SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
February 14, 2000
(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 Cash Analysis of Financial
Condition and Results of Operations for the twelve month period from
December 1, 1998 through November 30, 1999.
<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: February 14, 2000 By: /s/ Alexander Frank
------------------------------
Signatory Trustee
<PAGE>
EXHIBIT INDEX
Exhibit A - Cash Analysis of Financial Condition and Results of Operations
for the twelve month period from December 1, 1998 through
November 30, 1999.
Exhibit A
MORGAN STANLEY AIRCRAFT FINANCE
Cash Analysis of Financial Condition and Results of Operations
Twelve Month Period from December 1, 1998 to November 30, 1999
Page 1 of 19
<PAGE>
CONTENTS
I Background and General Information
II Comparison of Actual Cash Flows versus the 1998 Base Case for the Twelve
Month Period
III Other Financial Data
IV Recent Developments
V Appendices
Page 2 of 19
<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
$1,115.5 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.
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 November 15, 1999. The fleet is appraised annually and
the most recent appraisal dated June 30, 1999 valued the portfolio at $978.1
million. See Section III - "Other Financial Data" below for a discussion on
assumed aircraft values and annual appraisals.
As of February 1, 2000, 28 aircraft plus the engine were on-lease with 25
lessees in 18 countries as shown in Appendix A attached. Four aircraft were
non-revenue earning of which one was subject to a lease commencing in February,
2000 and two had signed Letters of Intent for lease to new lessees. The fourth
aircraft was available for lease.
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 one financing lease. MSAF Group may also make additional
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. In
August 1999, MSAF Group announced that it intended to acquire a portfolio of 29
aircraft see Section IV - "Recent Developments" for more information. Any
acquisition of additional 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
the level and volatility of
Page 3 of 19
<PAGE>
interest rates, the availability of credit, fuel costs and both 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 the operating leasing market.
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 Group,
may also impact MSAF Group's ability to compete against other lessors.
For the purposes of this report, the "Twelve Month Period", referred to in
Section II "Comparison of Actual Cash Flows versus the Base Case for the Twelve
Month Period", shall comprise information from the monthly cash reports dated
December 15, 1998 through to November 15, 1999. The financial data in these
reports includes cash receipts from November 10, 1998 (first day of the
Collection Period for the December 1998 Report) up to November 8, 1999 (last
day of the Collection Period for the November 1999 Report). It also includes
payments made by MSAF Group between November 10, 1998 and up to November 15,
1999 (the Note Payment Date for the November 1999 Report).
Page 4 of 19
<PAGE>
II Comparison of Actual Cash Flows versus the 1998 Base Case for the Twelve
Month Period
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
"1998 Base Case"). For the purpose of this report, "Net Cash Collections" is
defined as Total Cash Collections less Total Cash Expenses, Interest Payments
and Swap Payments. A discussion of the annual Cash Collections, Cash Expenses,
Interest Payments and Principal Payments is given below and should be read in
conjunction with the analysis in Appendix B.
CASH COLLECTIONS
"Total Cash Collections" include Net Lease Rentals (Contracted Lease Rentals
less Net Stress-related Costs), Movement in Current Arrears Balance, Interest
Earned and Net Maintenance. In the Twelve Month Period, MSAF Group generated
approximately $119.1 million in Total Cash Collections, $3.4 million less than
the 1998 Base Case. This difference is due to a combination of the factors set
out below (the numbers in brackets refer to the line item number shown in
Appendix B).
[2] Renegotiated Leases
Renegotiated Leases refers to the loss in rental revenue caused by a
lessee negotiating a reduction in the lease rental. Typically, this can be
a permanent reduction over the remaining lease term in exchange for other
contractual concessions. In the Twelve Month Period, the amount of revenue
loss attributed to Renegotiated Leases was $1.4 million and relates to two
renegotiated leases. The $1.4 million loss in rental revenue is primarily
due to a 14% reduction from the 1998 Base Case rental on a B767-300ER on
lease to Air Pacific. The new rental was reset at the then prevailing
market rate for B767-300ERs in exchange for a lease extension.
[3] Rental Resets
Rental Resets is a measure of the loss in rental revenue when new lease
rates are lower than those assumed in the Base Case. In the Twelve Month
Period, six new leases were entered into with a weighted average decline
of 10.4% versus the rental assumed in the 1998 Base Case resulting in a
loss of $2.0 million in rental revenue. See Section IV - "Recent
Developments" for a discussion of current re-leasing events.
Page 5 of 19
<PAGE>
Analysis of Rental Resets in Twelve Month Period
% change from % of Appraised
Aircraft Type 1998 Base Case Value*
1 A310-300 -28.2 2.35
2 A310-300 -28.2 2.38
3 A320-100 -9.2 4.22
4 B737-300 -13.1 2.57
5 A320-200 -15.3 3.09
6 B757-200ER 18.5 3.48
Weighted Average** -10.4% 18.09%
Notes
*Appraisal as of June 30, 1999
**Average weighted by Appraised Value as of June 30, 1999.
[4] Contracted Lease Rentals
Contracted Lease Rentals represents the current contracted lease rental
rollout which equates to the 1998 Base Case Lease Rentals less adjustments
for Renegotiated Leases and Rental Resets. For the Twelve Month Period,
Contracted Lease Rentals were $123.4 million, $3.4 million less than
assumed in the 1998 Base Case. The difference is due to losses from
renegotiated leases and rental resets as discussed above.
[5] Movement in Current Arrears Balance
Current Arrears is the total contracted lease rentals outstanding from
current lessees at a given date and excludes any amounts classified as Bad
Debts. The current arrears balance at the start of the Twelve Month Period
was $3.2 million versus $3.1 million at the end, a positive movement of
$0.1 million.
Analysis of Current Arrears Balances
% of Current Current Movement in
Aircraft Appraised Arrears Arrears Current
Type Country Value* 11/15/98 11/15/99 Arrears
$ M $M $M
1 A310-300 Brazil 2.90 1.0 0.6 0.4
2 A321-100 Turkey** 4.22 1.3 1.3
3 B737-300 Brazil 2.09 0.3 1.0 (0.7)
4 B737-400 Mexico 2.30 0.5 (0.5)
5 A321-100 Turkey 4.22 0.6 (0.6)
6 B757-200 Guyana** 3.48 0.5 0.5
7 B757-200 U.K. 3.36 0.1 0.1
8 A310-300 Oman 2.35 0.1 (0.1)
9 A320-200 Ireland 3.19 0.3 (0.3)
-----------------------------------------
Total 28.11 3.2 3.1 0.1
-----------------------------------------
*Appraised Value as of June 30, 1999
Page 6 of 19
<PAGE>
** Lessees which subsequently defaulted in Twelve Month Period, Onur Air
and Guyana Airways.
At November 15, 1998, 5 lessees in arrears owed $3.2 million, against
which, MSAF Group held security deposits of $2.7 million. Two of the five
lessees (Onur Air and Guyana Airways) defaulted in 1999 and the aircraft
were repossessed. Arrears amounting to $2.2 million associated with these
lessees at the time of repossession were deemed irrecoverable and
re-classified from Current Arrears to Bad Debts. See the discussion on Bad
Debts below.
As at November 15, 1999, six lessees were in arrears, owing $3.1 million,
against which MSAF Group held security deposits of $2.9 million. Since
November 15, 1999 one of the 6 lessees (TAESA) has defaulted and the
aircraft has been repossessed. See Section IV "Recent Developments" for a
discussion of lessee defaults.
Net Stress-related Costs
Net Stress-related Costs is a combination of all the factors which can cause
actual lease rentals received to differ from the Contracted Lease Rentals. The
1998 Base Case assumed net stress-related costs equal to 4.5% of the 1998 Base
Case Lease Rentals. For the Twelve Month Period, net stress-related costs
amounted to $8.8 million (7.0% of Contracted Lease Rentals) compared to $5.7
million assumed in the 1998 Base Case, a variance of $3.1 million that is due
to the following six factors described in items [6] to [11] below.
[6] Bad Debts and [8] Security Deposits Drawn Down
Bad Debts are arrears owed by lessees who have defaulted and which are
deemed irrecoverable. These arrears are partially offset by the draw down
of security deposits held and amounts subsequently recovered from the
defaulted lessee.
Analysis of Bad Debts for the Twelve Month Period
Security
Aircraft Bad Debts Bad Debts Deposits
Type Lessee Country Rental Recovered Drawn Total
$M $M $M $M
1 B757-200 Transaero Russia 0.2* 0.2
2 B757-200 Guyana Airways Guyana (1.3) 1.3 0.7 0.7
3 A321-100 Onur Air Turkey (1.6) 1.0 0.7 0.1
4 B747-300 VARIG Brazil (4.0) 0.4 1.1 (2.5)
-----------------------------------
Total (6.9) 2.9 2.5 (1.5)
-----------------------------------
*$0.2 million was recovered from Transaero against amounts written off in
the previous period.
In the Twelve Month Period, $6.9 million was written off in respect of
lease rentals due from three former lessees, Guyana Airways, Onur Air, and
VARIG, against which MSAF Group drew down security deposits totalling $2.5
million. In the Twelve Month Period, $2.9 million was recovered and
applied to rental due from four former lessees, Transaero, Guyana Airways,
Onur Air and VARIG.
Page 7 of 19
<PAGE>
[7] Capitalized Arrears
Capitalized arrears refer to current arrears that have been capitalized
and restructured into a note payable. As a result, arrears balances
previously shown as Current Arrears are re-categorized as capitalized
arrears. In August 1999, the current arrears of Passaredo, a Brazilian
carrier, equal to $3.5 million were capitalized (with interest of $0.2
million) into a note payable and added to the lessee's Conditional Sale
Agreement loan balance. The term of the loan balance was also extended.
[9] Aircraft on Ground ("AOG")
AOG is defined as the Base Case lease rental lost when an aircraft is
off-lease and non-revenue earning.
AOG Analysis
Aircraft Type Old Lessee New Lessee Lost Rentals # Days*
$M
1 B757-200ER Transaero Flying Colours 1.0 10
2 B757-200ER Guyana National Airlines 1.0 75
3 A321-100 Onur Air Air Alfa None 17
4 B747-300 VARIG AOG 3.2 137**
Total 5.2
Notes
* #Days is measured from date of lease termination to commencement date of
new lease
**# Days is measured from date of lease termination to November 30, 1999.
A Letter of Intent has been signed for this aircraft. It is scheduled to
be delivered to a new lessee in February, 2000.
The impact of AOG downtime amounted to $5.2 million. This was in respect
of three former lessees; Transaero, Guyana Airways and VARIG. Although
the ex-Transaero aircraft was off-lease for only 10 days, the new lessee
paid a reduced rental until April 1999 while the aircraft underwent
modification work and this loss of rental revenue is reflected in the AOG
cost. No AOG costs were incurred when the ex-Onur Air aircraft was
re-leased to Air Alfa as the downtime was less that 1 month. The
ex-Guyana aircraft was AOG for 75 days prior to its re-lease to National
Airlines. The ex-VARIG aircraft was AOG and non-revenue earning since
July 1999, but is scheduled to be delivered to its new lessee in
February, 2000.
[10] Other Leasing Income
Other leasing income consists of miscellaneous income received in
connection with a lease other than contracted rentals, maintenance
receipts and security deposits, such as early termination payments or
default interest. In the Twelve Month Period, other leasing income
amounted to $2.5 million. This consists of one payment for $0.9 million
received in respect of a rental support agreement for a lessee credit and
several miscellaneous amounts of less than $0.5 million.
Page 8 of 19
<PAGE>
[11] Repossession Costs
Repossession costs cover legal and aircraft technical costs incurred as a
result of repossessing an aircraft. In the Twelve Month Period,
repossession costs amounted to $1.1 million, of which $1.0 million related
to the repossession of a B757-200ER from Guyana Airways in April 1999. An
additional $0.1 million in costs were incurred relating to legal,
inspection and consultancy fees in respect of the repossessions from Onur
Air and from VARIG .
[13] Net Lease Rentals is Contracted Lease Rentals less any movement in Current
Arrears Balance and Net Stress-related Costs. In the Twelve Month Period,
net lease rentals amounted to $114.7 million, $6.4 million less than
assumed in the 1998 Base Case. The variance was attributable to the
combined effect of the six factors outlined in items [2] and [3] and in
items [6] to [11] above.
[14] Interest Earned
Interest earned relates to interest received on cash balances held in the
Collection and Expense Accounts. Cash held in the Collection Account
consists of the cash liquidity reserve amount of $25.0 million plus the
intra-month cash balances for all the rentals and maintenance payments
collected prior to the monthly payment date. The Expense Account contains
cash set aside to pay for expenses which are expected to be payable over
the next 3 months. In the Twelve Month Period, interest earned amounted to
$1.8 million, $0.4 million more than assumed in the 1998 Base Case. The
difference is due to a combination of two offsetting factors. The 1998
Base Case made no assumption as to the interest earned on the intra-month
cash balances in the Collection Account and Expense Account and the
average actual reinvestment rate for the Twelve Month Period was 4.99% as
compared to 5.75% assumed in the 1998 Base Case.
[15] Net Maintenance
Net maintenance refers to maintenance reserve revenue received less any
maintenance reimbursements paid to lessees. In the Twelve Month Period,
actual maintenance reserve revenue received amounted to $17.8 million from
20 lessees and maintenance expenditure amounted to $15.2 million,
generating positive net maintenance revenue of $2.6 million. The 1998 Base
Case makes no assumptions for net maintenance as it assumes that, over
time, maintenance revenue will equal maintenance expenditure. However, it
is unlikely that in any particular Note Payment Period, maintenance
revenue will exactly equal maintenance expenses.
CASH EXPENSES
"Total Cash Expenses" include Aircraft Operating Expenses and Selling, General
and Administrative ("SG&A") Expenses. In the Twelve Month Period, total cash
expenses were $8.6 million, $5.4 million lower than the Base Case, which
assumed total cash
Page 9 of 19
<PAGE>
expenses of $14.0 million. The difference is due to a combination of factors
discussed below.
Aircraft Operating Expenses includes all operational costs related to the
leasing of an aircraft including costs of insurance, re-leasing and other
overhead costs. In the Twelve Month Period, Aircraft Operating Expenses
amounted to $0.6 million compared to $4.4 million per the 1998 Base Case, which
assumes these costs to be 3.5% of the 1998 Base Case Lease Rentals.
[17] Insurance
Insurance costs amounted to $0.4 million relating to the annual insurance
premium for contingent coverage for the portfolio.
[18] Re-leasing and other overhead costs
Re-leasing and other overhead costs consist of miscellaneous re-delivery
and leasing costs associated with re-leasing events. In the Twelve Month
Period these costs amounted to $0.2 million.
SG&A Expenses relate to fees paid to the Aircraft Servicer and to other service
providers.
[20] Aircraft Servicer Fees
The Aircraft Servicer Fees are defined as amounts paid to the Aircraft
Servicer, ILFC, in accordance with the terms of the Servicing Agreement.
In the Twelve Month Period, the total Aircraft Servicer fee paid was $5.7
million, $0.7 million lower than assumed in the 1998 Base Case,
reflecting lower actual rentals achieved relative to Contracted Lease
Rentals.
Aircraft Servicer Fees consist of:
$mm
Base Fee 2.9
Rent Collected Fee 1.1
Rent Contracted Fee 1.2
Incentive Fee 1997/98 0.5
---
Total Servicer Fee 5.7
The Base Fee is a fixed amount per month per aircraft and changes only as
aircraft are acquired or sold. The Rent Contracted Fee is equal to 1% of
all rentals contracted. The Rent Collected Fee is 1% of all rentals
received. The Incentive fee is 10% of all cash flow received above a
targeted amount set at the beginning of each financial year. The
Incentive fee for the year ended November 30, 1998, but paid in December
1998 was $0.5 million. No incentive fee was paid to ILFC in December 1999
for the Twelve Month Period due to the lower than expected revenues
received.
Page 10 of 19
<PAGE>
[22] Other Fees
Other Fees relate to fees and expenses paid to other Service providers
including the Administrative Agent, Financial Advisor, legal advisors,
accountants and Independent Trustees. In the Twelve Month Period, Other
Fees amounted to $2.3 million as compared to an assumed expense of $3.2
million in the 1998 Base Case, a positive variance of $0.9 million. The
variance is due to lower than expected Administrative Agent fees and a
reduction in the level of accrued expenses. The Administrative Agent fee
is equal to 1.5% of rentals collected and was lower than assumed in the
1998 Base Case, reflecting lower actual rentals achieved relative to
Contracted Lease Rentals.
[27] Interest Payments and [28] Swap Payments
In the Twelve Month Period, interest payments to Noteholders amounted to
$58.5 million. This is $4.7 million lower than the 1998 Base Case, which
assumed interest costs for the Twelve Month Period to be $63.2 million.
The variance reflects the faster than expected amortization of the A-2
Note, coupled with a lower than expected level of average interest rates.
The 1998 Base Case assumed LIBOR to be 5.75% whereas the average monthly
LIBOR rate was 5.6%. The reduced interest costs were offset by an increase
in swap payments. MSAF paid $8.7 million in swap costs, $4.9 million more
than assumed in the 1998 Base Case.
[29] Exceptional Item
Exceptional items refer to cash flows that occur infrequently and are
outside the normal business activities of MSAF. There were no exceptional
cash flows in the Twelve Month Period.
[31] Principal Payments
In the Twelve Month Period, total principal payments to Noteholders
amounted to $43.3 million, $1.8 million more than assumed in the 1998 Base
Case, reflecting the application of the positive Net Cash Collections
variance of $1.8 million.
Page 11 of 19
<PAGE>
III OTHER FINANCIAL DATA
An analysis of the cash performance from the deal inception date,
March 3, 1998, to November 15, 1999 is shown in Appendix C.
Cash
Cash held at November 15, 1999 was $29.0 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 $4.0
million represents accrued expenses held in the Expense Account in
respect of future maintenance obligations ($3.8 million), repossession
expenses ($0.1 million) and other service provider fees ($0.1
million).
In addition to the $29.0 million cash balance held at November 15,
1999, the Liquidity Reserve Amount also contained credit and liquidity
facilities provided by Morgan Stanley Dean Witter & Co. ("MSDW") and
ILFC aggregating to $40.0 million. Neither of these facilities were
drawn upon in the Twelve Month Period.
Aircraft Values
Under the terms of the Notes, MSAF Group is required to obtain new
appraisals of the Base Value of each aircraft from a minimum of 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 June 30, 1999 and the next
appraisal is due to be delivered to the Trustee no later than October
31, 2000. Details of the most recent appraisal, dated June 30, 1999,
are shown in Appendix A.
The actual appraised value of the fleet at June 30, 1999 was $978.1
million as compared to an Assumed Portfolio value at June 30, 1999 of
$1,032.0 million, a difference of $53.9 million or 5.2%. Where the
appraisals indicate a Base Value decline in excess of the 5.0% 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 actual balance outstanding of the
Class A Notes was lower than the Class A Scheduled Principal balance
from July 15, 1999 to November 15, 1999, there was no requirement to
redirect cash flow to the Class A Notes.
A-D Note Balance
As of November 15, 1999, the aggregate amount of Class A-D Notes
outstanding was $935.5 million, approximately $12.6 million lower than
assumed in the 1998 Base Case due to higher than assumed principal
repayments with respect to the Class A-2 Notes.
Page 12 of 19
<PAGE>
IV RECENT DEVELOPMENTS
Acquisition of Additional Aircraft
MSAF Group advises that it intends to acquire a portfolio of 29
commercial aircraft from certain subsidiaries of MSDW. MSDW acquired
two Fokker-50 aircraft from an affiliate of GE Capital Corporation on
March 19, 1999 and 27 aircraft from ILFC on August 6, 1999. MSAF Group
intends to finance this acquisition by issuing additional notes.
Leasing Activity in 1999
In the Twelve Month Period, 7 aircraft came off lease, of which 4 were
scheduled terminations and 3 were repossession events. Six of the
seven aircraft were placed on lease during the Twelve Month Period and
the remaining aircraft, a B747-300, was AOG at November 30, 1999. A
Letter of Intent ("LOI") has been signed for this AOG aircraft and it
is scheduled to be delivered to the new lessee in February 2000.
Re-Leasing Summary
# Aircraft
Assets
Fleet size 33
Scheduled terminations 4
Plus repossession events 3
--
Equals total remarketing task in 1999 7
Less Aircraft placed on lease (6)
--
Equals Aircraft on Ground (AOG) at November 30, 1999 1
Of which LOI signed (1)
--
Aircraft available for lease at November 30, 1999 0
Summary of Scheduled Re-leasing Events
Aircraft Type MSN Prior Lessee New Lessee
1 A310-300 409 Flightlease Oman Air
2 A310-300 410 Flightlease Oman Air
3 A320-200 279 Monarch Canadian
4 B737-300 25161 TAP Air Malta
Summary of Unscheduled Re-leasing Events
Aircraft Type MSN Prior Lessee New Lessee
1 B757-200ER 24260 Guyana National Airlines
2 A321-100 597 Onur Air Air Alfa
3 B747-300 24106 VARIG LOI
Page 13 of 19
<PAGE>
AOG
At November 30, 1999 one B747-300 aircraft formerly leased to VARIG
was AOG undergoing maintenance work prior to re-leasing to a new
lessee in February 2000. Since November 30, 1999, three aircraft have
become available for lease and are AOG as of February 1, 2000. Two of
the aircraft , scheduled terminations, are A310-300s, previously on
lease with Oman Air. These aircraft are currently undergoing airframe
and engine overhauls in advance of their delivery to a new lessee in
April 2000. The third aircraft, a B737-400, was repossessed from TAESA
in December 1999.
At February 1, 2000, two aircraft, representing 4.27% of the Appraised
Value at June 30, 1999, are scheduled for re-marketing before November
30, 2000. One aircraft, a B767-200, is subject to a Letter of Intent.
The other aircraft, a B737-400, is available for lease as of February
1, 2000 (since this date, a signed Letter of Intent has been
received).
AOG Analysis February 1, 2000
Expected
Aircraft Type Old Lessee Status Re-lease Date
1 B747-300 VARIG Subject to Lease February 2000
2 A310-300 Oman Air LOI signed April 2000
3 A310-300 Oman Air LOI signed April 2000
4 B737-400 TAESA Available for lease None
Five Year Re-marketing Task by number of Aircraft
<TABLE>
Year ending Nov 30, 2000 Nov 30, 2001 Nov 30, 2002 Nov 30, 2003 Nov 30, 2004
<S> <C> <C> <C> <C> <C>
Narrowbody
A320 2
A321 1
B737 1 4 1 3 1
B757
MD82 1
MD83 1
F70 0 3
Subtotal 1 5 1 6 5
Widebody
A300
A310 2
B747 1
B767 1 1
Subtotal 1 0 0 4 0
Engine 1
---------- ------------ --------------- --------------- ----------------
Total 2 5 2 10 5
---------- ------------ --------------- --------------- ----------------
</TABLE>
Page 14 of 19
<PAGE>
Five Year Re-marketing Task by Appraised Value*
<TABLE>
Year ending Nov 30, 2000 Nov 30, 2001 Nov 30, 2002 Nov 30, 2003 Nov 30, 2004
<S> <C> <C> <C> <C> <C>
Narrowbody
A320 3.04%
A321 2.03%
B737 1.11% 4.61% 1.27% 3.33% 1.24%
B757
MD82/MD83 0.96% 0.90%
F70 2.15%
Subtotal 1.11% 5.57% 1.27% 8.40% 4.29%
Widebody
A300
A310 2.28%
B747 2.68%
B767 3.16% 1.07%
Subtotal 3.16% 0% 0% 6.03% 0%
Engine 0.27%
------------- ---------------- --------------- --------------- ----------
Total 4.27% 5.57% 1.54% 14.43% 4.29%
------------- ---------------- --------------- --------------- ----------
</TABLE>
*Appraised Value as at June 30, 1999
The average remaining term to lease expiration date, weighted by appraised
value at June 30, 1999 is 41 months at February 1, 2000.
Lessee Difficulties
Current Arrears
As of February 1, 2000, five lessees were in arrears. The five aircraft on
lease to these lessees represented 15.5% of the portfolio by appraised value at
June 30, 1999. The total amount of rental payments and maintenance reserves
that was in arrears with respect to these five lessees was $3.9 million. MSAF
Group holds security deposits of $2.2 million against these arrears. This
amount represents 3.6% of annual contracted lease rental payments. The weighted
average number of days past due of such arrears was 64 days.
Bad Debts
In addition to the current arrears of $3.9 million, $6.7 million of rental and
maintenance payments (before set-off of security deposits of $2.9 million) was
owed to MSAF Group from four of its former lessees as of February 1, 2000. One
Brazilian lessee owed $4.4 million of this amount. . Three of the four aircraft
have been re-leased to other carriers and the fourth aircraft is off-lease,
undergoing maintenance work prior to re-marketing to a new lessee.
Page 15 of 19
<PAGE>
Analysis of Bad Debts Balance as of February 1, 2000
<TABLE>
Repossession Aircraft Former Country Bad Debts Bad Debts Security Total
Date Type Lessee Total Recovered Deposits
Drawn
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$M $M $M $M
1 October 1998 B757-200 Transaero Russia (1.0) 0.2* 0.6 (0.2)
2 March 1999 A321-100 Onur Air Turkey (2.1) 1.2 0.7 (0.2)
3 July 1999 B747-300 VARIG Brazil (4.8) 0.4 1.1 (3.3)
4 December 1999 B737-400 TAESA Mexico (0.6) 0.5 (0.1)
-------------------------------------
Total (8.5) 1.8 2.9 (3.8)
-------------------------------------
</TABLE>
*$0.2 million was recovered from Transaero against amounts written off in the
previous period.
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 as of February 1, 2000 is shown below.
Analysis of Lessee Total Arrears by Region
<TABLE>
# # # Current Security
Region Countries Aircraft Lessees Arrears Deposit
<S> <C> <C> <C> <C> <C> <C>
$m $m
Developed Europe 1 1 1 0.6 0.6
North America 1 1 1 0.2 0.3
Emerging Europe and Middle East 1 1 1 1.3 0.7
Asia 0 0 0 0.0 0.0
Latin America 1 2 2 1.8 0.7
Other Other 0 0 0 0.0 0.0
------------------------------------------------
Total Arrears 4 5 5 3.9 2.2
------------------------------------------------
</TABLE>
Latin America (Emerging)
MSAF Group currently leases 9.3% of the portfolio in Latin America (4.3% in
Mexico and 5.0% in Brazil) by appraised value at June 30, 1999. In 1998, Brazil
experienced significant downturns in its economy and financial markets,
following a dramatic decrease in the value of its currency. Since the beginning
of 1998, when MSAF had five aircraft placed with five lessees, there have been
two negotiated repossessions (one in Brazil and one in Mexico) with two other
lessees restructuring their arrears (both in Brazil). Two of the five current
lessees in arrears are based in Latin America.
In March 1999, MSAF reached an agreement with VASP to defer $0.5 million of
arrears owed at that time. Repayment of the arrears plus interest was scheduled
to begin in August 1999 and end in January 2000. On February 10, 2000, VASP
made a payment of $1.3 million to MSAF Group in full settlement of their
deferred and current arrears up to January 31, 2000. This aircraft is a
B737-300 and represented 2.1% of the portfolio by appraised value at June 30,
1999.
Page 16 of 19
<PAGE>
In August 1999, MSAF agreed to restructure the arrears of the second Brazilian
lessee, Passaredo. The total rental payments, maintenance reserves and default
interest owed amounted to $3.7 million. The restructured amounts were
capitalized as a note payable and added to the lessee's Conditional Sale
Agreement loan balance, with an extension to the term of the loan. At February
1, 2000, $0.3 million of current arrears under the new agreement, which
represents approximately 35 days of rental, were due and unpaid. In conjunction
with this restructuring, the obligations under this lease were transferred to a
new Brazilian entity, B.R.A Transportes Aereos, which replaced Passaredo as
lessee. This aircraft is an A310-300 and represented 2.9% of the portfolio by
appraised value at June 30, 1999.
A former Brazilian lessee, VARIG, negotiated an early termination of its lease
of a B747-300 aircraft in July 1999. The lease was scheduled to expire in April
2003. The total amount of rental payments and maintenance reserves due under
this lease to July 1999, the date of the termination agreement, was $4.8
million against which we drew down a security deposit of $1.1 million. Under
the terms of the termination agreement, VARIG is scheduled to repay $10.8
million over eight years to offset arrears of $4.8 million and approximately
$6.0 million for maintenance and downtime costs. Provided no default has
occurred by October 2005 under this note payable, the total remaining payments
will be reduced by approximately $1.0 million on a pro-rata basis between
October 2005 and October 2007, the scheduled final payment date under the note.
The first payment of $0.4 million under this agreement was due and paid in
October 1999. Maintenance work including repairs to the engines is almost
completed and the aircraft is scheduled to be delivered to the new lessee in
February, 2000. The current market for widebody aircraft in general is weak due
to an over supply of capacity caused by the Asian crisis - see section "Market
for B747-300s" below. This aircraft represents approximately 5.6% of the
portfolio by appraised value at June 30, 1999.
A former Mexican lessee, TAESA, defaulted on its obligations under its lease of
a B737-400 aircraft and the aircraft was repossessed in December 1999. The
lease was scheduled to expire in May 2000. The total amount of rental payments
and maintenance reserves due under the lease at the date of repossession was
$0.6 million. This amount was partially offset by a security deposit of $0.5
million. The aircraft is currently undergoing maintenance work prior to
re-leasing to a new lessee. This aircraft represents approximately 2.3% of the
portfolio by appraised value at June 30, 1999.
Europe
MSAF Group currently leases 31.5% of the portfolio by appraised value at June
30, 1999 in the Europe region. One of the five current lessees in arrears is
based in Europe. At February 1, 2000, the total rental and maintenance arrears
owed by this lessee was $0.6 million, against which MSAF Group holds a security
deposit of $0.6 million. However, the Servicer has indicated that the lessee is
currently in financial difficulty and may be
Page 17 of 19
<PAGE>
unable to meet its future rental or maintenance obligations. This aircraft, an
A320-200, represented 3.2% of the portfolio by appraised value at June 30,
1999.
Europe and Middle East (Emerging)
MSAF Group currently leases 8.7% of the portfolio by appraised value at June
30, 1999 in the Europe and Middle East (Emerging) region. One of the five
lessees in arrears is based in the Europe and Middle East (Emerging) region. In
addition, in the last twelve months, one aircraft was repossessed from a lessee
based in the Europe and Middle East (Emerging) region. At February 1, 2000, Air
Alfa had rental and maintenance arrears of $1.3 million, against which MSAF
Group holds a security deposit of $0.7 million. The obligations of Air Alfa
under the lease are guaranteed by its parent company, Kombassan Holdings, and
the Servicer has instituted legal steps in Turkey to draw down upon the
guarantee. This aircraft, an A321-100, represented 4.2% of the portfolio by
appraised value at June 30, 1999.
A former Turkish lessee, Onur Air, defaulted on its obligations under its lease
and the aircraft was repossessed in April 1999. The lease was scheduled to
expire in May 2000. The total amount of rental payments and maintenance
reserves due under the lease at the date of repossession was $2.1 million,
against which we retained a security deposit of $0.7 million. The former lessee
repaid $1.2 million. The aircraft was re-leased to another Turkish carrier, Air
Alfa.
Asia (Emerging)
MSAF Group currently leases 13.1% of the portfolio by appraised value at June
30, 1999 in the Asia (Emerging) Region. As of February 1, 2000, none of these
lessees were in arrears.
North America (Developed)
MSAF Group currently leases 13.3% of the portfolio by appraised value at June
30, 1999 in the North America (Developed) region. One of the five lessees in
arrears is based in North America. On February 2, 2000, Canadian Airlines
announced a debt restructuring and moratorium plan. The plan will result in a
suspension of payments of about $135 million to lenders and aircraft lessors,
including MSAF. The amounts will be repaid on a basis to be negotiated.
According to a statement by the lessee, the payment schedule is expected to
resume in late April 2000, following approval of the plan by all interested
parties. The lessee's rental payment for the month of February was due and
unpaid on February 1, 2000. MSAF Group holds a security deposit of $0.3 million
for this aircraft, an A320-200 and represented 3.1% of the portfolio by
appraised value at June 30, 1999.
Other
MSAF Group currently leases 11.5% of the portfolio by appraised value at June
30, 1999 in the "Other" region. As of February 1, 2000, none of these lessees
were in arrears. In the last twelve months, one aircraft was repossessed from
an airline in the "Other" region.
Page 18 of 19
<PAGE>
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
in settlement of its arrears and maintenance obligations. As at February 1,
2000, the total costs for maintenance and redelivery are $5.6 million in excess
of the settlement amount received. The aircraft was re-leased to National
Airlines, a U.S. carrier, in June 1999. The aircraft, a B757-200ER, represented
3.5% of the portfolio by appraised value at June 30, 1999.
Market for B747-300s
The re-leasing market for the B747-300 aircraft has recently been severely hit
by over-capacity in the widebody market in general and for this aircraft type
in particular. According to Airclaims, there are currently 79 B747-300 aircraft
in the world fleet, of which 20 are currently available for lease. MSAF owns
one B747-300 at June 30, 1999 representing 5.6% of the portfolio by appraised
value at June 30, 1999. This aircraft was repossessed from its previous lessee,
VARIG, a Brazilian airline, in July 1999. The aircraft has been re-leased for
three years commencing February 2000 to Air Atlanta Icelandic, a contract
carrier based in Iceland and specializing in wet-leases. The new lease rate for
this aircraft is approximately 20% of the previous rental reflecting the
significant fall in demand for this aircraft type and the current over supply.
The reduced rent is somewhat offset by a settlement that was reached with VARIG
for terminating its lease early. Future lease rentals for this aircraft will in
part depend on the state of the Asian economies, where demand for these
aircraft and other widebodies has been strongest in the past.
Inspections of MD-80s
On February 11, 2000, following an accident involving a MD-83 aircraft, the FAA
issued an AD covering DC-9 (MD-83), MD-88, MD-90 and B717 aircraft. The AD
required inspection of the stabilization equipment on these aircraft types
within 3 days. We own one MD-82 and two MD-83 aircraft, representing 5.98 % of
the portfolio by appraised value at June 30,1999. Under the leases of the
affected aircraft, all costs of compliance with the AD are the obligation of
the lessees.
Page 19 of 19
<PAGE>
Figures as of February 1, 2000
<TABLE>
APPENDIX A
30-Jun-99
Date of Adjusted
Country of Aircraft Engine Serial Manu- Base % of %
Region (1) Current Lessee Current Lessee Type Configuration Number facture 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 19,454 2.0%
2 (Developed) France l'Aeropostale B737-300 CFM 56-3C1 23788 May-87 19,330 2.0%
3 Greece Olympic Airways B737-400 CFM 56-3C1 25371 Jan-92 25,729 2.6%
4 Netherlands KLM engine CF6-80C2B6F 704279 Jun-95 5,425 0.5%
5 Netherlands Transavia B737-300 CFM 56-3C1 27635 May-95 28,072 2.9%
6 Ireland TransAer A320-200 V2500-A1 414 May-93 31,182 3.2%
7 Norway Braathens B737-500 CFM 56-3B1 25165 Apr-93 19,849 2.0%
8 UK Britannia Airways B767-200ER CF6-80A 23807 Aug-87 30,952 3.2%
9 UK Flying Colours (5) A320-200 V2500-A1 393 Feb-93 30,426 3.1%
10 UK Air 2000 B767-300ER CF6-80C2B6F 26256 Apr-93 64,912 6.6%
11 UK Flying Colours B757-200ER RB211-535-E4-37 24367 Feb-89 32,859 3.4%
Sub-total 31.5%
12 North America USA Alaska Airlines B737-400 CFM 56-3C1 25104 May-93 27,099 2.8%
13 (Developed) USA TWA MD-83 JT8D-219 49824 Mar-89 20,726 2.1%
14 USA TWA MD-82 JT8D-217C 49825 Mar-89 18,290 1.9%
15 USA National B757-200ER RB211-535-E4 24260 Dec-88 34,083 3.4%
Airlines
16 Canada Canadian A320-200 V2500-A1 279 Feb-92 30,175 3.1%
Airlines
Sub-total 13.3%
17 Europe Hungary Malev F-70 TAY MK620-15 11564 Dec-95 13,991 1.5%
18 and Middle East Hungary Malev F-70 TAY MK620-15 11565 Feb-96 14,603 1.5%
19 (Emerging) Hungary Malev F-70 TAY MK620-15 11569 Mar-96 14,969 1.5%
20 Turkey Air Alfa A321-100 V2530-A5 597 May-96 41,248 4.2% 8.7%
Sub-total
21 Asia Korea Asiana B767-300 CF6-80C2B6F 24798 Oct-90 54,775 5.6%
22 (Emerging) Taiwan China Airlines A300-600R PW 4158 555 Mar-90 47,140 4.8%
23 China China Hainan B737-300 CFM 56-3C1 26295 Dec-93 25,741 2.7%
Sub-total 13.1%
Latin America
24 (Emerging) Brazil B.R.A. A310-300 JT9D-7R4E1 437 Nov-86 28,322 2.9%
Transportes
Aereo
25 Brazil VASP B737-300 CFM 56-3B2 24299 Nov-88 20,454 2.1%
26 Mexico Aero Mexico B757-200ER PW 2037 26272 Mar-94 42,545 4.3%
Sub-total 9.3%
27 Other Fiji Air Pacific B767-300ER CF6-80C2B4 26260 Sep-94 67,167 6.9%
28 Iceland IcelandAir B737-300 CFM 56-3B2 23811 Oct-87 20,299 2.1%
29 Malta Air Malta B737-300 CFM 56-3B2 25161 Feb-92 25,123 2.5%
Sub-total 11.5%
AOG
30 Other Iceland (6) Air Atlanta B747-300B CF6-80C2 24106 Apr-88 54,382 5.6%
Icelandic
31 Pacific Singapore (6) Regionair A310-300 JT9D-7R4E1 409 Nov-85 23,009 2.3%
(Developed)
32 Pacific Singapore (6) Regionair A310-300 JT9D-7R4E1 410 Nov-85 23,276 2.4%
(Developed)
33 Available for Available for B737-400 CFM 56-3B2 24234 Oct-88 22,508 2.3% 12.6%
lease (7) lease
=========================
Total 978,116 100.0% 100.0%
=========================
</TABLE>
---------------------------
(1) Regions are defined according to MSCI designations.
(2) Adjusted Base Value is the Base Value of each aircraft as per the
June 30, 1999 Appraisal
(3) Total Number of Lessees =25
(4) Total Number of Countries = 18
(5) Previoulsly Caledonian Airways, now merged with Flying Colours.
(6) Currently AOG but subject to a Letter of Intent
(7) Subject to a Letter of Intent since February 1, 2000.
Page 1 of 1
<PAGE>
Morgan Stanley Aircraft Finance
<TABLE>
Comparison of Actual Cash Flows versus
the Base Case for the Twelve Month Period
All amounts in US dollars millions unless otherwise stated
- -----------------------------------------------------------------------------------------------------------------------------------
1998 % of 1998 Base Case Lease Rentals
Actual Base Case Variance Actual* Base Case** Variance
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CASH COLLECTIONS
[1] Lease Rentals 126.8 126.8 - 100.0% 100.0% 0.0%
[2] - Renegotiated Leases (1.4) - (1.4) -1.1% -1.1%
[3] - Rental Resets (2.0) - (2.0) -1.6% -1.6%
----------------------------------------------------------------
[4] [1]..[3] Contracted Lease Rentals 123.4 126.8 (3.4) 97.3% 100.0% -2.7%
[5] Movement in Current Arrears Balance 0.1 - 0.1 0.1% 0.1%
less Net Stress-related Costs
[6] - Bad debts (4.0) - -3.2%
[7] - Capitalised arrears (3.5) -2.8%
[8] - Security deposits drawn down 2.5 - 2.0%
[9] - AOG (5.2) - -4.1%
[10] - Other Leasing Income 2.5 - 2.0%
[11] - Repossession (1.1) -0.9%
----------------------------------------------------------------
[12] [6].[11] sub-total (8.8) (5.7) (3.1) -7.0% -4.5% -2.5%
[13] [4]+[5]+[12] Net Lease Rentals 114.7 121.1 (6.4) 90.4% 95.5% -5.1%
-
[14] Interest Earned 1.8 1.4 0.4 1.4% 1.1% 0.3%
[15] Net Maintenance 2.6 - 2.6 2.1% 0.0% 2.1%
----------------------------------------------------------------
[16] [13..[15] Total Cash Collections 119.1 122.5 (3.4) 93.9% 96.6% -2.7%
-
- ---------------------------------------------------------------------------------------------------------------------------------
CASH EXPENSES
Aircraft Operating Expenses
[17] - Insurance (0.4) - -0.3%
[18] - Re-leasing and other overheads (0.2) -0.2%
----------------------------------------------------------------
[19] [17]+[18] subtotal (0.6) (4.4) 3.8 -0.5% -3.5% 3.0%
SG&A Expenses
[20] Aircraft Servicer Fees
- Base Fee (2.9) -2.3%
- Rent Collected Fee (1.1) -0.9%
- Rent Contracted Fee (1.2) -0.9%
- Incentive Fee (0.5) -0.4%
----------------------------------------------------------------
[21] [20] sub-total (5.7) (6.4) 0.7 -4.5% -5.1% 0.6%
[22] Other Fees (2.3) (3.2) 0.9 -1.8% -2.6% 0.8%
----------------------------------------------------------------
[23] [21]+[27] subtotal (8.0) (9.6) 1.6 -6.3% -7.7% 1.4%
----------------------------------------------------------------
[24] [19]+[23] Total Cash Expenses (8.6) (14.0) 5.4 -6.8% -11.2% 4.4%
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH COLLECTIONS
[25] [16] Total Cash Collections 119.1 122.5 (3.4) 93.9% 96.6% -2.7%
[26] [24] Total Cash Expenses (8.6) (14.0) 5.4 -6.8% -11.2% 4.4%
[27] Interest Payments (58.5) (63.2) 4.7 -46.1% -49.8% 3.7%
[28] Swap Payments (8.7) (3.8) (4.9) -6.8% -3.0% -3.8%
[29] Exceptional Item - - -
----------------------------------------------------------------
[30] [25]...[29] TOTAL 43.3 41.5 1.8 34.2% 32.6% 1 .6%
================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
[31] PRINCIPAL PAYMENTS
subclass A1 - -
subclass A2 39.5 37.7 1.8 31.2% 29.6% 1.6%
subclass B1 3.8 3.8 0.0 3.0% 3.0% 0.0%
subclass C1 0.0 0.0 0.00 0.0% 0.0% 0.0%
subclass D1 - 0.0% 0.0% 0.0%
----------------------------------------------------------------
Total 43.3 41.5 1.8 34.2% 32.6% 1.6%
================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
Debt Balances
as at November 15, 1999
subclass A1 400.0 400.0
subclass A2 234.5 247.1
subclass B1 91.0 91.0
subclass C1 100.0 100.0
subclass D1 110.0 110.0
-----------------
935.5 948.1
-----------------
</TABLE>
