FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For October 29, 1999
AERCO LIMITED
22 Grenville Street
St. Helier
Jersey, JE4 8PX
Channel Islands
------------------------------------------------
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F [X] Form 40-F
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No [X]
<PAGE>
INDEX TO EXHIBITS
Item
1. AerCo Limited September 15, 1999 Quarterly Cash Report, Management
Discussion and Analysis of Financial Condition and Results of Operations
and Particulars of AerCo's portfolio.
<PAGE>
SIGNATURE
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, thereunto duly authorized.
Dated: October 29, 1999
AERCO LIMITED
By: /s/Frederick Bradley
------------------------------------
Name: Frederick Bradley
Title: Attorney-in-Fact
Item 1
AerCo Group
Quarterly Report September 15, 1999
All Amounts are in thousands of US dollars unless otherwise stated
Selected Financial Data for the period June 15,1999 to September 15, 1999
(Note 1) and Cumulative to date
<TABLE>
Current Period Cumulative to date
- -----------------------------------------------------------------------------------------------------------------------------------
Actual Prospectus Variance Actual Prospectus Variance
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash Collections
Gross Lease rentals 26,197 29,388 (3,191) 130,271 135,798 (5,527)
Repossession and other Stress Related costs 2,649 (1,763) 4,412 (2,763) (8,074) 5,311
- -----------------------------------------------------------------------------------------------------------------------------------
Net Lease Rentals (A) 28,846 27,625 1,221 127,508 127,724 (216)
Maintenance receipts 3,406 - 3,406 13,241 - 13,241
Interest received 789 561 228 3,466 2,611 855
Other cash received 13,823 - 13,823 28,205 109 28,096
- -----------------------------------------------------------------------------------------------------------------------------------
Total Cash Collections (B) 46,864 28,186 18,678 172,420 130,444 41,976
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Expenses
Cash Operating Expenses
- - Maintenance (5,148) - (5,148) (20,014) - (20,014)
- - Insurance, re-leasing and other costs (626) (588) (38) (3,011) (2,799) (212)
Subtotal (5,774) (588) (5,186) (23,025) (2,799) (20,226)
Selling General & Administrative Expenses
- - Servicer fees (2,204) (608) (1,596) (4,915) (3,156) (1,759)
- - Other servicer provider fees and overhead (831) (1,194) 363 (5,442) (6,117) 675
Subtotal (3,035) (1,802) (1,233) (10,357) (9,273) (1,084)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Cash Expenses (C) (8,809) (2,390) (6,419) (33,382) (12,072) (21,310)
- -----------------------------------------------------------------------------------------------------------------------------------
Movement in Expense/Collection Account Balances/ 634 - 634 (736) - (736)
Security Deposits (D)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash Collections ( (B)+(C)+(D) ) 38,689 25,796 12,893 138,302 118,372 19,930
- -----------------------------------------------------------------------------------------------------------------------------------
Note Payments
Interest Payments (Net of Swap Effects) 14,418 15,700 (1,282) 66,447 69,490 (3,043)
Principal Payments
A-1 - - - - - -
A-2 21,505 8,989 12,516 64,579 44,486 20,093
B-1 2,662 1,003 1,659 6,995 4,115 2,880
C-1 104 104 - 281 281 -
D-1 - - - - - -
Subtotal 24,271 10,096 14,175 71,855 48,882 22,973
- -----------------------------------------------------------------------------------------------------------------------------------
Total Payments to Noteholders 38,689 25,796 12,893 138,302 118,372 19,930
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
AerCo Group
Quarterly Report September 15, 1999
All Amounts are in thousands of US dollars unless otherwise stated
Selected Financial Data as at September 15, 1999
Actual
--------
Cash
Cash held in Liquidity Reserve Account 56,151
Aircraft Purchase Account -
Expense Account 5,000
--------
Total Cash Available 61,151
Asset Value
Assumed Portfolio Value as at September 15, 1999 876,500
Liquidity Reserve Amount
Of which - Cash 56,151
- Letters of Credit held -
--------
Subtotal 56,151
--------
Less Lessee Security Deposits (16,151)
Subtotal 40,000
--------
Total Asset Value (Note 2) 916,500
========
Note Balances
A-1 340,000
A-2 225,071
B-1 78,006
C-1 84,754
D-1 80,000
--------
Total 807,831
========
Ratios
Loan to Total Asset Value (Note 3)
A-1 61.66%
A-2 61.66%
B-1 70.17%
C-1 79.41%
D-1 88.14%
Interest Coverage Ratio (Note 4)
Class A 4.87
Class B 4.25
Class C 3.12
Class D 2.56
Debt Service Coverage Ratio (Note 5)
Class A 2.56
Class B 2.47
Class C 2.45
Class D 2.45
- -------------
Notes
1 The financial data as at September 15, 1999 includes payments made by AerCo
on September 15, 1999 but only includes receipts up to September 9, 1999
(i.e.the calculation date for the Note Payment Date on September 15,1999)
2 Total Asset Value is equal to Total Assumed Portfolio Value plus Liquidity
Reserve Amount minus Lessee Security Deposits.
3 Loan to Total Asset Value Ratio is equal to the aggregate principal amount
of each subclass of Notes, plus the aggregate principal amount of any other
subclass of Notes that ranks equally or senior in priority of payment,
expressed as a percentage of the Total Asset Value
4 Interest Coverage Ratio is equal to the Net Cash Collections expressed as a
ratio of the interest paid on each subclass of Notes plus the interest and
minimum principal payments paid on each subclass of Notes that rank senior
in priority of payment to the relevant subclass of Notes.
5 Debt Service Coverage Ratio is equal to Net Cash Collections expressed as a
ratio of the interest and minimum and scheduled principal payments paid on
each subclass of Notes plus the interest and minimum and scheduled
principal payments paid on each subclass of Notes that ranks equally or
senior in priority of payments with the relevant subclass of Notes.
<PAGE>
AERCO GROUP
Management Discussion &
Analysis of Financial Condition and Results of Operations
The financial information contained in this report was not prepared in
accordance with generally accepted accounting principles of the United States or
the United Kingdom but was prepared in accordance with the Company's obligations
under the Indenture. This report should be read in conjunction with the
Company's most recent financial information prepared in accordance with
generally accepted accounting principles of the United Kingdom, including a
reconciliation of net loss, shareholders' deficit and aircraft assets to
estimated amounts under generally accepted principles of the United States. For
this you should refer to the Company's Form 20-F which is on file at the
Securities and Exchange Commission.
Background
On July 15, 1998 ("the Closing Date"), AerCo Limited, ("AerCo" or "the
Company") a Jersey limited liability company issued $800 million of Notes in
four subclasses, Subclass A-1, Subclass A-2, Subclass B-1 and Subclass C-1(the
"Notes"). The Company also issued two additional subclasses of notes, the
Subclass D-1 Notes and the Subclass E-1 Notes which were initially purchased by
AerFi Group plc ("AerFi Group"). The Company used the proceeds from the issuance
of Notes, the Subclass D-1 Notes and the Subclass E-1 Notes (i) to acquire the
issued and outstanding capital stock of Aircraft Lease Portfolio Securitization
94-1 Limited, a Jersey limited liability company ("ALPS 94-1") (and thereby to
indirectly acquire ALPS 94-1's portfolio of 25 aircraft and the related leases),
(ii) to finance the repayment of all of ALPS 94-1's existing financial
indebtedness and (iii) to finance the acquisition of 10 aircraft and the related
leases from AerFi Group and its subsidiaries ("AerFi") through the acquisition
of 100% of the capital stock of three wholly owned subsidiaries of AerFi Group.
On May 14, 1999, AerCo consumated an exchange offer under which the Notes
were exchanged for new notes which are registered with the Securities and
Exchange Commission. The registration statement filed by AerCo in connection
with the exchange offer went effective on April 15, 1999 (the "Registration
Statement").
The discussion and analysis which follows is based on the results of
AerCo Limited and its subsidiaries as a single entity (collectively the "AerCo
Group").
General
AerCo is a special purpose vehicle which currently owns (directly and
indirectly) 33 aircraft, which are on operating leases, having sold one Fokker
100 aircraft in January 1999 and a second Fokker 100 aircraft in July 1999.
AerCo may also acquire additional aircraft and any related existing leases or
similar arrangements from various sellers, which may include AerFi. Additional
aircraft may include among other things, aircraft, engines and entities with an
ownership or leasehold interest in aircraft or engines. AerCo will finance
acquisitions of additional aircraft with external funds, including issuing
additional notes. Any acquisition of further aircraft will be subject to certain
confirmations from the Rating Agencies and compliance with certain operating
covenants of AerCo set out in the Indenture dated as of July 15, 1998 by and
between AerCo and Bankers Trust Company, as trustee of the Notes and the new
notes issued and to be issued under the exchange offer (the "Indenture").
<PAGE>
AerCo Group's cash receipts and disbursements are determined, in part,
by the overall economic condition of the aircraft operating leasing market. This
in turn, is affected by various cyclical factors including interest rates, the
availability of credit, fuel costs and general and regional economic conditions
affecting airline operations and trading; aircraft manufacturer production
levels; passenger demand; retirement and obsolescence of aircraft models;
manufacturers exiting or entering the market or ceasing to produce aircraft
types; re-introduction into service of aircraft previously in storage;
governmental regulation; air traffic control infrastructure constraints; capital
market risks and general risk of lessee default.
AerCo's ability to compete against other lessors is determined, in
part, by (i) the composition of its fleet in terms of mix, relative age and
popularity of the aircraft types; (ii) operating restrictions imposed by the
Indenture, and (iii) the ability of other lessors, who may possess substantially
greater financial resources, to offer leases on more favorable terms than AerCo.
This quarterly report presents information from the Closing Date to the
September 15, 1999 Payment Date and for the three month period from the June 15,
1999 Payment Date to the September 15, 1999 Payment Date (the "Current Period").
This report, however, limits its commentary to the Current Period.
Cashflow Performance Relative to the Assumptions
The Registration Statement contained assumptions in respect of AerCo
Group's future cashflows and cash expenses (the "Assumptions"). These are
identical to those contained in the offering memorandum issued by AerCo on June
23, 1998. In the Current Period, AerCo Group had net Cash Collections of $38.7
million compared with an assumed amount of $25.8 million. This is comprised of
total Cash Collections of $46.9 million, which were $18.7 million ahead of the
assumed amount and total Cash Expenses of $8.8 million, which were $6.4 million
ahead of the assumed amount. Cash Collections and Cash Expenses are discussed in
detail below.
Cash Collections
"Cash Collections" comprise lease rental payments, maintenance reserve
payments by lessees, cash interest paid on AerCo's cash balances and other cash
received. The Registration Statement assumed total Cash Collections for the
Current Period of $28.2 million. Total Cash Collections achieved in the period
were $46.9 million, a positive difference of $18.7 million. This difference is
due to a combination of factors set out below.
Gross lease rentals. Cash Collections relating to gross lease rentals
for the Current Period amounted to $26.2 million, $3.2 million less than the
amount assumed in the Registration Statement. This variance arises principally
due to the actual re-lease rates for the aircraft being less than assumed, in
addition to lost lease revenue as a result of the two Fokker 100 aircraft sold
previously.
Downtime, bad debts, leasing and other costs . Downtime, arrears, bad
debts, leasing and other costs for the Current Period amounted to a cash inflow
of $2.6 million, compared with the cash outflow of $1.7 million in assumed costs
for this period. The cash inflow of $2.6 million arose due to the payment in the
Current Period of rentals relating to previous periods by certain lessees,
principally two Asian lessees and a North American lessee representing 4.8%,
4.7% and 3.6% respectively of the portfolio by appraised value at January 18,
1999.
<PAGE>
Net lease rentals. The Registration Statement assumed an 8% reduction
in gross lease rentals due to certain costs. 6% of this amount is assumed to
relate to downtime costs, repossession costs and arrearages (the resulting
amount is "Net Lease Rentals"). The remaining 2% covers other leasing costs and
is discussed under Operating Expenses. For the Current Period, assumed Net Lease
Rentals were $27.6 million. Actual Net Lease Rentals for the Current Period were
$28.8 million which is $1.2 million ahead of the Assumptions due to the payment
of arrears in the Current Period, in addition to zero downtime costs.
Maintenance receipts. In the Current Period, maintenance receipts were
$3.4 million and maintenance disbursements were $5.1 million. The Registration
Statement 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, actual maintenance receipts and
disbursements will vary such that it is unlikely that maintenance receipts will
equal maintenance disbursements in any such period.
Interest received. Actual interest received for the Current Period was
$0.8 million which is ahead of the amount assumed in the Registration Statement
for the same period of $0.6 million.
Other cash received. Other cash received for the Current Period was
$13.8 million, which consists of net cash inflows from the sale of a Fokker 100
aircraft.
Cash Expenses
"Cash Expenses" includes all fees, costs or expenses paid by any AerCo
Group member in the course of the business activities permitted to be conducted
by it under the Indenture. The cash outflows in respect of Cash Expenses shown
in the Registration Statement were assumed to be $1.8 million for the Current
Period. Actual cash expenses were $3.0 million. The difference is due to a
combination of factors set out below.
Operating Expenses
Maintenance. Maintenance disbursements in the Current Period were
approximately $5.1 million which is $1.7m greater than the maintenance receipts
for the period. The high level of maintenance disbursements in the period is as
a result of the coincidence of a number of airframe and engine overhauls due to
the fact that much of AerCo Group's fleet is of a relatively similar age
profile. This is also expected to result in maintenance cash outflows exceeding
inflows on an aggregate basis over the period to March 31, 2002. Thereafter, it
is expected that this trend will be reversed. As discussed above, the
Registration Statement assumes that maintenance receipts will equal maintenance
disbursements over the term of the Notes; however, it is unlikely that actual
maintenance receipts will equal maintenance disbursements in any particular Note
Payment Period.
Insurance, re-leasing, repossession and other costs. The Registration
Statement assumed a 2.0% reduction in gross lease rentals due to certain leasing
costs, insurance, re-leasing and other costs. For the Current Period this
assumed amount was $0.6 million. Actual costs for the Current Period were
broadly in line with the Assumptions.
<PAGE>
Selling, General and Administrative Expenses
Servicer fees. Fees paid to Babcock & Brown Limited, as Servicer,
during the Current Period amounted to $2.2 million which is $1.6 million greater
than the assumed cost of $0.6 million for the period. This adverse variance of
$1.6 million arose due to the actual incentive fee for the period ended March
31, 1999 being greater than forecast. A portion of the Servicer's incentive fee
was paid during the Current Period together with payment of a sales incentive
fee to the Servicer following the sale of a Fokker 100 aircraft during the
Current Period. A significant portion of the Servicer's fees are calculated as a
percentage of rental revenue actually received.
Other service provider fees and overhead. Other service provider fees
and overhead amounted to $0.8 million, which was $0.4 million lower than the
assumed amount for the Current Period due to the timing of certain costs.
Note Payments
Interest payments. Actual interest payments to Noteholders net of swap
costs for the Current Period were $14.4 million, as compared with assumed
interest payments net of swap costs of $15.7 million. Lower interest payments
were principally caused by the actual principal balances of the Notes being less
than assumed.
Principal payments. Total principal distributions in the Current Period
were $24.3 million, $14.2 million ahead of assumed total debt amortization.
Principal amortization payments were made with respect to the Subclass A-2
Notes, Subclass B-1 Notes and Subclass C-1 Notes. All scheduled principal
distributions on the Subclass A-2, B-1 and C-1 Notes have been made. In addition
Subclass B-1 supplemental principal and Subclass A-2 outstanding principal
distributions of $0.3m and $1.5m, respectively, were paid during the Current
Period.
Other Financial Data
Cash
Cash held at September 15, 1999 was $61.2 million. Of this amount,
$56.2 million represents the cash portion of the Liquidity Reserve Amount (which
is used as a source of liquidity for, among other things, maintenance
obligations, security deposit return obligations, cash operating expenses and
contingent liabilities). Finally, the amount of cash held reflects cash received
in respect of rentals and other collections in the period since the most recent
Calculation Date and amounts held in the Expense Account for payments in respect
of monthly recurring expenses and costs that are not regularly incurred but are
anticipated to become due and payable in the near future.
Aircraft Values
At July 15, 1998, the total assumed value of the 35 aircraft was $951.9
million. Following application of the declining value assumption set out in the
terms of the Notes, and the sale of two Fokker 100 aircraft, serial numbers
11258 and 11342, the total assumed value of the 33 remaining aircraft was $876.5
million at September 15, 1999.
Under the terms of the Notes, AerCo Group is obliged to obtain annual
appraisals of the base value of each of the aircraft from at least three
independent appraisers no earlier than 90 days and not later than 30 days prior
to March 31 of each year. The most recent valuation was received on January 18,
1999 and gave rise to a fleet valuation of $895.9 million. A commentary on the
decline in value of the portfolio was included in the report on the period to
December 15, 1998. At September 15, 1999, the adjusted portfolio value was
$856.5 million.
<PAGE>
A-D Note Balance
As of September 15, 1999, the aggregate amount of the Notes outstanding
was $807.8 million, approximately $23.2 million lower than assumed due to higher
actual than assumed principal repayments with respect to the Subclass A-2 Notes
and Subclass B-1 Notes principally as a result of aircraft sales.
Developments
Recent Developments
On July 1, 1999, AerCo completed the sale of a second Fokker 100
aircraft. The Net Sales Proceeds resulting from this sale were $13.8 million.
The Net Sales Proceeds from the sale were less than the Note Target Price,
partly due to the high level of maintenance reserves that were refunded to the
purchaser. However, the sales price of $14.7 million compares favorably with the
January 18, 1999 appraisal received for the aircraft of $14.5 million.
At September 15, 1999, 22.1% of the aircraft by appraised value at
January 18, 1999 were leased to operators in "emerging markets" in the Asia
Pacific region, including China, the Philippines, South Korea and India. One
lessee in this region, Asiana, leased 6.1% of the aircraft by appraised value at
January 18, 1999.
Trading conditions in Asia's civil aviation industry have been
adversely affected by the economic and financial difficulties being experienced
in the region. The economies of the region have experienced acute difficulties
resulting in business failures, significant depreciation of local currencies
against the dollar, downgrading of sovereign and corporate credit ratings and
internationally organized financial stability measures. At September 15, 1999
Philippine Airlines ("PAL"), a lessee of 4.9% of the aircraft by appraised value
at January 18, 1999 filed for bankruptcy protection approximately fifteen months
ago. A continuation of this downturn in the region's economies may further
undermine business confidence, reduce demand for air travel and adversely affect
certain Asian lessees' operations and their ability to meet their obligations.
At September 15, 1999, 18.2% of the aircraft by appraised value at
January 18, 1999 were leased by operators in "emerging markets" in Latin
America, principally Brazil, Chile and Colombia. One Chilean lessee, leased 6.8%
of the current portfolio by appraised value at January 18, 1999. The financial
prospects for lessees in Latin America will depend in part on the level of
political stability and economic activity and the policies in the region.
Developments in other "emerging markets" may also affect the economies of Latin
American countries and the entire region.
Most significantly, 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 decreases in
the value of its currency. One of the lessees operates three aircraft
representing 4.9% of the aircraft by appraised value at January 18, 1999 in
Brazil. Continued weakness in the value of the Brazilian real, as well as
general deterioration in the Brazilian economy, will mean that this lessee may
be unable to generate sufficient revenues in Brazilian currency to pay the
dollar-denominated rental payments under the leases. Failure by Brazil to
address its current financial crisis could result in the crisis spreading to
other Latin American economies and economies in other emerging markets.
Colombia has suffered as a result of the deterioration in the value of
the Colombian peso and the resulting negative impact on the Colombian economy.
One of the lessees which operates one aircraft representing 4.6% of the aircraft
by appraised value at January 18, 1999 is a Colombian airline. Continued
weakness in the value of the Colombian Peso, as well as general deterioration in
the Colombian economy, will mean that this lessee may be unable to generate
sufficient revenues in Colombian currency to pay the dollar denominated rental
payments under the lease.
<PAGE>
Similarly, the Chilean economy has suffered an adverse effect as a
result of the economic difficulties in Asia. In the past, Asia has accounted for
a significant portion of Chile's exports. Copper is Chile's principal export
product. Copper prices have declined dramatically over the past two years,
primarily as a result of Asia's economic difficulties as discussed above. Such
economic developments, especially if they continue or worsen, could lead to
lower levels of economic activity in Chile which could, in turn, adversely
affect the operations of AerCo Group's Chilean lessee.
At September 15, 1999, 48.7% of the aircraft by appraised value at
January 18, 1999 were leased by operators based in Europe. Of this amount,
lessees of 34.9% of the aircraft by appraised value are based in "developed"
European markets, principally the United Kingdom and Spain. Lessees of the
remaining 13.8% of the aircraft by appraised value were based in "emerging"
European markets, principally Turkey and Hungary. One Spanish lessee leased
11.5% of the aircraft by appraised value at January 18, 1999.
The commercial aviation industry in Europe, as in the rest of the world
generally, is highly sensitive to general economic conditions. Because a
substantial portion of airline travel (business and especially leisure) is
discretionary, the industry is cyclical experiencing financial and trading
difficulties during economic downturns. Accordingly, the financial prospects for
European lessees can be expected to depend largely on the level of economic
activity in Europe generally and in specific countries in which such lessees
operate. European scheduled carriers currently are experiencing a slower
economic period and greater competition than in previous years and are suffering
from over expansion. A recession or other worsening economic conditions in any
European country may adversely affect the European lessees' ability to meet
their financial and other obligations under the leases. For example, the Russian
economy is experiencing severe difficulties, including significant devaluation
of the rouble against the dollar. The downturn in Russia's economy may undermine
business confidence and reduce demand for air travel in other emerging market
countries. In addition, commercial airlines in Europe face, and can be expected
to continue to face, increased competitive pressures from continuing
deregulation of the airline industry by the EU. There can be no assurances that
competitive pressures resulting from such deregulation will not have a material
adverse impact on such lessees.
At September 15, 1999 three lessees operate four aircraft representing
11.1% of the aircraft by appraised value at January 18, 1999, in Turkey, which
was hit by a severe earthquake in August 1999. Two of these carriers operate
charter flights which are heavily dependent on foreign tourists travelling to
Turkey. Damage caused by the earthquake and any falloff in tourist traffic may
adversely affect the ability of these carriers to operate and meet their
obligations under the leases.
At September 15, 1999, 8.7% of the aircraft by appraised value at
January 18, 1999 were leased by operators in North America. As in Europe, the
commercial aviation industry in North America is highly sensitive to general
economic conditions. Since a substantial portion of airline travel is largely
discretionary, the industry has suffered severe financial difficulties during
economic downturns. Over the last decade, several of the major North American
passenger airlines have filed Chapter 11 bankruptcy proceedings and several
major U.S. airlines have ceased operations.
The total availability of jet aircraft has increased significantly over
the last year, with much of this increase being attributable to Stage Three
aircraft.
<PAGE>
The accelerating increase in deliveries of new generation B737-600s,
B737-700s and B737-800 aircraft, as well as greater production of the A319, A320
and A321 has coincided with airlines preferring the flexibility, lower operating
costs and in many cases the low lease rates of the new aircraft types. 1998 saw
a peak of aircraft orders, with over 1,200 aircraft orders placed, with
deliveries for 1999 expected to exceed 1,000. Overall the demand-supply
situation for the near term would appear to favor the lessee mainly due to the
significant level of deliveries of new aircraft combined with the slowdown in
economic growth in Asia and Latin America. These developments have given rise to
a softening of future lease rates and of the placement prospects for aircraft
coming off lease in the near term. The softening of lease rates when coupled
with the rising interest rate environment has resulted in lower margins on the
individual leases.
Lessee Performance
Weakly capitalized airlines are more likely than well capitalized
airlines to seek operating leases. Therefore, many of the lessees are in a
relatively weak financial position and several of them have faced and continue
to face severe economic difficulties.
As of September 30, 1999, amounts outstanding for more than 30 days for
rental payments, maintenance reserves and other amounts due under the leases
equaled $4.5 million for three lessees who had a total of four aircraft on
lease. Amounts outstanding for 30 to 90 days equaled $0.3 million and amounts
outstanding for more than 90 days equaled $4.2 million. The outstanding amounts
are net of agreed deferrals or other restructurings, default interest and cash
in transit.
As of September 30, 1999, a Latin American lessee representing 4.6% of
the portfolio by appraised value at January 18, 1999 owed $2.0 million with $1.4
million in arrears for more than 90 days. The Servicer is in discussions with
the lessee regarding the payment of this amount and future lease rentals.
PAL, the lessee of two B737-300 aircraft representing 4.9% of the
portfolio by appraised value at January 18, 1999 has been adversely affected by
the ongoing Asian economic crisis. On June 19, 1998, PAL filed a petition for
approval of a rehabilitation plan with the Philippine SEC and subsequently, the
Philippine SEC appointed an Interim Receiver. Following a number of time limit
extensions, the final revised plan was filed on March 15, 1999.
The Servicer has since this time agreed with PAL a schedule covering
the payment of arrearages and is in the process of extending the current leases.
At September 30, 1999, $3.0 million was outstanding from PAL, with $0.3 million
in arrears for 30 to 90 days and $2.4 million in arrears for more than 90 days.
There can be no assurance, however, that PAL will ultimately repay its
arrearages or be able to pay future lease rentals. AerCo Group may encounter
delays or difficulties in recovering possession of the aircraft, which are
currently operated within the Philippines, or terminating such leases. If the
aircraft are recovered, under such circumstances the technical costs required to
ensure the aircraft are in suitable condition for re-leasing may be significant.
As of September 30, 1999, a North American lessee, representing 3.6% of
the portfolio by appraised value at January 18, 1999, owed $0.8 million with
$0.5 million in arrears for 30 to 90 days and $0.3 million in arrears for more
than 90 days. Babcock & Brown is in discussions with the lessee regarding the
payment of this amount and future lease rentals.
<PAGE>
<TABLE>
Appraised
Date of Value at
Country of Aircraft Engine Serial Manufacture January 18,
No. Region Current Lessee Lessee Type Configuration Number Conversion 1999
- ------------------------------------------------------------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Asia - Emerging China China Xinjiang B757-200 RB211-535E4 26153 Aug-92 41,633
2. Asia - Emerging China Yunnan B737-300 CFM56-3C1 26068 Jun-92 24,099
3. Asia - Emerging India Indian Airlines A300B4-200 CF6-50C2 240 May-83 11,648
4. Asia - Emerging Philippines PAL B737-300 CFM56-3B1 24465 Aug-89 20,736
5. Asia - Emerging Philippines PAL B737-300 CFM56-3B1 24677 Mar-90 22,103
6. Asia - Emerging South Korea Asiana B737-400 CFM56-3C1 25764 Jun-92 26,720
7. Asia - Emerging South Korea Asiana B737-400 CFM56-3C1 25765 Jul-92 26,285
8. Asia - Emerging Taiwan FEAT MD83 JT8D-219 49952 Dec-91 21,983
9. Europe - Developed Italy Air Europe A320 CFM5-5A1 85 Feb-90 24,800
10. Europe - Developed Ireland Aer Lingus B737-400 CFM56-3C1 24685 May-90 25,091
11. Europe - Developed Spain Spanair B767-300ER PW4060 24999 Feb-91 60,437
12. Europe - Developed Spain Spanair MD83 JT8D-219 49627 Apr-89 20,493
13. Europe - Developed Spain Spanair MD83 JT8D-219 49790 Oct-89 20,780
14. Europe - Developed United Kingdom Air 2000 B757-200 RB211-535E4 26158 Feb-93 42,170
15. Europe - Developed United Kingdom Airtours A320-200 CFM56-5A3 299 Apr-92 29,537
16. Europe - Developed United Kingdom Airtours A320-200 V2500-A1 362 Nov-92 30,347
17. Europe - Developed United Kingdom BMA B737-400 CFM56-3C1 23868 Oct-88 23,132
18. Europe - Developed United Kingdom Monarch A320-200 CFM56-5A3 391 Feb-93 30,937
19. Europe - Emerging Hungary Malev B737-300 CFM56-3C1 24909 Apr-91 23,366
20. Europe - Emerging Turkey Pegasus B737-400 CFM56-3C1 23979 Jan-89 23,466
21. Europe - Emerging Turkey Sun Express B737-300 CFM56-3C1 24908 Mar-91 23,308
22. Europe - Emerging Turkey THY B737-400 CFM56-3C1 24904 Feb-91 24,912
23. Europe - Emerging Turkey THY B737-400 CFM56-3C1 26066 Jun-92 26,467
24. Latin America Brazil TAM Fokker 100 TAY650-15 11341 Aug-91 14,160
25. Latin America Brazil TAM Fokker 100 TAY650-15 11350 Apr-92 15,096
26. Latin America Brazil TAM Fokker 100 TAY650-15 11351 Sep-91 14,431
27. Latin America Chile Lan Chile B767-300ER PW4060 24947 Mar-91 59,841
28. Latin America Chile AILL (1) DC8-71F CFM56-2C1 46040 May-69 15,858
29. Latin America Columbia Avianca B757-200 RB211-535E4 26152 Aug-92 41,012
30. North America Canada Canadian A320-200 CFM56-5A1 403 Dec-93 29,791
31. North America United States BAX Global DC8-71F CFM56-2C1 46064 Apr-69 15,040
32. North America United States Tower Air B747-200 JT9D-7Q 22496 Oct-81 31,996
33. Others Fiji Air Pacific B737-500 CFM56-3C1 26067 Jun-92 19,785
========
Total 881,460
</TABLE>
- ----------
1. Aircraft International Leasing Limited is an indirect 100% subsidiary of
Lan Chile
