798,601 68,724,236
-------------- -------------
Total 162,709,574 175,977,020
-------------- -------------
Interest Coverage Ratio
Class A 3.20 3.64
Class B 2.02 2.49
Class C 1.70 2.04
Class D 1.52 1.80
Debt Coverage Ratio
Class A 1.52 1.80
Class B 1.52 1.80
Class C 1.52 1.80
Class D 1.52 1.80
Loan-to-Value Ratios
Assumed Portfolio Value 1,115,510,000 1,037,325,335
Adjusted Portfolio Value 1,004,150,560
Liquidity Reserve Amount
Of which - Cash 25,000,000 25,000,000 31,095,376
- Letters of Credit held 40,000,000 40,267,351 40,267,351
-------------- -------------- --------------
Subtotal 65,000,000 65,267,351 71,362,727
Less Lessee Security Deposits (20,000,000) (20,267,351) (20,267,351)
Less Accrued Expenses (6,095,376)
-------------- -------------- --------------
Subtotal 45,000,000 45,000,000 45,000,000
Total Asset Value 1,160,510,000 1,082,325,335 1,049,150,560
Note Balances as at 15-May-99
Class A 740,000,000 63.8% 669,012,989 61.8% 656,053,819 62.5%
Class B 100,000,000 72.4% 92,944,350 70.4% 92,944,350 71.4%
Class C 100,000,000 81.0% 100,000,000 79.6% 100,000,000 80.9%
Class D 110,000,000 90.5% 110,000,000 89.8% 110,000,000 91.4%
-------------- -------------- --------------
Total 1,050,000,000 971,957,339 958,998,169
-------------- -------------- --------------
103.3%
- ------------------------------------------------------------------------------------------------------------------------------
1. 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.
2. 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.
3. Total Asset Value is equal to Total Assumed Portfolio Value plus Liquidity
Reserve Amount minus Lessee Security Deposits.
4. Assumed Portfolio Value represents the Initial Appraised Value of each
aircraft in the Portfolio multiplied by the Depreciation Factor at Calculation
date divided by the Depreciation Factor at Closing date.
5. Adjusted Portfolio Value represents the Base Value of each aircraft in the
Portfolio as determined by the most recent Appraisal multiplied by the
Depreciation Factor at Calculation date divided by the Depreciation Factor at
Closing date.
6. The lower of the Assumed Portfolio Value or 105% of the Adjusted Portfolio
Value is used to calculate the principal repayment amounts to Noteholders
</TABLE>
