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 January 26, 2000
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
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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
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<PAGE>
INDEX TO EXHIBITS
Item
1. AerCo Limited December 15, 1999 Quarterly Cash Report, Management Discussion
and Analysis of Financial Condition and Results of Operations and Particulars
of AerCo's portfolio.
Page 2 of 3
<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: January 26, 2000
AERCO LIMITED
By: /s/ Frederick Bradley
---------------------------
Name: Frederick Bradley
Title: Attorney-in-Fact
Page 3 of 3
Item 1
AerCo Group
Quarterly Report December 15, 1999
All amounts are in thousands of US dollars unless otherwise states
<TABLE>
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Selected Financial Data for the period September 15,1999 to December 15, 1999 (Note 1) and Cumulative to date
Current Period Cumulative to date
- ----------------------------------------------------------------------------------------------- ------------------------------------
Actual Prospectus Variance Actual Prospectus Variance
- ----------------------------------------------------------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash Collections
Gross Lease rentals 26,051 29,382 (3,331) 156,322 165,180 (8,858)
Repossession and other Stress Related costs (192) (1,763) 1,571 (2,955) (9,837) 6,882
- ----------------------------------------------------------------------------------------------- ------------------------------------
Net Lease Rentals (A) 25,859 27,619 (1,760) 153,367 155,343 (1,976)
- ----------------------------------------------------------------------------------------------- ------------------------------------
Maintenance receipts 2,369 - 2,369 15,610 - 15,610
Interest received 829 561 268 4,295 3,172 1,123
Other cash received - - - 28,205 109 28,096
- ----------------------------------------------------------------------------------------------- ------------------------------------
Total Cash Collections (B) 29,057 28,180 877 201,477 158,624 42,853
- ----------------------------------------------------------------------------------------------- ------------------------------------
Cash Expenses
Cash Operating Expenses
- - Maintenance (2,134) - (2,134) (22,148) - (22,148)
- - Insurance, re-leasing and other costs (1,718) (588) (1,130) (4,729) (3,387) (1,342)
--------------------------------------- ------------------------------------
Subtotal (3,852) (588) (3,264) (26,877) (3,387) (23,490)
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Selling General & Administrative Expenses
- Servicer fees (586) (608) 22 (5,501) (3,764) (1,737)
- Other servicer provider fees and overhead (1,300) (1,203) (97) (6,742) (7,320) 578
Subtotal (1,886) (1,811) (75) (12,243) (11,084) (1,159)
- ----------------------------------------------------------------------------------------------- ------------------------------------
Total Cash Expenses (C) (5,738) (2,399) (3,339) (39,120) (14,471) (24,649)
- ----------------------------------------------------------------------------------------------- ------------------------------------
Movement in Expense/Collection Account Balances/ 69 - 69 (667) - (667)
Security Deposits (D)
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Net Cash Collections ( (B)+(C)+(D) ) 23,388 25,781 (2,393) 161,690 144,153 17,537
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Note Payments
Interest Payments (Net of Swap Effects) 15,615 15,435 180 82,062 84,925 (2,863)
Principal Payments
A-1 - - - - - -
A-2 6,876 9,194 (2,318) 71,455 53,680 17,775
B-1 761 1,014 (253) 7,756 5,129 2,627
C-1 136 138 (2) 417 419 (2)
D-1 - - - - - -
--------------------------------------- ------------------------------------
Subtotal 7,773 10,346 (2,573) 79,628 59,228 20,400
--------------------------------------- ------------------------------------
- ----------------------------------------------------------------------------------------------- ------------------------------------
Total Payments to Noteholders 23,388 25,781 (2,393) 161,690 144,153 17,537
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</TABLE>
<PAGE>
Selected Financial Data as at December 15, 1999
- -------------------------------------------------------------------------------
Actual
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Cash
Cash held in Liquidity Reserve Account 55,344
Aircraft Purchase Account -
Expense Account 5,000
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Total Cash Available 60,344
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Asset Value
Assumed Portfolio Value as at Dectember 15, 1999 866,427
Liquidity Reserve Amount
Of which - Cash 55,344
- Letters of Credit held -
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Subtotal 55,344
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Less Lessee Security Deposits (15,344)
Subtotal 40,000
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Total Asset Value (Note 2) 906,427
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Note Balances
A-1 340,000
A-2 218,194
B-1 77,244
C-1 84,617
D-1 80,000
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Total 800,055
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Ratios
Loan to Total Asset Value (Note 3)
A-1 61.58%
A-2 61.58%
B-1 70.10%
C-1 79.44%
D-1 88.26%
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Interest Coverage Ratio (Note 4)
Class A 2.92
Class B 2.54
Class C 2.20
Class D 1.89
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Debt Service Coverage Ratio (Note 5)
Class A 1.89
Class B 1.87
Class C 1.85
Class D 1.85
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- -----------------------------
Notes
1 The financial data as at December 15, 1999 includes payments made by AerCo
on December 15, 1999 but only includes receipts up to December 9, 1999
(i.e.the calculation date for the Note Payment Date on December 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.
6 Included in Net Cash Collections for the prior period was $13.8 million
received following the sale of a Fokker 100 aircraft.
<PAGE>
Further particulars of AerCo's portfolio as of December 15, 1999 (except for
appraised values which are as of January 18, 1999) are contained in the table
below.
<TABLE>
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Appraised
Date of Value at
Country of Current Aircraft Engine Serial Manufacture/ January 18,
No. Region 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 Jul-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 Brazil Nordeste B737-500 CFM56-3C1 26067 Jun-92 19,785
28. Latin America Chile Lan Chile B767-300ER PW4060 24947 Mar-91 59,841
29. Latin America Chile AILL (1) DC8-71F CFM56-2C1 46040 Mar-91 15,858
30. Latin America Columbia Avianca B757-200 RB211-535E4 26152 Aug-92 41,012
31. North America Canada Canadian A320-200 CFM56-5A1 403 Dec-93 29,791
32. North America United States BAX Global DC8-71F CFM56-2C1 46064 Mar-92 15,040
33. North America United States Tower Air B747-200 JT9D-7Q 22496 Oct-81 31,996
----------
Total 881,460
- ----------------------------------------------------------------------------------------------------------------------------
1. Aircraft International Leasing Limited is an indirect 100% subsidiary of Lan Chile
</TABLE>
<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").
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.
<PAGE>
AerCo MD&A
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 December 15, 1999 Payment Date and for the three month period from the
September 15, 1999 Payment Date to the December 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 $23.4
million compared with an assumed amount of $25.8 million. This is comprised of
total Cash Collections of $29.1 million, which were $0.9 million above the
assumed amount and total Cash Expenses of $5.7 million, which were $3.3 million
above 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 $29.1 million, a positive difference of $0.9 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 $26.1 million, $3.3 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.
Repossession and other stress related costs. The Registration
Statement assumed a 6% reduction in gross rentals due to downtime costs,
repossession costs and arrearages. These costs for the Current Period amounted
to a cash outflow of $0.2 million, compared with the cash outflow of $1.8
million in assumed costs for this period. The cash outflow of $0.2 million
arose due to the timing of the receipt of payments in the Current Period by
certain lessees, of rentals relating to previous periods, principally an Asian
lessee representing 4.8% of the portfolio by appraised value at January 18,
1999, offset by non payment of rentals by a North American lessee representing
3.6% of the portfolio by appraised value at January 18, 1999.
Net lease rental. This comprises of gross lease rentals, net of
repossession and other stress related costs ("Net Lease Rentals"). For the
Current Period, assumed Net Lease Rentals were $27.6 million. Actual Net Lease
Rentals were $25.9 million.
Maintenance receipts. In the Current Period, maintenance receipts were
$2.4 million and maintenance disbursements were $2.1 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.
2
<PAGE>
AerCo MD&A
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 $2.4 million for the Current
Period. Actual cash expenses were $5.7 million. The difference is due to a
combination of offsetting factors set out below.
Operating Expenses
Maintenance. Maintenance disbursements in the Current Period were
approximately $2.1 million which is $0.3m less than the maintenance receipts
for the period. The 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
$1.7 million, $1.1 million greater than the assumed amount. The costs for the
Current Period arose primarily due to costs associated with the redelivery and
lease extension of certain aircraft.
Selling, General and Administrative Expenses
Servicer fees. Fees paid to Babcock & Brown Limited, as Servicer,
during the Current Period amounted to $0.5 million which is equal to the
assumed cost for the period. A portion of the Servicer's incentive fee relating
to prior periods was paid 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 $1.3 million, which was $0.1 million above 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 $15.6 million, as compared with assumed
interest payments, net of swap costs, of $15.4 million. Although principal
balances on the Notes were less than assumed, the higher net interest payments
in the period were caused by higher than assumed interest rates.
Principal payments. Total principal distributions in the Current
Period were $7.8 million, $2.6 million lower than 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 distributions of $0.6m were
paid during the Current Period.
3
<PAGE>
AerCo MD&A
Other Financial Data
Cash
Cash held at September 15, 1999 was $61.0 million. Of this amount,
$55.3 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 $866.4 million at December 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 December 15, 1999, the adjusted portfolio value was
$842.9 million.
A-D Note Balance
As of December 15, 1999, the aggregate amount of the Notes outstanding
was $800.1 million, approximately $20.6 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.
As of December 15, 1999, the aggregate amount of A - D Notes
outstanding represented 87.8% of the assumed portfolio value. This compares
favourably with a target amount of 90.2% contained in the Registration
Statement.
Developments
Recent Developments
The aircraft leasing industry is being adversely affected by a
significant increase in the numbers of aircraft available for lease or sale,
with a corresponding negative impact on aircraft values and lease rates for
certain aircraft types. AerCo has seven aircraft to remarket before March 31,
2001. These comprise 1 x B737-300, 3 x B737-400, 1 x A320-200 and 2 x
B767-300ER. As a result of the current over supply of aircraft in the market
place, AerCo may experience difficulties in placing certain of these aircraft
at satisfactory lease rates and without incurring substantial downtime.
Trading conditions in the civil aviation industry have been adversely
affected by the severe economic and financial difficulties experienced in Latin
America. This downturn has undermined business confidence in the region and has
had an adverse impact on the results of operations of some of AerCo's lessees
in the region which may adversely affect AerCo's future revenues and cashflows.
4
<PAGE>
AerCo MD&A
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. Continued weakness in the value of the Brazilian real, as well as
general deterioration in the Brazilian economy will mean that lessees may be
unable to generate sufficient revenues in Brazilian currency to pay the
dollar-denominated rental payments under the leases. Failure by Brazil to
overcome its current financial crisis could result in the crisis spreading to
other Latin American economies and economies in other emerging markets. At
present it appears that some consolidation may take place in the Brazilian
airline industry with the possible merger of a number of airlines being
suggested by market analysts. Future developments in the political systems or
economies of Brazil and other Latin American countries may have a material
adverse effect on lessee operations in those countries. At December 31, 1999,
AerCo leased seven aircraft representing 20.4% of its portfolio by appraised
value at January 18, 1999 to operators in Latin America of which four aircraft
representing 7.2% of the portfolio by appraised value were leased to operators
in Brazil. Accordingly, further deterioration in the Latin American economies,
especially Brazil, could lead to a material decrease in AerCo's leasing
revenues and an increase in default related costs.
Colombia has recently suffered as a result of the deterioration in the
value of the Colombian Peso and the resulting negative impact on the Colombian
economy. AerCo leases to one Colombian lessee which operates one aircraft,
representing 4.6% of the portfolio by appraised value at January 18, 1999.
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 the Colombian currency to pay the
dollar denominated rental payments under the lease. During the three months
ended December 31, 1999 the Servicer, on behalf of AerCo, entered into a
restructuring agreement with the Colombian lessee. The restructured amount of
$1.5 million consisting of lease rental and maintenance payments was due to be
repaid before December 31, 1999. The lessee failed to meet this date. However,
the parties have agreed that all arrears will be cleared by March 31, 2000.
At December 31, 1999, three lessees in Turkey operate four aircraft
representing 11.1% of the aircraft by appraised value at January 18, 1999.
Turkey was hit by a severe earthquake in August 1999. Two of these airlines
operate charter flights which are heavily dependent on tourists travelling to
Turkey. Damage caused by the earthquake and any fall-off in tourist traffic may
adversely affect the ability of these airlines to operate and meet their
obligations under the leases.
The economies of Indonesia, Thailand, South Korea, Malaysia and the
Philippines have experienced particularly acute difficulties resulting in many
business failures, significant depreciation of local currencies against the
dollar (the currency in which lease payments are payable), sovereign and
corporate credit ratings downgrades and defaults and, in certain cases,
internationally organized financial stability measures. The economic
difficulties in Indonesia have resulted in civil disturbances and a change of
government in that country. Several airlines in the region have announced their
intention to reschedule their aircraft purchase obligations, reduce headcount
and eliminate certain routes. Since 1990, the market in this region for
aircraft on operating lease has demonstrated significant growth rates. However,
should the recessionary conditions that now prevail in large parts of the
region last for a significant period of time these will have an adverse impact
on operators in the region as well as global aircraft demand. At December 31,
1999, AerCo leased eight aircraft, representing 22.2% of its portfolio by
appraised value at January 18, 1999 to operators in Asia and the Far East.
Philippine Airlines ("PAL"), the lessee of two aircraft representing
4.8% 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 at the Philippine SEC and
subsequently, the Philippine SEC appointed an Interim Receiver. PAL was
instructed by the Philippine SEC to submit a Rehabilitation Plan within 30
days. Following a number of applications for extension of this time limit, PAL
filed a revised Rehabilitation Plan with the Philippine SEC on March 15, 1999.
It is unclear whether PAL will receive support for its proposed Rehabilitation
Plan from its creditors. During the quarter to December 31, 1999, $3 million of
receivables balances were restructured by the
5
<PAGE>
AerCo MD&A
Servicer. The balance will be repaid over 36 months and the first payment
was received in November 1999. There can be no assurance, however, that PAL
will ultimately repay its arrearages or be able to pay future lease rentals.
AerCo may encounter delays or difficulties in recovering possession of its
aircraft which are operated within the Philippines or terminating the relevant
leases. If the aircraft are recovered, the technical costs required to ensure
the aircraft are in a suitable condition for re-leasing may be significant.
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 December 31, 1999, amounts outstanding for more than 30 days for
rental payments, maintenance reserves and other amounts due under the leases
equaled $4.8 million for three lessees who had a total of four aircraft on
lease. This outstanding amount included $2.7 million of deferred receivables in
respect of one lessee who had two aircraft on lease which is repayable over 36
months. Non deferred amounts outstanding for 30 to 90 days equaled $1.6 million
and amounts outstanding for more than 90 days equaled $0.5 million.
As of December 31, 1999, a Latin American lessee representing 4.6% of
the portfolio by appraised value at January 18, 1999 owed $1.5 million with
$0.7 million in arrears for more than 30 days. The Servicer has agreed with the
lessee that all outstanding amounts will be cleared by March 31, 2000.
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 Asian economic crisis (see Section on Recent Developments). The Servicer
has agreed with PAL a schedule covering the payment of arrearages and the
extension of the leases. At December 31, 1999, these arrearages amounted to
$2.7 million.
As of December 31, 1999, a North American lessee, representing 3.6% of
the portfolio by appraised value at January 18, 1999, owed $1.7 million with
$0.8 million in arrears for 30 to 90 days and $0.5 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.
Ref: 00cl0035
6
