<PAGE> 1
THE AIRCRAFT, RELATED LEASES AND COLLATERAL
APPRAISERS' REPORTS
Aerco Group recently obtained appraised values of the aircraft as of April
30, 2000. The values provided by the appraisers represent the base value in
respect of 62 of the aircraft and the scrap value in respect of one aircraft,
the B747-200 currently on lease to Tower Air (which has filed for Chapter 11
bankruptcy protection).
The base value is equal to the average of the opinions of the appraisers as
to the value of each aircraft at normal utilisation rates in an open,
unrestricted and stable market as of April 30, 2000, adjusted to take account of
the reported maintenance standard of the aircraft. The appraisals were not based
on physical inspection of the aircraft and do not take into account the value of
the leases, maintenance reserves or security deposits. The scrap value is
determined by the appraisers based on the assumption that the aircraft will no
longer be utilised for flight operation and assumes that the aircraft will
ultimately be disassembled to a point where all economically viable assets,
including the engines, are sold individually.
On the basis of the three independent appraisals, the average base value
for 32, and scrap value for one of the 33 existing aircraft was approximately
$819 million compared with an average base value for all 33 existing aircraft of
$850 million on February 18, 2000, the date of the last appraisals. The
reduction in value represents utilisation for the period and the revaluation of
the B747-200 from base value to scrap value. The aggregate base and scrap values
calculated by each of the three appraisers for the 33 existing aircraft are $833
million in the case of BK Associates, Inc., $850 million in the case of Aircraft
Information Services, Inc. and $773 million in the case of Airclaims Limited.
On the basis of the three independent appraisals, the average base value of
the 30 additional aircraft was approximately $724 million. The aggregate base
values calculated by each of the three appraisers for the 30 additional aircraft
are $725 million in the case of BK Associates, Inc., $755 million in the case of
Aircraft Information Services, Inc. and $692 million in the case of Airclaims
Limited.
You should not rely on the appraised value as a measure of the realizable
value of any aircraft.
29
<PAGE> 2
PORTFOLIO INFORMATION
THE AIRCRAFT
All of the existing aircraft and the aircraft expected to be acquired hold
or are capable of holding a noise certificate issued under Chapter 3 of Volume
1, Part II of Annex 16 of the Chicago Convention or have been shown to comply
with the Stage 3 noise levels set out in Section 36.5 of Appendix C of Part 36
of the United States Federal Aviation Regulations.
The following table lists the aircraft by type and number as of May 31,
2000 and the percentage of appraised value of each aircraft as of April 30,
2000.
<TABLE>
<CAPTION>
NUMBER OF ENGINE % OF PORTFOLIO BY
MANUFACTURER TYPE OF AIRCRAFT AIRCRAFT BODY TYPE STAGE APPRAISED VALUE
------------ ---------------- --------- ---------- ------ -----------------
<S> <C> <C> <C> <C> <C>
Airbus (19.85%).................. A300-B4-200 1 Widebody 3 0.71%
A320-200 8 Narrowbody 3 15.76%
A321-200 1 Narrowbody 3 3.38%
Boeing (75.94%).................. B737-300 12 Narrowbody 3 16.93%
B737-300QC 1 Narrowbody 3 1.40%
B737-400 12 Narrowbody 3 18.81%
B737-500 6 Narrowbody 3 7.98%
B747-200B 1 Widebody 3 0.55%
B757-200 4 Narrowbody 3 11.02%
B767-300ER 2 Widebody 3 7.39%
MD-82 5 Narrowbody 3 6.18%
MD-83 3 Narrowbody 3 3.85%
DC8-71F 2 Freighter 3 1.83%
Fokker (4.21%)................... F100 5 Narrowbody 3 4.21%
--- ------
63 100.00%
=== ======
</TABLE>
30
<PAGE> 3
The following table sets forth the exposure of our existing and future
portfolio by lessee at May 31, 2000 by reference to the appraised value at April
30, 2000.
<TABLE>
<CAPTION>
NUMBER OF
ADDITIONAL AIRCRAFT
NUMBER OF EXPECTED TO % OF AIRCRAFT BY
LESSEE(1) EXISTING AIRCRAFT BE ACQUIRED APPRAISED VALUE
--------- ----------------- ------------------- ----------------
<S> <C> <C> <C>
British Midland Airways Limited................ 1 2 7.34%
Spanair S.A.................................... 3 1 7.27%
Air Canada..................................... 2 5.64%
Asiana Airlines Inc............................ 2 1 4.67%
Frontier Airlines Inc.......................... 3 4.44%
TAM-Transportes Aereos Regionais S.A........... 3 2 4.21%
JMC Airlines................................... 2 3.93%
Airtours International Airways Limited......... 2 3.73%
Blue Panorama Airlines SpA..................... 2 3.34%
Trans World Airlines Inc. (TWA)................ 1 3.33%
THY Turkish Airlines........................... 2 3.25%
China Southern Airlines Company Limited........ 1 1 3.04%
Pegasus Hava Tasimaciligi A.S.................. 2 2.99%
Virgin Express S.A............................. 2 2.95%
Air 2000 Limited............................... 1 2.65%
Xiamen Airlines Limited........................ 2 2.62%
Philippine Airlines Inc........................ 2 2.61%
Finnair Oyj.................................... 2 2.59%
China Xinjiang Airlines........................ 1 2.56%
Avianca........................................ 1 2.48%
Reno Air Inc................................... 2 2.48%
Monarch Airlines Limited....................... 1 1.95%
LOT Polish Airlines S.A........................ 1 1.73%
Air Europe SpA................................. 1 1.61%
Virgin Express Ireland Limited................. 1 1.51%
Gunes Ekspres Havacilik A.S. (Sun Express)..... 1 1.50%
Malev Hungarian Airlines....................... 1 1.46%
VARIG.......................................... 1 1.43%
Societe d'Exploitation Aeropostale............. 1 1.40%
Far Eastern Air Transport Corporation
(F.E.A.T.)................................... 1 1.37%
Nordeste Linhas Aereas Regionais S.A........... 1 1.36%
British Airways Plc............................ 1 1.33%
Braathens ASA S.A.F.E.......................... 1 1.22%
Delta Air Lines................................ 1 0.94%
Aircraft International Leasing Limited......... 1 0.92%
BAX Global Inc................................. 1 0.91%
Indian Airlines Limited........................ 1 0.71%
Tower Air...................................... 1 0.55%
--- --- -------
33 30 100.00%
=== === =======
</TABLE>
---------------
(1) Total number of existing lessees = 23
Total number of expected additional lessees = 15
31
<PAGE> 4
The following table lists the aircraft by country at May 31, 2000 according
to the number of aircraft and the percentage of appraised value at April 30,
2000.
<TABLE>
<CAPTION>
NUMBER OF
ADDITIONAL AIRCRAFT % OF
NUMBER OF EXPECTED TO AIRCRAFT BY
COUNTRY(1) EXISTING AIRCRAFT BE ACQUIRED APPRAISED VALUE
---------- ----------------- ------------------- ---------------
<S> <C> <C> <C>
United Kingdom................................. 5 5 20.93%
United States.................................. 2 7 12.65%
China.......................................... 2 3 8.22%
Turkey......................................... 5 -- 7.74%
Spain.......................................... 3 1 7.27%
Brazil......................................... 4 3 6.99%
Canada......................................... 2 -- 5.64%
Italy.......................................... 1 2 4.95%
South Korea.................................... 2 1 4.67%
Belgium........................................ -- 2 2.95%
Philippines.................................... 2 -- 2.61%
Finland........................................ -- 2 2.59%
Colombia....................................... 1 -- 2.48%
Poland......................................... -- 1 1.73%
Ireland........................................ -- 1 1.51%
Hungary........................................ 1 -- 1.46%
France......................................... -- 1 1.40%
Taiwan......................................... 1 -- 1.37%
Norway......................................... -- 1 1.22%
Chile.......................................... 1 -- 0.92%
India.......................................... 1 -- 0.71%
----- ----- -------
33 30 100.00%
===== ===== =======
</TABLE>
---------------
(1) Total number of countries = 21
The following table lists the aircraft by region at May 31, 2000 according
to the number of aircraft and to the percentage of the appraised value at April
30, 2000.
<TABLE>
<CAPTION>
NUMBER OF
ADDITIONAL AIRCRAFT % OF
NUMBER OF EXPECTED TO AIRCRAFT BY
REGION EXISTING AIRCRAFT BE ACQUIRED APPRAISED VALUE
------ ----------------- ------------------- ---------------
<S> <C> <C> <C>
Developed Markets
Europe....................................... 9 15 42.81%
North America................................ 4 7 18.28%
Emerging
Asia......................................... 8 4 17.59%
Europe and the Middle East................... 6 1 10.92%
Latin America................................ 6 3 10.40%
----- ----- -------
33 30 100.00%
===== ===== =======
</TABLE>
32
<PAGE> 5
The following table lists the aircraft by year of aircraft manufacture or
conversion to freighter at May 31, 2000 according to the number of aircraft and
to the percentage of the appraised value at April 30, 2000.
<TABLE>
<CAPTION>
NUMBER OF
ADDITIONAL AIRCRAFT % OF
NUMBER OF EXPECTED TO AIRCRAFT BY
YEAR OF MANUFACTURE OR CONVERSION EXISTING AIRCRAFT BE ACQUIRED APPRAISED VALUE
--------------------------------- ----------------- ------------------- ---------------
<S> <C> <C> <C>
1981........................................... 1 -- 0.55%
1983........................................... 1 -- 0.71%
1985........................................... -- 1 0.94%
1988........................................... 1 2 3.86%
1989........................................... 4 2 8.10%
1990........................................... 3 7 13.91%
1991........................................... 9 3 19.12%
1992........................................... 11 7 29.41%
1993........................................... 3 4 12.62%
1995........................................... -- 1 1.45%
1999........................................... -- 2 5.95%
2000........................................... -- 1 3.38%
----- ----- -------
33 30 100.00%
===== ===== =======
</TABLE>
The following table lists the aircraft by seat category at May 31, 2000
calculated by reference to the number of aircraft and to the percentage of the
appraised value at April 30, 2000.
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF ADDITIONAL AIRCRAFT % OF
EXISTING EXPECTED TO AIRCRAFT BY
SEAT CATEGORY AIRCRAFT TYPE AIRCRAFT BE ACQUIRED APPRAISED VALUE
------------- ------------- --------- ------------------- ---------------
<S> <C> <C> <C> <C>
91-120 B737-500, F-100............ 4 7 12.19%
121-170 A320-200, B737-300,
B737-300 QC, B737-400,
MD82, MD83................. 20 21 62.93%
171-240 A321-200, B757-200......... 3 2 14.40%
241-350 A300-B4-200, B767-300ER.... 3 -- 8.10%
350+ B747-200B.................. 1 -- 0.55%
Freighter DC8-71F.................... 2 -- 1.83%
----- ----- -------
33 30 100.00%
===== ===== =======
</TABLE>
33
<PAGE> 6
COMBINED AERCO PORTFOLIO ANALYSIS(1)
<TABLE>
<CAPTION>
DATE OF
AIRCRAFT ENGINE SERIAL MANUFACTURE/
REGION COUNTRY LESSEE TYPE CONFIGURATION NUMBER CONVERSION
------ ------- ------ -------- ------------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Asia.................... China China Xinjiang B757-200 RB211-535E4 26153 Aug-92
(Emerging) China China Southern B737-300 CFM56-3C1 26068 Jun-92
*China China Southern B737-300 CFM56-3C1 25604 Jan-93
*China Xiamen Airlines B737-500 CFM56-3C1 27153 Aug-93
*China Xiamen Airlines B737-500 CFM56-3C1 27155 Mar-93
India Indian Airlines A300-B4-200 CF6-50C2 240 May-83
Philippines PAL B737-300 CFM56-3B1 24465 Aug-89
Philippines PAL B737-300 CFM56-3B1 24677 Mar-90
South Korea Asiana Airlines B737-400 CFM56-3C1 25764 Jun-92
South Korea Asiana Airlines B737-400 CFM56-3C1 25765 Jul-92
*South Korea Asiana Airlines B737-500 CFM56-3C1 25768 May-95
Taiwan FEAT MD83 JT8D-219 49952 Dec-91
Europe.................. *Belgium Virgin Express B737-400 CFM56-3C1 24270 May-89
(Developed) *Belgium Virgin Express B737-400 CFM56-3C1 24271 Jun-89
*Finland Finnair MD-82 JT8D-219 49905 Oct-90
*Finland Finnair MD-82 JT8D-219 53245 Apr-92
*France Aeropostale B737-300QC CFM56-3B2 24021 Nov-88
*Ireland Virgin Express Ireland B737-300 CFM56-3B2 25041 Mar-91
Italy Air Europe A320-200 CFM56-5A1 85 Feb-90
*Italy Blue Panorama B737-400 CFM56-3C1 24901 May-90
*Italy Blue Panorama B737-400 CFM56-3C1 27074 Apr-92
*Norway Braathens SAFE B737-500 CFM56-3C1 24651 Apr-90
Spain Spanair B767-300ER PW4060 24999 Feb-91
Spain Spanair MD83 JT8D-219 49627 Apr-89
Spain Spanair MD83 JT8D-219 49790 Oct-89
*Spain Spanair MD-82 JT8D-217C 49570 Feb-88
United Kingdom Air 2000 B757-200 RB211-535E4 26158 Feb-93
United Kingdom Airtours A320-200 CFM56-5A3 299 Apr-92
United Kingdom Airtours A320-200 V2500-A1 362 Nov-92
*United Kingdom British Airways B737-500 CFM56-3C1 25789 Feb-92
United Kingdom British Midland B737-400 CFM56-3C1 23868 Oct-88
*United Kingdom British Midland A320-200 V2527-A5 934 Jan-99
*United Kingdom British Midland A321-200 V2533-A5 1207 Apr-00
*United Kingdom JMC Airlines A320-200 V2500-A1 354 Oct-92
*United Kingdom JMC Airlines A320-200 V2500-A1 411 Mar-93
United Kingdom Monarch A320-200 CFM56-5A3 391 Feb-93
Europe.................. Hungary Malev B737-300 CFM56-3C1 24909 Apr-91
(Emerging) *Poland LOT B737-400 CFM56-3C1 25594 May-92
Turkey Pegasus B737-400 CFM56-3C1 23979 Jan-89
Turkey Pegasus B737-400 CFM56-3C1 24685 May-90
Turkey Sun Express B737-300 CFM56-3C1 24908 Mar-91
Turkey THY B737-400 CFM56-3C1 24904 Feb-91
Turkey THY B737-400 CFM56-3C1 26066 Jun-92
Latin America........... Brazil Nordeste B737-500 CFM56-3C1 26067 Jun-92
(Emerging) Brazil TAM F100 TAY650-15 11341 Aug-91
Brazil TAM F100 TAY650-15 11350 Apr-92
Brazil TAM F100 TAY650-15 11351 Sep-91
*Brazil TAM F100 TAY650-15 11320 Apr-91
*Brazil TAM F100 TAY650-15 11322 Jun-91
*Brazil Varig B737-300 CFM56-3C1 24834 Jun-90
Chile Aircraft International DC8-71F CFM56-2C1 46040 Mar-91
Leasing Limited(2)
Columbia Avianca B757-200 RB211-535E4 26152 Aug-92
<CAPTION>
APPRAISED
VALUE AT
APRIL 30,
REGION 2000
------ -------------
(U.S.$'000'S)
<S> <C>
Asia.................... 39,507
(Emerging) 23,833
23,033
20,460
19,943
10,973
19,667
20,647
24,633
25,013
22,433
21,180
Europe.................. 22,547
(Developed) 22,987
18,817
21,103
21,637
23,237
24,850
24,597
26,867
18,810
56,767
18,897
19,230
17,180
40,820
28,783
28,727
20,513
20,717
40,420
52,103
29,980
30,617
30,130
Europe.................. 22,527
(Emerging) 26,623
21,587
24,497
23,120
24,923
25,200
Latin America........... 20,917
(Emerging) 13,217
13,177
13,107
12,783
12,673
22,013
14,210
38,283
</TABLE>
34
<PAGE> 7
<TABLE>
<CAPTION>
DATE OF
AIRCRAFT ENGINE SERIAL MANUFACTURE/
REGION COUNTRY LESSEE TYPE CONFIGURATION NUMBER CONVERSION
------ ------- ------ -------- ------------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
North America........... Canada Air Canada A320-200 CFM56-5A1 403 Dec-93
(Developed) Canada Air Canada B767-300ER PW4060 24947 Mar-91
United States BAX Global DC8-71F CFM56-2C1 46064 Mar-92
*United States Delta B737-300 CFM56-3B1 23345 Jul-85
*United States Frontier B737-300 CFM56-3C1 24856 Aug-90
*United States Frontier B737-300 CFM56-3B2 26440 Mar-92
*United States Frontier B737-300 CFM56-3B2 26442 May-92
*United States Reno Air(3) MD-82 JT8D-219 49931 Aug-90
*United States Reno Air MD-82 JT8D-219 49932 Sep-90
*United States TWA B757-200 PW2037 28486 May-99
United States Tower Air B747-200B JT9D-7Q 22496 Oct-81
<CAPTION>
APPRAISED
VALUE AT
APRIL 30,
REGION 2000
------ -------------
(U.S.$'000'S)
<S> <C>
North America........... 29,653
(Developed) 57,270
14,033
14,530
21,987
23,483
23,063
18,953
19,340
51,320
8,407
---------
1,542,554
=========
</TABLE>
---------------
(1) AerCo Group will not own a significant number of the 30 additional aircraft
until the aircraft owning companies have been acquired, which will only
happen after the transfer conditions have been met. The acquisition of the
aircraft is expected to occur in a series of transactions on and following
the closing date. A portion of the proceeds from the offering of the notes
will be used to fund the aircraft purchase account. Any proceeds remaining
in the aircraft purchase account will be paid to the noteholders on July
16, 2001 or earlier.
(2) Aircraft International Leasing Limited is an indirect 100% subsidiary of Lan
Chile.
(3) Reno Air is a 100% subsidiary of American Airlines.
*Indicates an additional aircraft.
THE LEASES
GENERAL
All leases will be managed by AerFi under the servicing agreement.
The leases are all operating leases under which AerCo generally will retain
the benefit, and bear the risk, of the residual value of the aircraft at the end
of the lease. The lessees have agreed to lease the aircraft for a fixed term.
However, AerCo has granted purchase, extension or early termination options on
certain aircraft to the lessee or an affiliate of the lessee. Although the lease
documentation is fairly standardized in many respects, significant variations do
exist as a result of lessee negotiation.
LEASE PAYMENTS AND SECURITY
Each lease requires the lessee to pay periodic rentals during the lease
term. Certain of the leases require the lessee to pay periodic amounts as
maintenance reserves or to provide maintenance letters of credit or guarantees.
The lessees must make payments to the lessor without set-off or
counterclaim, and must gross-up payments under the lease where payments are
subject to certain withholding and other taxes. However, in certain cases, such
payments will be limited to the amount that would have been payable if the lease
had never been transferred from AerFi to AerCo. The leases generally contain
indemnification of the lessor for certain taxation liabilities and taxation of
indemnity payments. Indemnification for taxation liabilities typically includes
value added and stamp duty taxes, but excludes income taxes or their equivalent.
The lessees must also pay default interest on any overdue amounts.
The lessees are liable through various operational indemnities for
operating expenses accrued or payable during the term of the lease. These
expenses include maintenance, operating, overhaul, airport and navigation
35
<PAGE> 8
charges, certain taxes, licenses, consents and approvals, aircraft registration
and hull and liability insurance premiums. The lessees must remove liens on the
aircraft other than liens permitted under the leases.
Under 53 of the leases, the lessee has provided security for its
obligations. The lessee has provided cash security deposits in the case of 35
leases, or 56.2% of the leases by appraised value at April 30, 2000. The lessee
has provided letters of credit in the case of 25 leases representing 40.2% of
the leases by appraised value at April 30, 2000. The lessee provided a
combination of cash security deposits and letters of credit in the case of seven
leases or 11.3% of the leases by appraised value at April 30, 2000.
Under eight of the leases, the lessor received general guarantees from
third parties for the lessee's payment obligations under the lease. In some
cases, the lessor also received guarantees of the lessee's performance
obligations under the lease. In the case of five of the leases, these guarantees
were issued by the lessee's shareholder or affiliate. In the case of the leases
to Xiamen Airlines and China Xinjiang, a guarantee for each lessee's payment
obligations was issued by the Bank of China. In each case, the guarantee was
subject to a stipulated maximum amount.
RENTALS
Rentals under 55 of the leases -- 86.4% of the leases by appraised value at
April 30, 2000 -- are payable monthly in advance. Rentals under six of the
leases, 9.0% of the leases by appraised value at April 30, 2000, are payable
quarterly or semi-annually in advance. Rentals under the remaining two leases
are payable monthly in arrears.
Rental payments on the leases are calculated either on a fixed or floating
rate basis. The rental payment of a lease, which is calculated on a floating
rate basis generally has a rental floor that is payable even if LIBOR is 0% per
annum plus an amount which varies with LIBOR or varies itself. The rental floor
varies from lease to lease. Lessees increasingly wish to negotiate fixed rate
leases.
The rentals under one lease (a B767-300ER aircraft) are determined on the
basis of a charge per flight hour for every hour that the aircraft is flown by
the lessee, Air Canada. There is no minimum monthly rental under this lease and
there can be no certainty that this aircraft will generate any lease revenue
during the course of the Air Canada lease which expires in November 2000. In
addition, the maximum monthly rental which Air Canada may be obliged to pay is
approximately two-thirds of the monthly rental received from the previous
lessee. This situation is generally reflective of the market at present for
B767-300ER aircraft.
OPERATION OF THE AIRCRAFT
The lessees must operate the aircraft in compliance with all applicable
laws and regulations. Generally, the aircraft must remain in the possession of
the lessees, and the lessor must approve any subleases of the aircraft. In some
cases, the lessees may enter into charter or "wet lease" arrangements with the
aircraft, as long as the lessees do not relinquish possession or operational
control of the aircraft. A wet lease is a lease with crew and services provided
by the lessor. Under certain leases, the lessees may enter into subleases to
specified operators without the lessor's consent, if certain conditions are met.
The lessees may subject the engines and other equipment or components to
removal or replacement and to pooling arrangements with permitted entities
without the lessor's consent but subject to conditions and criteria in the
relevant lease. The lessees may deliver possession of the aircraft, engines and
other equipment or components to the manufacturer for testing or similar
purposes, or to a third party for service, maintenance, repair or other work
required or permitted under the lease.
MAINTENANCE AND MAINTENANCE RESERVES
The leases contain detailed provisions specifying maintenance standards and
aircraft redelivery conditions. Lessees must provide monthly maintenance
reserves under approximately half of the leases. Under the balance of the
leases, the lessee or the lessor may be required to make certain adjustment
payments to each other if the aircraft or specified items at redelivery do not
meet the standards. During the term of each lease, the lessee must ensure that
the aircraft is maintained in accordance with an agreed maintenance
36
<PAGE> 9
program designed to ensure that the aircraft meets applicable airworthiness and
other regulatory requirements. Generally, the lessee performs the agreed
maintenance program. If the lessee has paid maintenance reserves, the payments
are used to reimburse the lessee for significant maintenance charges, including
major airframe and engine overhauls.
If the leases do not provide for maintenance reserve payments, the lessor
must rely on the lessee's credit and its ability to perform scheduled
maintenance throughout the lease term, return the aircraft in the condition
required by the lease, or make any payments required upon termination of the
lease.
Because many of our aircraft are approximately the same age and have
similar usage patterns, a large portion of the portfolio came due for major
airframe and engine overhauls in the period from July 1998 to July 2000. This
trend is expected to reverse over the three year period from the closing date to
March 2003. However, due to the size and uncertainty of the incidence of
maintenance expenditures, the level of maintenance receipts, the timing of
overhauls and the level of maintenance already done by the lessee, completing
such maintenance overhauls could significantly impact the cashflows of AerCo in
any note payment period.
LESSEES' OPTIONS
Purchase options for four of the aircraft or 7.8% of the aircraft by
appraised value at April 30, 2000 have been granted to lessees under the lease
or a separate purchase option agreement.
All of the purchase options are currently exercisable. The duration of some
purchase options depends on whether the lessee exercises a separate option to
extend the lease. There are no purchase options which are exercisable at prices
below the assumed note target prices.
Twenty-one of the leases or 34.5% of the leases by appraised value at April
30, 2000 include options for the lessee to extend the lease term. The rent
payable during the extension period varies from lease to lease. Three of the
leases or 4.3% of the leases by appraised value at April 30, 2000, contain
provisions allowing early termination of the lease.
COMPLIANCE WITH GOVERNMENTAL AND TECHNICAL REGULATION
In addition to general requirements regarding maintenance of aircraft,
aviation authorities issue airworthiness directives ("ADs") requiring the
operators of aircraft to take particular maintenance actions or make particular
modifications to a number of aircraft of designated types. ADs normally specify
a period in which to carry out the required action or modification and generally
enough time is allowed to permit the implementation of the AD in connection with
scheduled maintenance of the aircraft or engines. The lessees usually bear the
cost of compliance with ADs issued by applicable aviation authorities and,
relevant manufacturers' recommendations. Aerco Group may be required to
contribute a portion of such costs over a specified threshold. However, if a
lessee fails to perform ADs required on an aircraft, Aerco Group would bear the
cost of compliance necessary for the aircraft to maintain its certificate of
airworthiness. In such circumstances, funds in the collection account and lessee
funded account will be available to mitigate the costs of compliance, although
such use would reduce the availability of such amounts to cover the cost of
scheduled maintenance. There can be no assurance that such funds will be
available at the time needed or that any funds available will be sufficient for
such purposes.
Other governmental regulations may apply to the aircraft, including
requirements relating to noise and emissions levels. Such regulations may be
imposed not only by the jurisdictions in which the aircraft are registered, but
also in jurisdictions where the aircraft operate. Chapters 2 and 3 of the
Chicago Convention establish two progressively restrictive noise level standards
that correspond to the requirements for Stage 2 and Stage 3 aircraft. A number
of jurisdictions have adopted, or are in the process of adopting, noise
regulations which will require all aircraft to comply with the most restrictive
of these standards. Such regulations restrict the future operation of aircraft
that are not Stage 3 aircraft and are expected imminently to prohibit the
operation of such aircraft in the relevant jurisdictions. In the United States
such a prohibition went into effect at the end of 1999. Since Aerco Group has
the ability to acquire Stage 2 aircraft, these regulations may affect
37
<PAGE> 10
AerCo adversely. In addition, local municipalities may have more stringent noise
regulations than those applicable to Stage 3 aircraft.
Volume 2 of Annex 16 of the Chicago Convention also contains standards and
recommendations regarding limitations on vented fuel and smoke and gaseous
emissions for aircraft. While a number of countries have adopted regulations
implementing these recommendations, such regulations generally have been
prospective in nature, requiring only that newly manufactured engines meet
particular standards after a particular date. To the extent that these
regulations require modifications to the engines owned by AerCo Group, they
would be treated similarly to ADs under the leases.
Aviation authorities in Europe and North America have recently adopted
regulations requiring the installation of traffic collision avoidance systems,
automatic emergency locator transmitters and certain other systems. Depending on
whether the costs of complying with these regulations are borne by AerCo or the
lessees, installation of these systems could result in significant cash capital
expenditures by AerCo in 2000 and 2001.
The U.S. Federal Aviation Administration has recently announced an AD that
requires operators of MD11, MD-80 and DC10 aircraft to replace certain
insulation blankets in order to reduce the risk of fire. Following completion of
this transaction, we will have eight MD-80 series aircraft representing 10.0% of
our portfolio by appraised value at April 30, 2000. It is currently not clear
whether or to what extent manufacturers, owners or lessees will be responsible
for the costs necessary to bring these aircraft in compliance with such new
standards. AerCo could incur significant costs in ensuring its eight MD-80
series aircraft comply with these standards, which could impact adversely on
AerCo's results of operations.
On February 11, 2000, following an accident involving an 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 three days. Under the leases of the affected aircraft, all costs of
compliance with the AD are the obligation of the lessees. The servicer has
confirmed that it believes that all of our MD-80 series aircraft were inspected
in accordance with the instructions of this AD. The terms of our leases do not
require the lessees to report to us the actions they have taken to comply with
ADs.
INDEMNIFICATION AND INSURANCE OF THE AIRCRAFT
GENERAL
The lessees will bear responsibility through an operational indemnity to
carry insurance for any liabilities arising out of the operation of the
aircraft. The indemnity includes liabilities for death or injury to persons and
damage to property that ordinarily would attach to the operator of the aircraft.
In addition, the lessees are required to carry further liability insurance that
is customary in the air transportation industry. The servicer monitors the
lessee's compliance with the insurance provisions of the leases. AerCo also has
its own contingent liability coverage. This will cover a liability that is in
excess of the coverage provided by a lessee's policy and where a lessee's policy
lapses. AerCo's contingent third party liability insurance will cover all of the
aircraft, and its contingent hull and war risk insurance covers certain of the
aircraft. The amount of the contingent liability policies may not be the same as
required under the lease. The amount of third party contingent liability
insurance is subject to certain limitations imposed by the air transportation
insurance industry.
All insurance certificates contain a breach of warranty endorsement so that
an additional insured party remains protected even if the lessee violates any of
the terms, conditions or warranties of the insurance policies, provided that the
additional insured party has not caused, contributed to or knowingly condoned
the breach.
LIABILITY INSURANCE
The lessees are required to have third party liability insurance for a
combined single limit in minimum amounts ranging between $350 million and $850
million, depending on aircraft type, for each aircraft. In general, liability
coverage on each aircraft includes third party legal liability, property damage
legal liability,
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<PAGE> 11
passenger legal liability, baggage legal liability, cargo legal liability, mail
and aviation general third party legal liability.
In some jurisdictions, liabilities for risks that the lessees insure may
attach to AerCo Group as owner of the aircraft regardless of whether AerCo Group
is in any way responsible for the loss for which liability is asserted. In
addition, claimants may assert claims against AerCo Group on the basis of
alleged responsibility for a loss, even if the claim is not sustained. Under the
leases, the lessees are obligated to indemnify the lessor against claims.
Covered claims include the costs of defending against claims by third parties
against them for liabilities while the aircraft are owned by AerCo Group and
under lease to the lessees.
The indemnified losses include both operating costs relating to the actual
operation of the aircraft as well as losses to persons and property resulting
from the operation of the aircraft. The latter types of losses are generally
covered by the lessee's liability insurances.
AIRCRAFT PROPERTY INSURANCE
The lessees must carry other types of insurance that are customary in the
air transportation industry, including hull, war risk and spares insurance. The
value of the hull and war risk insurance is usually stipulated in the lease.
Spares insurance is usually on a replacement cost basis. Both types of insurance
are subject to customary deductibles. In addition to the stipulated loss value
coverage obtained by the lessees, AerCo Group purchases declining "total loss
only" coverage with respect to certain aircraft. As of June 20, 2000, the sum of
the stipulated loss value and the additional coverage for the aircraft in place
for hull and war risk insurance was at least 105% of the appraised value of each
aircraft. On average, the sum of such coverages in place for each aircraft was
approximately 139% of the appraised value of each aircraft. In many cases, the
lessor can increase the insured value above the stipulated loss value consistent
with industry practice with the lessee paying any increased premium. Permitted
deductibles range from $250,000 to $1,000,000; however, the deductible generally
applies only in the case of a partial loss. In the case of a total loss of an
aircraft no deductible would be applied against the insurance proceeds received.
The leases include provisions defining an event of loss or a casualty
occurrence so that where a total loss of the airframe occurs, with or without
loss of the engines installed on the airframe, the agreed value is payable by
the lessee. This payment is generally funded by insurance proceeds. However, the
air transportation insurance industry practice is to treat only a loss of
greater than 75% of the value of the aircraft, including the engines, as a total
loss. If insurance proceeds following a total loss, exceed the amount due from
the lessee then most leases require the lessor to pay to the lessee the balance
of the insurance proceeds received under the hull or war risk policy after
deduction of all amounts payable by the lessee to the lessor under the lease.
POLITICAL RISK REPOSSESSION INSURANCE
Under certain leases, the lessor may arrange separate political risk
repossession insurance for its own benefit, covering confiscation,
nationalization and requisition of title of any aircraft by the government of
the country of registry and denegation and deprivation of legal title and
rights. The political risk repossession insurance also covers the failure of the
authorities in that country to allow de-registration and export of the aircraft,
subject to the conditions of the policies.
THE LESSEES
As of May 31, 2000, our aircraft, together with the aircraft we expect to
acquire, were leased to 38 lessees in 21 countries throughout the world.
REGIONAL CONCENTRATIONS
ASIA CONCENTRATION. At May 31, 2000, 17.6% of the aircraft by appraised
value at April 30, 2000 were leased by operators in "emerging" markets in the
Asia Pacific region, including China, the Philippines, South Korea, Taiwan and
India. One lessee, Asiana, leased 4.7% of the aircraft by appraised value at
April 30, 2000.
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<PAGE> 12
Trading conditions in Asia's civil aviation industry have been adversely
affected by the severe economic and financial difficulties experienced recently
in the region. The economies of the region have experienced acute difficulties
resulting in many business failures, significant depreciation of local
currencies against the dollar, downgrading of sovereign and corporate credit
ratings and internationally organized financial stability measures. One Asian
lessee, PAL, which leases 2.6% of the aircraft by appraised value at April 30,
2000 has been adversely affected by the Asian economic crisis such that it
sought bankruptcy protection in 1998. As part of its rehabilitation plan,
certain of PAL's outstanding lease obligations were re-scheduled in 1999.
Several other airlines in the region rescheduled their aircraft purchase
obligations, eliminated certain routes and reduced the number of employees. A
continuation of this downturn in the region's economies may further undermine
business confidence, reduce demand for air travel and adversely affect the Asian
lessees' operations and their ability to meet their obligations.
LATIN AMERICAN CONCENTRATION. At May 31, 2000, 10.4% of the aircraft by
appraised value at April 30, 2000 were leased by operators in "emerging markets"
in Latin America, principally Brazil, Chile and Colombia. The financial
prospects for lessees in Latin America depends on the level of political
stability and economic activity and policies in the region. Developments in
other "emerging markets" may also affect the economies of Latin American
countries and the entire region.
Most significantly, in 1999 Brazil experienced significant downturns in its
economy and financial markets, with large decreases in financial asset prices
and dramatic decreases in the value of its currency. One of the lessees, TAM,
representing 4.2% of the aircraft by appraised value at April 30, 2000 operates
five of the aircraft in Brazil. Continued weakness in the value of the Brazilian
real, as well as any further general deterioration in the Brazilian economy,
means that this lessee may be unable to generate sufficient revenues in
Brazilian currency to pay the dollar-denominated rental payments under the
leases. More importantly, financial and economic problems in Brazil could spread
throughout Latin America and other "emerging" economies, having a similar effect
on many of our other lessees.
EUROPEAN CONCENTRATION. At May 31, 2000, 53.7% of the aircraft by
appraised value at April 30, 2000 were leased by operators based in Europe.
Lessees of 42.8% of the aircraft are based in "developed" European markets,
principally the United Kingdom and Spain. Lessees of the remaining 10.9% of the
aircraft were based in "emerging" European markets, principally Turkey. One
lessee, Spanair, leased 7.3% of the aircraft by appraised value at April 30,
2000. As of May 31, 2000, 16.7% of the aircraft by appraised value at April 30,
2000 were leased to charter operators in the tourism industry, principally in
the United Kingdom.
The commercial aviation industry in Europe is very sensitive to general
economic conditions. Since air travel is largely discretionary, the industry
tends to suffer severe financial difficulties during slow economic periods. As a
result, the financial prospects for European lessees will depend on the level of
economic activity in Europe and in the specific countries where they operate. A
recession or other worsening of economic conditions in any European country may
adversely affect the European lessees' ability to meet their financial and other
obligations. Most European currencies in which European airlines primarily
receive their revenues have fallen in value in the last number of months when
measured against the United States dollar adversely affecting the ability of
those airlines to meet dollar denominated lease rental and other operating
costs. Competitive pressures from continuing deregulation of the airline
industry by the EU may also adversely affect European lessees' operations and
their ability to meet their obligations under the leases.
At May 31, 2000, 7.7% of the aircraft by appraised value at April 30, 2000
were on lease to Turkish lessees. Turkey was hit by a series of severe
earthquakes in 1999 and damage caused by the earthquakes and the consequent fall
off in tourist traffic has adversely affected the ability of these airlines to
operate and meet their financial obligations under the leases. In addition, the
fall in value of the Deutsche Mark, the principal currency in which Turkish
airlines receive their revenues (when measured against the United States dollar)
may affect these airlines' ability to pay dollar denominated costs including
lease rentals.
NORTH AMERICAN CONCENTRATION. At May 31, 2000, 18.3% of the aircraft by
appraised value at April 30, 2000 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 airline travel is largely discretionary,
the
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<PAGE> 13
industry has suffered severe financial difficulties during economic downturns.
Over the last several years, nearly half of the major North American passenger
airlines have filed for Chapter 11 bankruptcy protection and several major U.S.
airlines have ceased operations.
Tower Air, the lessee of one Boeing 747-200 aircraft, which represents
0.55% of the aircraft by appraised value at April 30, 2000 has filed for Chapter
11 bankruptcy protection. It is currently unclear as to whether the lessee will
seek to retain the aircraft in its fleet. In the event that this aircraft is
returned to AerCo, AerCo is not confident that it has any immediate placement
opportunities for this aircraft. The opportunities for lease or sale of this
aircraft type are currently extremely limited. If the aircraft is returned, the
technical costs required to ensure that it is in a suitable condition for
releasing will be significant. Accordingly, AerCo is examining all possibilities
in respect of this aircraft, including a worst case scenario which would involve
realising the scrap value. As a consequence, this aircraft has been appraised by
reference to its scrap value only.
PAYMENT HISTORY
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 June 9, 2000, amounts outstanding for more than 30 days for rental
payments, maintenance reserves and other amounts due under the leases equalled
$5.0 million for five lessees who had a total of seven aircraft on lease. The
outstanding amounts are net of agreed deferrals or other restructurings, default
interest and cash in transit.
As of June 9, 2000, a Colombian lessee representing 2.48% of the portfolio
by appraised value at April 30, 2000 owed $0.8 million in maintenance payments.
The servicer has reached agreement with the lessee regarding payment of its
arrearages.
As of June 9, 2000, Tower Air, a North American lessee representing 0.55%
of the portfolio by appraised value at April 30, 2000, owed $3.96 million in
rent all of which was in arrears for more than 30 days. Tower Air has filed for
Chapter 11 bankruptcy protection.
PAL, the lessee of two B737-300 aircraft representing 2.61% of the
portfolio by appraised value at April 30, 2000, has been adversely affected by
the Asian economic crisis such that in 1998 it sought bankruptcy protection. As
part of PAL's rehabilitation plan, the servicer has agreed with PAL to a
schedule covering the payment of arrearages over the period to December 31, 2003
and the extension of leases. At June 9, 2000, these arrearages amounted to $2.3
million. All amounts have been paid in accordance with the scheduled terms as of
June 9, 2000.
AerCo expects to respond to the needs of lessees in financial difficulty
including restructuring the applicable leases or agreeing to rent deferrals. The
restructurings will typically involve the rescheduling of rental payments for a
specified period. In addition, certain restructurings may involve the voluntary
early termination of a lease, the replacement of aircraft with less expensive
aircraft and the arrangement of sub-leases from the lessee to another aircraft
operator. In certain cases, it may be necessary to repossess aircraft from
defaulting lessees and re-lease the aircraft to other lessees. The early
termination of leases may lead AerCo to incur swap breakage costs under its
agreements with swap providers which could be substantial.
Certain lessees have experienced periodic difficulties in meeting their
maintenance obligations under the leases. Such difficulties are caused by the
failure of the lessee to have in place a well established maintenance program,
adverse climate and other environmental conditions in the locations where the
aircraft are operated or financial and labor difficulties experienced by the
relevant lessee.
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<PAGE> 14
DOWNTIME
There can be no assurance that AerCo's prior experience and AerFi's
experience will be indicative of AerCo Group's ability to keep the aircraft and
any additional aircraft on-lease in the future. AerCo Group may be unable to
re-lease aircraft upon the expiration of leases as a result of a deterioration
in industry conditions, decreased demand for specific types of aircraft or other
factors.
The table below shows the number and type of aircraft that we must re-lease
through December 31, 2004. The table assumes that no lease will terminate early
and that there are no sales of aircraft or purchases of additional aircraft.
More aircraft may need to be re-leased if aircraft become available through
early lease terminations or if new leases or re-leases are for relatively short
terms.
AERCO GROUP LEASE PLACEMENT REQUIREMENT AT MAY 31, 2000
<TABLE>
<CAPTION>
TO DECEMBER 31,
-----------------------------------------
AIRCRAFT TYPE 2000 2001 2002 2003 2004
------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
A300............................................. -- 1 -- -- --
A320............................................. -- -- 2 2 2
B737............................................. 3 4 2 4 9
B757............................................. -- -- 1 1 1
B747............................................. -- -- -- -- 1
B767............................................. 1 1 -- -- --
DC8.............................................. -- -- -- 2 --
F100............................................. -- -- -- -- --
MD80............................................. -- -- 3 1 3
Total............................................ 4 6 8 10 16
</TABLE>
DESCRIPTION OF THE LESSEES
The table below lists certain available information with respect to the
country of domicile, government, airline or principal shareholders, operating
fleet size and composition and the first year of operation of each lessee. See
"-- Portfolio Information" above for additional tables detailing the exposure of
the portfolio as a percentage of appraised value at April 30, 2000 to each
lessee and the countries and geographic regions in which the lessees are
domiciled.
<TABLE>
<CAPTION>
BEGAN GOVERNMENT/COMMERCIAL
LESSEE DOMICILE OPERATION AIRLINE/PRINCIPAL SHAREHOLDERS FLEET
------ -------- --------- ------------------------------ -----
<S> <C> <C> <C> <C>
Aeropostale............. France 1986 Groupe Air France (50%) 4 ATR72-200
Groupe La Poste (50%) 3 A300-B4-100F
15 B737-300QC
3 B737-200CA HK
1 B737-200QC HK
AILL.................... Bahamas 1998 Lan Chile (100%) See Lan Chile
</TABLE>
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<PAGE> 15
<TABLE>
<CAPTION>
BEGAN GOVERNMENT/COMMERCIAL
LESSEE DOMICILE OPERATION AIRLINE/PRINCIPAL SHAREHOLDERS FLEET
------ -------- --------- ------------------------------ -----
<S> <C> <C> <C> <C>
Air Canada.............. Canada 1937 Institutions (70%) 35 A319-100
Private Investors (19%) 47 A320-200
Employees (11%) 3 A330-300
12 A340-300
16 DC9-32 HK
4 B737-200A
34 B737-200A HK
4 B737-200C A
2 B737-200C A HK
2 B747-200B Combi
4 B747-400
3 B747-400 Combi
9 B767-200
7 B767-200ER
21 B767-200ER
6 B767-300ER
25 CRJ-100ER
Air Europe.............. Italy 1989 Airline Management (50.1%) 6 A320-200
SAir Group (45%) 4 B767-300ER
2 B777-200ER
Airtours................ United Kingdom 1990 Airtours Group (100%) 1 A320-210
10 A320-230
2 A321-210
2 A330-240
1 DC-10 30
1 B737-400
6 B757-200
3 B767-300ER
Air 2000................ United Kingdom 1986 First Choice Holidays (100%) 5 A320-200
5 A321-210
12 B757-200
4 B767-300ER
American Airlines....... USA 1934 AMR Corp. (100%) 35 A300-600R
52 B727-200A
15 B757-200A HK
29 B737-800
102 B757-200
8 B767-200
22 B767-200ER
49 B767-300ER
18 B777-200ER
3 DC10-10
5 DC10-30
75 F100
10 MD-11
230 MD-82
44 MD-83
5 MD-87
5 MD-90-30
Asiana.................. South Korea 1988 Kumho Group (54.2%) 3 A321-230
Syndicate of Banks (45.8%) 21 B737-400
3 B737-500
3 B747-400
5 B747-400 Combi
4 B747-400F
9 B767-300
1 B767-300ER
1 B767-300ERF
</TABLE>
43
<PAGE> 16
<TABLE>
<CAPTION>
BEGAN GOVERNMENT/COMMERCIAL
LESSEE DOMICILE OPERATION AIRLINE/PRINCIPAL SHAREHOLDERS FLEET
------ -------- --------- ------------------------------ -----
<S> <C> <C> <C> <C>
Avianca................. Colombia 1919 Government Owned (100%) 1 B727-200A
4 B757-200
4 B767-200ER
2 B767-300ER
10 F50 High
Performance
13 MD-83
BAX Global.............. United States 1972 Burlington Northern Air Freight (a 3 DC-8-63C HK
subsidiary of Pittston Burlington 1 DC-8-63CF HK
Group) (100%) 11 DC-8-71F
1 B727-100C (Raisbeck
Stage 3 System)
1 B727-100QC (Raisbeck
Stage 3 System)
2 B727-200F
2 B727-200F HK
3 B727-200F A HK
Blue Panorama........... Italy 1998 Antonio De Ponti, Sandro 3 B737-400
Guillianelli and Franco Pecci (100%)
Braathens SAFE.......... Norway 1946 KLM (30%) 5 B737-400
Braganza (33.4%) 18 B737-500
Bramora (5.4%) 9 B737-700
(Braganza and Bramora are Braathens
holding companies)
British Airways......... United Kingdom 1974 Publicly Listed Company 7 A319-130
5 A320-110
5 A320-210
7 B737-300
34 B737-400
3 B737-500
12 B737-200A
12 B747-200B
2 B747-200B Combi
57 B747-400
1 B747-400F
53 B757-200
26 B767-300ER
5 B777-200
24 B777-200ER
5 B777-200ER
7 Concorde 100
British Midland......... United Kingdom 1938 Airlines of Britain plc (100%) 4 A320-230
10 A321-230
8 B737-300
4 B737-400
11 B737-500
6 F100
3 F70
1 ERJ-145
</TABLE>
44
<PAGE> 17
<TABLE>
<CAPTION>
BEGAN GOVERNMENT/COMMERCIAL
LESSEE DOMICILE OPERATION AIRLINE/PRINCIPAL SHAREHOLDERS FLEET
------ -------- --------- ------------------------------ -----
<S> <C> <C> <C> <C>
China Southern.......... People's Republic 1991 China Southern Group (65.2%) 20 A320-230
of China Unspecified Investors (34.8%) 19 B737-300
8 B737-500
18 B757-200
2 B777-200
5 B777-200ER
1 Tupolev Tu-154 M
China Xinjiang.......... People's Republic 1985 CAAC (50%) 5 ATR72 500
of China Xinjiang Province (50%) 2 B737-300
5 B757-200
3 Ilyushin II-86
5 Tupolev Tu-154 M
Delta Airlines.......... United States 1928 Publicly Quoted (employees (14%) 15 MD-11
Swissair (4.6%) 120 MD-88
Singapore Airlines (3%)) 16 MD-90-30
1 B727-200A
99 B727-200A HK
26 B737-300
54 B737-200A HK
21 B737-800
110 B757-200
15 B767-200
28 B767-300
55 B767-300ER
7 B777-200ER
9 L-1011-1
6 L-1011-250
15 L-1011-500
FEAT.................... Taiwan 1957 Unspecified Investors (67.05%) 3 MD-82
China Development Corp (14%) 5 MD-83
China Airlines (10%) 7 B757-200
Taiwan Aerospace Corporation (4.95%)
Fubon Insurance (4%)
Finnair................. Finland 1923 Government Owned (58.7%) 9 ATR72-200
Public (41.3%) 2 A319-110
3 A321-210
9 DC-9-51
1 DC-9-51 HK
4 MD-11
9 MD-82
12 MD-83
3 MD-87
5 B757-200
Frontier................ United States 1994 Unspecified Investors (49%) 16 B737-300
DDJ Capital Management (33%) 2 B737-200A
Wexford Management (10%) 5 B737-200A HK
WR Hambrecht & Co (8%)
Indian Airlines......... India 1953 Government of India (100%) 4 Fairchild/Dornier
228-200
1 B737-200A
7 A300-B2-100
4 A300-B4-200
30 A320-200
JMC Airlines............ United Kingdom 1999 Thomas Cook (100%) 13 B757-200
10 A320-200
2 DC10-30
</TABLE>
45
<PAGE> 18
<TABLE>
<CAPTION>
BEGAN GOVERNMENT/COMMERCIAL
LESSEE DOMICILE OPERATION AIRLINE/PRINCIPAL SHAREHOLDERS FLEET
------ -------- --------- ------------------------------ -----
<S> <C> <C> <C> <C>
Lan Chile............... Chile 1929 Grupo Guato (38.5%) 1 DC-8 71F
Grupo Pifiera (33.1%) 11 B737-200A
Grupo Humas (19%) 1 B737-200A HK
Grupo Ebler (8.1%) 1 B737-200QC
8 B767-300ER
5 B767-300ER
2 B767-300ERF
LOT..................... Poland 1929 Government Owned (62.4%) 2 B737-300
SAir Group (37.6%) 8 B737-400
6 B737-500
2 B767-200ER
3 B767-300ER
4 ERJ-145
Malev................... Hungary 1946 Government (96.8%) 6 B737-300
Municipalities (2.7%) 3 B737-400
Private Entities and Organisations 2 B737-500
(0.5%) 2 B737-200A
2 B767-200ER
6 F70
6 Tupolev Tu-154B
Monarch................. United Kingdom 1967 Cosmos Guide Holding International 4 A300-600ER
NV (100%) 5 A320-210
7 B757-200
1 DC10-30
3 A321-230
1 L-1011-1
2 A330-240
Nordeste................ Brazil 1976 Rio Sul Servicos Aereos Regionals 3 B737-500
(99%) 1 EMB-120
Unspecified Investors (1%) 2 EMB-120ER
2 F50 High Performance
3 F50
PAL..................... Philippines 1941 LT Group (53.69%) 3 A320-210
Top Wealth Enterprises, Maxell 8 A330-300
Holdings and Richmark Holdings 2 A340-310
(35.15%) 8 B737-300
Philippine Government (4.26%) 3 B747-400
Unspecified Investors (4.19%) 1 B747-400 Combi
Airline Employees (2.71%) 3 B747-200B
Pegasus................. Turkey 1990 Yapi Kredit Bank (49%) 4 B737-400
Alper Elchin (21%) 1 B737-800
Silkar and Net Holdings (30%)
Reno Air................ United States 1990 American Airlines (100%) See American Airlines
Spanair................. Spain 1987 Tour operator Viajes Marsans (51%) 4 MD-82,
SAS Leisure AB (Vingresor) (49%) 6 MD-82 (SAIC),
20 MD-83,
2 MD-87,
1 B757-200,
2 B767-300ER
Sun Express............. Turkey 1990 THY (50%) 1 B737-300
(Lufthansa) (40%) 3 B737-800
</TABLE>
46
<PAGE> 19
<TABLE>
<CAPTION>
BEGAN GOVERNMENT/COMMERCIAL
LESSEE DOMICILE OPERATION AIRLINE/PRINCIPAL SHAREHOLDERS FLEET
------ -------- --------- ------------------------------ -----
<S> <C> <C> <C> <C>
TAM..................... Brazil 1986 Taxi Aereo Marilia (owned by Captain 6 A319-130
Rolim Amaro) (66.6%) 2 A320-230
Garantia Bank (managed for 4 Mutual 4 A330-220
Funds) (23%) 3 Cessna Citation V
Private Investors (6.9%) (C560)
VASP (3.3%) 1 Cessna CitationJet
Unspecified Investors (0.2%) (C525)
48 F100
5 F50
THY..................... Turkey 1933 Government of Turkey (98.7%) 6 A310-200
Others (1.3%) 7 A310-300
7 A340-310
9 RJ100
3 RJ70
2 B727-200F A
18 B737-400
2 B737-500
19 B737-800
Tower Air............... United States 1982 Tower Travel (75%) 2 B747-100
Public (25%) 4 B747-200 B
TWA..................... United States 1930 Unspecified Investors (65%) 15 DC-9-31 HK
Employees (30%) 12 DC-9-32 HK
Prince Al-Waleed bin Talal (5%) 1 DC-9-33CF HK
40 MD-82
59 MD-83
5 MD-83(SAIC)
2 B717-200
1 B727-200A
9 B727-200A (Raisbeck
Stage 3 System)
27 B757-200
8 B767-200EM
8 B767-300ER
5 ATR 42-300
3 ATR 72-200
10 Jetstream 31
19 Jetstream 41
Varig................... Brazil 1927 Ruben Berta Foundation (of employees 2 DC-10-30F
and executives) (87%) 3 MD-11 ER
Unspecified Investors (11.8%) 10 MD-11
Rio Grande do Sul State Government 1 B727-100C
(1.2%) 2 B727-100F
2 B727-100QC
31 B737-300
13 B737-200A
5 B737-700
6 B767-200ER
6 B767-300ER
Virgin Express.......... Belgium 1991 Virgin Group (51%) 7 B737-300
Unspecified Investors (49%) 6 B737-400
</TABLE>
47
<PAGE> 20
<TABLE>
<CAPTION>
BEGAN GOVERNMENT/COMMERCIAL
LESSEE DOMICILE OPERATION AIRLINE/PRINCIPAL SHAREHOLDERS FLEET
------ -------- --------- ------------------------------ -----
<S> <C> <C> <C> <C>
Virgin Express (Ireland) Ireland 1988 Virgin Express 6 B737-300
Limited............... 3 B737-400
Xiamen Airlines......... People's Republic 1984 China Southern (60%) 6 B737-500
of China Fujian Province (20%) 4 B737-200A
Xiamen Province (20%) 1 B737-200CA
4 B737-700
5 B757-200
</TABLE>
---------------
Source: Airclaims Limited CASE Database, May 11, 2000.
48
<PAGE> 21
notes means the date on which all principal not previously paid and any interest
accrued thereon is due and payable. The actual final payment date for each
subclass of notes is likely to occur earlier or later than the expected final
payment date as a result of numerous factors, including that the assumptions are
unlikely to correspond to actual experience. AerCo may also redeem or refinance
the notes before their expected final payment date.
49
