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
October 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 October 13, 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 Third 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: October 13, 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 Third Quarter
of 1999
4
EXHIBIT A
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-Oct-99
Current Calculation Date 8-Oct-99
Previous Payment Date 15-Sep-99
Previous Calculation Date 9-Sep-99
<TABLE>
- -------------------------------------------------------------------------------------------------
1. Account Activity Summary between Calculation Dates
- -------------------------------------------------------------------------------------------------
Prior Deposits Withdrawals Balance on
Balance Calculation Date
9-Sep-99 8-Oct-99
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Expense Account 1,694,847.98 2,736,304.19 (845,893.92) 3,585,258.25
Collection Account 12,179,215.40 10,431,543.02 (12,179,215.40) 10,431,543.02
Aircraft Purchase Account - - - -
Liquidity Reserve cash balance 25,000,000.00 - - 25,000,000.00
- -------------------------------------------------------------------------------------------------
Total 38,874,063.38 13,167,847.21 (13,025,109.32 39,016,801.27
- -------------------------------------------------------------------------------------------------
2. Analysis of Expenses Account Activity
- -------------------------------------------------------------------------------------------------
<S> <C>
Opening Balance on Previous Calculation Date 1,694,847.98
Transfer from Collection Account on previous Payment Date 2,736,304.19
Permitted Aircraft Accrual
Interim Transfer to Collection Account
Interest Income
Balance on current Calculation Date
- Payments on previous payment date (567,095.03)
- Interim payments (278,798.89)
- other
- -------------------------------------------------------------------------------------------------
Balance on current Calculation Date 3,585,258.25
- -------------------------------------------------------------------------------------------------
3. Analysis of Collection Account Activity
- -------------------------------------------------------------------------------------------------
Opening Balance on Previous Calculation Date 12,179,215.40
Collections during period
- lease rentals 8,555,719.00
- maintenance reserves 1,717,488.00
- other leasing income 1,306.00
- interest income 142,874.41
- interim transfer from Expense A/C 14,155.61
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 (2,736,304.19)
- Required Expense Amount
- Permitted Aircraft Modifications
Net Swap payments on previous Payment Date (549,312.50)
Aggregate Note Payments on previous Payment Date (8,893,598.71)
Interim Transfer to Expense Account
- ------------------------------------------------------------------------------------------------
Balance on current Calculation Date 10,431,543.02
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
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 20,003,351.00 30,003,351.00
--------------
Liquidity Reserve Amount 65,003,351.00
--------------
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-Oct-99
Current Calculation Date 8-Oct-99
Previous Payment Date 15-Sep-99
Previous Calculation Date 9-Sep-99
<TABLE>
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Balance in Collection Account 10,431,543.02
Liquidity Reserve Amount 65,003,351.00
==================
Available Collections 75,434,894.02
==================
3. Analysis of Collection Account Activity (Continued)
- ----------------------------------------------------------------------------------------------------------------
Analysis of Current Payment Date Distributions
(i) Required Expense Amount 1,328,508.66
(ii) a) Class A Interest but excluding Step-up 3,014,631.41
b) Swap Payments other than subordinated swap payments 615,208.33
(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 460,633.76
(vi) Class B Minimum principal payment 322,254.03
(vii) Class C Interest 575,000.00
(viii) Class C Minimum principal payment 175.00
(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 50,003,351.00
(xii) Class A Scheduled principal -
(xiii) Class B Scheduled principal -
(xiv) Class C Scheduled principal 3,053.00
(xv) Class D Scheduled principal -
(xvi) Permitted accruals for Modifications
(xvii) Step-up interest -
(xviii) Beneficial interest -
(xix) Class A Supplemental principal 3,314,578.82
(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 75,434,894.02
less collection Account Top Ups (iii) (b) and (xi) (b) above 65,003,351.00
==================
10,431,543.02
==================
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
MORGAN STANLEY AIRCRAFT FINANCE
Report to Noteholders
All amounts in US dollars unless otherwise stated
Current Payment Date 15-Oct-99
Current Calculation Date 8-Oct-99
Previous Payment Date 15-Sep-99
Previous Calculation Date 9-Sep-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 5.38000% 5.38000% 5.3800%
Applicable Margin 0.2100% 0.3500% 0.6500%
Applicable Interest Rate 5.59000% 5.73000% 6.03000%
Day Count Act/360 Act/360 Act/360
Actual Number of Days 30 30 30
Interest Amount Payable 1,863,333.33 1,151,298.07 460,633.76
Step-up Interest Amount Payable - NA NA
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Total Interest Paid 1,863,333.33 1,151,298.07 460,633.76
- ----------------------------------------------------------------------------------------
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 400,000,000.00 241,109,544.16 91,668,409.92
- ----------------------------------------------------------------------------------------
Extended Pool Factors 100.00% 86.44% 97.66%
expected Pool Factors 100.00% 79.63% 93.79%
- ----------------------------------------------------------------------------------------
Extension Amount - - -
expected Pool Factor Amount - - -
Surplus Amortisation - 3,314,578.82 322,254.03
- ----------------------------------------------------------------------------------------
Total Principal Distribution Amount - 3,314,578.82 322,254.03
- ----------------------------------------------------------------------------------------
Redemption Amount
- - amount allocable to principal
- - amount allocable to premium
- ----------------------------------------------------------------------------------------
Closing Outstanding Principal Balance 400,000,000.00 237,794,965.34 91,346,155.89
- ----------------------------------------------------------------------------------------
- ------------------------------------------------------------------------
(b) Fixed Rate Notes C-1 D-1
- ------------------------------------------------------------------------
<S> <C> <C>
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
Original Balance 100,000,000.00 110,000,000.00
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 - -
- ---------------------------
Surplus Amortisation 3,228.00
- ---------------------------
- ------------------------------------------------------------------------
Total Principal Distribution Amount 3,228.00 -
- ------------------------------------------------------------------------
Redemption Amount - -
- - amount allocable to principal - -
- - amount allocable to premium - -
- ------------------------------------------------------------------------
Closing Outstanding Principal Balance 99,996,772.00 110,000,000.00
- ------------------------------------------------------------------------
</TABLE>
<PAGE>
MORGAN STANLEY AIRCRAFT FINANCE
Report to Noteholders
All amounts in US dollars unless otherwise stated
Current Payment Date 15-Oct-99
Current Calculation Date 8-Oct-99
Previous Payment Date 15-Sep-99
Previous Calculation Date 9-Sep-99
- --------------------------------------------------------------------------------
5. Floating Rate Note information for next Interest Accrual Period
Start of Interest Accrual Period 15-Oct-99
End of Interest Accrual Period 15-Jun-99
Reference Date 11-Oct-99
- --------------------------------------------------------------------------------
A-1 A-2 B-1
- --------------------------------------------------------------------------------
Applicable LIBOR 5.40625% 5.40625% 5.40625%
Applicable Margin 0.2100% 0.3500% 0.6500%
Applicable Interest Rate 5.61625% 5.7563% 6.0563%
Actual Pool Factor 100.00% 69.94% 91.35%
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------
Fixed Rate Notes C-1 D-1
- -------------------------------------------------------------------
Actual Pool Factor 100.00% 100%
- -------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. Payments per $ 100,000 Inital Outstanding Principal Balance of Notes
- --------------------------------------------------------------------------------
(a) Floating Rate Notes A-1 A-2 B-1
- --------------------------------------------------------------------------------
Opening Outstanding Principal Balance 100,000.00 70,914.57 91,668.41
Total Principal Payments - 974.88 322.25
Closing Outstanding Principal Balance 100,000.00 69,939.70 91,346.16
Total Interest 465.83 338.62 460.63
Total Premium - - -
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------
(b) Fixed Rate Notes C-1 D-1
- -------------------------------------------------------------------
Opening Outstanding Principal Balance 100,000.00 100,000.00
Total Principal Payments 3.23 -
Closing Outstanding Principal Balance 99,996.77 100,000.00
Total Interest 575.00 725.00
Total Premium - -
- -------------------------------------------------------------------
<PAGE>
Comparison of Actual to Date Cashflows versus Prospectus
<TABLE>
-----------------------------------------------------------------------------------
% of Assumed Gross Lease Revenues
- ------------------------------------------------------------------------------------------------- ---------------------------------
15-Oct-99 Actual To Assumed* Variance Actual Assumed* Variance
October 15, 1999 To Date
- ------------------------------------------------------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Collections
Gross Lease Rentals 190,800,339 211,377,033 (20,576,695) 90.3% 100.0% -9.7%
Other Cash Received 2,769,467 0 2,769,467 1.3% 0.0% 1.3%
Security Deposits 4,006,650 0 4,006,650 1.9% 0.0% 1.9%
Repossession Costs - Actual (1,991,806) (9,511,967) 7,520,160 -0.9% -4.5% 3.6%
Repossession Costs - Accrued (45,017) 0 (45,017) 0.0% 0.0% 0.0%
------------------------------------------------ ---------------------------------
Net Lease Rentals 195,539,633 201,865,067 (6,325,434) 92.5% 95.5% -3.0%
Maintenance Receipts 28,114,327 0 28,114,327 13.3% 0.0% 13.3%
Maintenance Expenses- Actual (14,717,461) 0 (14,717,461) -7.0% 0.0% -7.0%
Maintenance Expenses - Accrued (4,213,164) 0 (4,213,164) -2.0% 0.0% -2.0%
------------------------------------------------ ---------------------------------
Net Maintenance 9,183,702 0 9,183,702 4.3% 0.0% 4.3%
Interest Received 3,665,027 2,265,025 1,400,002 1.7% 1.1% 0.7%
------------------------------------------------ ---------------------------------
Total Cash Collections 208,388,362 204,130,091 4,258,271 98.6% 96.6% 2.0%
Cash Expenses
Cash Operating Expenses
- Insurance, re-leasing and other
costs - Actual (1,625,667) (7,398,196) 5,772,529 -0.8% -3.5% 2.7%
- Insurance, re-leasing and other
costs - Accrued (1) (1) 0.0% 0.0% 0.0%
------------------------------------------------ ---------------------------------
subtotal (1,625,668) (7,398,196) 5,772,528 -0.8% -3.5% 2.7%
SG&A
- Servicer Fees (7,840,918) (9,166,236) 1,325,318 -3.7% -4.3% 0.6%
- Other Servicer provider fees and
Overhead - Actual (4,467,842) (5,282,371) 814,529 -2.1% -2.5% 0.4%
- Other Servicer provider fees and
Overhead - Accrued (93,472) (93,472) 0.0% 0.0% 0.0%
------------------------------------------------ ---------------------------------
subtotal (12,402,233) (14,448,607) 2,046,375 -5.9% -6.8% 1.0%
Interest Payments (Net of Swap Payments) (110,641,440) (110,200,910) (440,530) -52.3% -52.1% -0.2%
------------------------------------------------ ---------------------------------
Total Cash Expenses & Interest Payments (124,669,341) (132,047,714) 7,378,373 -59.0% -62.5% 3.5%
- ------------------------------------------------------------------------------------------------- ---------------------------------
Net Cash Collections 83,719,022 72,082,378 11,636,644 39.6% 34.1% 5.5%
- ------------------------------------------------------------------------------------------------- ---------------------------------
Exceptional Items
- THY Note Distribution 27,143,085 27,143,085 0 12.8% 12.8% 0.0%
- ------------------------------------------------------------------------------------------------- ---------------------------------
Cash Collections Available for
Distribution 110,862,107 99,225,463 11,636,644 52.4% 46.9% 5.5%
- ------------------------------------------------------------------------------------------------- ---------------------------------
Principal Payments
A-1 0 0 0 0.0% 0.0% 0.0%
A-2 102,205,034 90,568,216 11,636,818 48.4% 42.8% 5.5%
B-1 8,653,844 8,653,844 (0) 4.1% 4.1% 0.0%
C-1 3,228 3,403 (175) 0.0% 0.0% 0.0%
D-1 0 0 0 0.0% 0.0% 0.0%
------------------------------------------------ ---------------------------------
subtotal 110,862,106 99,225,463 11,636,643 52.4% 46.9% 5.5%
- ------------------------------------------------------------------------------------------------- ---------------------------------
Total Payments to Noteholders 110,862,106 99,225,463 11,636,643 52.4% 46.9% 5.5%
- ------------------------------------------------------------------------------------------------- ---------------------------------
Benefical Interest Distributions (0) 0 (0) 0.0% 0.0% 0.0%
- ------------------------------------------------------------------------------------------------- ---------------------------------
*Assumed Cash Collections and Cash Expenses have been adjusted for non-delivery of an aircraft.
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Coverage Ratios
Closing Actual Assumed*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Collections Available for Distribution 110,862,107 99,225,463
Add Back Interest and Swap Payments 110,641,440 110,200,910
Add Back Permitted Accruals 1,600,000
Net Cash Collections(excl. interest and swap pymts) 223,103,547 209,426,373
a Swaps 11,401,510 5,999,708
b Class A Interest 63,057,140 67,619,558
c Class A Minimum 15,221,945 22,188,410
d Class B Interest 9,416,290 9,955,144
e Class B Minimum 8,653,844 8,653,844
f Class C Interest 11,221,667 11,155,000
g Class C Minimum 175 175
h Class D Interest 15,544,833 15,471,500
I Class D Minimum - -
j Class A Scheduled - -
k Class B Scheduled - -
l Class C Scheduled 3,053 3,228
m Class D Scheduled - -
n Permited Aircraft Modifications 1,600,000 -
o Class A Supplemental 86,983,089 68,379,806
----------------------------------
p Total 223,103,546 209,426,373
----------------------------------
Interest Coverage Ratio
Class A 3.54 3.10 = a / (b+c)
Class B 2.54 2.10 = a / (b+c+d+e)
Class C 2.07 1.75 = a / (b+c+d+e+f+g)
Class D 1.81 1.55 = a / (b+c+d+e+f+g+h+i)
Debt Coverage Ratio
Class A 1.81 1.55 = a / (b+c+d+e+f+g+h+i+ j+k)
Class B 1.81 1.55 = a / (b+c+d+e+f+g+h+i+j+k+l)
Class C 1.81 1.55 = a / (b+c+d+e+f+g+h+i+j+k+l+m)
Class D 1.81 1.55 = 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 1,019,488,347
Adjusted Portfolio Value 986,855,533
Liquidity Reserve Amount
Of which - Cash 25,000,000 25,000,000 25,000,000
- Accrued Expenses 4,351,654
- Letters of Credit held 40,000,000 40,003,351 40,003,351
------------- -----------------------------------
Subtotal 65,000,000 69,355,005 65,003,351
Less Lessee Security Deposits (20,000,000) (20,003,351) (20,003,351)
Subtotal 45,000,000 49,351,654 45,000,000
Total Asset Value 1,160,510,000 1,036,207,187 1,064,488,347
Note Balance as at 15-Oct-99
Class A 740,000,000 63.8% 637,794,966 649,431,784 61.0% 61.6%
Class B 100,000,000 72.4% 91,346,156 91,346,156 69.6% 70.4%
Class C 100,000,000 81.0% 99,996,772 99,996,597 79.0% 80.0%
Class D 110,000,000 90.5% 110,000,000 110,000,000 89.3% 90.6%
------------- -----------------------------------
Total 1,050,000,000 939,137,894 950,774,537
------------- -----------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
*Assumed Cash Collections and Cash Expenses have been adjusted for non-delivery of an aircraft.
</TABLE>
1. Interest Coverage Ratio is equal to Net Cash Collections(excl. interest and
swap payments) 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 (excl. interest and swap
payments) 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 Inital Appraised Value of each
aircraft in the Portfolio multipled 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 detemined by the most recent Appraisal multipled 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
EXHIBIT B
MORGAN STANLEY AIRCRAFT FINANCE
QUARTERLY CASH ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIRD QUARTER 1999, MAY 31, 1999 TO AUGUST 31, 1999
CONTENTS
I Background and General Information
II Comparison of Actual Cash Flows versus Assumptions for the Third Quarter
1999
III Comparison of Third Quarter 1999 Actual Cash Flows versus the Prior Year
Period
IV Other Financial Data
V Recent Developments
VI Appendices
Page 1 of 12
<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 Group's agreement to acquire 33
aircraft plus a spare engine with a total appraised value at September 30, 1997
of $1,115.5 million from International Lease Finance Corporation ("ILFC").
All but one of the 33 aircraft was acquired by MSAF. The undelivered aircraft
was a B737-400 with an appraised value of $28.8 million. Pursuant to the
indenture relating to the Notes (the "Indenture"), MSAF decided not to
substitute this aircraft but to distribute to the Noteholders $27.1 million on
June 15, 1998. $26 million of this amount represents that portion of the
proceeds from the offering of the Notes relating to this aircraft and $1.1
million represents swap breakage costs paid by ILFC. 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 $1,115.5 million to $1,086.7 million
at September 30, 1997.
The fleet is appraised annually and the most recent appraisal dated September
30, 1998 valued the portfolio at $1,029.4 million. Applying the declining value
assumption to the original September 30, 1997 fleet appraisal of $1,086.7
million, the total appraised value was assumed to be $1,026.7 million at August
16, 1999. See "Section IV - Aircraft Values" below. As of October 1, 1999, 31
aircraft plus the engine were subject to lease contracts (or in one case, a
Conditional Sale Agreement) with 28 lessees in 19 countries as shown in
Appendix A attached.
One aircraft was AOG ("Aircraft on Ground").
The discussion and analysis that 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 Conditional Sale Agreement.
MSAF may also make aircraft acquisitions and aircraft sales. MSAF Group intends
to acquire additional commercial passenger or freight aircraft from various
sellers and will finance the acquisition of such aircraft by issuing additional
notes see "Section V - Recent Developments". 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 Group'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. These include
interest rates, the availability of credit, fuel costs and general and regional
economic conditions affecting lessee operations and trading. Other factors to
consider are manufacturer production levels, passenger demand, retirement and
obsolescence of aircraft models, manufacturers exiting or entering the market
or ceasing to produce aircraft types or re-introduction into service of
aircraft previously in storage. In addition, state regulations and air traffic
control infrastructure constraints such as limitations on the number of landing
slots can also impact on the operating leasing market.
Page 2 of 12
<PAGE>
MSAF Group's ability to compete against other lessors is determined, in part,
by the composition of its fleet in terms of mix, relative age and popularity of
aircraft type. In addition, operating restrictions imposed by the Indenture,
and 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 "Third Quarter 1999", referred to in
Section II, shall comprise information from the three monthly cash reports
dated June 15, 1999, July 15, 1999 and August 16, 1999. The financial data in
these reports includes cash receipts from May 12, 1999 (first day of the
Collection Period for the June 1999 Report) up to August 10, 1999 (last day of
the Collection Period for the August 1999 Report). It also includes payments
made by MSAF between May 12, 1999 and up to August 16, 1999 (the Note Payment
Date for the August 1999 Report).
Similarly, for the purposes of this report, the "Prior Year Period", referred
to in Section III, shall comprise information from the monthly cash report
dated June 15, 1998, July 15, 1998 and August 17, 1998. The financial data in
these reports includes cash receipts from May 12, 1998 (first day of the
Collection Period for the June 1998 Report) up to August 11, 1998 (last day of
the Collection Period for the August 1998 Report) and payments made by MSAF
between May 12, 1998 to August 17, 1998 (the Note Payment Date for the August
1998 Report).
II COMPARISON OF ACTUAL CASH FLOWS VERSUS ASSUMPTIONS
FOR THE THIRD 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 Group's future cash flows and cash expenses (the
"Assumptions"). For the purpose of this report, "Net Cash Collections" is
defined as Total Cash Collections less Total Cash Expenses and Interest
Payments (net of Swap Payments). In the Third Quarter 1999, MSAF Group
generated approximately $12.1 million in Net Cash Collections, more than
assumed in the Prospectus by $1.4 million. An analysis of the quarterly Cash
Collections, Cash Expenses, Interest Payments and Principal Payments is given
in Sections A, B, C and D below and should be read in conjunction with Appendix
B.
Section A - Cash Collections
"Total Cash Collections" include lease rental payments, maintenance reserve
payments by lessees and cash interest paid on MSAF Group's cash balances. The
Prospectus assumed Total Cash Collections for the Third Quarter 1999 of $31.0
million. Total Cash Collections achieved in this period were $30.7 million, a
negative difference of $0.3 million. This difference is due to a combination of
the factors set out below.
1) Gross Lease Rentals. Gross Lease Rentals for the Third Quarter 1999
amounted to $28.0 million or approximately $4.1 million less than the
$32.1 million assumed in the period. This negative variance is due to a
number of factors listed below.
Arrears $1.8 million
AOG 1.2 million
Resets/Restructuring 1.2 million
Other (0.1) million
Total $4.1 million
Page 3 of 12
<PAGE>
2) Other Cash Received. Other Cash Received for the Third Quarter 1999
amounted to an inflow of $0.4 million. This consisted of a settlement
received of $0.2 million, relating to the repossession of three aircraft
from two former lessees in 1998 and also an amount of $0.2 million
received from a former lessee in respect of redelivery expenses. The
Prospectus makes no assumption as to Other Cash Received.
3) Security Deposits. A security deposit of $1.0 million received in the
Third Quarter 1999 relates to a former lessee, based in Brazil, whose
lease terminated early. See "Section V - Recent Developments".
4) Repossession Costs. Repossession Costs for the Third Quarter 1999 amounted
to an inflow of $0.1 million, compared to a cost of $1.4 million assumed
in the Prospectus for this period. The inflow of $0.1 million relates to
the difference between a cash accrual of $0.6 million that was set aside
for payment of expenses and actual expenses paid of $0.5 million. The
actual costs paid in the Third Quarter 1999 were primarily in relation to
the Guyana Airways early termination.
5) 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 Third Quarter 1999,
assumed Net Lease Rentals were $30.6 million. Actual Net Lease Rentals for
the period were $29.6 million, $1.0 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.
6) Net Maintenance. In the Third Quarter 1999, net maintenance amounted to an
inflow of $0.6 million. Maintenance receipts were $4.8 million and
maintenance expenses were $4.2 million of which $4.3 million was actual
expenses paid offset by a decrease of $0.1 million in the level of accrued
maintenance expenses held since the Second Quarter 1999. Maintenance
expenditure may vary significantly from period to period as it is impacted
by the timing and incidence of checks, where checks are performed, the
type and age of the aircraft as well as events such as lease extensions
and early redeliveries. 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 the first half of 1999, but which MSAF Group now expects to incur later
this year.
7) Interest Received. Actual interest received for the Third Quarter 1999 was
$0.5 million compared to $0.4 million in the Prospectus. The difference is
due to a combination of two offsetting factors. Firstly, actual interest
received includes interest received on amounts in the Expense Account and
interim balances in the Collection Account that are not included in the
Prospectus assumptions. Secondly 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 actual average reinvestment
rate for the period was approximately 4.93%.
Page 4 of 12
<PAGE>
Section B - Cash Expenses
"Total Cash Expenses" consists of Cash Operating Expenses and Selling, General
and Administrative Expenses. The Prospectus assumed Total Cash Expenses of $3.6
million for the Third Quarter 1999. Actual Total Cash Expenses amounted to $2.1
million, a variance of $1.5 million that is due to a combination of the factors
set out below.
1) Cash Operating Expenses includes any insurance, re-leasing and other
aircraft operating costs paid and/or accrued by the MSAF Group in the
course of the business activities permitted to be conducted by it under
the Indenture.
Insurance, re-leasing and other costs. Insurance, re-leasing and other
costs amounted to $0.1 million, $1.0 million less than assumed in the
Prospectus. The actual costs paid in the Third Quarter 1999 consisted of
the quarterly premium for contingent insurance coverage for the portfolio
and insurance costs associated with repossession events that occurred in
1998.
2) Selling, General and Administrative Expenses ("SG&A") include all fees
paid to the Aircraft Servicer, Administration Agent, Independent Trustees
and miscellaneous service providers. Total SG&A costs for the Third
Quarter 1999 were approximately $2.0 million compared to $2.4 million
assumed in the Prospectus. This variance of $0.4 million is due to a
combination of the factors set out below.
Servicer fees. Fees paid to ILFC, as Servicer, during the Third 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 as the gross rental revenue is lower than expected, the fee
paid to ILFC is also lower.
Other Service provider fees and Overhead. Other Service provider fees and
Overhead for the Third Quarter 1999 amounted to $0.7 million compared to a
cost of $0.8 million assumed in the Prospectus for this period. The
variance of $0.1 million is due to the fact that fees and expenses for
Other Service providers were less than expected.
Section C - Interest Payments (net of Swap Payments)
Interest Payments (net of Swap Payments). Actual interest payments to
Noteholders net of swap effects were $16.4 million, lower than the assumed net
payments of $16.6 million for the Third Quarter 1999, reflecting faster than
expected amortization of the A-2 Notes.
Section D - Principal Payments
Principal Payments. Total principal distributions during the Third Quarter 1999
were $12.1 million, an excess of $1.4 million over assumed total debt
amortization of $10.7 million for this period. The principal amortization
payments were made with respect to the A-2 and B-1 Notes.
III COMPARISON OF THIRD QUARTER 1999 ACTUAL CASH FLOWS VERSUS THE PRIOR YEAR
PERIOD
In the Third Quarter 1999, MSAF Group generated approximately $12.1 million in
Net Cash Collections, $2.2 million lower than achieved in the Prior Year
Period. An analysis of the quarterly Cash Collections, Cash Expenses, Interest
Payments and Principal Payments for the Third Quarter 1999 and the Prior Year
Period is given in Sections A, B, C and D below and should be read in
conjunction with Appendix C.
Page 5 of 12
<PAGE>
Section A - Cash Collections
"Total Cash Collections" include lease rental payments, maintenance reserve
payments by lessees and cash interest paid on MSAF Group's cash balances. Total
Cash Collections achieved in the Third Quarter 1999 were $30.7 million, $3.3
million lower than achieved in the Prior Year Period. This difference is due to
a combination of the factors set out below.
1) Gross Lease Rentals. Gross Lease Rentals for the Third Quarter 1999
amounted to $28.0 million or approximately $3.0 million less than in the
Prior Year Period. This variance is due to a number of factors set out
below.
Arrears $1.6 million
AOG 0.8 million
Resets/Restructuring 0.6 million
Total $3.0 million
2) Other Cash Received. Other Cash Received in the Third Quarter 1999
amounted to an inflow of $0.4 million, compared to $0.5 million received
in the Prior Year Period. This $0.4 million consisted of a settlement
received of $0.2 million, relating to the repossession of three aircraft
from two former lessees in 1998 and also an amount of $0.2 million
received from a former lessee in respect of redelivery expenses. Other
cash received of $0.5 million in the Prior Year Period consists mainly of
an amount of $0.4 million paid by ILFC, the Servicer, in respect of a
lease rental guarantee on one aircraft.
3) Security Deposits. A security deposit received in the Third Quarter 1999
relates to a former lessee, based in Brazil, whose lease terminated early.
See "Section V - Recent Developments". No security deposits were drawn
down in the Prior Year Period.
4) Repossession Costs. Repossession Costs for the Third Quarter 1999 amounted
to an inflow of $0.1 million compared to an outflow of $0.3 million in the
Prior Year Period. The inflow of $0.1 million in the Third Quarter 1999
relates to the difference between a cash accrual of $0.6 million that was
set aside for payment of expenses and actual expenses paid of $0.5
million. The actual costs paid in the Third Quarter 1999 related mainly to
expenses incurred as a result of the Guyana Airways early termination. The
outflow of $0.3 million in the Prior Year Period relates to the difference
between a cash accrual of $0.1 million that was set aside for payment of
expenses and actual expenses paid of $0.4 million. Costs incurred related
to the repossession of three aircraft from two lessees in April 1998.
5) Net Lease Rentals. Actual Net Lease Rentals in the Third Quarter 1999 were
$29.6 million, $1.5 million less than achieved in the Prior Year Period
due primarily to lower gross lease rentals and other cash received which
was partially offset by receipt of a security deposit and lower
repossession costs.
6) Net Maintenance. In the Third Quarter 1999, net maintenance amounted to an
inflow of $0.6 million, compared to a net maintenance inflow of $2.1
million in the Prior Year Period. This variance of $1.5 million was due
primarily to higher maintenance expenses in 1999 that were partially
offset by higher maintenance receipts in 1999.
7) Interest Received. Actual interest received for the Third Quarter 1999 was
$0.5 million, compared to $0.8 million received in the Prior Year Period.
The difference is due to a combination of two factors. Firstly, the higher
interest earned in the 1998 period was due primarily to a larger cash
balance held on deposit in the Aircraft Purchase Account to fund the
acquisition of two aircraft that had not yet been delivered. This cash in
the Aircraft Purchase Account was used to purchase an aircraft in May 1998
and the balance was distributed to Noteholders in June 1998. Secondly, the
average reinvestment rate for the Prior Year Period was 5.47%, compared to
an average reinvestment rate of 4.93% in the Third Quarter 1999.
Page 6 of 12
<PAGE>
Section B - Cash Expenses
"Total Cash Expenses" consists of Cash Operating Expenses and Selling, General
and Administrative Expenses.
1) Cash Operating Expenses includes any insurance, re-leasing and other
aircraft operating costs paid and/or accrued by the MSAF Group in the
course of the business activities permitted to be conducted by it under
the Indenture.
Insurance, re-leasing and other costs. Insurance, re-leasing and other
costs amounted to $0.1 million in the Third Quarter 1999. This compared to
$0.4 million in the Prior Year Period. The actual costs paid in the Third
Quarter 1999 consisted of the quarterly premium for contingent insurance
coverage for the portfolio and also insurance costs associated with
repossession events that occurred in 1998. Actual costs in the Prior Year
Period were $0.4 million and related primarily to re-leasing.
2) Selling, General and Administrative Expenses ("SG&A") include all fees
paid to the Aircraft Servicer, Administration Agent, Independent Trustees
and other miscellaneous service providers. Total SG&A costs for the Third
Quarter 1999 were approximately $2.0 million compared to $1.5 million in
the Prior Year Period. This difference is due to a combination of the
factors set out below.
Servicer fees. Fees paid to ILFC, as Servicer, during the Third Quarter
1999 were $1.3 million, an increase of $0.4 million over the Prior Year
Period. The increase in the fee over the Prior Year Period is primarily
due to a step-up in the Base fee from $83k per month in 1998 to $167k per
month in 1999. This was offset by lower rent collected fees paid due to
lower rentals collected.
Other Service provider fees and Overhead. The total expenses for Other
Service provider fees and Overhead was $0.7 million for the Third Quarter
1999, versus $0.6 million for the Prior Year Period, a variance of $0.1
million. While the Administration Agent's fee was lower in the Third
Quarter 1999, (in direct proportion to the lower gross lease rental line),
other service provider fees were higher than in the Prior Year Period.
This was due to a number of payments including the registration with the
Securities and Exchange Commission ("SEC"), 1998 year-end audit, legal
fees and annual listing fees for the Notes.
Section C - Interest Payments (net of Swap Payments)
Interest Payments (net of Swap Payments). Actual interest payments to
Noteholders, net of swap effects, were $16.4 million in the Third Quarter 1999,
compared to $17.8 million in the Prior Year Period. This variance of $1.8
million is due to lower principal balances outstanding on the A-2 and B-1
Notes.
Exceptional Item
Exceptional Item. Total proceeds of $27.1 million received as a result of the
non-delivery of one aircraft were recorded as an exceptional item in the Prior
Year Period.
Page 7 of 12
<PAGE>
Section D - Principal Payments
Principal Payments. Total Principal Payments in the Third Quarter 1999, were
$12.1 million, which is $29.3 million lower than in the Prior Year Period. The
higher distribution in the Prior Year Period was as a result of the return to
the Noteholders of the proceeds from the non-delivery of the aircraft ($27.1
million) and higher Net Cash Collections ($2.2 million).
IV OTHER FINANCIAL DATA
An analysis of the cash performance to August 16, 1999 is shown in Appendix D.
Cash
Cash held at August 16, 1999 was $30.2 million. This includes $25.0 million
that represents the cash portion of the Liquidity Reserve Amount. This is a
source of liquidity for, among other things, maintenance obligations, security
deposit return obligations, and cash operating expenses and contingent
liabilities. The remainder of $5.2 million represents accrued expenses and is
held in the Expense Account to cover primarily maintenance expenses but also
operating expenses expected to fall due in the next quarter.
In addition to the $30.2 million cash balance held at August 16, 1999 the
Liquidity Reserve Amount also contained a credit and liquidity facility from
Morgan Stanley Dean Witter & Co. and ILFC for $40.0 million. This facility was
not drawn upon in the Third Quarter 1999.
Aircraft Values
Under the terms of the Notes, MSAF Group is obliged to obtain new appraisals of
the Base Value of each aircraft from three independent appraisers each year.
The annual appraisal must be delivered to the Trustee no later than October 31
of each year. The most recent annual appraisal was as of September 30, 1998 and
the next appraisal is due to be delivered to the Trustee no later than October
31, 1999. Details of the most recent appraisal, dated September 30 1998, are
shown 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.
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. 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 August 16, 1999, the aggregate amount of Class A-D Notes outstanding was
$946.9 million, approximately $12.1 million lower than assumed due to higher
than assumed principal repayments with respect to the Class A-2 Notes.
V RECENT DEVELOPMENTS
Acquisition of Additional Aircraft
MSAF Group advises that it intends to acquire a portfolio of 28 commercial jet
aircraft from certain subsidiaries of Morgan Stanley Dean Witter & Co.
("MSDW"). MSDW acquired two Fokker-50 aircraft from an affiliate of GE Capital
Corporation on March 19, 1999 and agreed to acquire 26 aircraft from ILFC on
August 6, 1999. MSAF Group intends to finance this acquisition by issuing
additional notes.
Page 8 of 12
<PAGE>
Leasing Activity in the Third Quarter 1999
In the Third Quarter 1999 there were no scheduled re-leasing events. One lease
that was scheduled to expire in April 2003 terminated early. No aircraft were
placed on lease during the quarter. As at October 1, 1999 MSAF Group owned 33
aircraft assets; 32 aircraft and an engine. 31 of the aircraft and the engine
were on lease to 28 lessees in 19 countries. One aircraft, a B747-300B was AOG
and non-revenue earning.
Table 1
- --------------------------------------------------------------------------------
# Aircraft
Fleet size * 33
Scheduled terminations 0
Unscheduled terminations 1
- --------------------------------------------------------------------------------
Total terminations 1
Aircraft placed on lease this quarter 0
- --------------------------------------------------------------------------------
Aircraft on Ground (AOG) October 1, 1999 1
Average remaining term to lease expiry (months) 48
Aircraft coming off lease during 12 month period ending October 1, 2000 2
% of fleet coming off lease during 12 month period ending October 1, 2000 4.9%
- --------------------------------------------------------------------------------
* includes engine
As of October 1, 1999, two aircraft, equating to 4.9% of the portfolio by
appraised value at September 30, 1998, will come off lease within 12 months. A
Letter of Intent has been signed for one of these aircraft. The average
remaining term to lease expiry (weighted by appraised value at September 30,
1998) for the entire fleet was 48 months as of October 1, 1999.
Lessee Difficulties
Table 2
----------------------------------------------------
Current Arrears Restructured Former Lessee
Arrears Arrears
- -------------------------------------------------------------------------------
# lessees 6 2 3
- -------------------------------------------------------------------------------
Days over due 51 NA NA
- -------------------------------------------------------------------------------
Arrears ($m) $3.2m $0.1m $4.4m
- -------------------------------------------------------------------------------
Security deposits $2.8m NA NA
- -------------------------------------------------------------------------------
Page 9 of 12
<PAGE>
As of October 1, 1999 six lessees were in arrears. The seven aircraft on lease
to these lessees represented 18.3% of the portfolio by appraised value at
September 30, 1998. The total amount of rental payments, maintenance reserves
and other amounts due under the leases (excluding restructured arrears) was
$3.2 million. We hold security deposits of $2.8 million against these arrears.
The weighted average number of days past due of such arrears was 51 days.
Two of the six lessees, both based in Brazil, have restructured their arrears.
See "Latin America (Emerging) below. In the case of one lessee, representing
2.1% of the portfolio by appraised value at September 30, 1998, the total
rental payments, maintenance reserves and other amounts owed at March 24, 1999,
the date of the restructuring, was $0.5 million. Under the restructuring, this
amount is due to be repaid in full by February 2000. At October 1, 1999, $0.1
million of restructured arrears were due and unpaid.
In the case of the other lessee, representing 2.9% of the portfolio by
appraised value at September 30, 1998, the total rental payments, maintenance
reserves and other amounts owed at August 18, 1999, the date of the
restructuring was $3.5 million. The total arrears restructured, including
default interest, was $3.7 million. The restructured amounts were capitalized
and added to the lessee's conditional sale agreement loan balance, with an
extension to the term of the loan.
In addition, as of October 1, 1999, an aggregate of $4.4 million (net of
security deposits) was owed to MSAF Group from three of its former lessees.
$3.8 million of this aggregate relates to a single Brazilian lessee. In two
cases, MSAF Group has re-leased the aircraft to other carriers. The third
aircraft is off-lease undergoing maintenance work prior to re-marketing to a
new lessee. See "Latin America (Emerging)" below.
Regional Analysis of Current Arrears
The categorization of countries into geographical regions, Developed Markets,
Emerging Markets and Other is determined using Morgan Stanley Capital
International, Inc. ("MSCI") designations. A regional analysis of current
arrears is shown in Table 3 below.
<TABLE>
Table 3
- ----------------------------------------------------------------------------------------------------
Region # Countries # Aircraft # Lessees Current
Arrears $m
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Developed Europe 1 1 1 0.4
North America 1 2 1 0.5
- ----------------------------------------------------------------------------------------------------
Emerging Europe and Middle East 1 1 1 0.7
Asia 0 0 0 0.0
Latin America 1 2 2 1.6
- ----------------------------------------------------------------------------------------------------
Other Other 1 1 1 0.0
- ----------------------------------------------------------------------------------------------------
Total Arrears 5 7 6 3.2
- ----------------------------------------------------------------------------------------------------
</TABLE>
Page 10 of 12
<PAGE>
Latin America (Emerging)
MSAF Group currently leases 11.4% of the portfolio in Latin America (6.4% in
Mexico and 5.0% in Brazil) by appraised value at September 30, 1998. Two of the
six current lessees in arrears are based in Latin America.
Brazil has experienced significant downturns in its economy and financial
markets, with large decreases in financial asset prices and, since it devalued
its currency on January 13, 1999, dramatic decrease in the value of its
currency.
One current lessee, whose lease is a conditional sale agreement, has been in
arrears since September 1998. After protracted negotiations with ILFC, the
lessee agreed to a restructuring of its arrears balance. The total of rental
payments, maintenance reserves and other amounts owed at August 18, 1999, the
date of the restructuring, was $3.5 million. The total amount restructured,
including default interest, was $3.7 million. The restructured amounts were
capitalized and added to the lessee's conditional sale agreement loan balance,
with an extension to the term of the loan. At October 1, 1999, $0.4 million of
arrears were due and unpaid. This aircraft is an A310-300 and represented 2.9%
of the portfolio by appraised value at September 30, 1998.
The arrearage of the second current Brazilian lessee was restructured in March
1999. The total rental payments, maintenance reserves and other amounts owed at
the date of the restructuring was $0.5 million. Under the restructuring, this
amount is due to be repaid in full by February 2000. At October 1, 1999, $0.1
million of restructured arrears and $1.2 million of current arrears were due
and unpaid. We hold a security deposit of $0.7 million against the current
arrears. This aircraft is a B737-300 and represented 2.1% of the portfolio by
appraised value at September 30, 1998.
A former Brazilian lessee has recently negotiated an early termination of its
lease of a B747-300 aircraft that was scheduled to expire in April 2003. The
total amount of rental payments and maintenance reserves due under this lease
(net of security deposit of $1.0 million) to July 1999, the date of the
termination agreement, was $3.8 million. The former lessee, under the
provisions of an interest bearing repayment note for $10.8 million, will repay
arrears of $4.8 million (excluding security deposit) and approximately $6.0
million for certain maintenance and downtime costs over the next eight years.
The aircraft is currently undergoing maintenance work, which is scheduled for
completion in February 2000, prior to re-leasing. It is likely that the
aircraft will be non-revenue earning for several months as re-leasing may be
difficult because the market for this aircraft type is currently weak. The
former lessee will bear the cost of storing and insuring the aircraft until May
2000 (or earlier if the Servicer can secure a new lessee). This aircraft
represents approximately 6.1% of the portfolio by appraised value at September
30, 1998,
Europe and Middle East (Emerging)
MSAF Group currently leases 9.0% of the portfolio by appraised value at
September 30, 1998 in the Europe and Middle East region. One of the six current
lessees in arrears is based in Europe and Middle East. At October 1, 1999, the
total rental and maintenance arrears owed by this lessee was $0.7 million. This
aircraft, an A321-100, represented 4.3% of the portfolio by appraised value at
September 30, 1998.
Page 11 of 12
<PAGE>
Asia (Emerging)
MSAF Group currently leases 13.0% of the portfolio by appraised value at
September 30, 1998 in the Asia Region. As of October 1, 1999, none of these
lessees were in arrears.
Europe (Developed)
MSAF Group currently leases 31.6% of the portfolio by appraised value at
September 30, 1998 in the Europe (Developed) region. One of the six current
lessees in arrears is based in the Europe (Developed) region. At October 1,
1999, the total rental and maintenance arrears owed by this lessee was $0.4
million. We hold security deposits of $0.1 million for this lessee. This
aircraft, an A320-200, represented approximately 3.1% of the portfolio by
appraised value at September 30, 1998.
North America (Developed)
MSAF Group currently leases 12.8% of the portfolio by appraised value at
September 30, 1998 in the North America (Developed) region. One of the six
current lessees in arrears is based in the North America (Developed) region. As
of October 1, 1999, the total rental and maintenance arrears owed by this
lessee was $0.5 million. We hold security deposits of $0.8 million for this
lessee. The two aircraft on lease to this lessee represented 3.8% of the
portfolio by appraised value at September 30, 1998.
Other
MSAF Group currently leases 16.1% of the portfolio by appraised value at
September 30, 1998 in the "Other" region. One of the six current lessees in
arrears is based in the "Other" region. At October 1, 1999, the total rental
and maintenance arrears owed by this lessee was $0.1 million. We hold security
deposits of $0.5 million for this lessee. This aircraft, a B737-300,
represented 2.1% of the portfolio by appraised value at September 30, 1998.
On April 2, 1999, a lease with Guyana Airways was terminated by agreement with
rental arrears of $1.3 million. Guyana made a payment of $3.0 million to MSAF
Group in settlement of its arrears and maintenance obligations. The estimated
costs of maintenance work and redelivery are likely to be in excess of the
settlement amount received. The aircraft was re-leased to National Airlines, a
U.S. carrier, in June 1999. This aircraft, a B757-200ER, represented 3.3% of
the portfolio by appraised value at September 30, 1998.
Proposed Airworthiness Directive
On August 11, 1999, the United States Federal Aviation Administration issued a
Notice of Proposed Rule Making ("NPRM") relating to fire safety standards in
certain types of aircraft. As proposed, the resulting Airworthiness Directive
("AD") would require operators of those aircraft to replace the current fire
insulation blankets. MSAF Group cannot determine whether this NPRM will result
in an AD. If the NPRM results in an AD, MSAF Group's one MD-82 and two MD-83's
aircraft would be affected. Under the relevant leases, all costs of compliance
with ADs are obligations of the lessees.
Page 12 of 12
<PAGE>
APPENDIX A
Morgan Stanley Aircraft Finance
Portfolio Details
All amounts in thousands of US dollars unless otherwise stated
Figures as of October 1, 1999
<TABLE>
30-Sep-98
Adjusted
Country of Aircraft Engine Serial Date of Base % of
Region (1) Current Lessee Current Lessee Type Configuration Number Manufacture Value (2) Total Region %
---------- -------------- -------------- ---- ------------- ------ ----------- ---------- ----- --------
<S> <C> <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 l'Aeropostale B737-300 CFM 56-3C1 23788 May-87 21,420 2.1%
3 Greece Olympic Airways B737-400 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 B737-300 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 Norway Braathens Airways B737-500 CFM 56-3B1 25165 Apr-93 20,860 2.0%
8 UK Britannia B767-200ER CF6-80A 23807 Aug-87 36,390 3.5%
9 UK Caledonian Airways A320-200 V2500-A1 393 Feb-93 31,310 3.0%
10 UK Air 2000 B767-300ER CF6-80C2B6F 26256 Apr-93 67,767 6.6%
11 UK Flying Colours B757-200ER RB211-535-E4-37 24367 Feb-89 34,870 3.4%
Sub-total 31.6%
12 North America USA Alaska Airlines B737-400 CFM 56-3C1 25104 May-93 28,210 2.7%
13 (Developed) USA TWA MD-83 JT8D-219 49824 Mar-89 20,423 2.0%
14 USA TWA MD-82 JT8D-217C 49825 Mar-89 18,270 1.8%
15 USA National Airlines B757-200ER RB211-535-E4 24260 Dec-88 33,953 3.3%
16 Canada Canadian Airlines A320-200 V2500-A1 279 Feb-92 30,467 3.0%
Sub-total 12.8%
17 Europe Hungary Malev F-70 TAY MK620-15 11564 Dec-95 15,627 1.5%
18 and Middle East Hungary Malev F-70 TAY MK620-15 11565 Feb-96 16,353 1.6%
19 (Emerging) Hungary Malev F-70 TAY MK620-15 11569 Mar-96 16,460 1.6%
20 Turkey Air Alfa A321-100 V2530-A5 597 May-96 44,623 4.3%
Sub-total 9.0%
21 Asia Korea Asiana B767-300 CF6-80C2B6F 24798 Oct-90 56,127 5.5%
22 (Emerging) Taiwan China Airlines A300-600R PW 4158 555 Mar-90 50,720 4.9%
23 China China Hainan B737-300 CFM 56-3C1 26295 Dec-93 26,783 2.6%
Sub-total 13.0%
Latin America
24 (Emerging) Brazil Passaredo A310-300 JT9D-7R4E1 437 Nov-86 30,183 2.9%
25 Brazil VASP B737-300 CFM 56-3B2 24299 Nov-88 21,407 2.1%
26 Mexico Aero Mexico B757-200ER PW 2037 26272 Mar-94 42,727 4.2%
27 Mexico TAESA B737-400 CFM 56-3B2 24234 Oct-88 22,340 2.2%
Sub-total 11.4%
28 Other Fiji Air Pacific B767-300ER CF6-80C2B4 26260 Sep-94 68,913 6.7%
29 Iceland IcelandAir B737-300 CFM 56-3B2 23811 Oct-87 21,423 2.1%
30 Oman Oman Air A310-300 JT9D-7R4E1 409 Nov-85 25,210 2.4%
31 Oman Oman Air A310-300 JT9D-7R4E1 410 Nov-85 25,377 2.5%
32 Malta Air Malta B737-300 CFM 56-3B2 25161 Feb-92 25,020 2.4%
Sub-total 16.1%
AOG
33 for Lease - - B747-300B CF6-80C2 24106 Apr-88 62,673 6.1% 6.1%
-----------------------------
Total 1,029,437 100% 100.0%
=============================
- ----------------------
(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 =28
(4) Total Number of Countries = 19
</TABLE>
Page 1 of 1
<PAGE>
APPENDIX B
Morgan Stanley Aircraft Finance
Comparison of Actual Cashflows Versus Assumptions for the Third Quarter 1999
All amounts in US Dollars unless otherwise stated
<TABLE>
------------------------------------------------------------------------
MD&A Quarterly Data
Ref % of Assumed Gross Lease Revenues
----------------------------------------------------------------- ------------------------------------
Actual Assumed* Variance Actual Assumed* Variance
To Date To Date
----------------------------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Section A Cash Collections
1 Gross Lease Rentals 27,974,801 32,077,095 (4,102,294) 87.2% 100.0% -12.8%
2 Other Cash Received 410,203 0 410,203 1.3% 0.0% 1.3%
3 Security Deposits 1,050,000 0 1,050,000 3.3% 0.0% 3.3%
4 Repossession Costs 129,450 (1,443,469) 1,572,919 0.4% -4.5% 4.9%
---------------------------------- ------------------------------------
5 Net Lease Rentals 29,564,454 30,633,626 (1,069,172) 92.2% 95.5% -3.3%
Maintenance Receipts 4,809,630 0 4,809,630 15.0% 0.0% 15.0%
Maintenance Expenses (4,172,425) 0 (4,172,425) -13.0% 0.0% -13.0%
---------------------------------- ------------------------------------
6 Net Maintenance 637,205 0 637,205 2.0% 0.0% 2.0%
7 Interest Received 467,325 350,238 117,087 1.5% 1.1% 0.4%
---------------------------------- ------------------------------------
Total Cash Collections 30,668,984 30,983,864 (314,880) 95.7% 96.6% -0.9%
Section B Cash Expenses
1 Cash Operating Expenses
- Insurance, re-leasing and
other costs (58,524) (1,122,698) 1,064,174 -0.2% -3.5% 3.3%
---------------------------------- ------------------------------------
subtotal (58,524) (1,122,698) 1,064,174 -0.2% -3.5% 3.3%
2 SG&A
- Servicer Fees (1,303,864) (1,615,951) 312,087 -4.1% -5.0% -0.9%
- Other Servicer provider
fees and Overhead (726,014) (813,345) 87,331 -2.3% -2.6% 0.3%
---------------------------------- ------------------------------------
subtotal (2,029,878) (2,429,296) 399,417 -6.4% -7.6% 1.2%
Total Cash Expenses (2,088,402) (3,551,994) 1,463,592 -6.6% -11.1% -4.5%
Section C Interest Payments
(Net of Swap Payments) (16,454,882)(16,672,187) 217,305 -51.3% -52.0% 0.7%
---------------------------------- ------------------------------------
Total Cash Expenses and
Interest Payments (18,543,284)(20,224,181) 1,680,897 -57.9% -63.1% 5.2%
----------------------------------------------------------------- ------------------------------------
NET CASH COLLECTIONS 12,125,700 10,759,683 1,366,017 37.8% 33.5% 4.3%
----------------------------------------------------------------- ------------------------------------
Section D Principal Payments
A-1 0 0 0 0.0% 0.0% 0.0%
A-2 11,170,703 9,804,686 1,366,017 34.8% 30.5% 4.3%
B-1 954,997 954,997 0 3.0% 3.0% 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 12,125,700 10,759,683 1,366,017 37.8% 33.5% 4.3%
----------------------------------------------------------------- ------------------------------------
Total Payments to Noteholders 12,125,700 10,759,683 1,366,017 37.8% 33.5% 4.3%
----------------------------------------------------------------- ------------------------------------
Benefical Interest Distributions 0 0 0 0.0% 0.0% 0.0%
-------------------------------------------------------------------------------------------------------
*Assumed Cash Collections and Cash Expenses have been adjusted for non-delivery of an aircraft.
</TABLE>
Page 1 of 1
<PAGE>
APPENDIX C
Morgan Stanley Aircraft Finance
Comparison of Third Quarter 1999 Actual Cashflows versus the Prior Year Period
All amounts in US Dollars unless otherwise stated.
<TABLE>
MD&A Third Quarter 1999 Prior Year Period
Ref
-------------------------------------------------- ------------------ ----------
Period ending 16-Aug-99 Actual Actual Variance
To August 16 1998 To August 16, 1998 $
-------------------------------------------------- ------------------ ----------
<S> <C> <C> <C>
Section A Cash Collections
1 Gross Lease Rentals 27,974,801 30,894,896 (2,920,095)
2 Other Cash Received 410,203 541,484 (131,281)
3 Security Deposits 1,050,000 0 1,050,000
4 Repossession Costs 129,450 (345,785) 475,235
--------------- --------------- ----------
5 Net Lease Rentals 29,564,454 31,090,595 (1,526,141)
Maintenance Receipts 4,809,630 4,281,134 528,496
Maintenance Expenses (4,172,425) (2,153,566) (2,018,859)
---------------- ---------------- ----------
6 Net Maintenance 637,205 2,127,568 (1,490,363)
7 Interest Received 467,325 753,847 (286,522)
--------------- ---------------- ----------
Total Cash Collections 30,668,984 33,972,010 (3,303,026)
Section B Cash Expenses
1 Cash Operating Expenses
- Insurance, re-leasing and
other costs (58,524) (346,133) 287,609
---------------- ---------------- ----------
subtotal (58,524) (346,133) 287,609
2 SG&A Expenses
- Servicer Fees (1,303,864) (907,362) (396,502)
- Other Servicer provider
fees and Overheads (726,014) (624,518) (101,496)
---------------- ---------------- ----------
subtotal (2,029,878) (1,531,880) (497,998)
Total Cash Expenses (2,088,402) (1,878,013) (210,389)
Section C Interest Payments
(Net of Swap payments) (16,454,882) (17,785,714) 1,330,832
---------------- ---------------- ----------
Total Cash Expenses and Interest
Payments (18,543,285) (19,663,727) 1,120,443
-------------------------------------------------- ---------------- ----------
NET CASH COLLECTIONS 12,125,700 14,308,283 (2,182,584)
-------------------------------------------------- ---------------- ----------
Exceptional Items
- Note Distribution for undelivered
aircraft 27,143,085 (27,143,085)
-------------------------------------------------- ---------------- ----------
Cash Collections Available for
Distribution 12,125,700 41,451,368 (29,325,669)
-------------------------------------------------- ---------------- ----------
Section D Principal Payments
A-1 0 0 0
A-2 11,170,703 38,027,196 (26,856,493)
B-1 954,997 3,424,172 (2,469,175)
C-1 0 0 0
D-1 0 0 0
---------------- ---------------- ----------
subtotal 12,125,700 41,451,368 (29,325,668)
0
-------------------------------------------------- ---------------- ----------
Total Payments to Noteholders 12,125,700 41,451,368 (29,325,668)
-------------------------------------------------- ---------------- ----------
Benefical Interest Distributions 0 0
-------------------------------------------------- ---------------- ----------
</TABLE>
Page 1 of 1
<PAGE>
APPENDIX D
Morgan Stanley Aircraft Finance
Comparison of Actual to Date Cashflows versus Prospectus
All amounts in US Dollars unless otherwise stated
<TABLE>
---------------------------------------------------------------------------------
% of Assumed Gross Lease Rentals
- ------------------------------------------------------------------------------ ---------------------------------------
Actual To Assumed* Variance Actual Assumed* Variance
August 16 1999 To Date
- ------------------------------------------------------------------------------ ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash Collections
Gross Lease Rentals 171,626,144 188,853,486 (17,227,342) 90.8% 100.0% -9.1%
Other Cash Received 2,563,790 0 2,563,790 1.4% 0.0% 1.4%
Security Deposits 4,210,816 0 4,210,816 2.2% 0.0% 2.2%
Repossession Costs - Actual (1,787,648) (8,498,407) 6,710,759 -0.9% -4.5% 3.6%
Repossession Costs - Accrued (45,015) 0 (45,015) 0.0% 0.0% 0.0%
--------------------------------------- ---------------------------------------
Net Lease Rentals 176,568,087 180,355,079 (3,786,992) 93.5% 95.5% -2.0%
Maintenance Receipts 24,994,506 0 24,994,506 13.2% 0.0% 13.2%
Maintenance Expenses- Actual (11,453,519) 0 (11,453,519) -6.1% 0.0% -6.1%
Maintenance Expenses - Accrued (4,958,983) 0 (4,958,983) -2.6% 0.0% -2.6%
--------------------------------------- ---------------------------------------
Net Maintenance 8,582,004 0 8,582,004 4.5% 0.0% 4.5%
Interest Received 3,349,796 2,031,533 1,318,263 1.8% 1.1% 0.7%
--------------------------------------- ---------------------------------------
Total Cash Collections 188,499,887 182,386,612 6,113,275 99.8% 96.6% 3.2%
Cash Expenses
Cash Operating Expenses
- - Insurance, re-leasing and
other costs - Actual (1,647,148) (6,609,872) 4,962,724 -0.9% -3.5% 2.6%
- - Insurance, re-leasing and
other costs - Accrued (94,952) 0 (94,952) -0.1% 0.0% -0.1%
--------------------------------------- ---------------------------------------
subtotal (1,742,100) (6,609,872) 4,867,772 -1.0% -3.5% 2.5%
SG&A
- - Servicer Fees (6,997,669) (8,057,504) 1,059,835 -3.7% -4.3% 0.6%
- - Other Servicer provider fees
and Overhead - Actual (3,852,129) (4,725,166) 873,037 -2.0% -2.5% 0.5%
- - Other Servicer provider fees
and Overhead - Accrued (93,472) 0 (93,472) 0.0% 0.0% 0.0%
--------------------------------------- ---------------------------------------
subtotal (10,943,270) (12,782,670) 1,839,400 -5.7% -6.8% 1.0%
Total Cash Expenses (12,685,370) (19,392,542) 6,707,172 -6.7% -10.3% 3.6%
Interest Payments (Net of Swap
Payments) (99,830,072) (99,177,837) (652,235) -52.9% -52.5% -0.4%
--------------------------------------- ---------------------------------------
Total Cash Expenses and Interest
Payments (112,515,442) (118,570,379) 6,054,937 -59.6% -62.8% 3.2%
- ------------------------------------------------------------------------------ ---------------------------------------
Net Cash Collections 75,984,445 63,816,233 12,168,212 40.2% 33.8% 6.4%
- ------------------------------------------------------------------------------ ---------------------------------------
Exceptional Items
Note Distribution for undelivered
aircraft 27,143,085 27,143,085 0 14.4% 14.4% 0.0%
- ------------------------------------------------------------------------------ ---------------------------------------
Cash Collections Available for
Distribution 103,127,530 90,959,318 12,168,212 54.6% 48.2% 6.4%
- ------------------------------------------------------------------------------ ---------------------------------------
Principal Payments
A-1 0 0 0 0.0% 0.0% 0.0%
A-2 95,116,883 82,948,671 12,168,212 50.4% 44.0% 6.4%
B-1 8,010,647 8,010,647 (0) 4.2% 4.2% 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 103,127,530 90,959,318 12,168,212 54.6% 48.2% 6.4%
- ------------------------------------------------------------------------------ ---------------------------------------
Total Payments to Noteholders 103,127,530 90,959,318 12,168,212 54.6% 48.2% 6.4%
- ------------------------------------------------------------------------------ ---------------------------------------
Benefical Interest Distributions (0) 0 (0) 0.0% 0.0% 0.0%
- ------------------------------------------------------------------------------ ---------------------------------------
*Assumed Cash Collections and Cash Expenses have been adjusted for non-delivery
of an aircraft.
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
Coverage Ratios
Closing Actual Assumed*
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Collections Available for Distribution 103,127,531 90,959,318
Add Back Interest and Swap Payments 99,830,072 99,177,837
--------
Add Back Permitted Accruals 1,600,000 -
--------
a Net Cash Collections(excl. interest and
swap pymts) 204,557,602 190,137,155
b Swaps 10,236,989 5,390,403
c Class A Interest 57,069,644 60,946,652
d Class A Minimum 15,221,945 22,188,410
e Class B Interest 8,501,938 8,959,282
f Class B Minimum 8,010,647 8,010,647
g Class C Interest 10,071,667 10,005,000
h Class C Minimum - -
i Class D Interest 13,949,833 13,876,500
j Class D Minimum - -
k Class A Scheduled - -
l Class B Scheduled - -
m Class C Scheduled - -
n Class D Scheduled - -
o Permited Aircraft Modifications 1,600,000 -
p Class A Supplemental 79,894,938 60,760,261
----------- ---------------
Total 204,557,602 190,137,155
----------- ---------------
Interest Coverage Ratio
Class A 3.04 2.87 = a / (b+c)
Class B 2.25 1.95 = a / (b+c+d+e)
Class C 1.87 1.65 = a / (b+c+d+e+f+g)
Class D 1.66 1.47 = a / (b+c+d+e+f+g+h+i)
Debt Coverage Ratio
Class A 1.66 1.47 = a / (b+c+d+e+f+g+h+i+ j+k)
Class B 1.66 1.47 = a / (b+c+d+e+f+g+h+i+j+k+l
Class C 1.66 1.47 = a / (b+c+d+e+f+g+h+i+j+k+l
Class D 1.66 1.47 = a / (b+c+d+e+f+g+h+i+j+k+l
<S> <C> <C> <C>
Loan-to-Value Ratios
Assumed Portfolio Value 1,115,510,000 1,026,666,885
Adjusted Portfolio Value 993,815,944
Liquidity Reserve Amount
Of which
- Cash 25,000,000 25,000,000 25,000,000
- Accrued Expenses 5,192,422
- Letters of Credit held 40,000,000 40,003,351 40,003,351
------------- ----------- ---------------
Subtotal 65,000,000 70,195,773 65,003,351
Less Lessee Security
Deposit (20,000,000) (20,003,351) (20,003,351)
Subtotal 45,000,000 50,192,422 45,000,000
Total Asset Value 1,160,510,000 1,044,008,366 1,071,666,885
<S> <C> <C> <C> <C> <C> <C>
Note Balances as at 16-Aug-99
Class A 740,000,000 63.8% 644,883,117 61.3% 657,051,329 61.8%
Class B 100,000,000 72.4% 91,989,353 69.9% 91,989,353 70.6%
Class C 100,000,000 81.0% 100,000,000 79.2% 100,000,000 80.2%
Class D 110,000,000 90.5% 110,000,000 89.5% 110,000,000 90.7%
- ---------------------------------------------------------------------------------------
Total 1,050,000,000 946,872,470 959,040,682
- ---------------------------------------------------------------------------------------
<S> <C>
Total Accrued Expenses on Payment Date: (5,192,422)
Debt Balance Outstanding
A-1 400,000,000
A-2 244,883,117
B-1 91,989,353
C-1 100,000,000
D-1 110,000,000
946,872,470
</TABLE>
