Item 1
Cash Analysis of Financial Condition and Results of Operations
Three Month Period from
March 15, 2000 to June 15, 2000
I Background and General Information
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 consummated 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").
Applying the declining value assumptions to the original July 15, 1998
fleet appraisal of $952.0 million and adjusting for aircraft sales, the total
appraised value was assumed to be $845.9 million at June 15, 2000. The fleet is
appraised annually and the most recent appraisal dated February 18, 2000 valued
the portfolio at $849.5 million.
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 (the
"Indenture").
As of June 15, 2000, 33 aircraft were on-lease in 15 countries as shown on
page 14 attached.
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").
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;
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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 Group's ability to compete against other lessors is determined, in
part, by the composition of its fleet in terms of mix, relative age and
popularity of the aircraft types. In addition, operating restrictions imposed
by the Indenture, and the ability of other lessors, who may possess
substantially greater financial resources, to offer leases on more favorable
terms than AerCo Group, may also impact AerCo Group's ability to compete other
lessors.
For the purposes of this report, the "Three Month Period", referred to on
page 9 "Comparison of Actual Cash versus the Adjusted Base Case for the Three
Month Period", comprises information from the monthly cash reports dated April
15, 2000 through to June 15, 2000. The financial data in these reports includes
cash receipts from March 10, 2000 (first day of the Collection Period for the
April 2000 Report) up to June 9, 2000 (last day of the Collection Period for
the June 2000 Report). Page 11 presents the cashflow information from July 15,
1998 to the June 2000 Payment Date. This report, however, limits its commentary
to the Three Month Period.
II Comparison of Actual Cash Flows versus the 1998 Adjusted Base Case for the
Three Month Period
The June 23, 1998 Offering Memorandum (the "Offering Memorandum") and the
April 15, 1999 Registration Statement (the "Registration Statement") for the
notes contain assumptions in respect of AerCo Group's future cash flows and
expenses (the "1998 Base Case"). The 1998 Base Case has been adjusted to take
account of the two aircraft sales (the "Adjusted Base Case"). For the purpose
of this report, "Net Cash Collections" is defined as Total Cash Collections
less Total Cash Expenses, Interest Payments and Swap Payments. A discussion of
the total Cash Collections, Cash Expenses, Interest Payments and Principal
Payments is given below and should be read in conjunction with the analysis on
page 9.
CASH COLLECTIONS
"Total Cash Collections" include Net Lease Rentals (Contracted Lease
Rentals less Net Stress-related Costs), Movement in Current Arrears Balance,
Interest Earned , Aircraft Sales and Net Maintenance. In the Three Month
Period, AerCo generated approximately $30.5 million in Total Cash Collections,
$3.4 million greater than the Adjusted Base Case. This difference is due to a
combination of the factors set out below (the numbers in brackets refer to the
line item number shown on page 10).
[2] Renegotiated Leases
Renegotiated Leases refers to the loss in rental revenue caused by a
lessee negotiating a reduction in the lease rental. Typically, this can be a
permanent reduction over the remaining lease term in exchange for other
contractual concessions. In the Three Month Period, the amount of revenue loss
attributed to Renegotiated Leases was $0.3 million and relates to leases
renegotiated with two lessees. The new rentals were reset at the then
prevailing market rate for these aircraft types in exchange for lease
extensions.
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[3] Rental Resets Including Interest Rate Adjustments for Floating Rate Leases
Rental Resets is a measure of the loss in rental revenue when new lease
rates are lower than those assumed in the Adjusted Base Case, including lease
rate adjustments for changes in interest rates on floating rate leases. This
amounted to $1.4 million in the Three Month Period.
[4] Aircraft Sales
Aircraft Sales is a measure of the loss in rental revenue as a result of
aircraft sales. In the Three Month Period, the amount of lost revenue
attributed to Aircraft Sales was $1.0 million, relating to two F100 aircraft
sold in prior periods.
[5] Contracted Lease Rentals
Contracted Lease Rentals represents the current contracted lease rental
rollout which equates to the 1998 adjusted Base Case Lease Rentals less
adjustments for Renegotiated Leases, Rental Resets and Aircraft Sales. For the
Three Month Period, Contracted Lease Rentals were $26.6 million, $1.7 million
less than assumed in the 1998 Adjusted Base Case. The difference is due to
losses from renegotiated leases, rental resets and aircraft sales as discussed
above.
[5] Movement in Current Arrears Balance
Current Arrears is the total contracted lease rentals outstanding from
current lessees at a given date and excludes any amounts classified Bad Debts.
The current arrears balance at the start of the Three Month Period was $2.6
million versus $2.7 million at the end, a negative movement of $0.1 million.
Analysis of Current Arrears Balances
% of Current Current Movement
Appraised Arrears Arrears In Current
Aircraft Type Country Value* 15/3/00 15/6/00 Arrears
------------- ------- ------ ------- ------- -------
$M $M $M
1 B747-200........North America 3.18 1.5 2.4 (0.9)
2 A320-200........North America 3.52 0.6 - 0.6
3 A320-200........United Kingdom 6.83 0.5 - 0.5
4 A320............Italy 3.00 - 0.3 (0.3)
----- --- --- ---
Total............................. 16.53 2.6 2.7 (0.1)
===== === === ===
---------
* Appraised Value as of February 18, 2000
At March 15, 2000, 3 lessees in arrears owed $2.6 million, against which ,
AerCo Group held security deposits of $0.5 million.
As at June 15, 2000, two lessees were in arrears, owing $2.7 million,
against which AerCo Group held security deposits of $1.0 million. On February
29, 2000 one of the three lessees (Tower Air) filed for Chapter 11 bankruptcy
protection in the U.S. in its attempts to restructure its operations. See
Section IV "Recent Developments".
Net Stress-Related Costs
Net Stress-related Costs is a combination of all the factors which can
cause actual lease rentals received to differ from the Contracted Lease
Rentals. The Adjusted Base Case assumed net stress-related costs equal to 6% of
the Adjusted Base Case Lease Rentals. For the Three Month Period, net
stress-related costs amounted to a cash inflow of $1.6 million (5.2% of
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Contracted Lease Rentals) compared to $1.7 million outflow assumed in the
Adjusted Base Case, a variance of $3.3 million that is due to the following six
factors described in items [8] to [13] below.
[8] Bad Debts and [10] Security Deposits Drawn Down
Bad Debts are arrears owed by lessees who have defaulted and which are
deemed irrecoverable. These arrears are partially offset by the draw down of
security deposits held and amounts subsequently recovered from the defaulted
lessee. There were no bad debts or security deposit drawdowns during the Three
Month Period.
[9] Deferred Arrears Balance
Deferred Arrears Balance refers to current arrears that have been
capitalized and restructured into a deferred balance. In the Three Month
Period, AerCo received payments totalling $1.5 million from two lessees in
accordance with these agreed schedules.
[11] Aircraft on Ground ("AOG")
AOG is defined as the Base Case lease rental lost when an aircraft is
off-lease and non-revenue earning. AerCo has not experienced any off lease
aircraft during the Three Month Period.
[12] Other Leasing Income
Other Leasing Income consists of miscellaneous income received in
connection with a lease other than contracted rentals, maintenance receipts and
security deposits, such as early termination payments or default interest. In
the Three Month Period, other leasing income amounted to $0.04 million.
[13] Repossession Costs
Repossession Costs cover legal and aircraft technical costs incurred as a
result of repossessing an aircraft. In the Three Month Period AerCo has
experienced no aircraft repossession costs.
[15] Net Lease Rentals
Net Lease Rentals is Contracted Lease Rentals less any movement in Current
Arrears Balance and Net Stress-related Costs. In the Three Month Period, net
lease rentals amounted to $28.1 million, $1.5 million greater than assumed in
the Adjusted Base Case. The variance was attributable to the combined effect of
the factors outlined in items [2], [3] and [4] and in items [6] to [13] above.
[16] Interest Earned
Interest earned relates to interest received on cash balances held in
the Collection and Expense Accounts. Cash held in the Collection Account
consists of the cash liquidity reserve amount of $40 million plus the security
deposit amount, in addition to the intra-month cash balances for all the
rentals and maintenance payments collected prior to the monthly payment date.
The Expense Account contains cash set aside to pay for expenses which are
expected to be payable over the next month. In the Three Month Period, interest
earned amounted to $0.8 million, $0.3 million more than assumed in the Adjusted
Base Case. The difference is due to a combination of two factors. The Adjusted
Base Case made no assumption as to the interest
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earned on the intra-month cash balances in the Collection Account and Expense
Account and the average actual reinvestment rate for the Three Month Period was
5.8% as compared to 5.75% assumed in the Adjusted Base Case.
[17] Aircraft Sales
There were no aircraft sales during the Three Month Period.
[18] Net Maintenance
Net Maintenance refers to maintenance reserve revenue received less any
maintenance reimbursements paid to lessees. In the Three Month Period, actual
maintenance reserve revenue received amounted to $2.5 million from 15 lessees
and maintenance expenditure amounted to $0.9 million, generating positive net
maintenance revenue of $1.6 million. The Adjusted Base Case makes no
assumptions for net maintenance as it assumes that, over time, maintenance
revenue will equal maintenance expenditure. However, it is unlikely that in any
particular Note Payment Period, maintenance revenue will exactly equal
maintenance expenses.
CASH EXPENSES
"Total Cash Expenses" include Aircraft Operating Expenses and Selling,
General and Administrative ("SG&A") Expenses. In the Three Month Period, Total
Cash Expenses were $3.7 million. A number of offsetting factors discussed below
have given rise to this.
Aircraft Operating Expenses includes all operational costs related to the
leasing of an aircraft including costs of insurance, re-leasing and other
overhead costs. In the Three Month Period, Aircraft Operating Expenses amounted
to $1.8 million compared to $0.6 million per the 1998 Adjusted Base Case, which
assumed these costs to be 2% of the 1998 Adjusted Base Case Lease Rentals.
[20] Insurance
Insurance Costs amounted to $0.2 million relating to the insurance costs
associated with the fleet.
[21] Re-leasing and other overhead costs
Re-leasing and other overhead costs consist of miscellaneous re-delivery
and leasing costs associated with re-leasing events. In the Three Month Period
these costs amounted to $1.6 million.
SG&A Expenses relate to fees paid to the Aircraft Servicer and to other
service providers.
[20] Aircraft Servicer Fees
The Aircraft Servicer Fees are defined as amounts paid to the Aircraft
Servicer, Babcock & Brown, in accordance with the terms of the Servicing
Agreement. In the Three Month Period, the total Aircraft Servicer fee paid was
$0.5 million, $1.0 million less than assumed in the Adjusted Base Case, as the
FY2000 incentive fee has not yet been paid.
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Aircraft Servicer Fees consist of:
$mm
---
Retainer Fee.................................................... 0.2
Rent Collected Fee.............................................. 0.2
Incentive Fee 1998/99........................................... 0.1
---
Total Servicer Fee.............................................. 0.5
===
The Retainer Fee is a fixed amount per month per aircraft and changes only
as aircraft are acquired or sold.
[25] Other Fees
Other Fees relate to fees and expenses paid to other Service providers
including the Administrative Agent, financial advisor, legal advisors,
accountants and the directors. In the Three Month Period, Other Fees amounted
to $1.3 million equal to an assumed expense of $1.3 million in the Adjusted
Base Case.
[31] Interest Payments and [31] Swap Payments
In the Three Month Period, interest payments to Noteholders amounted to
$13.7 million. This is $0.2 million lower than the Adjusted Base Case, which
assumed interest costs for the Three Month Period to be $13.9 million. The
variance reflects a higher than expected level of average interest rates and
lower interest payments to the E-Noteholders. The Adjusted Base Case assumed
LIBOR to be 5.75% whereas the average monthly LIBOR rate was 5.8%. AerCo has
net swap receipts of $0.3 million compared with costs of $0.2 million assumed
in the Adjusted Base Case for the Three Month Period.
[34] Principal Payments
In the Three Month Period, total principal payments to Noteholders
amounted to $13.8 million, $4.3 million more than assumed in the Adjusted Base
Case, reflecting the application of the positive Net Cash Collections variance
of $4.3 million.
III Other Financial Data
Weakly capitalized airlines are more likely than well capitalized airlines
to seek operating leases. Therefore, many of the lessees are in a relative weak
financial position and several of them have faced and continue to face severe
economic difficulties.
At of June 9, 2000, amounts outstanding for more than 30 days for rental
payments, due under the leases equalled $2.7 million for two lessees who had a
total of two aircraft on lease. The outstanding amounts are net of agreed
deferrals or other restructuring and default interest.
As of June 9, 2000, Tower Air, a North American lessee, representing 0.32%
of the portfolio by appraised value at February 18, 2000, owed $3.9 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 4.9% of the
portfolio by appraised value at February 18, 2000 has been adversely affected
by the Asian economic crisis such that it sought bankruptcy protection in 1998.
As part of PAL's rehabilitation plan, the Aircraft 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
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$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.
IV Recent Developments
Asia Pacific Concentration. At June 9, 2000, 22.2% of the aircraft by
appraised value at February 18, 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 6.0% of the aircraft by
appraised value at February 18, 2000.
Trading conditions in Asia's civil aviation industry have been adversely
affected by the severe economic and financial difficulties recently in the
region. The economies of the region have experienced acute difficulties
including 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,
who lease 4.9% of the aircraft by appraised value at February 18, 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 scheduled their aircraft purchase obligations, eliminated certain
routes and reduced 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 June 9, 2000, 13.6% of the aircraft by
appraised value at February 18, 2000 were leased by operators in "emerging
markets" in Latin America, principally Brazil, Chile and Colombia. The
financial prospects for lessees in Latin America depend 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
America 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 4.8% of the aircraft by appraised value at February 18, 2000
operates three 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.
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European Concentration. At June 9, 2000, 49.0% of the aircraft by
appraised value at February 18, 2000 were leased by operators based in Europe.
Of this amount, lessees of 32.1% of the aircraft are based in "developed"
European markets, principally the United Kingdom and Spain. Lessees of the
remaining 16.9% of the aircraft were based in "emerging" European markets,
principally Turkey. One lessee, Spanair, leased 11.4% of the aircraft by
appraised value at February 18, 2000. As of June 9, 2000, 17.7% of the aircraft
by appraised value at February 18, 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 revenue 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 new leases.
At June 9, 2000, 14.2% of the aircraft by appraised value at February 18,
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, against the US dollar, may
affect the ability of these airlines to pay dollar denominated costs including
lease rentals.
North American Concentration. At June 9, 2000, 15.2% of the aircraft by
appraised value at February 18, 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 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 Chapter 11 bankruptcy proceedings and
several major U.S. airlines have ceased operations.
Tower Air, the lessee of one Boeing 747-200 aircraft, which represents 3.2% of
the aircraft by appraised value at February 18, 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 Boeing 747-200 aircraft. The opportunities for lease or
sale of this aircraft type are currently extremely limited. If the Boeing
747-200 aircraft on lease to Tower Air is returned, the technical costs
required to ensure that the aircraft 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.
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Comparison of Actual Cash Flows Versus Adjusted Base Case Cash Flows for
the Three Month Period
<TABLE>
% of 1998 Lease Rentals
under the Adjusted Base Case
Adjusted Adjusted
Actual Base Case Variance Actual Base Case Variance
(All amounts in US dollars
unless otherwise stated)
CASH COLLECTIONS
<S> <C> <C> <C> <C> <C> <C>
[1] Lease Rentals 29.36 29.36 0.00 100.0% 100.0% 0.0%
[2] - Renegotiated Leases (0.30) 0.00 (0.30) (1.0%) 0.0% (1.0%)
[3] - Rental Resets (1.44) 0.00 (1.44) (4.9%) 0.0% (4.9%)
[4] - Aircraft Sales (1.03) (1.03) 0.00 (3.5%) (3.5%) 0.0%
------ ------ ---- ------ ------ ----
[5] Sum of [1]..[5] Contracted Lease Rentals 26.59 28.32 (1.74) 90.6% 96.5% (5.9%)
[6] Movement in Current Arrears (0.09) 0.00 (0.09) (0.3%) 0.0% (0.3%)
Balance
[7] less Net Stress Related Costs
[8] - Bad Debts 0.00 (0.29) 0.29 0.0% (1.0%) 1.0%
[9] - Deferred Arrears Balances 1.54 0.00 1.54 5.2% 0.0% 5.2%
[10] - Security Deposits drawn down 0.00 0.00 0.00 0.0% 0.0% 0.0%
[11] - AOG 0.00 (1.23) 1.23 0.0% (4.2%) 4.2%
[12] - Other Leasing Income 0.04 0.00 0.04 0.1% 0.0% 0.1%
[13] - Repossession 0.00 (0.23) 0.23 0.0% (0.8%) 0.8%
---- ------ ---- ---- ---- -----
[14] Sum of [8]..[13] Sub-total 1.58 (1.75) 3.33 5.4% (6.0%) 11.4%
[15] [5]+[6]+[14] Net Lease Rental 28.08 26.57 1.51 95.6% 90.5% 5.1%
[16] Interest Earned 0.84 0.56 0.28 2.9% 1.9% 1.0%
[17] Aircraft Sales 0.00 0.00 0.00 0.0% 0.0% 0.0%
[18] Net Maintenance 1.60 0.00 1.60 5.4% 0.0% 5.4%
----- ----- ---- ------ ----- -----
[19] Sum of [15]..[18] Total Cash Collections 30.52 27.13 3.38 103.9% 92.4% 11.5%
===== ===== ==== ====== ===== =====
CASH EXPENSES
Aircraft Operating Expenses
[20] - Insurance (0.18) 0.00 (0.18) (0.6%) 0.0% (0.6%)
[21] - Re-leasing and other (1.63) (0.59) (1.04) (5.5%) (2.0%) (3.5%)
------ ------ ------ ------ ----- -----
[22] [20]+[21] Sub-total (1.81) (0.59) (1.22) (6.2%) (2.0%) (4.2%)
SG&A Expenses
[23] Aircraft Servicer Fees
- Retainer Fee (0.23) (0.79) 0.56 (0.8%) (2.7%) 1.9%
- Rent Collected Fee (0.25) 0.00 (0.25) (0.9%) 0.0% (0.9%)
- Incentive Fee (0.06) (0.80) 0.74 (0.2%) (2.7%) 2.5%
- Sales Fee 0.00 0.00 0.00 0.0% 0.0% 0.0%
---- ---- ---- ---- ----- ----
[24] [23] Sub-total (0.54) (1.58) 1.04 (1.9%) (5.4%) 3.5%
[25] Other Servicer Fees (1.31) (1.36) 0.05 (4.5%) (4.6%) 0.2%
----- ---- ---- ---- ----- ----
[26] [24]+[25] Sub-total (1.86) (2.95) 1.09 (6.3%) (10.0%) 3.7%
===== ==== ==== ==== ===== ====
[27] [26]+[22] Total Cash Expenses (3.66) (3.53) (0.13) (12.5%) (12.0%) (0.4%)
===== ==== ==== ===== ===== ====
NET CASH COLLECTIONS
[28] [19] Total Cash Collections 30.52 27.13 3.38 103.9% 92.4% 11.5%
[29] [26] Total Cash Expenses (3.66) (3.53) 0.13) (12.5%) (12.0%) (0.4%)
[30] Movement in Expense Account 0.40 0.00 0.40 1.4% 0.0% 1.4%
[31] Interest Payments (13.76) (13.93) 0.17 (46.9%) (47.4%) 0.6%
[32] Swap Payments 0.27 (0.24) 0.51 0.9% (0.8%) 1.7%
----- ----- ---- ------ ----- -----
[33] Sum of [28]..[32] TOTAL 13.77 9.43 4.34 49.9% 32.1% 14.8%
===== ===== ==== ====== ===== =====
[34] PRINCIPAL PAYMENTS
Subclass A1 0.00 0.00 0.00 0.0% 0.0% 0.0%
Subclass A2 12.46 8.10 4.36 42.4% 27.6% 14.8%
Subclass B 1.10 1.12 (0.02) 3.7% 3.8% (0.1%)
Subclass C 0.21 0.21 0.00 0.7% 0.7% (0.0%)
Subclass D 0.00 0.00 0.00 0.0% 0.0% 0.0%
----- ---- ---- ----- ----- -----
Total 13.77 9.43 4.34 46.9% 32.1% 14.8%
===== ==== ==== ===== ===== =====
Debt Balances at June 15, 2000
Subclass A1 340.00 340.00
Subclass A2 199.82 193.59
Subclass B 75.20 75.04
Subclass C 84.23 84.20
Subclass D 80.00 80.00
------ ------
779.25 772.83
====== ======
</TABLE>
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<TABLE>
Note Report Line Name Description
---- ---------------- -----------
CASH COLLECTIONS
<S> <C> <C>
[1] Lease Rentals......................... Assumptions as per the June 1998 Prospectus
[2] - Renegotiated Leases Change in contracted rental cash flow caused by a
renegotiated lease
[3] - Rental Resets....................... Re-leasing events where new lease rate deviated from the
1998 Base Case
[4] - Aircraft Sales Revenue foregone as a result of aircraft sales
[5] Sum of [1]..[4] Contracted Lease Rentals.............. Current Contracted Lease Rentals due as at the latest
Calculation Date
[6] Movement in Current Arrears Balance .. Current contracted lease rentals not received as at the
latest Calculation Date, excluding Bad Debts
[7] Less Net Stress related Costs
[8] - Bad debts........................... Arrears owed by former lessees and deemed irrecoverable
[9] - Deferred Arrears Balances........... Current arrears that have been capitalised and
restructured as a Note Payable
[10] - Security deposits drawn down........ Security deposits received following a lessee default
[11] - AOG................................. Loss of rental due to an aircraft being off-lease and
non-revenue earning
[12] - Other Leasing Income................ Includes lease termination payments, rental guarantees
and late payment charges
[13] - Repossession........................ Legal and technical costs incurred in repossessing
aircraft.
[14] Sum of [8]..[13] Sub-total
[15] [5]+[6]+[14] Net Lease Rentals..................... Contracted Lease Rentals less Movement in Current
Arrears Balance and Net Stress related costs
[16] Interest Earned....................... Interest earned on monthly cash balances
[17] Aircraft Sales Gross cash receipts from aircraft sales.
[18] Net Maintenance....................... Maintenance Revenue Reserve received less and
reimbursements to lessees
[19] Sum of [15]..[18] Total Cash Collections................ Net Lease Rentals + Interest Earned + Net Maintenance
CASH EXPENSES
Aircraft Operating Expenses........... All operational costs related to the leasing of aircraft.
[20] - Insurance........................... Premium for contingent insurance policies
[21] - Releasing and other................. Costs associated with transferring an aircraft from one
lessee to another
[22] [23]+[24] Sub-total
SG&A Expenses
[23] Aircraft Servicer Fees................ Monthly and annual fees paid to Aircraft Servicer
- Retainer Fee........................ Fixed amount per month per aircraft
- Rent Collected...................... 1.25% of rental received for the month
- Incentive Fee....................... Annual fee paid to Servicer for performance above an
annually agreed target
- Sales Fee........................... Fee paid to Servicer on sale of an aircraft
[24] [23] Sub-total
[25] Other Servicer Fees................... Administrative Agent, trustee and professional fees paid
to other service providers
[26] [24]+[25] Sub-total
[27] [22]+[26] Total Cash Expenses................... Aircraft Operating Expenses + SG&A Expenses
NET CASH COLLECTIONS
[28] [19] Total Cash Collections................ Line 16 above
[29] [26] Total Cash Expenses................... Line 24 above
[30] Movement in Expense Account Relates to reduction in accrued expense amounts
[31] Interest Payments..................... Interest paid on all outstanding debt
[32] Swap payments Net swap payments (paid)/received
[34] Principal payments Principal payments on debt
</TABLE>
10
<PAGE>
AerCo Cashflow Performance for the Period from July 15, 1998 to June 15, 2000
Comparison of Actual Cashflows versus Adjusted Base Case Cashflows
<TABLE>
% of 1998 Lease Rentals
under the adjusted Base Case
Adjusted Adjusted
Actual Base Case Variance Actual Base Case Variance
------ --------- -------- ------ --------- --------
(All amounts in US dollars
unless otherwise stated)
<S> <C> <C> <C> <C> <C> <C>
CASH COLLECTIONS
[1] Lease Rentals 224.02 224.02 0.00 100.0% 100.0% 0.0%
[2] - Renegotiated Leases (1.01) 0.00 (1.01) (0.5%) 0.0% (0.5%)
[3] - Rental Resets (4.23) 0.00 (4.23) (1.9%) 0.0% (1.9%)
[4] - Aircraft Sales (5.30) (5.30) 0.00 (2.4%) (2.4%) 0.0%
------ ------ ---- ------ ------ -----
[5] Sum of [1]..[5] Contracted Lease Rentals 213.48 218.72 (5.24) 95.3% 97.6% (2.3%)
[6] Movement in Current Arrears Balance (2.70) 0.00 (2.70) (1.2%) 0.0% (1.2%)
[7] less Net Stress Related Costs
[8] - Bad Debts 0.00 (2.24) 2.24 0.0% (1.0%) 1.0%
[9] - Deferred Arrears Balance (1.96) 0.00 (1.96) (0.9%) 0.0% (0.9%)
[10] - Security Deposits drawn down 0.90 0.00 0.90 0.4% 0.0% 0.4%
[11] - AOG 0.00 (9.41) 9.41 0.0% (4.2%) 4.2%
[12] - Other Leasing Income 0.25 0.00 0.25 0.1% 0.0% 0.1%
[13] - Repossession 0.00 (1.75) 1.75 0.0% (0.8%) 0.8%
------ ------ ----- ---- ------ ----
[14] Sum of [8]..[13] Sub-total (0.81) (13.40) 12.59 (0.4%) (6.0%) 5.6%
[15] [5] + [6] + Net Lease Rental 209.97 205.32 4.64 93.7% 91.7% 2.1%
[16] Interest Earned 6.17 4.30 1.87 2.8% 1.9% 0.8%
[17] Aircraft Sales 28.51 28.51 0.00 12.7% 12.7% 0.0%
[18] Net Maintenance (12.72) 0.00 (12.72) (5.7%) 0.0% (5.7%)
------ ------ ----- ------ ------ ----
[19] Sum of [15]..[18] Total Cash Collections 231.92 238.13 (6.21) 103.5% 106.3% (2.8%)
====== ====== ===== ====== ====== ====
CASH EXPENSES
Aircraft Operating Expenses
[20] - Insurance (1.01) 0.00 (1.01) (0.5%) 0.0% (0.5%)
[21] - Re-leasing and other overheads (6.93) (4.48) (2.45) (3.1%) (2.0%) (1.1%)
---- ---- ---- ---- ---- ----
[22] [20] + [21] Sub-total (7.95) (4.48) (3.47) (3.5%) (2.0%) (1.5%)
SG&A Expenses
[23] Aircraft Servicer Fees
- Retainer Fee (1.68) (3.16) 1.48 (0.7%) (1.4%) 0.7%
- Rent Collected Fee (1.92) 0.00 (1.92) (0.9%) 0.0% (0.9%)
- Incentive Fee (1.21) (1.88) 0.67 (0.5%) (0.8%) 0.3%
- Sales Fee (0.66) (0.66) 0.00 (0.3%) (0.3%) 0.0%
------ ------ ---- ---- ---- ----
[24] [23] Sub-total (5.46) (5.70) 0.24 (2.4%) (2.5%) 0.1%
[25] Other Servicer Fees (9.86) (9.98) 0.12 (4.4%) (4.5%) 0.1%
------ ------ ---- ---- ---- ----
[26] [24] + [25] Sub-total (15.32) (15.67) 0.36 (6.8%) (7.0%) 0.2%
===== ===== ==== ===== ==== ====
----- ----- ---- ----- ---- ----
[27] [26] + [22] Total Cash Expenses (23.26) (20.15) (3.11) (10.4%) (9.0%) (1.4%)
===== ===== ==== ===== ==== ====
NET CASH COLLECTIONS
[28] [19] Total Cash Collections 231.92 238.13 (6.21) 103.5% 106.3% (2.8%)
[29] [26] Total Cash Expenses (23.26) (20.15) (3.11) (10.4%) (9.0%) (1.4%)
[30] Movement on Expense Account 0.40 0.00 0.40 0.2% 0.0% 0.2%
[31] Interest Payments (106.04) (108.96) 2.93 (47.3%) (48.6%) 1.3%
[32] Swap Payments (2.27) (1.84) (0.43) (1.0%) (0.8%) (0.2%)
------ ------ ---- ----- ------ ----
[33] Sum of [28]..[31] TOTAL 100.75 107.18 (6.43) 45.0% 47.8% (2.9%)
====== ====== ==== ===== ===== ====
[34] PRINCIPAL PAYMENTS
Subclass A1 0.00 0.00 0.00 0.0% 0.0% 0.0%
Subclass A2 90.18 96.41 (6.23) 40.3% 43.0% (2.8%)
Subclass B 9.80 9.96 (0.16) 4.4% 4.5% (0.1%)
Subclass C 0.77 0.80 (0.03) 0.3% 0.4% (0.0%)
Subclass D 0.00 0.00 0.00 0.0% 0.0% 0.0%
------ ------ ----- ----- ----- ----
Total 100.75 107.18 (6.43) 45.0% 47.8% (2.9%)
====== ====== ==== ===== ===== ====
Debt Balances at June 15, 2000
Subclass A1 340.00 340.00
Subclass A2 199.82 193.59
Subclass B 75.20 75.04
Subclass C 84.23 84.20
Subclass D 80.00 80.00
------ ------
779.25 772.83
====== ======
</TABLE>
11
<PAGE>
<TABLE>
Coverage Ratios Adjusted
Closing Actual Base Case
Net Cash Collections 100.7 107.2
Add Back Interest and Swap Payments 108.3 110.8
<S> <C> <C>
a Net Cash Collections 209.1 218.0
(excl. interest and swap payments)
b Swaps 2.3 1.8
c Class A Interest 65.2 67.3
d Class A Minimum 4.4 4.4
e Class B Interest 9.5 9.9
f Class B Minimum 5.8 5.8
g Class C Interest 11.3 11.7
h Class C Minimum 0.0 0.0
i Class D Interest 13.1 13.0
j Class D Minimum - -
k Class A Scheduled - -
l Class B Scheduled 3.1 4.2
m Class C Scheduled 0.7 0.8
n Class D Scheduled - -
o Permitted Aircraft Modifications - -
p Step-up Interest - -
q Class A Supplemental 84.3 92.0
r Class E Primary Interest 7.0 7.0
s Class B Supplemental 0.9 -
t Class A Outstanding 1.5 -
----- -----
Total 209.1 218.0
----- -----
(i) Interest Coverage Ratio
Class A 3.10 3.15 = a/(b+c)
Class B 2.57 2.61 = a/(b+c+d+e)
Class C 2.12 2.16 = a/(b+c+d+e+f+g)
Class D 1.87 1.91 = a/(b+c+d+e+f+g+h+i)
(ii) Debt Coverage Ratio
Class A 1.87 1.91 = a/(b+c+d+e+f+g+h+I+j+k)
Class B 1.82 1.84 = a/(b+c+d+e+f+g+h+I+j+k+l)
Class C 1.81 1.83 = a/(b+c+d+e+f+g+h+I+j+k+l+m)
Class D 1.81 1.83 = a/(b+c+d+e+f+g+h+I+j+k+l+m+n)
Loan to Value Ratios (in US Dollars)
<S> <C> <C> <C>
(iii) Assumed Portfolio Value 951,973,000 852,539,458
(iv) Adjusted Portfolio Value 843,519,866
Liquidity Reserve Amount
Of which - Cash 56,156,000 56,304,000 56,156,000
- Accrued Expenses 5,000,000
- Letters of Credit
----------- ----------- -----------
Subtotal 56,156,000 61,304,000 56,156,000
Less Lessee Security Deposits 16,156,000 16,304,000 16,156,000
Subtotal 40,000,000 45,000,000 40,000,000
(v) Total Asset Value 991,973,000 888,519,866 892,539,458
Note Balances as at June 15, 2000
Class A 630,00,000 539,822,000 533,589,000
Class B 85,000,000 75,196,000 75,036,000
Class C 85,000,000 84,234,000 84,200,000
Class D 80,000,000 80,000 80,000,000
----------- ----------- -----------
880,000,000 779,252,000 772,825,000
</TABLE>
(i) Adjusted Base Case equals the 1998 Base Case adjusted for aircraft sales.
(ii) Interest Coverage Ratio is equal to Net Cash Collections (excl. interest
and swap payments) expressed as a ratio of the interest payable on each
subclass of Notes plus the interest and minimum principal payments payable
on each subclass of Notes that rank senior in priority of payment to the
relevant subclass of Notes
(iii) Debt Service Ratio is equal to Net Cash Collections (excl. interest and
swap payments) expressed as a ratio of the interest and minimum and
scheduled principal payments payable on each subclass of Note plus the
interest and minimum and scheduled principal payments payable on each
subclass of Notes that ranks equally with or senior to the relevant
subclass of Notes in the priority of payments.
(iv) Assumed Portfolio Value represents the Initial Appraised Value of each
aircraft in the Portfolio multiplied by the Depreciation Factor at
Calculation Date divided by the Depreciation Factor at Closing Date.
(v) Adjusted Portfolio Value represents the Base Value of each aircraft in the
Portfolio as determined by the most recent Appraisal multiplied by the
Depreciation Factor at Calculation Date divided by the Depreciation Factor
on July 15, 1998.
12
<PAGE>
The lower of the Assumed Portfolio Value or 105% of the Adjusted Portfolio
Value is used to calculate the principal repayment amounts to Noteholders
(vi) Total Asset Value is equal to Total Assumed Portfolio Value plus Liquidity
Reserve Amount minus Lessee Security Deposits.
13
<PAGE>
Portfolio Details
All amounts in thousands of US dollars unless otherwise stated
<TABLE>
Country of Date of
Current Engine Serial Manufacture/
Region (1) Lessee Lessee Aircraft Type Configuration Number Conversion
---------- ------ ------ ------------- ------------- ------ ----------
<S> <C> <C> <C> <C> <C>
1. Asia - Emerging China China Xinjiang B757-200 RB211-535E4 26153 Aug 92
2. China Yunnan B737-300 CFM56-3C1 26068 Jun 92
3. India Indian Airlines A300B4-200 CF6-50C2 240 May 83
4. Philippines PAL B737-300 CFM56-3B1 24465 Aug 89
5. Philippines PAL B737-300 CFM56-3B1 24677 Mar 90
6. South Korea Asiana B737-400 CFM56-3C1 25764 Jul 92
7. South Korea Asiana B737-400 CFM56-3C1 25765 Jul 92
8. Taiwan FEAT MD83 JT8D-219 49952 Dec 91
Sub-total
9. Europe - Developed Italy Air Europe A320 CFM5-5A1 85 Feb 90
10. Spain Spanair B767-300ER PW4060 24999 Feb 91
11. Spain Spanair MD83 JT8D-219 49627 Apr 89
12. Spain Spanair MD83 JT8D-219 49790 Oct 89
13. UK Air 2000 B757-200 RB211-535E4 26158 Feb 93
14. UK Airtours A320-200 CFM56-5A3 299 Apr 92
15. UK Airtours A320-200 V2500-A1 362 Nov 92
16. UK BMA B737-400 CFM56-3C1 23868 Oct 88
17. UK Monarch A320-200 CFM56-5A3 391 Feb 93
Sub-total
18. Europe - Emerging Hungary Malev B737-300 CFM56-3C1 24909 Apr 91
19. Turkey Pegasus B737-400 CFM56-3C1 23979 Jan 89
20. Turkey Peagsus B737-400 CFM56-3C1 24685 May 90
21. Turkey Sun Express B737-300 CFM56-3C1 24908 Mar 91
22. Turkey THY B737-400 CFM56-3C1 24904 Feb 91
23. Turkey THY B737-400 CFM56-3C1 26066 Jun 92
Sub-total
24. Latin America Brazil TAM Fokker 100 TAY650-15 11341 Aug 91
25. Brazil TAM Fokker 100 TAY650-15 11350 Apr 92
26. Brazil TAM Fokker 100 TAY650-15 11351 Sep 91
27. Brazil Nordeste B737-500 CFM56-3C1 26067 Jun 92
28. Chile AILL (1) DC8-71F CFM56-2C1 46040 Mar 91
29. Columbia Avianca B757-200 RB211-535E4 26152 Aug 92
Sub-total
30. North America Canada Air Canada A320-200 CFM56-5A1 403 Dec 93
31. USA BAX Global DC8-71F CFM56-2C1 46064 Mar 92
32. Canada Air Canada B767-300ER PW4060 24947 Mar 91
33. USA Tower Air B747-200 JT9D-7Q 22496 Oct 81
Sub-total
Total
(Table to be continued)
<PAGE>
(Table - continued)
Appraised Value
at February 18, % of % of
Region (1) 2000 Total Region
---------- ---- ----- ------
<C> <C> <C> <C>
1. Asia - Emerging 39,400 4.6%
2. 24,103 2.8%
3. 11,187 1.3%
4. 20,233 2.4%
5. 20,990 2.5%
6. 25,353 3.0%
7. 25,563 3.0%
8. 21,867 2.6%
Sub-total 22.2%
9. Europe - Developed 25,427 3.0%
10. 57,383 6.8%
11. 19,393 2.3%
12. 19,693 2.3%
13. 40,547 4.8%
14. 28,860 3.4%
15. 29,170 3.4%
16. 21,460 2.5%
17. 30,523 3.6%
Sub-total 32.1%
18. Europe - Emerging 22,943 2.7%
19. 21,797 2.6%
20. 24,807 2.9%
21. 22,880 2.7%
22. 25,583 3.0%
23. 25,743 3.0%
Sub-total 16.9%
24. Latin America 13,270 1.6%
25. 13,393 1.6%
26. 13,360 1.6%
27. 21,217 2.5%
28. 15,353 1.8%
29. 38,527 4.5%
Sub-total 13.6%
30. North America 29,907 3.5%
31. 13,927 1.6%
32. 58,620 6.9%
33. 27,003 3.2%
Sub-total ------ ------ 15.2%
------
Total 849,482 100.0% 100.0%
======= ====== ======
</TABLE>
1. Regions are defined according to MSCI designations.
2. Aircraft International Leasing Limited is an indirect 100% subsidiary of
Lan Chile.
3. Total number of lessees = 23
4. Total number of countries = 15
